IDFC First Bank Limited (NSE: IDFCFIRSTB) Q3 2025 Earnings Call dated Jan. 25, 2025
Corporate Participants:
Saptarshi Bapari — Head, Investor Relations
V. Vaidyanathan — Managing Director & Chief Executive Officer
Sudhanshu Jain — Chief Financial Officer & Head, Corporate Center
Analysts:
Zhixuan Gao — Analyst
Jai Mundhra — Analyst
Piran Engineer — Analyst
Rohan Mandora — Analyst
Pritesh Bumb — Analyst
Anurag Mantry — Analyst
Anand Dama — Analyst
Presentation:
Operator
Ladies and gentlemen, good day and welcome to the IDFC First Bank’s Q3 FY ’25 Earnings Conference Call. As a reminder, all participant lines will be in the listen-only mode. There will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during this conference call, please signal an operator by pressing star and then zero on your touchstone phone. Please note that this conference is being recorded. I now hand the conference over to Mr, Head, Investor Relations. Thank you, and over to you, sir.
Saptarshi Bapari — Head, Investor Relations
Thanks, Darling Darwin. Hello, everyone. Welcome to the call and thanks for joining the call. Today, we have Mr V., MD and CEO of our Bank; and Sudanshu Jain, CFO and Head of Corporate Center for Bank. We’ll start the session with opening remarks from Vadia, followed by the beep on financials from Sudhanshu. And post that, we’ll open the session for Q&A. So right now, I will hand over the call to for his opening remarks.
V. Vaidyanathan — Managing Director & Chief Executive Officer
Hello, everyone. Good evening, everybody. Very happy to speak to all of you. I have — Mr Sumansh an.
Sudhanshu Jain — Chief Financial Officer & Head, Corporate Center
Yeah, good evening, everyone. Sudanshu here.
V. Vaidyanathan — Managing Director & Chief Executive Officer
The way we’re doing this is that Sudanshu will first take you through the numbers and I’ll come in a little later with my perspective if I have nothand here and Sudanshu, to take-over.
Sudhanshu Jain — Chief Financial Officer & Head, Corporate Center
Yeah. Thanks. I’ll keep it brief. I’ll touch upon the key financial numbers for the quarter as of 31st December ’24. If you see the balance sheet size, that has now expanded and reached about INR3.3 lakh crores, that was an expansion of about 24% on a Y-o-Y basis. If I go into the components of balance sheet, both the advances and deposits continue to grow at a faster pace. The deposit traction continues to be very much there. In fact, our customer deposits have increased by 29% on a Y-o-Y basis and it is now at about INR2.27 lakh crores. Within this, the growth in retail deposits is at 30% on a Y-o-Y basis.
If I move on to CASA deposit, that has also increased by 32% on a Y-o-Y basis. In fact on an average basis for CASA deposits have grown by 35% on a Y-o-Y basis. CASA ratio, while it has come off from 48.9% to 47.7% in the current quarter, but I would say that this has remained quite stable over a period of time. Term deposits, it grew at 26% on a Y-o-Y basis. Here again, the retail term deposits grew at a faster pace at 30%. During the quarter, our branch network expanded to 971 branches. We have opened 10 branches during the quarter, which take the tally for the year to about 27 branches.
Moving quickly to the high-cost legacy borrowing, which has been giving us a because this is at 8.8%. Happy to report that we have retired another INR1,000 odd crores during Q3. The book, which is of this high-cost is now at about INR6,700 crores. We have given details in the presentation on Slide 23 where you would find that about INR1,850 crores in matured in Q4 and bulk of it will retire into the next year.
Moving on to the credit deposit ratio, which I think nowadays is an important parameter. Again, here, we continue to do well as deposits are growing faster than advances. The credit deposit ratio at December quarter is now down to 95.7%. This is roughly 200 basis-points improvement from the previous quarter. If you look at the incremental credit deposit ratio during the last one year, then we are coming at 76.5%.
Moving on to the cost of funds, which is connected to the deposits and borrowings, the cost of funds for the quarter was at 6.49%. We saw a marginal increase of 3 bps during the quarter due to the tight liquidity environment, which is sort of prevailing. But if we look at the deposit cost, that has been quite stable at 6.38%, the same was the number I would say in the last two quarters as well. So net-net, both of this, I think has been quite stable all-around.
If I move on to the asset side of the picture, the overall funded assets registered a strong growth of 22% on a Y-o-Y basis to reach INR2.31 lakh crores. Sequentially, the growth was 3.8%. The growth was largely driven in this quarter and even on a Y-o-Y, largely by mortgage as a business, then from the vehicle segment, largely in two-wheelers where we have a strong foothold.
The business banking segment, which is essentially working capital-backed by FDs and property as a collateral wholesale business, you would have seen that we have registered a strong growth in last two quarters and also by certain products which are coming from a small base like gold loan and credit card. We have given a detailed product-wise cut in the investor presentation.
The credit card base now stands at 3.3 billion cards. The book size is about INR6918 crores and this has grown at 40% on a Y-o-Y basis. The gross spends on credit cards increased by 45% on a Y-o-Y basis in the nine months. If I talk about asset quality, then the gross NPA of the bank was at 1.94% at 31st December and the net NPA was at 0.52%. Exclude — if we exclude the microfinance book, then the GNPA in fact stood at 1.81% and improved by 7 basis-points on a sequential basis. The PCR on the — on the NPA we hold is at 73.6%.
If I give some further details in terms of the GNP and retail, rural and MSME segment, then that stood at 1.63% and the net NPA stood at 0.59%. Again, the increase here sequentially was more because of MFI. The rest, if you exclude MFI, then the numbers would have slightly come up. The overall standard restructured book continues to come down and this has further reduced to 0.2% of the funded assets and we hold sufficient coverage there. The 97% of the book is secured in nature and we hold about 18-odd percent provision on the same.
On the SMA front, the SME 1 and SME 2 book, excluding GLV that improved by about 3 basis-points to 0.82% in this quarter. This was 0.85% in the previous quarter. We saw, however, an increase in SME 1 into MFI book where it increased from 2.54% to 4.56%.
If we talk about now the gross slippages for quarter three, this was at INR2192 crores. And in the last quarter, this was at INR2031 crore crores, right? So the delta increase is about INR160 crores and I would say that about INR140 crores of this has come from MFI alone. Even on the net slippage plant, the net slippages for the quarter was at INR1,541 crores vis-a-vis INR1,392 crores of the previous quarter. The delta increase of INR149 crores is largely attributable to MFI. The recoveries and upgrades for the quarter was — was around INR651 crores and pretty much the same as the last quarter. Last quarter it was about INR638 crores.
