IDFC First Bank Limited (IDFCFIRSTB) Q1 FY23 Earnings Concall Transcript

IDFC First Bank Limited  (NSE:IDFCFIRSTB) Q1 FY23 Earnings Concall dated Jul. 30, 2022

Corporate Participants:

V. Vaidyanathan — Managing Director & Chief Executive Officer

Sudhanshu Jain — Chief Financial Officer

Analysts:

Ishan Agarwal — Erevna Capital — Analyst

Tushar Sarda — Athena Investments — Analyst

Pritesh Bumb — DAM Capital — Analyst

Sagar Shah — PhillipCapital — Analyst

Ashutosh Mishra — Ashika Stock Broking — Analyst

Kunal Shah — ICICI Securities — Analyst

Presentation:

Operator

Ladies and gentlemen, good day and welcome to the IDFC FIRST Bank Q1 FY ’23 Conference Call hosted by ICICI Securities. As a reminder, all participant lines will be in the listen-only mode and there will be an opportunity for you to ask question after the presentation concludes. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. Kunal Shah. Thank you and over to you, sir.

Kunal Shah — ICICI Securities — Analyst

Thank you, Mike, and good evening, everyone, present on the call. Today we have with us Mr. V. Vaidyanathan, Managing Director and CEO; Mr. Sudhanshu Jain, CFO and Head, Corporate Center; and Mr. Saptarshi Bapari, Head, Investor Relations from IDFC FIRST Bank to discuss their Q1 FY’23 earnings.

Over to you, sir.

V. Vaidyanathan — Managing Director & Chief Executive Officer

Can you hear me?

Kunal Shah — ICICI Securities — Analyst

Yes.

V. Vaidyanathan — Managing Director & Chief Executive Officer

Hey Kunal. First of all, thank you very much, Kunal, for organizing this for us. And for all of you investors who have joined us this evening, thank you. I think in a way you’ve been very patient investors with us. In a way we’ve tested your patience I think over the last three years with one issue or the other, but I think — but in a way I must say you passed the test and we tested you hard. I think that we’ve come a long way and now we can quite confidently say that the foundation is well built for the Bank. We have a really strong deposit base, 50% CASA. We’re able to raise deposits quite comfortably now. Of course we even raised it during the period of COVID over INR25,000 crores so that should give us some confidence. But the fact that we’re continuing to raise a strong deposit even after dropping interest rates is really heartening for all of us at the Bank. Now with the deposits, let me say that’s one of the foundational items for a Bank to be able to raise deposits which we have now able to raise.

Now on the lending side, frankly, we always felt that we already had a tried and tested model that has been running in the combined history of both Banks put together so to say for close to 10 years now. Our loan book has been compounding by about 30% for quite a long while and that machine is holding up very well. Both the ability to disperse and more importantly the quality of that lending continues to be strong. Later in the conversation depending on where the conversation goes, we’ll share with you specific indicators about how each of the items about the so-called through the door population, i.e. the quality of origination; quality of customers coming into the Bank, we’ll share that with you; we will share with you how the check bounce — how these customers have bounced checks or what the trend is on presentation; number three on presentation, if they return we go and collect so what are those percentages; number four, how are the vintage cohorts looking like.

We’ll share all this data with you as the conversation goes depending on your level of interest. But let me just say that all those numbers are looking very good and that gives us a picture about — that is directly translating into what the SMA numbers for the Bank are. Again the SMA numbers or what the numbers were, let me say even pre-COVID people thought that have you caught up with pre-COVID. We’re not caught up, it’s like better. So SMA0, SMA1, SMA2; literally product after product, segment after segment, and at overall bank level; they are all lesser. Now naturally if SMA is low, then flow into NPA will be lesser. So, we are quite confident when we give guidance that our credit loss for this year will be less than 1.5% or when we guide for the retail NPA to become less than 2%, all of them have a basis. We’ve just not been saying it without basis. So, the short point is therefore that the asset quality numbers are looking quite good.

The third item — if we move on from deposits, assets, and asset quality; the fourth item, that comes to profitability. Now as far as profitability is concerned again, I think something is very significant about our Bank. I’m not sure how many of you have spotted it. But if you notice for the last three years, our loan book has not grown very much. It has grown by 6% compounded three year CAGR. But I don’t think people have really spotted that the operating profit of the Bank, the core operating profit that is ex-treasury, that number — ex-treasury because we all know trading income is trading income, can’t count on it. But if the Q — if you noticed FY 2019, let me say the annualized of the second half was pre-operating profit, both Capital First and IDFC Bank put together post merger annualized was INR1,105 crores. Now three years have gone by, we spent a lot of money building various capabilities and all that, but despite all that our operating profit has risen to INR2,753 crores and that’s grown at a CAGR of 36%.

So, core operating profit growing at a CAGR of 36% year-on-year feels good for us and gives us confidence in the business model we are building. And the second thing is that last year in FY ’22 or FY ’21, our core operating profit that is basically NII plus fees minus opex that has risen by 44%. Now we are feeling within us that this number into FY ’23 should rise by another 45%-odd and our own internal modeling space that into FY ’24, this could rise by another 45%. So if the core operating profit starts compounding like this, I think it really augurs well for the Bank. Now after core operating profit comes the provisioning line and then rest is straight P&L so I’ll just take it in that way. Now when we come to the provision line, we had pointed out to you that despite second wave when there was no moratorium and our provisioning norms required us to take the provisions, despite such a serious first quarter of last year, our overall credit loss for the last year was only 2.5%.

Now this year we’re guiding for 1.5% and frankly we feel we’ll meet that very comfortably. And therefore, this sort of strong operating profit opening up for the Bank; if our credit loss is 1.5%, rest of the math you can do about what it will do to the ROA and ROE. Now I want to just — therefore when we look at the ROA, I think one of the very significant event that has happened in our life right now is that the core — let me say the pre-provisioning operating profit last quarter was nudging INR1,000 crores, I think INR980 crores. Sudhanshu will take you through when he sees the numbers. So INR986 crores, let me round it off to INR1,000 crores with your permission for two minutes. So INR1,000 crores of pre-provisioning operating profit for the Bank is really fantastic, gives us a lot of confidence and therefore even if we take normalized provisions credit cost of 1.5%, it gives us lot of space for profitability. And I want to take you back in time for two quarters so just tell you how much progress the Bank has made.

In the first four or five quarters of the merger of the Bank, the issue was not provisions. The issue was Bank never had profits — never had pre-provisioning operating profits. So provision normally for every bank is — for any reasonable good bank is same 1%, 1.5% of average book. But our problem was that we never had the operating profit. So therefore for example Q1 of FY ’22 when the COVID second wave happened, at that point of time we had provisions but we didn’t have operating profit. Now for the Bank to have operating profit of INR1,000 crores is a very big thing because now we have the space to be able to take normalized provisions and be profitable. It is frankly our read that our Bank will never post a loss again in its life. I used the word, I’m carefully calculating by saying our feel, the reason just because to be technically and legally right. But otherwise, genuinely we don’t think it will happen again because now we have very, very strong operating profit, which means that our Bank will continue to now compound equity which we can very confidently and safely say now.

That now translates to return on assets. Now return on assets front — but before I go to return on assets, let me just read out four numbers that will help you understand this. The Q2 of FY ’22 our profit was — PAT was INR152 crores; Q3 it jumped by 85% to touch to INR281 crores; Q4 FY ’22 our PAT increased to INR343 crores; now Q1 FY ’23, our PAT has gone up to INR474 crores. And by the way let me share with you there is nothing in this income that we should worry about, is it one-time and all that, nothing material. So, that gives you a sign — that gives you a color about where the story is headed. Now that translates to return on assets. When you translate that; our ROA in Q2 FY ’22 was 0.37%, Q3 was 0.64%, Q4 was 0.77%, and Q1 FY ’23, 0.97%; let me round it off to 1% for convenience. So, just think — see where the ROA has moving so fast upwards. So, it gives us confidence that there’s no one-timer sitting in this. It gives us confidence that this story can progress up for a while.

