DCB Bank Limited (DCBBANK) Q2 FY23 Earnings Concall Transcript

DCB Bank Limited (NSE:DCBBANK) Q2 FY23 Earnings Concall dated Nov. 05, 2022

Corporate Participants:

Murali M. Natrajan — Managing Director & Chief Executive Officer

Satish Gundewar — Chief Financial Officer

Analysts:

Mona Khetan — Dolat Capital — Analyst

Rohan Mandora — Equirus Securities — Analyst

Renish Bhuva — ICICI Securities — Analyst

Bunty Chawla — IDBI Capital Markets & Securities — Analyst

Krishnan ASV — HDFC Securities Limited — Analyst

Gaurav Jani — Prabhudas Lilladher — Analyst

Bajrang Bafna — Sunidhi Securities & Finance Limited — Analyst

Anil Tulsiram — ContrarianValue Edge — Analyst

Sharaj Singh — Laburnum Capital — Analyst

Darpin Shah — Haitong Securities India Private Limited — Analyst

Unidentified Participant — — Analyst

Anand Venugopal — Boundless Management Solutions Private Limited — Analyst

Presentation:

Operator

Ladies and gentlemen, good day, and welcome to DCB Bank Limited Q2 FY ’23 Earnings Conference Call.

Joining us on the call today are Mr. Murali M. Natrajan, Managing Director and CEO; Mr. Satish Gundewar, CFO; Mr. Ajit Kumar Singh, Chief Investor Relations Officer; Mr. Praveen Kutty, Head Retail Banking. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. Murali M. Natrajan. Thank you. And, over to you sir.

Murali M. Natrajan — Managing Director & Chief Executive Officer

Thank you. Good evening all of you.

I’m speaking to you from the boardroom of our corporate office. I have here in the boardroom, Mr. R. Venkattesh, who heads our HR, Technology and Operations. Then we have Mr. Praveen Kutty, who is the Head of our Retail Banking. Then we have S. Sridhar, who is in charge, is the CRO of our bank. Then we have Satish Gundewar, who is the CFO. Then we have Ajit Singh, Head of Treasury and Investor Relations. Then we have Meghana Rao, who’s Head of Operations and then also some of our key staff.

We’ve had a very good quarter once again. And we are on-track, I would say to double the balance sheet between three years to four years. When I analyze our performance over the last few years, what I see is that the first year when we started this journey around 2008, 2009, we had to kind of stabilize the balance sheet. From 2010 to 2020, we grew at a CAGR of the loan book at about 22% for 10 years. Then we had about two years of COVID where we have grown at an annual rate of 7%.

Now when you look at the growth in comparison to last year, we are at 18% already. And we are confident the kind of investments that we are doing in the front line and the depth we are creating in our products, process, systems, we should be able to double our balance sheet between three years to four years.

The second important point is while the slippages are still slightly high, I would say, looking at the collection efficiency, which is pretty much back to COVID-19 stage, I would say. And then if you look at our upgrades and recoveries, we are doing quite well. Unfortunately, some old corporate accounts slipped this quarter. I would not say that it was not expected. But when accounts go into NCLT, it takes a long time for resolution. And these loans have been with us for more than 10 years and they’ve had some challenges recently and then has gone into NCLT. So, the resolution is taking time. But having said that, the retail portfolio gold loan recoveries and upgrades are doing extremely well.

Even the repayment from our restructured book, as you know, we never restructured any unsecured loans. A very, very miniscule amount of unsecured loans we restructured. So, the payment that we are able to get from the restructured book, our collection efficiency is also improving. So, we are pretty confident about our portfolio. We are obviously getting benefit of lower provisions.

What has been a bit of a surprise for us this year is that we generally have a very decent flow of income from PSLC, but the rates of PSLC have been low this year. So therefore, we are having lower income in PSLC than last year than our expectation. But our other income, like the core fee income, processing fee, third-party product distribution, all that is doing very well and compensating for some of the shortfall in that.

So, balance sheet on a year-on-year basis, have grown at 13%. Deposits have grown at 16%. We are doing quite well on CASA. It has grown by 35%. And we’re almost close to 30% on CASA ratio. Loan book, like I said, it is — the growth is 18%. Our net interest income has gone up by 27%. NIM is at 3.88%. However, I would like to again guide that our approach is 365 basis points to 375 basis points. The deposit rates are going up and there is a limit on which you can’t keep passing on the cost to customer. Of course, we are following the EBLR and MCLR method, as prescribed by RBI.

With respect to our operating costs, it is going up in line with the investments we are doing. As far as we are concerned, we have no surprises that we want to build a frontline capacity. So, however, on a year-on-year basis, I don’t expect the cost to increase the way it has increased this year over last year and the next year. So, we are creating a platform for us to build a bank to be able to keep doubling every three years to four years. Our headcount has reached a level of 9,443. Again, it is as per our plan. And what we are finding is that our disbursal volumes are also going up in line with the frontline capacity that we are building. And you can see the disbursal volumes in our Investor Presentation, which has grown by 49% over the previous year and on quarter-on-quarter also it has grown.

Again, the growth is led by mortgages, within that, home loans, KCC, tractors, gold loans also have done well. We are doing reasonably well in co-lending and TReDs as well. We have already talked about the provision. And cost to income ratio is high at 64%, but our target is to go below 55%. It will take us some three quarters to four quarters, but we are on track because we are building the volume. And as the lower volume builds up, we don’t expect the same level of investments in frontline is required for us next year.

However, the current year investment starts to kind of deliver results, which I have already shown you that disbursals are really stepping up, which is quite good. The demand is also quite robust. Both gross NPA and net NPA have come down, and we expect to continue to improve this. And coverage ratio has also gone well above 70%.

We are strong on capital. I would like to remind that currently our profit is not included in our capital computation. ROE is improving. Again, our target is to reach 14%. And in ROA, our target is to cross 1% on a steady state manner, which is what we are working towards.

Those are some of the few observations I wanted to share with you. If you have any questions, happy to answer.

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 Mona Khetan from Dolat Capital. Please go ahead.

Mona Khetan — Dolat Capital — Analyst

Yeah. Hi, sir. Good evening, and congratulations on a good set of numbers. So, my first question is on the slippages. So you mentioned in your opening remarks about this corporate slippage this quarter, but just wanted to understand how large is this quantum and could we expect slippages to normalize from — I mean, going forward?

Murali M. Natrajan — Managing Director & Chief Executive Officer

I think three accounts or I would say, four accounts in corporate. All these accounts are very old accounts. One account is — has been with us even before I joined the bank, and one account has been there since 2010. These accounts depend on repayment from quasi government agencies that are delayed. In the meantime, they’ve had some challenges and these accounts have been doing well, although I would not say they were strong, but they have been doing okay with us for the last many years. But some banks have taken that to NPLT and therefore, obviously till NPLT process is resolved, then we can’t get our payment. So, I don’t expect this kind of slippages from cooperate. At the same time, we are working on resolution process. And we are hopeful that in the coming few months, we should get some recoveries on this.