If I move on to profitability, then I will start with NI. The NII for the quarter increased by 14% on a Y-o-Y basis to INR4,902 crores. The net interest margin on AUM for the quarter was 6.04%. This, however, contracted by about 14 basis-points sequentially. I would attribute this reduction largely to the reduction in the MFI book. The impact was about six-odd basis-points on that count. And also because we have started scaling the wholesale book in last few months. So the average book increased and about 5 bps of impact came because of that. And that’s two to three bps, I would attribute to the increase in the cost of fund, which I sort of elucidated earlier.
Moving on to the fee and other income, that increased by 20% in Q2 to INR1,757 crores, sorry, my bad in Q3 and this was largely retail led, which is at 92% of the total fee.
Moving on to operating expenses, this grew at a reduced pace of 16% on a Y-o-Y basis. And for the full-year, this increase in opex is about 18%, again in this quarter because there was a heightened activity, increased disbursement because of festive and so on, operating expenses sequentially in value terms have grown, but we saw some of that impact even into the fee line items. The core operating profit, which is NII plus fees excluding trading gains, this grew by 15% on a Y-o-Y basis to INR1,736 crores.
Moving on to provisions. Provisions for the quarter stood at INR1,338 crores as compared to INR1,732 crores. During the quarter, the Bank has not utilized any contingent provision. If you remember that we had created contingent provision of about INR315 crores against microfinance portfolio in the previous quarter, but we have not done any utilization during the current quarter. The credit cost for the bank for this quarter stood at about 2.3%. If we exclude the provisions on the MFI book, then the credit cost is at 1.8% and this was pretty much the same number in the last quarter if we exclude MFI and one toll account.
So the provisions have not sequentially increased, but have been broadly stable is the point which I want to make. The profit-after-tax for the quarter is at INR313 crores compared to INR201 crores in Q2 of the previous quarter. Of course, on a Y-o-Y basis, this has come off because of the decline which we have observed in the MFI book, which led to an impact on the top-line as well as increase in provisions on the MFI as well as some normalization of credit cost, which have sort of come in through the year.
Moving on to the last section, which is capital adequacy. The bank has maintained strong capital adequacy and including profits for 9M, the capital adequacy was at 16.11% with CET1 ratio being at 13.68%. This also factors in an increase which came on account of merger in terms of a positive impact, that benefit was about 25 basis-points. The liquidity also we continue to maintain healthy liquidity levels. The LCR was stable at about 114% as of December 31st. With this, I am broadly done with the numbers, key numbers, which I wanted to touch upon. Maybe I’ll ask to sort of get his remarks for the quarter.
V. Vaidyanathan — Managing Director & Chief Executive Officer
Good evening, everybody. So just want to share with you the brief approach and strategy we’ve been following-on dealing with the current situation. So number-one, if you notice why the cost-income ratio of the bank is high. So we’ve called out the reason already to many of you that this is a new bank. This is six years-old. I know many of you have heard this before and know the number — know the facts also, but it is a fact we are losing close to about INR2,000 crores a year in setting up the branch architecture of this bank.
Basically the branches, the ATMs, the people, the technology stack had to be completely built-up from scratch. The teams had to be hired, you know the — all that stuff. So all that is consuming. So if you see the — if you see the core profit of the bank, as and when this INR2,000 crore winds itself down to zero, you should be in position to — you should be able to estimate that this is something that you can add-back and estimate the bank.
Now on this front, I must say that we have made one new disclosure this time. If you see Page 66 of the presentation, we have actually shown how much the — the liability business has been losing as a percentage of the average deposits and average retail deposits. And this number in FY ’20, when we started the bank, when we started the bank meaning the bank aren’t been 80 16, but really until two years, it is still very much a startup stage, our deposits were only INR10,000 crores in retail.
So think about it like practically startup. So in FY ’20, our opex — sorry, our correct, our loss, what is loss in liabilities, let me just tell you one second, but then I’ll come back to the point. So loss in liabilities is what we — the income — the liabilities team makes net of what it pays to the customers and any fee income that it generates. So that’s what is really the net loss. So that number was 4.2% of the average retail deposits of INR23,000 crores. In FY ’21, this came down to 3%. In FY ’22, this came down to 2.1%. In FY ’23, the loss went up to — went down to 1.8%. FY ’24, it came down to 1.7%.
In nine months of this year, it’s compared to 1.3%. So you should believe me when I’m telling you that when the branches are scaling up, then they are becoming profitable. It’s just — it’s just — of course, it is easy-to-understand, it’s common sense, but when we put the numbers to it, hopefully, you will be able to realize that 4.2% has continuously come down to 1.3%. It’s five years I must remind you, it’s five years, unlike other banks been 30 years and this — it is taking its time.
Now we believe that this 1.3% will wind itself down to zero, certainly by 2030 or 2029. So the direction is clearly there and this is why you should, when you model our bank, just don’t go by the final numbers reported by us, please factor for this fact that this INR2,000 crores that we’re losing today or 1.3% of the deposits that we are losing today will wind itself down to zero.
The second item, which is important to know as far as the — and talking of cost-to-income, let me just share with you that the cost-to-income on the — on the liability side, staying with liabilities in FY ’22 was 227%. In FY ’23 was 182%, FY ’24 is 197%. In nine months of FY ’25 has come down to 178%. So our guide is that we are seeing this clearly going. I hope none of you are doubting our ability to raise deposits really coming well. So this number coming downwards to 200%, which means it will not lose any money, 100% by FY ’29 or ’29-ish or 30-ish, if you want to even stretch itself by a year in that zone. So this direction is very clear and I request you to please factor this in when you consider our bank vis-a-vis — when you compare our bank with any others we’ve been around for a long-time.
Now let me move to the next item when we talk of cost-to-income. In the cost-to-income on the credit card side, we are currently running, you know, in FY ’22, we were 240%, ’23 we came down to 165%, ’24 we came down, rapid movement came down to 116% and in nine months FY ’25 already come down to 100%, already done, meaning like that there is cost-income ratio of credit card down to 100%. And we believe that by the time we head towards the 29-ish or so, it should come down to about 60 odd percent if that’s the way the book is growing.