So many of you who’ve been disappointed with us saying that you guys are never making profit. And for those of you who feel like that, I must say by the way if you look at it, it’s not that 1% that’s greatly impressive. I mean a good number should probably be 2%. But then the issue — but what you should watch is not that 1%. It’s a good landmark. But what is more important is the direction and the speed at which it is getting fixed and it is getting addressed is something we should take note of and therefore for all of you who feel — in fact there is a couple of global research reports who always look at us and say guys are making no ROE, why should you be valued at 1.2 times book. I think they are fundamentally making a mistake because they’re looking at today. You have to look two years forward and let me tell you, you’ll probably surprise yourself. Now the other thing is the return on equity.

On return on equity it is basically that our ROE in Q2 FY’22 was 2.97%, Q3 ’22 — by the way I’m talking sequentially quarter not like year-on-year and all that, just sequential quarter; 2.97% moved to 5.44%, then Q4 FY ’22 moved to 6.67%, Q1 FY ’23 moved to 9% touch and go. So, I hope it should not be surprise for you. When we say we will guide that the Q4 of this year, one of you asked us this question what the ROE will be and I told you double-digit. Our own sense is that we’ll get there even before Q4. We like to probably advance the guidance if something like that. So, the short point is that some of you have been disappointed with our profit number, but I must say that not that we had a choice because there were just so many lumpy assets to deal with, we couldn’t push them under the carpet. We had to deal with them whether it’s Diwan, Reliance Capital, some infrastructure loan, some South India based company, the unfortunate case of suicide. All of these are legacy accounts.

We had one retail — large retail chain on which we had an exposure, it’s been in the news for last few months in the large legal fight. We had exposure there. That’s also a legacy account. So one after one after the other, we have dealt with every one of them. I can tell you confidently there is nothing left here. Now for those of you who don’t feel confident about it, you can watch the results for a quarter or two, you’ll get the confidence. So with that legacy issues out of the way and the core operating profit opening up the way I described to you in terms of ROA, ROE, it shouldn’t be surprising for you that our profitability is increasing. So, I can therefore say that we are looking forward to a very, very good FY ’23. We don’t expect to give you any surprises. And the — if you were within the walls of this office, you will probably get a feeling that we are internally feeling very, very confident. So, I’m feeling good about the upcoming year and maybe ’24, ’25, and so on because I don’t think there’s any surprise left here.

So, that’s about it. Thank you very much for taking the call today. And I’d request Sudhanshu to maybe throw some more color into the discussion.

Sudhanshu Jain — Chief Financial Officer

Thanks, Vaidya. Good evening, everyone, and welcome to the con call. I’m happy to share the financial results of Q1 FY ’23 with all of you. The overall balance sheet size have crossed INR2 lakh crores in this quarter and grew by 19% on a Y-o-Y basis to reach INR2,565 lakh crores. So overall funded assets, which includes loans and advances and credit investments, grew by 21% Y-o-Y and 6.7% sequentially to INR1,37,663 crores. Within that, the retail and the commercial book together grew by 36.8% Y-o-Y and 9.5% sequentially to reach INR1,01,309 crores. Home loans registered the high growth at 61% on a Y-o-Y basis. Mortgage book, which includes home loans and loan against property, now constitutes 33.5% of the overall retail and commercial book. The rural book which includes funding to self-help groups, Kisan Credit Card, and small enterprise loans also grew strongly by 29% on a Y-o-Y basis. This segment is bouncing back strongly post the impact felt in Wave 2.

Speaking of our credit card business, the Bank has issued more than 1 million cards since we started this business in January ’21. The credit card book was INR2,315 crores on June 30, up by 183% on a Y-o-Y basis. Even the credit card spends have increased by 20% on a sequential basis. We are clearly increasing market share here. With respect to wholesale assets, the non-infra corporate loans grew by 12% on a Y-o-Y basis and by 1% on a Q-on-Q to INR23,970 crores. We will continue to grow this book in a risk-adjusted manner. The infrastructure book de-grew further and reduced by about 35% Y-o-Y and by 2% Q-on-Q to INR6,739 crores and now forms nearly 4.9% of the total funded assets as compared to 22% at the time of merger. From a risk standpoint, borrower concentration has also improved significantly. The exposure to Top 20 single borrowers reduced from 16% in March ’19 to 9% in June ’22.

Moving on to the liability front. The CASA deposits of the Bank has increased by 22% Y-o-Y to INR56,720 crores. The CASA ratio is stable at 50.04% as on June 30, 2022. Average CASA deposits also grew by 10% on a Q-o-Q basis. Outstanding term deposits grew by 20% on a Y-o-Y basis. With that, the overall customer deposits grew by 21% to reach INR1,02,868 crores. The Bank had excess liquidity and maintained an average LCR of 128% during Q1 as compared to 136% in the previous quarter. This is still well above the regulatory requirement. The branch count now stands at 651 branches along with 807 ATMs. The Bank opened 10 branches in the current quarter and had opened 50 branches in the last one year. The Bank has substantially granularized the liability base since merger as CASA and TD less than INR5 crores stands at 83% as on June 2022. The Bank has also successfully repaid high cost legacy borrowings of INR5,530 crores in last one year, including INR2,775 crores in the current quarter. The total outstanding of such high cost legacy borrowings stands at INR22,406 crores at June 30, 2022.

Moving on to asset quality. The gross and net NPA of the Bank improved to 3.36% and 1.30% as on June 30, 2022 as compared to 3.7% and 1.53% as on March 31, 2022 reflecting an improvement of 33 basis and 21 basis respectively. The decline in GNPA and NPA on yearly basis was much sharper by 125 bps and 102 bps respectively. The provision coverage ratio including technical write-offs also improved to 73.13% at June 30 as compared to 70.29% at March ’22 and 61.06% at June 30 last year. The gross slippages for the quarter were lower by 20% on a sequential basis and in fact slippages net of recovery/upgrade were lower by 25% sequentially. In the retail and the commercial segments, the GNPA and the NNPA came down significantly by 51 bps and 22 bps sequentially to reach 2.12% and 0.93%. We are happy to share that we are already trending around the long-term sustainable target in the segment of GNPA as Vaidya mentioned.

In the corporate book ex-infra, the GNPA at 3.6% and NNPA was only at 0.2% as compared to 2.75% and 0.31% as on March ’22. This book also had a high provision cover of 97% as on June. The increase in corporate NPA by 92 bps during the current quarter is primarily because of loans to one large legacy retail chain group which slipped into NPA out of the existing restructuring pool. It may be noted that Bank has made 100% provision against this retail chain group on a prudent basis. Again happy to report the overall restructured book as a percentage of total funded assets has reduced to 1.3% now as compared to 1.8% last quarter. The SMA on the wholesale book is less than 0.5% of the book at June 30. Even on the retail and the small business loans, as Vaidya mentioned, the SMA position has further improved as compared to the previous quarter. Coming to the profitability, we are happy to share profit after tax grew to INR474 crores from a net loss of INR630 crores reported in Q1 last year.