Mona Khetan — Dolat Capital — Analyst

And what would be the quantum for all these accounts together?

Murali M. Natrajan — Managing Director & Chief Executive Officer

You can see that our corporate NPA has grown by about INR100 crores. So, that is the quantum.

Mona Khetan — Dolat Capital — Analyst

Okay. So, I mean the INR360 crores or so of slippage would sort of be the normalized number in the interim?

Murali M. Natrajan — Managing Director & Chief Executive Officer

We expect so. See, I would not read too much into gold loan slippages. I’ve explained that in the previous call also, because, we give OD products and customers are expected by the regulation that came on November 14, 2021 in the OD products, including SME kind of OD products that every day they have to be servicing the previous 90 days. So, customers do slip into NPA, but again, we record all the old, news and bring them back. So, would not read too much into slippages of gold loan. In the rest of it, I can say is looking like to us as a normalized kind of a slippage.

Mona Khetan — Dolat Capital — Analyst

Okay. So, because of this kind of regulation and you having a material COVID book, is it fair to say that our slippage number as well as recovery numbers sort of going forward will remain elevated?

Murali M. Natrajan — Managing Director & Chief Executive Officer

Till such time, we are able to discipline majority of the customers to follow the rules completely, yes. Also, we are looking at some alternate products for the customers in gold loans, whereby it can be like some kind of an installment/OD products. We haven’t yet fully tested that with the customer acceptance, where they don’t have to suffer this every day, 90-day. See, customers are taking gold loans as an emergency product. It is not necessarily that they deposit all their business receipts into that account, whereas in SME business and all, regular basis, some deposit is happening. Therefore, they don’t get too much affected by this everyday 90-day, no. Even corporates don’t get affected by that. So, I would expect elevated NPA especially in gold at least for some period of time.

Mona Khetan — Dolat Capital — Analyst

Sure. And my second question is given that you primarily operate in the INR30 lakh, INR40 lakh segment, how is the current inflation environment impacting the gold loans?

Murali M. Natrajan — Managing Director & Chief Executive Officer

From — I can only say two things. The demand for loans when we are talking to our frontline for targets and so on, I don’t see any major resistance in terms of us asking them to perform at a higher level. Secondly, the collection feedback seems to indicate that we are not having too much trouble trying to get some overdues and all from customers. And having said that, these are customers who if they miss one payment, it’s not easy for them to make up two payments together. It’s not easy for them because of the nature of their income and so on. So I would say that, at the moment, I don’t see too much challenge on that. However, we are passing on the MCLR increase and EBLR increase. And I do hope that it doesn’t go too much beyond control because then sometimes the debt burden can be impacting some of the marginal customers.

Mona Khetan — Dolat Capital — Analyst

Okay. Sure. That was useful. Thank you.

Operator

Thank you. The next question is from the line of Rohan Mandora from Equirus Securities. Please go ahead.

Rohan Mandora — Equirus Securities — Analyst

Sure. Thanks. Thanks for the opportunity, sir. Sir, on Slide number 26, where you’re giving the trends on GNPA across last five quarters, so — and the kind of improvement that we have seen in the mortgage GNPAs in last five quarters, we’re not seeing similar trends in SME, MSME. So just wanted to understand is it because of the customer profile, like there’s a difference between the two? Or how should we deal [Phonetic] into the moment in the GNPA number in the two segment?

Murali M. Natrajan — Managing Director & Chief Executive Officer

Yes. See, SME, MSME, a lot of the portfolio is working capital and many of them are getting used to this everyday 90-day, what we call as keeping their accounts in order, right? So the slippages there are mostly because of the — not being able to keep their interest serviced on everyday 90-day basis which is a normal 12 circular. Again, I’m seeing improvement in that, but we could do better. But I don’t see any concern in the portfolio. Post-COVID, things are stabilizing quite well. And even the recovery upgrades are quite encouraging in SME as well.

Rohan Mandora — Equirus Securities — Analyst

So if you were to understand, there is new slippages happening and there are upgrades happening and it’s not that you get to a mostly static book [indecipherable]?

Murali M. Natrajan — Managing Director & Chief Executive Officer

No, there’s a lot of movement. Every month there is some movement, and customers are coming and settling, or — and there are customers who, after six months of having performed and their business doing very well, they are even requesting for enhancement. It’s not that — so there’s no problem with the portfolio everything. It is just a nature of how they’re getting used to this. And let me also tell you that, lot of customers have come out of this COVID, they’re performing well, their business is doing well, but yet, some of the old overdues and all, they’re still catching up. And if they don’t catch up in a particular month or so, they will slip into NPA. So, I expect — I mean, I’ve said this even in the previous call and all, it will take another maybe two quarters or so for this to stabilize.

Rohan Mandora — Equirus Securities — Analyst

Sure. And sir, just to follow up on this, in working capital, loans are typically — they will need to focus on the interest component. So when you’re saying that it’s — because of the daily recognition, daily tagging of the NPA, we would have some interest, some turnover credit happening into the accounts.

Murali M. Natrajan — Managing Director & Chief Executive Officer

Yes.

Rohan Mandora — Equirus Securities — Analyst

So while for a mortgage, it’s more of an EMI kind of a payment where the outgo is more lumpy in terms of the servicing the loan. So the difference wise, SMEs should ideally have performed better.

Murali M. Natrajan — Managing Director & Chief Executive Officer

[Speech Overlap] Hold on. In mortgage, if the customer has got, say, two installments to be paid and we collect one installment, you can pay — you will still be non-NPA. But in the OD product, like I explained, read the November 12 circular, it says that on everyday basis, the previous 90-days, you should have serviced the interest, right? So what happens then is, if there is even a few days delay, suddenly you find that while he’s a good customer, he has had regular payments, but he has missed that 90-day gap, then automatically he becomes an NPA. So then now he has to service all three interests for him to become regular. That’s the kind of a regulation that we are dealing with. So, I’m not saying it’s a wrong regulation. It is just that customers are getting used to that way of doing business.

Rohan Mandora — Equirus Securities — Analyst

Sure, sir. Sir, second one is on — the cost of deposits has improved on a sequential basis. So just wanted to understand what was the incremental cost for the 2Q and how should we look at it for the second half?

Murali M. Natrajan — Managing Director & Chief Executive Officer

So, I think the cost of deposits will go up now. Because if you look at the term deposit rates, there is a battle out there going on. The deposits are not that easy at the moment. It is tight. And so I do expect deposits to go up. I think the mix of CASA or this term has helped us. So, that is how the deposits — the cost of deposits have come down. And some benefit also we’ll get because in a few days, as per our notice, we will repay X amount of the Tier-2, so that may have some benefit also. But on the whole, I think cost of deposit, cost of funds should go up.