So, and then we have also provided a particular slide, page 67 where we have also shown the loss in credit cards as a percentage of the average credit card outstanding. So in FY ’22, it was 27%, 23% is 12%, 24% is 3.78% and nine months has already come down to minus 0.11. So by giving out this very specific disclosure about how much — which business is losing and when and what’s the trend-line over five years and therefore, it should hopefully give you a really good picture that these numbers are truly moving in the right direction.
Now you might then say that listen, why would you need to launch credit cards? And that would be fair question, let’s say, listen, you guys listen, you guys are not even making money, you know your ROE is low. So why launch so many businesses? Now I must say that the way to think about this and I must very clearly tell you the way we have thought about it and I have personally, I can’t buy it because I’m personally the — I’m definitely architecting this broad thinking and I stand-by it. I must tell you that the way this works is follows. We are building a liability base.
Now in the liability business-building, now we have close to INR2 lakh crores. I must ask — explain to you that if we don’t launch a credit card business, can you imagine telling a customer that you are going to be a big bank of the future, which we really believe we are, but listen, open savings accounts with us, have fixed deposit with us, but for credit card, go to some other bank, which we can’t do or we will distribute some other bank credit card. Well, it just cannot build a full relationship. Then the customer will have a credit card as we’re already on their why should the customer come to our bank? So these are essential parts of building the bank.
Secondly, if we have not sort of the credit card business in 2021, if we’re not losing INR300 crores per year, which I believe is inevitable, then after becoming profitable, we’ll have to come back and tell you now we’re launching credit cards, now who is going to lose 300 crores to five years from here on. So we believe to do it all one-shot to build a complete comprehensive integrated franchise is very important part of building a proper, you know, universal bank, which has to have a long-term future because once we start generating 16%, 18 return-on-equity, we don’t want to turn the clock back and say we’re investing in new businesses.
Let me give you one more example. Let’s talk about wealth management. We get customers over for the in the liability business and because of our service levels, technology, app, et-cetera, really customers are coming in and our products are very good, our culture is good. So I mean our wealth management business is growing like, it is growing by 60% per year is already touching something like INR40,000 crores if you — both the AUM as well as the — the deposits of the customers with our bank.
Now can you imagine telling a customer, bringing them for liabilities and telling them that for wealth management you go to some other specialist bank or go to any peer bank, it just won’t work. Why would the customer only leave savings with us and do wealth management elsewhere? So I must share with you to build the kind of — we have a vision of building a really amazing bank for the future. So there was not a choice for the bank to say that wealth management, we will postpone part of the day, we just had to do it. And for you got to build the team, the technology, the systems, the culture, the people, the leadership, everybody has to be hired and they need to work well together.
Now let me give you cash management. That’s the other business we are investing. So right now we have current account balances of close to about INR4,000 odd crores, which is a really fantastic piece that is now coming along. Now in the cash management business, again, let me just say that we lend to a lot of customers on the lending side, on corporate banking also. As you know, we’ve been growing corporate banking quite strongly now by close to like maybe 20 odd percent.
Now — and let me tell you that it’s been five, six years have gone by, not a single, not one new NPA has been created in the bank in corporate banking. And we are really, very happy and proud about that and we have a good credit committee and you know with the Board and everybody and we are proud about how we’re running that. But coming back to the point, so when we do current credit — corporate banking and we do that, we give loan to people, really can we say tell people that, okay, listen, you take money from me, but we’re pretty tell the customer to go and say now you can do cash somewhere else, it’s not possible.
I mean it’s possible, but it will be pretty — it will be not very, very smart. It won’t be adding much value to us. So we said we need to cash management. We need to cash management, we need to hire the team, build the people, build the coverage team, the product team, the technology team, the builds, go and find customers, go to all that. And I genuinely believe there is no choice but to do it. We got to build a future — a bank of the future. So I gave you just three examples.
I have many more, like close to about 15 or 20 products, we believe that we are building a good long-term bank with all these features or whatever the pain, whatever the hit, whatever the negative, we are taking it today. So — but when we come out of this whole thing and we got come through with this, I’m very proud, but by the time we will not have to look-back and invest all over again. So my objective of this opening part of the conversation also tell you we are building the bank like this. I gave you three examples. There are many more where we are building a complete integrated bank.
Now what is a unifying factor between all these businesses they’re launching? There are maybe a couple of them. So one is that they’ve got to meet a specific need like a cash bank that meets a need or a pass pack meets a need or wealth management or cards or whatever. Now the thing is that apart what is connecting them all, they are all connected by one theme that they are all phenomenally technology-enabled. If any of you try to cash management services, any of you try the credit card business or tried or even app, you’ll find all of them are really connected through technology and in a very, very advanced technology.
Then the other thing we’re all connected with is that they’re all very good in customer experience, right? We are just going crazy about the concept of customers getting superior experience at this bank. Now, so when you have good service, good technology, good culture, then every product that’s coming out a winner, let me tell you, cash management has been around for four or five years, already INR4,000 crores of current account in the bank. No chance on earth our bank would have got current accounts of this scale if we had not launched that business. So this is my short point of just sharing with you how we are thinking of building this.
Now you might then say that listen by the every — first two years between ’19, ’20, 2021, you might say that listen, at that point of time, you had legacy bad loans and you said you were writing it off or charging it off or you’re collecting. Then this next situation came that your — then COVID came fine, that happened to everybody. Then for two years, we had piece meaning 2024, ’23 and ’24 PAT looked up, direction was good, everything was good, life was looking great. Now suddenly you’ve come up with the MFI problem and now how long MFI will last, why did we do MFI.
So let me therefore very specifically address what we think about the fact that, that now have you set you up with a new problem and let me just address that as honestly as I can. Let me tell you the first part of the situation that we faced in, let me say ’19 was honestly unavoidable. Whether you had me in that in the job or anybody else, nobody could have avoided taking a charge of for D1 or Reliance capital or you know the entry point — Mumbai entry point was account that we had INR1,100 crores. No, just nobody, it was just there. Any management had to account for it. So — and I took it.
Now then our operating profit is very low. So we have moved ahead and gradually built the operating profit. In fact, I wouldn’t say gradually, quite strongly, I would say, our operating profit is now touched 2.3%. It’s very tough to build operating profit. It’s in fact easier to charge-off credit cost, but harder to build operating profit. So we built it from literally 0.3.4% to 2.2.4% now. So that thing is built.