Sequentially also the increase was from INR343 crores to INR475 crores, which is a growth of 38%. This was largely driven by strong growth in operating income and lower credit cost. Within that, the NII grew by 26% Y-o-Y to INR2,751 crores. The net interest margin was 5.89% for Q1 ’23 as compared to 5.50% in Q1 last year. Fee and other income witnessed a strong increase by 100% Y-o-Y to INR899 crores. Of course Q1 ’22 was a COVID impacted quarter and hence this increase looks bit higher. However, even on a sequential basis, fee income has increased by 7%. The resale fees contributed 92% to the overall fee and other income and it is quite granular. Fee income from toll and credit cards was at 16% in Q1 FY ’23 of the total fees within the overall fees. We have given more details around the fee break-up in the investor’s presentation. The Bank had a trading loss of INR44 crores in Q1 FY ’23 on account of sharp increase in market yield as compared to a trading gain of INR393 crores in Q1 FY ’22 and a trading loss of INR9 crore in Q4 FY ’22.

Recognizing the heightened market volatility, the Bank proactively tightened its limits and reduced the book. The modified duration of the ASF and ASHFC book was lower at 0.82 years on June 30, ’22. Moving on to the core operating income excluding trading loss increased by 39% Y-o-Y to INR3,650 crores aided by strong NI and fee income growth mentioned below — before, sorry. Operating expense grew by 31% Y-o-Y to INR2,663 crores in Q1 FY ’23 from INR2032 crores in Q1 FY ’22 and was marginally lower from INR2,674 crores in Q4 FY ’22. The increase in opex on Y-o-Y basis was relatively higher on account of low base effect in Q1 FY ’22 due to the pandemic. The cost-to-income ratio, excluding trading gain, improved to 72.95% in Q1 FY ’23 from 77.16% in Q1 FY ’22 last year and by 323 bps as compared to Q4 FY ’22. As a result of the above, the core operating profit excluding trading gains grew by 64% Y-o-Y and 18% Q-on-Q basis to reach INR987 crores from INR601 crores in Q1 FY ’22 last year.

Provisions were also lower by 84% and 17% on a Y-o-Y and Q-on-Q basis respectively and stood at INR308 crores in Q1 of this — Q1 FY ’23. The credit cost on a quarterly annualized basis as a percentage of average funded assets for Q1 FY ’23 was 0.9%, which is well within our guidance which is given for FY ’23. On a quarterly annualized basis, ROA for Q1 has touched nearly 1% and ROE has reached 9%. ROA improved by 20 bps and ROE increased by 228 bps from the previous quarter. On the last segment with respect to capital adequacy, the Bank has maintained strong capital adequacy and its capital adequacy including profits for Q1 FY ’23 was at 15.77% as on June 30, 2022 with the CET ratio at 14.01%. The current quarter capital adequacy has an impact of 58 bps on account of recomputation of ops with RWA which is taken in the first quarter every year and then is static for the rest of the year. Even at 58.77%, the Bank is well above the regulatory threshold and looks forward to grow the book in a profitable manner.

With that, we can move to the Q&A section.

Questions and Answers:

 

Operator

Thank you. We will now begin the question-and-answer session. [Operator Instructions] We have the first question from the line of Ishan Agarwal from Erevna Capital. Please go ahead.

Ishan Agarwal — Erevna Capital — Analyst

Hi. First of all, congratulation to the management for once again delivering a performance surpassing expectations on most fronts. My first question relates to the NII growth quarter-on-quarter. So the NII growth quarter-on-quarter stands at around 3%. I think since the time of the merger, this is the lowest Q-o-Q growth in NII and maybe the first time decline in NIMs quarter-on-quarter. Is it because of lag in passing on the increase in cost of funds on the lending side during the quarter or is it structural in nature?

V. Vaidyanathan — Managing Director & Chief Executive Officer

No. We have a lag in passing on. So, this quarter we’ll be passing it on so this will get fixed.

Ishan Agarwal — Erevna Capital — Analyst

Okay. So, again we should be on an upward trajectory from Q2?

Sudhanshu Jain — Chief Financial Officer

Yes.

Ishan Agarwal — Erevna Capital — Analyst

Okay. Thank you. And so going to the next question, provisions at INR388 crores in the quarter look extremely low, that’s around at 1% of the average book. Are there — sorry 0.9% on the average book. Are there any write-backs or one-offs in the provisions for this quarter?

V. Vaidyanathan — Managing Director & Chief Executive Officer

No.

Ishan Agarwal — Erevna Capital — Analyst

Okay. So I guess from this question, your press release mentioned that the Bank is well on track on its guidance of 1.5%. So should we assume that the provisions for Q2, Q3, and Q4 would be higher than 1.5% for the annualized credit cost to be at 1.5%?

V. Vaidyanathan — Managing Director & Chief Executive Officer

No. that’s a good question. But we don’t change guidance just because we had a great quarter this time. So let’s watch the rest quarter, but we don’t see any reason why credit loss in subsequent quarters should go up any materially. So, probability will — our own internal sense is that we’ll do better than 1.5%.

Ishan Agarwal — Erevna Capital — Analyst

So, could it be 1% to 1.1% for the rest of the year?

V. Vaidyanathan — Managing Director & Chief Executive Officer

Could be. That would be fair guess, but we don’t want to put it out because we don’t want to lead up everybody down the road and just in case there is an odd blip on the side. But yeah, I mean right now it’s 91 basis points for the quarter, which I hope you’ll agree is probably very good for the kind of yield we get on our book. So yes, we don’t expect it to materially go up, but then we don’t want to change guidance based on one quarter.

Ishan Agarwal — Erevna Capital — Analyst

So barring any unforeseen circumstances, we could expect it to be 1% to 1.1%?

V. Vaidyanathan — Managing Director & Chief Executive Officer

I think so, yeah. But that would be our internal guess.

Ishan Agarwal — Erevna Capital — Analyst

Okay. Again on — the next question is actually on the opex front. So opex has seen a Q-o-Q decline in absolute terms. How do you see the trajectory on opex for the next three quarters?

V. Vaidyanathan — Managing Director & Chief Executive Officer

Every quarter will go up a little bit, but this quarter it didn’t materially go up. But you should expect that normal quarter-on-quarter growth should happen.

Ishan Agarwal — Erevna Capital — Analyst

Okay. And in this quarter?

V. Vaidyanathan — Managing Director & Chief Executive Officer

Based on disbursals and you know…

Ishan Agarwal — Erevna Capital — Analyst

Okay. So, it could go up marginally every quarter from here on sequentially? Hello.

Operator

This is the operator here. Can you hear us, the management? Can you hear me?

Ishan Agarwal — Erevna Capital — Analyst

I can hear you, yes.

Operator

Just give me a moment, we’ll check with the management connection one minute. Over to you, sir.

Ishan Agarwal — Erevna Capital — Analyst

Yeah. So you wanted my question on the operating expense front,

V. Vaidyanathan — Managing Director & Chief Executive Officer

Sorry, we cut out. So I don’t know at what stage you cut out. But we won’t say that normal quarter-on-quarter increase because there’ll be more disbursals in the subsequent quarters and then naturally more upfront payouts and normal collection expenses, that kind of stuff. But nothing material — materially that should shake you or surprise you.

Ishan Agarwal — Erevna Capital — Analyst

Okay. And on the savings account rate fund so we are offering 6% on savings account balances above INR10 lakhs. How much has it impacted our blended cost of funds on savings account? So what would be the blended cost of funds right now on the savings account?

Sudhanshu Jain — Chief Financial Officer

Yes. Blended cost of funds in savings account would be about 5%.

Ishan Agarwal — Erevna Capital — Analyst

5%. Okay. And thank you. That’s it from my side. Just a suggestion. Once you’ve shared the investor presentation, you do not need to read out the data points in the PPT during the call. That will maybe just give us some more time for Q&A.