Rohan Mandora — Equirus Securities — Analyst

Sir, just on the incremental cost of deposit right now, how much more is it from the reported numbers for 2Q?

Murali M. Natrajan — Managing Director & Chief Executive Officer

No, I don’t disclose all that number. You’ll have to wait for our next quarter’s results to see what that is.

Rohan Mandora — Equirus Securities — Analyst

Sure. And sir, lastly was just on the corporate slippages. Historically, as I understand, what we had indicated is that on the corporate side, the loans that we give is typically less than one year tenured loans. And what you indicated is these are long relationships that we have had. So was there deterioration in the [Speech Overlap]

Murali M. Natrajan — Managing Director & Chief Executive Officer

I’ll answer this. These are not — we started doing short-term kind of loans about four years or five years ago. Before that, customers do have OD, loans, term loans, all that is there and they’ve been servicing. These customers also have been servicing the last 10 odd years. Unfortunately, they got into some trouble and then couple of banks have taken them to NCLT and therefore, the whole process is taking time. And obviously, if there’s no payment coming, we have to kind of classify that as NPA. So yeah — so these are, I mean, like corporate loans, I’ve always explained for the last several years that they may be complete lull for a long time and suddenly one or two accounts do slip into NPA. That is how it has happened.

Rohan Mandora — Equirus Securities — Analyst

Sure, sir. Thanks.

Operator

Thank you. Thank you. The next question is from the line of Renish Bhuva from ICICI Securities. Please go ahead.

Renish Bhuva — ICICI Securities — Analyst

Yeah. Hi, sir. Sir, two questions. So one on the core income part, which has been increased sharply to INR77 crores.

Murali M. Natrajan — Managing Director & Chief Executive Officer

Yeah.

Renish Bhuva — ICICI Securities — Analyst

INR60 crores to INR65 crores [Phonetic] in last four, five quarters. So, sir, what is driving that? And once should assume this is the new sustainable range going forward?

Murali M. Natrajan — Managing Director & Chief Executive Officer

Processing fee, third-party income distribution, again, I’ve been guiding you guys that we are working with our frontline to improve our fee income, cross-sell and so on. So slowly, we are seeing the impact of this in our P&L, and we hope to improve it further.

Renish Bhuva — ICICI Securities — Analyst

Got it, sir. And sir, secondly, on the credit cost guidance, so sir, when we looked at the slippages, even the ex-gold loan portfolio, we still write more than 4%. And when we are guiding some 60 basis point of credit cost, sir, what is the LGDs are you factoring?

Murali M. Natrajan — Managing Director & Chief Executive Officer

No, I can’t — I mean I’ve given you a general guidance. They are all secured portfolio and secured portfolio LGDs are unlikely to cross, especially mortgage is unlikely to cross 20%, 25%. That doesn’t mean that, that is our LGD. But we don’t see those kind of sacrifices to be made in mortgages and especially in small tickets loans and all. In many loans, we recover from penal charges to penal interest to everything else when we settle with the customer. Several of these customers, you see there are upgrades and recoveries.

Renish Bhuva — ICICI Securities — Analyst

Correct.

Murali M. Natrajan — Managing Director & Chief Executive Officer

We have upgrades and recoveries. So, I’m guiding just based on what we see as our portfolio and we believe that our credit costs, which I have indicated in one of our other things should be in the range of 50 basis points. So obviously, we are experiencing lower credit costs. But I believe that our reserve models indicates to me that 50 basis point is the model that we will be moving towards.

Renish Bhuva — ICICI Securities — Analyst

Got it, sir. Got it, sir. Okay, sir. That’s it from my side. Thank you.

Operator

Thank you. The next question is from the line of Bunty Chawla from IDBI Capital Markets and Securities. Please go ahead.

Bunty Chawla — IDBI Capital Markets & Securities — Analyst

Thank you, sir. Thank you for giving me the opportunity. Continuing with the gross NPA movement on the Slide 26. Historically, what we have observed that we generally don’t believe in write-offs or sacrifices kind of a thing. And it shows the run rate also it was approximately INR2 crores to INR3 crores per quarter. But this quarter it’s slightly higher above INR41 crores approximately. So any strategy change or any outlook change on that part? And also if you can share this INR41 crores is belonging to any specific segment or something like that?

Murali M. Natrajan — Managing Director & Chief Executive Officer

That INR41 crores belongs to various products. And I do believe that average ticket price on that would not be more than maybe INR20 lakhs, INR25 lakhs, which is similar to our — similar to upgrade and fully provided, right? So there is no strategy or anything like that. So, we just look at some of these loans, review it and we see what is the timeframe that is required for recoverability. And then based on our discussions with collections unit and all, we take a call, maybe this needs to be written-off. So we don’t pursue write-offs as a way to reduce our NPA. You know that. And so that’s what it is. So this quarter, we have reviewed it and figured out that about INR35 crores we —

Satish Gundewar — Chief Financial Officer

INR41 crores.

Murali M. Natrajan — Managing Director & Chief Executive Officer

INR41 crores. Sorry, INR41 crores. I think that is what we have done. So, there is no big salary behind those actually.

Bunty Chawla — IDBI Capital Markets & Securities — Analyst

Okay, sir. Okay. Thank you, sir. And secondly, sir, if you see, there has been still a high amount of run-rate on the operating expenses continuously happening, though we have earlier said there still we are focusing on the branch expansion and all those things. But when is the trigger that employee expense, total operating expenses will have a sustainable growth and higher operating leverage will kick-in for us with respect to cost-to-income ratio?

Murali M. Natrajan — Managing Director & Chief Executive Officer

We are adding people, front-line people in mortgages, in SME, in KCC, in tractors, in gold loans, in branches, in deposit. All these areas, we are adding these people. Now, we have lost some time last year and so on because of COVID, right? We obviously cannot catch-up on the entire balance sheet, but we are saying, okay, there is an opportunity — there is a demand in the market. We are seeing very good performance on our credit provisions and so on. We are seeing a decent increase in our NII. Fee income core is doing well. So, we want to make sure that we have adequate capacity for us to be able to double the balance sheet within three years to four years and continue to stay in momentum. Like I said between 2010 to 2020, on a CAGR basis, we — every year we have grown our balance sheet by 22 — I mean loan book by 22%, right?

So, we have the ability, we have the product, we have the technology, we have the market, we understand the segment all that. So next year, I don’t expect year-on year income — sorry, expense growth to be at this kind of level because we’d have already reached a platform of capacity that would help us to build our balance sheet at that level.

Bunty Chawla — IDBI Capital Markets & Securities — Analyst

Thank you, sir. That was very helpful. Lastly, on the margin per se, if you see, still we have got the benefit of decline in the cost of funds and cost of deposits during this year. And we expect yield on advances which has increased because of the repricing, but still there should be some more repricing happening in next two quarters. But on the net interest margin, still we are guiding there should be a 3.65% to 3.75%. Already we have touched 3.9% for this quarter. So how one should seek on next two quarters, net interest margin movements, sir?