Now let me tell you this issue about what you might think that we have set you up with the new problems. If you just say that this is a bank early-stage, it just go through its — you get one jab at the face on one front and you fix it, then you fix the next one. But the core is coming strong. So let me just tell you where this — let me specifically address the issue of MFI because we over you a genuine and straightforward answer on why we did MFI business and the — and then what is the plan, how much is it hit and where-is it going.
So the MFI business has one of the key reasons why we do the MFR business is that it meets our PSL requirements. Let me be — let me give a simple reason. As a bank, we are required to meet the following. We are required to meet 40% PSL. Out of that, we’re supposed to meet 18% agriculture PSL, then small and marginal farmer, you need to meet 10%. Now your micro enterprise is supposed to meet 7.5% and loan to weaker section — weaker section of the Indian population need to meet 12%.
Now IDFC was into infrastructure, they were not doing any of these capital first did a bit of these, but really this and not — I mean a little bit of this, but still is doing something of it. In fact, IDFC as in had started some of the businesses to meet the requirement, but really it was crash on-the-ground. So therefore, now how a bank, early-stage bank meets a loan to weaker section 12%, how does the bank meet you know, small and marginal power pharma 10%.
So the microfinance business was an amazing silver bullet, which met three requirements. One, it made money. We were lending at 22% 23%, 24%. We had some additional fees on-top of it. Our cost of funds was really nothing like 6% or 7% and it just made a lot of money. Number two, it also met the requirement of small and marginal farmer, 10%, it met the requirement of loan to weaker section, 12%. So it was an amazing product.
Now, therefore, this issue that has come to us in the MSI front is not an IDFC issue alone, it’s come to everybody. So it’s come to everybody. It’s just let us say, it’s bit of a collateral damage that has happened by, so to say on a highway and — but I must-have — I’m really happy to tell you and we’ll discuss — during the Q&A will discuss specific numbers that except MFI, our bank has close to about 25 products. We are on record in telling you that all of them are performing well. And they’ve not been performing well today.
They’ve been performing well for 15 years now. I mean, the ones which have been alive for that long, some have been launched later than that. So think about it that for 15 years, our home loan has not troubled us. Our loan against property has not troubled us. Our used-car has been perfectly — behaving perfectly well. Our personal loans is doing perfectly well. Our credit card is doing perfectly well. In fact, much better, we put some numbers of our banks vis-a-vis industry. Our micro enterprises business, which you do Kerana shop, salons, etc., is doing perfectly well. So every single business of ours is doing well. So it’s one-item has got stuck somewhere in the center.
Now how do we deal with this? So we have — we have a provisioning policy whereby in MFI, we charge of 75% at 90 DPD and 100 — and at 120 DPD we are charging off for 123 DPD, we are charging 100%. So our methodology in all products, including this product is to be really upfront about everything. So because — and really 90 to 75% is very stiff. So when the MSI book for is moving — is having problem, it is hitting us first. But when the MSI business will recover, we will recover fastest. That’s how it works. Now because of the same logic, now our credit cost in MSI business for these for these nine months is close to about 8% and we have not reversed the SMA-1, SMA-2 provision we took last quarter, we still have it in the buffer. So that’s the last point.
Now on MSI, closing comment I want to tell you is that now we are slowing down the book. Now it’s not only that it’s hitting us in credit cost, it is also income is also coming down because I told it is amazingly for profitable product. So to that extent, income is coming down. It’s a bit of a level, I should say, because suddenly now we also have credit cost coming, no income coming from that line because coming down. So this is a real issue.
Now how do we look-ahead. Now when we look-ahead, let me just say that we have two very simple approaches of dealing with this because really it’s quite uncomplicated. What is it? One is that on the cost front, we — we are very clear that our cost growth of the next year will come down. We have given a breakup of this time we printed a new slide on what is our costs and we have given a proper breakup of how much of our cost is IT expenses, how much is employee, how much is infra, how much is channel sourcing, how much is volume linked. We have disclosed everything. We have found something — we have not found something. We know it, but we want to share something with you that — let me tell you how the operating leverage of the bank is already beginning to come.
The operating leverage bank coming as follows. If you notice, when you go back-in time maybe two or three years ago, our opex was growing by 30-odd percent and income was growing by 30% 32% and it was — that’s the way it was. This year, our opex has grown — the nine months of this year, OpEx has grown by an 18.2%, but the business of the bank has grown by 25%. When I say business, I mean deposits business that has grown by 28% and the loan book has grown by 22%. So when you add that up, you’ll find it 25%. So when opex is growing by 18% and income is — your book is growing by 25%. So you know that this bank is now beginning to build serious leverage. When you look-ahead, our own estimate is that for ’25, ’26, our opex will not grow more than about maybe 30-odd percent, what is now growing at 18%.
Now you might say, how will that happen? Because that’s because couple of things are happening here. One is the income itself will be lesser next year and I mean income will not be less. I mean the growth in income will be even slower than this year because the microfinance business is gone and it has to reset itself. But the good news is opex will come down next year. So now you might say that if you’ve been growing opex by 18%, how will it come down to 13%.
Now the bank is doing many, many cost cut initiatives. Some of them are individual product little, some cashback propositions, the licenses we’re taking from various technology companies, what are the kind of credit bureau pools we are doing? Can we do it through alternative bureaus, which can become at a cheaper rate, can we do multi-bureau structures, how to rework our IT licenses, how to rework our travel, conveyance, cost, there’s a major project running out here. I mean how to — how to have double occupancy, single occupancy, printing stationery, whether people are to include SMS to customers, can you break it up single SMS standard, how can we change the sourcing cost of the bank, how the credit cost is going, you know, the credit expenses, how many people are doing credit evaluation, etc.
So all the ATM cost, so there are a lot of projects that are going on the et-cetera. So this is all one part of the work, that is cost, one serious work is going on. Then there are large number of transformation projects that are going on. That is even beyond the normal touch about SMS, etc. It is about real transformation. For example, if you have maybe 100 CPUs in the country, how to them into three or how to you know-how to digitize a particular process where we eliminate the entire chain of work going on in the chain. So let me just say a lot of transformation work is going on, lot of operational activities going on. So one big area how cost work is going on and we believe next year it will come down to like 30-odd percent.