Sudhanshu Jain — Chief Financial Officer

Thank you. We’ll look at it next time.

Ishan Agarwal — Erevna Capital — Analyst

Thank you.

V. Vaidyanathan — Managing Director & Chief Executive Officer

Thanks, Ishan, for your comment and questions. Thanks.

Operator

Thank you. We have the next question from the line of Tushar Sarda from Athena Investments. Please go ahead. Can you hear us, Tushar?

Tushar Sarda — Athena Investments — Analyst

Thanks. Thanks for the opportunity and congratulations for a great performance over past two, three years. There is just one parameter of the Bank, which I can’t get my head around to, is the total expense to assets ratio which is almost at 5%, 6%. And I think in terms of comparison on the Equitas Small Finance is higher than that. Even AU Small Finance is at 3.5% and the larger private sector banks are below 2%. So, can you just help me understand this?

V. Vaidyanathan — Managing Director & Chief Executive Officer

Okay. If you don’t mind, you have to answer one question of mine. Then I’ll answer your question. What is the vintage of most of the banks you compare us with?

Tushar Sarda — Athena Investments — Analyst

No, vintage is there obviously. So is it because of the vintage or is it — that’s what I want to understand. As I said, this is one factor I don’t understand?

V. Vaidyanathan — Managing Director & Chief Executive Officer

No, you answered my question. So you say, you take all the big four banks, how long have they been operating? At least 25-30 years?

Tushar Sarda — Athena Investments — Analyst

Yeah, yeah.

V. Vaidyanathan — Managing Director & Chief Executive Officer

So when you put up a branch or an ATM, they take time to leverage. So we are — for all practical purposes, our 640 branches you can call it had an average life of maybe 1.5 years, two, or three. They are not 20 years. So the same branches you can imagine when you — the one thing I think many people are not able to get their head around is to — or not get the perspective is that this is a new bank. So, we put up infrastructure as if we’re an established Bank because we already at merger we had a large loan book of INR1 lakh crores with no deposits — retail deposits. So, we went and put up the branches, but they have — they’ve had a very short life yet. So when these branches really scale up from here over the next 10, 15 years, you’ll find that naturally all the cost measures will measure up with every other bank. It has to. That’s on the liability side.

On the asset side, again I have to ask you, I won’t trouble you with asking. But I’ll express to you that if you think of any of the large banks who’ve been around for 15, 20, 30 years, they probably have a very large mortgage book and the cost to assets on a mortgage book would be pretty low. So, we have just started and most of our products are not exactly those low rate long duration mortgages. So think of our products for example which are giving us of course better yield, which you can see in the NIMs, but they also have relatively high opex business on the asset side. Think of any product we have, let me say durable financing or two wheelers or used car or new car or loan against property of course is low or stuff, you get the drift. So therefore, the products would have a little higher opex on the asset side. Our branch on the liability side are definitely new and they have not had — they have not lived the life of 20, 30 years of like other banks. So as the vintage of these bank plays out, they’ll all normalize.

Tushar Sarda — Athena Investments — Analyst

No. So, I’ll have a follow-up on this. So that’s why compared to AU Small Finance also, which is similar kind of business which is 3.5% and Capital First has a history. IDFC may not have, but you obviously had the infrastructure and the history, right. And your size is also big. It’s not that your size is INR20,000 crores and therefore the expenses will be high. You’re at INR2 lakh crore so you’re one of the larger banks in that sense. So that’s why I wanted to understand because all other parameters, it ticks the box fantastically. It’s just this one parameter which…

V. Vaidyanathan — Managing Director & Chief Executive Officer

Slowdown.

Tushar Sarda — Athena Investments — Analyst

If you can explain a little more, that will be very helpful.

V. Vaidyanathan — Managing Director & Chief Executive Officer

No, no. It’s my job and I’ll explain properly. I didn’t mean to throw you off balanced. So let me answer the question. So, on the assets — on the liability side, my answer is pretty much what I told you that branches have not yet scaled up. So if you think of a branch, for example, per branch, let me say, if you give us a longer vintage, see, end of the day, let’s not forget, we are living, operating in the same country. We are hiring people of similar cost structures. Our branches, what we pay for premise is similar.

So, there is no reason our bank cost structure should be different than any other bank. They’re all the same. At least all the leading private sector banks, all give or take in the same ballpark. So it only — and only on the liability side, is only about scaling up, which will happen. So I’m not troubled at all on that front. I hope you’ll agree with me. Now let’s talk…

Tushar Sarda — Athena Investments — Analyst

Just one clarification that I — I’m assuming INR3 crore cost for branch to operate, is that fair or is it more?

V. Vaidyanathan — Managing Director & Chief Executive Officer

Let’s call it, so it will be INR2 crore, INR2.5 crore, depending on…

Tushar Sarda — Athena Investments — Analyst

So, out of, sir, 650 branch means around INR2,000 crores is spent on branches, right? Out of INR10,500 crores that’s the annual run rate?

V. Vaidyanathan — Managing Director & Chief Executive Officer

So, we can do the math there. But I’m just saying that the — you get the drift. Let’s talk — just get the conscious out of the way. So on the liability side, they will — they will scale up like any other good bank, and because we offer slightly better rates, probably they will scale a little better than any other good bank, okay, like any other bank. So let me just say that. Asset side — liability side is easy to understand because same market, same — our cost structure is similar.

Now on the asset side, the cost structures are definitely — product suites we have are definitely have a higher cost structures, than — let me take one of the large banks in the country. They probably have a INR5 lakh crore home loan book.

Tushar Sarda — Athena Investments — Analyst

Okay.

V. Vaidyanathan — Managing Director & Chief Executive Officer

Which some of us, myself, maybe my colleagues, that have must started like 20, 25 years ago, maybe 20 years ago. So, by now, it must have really scaled up to a really big piece. So obviously, if you took at our home loan book today, our cost to income ratio in home loan book is probably like 90% or something, Sudhanshu?

So, basically, because it’s — I mean, particularly that he prime home loans that we started maybe about a year ago, because yields are just about 7%, 7.5% or something. And then you — the NIMs are pretty low there and then but opex — if today’s opex, of course, we leverage it over the next eight, 10, 15 years, obviously, next-generation whoever run the bank will get to see very low cost-income ratio on that front. But today, people who are building it will incur the expense and we’ll have to live with the higher cost structures on that product, say, in a home loan, for example.

Tushar Sarda — Athena Investments — Analyst

Okay.

V. Vaidyanathan — Managing Director & Chief Executive Officer

To start with, today, I mean, as the year goes by, it will all get even out. Now, let’s talk about other products, so because you started. So as far as other businesses are concerned, let me say a GLG business. We have about INR8,000 crore business there. It is fundamentally a higher cost structure. So if you take a car financing business, it’s a — I think used car one, relatively higher cost structure. So, it is true that our asset structures have a relatively higher cost and our liability, of course, as I described to you, we just started. Then the third business we started is the credit card business.

As we speak, credit card is loss-making. So we incur, in other words, a cost-income ratio in credit cards is in excess of maybe 130%, 150%. So, therefore, all of these things tend to put a load on the cost-income ratios. But honestly, I’m personally not troubled about this because that’s how businesses are built. If I run away from doing these things under investor pressure, then the bank will never get built. Then you will have to…

Tushar Sarda — Athena Investments — Analyst

No, that’s not my idea. My idea is to understand. I mean, it’s an opportunity for us to understand from management what is their take on it?