Murali M. Natrajan — Managing Director & Chief Executive Officer

This is the most difficult question for me to answer because there are so many moving parts in this, from meeting the agri target to deposit rates to refinance that we get from MSPs, the rates moving on that to pricing on our CASA to the product mix to NPA movements. There so many pieces. Our business model is we are quite happy with 3.65%, 3.75% kind of range on NIM with a 50 odd basis points on credit costs.

What is working in progress is that we are building capacity for stepping up the goals, which we are demonstrating to you and that cost starts to come out. That is one. And the fee income, although we are demonstrating that it is going up. I wish exactly on a linear manner like what we do in spreadsheet, it keeps going up. Sometimes it is not the way that business goes. There are — like, for example, we’ve got some hits this quarter on corporate. Had it not happened, our NPA would have been even far better than this. But we still were able to manage — to get sufficient recovery and upgrades to kind of — and our restructured book is also performing quite well. So, I would say our business model is in the same range. So if you do better than that — and let me assure you we are not working towards reducing the margin towards the 3.75 basis points. Okay.

Bunty Chawla — IDBI Capital Markets & Securities — Analyst

That was very helpful, sir. Thank you, and best of luck.

Operator

Thank you. The next question is from the line of Krishnan ASV from HDFC Securities. Please go ahead.

Krishnan ASV — HDFC Securities Limited — Analyst

Yeah. Hi. Very good evening.

Murali M. Natrajan — Managing Director & Chief Executive Officer

Hi.

Krishnan ASV — HDFC Securities Limited — Analyst

Sir, the question you just alluded in your opening remarks about at some stage you will be more responsible. All lenders I’m assuming will have to exercise some responsibilities in how much more to exercise the pricing power on the asset side, right? And this is something I think — I mean, I’ve been trying to kind of get grapple with across the system. Does EBLR allow you that kind of elbow room? Or does it need a separate dialogue with the RBI to — or is it usually just in the nature of business-as-usual that whenever customers come up for reset, say, annual resets, etc, this is something that is at the bank’s discretion that you could move this spread around a little bit? And when does that stage — I mean when do you see the stage ideally coming through? Would it be, say, 50 basis points from here, if the repo versus go another under 50 basis points? Or does the consumer seem willing to pay even now?

Murali M. Natrajan — Managing Director & Chief Executive Officer

Neither EBLR nor MCLR gives you any way not to pass on the benefit or the increase. It’s a very, what’s called, very straightforward formula-driven method. It is audited by statutory auditors and it also audited by, on a yearly basis, by the regulators. So absolutely, you cannot make any of this thing. I’ve seen some banks reduce MCLR or increased MCLR in the multiples of 5 and stuff like that. But if you look at our MCLR, you will see that it is like 14 basis points and 27 basis points because we do it absolutely, exactly whatever comes, we are either passing it down or reducing as the case maybe.

However, based on the segmentation of the customers, right, we do have the right to reduce our credit risk premium or increase the credit risk premium in case we find it is a rookie customer or the customer has got a good track record and so on. That’s the only flexibility we have. That too we need to have. It can’t be whimsical. It has to have a policy. It has to have a process. Only then we can do that.

So, I was referring to those kinds of customers, right, rather than affect them by this, because they are good customers in a structured manner, not giving some benefit of their good performance. The second thing is there are marginal customers who maybe not further increasing the rate, might actually affect them, in which case, we’ll have to segment that and look at how we handle that in collections, so that we don’t tip them over the edge or give them some kind of an education stuff that they don’t push themselves into a corner. That is basically what I was referring to. And these are all stuff that we do on a regular basis.

Krishnan ASV — HDFC Securities Limited — Analyst

Understood. And just from an EBLR transmission perspective, could you just advise on how much more room there is given the customer profile that needs to cater to, how much more [Speech Overlap]

Murali M. Natrajan — Managing Director & Chief Executive Officer

I don’t have that answer. I don’t have the answer. But we have customers who are all high score, what we call as, our cutoff is what 700, right? So, we don’t give loans to low score customer. So therefore, if at all, there is some — the thing, it will be a very small portion of our portfolio.

Krishnan ASV — HDFC Securities Limited — Analyst

Understood. Sir, just one other question on the deposit side. I mean it’s fairly evident that there is a scramble for deposits. Are there certain — I mean you have pockets you believe that DCB is disproportionately lower given its own loan market share. Are there pools of deposits where you are disproportionately lower where you’ve still not made serious inroads?

Murali M. Natrajan — Managing Director & Chief Executive Officer

I’m not completely understanding the question. In the retail segment?

Krishnan ASV — HDFC Securities Limited — Analyst

Or in the institutional segment, you also begin to participate with — whether this would be sovereign at all?

Murali M. Natrajan — Managing Director & Chief Executive Officer

No. Institutional deposits have very different treatment in LCR. All banks have to pursue only retail deposits, because if you pursue too much of institutional deposits, then you will end up in having an LCR problem. Unless of course, you are giving a non-callable kind of a deposit. So, we are fairly happy with our participation in all these stuff. However, our core effort and strategy is to keep on pursuing retail deposits. And in retail deposits also, you can’t be a hero. Supposing some of the comparative banks are at, say, 7.25, you can’t expect to get deposits at arriving at 6.9. But it doesn’t work like that, because the market is very competitive. So, you have to be at the market at that rate, otherwise you don’t stand the chance to get that deposit. So, I would say that, generally, the deposit situation is a bit tight. However, so far, we are doing quite okay.

Krishnan ASV — HDFC Securities Limited — Analyst

Perfect. This is helpful. Thank you.

Operator

Thank you. The next question is from the line of Gaurav Jani from Prabhudas Lilladher. Please go ahead.

Gaurav Jani — Prabhudas Lilladher — Analyst

Thank you, sir. And congrats on a good quarter. Sir, I think there is changes [Phonetic] on disbursals. Sir, this was relating to deposits. So Q4, the wholesale term number or the share was about 9%. Could you quantify that for Q1 and Q2, percentage or in absolute either?

Murali M. Natrajan — Managing Director & Chief Executive Officer

Which number are you looking at? Which page?

Gaurav Jani — Prabhudas Lilladher — Analyst

Wholesale term deposit number. Sir, that was 9% in Q4 of ’22.

Murali M. Natrajan — Managing Director & Chief Executive Officer

I don’t have it here. Where is it here? Which page, I mean, if you can give a [Speech Overlap].

Gaurav Jani — Prabhudas Lilladher — Analyst

So that was — actually, that was — when data was given in the presentation, so it was taken from there.

Murali M. Natrajan — Managing Director & Chief Executive Officer

It maybe in the same rate. Maybe it is 10% or 11%, like that. That’s all. I mean in that range also.

Gaurav Jani — Prabhudas Lilladher — Analyst

Sure. No, sir, just wanted to understand as to how has been the movement of retail Ts over the last quarter?