Second thing that will happen is that one information we have not provided, but hopefully next time is that we want to break-up our opex and show you how much of that is fixed and how much is variable. And if book is grows, what percentage of this, how much fixed grow by, how much will variable grow by. When we do that work also, we believe next year we’ll deliver up to 13-odd percent. So this is a very material moment in our life. We believe next four, five years since the opex has been incurred for the last five years and the — at least essential building blocks have been built, we believe on a CAGR basis, our opex should stabilize somewhere in the 13-ish leak.
And then next year, our income will probably grow by — I mean, I have to hazard a guess, so please the analysts can do a little more deeper work, et-cetera. But maybe like the 14-ish or 14.5-ish somewhere, that’s how the income will grow. But the year-after that, because that’s because the microfinance business would be — would have stabilized, you know the base-case the lower base would have been achieved. But once that is achieved in ’25, ’26, I honestly don’t see any doubt in the bank continuing to grow the bank on the loan side by 18%, 18%, 20%, 20%. We already guided to 20.5% and I see honestly no problem growing the loan book like 20 plus.
And the deposit will grow by maybe 20% to 23%. And then you come 2029, whatever guidance we’ve given that will be a INR5 lakh crore loan book and INR6 lakh crore deposits, we don’t see a risk to that. So once that comes through, then rest of the equation is very good because our NIM is 86%, we make fees of 2%. If a cost-income eventually, I believe will come down to low-50s and then you’ll have like a 3.5ish, 4-ish operating profit, you have 1% of credit cost, you’ll be operating a posting ROA of like 12-odd percent. So probably a bit more than that on an even more longer basis. So our theory is very simple that this is MFI is a temporary situation, it will go. I have personally seen, I’ve been business as for a long-time and I can — we’ve seen many cycles in-life.
The good news is that neither on the retail front or wholesale front, we have put one foot wrong on credit. MFIs is our first big issue, let me say post-merger, but we will deal with it. It is a bit of a industry accident. So this is my quick brief. I hope with that opening comment about how we plan to — how we think about the future, we are frankly very bullish. We believe that some stage our bank will turn I’m requesting you all not to get very concerned about one quarter’s result or what’s going to come up in next two, 3/4. I mean, this time we’ll be — obviously we’ll be looking upwards, but I can’t promise that exactly it will be through you. It will be good.
But let me just say that as the 2026, ’27, ’28, ’28, ’29 comes, this is on record. You can check it out. I’m pretty confident that once the bases have met like 2025, ’26, then after that next four, five years, I’m looking at a good story because there is no single business that is in 15 years has let us down. I’m not expecting you know, to have any problem in any other business once we see the back of MFI. So thank you very much, everybody.
And with that note, we are open for discussions.
Questions and Answers:
Operator
Thank you very much. We will now begin the question-and-answer session. Anyone who wishes to ask a question may press star and 1 on the touchstone telephone. If you wish to withdraw yourself from the question queue, you may press star and two. Participants are requested to please use handsets while asking a question. Ladies and gentlemen, we will now wait for a moment while the question queue assembles. We have the first question from the line of Gao from Seanfeld. Please go-ahead.
Zhixuan Gao
Hey, thank you so much for the opportunity and congratulations on the good quarter. Just on the MFI, but do you mind share with us your outlook because the SMA-1 plus 2 seems to have increased sequentially more than what we have seen in some peers. So do you mention with us what kind of credit costs are we expecting in the next one, two quarters? And also on the overall credit costs, how are we thinking about FY ’25 because our previous guidance is I think 225 basis-points. And just looking at nine months, I don’t know whether that still stands. But that will be my first question. Thank you.
Sudhanshu Jain
Yeah, thank you for the question. Maybe I’ll take that. So on the MFI, we have seen an increase in the — certainly in the SME 1, the SME 2 book, even the NPA levels have gone up. As you would have noted from the presentation that we had an impact which was felt because of the holidays in October, essentially Diwali coincided with Diwali and because we have a weekly collection cycle, the last week of collections got impacted and which also led to some close into the subsequent months.
So we have seen a pile-up in the MFI book and the challenge very much continues to be there. We are also closely monitoring the portfolio as you would have noted that we have consciously slowed down on the disbursements. The good part is all our incremental disbursements what we are doing is also CGFMU insured and so on. So on this book, if I give you the Nine-Month number, we are already coming with credit cost of 8% and this doesn’t bake in the additional contingency provision of INR315 crores, which we have, right, which we have — because the SMA book levels went up, the NPAs went up, we felt it was more prudent to hold-on to the provision and not utilize at this stage.
On your question on 225 basis-points, as I sort of covered earlier that excluding MFI, the rest of the book is very much coming in-line, right? We have not seen increase in SMAs. We have not seen increase in slippages. So we feel that on the rest of the MFI book, we could still hold-on to this number even into the next quarter. However, the overall guidance for 225, that may slightly inch up a bit. We of course need to see how the situation sort of pans out in Q4, but that would be few bps of increase could be because of MFI because we are seeing slightly higher losses sort of coming there vis-a-vis the anticipation which we had in the — maybe in the previous quarter.
V. Vaidyanathan
But our own sense is that the credit cost of MFI should peak out in Q4. So it should be even more than this quarter. But when we estimate the credit cost-based on the collection percentages, assuming collection percentages continue to stay what it was in December and maybe probably even improve from here. But we expect that Q4 to increase and then Q1 ’26 to be less than the prior quarter, Q2 to be less than Q1, Q3 to be less than Q2 and Q4 to be less in Q1. So basically this is the peak of it. Our estimates are you know that the coming — the quarter that’s ongoing right now is the peak of it?
Zhixuan Gao
Yeah. Thank you. And my second question is on the 14-odd percent revenue growth estimate for FY ’26. Do you mentioned with us what’s a breakup in terms of the growth that we are likely to do and also the margin outlook, but it seems like the strategy for now seems to have changed to grow more corporates in the last one, two quarters. So how should we think about margins and loan growth?
V. Vaidyanathan
So the — basically this year — next year, we believe loan book will continue to grow by about 20 odd percent and reposit will probably grow by maybe 24-ish, 25-ish percent next year. The reason why the income will not grow directly in proportion is that the microfinance, like I said, is a highly profitable business. We’re lending at 24%. You know, incidentally, though the microfinance book is only 6%, 7% of the book maybe until a couple of quarters ago, now come down even less than that, the impact of the withdrawal symptom of not doing that high-yield book is also coming in the form of income lines so that is the reason why we expect ’26 the income line to get affected.