V. Vaidyanathan — Managing Director & Chief Executive Officer

I know, I know. I know that is not your idea, but I’m trying to explain to you that it’s — so coming back to the point, therefore, some of the businesses we built are built for the future. They — so our job as a leader of the organization is to get the payback. So, on the liability side, no confusion in my mind. Payback will happen and scale happen and as we start doing cross-sell.

So — and we are, as a bank, we just started this process of cross-sell. We were just a liability gathering machine until maybe a year ago. So, we’ve just now put up the structure, enable the people to cross-sell other products and services, we have tired the customers. We are into Tier 1, 2, 3, 4. We’ve done some — we are throwing up the necessary customer offers on the RM screen so that they can discuss the next suitable product for the customer, etc.

So our processes have just begun to gather steam. We are probably underperforming, not probably but certainly underperforming on the extent of cross-sell we are doing to our customers on the liability side. That [Indecipherable] is gathering up, so that will solve some of the issue. Credit card will solve the issue.

And I mean, if all the issues, as it turns into profit, it will happen. So, as part of management, our job is to turn these — once these are set up and businesses have incurred the expenses, our job is to now bring them to profitability. It’s a phase. Well, it will happen and you will see it quarter-on-quarter, will share numbers with you.

Tushar Sarda — Athena Investments — Analyst

So, over three year to five year, what one should expect in terms of cost to assets, not cost to income, but cost to total balance sheet size?

V. Vaidyanathan — Managing Director & Chief Executive Officer

No, you should come back to cost to income because of cost to assets is deseeding, depends on the line of business you do. I mean I could do a lot of home loans and [Speech Overlap].

Tushar Sarda — Athena Investments — Analyst

Cost to income, what do you think? You’re at 75%, today, right, so…

V. Vaidyanathan — Managing Director & Chief Executive Officer

Yeah. Yeah, somewhere there. So you can see every quarter now, if you take Y-O-Y, it is coming down, it will still come down. You see, we have done the math. In our kind of line of business, if you bring down cost to income by 10%, our return on equity increase will jump by 5%.

Tushar Sarda — Athena Investments — Analyst

It will be a phenomenon, that’s the reason I ask this question.

V. Vaidyanathan — Managing Director & Chief Executive Officer

No, no, it will come down. You watch the game. You just watch this game. It will come down. It has to come down because income will go up. I told you, just to summarize, so that…

Tushar Sarda — Athena Investments — Analyst

No. So, I don’t have any issues with all that. I am completely — agree with you on that. Only this part was troubling me, that’s why wanted to know.

V. Vaidyanathan — Managing Director & Chief Executive Officer

No, no.

Tushar Sarda — Athena Investments — Analyst

With 75%, one should expect, so it will come to 50% or 60% ballpark in three to five years.

V. Vaidyanathan — Managing Director & Chief Executive Officer

No, no, definitely. I mean, we won’t be. We can’t be at this numbers. These are all setup cost to income, so to say. We think that definitely in the long run, we want to be in the — certainly in the mid-50s long — but certainly we don’t want to wait that long, long run. Even if you take, say, a two-year window, we do think that by — within two years, it should materially come down.

And you see, our ROE has already touched 9%. So — and this is core and genuine it out one-time and all that. So, even if we bring this — we touched no other lever and just increased the — just pay off the high cost legacy liabilities, that should give us about INR750 crores. And then you reduce cost to income by other means we talked about, you should expect the bank to get to the mid-50s in the long run, but certainly maybe mid-60s in the next couple of years.

Tushar Sarda — Athena Investments — Analyst

Okay, thanks. Thanks. And I have just one more feedback for you. I am an IDFC Bank customer. Your new app is phenomenal, but the downtime is very high. So, maybe you would want to look at it.

V. Vaidyanathan — Managing Director & Chief Executive Officer

No. Thank you. We are very aware of that.

Tushar Sarda — Athena Investments — Analyst

So, if you are aware, then that’s fine.

V. Vaidyanathan — Managing Director & Chief Executive Officer

No, no, but thanks…

Tushar Sarda — Athena Investments — Analyst

I am sure you will fix it.

V. Vaidyanathan — Managing Director & Chief Executive Officer

No. So just before you go, so — since you said that, so we are — frankly, we are very proud that we put out a really good app, but on this issue…

Tushar Sarda — Athena Investments — Analyst

It’s a phenomenal app. I like it, but when you want to actually do the transaction sometimes, in fact, many times it doesn’t work.

V. Vaidyanathan — Managing Director & Chief Executive Officer

No, that’s why I stopped you, just to tell you that was an issue and you must have faced until a week ago for maybe it was there, because it is a starting…

Tushar Sarda — Athena Investments — Analyst

Even yesterday, I think, I faced an issue, so…

V. Vaidyanathan — Managing Director & Chief Executive Officer

Yeah, yeah. It’s just on the launch. But now over the last — now it is fully stabilized. I’ll be surprised if you see that. If you try it today, it’s unlikely. It already addressed.

Tushar Sarda — Athena Investments — Analyst

Okay. Thank you. Thank you so much, and thank you for answering the question.

V. Vaidyanathan — Managing Director & Chief Executive Officer

Thanks, Tushar. Bye.

Operator

Thank you. We have the next question from the line of Pritesh Bumb from DAM Capital. Please go ahead.

Pritesh Bumb — DAM Capital — Analyst

Hi, evening, sir. Just a medium-term question on — so how do you look at deposit rates for us? As you know that we have in the upcycle, so do we feel that we will have to be a little ahead to raise the rates versus the industry? And if hypothetically yes, is there any room in the mix to give the NIMs impact? So that was the first question.

V. Vaidyanathan — Managing Director & Chief Executive Officer

No. No plans really right now. Whatever it is, it is. I mean, as we speak, there is no such discussion going on within the bank.

Pritesh Bumb — DAM Capital — Analyst

So — but we’ll be ahead of the market or we’ll be like we’ll be watching out basically, how do we see that? Because the CD ratio is still lower than — I mean higher than the loan side. So, do you feel that we may have to raise something ahead of the markets?

V. Vaidyanathan — Managing Director & Chief Executive Officer

No, no. Sudhanshu…

Sudhanshu Jain — Chief Financial Officer

Yeah. Pritesh, even on the — Sudhanshu here. On the CD ratio, yeah, it’s relatively higher than other banks. But you need to note that we are carrying high-cost legacy borrowings, right, in the form of long-term bonds, refinance, right? These were taken — or — were — which came to the bank at merger, right, while we have reduced these borrowings, but to that extent, the funding requirement was lower, right.

So if we include these long-term stable borrowings in the denominator, then the CD ratio gets adjusted to about 80s, right. So once these sort of liabilities gets paid off over the next two years to three years and we sort of get deposits in terms — in way of replacement, then automatically this ratio should correct in due course.

Pritesh Bumb — DAM Capital — Analyst

Sure. And so, second part of the question was that, do we still have room in our mix to increase NIMs from a yield perspective, if you were to also don’t pass on some of the rates which are coming hypothetically again, do we see the mix — any mix changes we can do or we — in the NIMs in bank or yields moving up a little bit?

Sudhanshu Jain — Chief Financial Officer

No, Rithesh[Phonetic], as you see, our NIMs are quite healthy, right? It’s at 5.9% in this quarter, right? We are seeing sort of the rate increase which has happened, some bit — may more happen, right. But as Vaidya mentioned, we have not passed on the increase in repo rate to customers that — most of that benefit would start kicking in from Q2. So, we will be fairly comfortable in terms of maintaining NIM around the 6% mark, and we feel that should happen.

Pritesh Bumb — DAM Capital — Analyst

Sure. Second question was, if you are disclosing what will be our technology cost as a percentage of opex? Because some of the banks are disclosing this, can we also have that number?