Murali M. Natrajan — Managing Director & Chief Executive Officer

Retail T movement is okay, but like I mentioned to you that the deposit market is somewhat tight and competitive. Therefore, we have to keep reviewing it almost on a weekly point basis to make sure that we are right out there to get the momentum on the deposits going, including our R&P [Phonetic] CASA. R&P [Phonetic] CASA is not that problematic. I think it is going very well for us. But given our ambition for loan growth ERP, we had to be out there to make sure that we provide that liquidity So, so far we have not faced too much of a challenge, but quarter-on-quarter, there may be some increase in wholesale deposits because you have to balance — balance these things because there maybe momentum building on retail deposits, maybe taking some 45 days, 60 days extra. In the meantime, you take a wholesale deposit, non-callable deposit, make up for the liquidity and then build up your retail deposit. So, these things we have been doing on a continuous manner.

Gaurav Jani — Prabhudas Lilladher — Analyst

Sure. Just sticking point also, sir, for the quarter, would you have seen a retail TD growth of about 5% quarter-on-quarter?

Murali M. Natrajan — Managing Director & Chief Executive Officer

I don’t have that number.

Gaurav Jani — Prabhudas Lilladher — Analyst

Okay. Sure, sir. Coming to the yield base, I mean, taking the discussion on yields forward. So, I think we’ve been — because, obviously, our product profile, the yield increase over the last two quarters and of course, the basis has been rather slower as compared to the competition, right?

Murali M. Natrajan — Managing Director & Chief Executive Officer

Sorry. Rather what?

Gaurav Jani — Prabhudas Lilladher — Analyst

Rather slower.

Murali M. Natrajan — Managing Director & Chief Executive Officer

I see.

Gaurav Jani — Prabhudas Lilladher — Analyst

Yeah. So at least the numbers signify that or indicate that. So over the next — over the second half, should we see yields increasing at a faster pace?

Murali M. Natrajan — Managing Director & Chief Executive Officer

We are focused on NIM. Our target NIM, like I said is 365 basis points, 375 basis points. We have a mix of products. Within mortgages itself, we have some five, six different products, then we have KCC, tractors, then gold loans. There are different pricing for — different ticket prices or segment. Then SME, we have. So it’s very hard for me to exactly say how this will be. We monitor our yields and NIM on a weekly basis to see how we are heading. And we are quite confident that we’ll be able to maintain the NIMs of between 365 basis points to 375 basis points.

Gaurav Jani — Prabhudas Lilladher — Analyst

Okay. Got it. Sir, coming to the asset quality a bit. So if I had to look at Slide 27, interestingly, we mentioned that the restructured pool by March ’23 would come down from INR1,900 odd crores to about INR400 crores.

Murali M. Natrajan — Managing Director & Chief Executive Officer

INR1,900 crores. Where are you reading this INR1,900 crores? Did I say that INR1,800 crores or INR1,900 crores is under moratorium? That is not what we have said. We have said that INR400 crores, the moratorium which will come INR400 crores. Not all our restructured is moratorium.

Gaurav Jani — Prabhudas Lilladher — Analyst

Okay. Got it. Sure. My mistake, sir. Sorry. So coming to the credit cost base. Sir, we have been — you mentioned that we are opening around — that you are targeting 50 basis points. So would this be for ’23? And are you guiding that for in the coming years? And what gives you the confidence of maintaining that at 50 basis points?

Murali M. Natrajan — Managing Director & Chief Executive Officer

On a steady state basis, we believe the product mix that we have, the segments that we are operating in, the credit structure, collection structure, all that put together should give us a NIM of about 365 basis points to 375 basis points and a composite credit cost of 50 basis points. Okay. We are not big on corporates. Even if you’re not big in corporates, you can get here and there hit by some corporate NPAs. So, I don’t count any noise created by corporates here and there once in a while. Other than that the basic portfolio which is a retail and SME portfolio, we believe should operate in that range.

Gaurav Jani — Prabhudas Lilladher — Analyst

Okay. Got it. Thanks. That’s it from my side.

Operator

Thank you. The next question is from the line of Bajrang Bafna from Sunidhi Securities & Finance Limited. Please go ahead.

Bajrang Bafna — Sunidhi Securities & Finance Limited — Analyst

Congratulations for a good set of numbers, sir. Sir, my first question pertains to a bit understanding on the restructured book. If I recall the last presentation where we guided that the restructured book under moratorium will come down below 700. And now we are guiding that by March ’23 it will be 400. So can you bifurcate the book between moratorium and non-moratorium under the restructured category and how that overall movement will be?

Murali M. Natrajan — Managing Director & Chief Executive Officer

Hold on a second. I’ve said that by March, we’ll be at 400. Last time I said by September it will be 700. So the moratorium is every year one. So from 700, it has moved down to 400 on a monthly basis. That is as simple as that. The rest of it is all build book.

Bajrang Bafna — Sunidhi Securities & Finance Limited — Analyst

Okay. So how do we see the movement of overall restructured book by March ’23?

Murali M. Natrajan — Managing Director & Chief Executive Officer

The restructured book will remain as restructured. There is no provision in RBI to — it’s a standard restructured. There is no provision in RBI to say that it is not a restructured anymore unless the customer comes and pays off the full money in which case it will anyway — or it goes to NPA, it anyway will stay as a restructured book. Even there we are seeing that lot of customers are closing their accounts straight into the restructured — at the restructured stage itself. And many of the customers after having come into billing and after we have kind of done some collections, some of them are moving into NPAs as well. So the slippages include even the NPAs that may have slipped after coming into billing. The restructured book will be term as restructured till such time it becomes zero.

Bajrang Bafna — Sunidhi Securities & Finance Limited — Analyst

Okay. Once it is restructured, it will continue as it is till the time the customer fully pays it off.

Murali M. Natrajan — Managing Director & Chief Executive Officer

Yes.

Bajrang Bafna — Sunidhi Securities & Finance Limited — Analyst

Okay. Got it, sir. And sir, my second question pertains to the growth capital. How are you seeing the growth that you are seeing 20%, 25% kind of run rate that you are talking about for next couple of years? When can we expect that — the threshold of capital adequacy will be achieved that — which we will look for fundraising? So can you guide on that? It would be really helpful.

Murali M. Natrajan — Managing Director & Chief Executive Officer

Our projections indicate that at about 15%, 16% growth rate, we will be self-funded. Okay. Because for INR400 of loan, we are only consuming about 60% of — 60 as the risk-weighted asset. Okay. It’s a very capital efficient model, right? Now unless some weightages have changed by regulation, or we changed some product mix which we are not planning to do, at 15%, 16%, we are sufficient.

However, our aim is to grow at a much higher cost of base. So at least for a year, I don’t see — and you know that the current profits that is — the half year profit is not included in the Tier-1 computation. It would be included only at the year end after the audit is completed, right? So therefore, we believe that at least for a year from now, we don’t need to raise capital.