But the good news is that opex, like I said, we expect to be low because I told you a lot of initiatives are going on. And therefore, you know by Q3, Q4 of next year, I mean, you should see a reasonably sharp upward movement of operating profit, let me say. And for those of you who you are going to be with us until that time and see how the worm is turning, you will be able to see how the margins are expanding. And frankly, like I said before in the opening comment that once that MFI will then probably by the time be probably even 4% of the book or something like that.
So it won’t be much and it will also have been the spring cleaning of the MFI book would have happened by that time our book would be insured largely by that time. So we expect that from there on MFI shouldn’t give us trouble and then the rest of the book is anyway doing well. So we expect that, like I said before, after that the rest of the story is a — will keep moving in a positive direction.
Sudhanshu Jain
Yeah, just to add, this is just to add, this is our current estimation, of course, this factors in that the stress in the MFI portfolio continues for a few quarters. If things sort of ease out maybe and some growth sort of comes in here, then we could see some uplift in these numbers, but these are our current estimates that income could grow by about 14.5% to 15%.
Zhixuan Gao
Sorry, just to double-check, you were saying that the opex, the material drop of opex growth, we should be much more visible in the second-half of ’26, right? Is that I get it right?
V. Vaidyanathan
You will see it every quarter. You can see it in even already this quarter itself, if you see Q1 to-Q1 of this year, Q2 to Q2 of this year, Q3 to Q3 of this year, for example, our OpEx growth in Q1 ’25 was 21.1% Y-o-Y. In Q2, the 17.7%. In Q3, it’s 16.1%. So our opex is stabilizing and definitely coming down. I’m first of all, happy that you asked me this question because many people do believe that listen, this bank is spending in spending and this opex never seems to come under control what’s going on.
Well, you see the numbers, it’s dropping quarter-by-quarter, at least in a percentage Y-o-Y sense. And we are confident of next year because we believe that the bulk of the investments have been done. Of course, investments are never completely done in-life, but at least like I said before, whatever we to launch, we launched, so we’re not going to for the new business launch tomorrow morning and say, oh my God, losing money that’s not coming — that trouble is not coming your way.
Zhixuan Gao
Thank you so much, sir. Thank you.
Operator
Thank you. The next question is from the line of Jay Mundra from ICICI Securities. Please go-ahead.
Jai Mundhra
Yeah, hi, evening, sir, and thanks for additional disclosures on slippages, MFI and not many things. So first question is on MFI only. So outstanding book is around INR10,900 crores, that is the MFI book. But I wanted to check, is there any other loans that we offer to this customer, maybe two-wheeler, maybe small auto loan or any other PL loan or you know that these customers get only MFI loans from us.
Operator
Ladies and gentlemen, the management line seems to have disconnected. Please stay with us while we reconnect with the management ladies and gentlemen, we thank you for your patience. We have now connected with the management. Over to you, sir.
V. Vaidyanathan
No, we don’t sell very many other products along with it. It’s a regular MFI, the short answer.
Jai Mundhra
So that — okay, so sure. Second question is, sir, I mean, just to get this correct, you have mentioned that you have a conservative provisioning policy, and you have not utilized any contingent, right? So as against the SMA-1 plus 2 outstanding of roughly around INR500 odd crores. We — as of now, we still have INR300 and few crores provisioning that we had at the end-of-the Q2, right? That is the right understanding.
Sudhanshu Jain
Yeah, that’s correct. In fact, if you sum-up the NPA book on MFI and the SMA-1 and 24, the cumulative provision which is hand is about 70%.
Jai Mundhra
Okay, great. And thirdly, on — sir, collection on MFI book again, so collection efficiency, you mentioned that it has come up to 98.6% but what we can also recall is there is likely to be tighter guard rails with — which will be coming in effect from April first which would you know, create further disturbance, at least for the people who have slightly higher share of lenders. If you can comment, you know, are you factoring into that development while saying that the MFI should be peaking in 4th-quarter?
V. Vaidyanathan
No, when we say MFI should be peaking in 4th-quarter, basically we have estimated the collection percentage that is coming currently and you assumed a little more improvement because the trend-line is in that direction, slightly assume. And then we know the flow-in the portfolio. So our estimates are that Q4 on this basis should be — should be — should be the peak.
The other thing is that in terms of — to your question about the changes in the industry, industry about the — you know the norms with which others are going to work with, that they’re going to work with, etc. We are going to follow all the norms in the industry. And we have a little more controls over and above that at our own end. So that — so basically once you follow all the norms in industry, number of lenders, amount of exposure, et-cetera, we will probably be in-line with industry,.
Jai Mundhra
Right. And sir, lastly, if you can elaborate your assessment of the current situation in the state of Karnataga and what is the portfolio that we have in the state of Karnataka? You want to find?
V. Vaidyanathan
Yeah. When we move to the next question, as and we get it, we’ll 61%.
Sudhanshu Jain
Yeah. So we have about 9% in Karnataka. That’s the number.
Jai Mundhra
Okay, sure. And lastly, sir, your consumer loan growth, right, so consumer — consumer loan growth, it has been coming down as-is with every other bank also. But if I look at now, it has come down to 10% Y-o-Y. Is this more or less stabilizing here or you think it can you more or less continue to see a bit of a moderation because of the ongoing cautiousness at the system-level?
V. Vaidyanathan
It frankly for us to grow any of these businesses is not difficult at all because like every — obviously, we are coming on a low-base as compared to, let me say, industry leaders who have a very large share of the market. We are like nothing or nobody. So we are not so concerned about market-share. We are not even talking that language within the organization or outside. So — but more specifically on consumer loans, we feel that they’re all doing well. There’s no issue.
Jai Mundhra
Right, sir. And sir, lastly, last question from my end, sir. We — we now estimate that sixed cost-to-income should be ideally 65 by FY ’27 and of course…
Operator
But your line seems to be unclear right now. Could you please repeat the question?
Jai Mundhra
Sir, I was talking about cost-to-income trajectory that you have given that by FY ’27 we should be hitting 65% mark. And assuming we do that, what kind of an ROA would you expect on 65% cost-to-income?
V. Vaidyanathan
Thank you. See, we’ve got different analysts have different estimates on this front. The way, if you don’t mind, can I just take you a little larger question about the breakup of our various lines of businesses and their cost their economics. So if you move to Page 65 of the presentation. We have shown the operating profit as a percentage of loan book of the — of the lending business. We have broken our bank into three parts. One is entire lending business, retail, MSME, rural, corporate all put together is one family.