V. Vaidyanathan — Managing Director & Chief Executive Officer

So, we have not specifically called out that number, but we are — we continue to invest in technology. But we have specifically not called out that number.

Pritesh Bumb — DAM Capital — Analyst

Any sense on — it will be a higher number as a percentage of [Technical Issues] is it material or is it not to worry about? Because just trying to understand we have built the bank on the technology side for some time now. So do we see that the technology cost will slightly move down or in terms of plateau, so that’s what I was getting…

V. Vaidyanathan — Managing Director & Chief Executive Officer

Probably plateau from here. But you will see, I’ll tell you, yes, first of all our technology cost will probably a bit higher than. I’ll tell you the reason also. Again, we will not forget the fact that — let’s think of any large bank would be in there for 10, 20 and 25 years, that already have a cash management system. If you’re launching cash management, you will build it today. They already have a savings bank proposition — they’ll already have probably an app. We have to build an app from starting today, because we can’t tell a customer that look, I — you know, because…

So, then similarly somebody is already built a solution for current account management for the customers, we have to build today. So the point is that there is certain set of expenses that — sorry, capabilities that an organization need to have, it is simply stable stakes. The one thing we should not forget is that is, we became a bank overnight with INR1 lakh crores of assets, right, with no banking life — with no — just like a NBFC converting to a bank. So — because both parties were just lending institutions. So therefore, some portion of expenses are simply just catchup expenses, whereas a system for building basic capabilities which others already have for 15, 20 years.

Now second part of the capabilities are to build a digital capabilities for being contemporary and staying ahead and all that stuff. So we had — we are probably incurring both, which is why you’re probably seeing this. But you should also see — so, I don’t deny that, but we just want you to understand this — origin of this organization is very, very different than any other organization, which is a small NBFC which has got a bank license, which in this case it can scale up everything along with — as the businesses grow. But this origin is different.

But let me also point out to you that the expense or no expense, you see how quickly our story is building up from here in terms of operating profit. I read out the numbers to you. Now the way our ROA, ROE getting fixed at the bank level, it should now set you thinking that if this bank starts normalizing its expenses like everybody else, where this game might hit? I think it’s — it will look really very healthy. I mean for us, a 2% ROA is something that frankly is a bit under ball for our kind of bank.

Pritesh Bumb — DAM Capital — Analyst

Understood. Thanks. And last question was, if you look at recent numbers of large banks, we have seen a solid unsecured growth in all the banks. Do you feel the marketplace or do you feel like you will get a — you will take a step back just to see how the market is shaping up because it seems to be getting overheated on the unsecured side? Or do you feel like it’s not a problem yet?

V. Vaidyanathan — Managing Director & Chief Executive Officer

No, we monitor indicators, very, very closely. We look at two things. One is the perspective we get out of our experience and by watching the market. And second data, what our data speaks to us. So — and we watch this very carefully. We want to be very, very careful on this front. Our sense is that — our general assessment is that secured and unsecured is one dimension, it is not the dimension. It’s — you know, it’s not god.

So basically, it is just one way of looking at it. For example, we find that when we lend a personal loan to Infosys or a Wipro or Unilever or a good CAT A company, frankly even though COVID, there was no default on them. Many of them didn’t even take moratoriums. So that’s unsecured, but it behaved very well. So the point is that, vis-a-vis let me see a two-wheeler business which is secured, but had trouble during COVID. So, therefore, our job is not just to get — evaluate these things bluntly by one dimension, it is to see the underlying profile of the customer that we are lending to. It’s a very material point.

The second material point is the — in terms of our own indicators. So — I’m sorry, think about cash flow, how do you evaluate them? If you evaluate them for the cash flow, it behaves a particular way. End of the day, cash is paying you back, security is not paying you back. So I’m not saying it’s an immaterial point that thing, but you should also just — I just want to put in perspective.

Pritesh Bumb — DAM Capital — Analyst

Thank you. That is clear. Thank you so much.

Operator

Thank you. We have the next question from the line of Sagar Shah from PhillipCapital. Please go ahead.

Sagar Shah — PhillipCapital — Analyst

Good evening, sir. First of all, congratulations for excellent set of numbers actually. My first question, sir, has already been, I think, asked, I think couple of things regarding your operating expenses actually. As you have already spent on technology and as you are guiding that actually as the income grows, actually automatically you said that our opex — on the opex front, automatically our income growth will be higher than your opex growth and that would be a driver of the ROE, right? Am I right, sir, for the — at least for the next year into[Phonetic] next most year?

V. Vaidyanathan — Managing Director & Chief Executive Officer

Sudhanshu, you want to — I didn’t hear the question fully.

Sudhanshu Jain — Chief Financial Officer

So you’re saying, whether income growth would surpass the opex growth, is that the question?

Sagar Shah — PhillipCapital — Analyst

Yeah. My — basically as you have guided for the next year for double-digit ROE, if I’m not wrong in the last quarter — and the last quarter. So for double-digit ROE as my understanding is the key — two key growth drivers are, first of all your income growth, and secondly, you’re lesser opex growth. So I just wanted to understand on that part. My first question is all this.

V. Vaidyanathan — Managing Director & Chief Executive Officer

So we don’t — we think both will play out. There is no — it’s not one for the other. Our cost should moderate from here. And secondly, income will grow. It’s a very simple model. If the retail book grows by maybe 25% year-on-year, which is what we’ve guided, and frankly we feel we’ll meet it comfortably. We don’t have to do anything. We don’t have to put pressure on ourselves. We don’t have to run extra hard, nothing we have to do. It’ll just happen by itself in a very smooth manner.

So when that happens, automatically income goes up 25% and straightforward to operating leverage. I mean, we are not stressed about this double-digit ROE. Let me just tell you, we will surprise you a little — maybe ahead of time, but certainly fourth quarter our ROEs, you can take it as a assured thing. A bit assured meaning, whatever you make of it, but we are feeling good about it.

Sagar Shah — PhillipCapital — Analyst

Okay. Okay. Sure, sir. And second — my second question was on your cost of funds actually. I wanted a color on your — now by July 20, you have changed the interest of — you have reduced interest rates on the accounts and the term deposit accounts. So your incremental cost of funds on blended on borrowings and deposits, you can say how much will it be, sir, going forward?

V. Vaidyanathan — Managing Director & Chief Executive Officer

Maybe exact numbers, Sudhanshu can answer. But let’s talk terms the delta. In the delta field, frankly, our business mode is baked for these kinds of costs of funds. We don’t have to be like the big force at their kind of rate of 3%, up to INR50 lakhs and greater than — greater than INR350 lakhs by 3.5%. We don’t have to be in that league. We are — we — fundamentally our yield is slightly better. Our origin is different.

And therefore, for us, we’re comfortable with what we’re paying right now. And even at that, we’re getting a net interest margin of 6%. We’re more than happy. We don’t — we are not under-stressed to increase it also. We’re happy with 6%. So now it’s a very simple game of just playing — just scaling of the book, nothing more, just pay more than the others in terms of savings, which we will do.

And frankly, you don’t worry about it. If someone had — if interest rates went up in the market by another 50 basis points, I mean, we won’t [Indecipherable], it will smoothly increase interest rate by 50 basis point. We won’t think twice. For us the model is very happy and comfortable, not that we have any plans as I said earlier. But you don’t stress about these things because we’re sitting on a margin level that is so strong. We still are yet to take out, we still have not, like I told you, leverage the assets or the cost, so a lot of income waiting to be there, a lot of new business is to be built, that has to scale up.

Wealth management will scale up, cash management will scale up. Fast Tag with scale up. They will all give income. So when you have enough income stepping out there yet to be taken, a few basis points this side, that side makes no difference to us.