Bajrang Bafna — Sunidhi Securities & Finance Limited — Analyst

Okay. So not in FY ’24, maybe somewhere in FY ’25 we can think it out.

Murali M. Natrajan — Managing Director & Chief Executive Officer

No, I said year from now.

Bajrang Bafna — Sunidhi Securities & Finance Limited — Analyst

So September ’24 — September ’23.

Murali M. Natrajan — Managing Director & Chief Executive Officer

Yeah. I mean I’m just saying that at least for a year from now, I don’t see — read all my statements. A, 15%, 16%, I don’t need to raise capital because —

Bajrang Bafna — Sunidhi Securities & Finance Limited — Analyst

Only capital.

Murali M. Natrajan — Managing Director & Chief Executive Officer

Right. Second, our aim is to grow much faster like doubling the balance sheet between three years to four years. Current year profit is not included in the competition. And you all put together, then the markets also has to be favorable for us to raise the capital. At the moment, we are pretty strong on capital adequacy. So, I don’t see any immediate reason for us to raise capital.

Bajrang Bafna — Sunidhi Securities & Finance Limited — Analyst

Okay. And sir, the last question pertains to what percentage of our total loan book is floating right now?

Murali M. Natrajan — Managing Director & Chief Executive Officer

We don’t have that information here, but majority of our book is either linked to MCLR or to EBLR. Last few years, it has been into EBLR out because that is linked to MCLR. And haven’t seen any problem in passing on the increases to our customer.

Bajrang Bafna — Sunidhi Securities & Finance Limited — Analyst

Okay. So mostly the book is floating? So, we’ll not deal under venture capital.

Murali M. Natrajan — Managing Director & Chief Executive Officer

Yes.

Bajrang Bafna — Sunidhi Securities & Finance Limited — Analyst

Got it. Thank you. Thank you very much, sir. And all the best for the future performance.

Murali M. Natrajan — Managing Director & Chief Executive Officer

Yes. Thanks.

Operator

Thank you. The next question is from the line of Anil Tulsiram from ContrarianValue Edge. Please go ahead.

Anil Tulsiram — ContrarianValue Edge — Analyst

Yeah. Thanks for the opportunity. My first question is on competition. So from next year, the account aggregator system will, I think become operative. And in addition to that, we already have okay and co-lending. So just want to know whether the increase [Phonetic] coming to that, that will put any impact on our NIMs and competition will increase much more than in the past?

Murali M. Natrajan — Managing Director & Chief Executive Officer

It’s a very difficult topic to engage at this point in time, even we haven’t fully understood the implications of how this account aggregator will pan out and what would be the impact and how many would partner paid. And how many — I think the customers all have to say yes to it, right, each of them. So there’s a lot of open items in this. So, I don’t believe that we can bottom out our discussion here. So, you have to give us some more time to understand this.

Anil Tulsiram — ContrarianValue Edge — Analyst

Sure. Sure. Sir, — and second last question is, do we lend on the basis of informal income, or all our loans are based on the formal documented income?

Murali M. Natrajan — Managing Director & Chief Executive Officer

There are multiple products that we have. Let’s just take example of only mortgages. There are multiple products we have in mortgages. At a high-end, including income tax returns to P&L, we take including bank statements at a low-end. For example, if a customer — I’m just giving an example. Okay. And this is my favorite example. So, I’m repeating his example, would be why is this doing tuition? Husband is, let’s say, some kind of a motor mechanic or something and son is doing some small jobs where we’ll be able to put together all their income and come with a debt burden with which we can actually fund them a home loan. Okay. And part of it will be in informal. Most of it would be formal because we will go through bank statement and other whatever information is available before putting together. It is very hard to just use only informal income and guess somebody’s paying capacity. That’s very, very hard. I mean — I don’t think we have any such product. So it will be a hybrid at the low-end, but fully documented at the high-end.

Anil Tulsiram — ContrarianValue Edge — Analyst

Thanks. Thanks a lot, sir. That’s it from my side. Thank you.

Operator

Thank you. The next question is from the line of Sharaj Singh from Laburnum Capital. Please go ahead.

Sharaj Singh — Laburnum Capital — Analyst

Hello, sir. Good evening. Congratulations on the good numbers. Sir, my question is on the AIB book [indecipherable] disbursement. So what has led to this? And also the incremental disbursements are not actually reflecting in the loan book growth in absolute terms.

Murali M. Natrajan — Managing Director & Chief Executive Officer

Which book you are saying?

Sharaj Singh — Laburnum Capital — Analyst

Sir, the agri-inclusive book, AIB.

Murali M. Natrajan — Managing Director & Chief Executive Officer

AIB. Okay. Okay. So what is your question that it is not reflected in what?

Sharaj Singh — Laburnum Capital — Analyst

The loan book growth in absolute terms. Sir, how much of this is actually retained and how much is [Speech Overlap]

Murali M. Natrajan — Managing Director & Chief Executive Officer

Year-on year, AIB must growth at least 18%, 19%. So, I’m not sure where you’re looking at.

Sharaj Singh — Laburnum Capital — Analyst

The quarterly number sir.

Murali M. Natrajan — Managing Director & Chief Executive Officer

Yeah.

Sharaj Singh — Laburnum Capital — Analyst

If I look at the quarterly numbers, so how much of this is actually normal prepayments and how much of this would be [indecipherable]?

Murali M. Natrajan — Managing Director & Chief Executive Officer

AIB has number of products. Okay. AIB has got tractors. AIB has got KCC. AIB also has retail products like mortgages, SME and AIB has micro finance through BC and AIB also has terms loans to MFI entity. Okay. So if one or two MFI entities have repaid their loan or something like that, then it may be reflecting in this thing. But the core retail business of AIB, which is the KCC, tractor, mortgages, BC, that is doing quite well on a steady basis.

Sharaj Singh — Laburnum Capital — Analyst

Okay. Okay. And sir, on the mortgage side, what is the normalized BT rate we see, BT out and BT in also?

Murali M. Natrajan — Managing Director & Chief Executive Officer

There is nothing unusual that we have seen in the last 12 months. Approximately, 20% of our book would be from other financiers because customer is trying to arbitrage on its interest rate. When the COVID started easing up, we did see some jump-in, increase in, what you call as BT out, some increase. But when interest rates are increasing, you hardly find any — I mean you don’t see too much of jump-in BT.

Sharaj Singh — Laburnum Capital — Analyst

Could you give a normalized rate? I mean, normalized, what would we see?

Murali M. Natrajan — Managing Director & Chief Executive Officer

We don’t present that information.

Sharaj Singh — Laburnum Capital — Analyst

Okay. And sir, regarding the fees income, do we have a target where we’d like to take this as a percent of product?

Murali M. Natrajan — Managing Director & Chief Executive Officer

We want to achieve 110 basis points. That’s our target. We probably are at about 90 basis points at this point in time.