Now on that front, we are having 4.3% of the — of the loan book as our operating profit. This includes MSI, by the way. So if you — and before the MFI crisis stuck, it was 4.7%, we actually expected to go to 4.8% to 4.9% because our operating leverage, but of course, it’s coming to 4.3, but still 4.3 good actually. Now and we believe this should go up because end-of-the day, even as our loan book grows from INR2 lakh, INR2.2 lakh crore, which is today to say INR5 lakh crore in the next four, five years, this has to go up. Obviously, we’re not going to keep on spending more-and-more money in the same proportion of the loan book growth. So this will come. So think of this number a little higher than this.
Now the second thing is like you take the — the second business I told you the liability business has said that you must — you must expect us to take it to zero, which is cost-income to come down to 100, which means that the credit — the loss will become zero. So let us assume for a minute that does head to zero. And let us assume for a minute that the credit card business, after all, we are not doing this for a social work or research work, they’re actually going to — it’s a profitable business. We want to make money on it.
So that business is, you know, already touched 100% cost-income ratio and we believe it will touch the 60s odd in the next four, five years. So that should be making like INR500 odd crores of PAT by that time. Today, it’s making loss of INR300 crores last year, probably about INR80 crored crores this year and the next year breakeven for sure. And then from next year-after that bite my tongue and I see for sure because sometimes it may play, may not play, but we are expecting highly confident that next year credit cards should move — should be positive.
So — and by the time like I said, ’24, ’29, 30, it should be making like INR500 crore INR600 crores of PAT. So therefore, if you take this 4.3%, which is today and get some operating leverage on a ticket of maybe 4.7%, 4.8% by that time, probably more and then you assume both liabilities are going to become positive at least if you know, then you see what happens. On this 4.3, you take some credit cost of maybe 1.1 off of 4.5, you take 1.1 off because we are comparing everything of assets and then you subtract 1.1 assuming credit cost stays at current levels like what we are ex-MFI.
So you take that off. So 4.4 minus 1.1 and looking like about 4.3.3 or sorry, we should take the percentage of loans, my bad, my — let me correct myself. So this — let me say this 4.6 or 7%, you subtract from that about 1.7% as the credit cost by that time. So you’ll be looking like about 3% or so. And then you have tax on it or maybe 2.9 and then you take tax on it or maybe 60, 70 basis-points. This bank is surely headed to the 2% plus ROE basis of 2% plus for sure. So — and it will be a 2% plus ROE bank, it will be a growing bank, it will have a unique technologies, it will have a growth, it will have its own moats and cultural — culture is very good, a customer-friendly approach. So we will take all the boxes.
Today, we take five boxes, but we don’t take one box, which is the cost-income ratio. But we are conscious of it, we’ll fix it. So that’s the only way to think about this bank in the longer-term. Honestly, I have zero dot in my head, the bank is heading in that direction. Now you may have one year plus-minus whatever, but I’m pretty sure Bank is heading in the direction.
Jai Mundhra
Makes sense. Sir, your assessment of the current situation in Karnataka for MFI, there are quite a few developments, state government trying to sort of intervene, if you can update as to what is happening on the front?
V. Vaidyanathan
Yeah, before I come to the question, let me just give one finishing touch with the previous question because I said that detail. So think about like I was saying earlier that this 4.5 odd and you take 1.7 odd for credit cost, so you’re left with or so. And then also remember, that’s all percentage of loans. We’ve got to number two percent of assets that will come down to something like 2.4 or so. And then you take the tax off 2. I’m sorry, I just wanted to just make the distinction between percentage of loans and percentage of assets so that you can get the math right. So in this math, if you did the match to spreadsheet, you will get to see a 2% ROH bank and the only cats here can be credit cost. There is no the catch here.
Now in the credit cost front, well, it’s like this long period of, 14 15 years to running a good credit cost company except the MFI that has happened now, if you believe that we should be able to run the credit cost on the lines we’re talking about 1.7-ish percentage of loans, which will probably be 1.2-ish of percentage of assets. Sorry, that’s a previous question. Now back to your question again.
Sudhanshu Jain
Yeah. And with respect to Karnataka, again, this is a very latest development. This has come in the last three days. So we will closely watch this situation. It’s difficult to sort of give out what could be the impact on that front, but we are quite watchful anyways on the overall MSI portfolio.
Jai Mundhra
Thank you, sir. All the very best, sir.
V. Vaidyanathan
Yeah, thank you. Thank you.
Operator
Thank you. The next question is from the line of Piran Engineer from CLSA. Please go-ahead.
Piran Engineer
Yeah, hi. Thanks for taking my question and thank you very much for all the enhanced disclosures. Just firstly on MFI, the three-member rule that’s coming up next quarter. Have we proactively moved to that?
V. Vaidyanathan
No, we are currently following what is allowed in the system. I told you there are two reasons we like the business also. It makes the money and it’s insured. So we are happy the way we’re doing it right now. We are just following the roots of the broader ecosystem.
Piran Engineer
But don’t you think it makes sense to tighten right now and it’s eventually going to come a quarter later? I mean if you’re going to be the fourth lender today and it’s not going to be allowed, say, say April 1st onwards and the next lender is not able to, let’s Call-IT evergreen that borrower she will default to you, right?
V. Vaidyanathan
No, that’s true, but we are — we are very carefully, very, very carefully watching this. So basically what we have done is we put some extra controls in our MSI business over and above the normal market rules. It’s just — we’re not — we’re not — we’re not restricting ourselves to the ecosystem rules that have come that with four lenders or three lenders, that’s not only condition. We have developed actually a very active scorecard where we have introduced a lot more number of parameters, which we believe will give us a much more scientific decision-making process than blunt rules.
Piran Engineer
Got it. And do you also track the entire household debt.
V. Vaidyanathan
Well, you can — as part of the appraisal process, certainly our people ask the question, we understand the household debt and we are supposed to meet certain requirement of as a percentage of the household that is what is supposed to lend, etc. We follow all of that. Thank you, you, you get, you, you, you get the best estimate, you know from the situation. We go by our best estimates of what our people assess on the on the occasion actually, but you know you can understand that much of these households anyway.
Operator
Thank you. The current participant seems to have dropped from the queue. We have the next question from the line of Rohan Mandora from Equirus Securities. Please go-ahead.