Sagar Shah — PhillipCapital — Analyst

Okay. Okay, got your point. My, sir, next question was regarding your commercial finance portfolio. I think on the net debt, I think we had de grown by around 8% per quarter on quarter. So can you throw some color on the commercial finance portfolio, how you intend to grow in that space, basically how do you look at that portfolio going forward? We like the business a priority sector. And Sudhanshu, as you spoke to me, just points out to me, it already grown from INR2,000 crore INR2,300 crore in the last quarter. So, that commercial…

Sudhanshu Jain — Chief Financial Officer

No, it’s a commercial finance book that is increased from INR10,144 crores to INR10,675 crores.

V. Vaidyanathan — Managing Director & Chief Executive Officer

Okay. So you didn’t mean commercial vehicle, you meant commercial finance, is that what you said?

Sagar Shah — PhillipCapital — Analyst

Yes. Yes. Yes.

Sudhanshu Jain — Chief Financial Officer

It’s a marginal increase on a sequential basis. Of course on a Y-o-Y, the growth is 13%. We feel that growth could be a bit faster in this segment in future quarters.

V. Vaidyanathan — Managing Director & Chief Executive Officer

So, just to correct myself, my apology, I thought you said commercial vehicle, that’s why read out some…

Sagar Shah — PhillipCapital — Analyst

No problem, sir. And coming back to my previous question, sir, you had thrown the color on your liabilities. But can you source a number, what is your blended cost now on borrowings and deposit, sir, going forward?

V. Vaidyanathan — Managing Director & Chief Executive Officer

Do you have the number…

Sudhanshu Jain — Chief Financial Officer

Yeah, blended cost is about 5.2%.

Sagar Shah — PhillipCapital — Analyst

5.2%. And you — and you envisioned that it will remain the same for the entire year and for — even going further?

V. Vaidyanathan — Managing Director & Chief Executive Officer

Yeah, I told you, not to bother about that too much. I’m not — first of all, I’m not ducking the question. As of now, we feel that rates are what they are, we are comfortable. But like I said earlier, if you — the market right for any reason, we have no problem touching it by 20 basis points, 25 basis points here or there. No problem at all.

I told you the kind of margin sitting on, the kind of buttons we’ve not even pressed in the bank in terms of the fee income, the operating leverage that is yet to play out. Let me just say, for example, the loan book for the bank, retail side, grew from [Indecipherable]. We are not going to grow the opex to 30%. So the operating leverage sitting there.

So there are so many pools of buffers we are sitting on that this is a round off item. It won’t be the material thing. For us, we were very clear. We want the deposits what we want to have. We don’t want out price in the sense we don’t — we will just needed as much as we need. I mean we will take — we will touch the pricing such a way that we just take what we want to take. But at this point of time, we have — as we speak, there is no plan to touch it.

Sudhanshu Jain — Chief Financial Officer

Just to add, even the asset side, we may sort of increase the pricing, right. As markets have also increased, pricing on certain products, we have also done so in Q1. So, to some extent, asset repricing will also happen, which will take care of the cost of fund increase.

Sagar Shah — PhillipCapital — Analyst

Okay. And my, sir, a follow-up question was have you utilized the INR168 crore provisions that you had in your balance sheet, sir, in the — for COVID-19?

Sudhanshu Jain — Chief Financial Officer

Yeah. We have utilized…

Sagar Shah — PhillipCapital — Analyst

In the quarter?

Sudhanshu Jain — Chief Financial Officer

Yeah, we have utilized about INR75 crores of COVID provision and this was largely utilized for corporate — for the corporate case, which I mentioned had slipped into NPA during the current quarter, out of the restructuring pool. And so, we have utilized to that extent. We still carry COVID provision of about INR90 crores as on June 30, 2022.

V. Vaidyanathan — Managing Director & Chief Executive Officer

And that INR165 crore, largely, we told you, there was one retail team in my opening remark I mentioned to you, the retail chain, we had an exporter. So we drew down on the COVID provision and settled the retail chain, we made it zero outstanding. And frankly, we don’t see a need to use that COVID provision at all. So some time or the other, we have to release it. As of now it’s just there.

I mean we are not expecting next quarter’s credit provision to be very much. We don’t expect Q3, Q4, any of them to be — I mean we’re not — we feel we will be quite safe and low. So, at some stage, we will take it out and release it to the P&L.

Sagar Shah — PhillipCapital — Analyst

Okay. Okay. Sure, sir. Then what are those exposure towards our — that retail exposure — that corporate account?

V. Vaidyanathan — Managing Director & Chief Executive Officer

Zero. Zero now.

Sagar Shah — PhillipCapital — Analyst

But what exposure we had before?

V. Vaidyanathan — Managing Director & Chief Executive Officer

INR575 crores or INR500 crores-odd. Maybe I think [Technical Issues] INR550 crore or INR560 crore, but it’s all — it is a legacy account. It’s not that we could do much about it. So the last three quarter or so — a couple of quarters we’ve taken it out and made zero.

Sagar Shah — PhillipCapital — Analyst

Yeah. Okay. Sure, sure. Yeah. And my last question, sir, was regarding to your infrastructure portfolio. That infrastructure portfolio, I think it is still at around INR6,700 crores or sorts. So now, are you confident of the existing portfolio or are there certain watch list accounts also in this entire portfolio?

Sudhanshu Jain — Chief Financial Officer

No. So if you see the numbers out of the book which we have, about 21% is currently a GNPA book, right, where we have a net [Technical Issues]. It also includes one large toll load, which had slipped into NPA in Q1 last quarter. While we are getting revenues here in terms of the improved tolls, right, and we expect a resolution which could happen in the balance years, but in terms of incremental stress, we don’t see sort of any further stress built up on the infrastructure portfolio.

Sagar Shah — PhillipCapital — Analyst

Okay. Yeah. Thank you so much, sir, for the detail. Thank you so much. All the best for the future.

V. Vaidyanathan — Managing Director & Chief Executive Officer

Thank you.

Sudhanshu Jain — Chief Financial Officer

Thank you.

Operator

We have the next question from the line of Ashutosh Mishra. Please go ahead.

Ashutosh Mishra — Ashika Stock Broking — Analyst

Thank you for the opportunity. My first question is just to understand from the benchmark with loan, how much of our loans are linked to the EBLR/MCLR and how is [Technical Issues] and how the transmission is going to take place?

Sudhanshu Jain — Chief Financial Officer

Yeah, thank you for the question. So we have a loan and advances book of about INR1,30,000 crores. Currently about 37% of the book is linked to external benchmark in the form of EBLR, T-bills and MCLR, and the rest is a fixed book. As we mentioned earlier, while we have passed on the repo increase to the new loans which were sourced after the rate increases by RBI, on the existing book, largely the pricing benefit will come in from this quarter. And the loans which sort of came for reset through the MCLR route, right, because we also increase MCLR during this period, that increase was passed on to the customers. But as far as repo is concerned, the largely the benefit will kick in starting Q2.

Ashutosh Mishra — Ashika Stock Broking — Analyst

So how much is repo and how much is MPLR among them in this 37%?

Sudhanshu Jain — Chief Financial Officer

Yeah. So out of the 37%, about 60% is repo and balances MCLR, where the repricing would happen over three months to one year, depends on the MCLR which has been agreed with the client.

Ashutosh Mishra — Ashika Stock Broking — Analyst

Okay. The second question is that, since rate book composition is relatively higher in our overall loan book, so what is the tenant for this and how that pricing will move on this plan because we are in a rising rate environment and to understand the main trajectory will be very important to note that part?