Sharaj Singh — Laburnum Capital — Analyst

Okay. Okay. And sir, one last question on the restructured book. I think it peaked around INR2,150 crores and INR700 crores is still in moratorium as on date. So of the INR1,300 crores that has come out of moratorium [Speech Overlap].

Murali M. Natrajan — Managing Director & Chief Executive Officer

INR,1,300 crores is not on moratorium. INR700 crores was in September. So October some book have already come in. November something will come in. So therefore, every month something will fall off the moratorium.

Sharaj Singh — Laburnum Capital — Analyst

I was actually — as far as INR1,300 crores last September, how much of it came out in Q2 FY ’23 this quarter?

Murali M. Natrajan — Managing Director & Chief Executive Officer

What came out?

Sharaj Singh — Laburnum Capital — Analyst

How much of the moratorium book which — how much of the total [Speech Overlap] out of moratorium?

Murali M. Natrajan — Managing Director & Chief Executive Officer

Please refer to Page 27. By March only INR400 crores of moratorium will be left. So, you can do the math as to how much is coming out because that is all the information we can give you at this stage.

Sharaj Singh — Laburnum Capital — Analyst

I was actually asking half of the book is already [indecipherable], I think on September 30th. What percent came out in Q2 out of moratorium?

Murali M. Natrajan — Managing Director & Chief Executive Officer

I don’t have that number.

Sharaj Singh — Laburnum Capital — Analyst

Okay. No problem.

Murali M. Natrajan — Managing Director & Chief Executive Officer

All I can say is our collection efficiency that we are showing you includes those who had come out of moratorium and pay. So, we have two collection efficiency data. One is on zero bucket. Another is on restructured and — including delinquent and restructured, you can see that business loans are at 96.7, home loan is at 98.1. So that should give you comfort. Because I have repeated this many times, we have not restructured any unsecured loans. So when a customer comes out of moratorium, it takes about two months, three months for them to come into a rhythm of repayment. After that, our collection people are able to get them back on track. Those loans get back on track, slips into NPA, that is already reflected in our slippages.

Sharaj Singh — Laburnum Capital — Analyst

Okay. Thank you so much. Those are my questions and congratulations.

Operator

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

Darpin Shah — Haitong Securities India Private Limited — Analyst

Yeah. Hi. Thanks for taking my question. Sir, my question again was on yield collection. So if you see, yield has just gone up by around 15 basis points, 20 basis point on a sequential basis. So just wanted to understand how much card rate increase which you must have done already on the loan side and what will be the reset which is happening?

Murali M. Natrajan — Managing Director & Chief Executive Officer

I didn’t understand your question. What was the question?

Darpin Shah — Haitong Securities India Private Limited — Analyst

So, I’m trying to understand is our entire book is largely floating in nature, okay, whether linked to MCLR or EBLR. How much card rate increase which we have already taken from, say, from April till now? And what will be the reset period because this increase of 15 basis points, 20 basis points sequentially is — looks much lower for a floating rate book actually. So that is what I was trying to understand.

Murali M. Natrajan — Managing Director & Chief Executive Officer

Hold on. See, the MCLR is passed on four times a year. Correct? But it is reviewed every month and then there is, as per the, what is it call as sanction terms, they are passed on in a particular day, November, then February, then May and then August. These are the four months in which it is passed on. So, it has a little bit of lag in terms of passing on that. EBLR, whatever book was priced in EBLR, that has already been passed on. EBLR has come in only a few years ago. So not all our book is on EBLR. So, you won’t see the entire impact. And I think around 50 basis points needs to be passed on next month, right? So, you will see some impact of that.

Darpin Shah — Haitong Securities India Private Limited — Analyst

Okay. So in that case, we can expect that at least the third quarter, fourth quarter margins still to remain at these levels and then by FY ’24, it might be in the range which you have always been talking about?

Murali M. Natrajan — Managing Director & Chief Executive Officer

We’re looking at a margin of 365 basis points to 375 basis points, okay. It is very hard to explain every moving part in that. All of sudden, for example, if there is a huge competition in market on deposit, we can’t — given our growth ambitions, we can’t stop that. So, we’ll have to look at things, okay, what don’t we do some differentiating pricing except liquidity and it may have some impact on market in that part. But then we will have to change our products mix profile to make sure that we come back to margin. These are nuances and adjustments we keep doing on a monthly basis. So it’s very hard for me to explain mathematically exactly how this is going to flow, especially with so much of mix of products.

Darpin Shah — Haitong Securities India Private Limited — Analyst

Okay. Got your points. Lastly is data-linked question, if I can get breakup of the provisions?

Murali M. Natrajan — Managing Director & Chief Executive Officer

Breakup of provisions, they are in this thing, right, Page number 30, I think.

Darpin Shah — Haitong Securities India Private Limited — Analyst

For the quarter.

Satish Gundewar — Chief Financial Officer

Okay. The INR31 crores number, you want the breakup of that INR31 crores number, right?

Murali M. Natrajan — Managing Director & Chief Executive Officer

Okay. That number.

Darpin Shah — Haitong Securities India Private Limited — Analyst

Yeah.

Satish Gundewar — Chief Financial Officer

So the floating provision is about INR4 crores. Standard restructuring provision is a reversal of INR11 crores. The regular standard asset provision is INR7 crores. And the NPA provision is INR31 crores.

Darpin Shah — Haitong Securities India Private Limited — Analyst

Okay. Thanks. Is it possible — can I get some 1Q as well, if it is available?

Satish Gundewar — Chief Financial Officer

I didn’t get you.

Darpin Shah — Haitong Securities India Private Limited — Analyst

If I can get the same number for previous quarter that is Q1 FY ’23, if it is available?

Murali M. Natrajan — Managing Director & Chief Executive Officer

We don’t have it readily right now. We can give it to you later.

Satish Gundewar — Chief Financial Officer

Yeah. You can get back to us.

Darpin Shah — Haitong Securities India Private Limited — Analyst

Sure. I will take it offline then. Thank you. Thank you very much.

Murali M. Natrajan — Managing Director & Chief Executive Officer

So, we have time for one more question. Okay. Operator, continue.

Operator

Yes. The next question is from the line of Pallavi Deshpande [Phonetic], Individual Investor. Please go ahead.

Unidentified Participant — — Analyst

Yes, sir. Thank you for taking my questions. Just wanted to ask what would be our guidance on the slippages surpassed? And we’ve seen a slight uptick from March. What could be the reason for that?

Murali M. Natrajan — Managing Director & Chief Executive Officer

See, the slippages, given that we are coming out of COVID, given that we have a self-employed book, given that lot of the customers are improving, stabilizing, so we do have a situation where customer who has got upgraded, let’s say, last month, last year December, may have slipped and then again getting upgrade because they’re all stabilizing their business. So, I do expect similar situation, but I don’t expect every quarter some corporate slippages to be like this because it’s more like a once in a while kind of a stuff. So, I expect — and gold loan slippages, still like I explained would continue to be high because of the OD products that we are doing and the recoveries and upgrade also would be high. So, I would say that it may remain like this for at least another two quarters before kind of tapering off.

Unidentified Participant — — Analyst

Sir, in terms of the steady-state which is ex-gold loans, what is the state [Phonetic] because we given as a credit cost [Speech Overlap]?

Murali M. Natrajan — Managing Director & Chief Executive Officer

Our credit cost is targeted at 50 basis points, okay. So that has probably some slippages, recovery, our portfolio quality, our loss given default, everything is built into that. And if you go back till 2019, ’20, you will find that we have operated at the level. Also if you see, we also have a target of at least keeping our operating profit three times to four times provisions. I think prior to COVID that is a kind of a safety margin we had, and I think we are pretty much back to that same level. So, that is what I can guide you on. Exact slippage ratio and all, prior to COVID, we were operating at about 2.5% or something like that. So, our intention is to go towards that, but I think we have some time before we reach there.

Unidentified Participant — — Analyst

Right, sir. And sir, just lastly on the net interest, on the yield improvement that you’ve seen. Which segment would it be driving? Would it be gold loans that has seen the maximum improvement from March onwards, March to September, if I’m comparing?

Murali M. Natrajan — Managing Director & Chief Executive Officer

Every segment is highly competitive. Even gold loan is very competitive, okay. Many of the banks have not even increased their rate despite EBLR increase and cost of funds increase on gold loans, okay. And small-ticket gold loans are operationally intensive. So, you may not — it may be giving you a good yield, but the cost of operation is high on small-ticket gold loans. So, there are these complications and nuances. So, I would say the mix of products that we are operating, we should be able to maintain NIMs at about 365 basis points to 375 basis points.

Unidentified Participant — — Analyst

And what is the average size on large gold loans?

Murali M. Natrajan — Managing Director & Chief Executive Officer

For INR2 lakh, that is our average ticket size. Actually, if we go down to INR50,000, INR60,000, kind of level, we can command higher interest rate, but it becomes operationally intensive. Also those customers demand faster turnaround, which I would put my hand to heart and say that we have not been able to crack the model, followed by some of the gold loan NBFCs. They do it very efficiently. So, we are still a little away from that kind of ability to service those customers.

Unidentified Participant — — Analyst

And just last one in terms of the MSME mix. How much of that part would be export focused and how much would be domestic?

Murali M. Natrajan — Managing Director & Chief Executive Officer

Mostly ours is domestic because we are all small-ticket size at INR30 lakh, INR35 lakh kind of range. Mostly traders, wholesale traders, small manufacturers, that kind of thing. So, our exports towards this thing would be quite small, maybe not even 5% to 7%.

Unidentified Participant — — Analyst

Right. Thank you so much, sir. That’s all from my side.

Operator

Thank you. The next question is from the line of Anand Venugopal from BMSPL. Please go ahead.

Anand Venugopal — Boundless Management Solutions Private Limited — Analyst

Yeah. Thanks for the opportunity. Sorry, I joined a bit late. Pardon me if this question is already answered. So, I was just having a basic question like slippages still stay elevated, but recoveries and upgrades save the day for us. So could you provide some color on what accounts are slipping and what accounts are getting recovered or upgrading?

Murali M. Natrajan — Managing Director & Chief Executive Officer

Slippages — sorry, upgrades and recoveries are not an accident. It requires effort. And it also is reflective of the portfolio quality. So it is not some kind of some lucks that we have had on recovery — I mean upgrades and recoveries. So, I would like to correct you on that right away, okay. So it’s a part of the portfolio quality and the resilience of the portfolio that is indicated. And we have almost 1,000 in-house collection fee who works with these customers. These are all secured portfolio and we are constantly in touch with these customers to make sure that they are upgraded. And the upgrades are higher than recoveries. That tells you that we want to retail as much of these customers as possible because an upgrade customer is good business for us, for future earnings as well. So, I expect slippages to be pretty much in the, same kind of level for maybe max 3/4 before it starts to ease off.

Anand Venugopal — Boundless Management Solutions Private Limited — Analyst

Okay. That answers my question. Thanks a lot.

Operator

Thank you. The next question is from the line of Sharaj Singh from Laburnum Capital. Please go ahead.

Sharaj Singh — Laburnum Capital — Analyst

Hello, sir. Sir, my question was on the branch expansion we’re looking to do. What do we target over the next two years when it comes to the branch network?

Murali M. Natrajan — Managing Director & Chief Executive Officer

Yeah. Go ahead.

Sharaj Singh — Laburnum Capital — Analyst

And is it mainly in the Tier-2, Tier-3 towns? Or how do we look at it?

Murali M. Natrajan — Managing Director & Chief Executive Officer

So the bulk of the deposits still in my opinion comes in the top 60, 80 locations in India, okay. So to some extent, we had to open branches in the top 60, 80 locations. As you know, if you open 100 branches, 25 of them have to be opened in unbanked location. That’s a very tough business to breakeven in 2, 2.5 years time. Sometimes it takes even four years in these unbanked locations. Our intention is to grow our branch network between 25 branches to 35 branches, and I think we are on track this year also on that.

Sharaj Singh — Laburnum Capital — Analyst

Okay. Okay. And so basically we can say [indecipherable] ramp up in H2?

Murali M. Natrajan — Managing Director & Chief Executive Officer

Sorry?

Sharaj Singh — Laburnum Capital — Analyst

We can see a higher ramp up in H2. I think you opened 10 branches in H1.

Murali M. Natrajan — Managing Director & Chief Executive Officer

Yeah. So generally, most of the branches we opened between quarter three and quarter four and then they start to perform by first quarter. This year also, last year whatever we opened is starting to give us a benefit.

Sharaj Singh — Laburnum Capital — Analyst

Okay. And sir, one question on the yield size. Have you already taken some restriction on the spreads that we have in terms of passing on the cost to our borrowers?

Murali M. Natrajan — Managing Director & Chief Executive Officer

What have we done? Passing on the increases?

Sharaj Singh — Laburnum Capital — Analyst

Have you already taken some compromise on the spreads?

Murali M. Natrajan — Managing Director & Chief Executive Officer

So right now whatever is being increased is getting passed on to the customers. There is a separate analytics team, which looks at good quality customer and has programs to, from a both recession point of view as well as from a growth point of view to pass on some benefit based on [indecipherable] credit performance basis.

Sharaj Singh — Laburnum Capital — Analyst

Right. Okay. Okay. Thanks.

Operator

Thank you. As there are no further questions, I now hand the conference over to management for closing comments.

Murali M. Natrajan — Managing Director & Chief Executive Officer

Thank you very much for attending. I know this is Saturday and it’s already 7:30, but I appreciate your patience and I appreciate your participation. And look forward to talking to you next quarter. Thank you. [Operator Closing Remarks]