Sudhanshu Jain — Chief Financial Officer

Yeah. Again, if you see, ours is a very diversified retail book, right, like we do rural finance loans, right. We have essentially a fixed rate book, right, but there the pricing is quite healthy, the segment is quite profitable, right. So — and there are certain sorted — these are, again, not very long-tenured loans, right.

Similarly, we do consumer durables, which also runs off quite fast, right? This is also a fixed rate book. So while we are not able to pass on the rate increase to already originated fixed rate loan, but we have, as I said earlier, we have made some increases in the incremental book which is getting sourced. So that’s — but we feel still we would be able to sort of hold on to the NIM. So, NIMs are quite healthy, right, as we mentioned earlier. And we expect it to be around 6% even going forward.

Ashutosh Mishra — Ashika Stock Broking — Analyst

Any number on the tenor of this loan book — average tenor of the fixed rate loan book?

Sudhanshu Jain — Chief Financial Officer

As I said, it depends from product to product, like a CD average tenor would be about eight months or so. For a PL, it would be about two years. And so, it varies from loan to loan, right? So it would be difficult to sell out a blended tenor in terms of the fixed rate book.

Ashutosh Mishra — Ashika Stock Broking — Analyst

Okay, got that. My second question is that, now we are spending aggressively on advertisement across the channel. So, what is our customer acquisition, especially on the retail liability front, if you can put some light on that?

Sudhanshu Jain — Chief Financial Officer

You see the — as you know, we are — last year, we did not grow the liabilities base very much, and you know the reason you’re sitting on too much of LCR and so we had to slow down deposit growth. So from this year onwards, since we are expecting the loan book to grow by 20%-odd, you know that we need deposits, so therefore you might have seen some more activity in the marketplace in terms of advertisement, etc.

Ashutosh Mishra — Ashika Stock Broking — Analyst

So just — sir, just, in that direction only, want to — whether we have new customer or new account acquisition to go up substantially post the ad — that substantial increase in our advertising?

V. Vaidyanathan — Managing Director & Chief Executive Officer

It’s not necessarily with how many customers we get with a INR1 lakh or — INR80,000 or INR1 lakhs or INR1.2 lakhs. So that’s not material point. The thing to notice actually the quality of customers we get. So we are very particular about the customer quality we get. We don’t have zero balance products. And so, therefore, customers coming in at a minimum bring, say, requirement is INR25,000 or INR10,000, but customers usually bring in maybe INR80,000, INR1 lakh, INR1.5 lakh in that zone. So, therefore, for us, quality of customers is very, very, very important and we focus on that, because then we can use — make good use of the infrastructure we’re setting up.

Ashutosh Mishra — Ashika Stock Broking — Analyst

Okay.

V. Vaidyanathan — Managing Director & Chief Executive Officer

And then, you get more meaningful relationship.

Ashutosh Mishra — Ashika Stock Broking — Analyst

Got it. Sir, another is, I want to go on the high-cost legacy bond book, which we are carrying it, what is your guidance on that? No, how much spend if we can visit — being interested scenario we will get from the resizing of that, if you can dive on that now?

Sudhanshu Jain — Chief Financial Officer

Yeah. So, as we have mentioned in the presentation that these loans sort of fall off within the next three to four years, right. On a blended basis, the average residual tenor is about two years and these loans are currently having a blended cost of about 8.75%, right. Of course, as I said, our cost of funds is about 5.2%, right. And so we feel that money is money, right? So we will be able to sort of replace these bonds, right, as they fall up for maturity, right, at a cost which would be in the range of 5% to 5.5%, right. And so you can compute, right, that, that much of sort of relief will then flow through the P&L, as and when it comes back.

V. Vaidyanathan — Managing Director & Chief Executive Officer

So you can do the math. Supposing, let’s say, INR22,000 crores. And then you say 8.8 minus — don’t even take 5.2%, even if you take it at 6%, because like one of the earlier speakers said that we go to factor for a little bit more increase and let factor for it, let’s call it, maybe even 5.5% or even 5.7%, just liberally speaking, and that difference multiply — so that 3.2% or so and multiply that by INR220 crores, that’s about 6% and INR36 crores and INR40 crores post-tax split, you call it about INR450 crores, INR500 crores.

So if you add, you get the drift. So that is the amount of order of magnitude of money in the P&L. And then we didn’t discuss ROE in a detailed way, so surprisingly nobody asked it, maybe you assume it’s improving, but if you add that kind of — earlier — if you recollect, we used to call out three items. Okay, we used to call out credit card business launch and we told you that it’s losing money per quarter and all that.

Second number, we used to say was liability branches. And third, this time, you’re not even doing that. You — at 1% ROA, we don’t need to twist and turn and make any — we don’t have to do that. So you forget these two items. Let’s focus on only one item, which is replacing high cost legacy liabilities because the first two you might argue that your business, what you would — as an investor, what are going to do with that. But on this item of cost of funds, this is easy one, easy for you to understand. So simply take our ROE of today, just add back this maybe INR500 odd crores because of this reason, and then you see the ROE. This will surely go away. This — I hope there is no dispute on this one.

Ashutosh Mishra — Ashika Stock Broking — Analyst

Okay.

V. Vaidyanathan — Managing Director & Chief Executive Officer

So, we are — that’s why we are looking at — a lot of people are — if you see one large brokerage report, which is always bearish on us, they are just not able to believe that we can fix the ROE thing. They just go back to mathematical grid and call us, they believe it should be priced, what to name us. But I think they’ll all — I think the — when people get a little under the hood and see not the ROA and ROE but see the trajectory of where this is headed, and if somebody saw the underlying components that is driving this ROE, and if somebody saw the quality of the book that has been built, if somebody saw the quality of customer franchise we are building, and one thing we didn’t talk about, about our obsession for customer first, it’s showing — reflecting in our products, I’ll talk about that later.

So, if someone saw all the quality and character that is been being built in the organization, then they will see what we’re building and fortunately it will show up only a few years from now, but it will show.

Operator

Thank you. That was the last question due to time constraint. I would now hand it over back to the management for closing comments.

V. Vaidyanathan — Managing Director & Chief Executive Officer

Frankly, first of all, thanks, you asked very detailed and very incisive conversation. So we thank you for that on behalf of Sudhanshu and myself. And anybody else from our bank hearing the conversation, thanks for that.

I must say that all of us in the bank, our senior management team, many more were not on this call, are all like working hard to build the bank and along the way build in a separate profitable bank. My second thing is that, we are building just — of course, ROA, ROE will talk, but on a — in a real sense, we are building a really high quality bank in terms of customer franchise. So there are many, many things we don’t build customers forward because they believe that either they won’t date and see it or we take — if people complain about something or the other way take it rather seriously, we go back and fix the root.

So there are — in terms of features, they are genuinely customer friendly. As a shareholder, you may or you may not be impressed about the bank yet, but I must say that anybody and everybody should be a customer because we genuinely give high-quality products, we don’t — there are lots of fees and charges, etc., left hand and right hand we don’t charge any of them. So we are a good customer bank.

And third thing is that, if you look, say, one year or one year ahead, let me say, one year ahead, my feel is that you won’t be disappointed.

Kunal Shah — ICICI Securities — Analyst

Yeah. Thanks to the entire senior management team of IDFC FIRST Bank for patiently answering all the calls and thanks all the participants for being there. Have a nice weekend. Thank you.

V. Vaidyanathan — Managing Director & Chief Executive Officer

Yeah. Thank you, Kunal. Thank you, everyone. Have a great weekend.

Kunal Shah — ICICI Securities — Analyst

Yeah. Thank you.

Operator

[Operator Closing Remarks]