Rohan Mandora
Good evening, sir. Thanks for the opportunity. Sir, coming back to the Slide 65-66, 67. I just want to understand a couple of assumptions here. One was the opex which is linked to the technology part or the head office and other things, which are not allocable to a certain business. They are not captured. Just want to get that right. And second was on the fee income piece, like is it getting captured in — if it’s a wholesale business fee, is it getting captured anywhere? And if not, is that missing in this analysis or is it getting captured somewhere? And third was on the liability business, the ratio that we’re showing, are we building in any transfer pricing income in the interest income for the liability business? So that was one part of the thrown.
V. Vaidyanathan
Let’s take one question at a time. It will be easier for us. Say the first one,, you want to take that?
Sudhanshu Jain
Yeah. So maybe I could tell you how this has been constructed. So essentially if you take the P&L of the asset book, if you take the — which includes retail as well as wholesale, so these numbers captures both the businesses. Then we have a liability business, then we have put out a credit card business separately, right? Then we have a small income and opex which comes to the tool business. Essentially, these are the broad lines of business.
If you sum all of it, then it becomes the bank’s number, right? In terms of how are we assessing this, this is based on an internal transfer pricing and a cost allocation methodology which we have put in-place. So to your question on IT costs, even the portion, all of it is allocated in any one of these businesses, right? So it’s on a fully allocation basis how these numbers have been drawn-out when we are computing the pre-provisioning operating profit for all of these businesses. So on your question on liability in terms of how this number has been computed, let me just quickly dwell on that.
So there is an NI with the liability unit earns on the deposit, which it mobilizes, right? So they could mobilize current account, they could mobilize savings account, they could membolize term deposits, right? We all know current account is the best form of money to have, right, because it comes with 0% cost. So we give an internal transfer pricing income to the retail liability unit. Similarly on savings, we give some transfer pricing income. And so is the case with TD, which is more a commodity product, it will be much lesser there, right? So that would be the NI income from the retail liability group.
Then there are fees which can be directly identified and attributable to the retail business. This could be fees you are earning by not maintaining average a monthly balance or a quarterly balance by the customer, could be ATM-linked fee, could be fees on account of insurance, forex, distribution of mutual funds and so on. So that would be the second pool of income for the liability branch, they could also sell assets or say sell a home loan, a personal loan, loan against property. We give a certain intel transfer pricing fee to the liability unit, okay. So NI and pet fees, all of these components makes it the total income.
In terms of a cost, there are costs which are directly attributable to the branch, which could be the people cost, the housekeeping, salary, the DICDC premium, ATM running cost and so on. And second, as I said, it’s also loaded for the allocations, right, which could be for IT, which could be for operations, which could be for customer service, which could be for the corporate center teams. So it’s on a fully-loaded basis. That’s how finally the P&L is arrived for each of the businesses, right? Like for an asset-specific, you will load it with the sourcing cost, you will load it with the collection cost. So some of these items change according to the nature of the businesses.
Rohan Mandora
Sure. So sir, I was trying to reconcile this number. So see if you look at FY ’24 and the asset income at 4.7% and this is on total advances, which is roughly two-third of the total balance sheet. If you look at the retail liabilities, the cost is 1.7, which is again roughly two-third of the balance sheet. So if you adjust this, 3% is a net that we make. If I add the interest on investments, that is roughly 1.4%, so we’ll get to around 4.4% at a — at a PBT — at a PFOP level. And if you take two-third of it, it comes to around 3% odd. Whereas the computed ROAs for the bank was coming at around 2.4%, roughly 50 basis-point gap was coming so that’s where I was trying to understand what could be explaining the difference vis-a-vis the analysis that you shared.
Sudhanshu Jain
So we also have the credit card business, which also generates an NII and fees, right?
Rohan Mandora
So — but that was a small amount on the total loan book. So that’s fair.
Sudhanshu Jain
Yeah. Then on the investment income, as you said, you have taken a certain component and we have treasury investments, we have few other investments. So let me assure you all of this adds up to the bank numbers, right? And so — and these numbers are in that way very…
V. Vaidyanathan
And they’re also shared with the Board and sense that whatever sharing with you, they’ve all gone past the Board already.
Sudhanshu Jain
Maybe this reconciliation, we can take it offline and people will give you more details around this.
Rohan Mandora
Sure, sir. And secondly, sir, this was on the deposit piece. See, if you look at it, you have been delivering healthy growth on deposits. So just want to understand in terms of the contribution in terms of — if we are on the journey wherein an asset customer is coming to us first and we are converting them into library subsequently, how would that journey play-out and what could be the contribution in terms of incremental growth? And overall, how is the mix of new bank customers on deposits vis-a-vis the organic growth on deposits, some color around that?
V. Vaidyanathan
So currently, as we are new to bank in the sense that if you think of any bank being around 20, 30, 50, 100 years, they’ll have a large customer-base. And even if they give one interest credit of 5%, all of them, the balances goes up that alone, you know, and then they are — then they got to get a little less of the external market, so to say, because they are flying on two wings. A bank like us, which is starting up right now since we start with zero-base, today we’re no longer zero-base, still lakhs, but in the context of what we want to build-in life, maybe 10 lak INR15 lakh crores over the next many years, we are still zero-base.
So a large part of our business is still very heavily NTB and good thing is that we built really good journeys to make it smooth for customers to bring money to us. So that’s the way you think about it. So we are — right now we’re still a zero-day company and a zero-based company and we still have a good percentage that is coming from new customers.
Rohan Mandora
Sure. Anything on that asset-linked originations?
V. Vaidyanathan
What was that.
Rohan Mandora
You can share any mix that you can share on how much coming from the asset customers in whom we were origin first?
V. Vaidyanathan
I guess assets are useful, but see, frankly, all asset customers are not really good liability customers. So the — in the sense that we are not finding customers with consumer durables or two-wheelers, etc., bringing any meaningful liabilities at all. They are really relatively — they’re relatively more modest income and therefore, they’re borrowing to buy a two-wheeler, so it’s unlikely that they’ll have much money with them. So I mean, they may keep INR8,000, IN 10,000. So that’s not balances. But the — but the customers who avail say a home loan, for example or customers are availing you know these kind of products are even loan against property for that matter. These are the people who have money. And the credit card customers are usually coming in, they have more money because the credit people. So what I’m trying to say is that the high affluence customers is what to bring the money. So not all asset customers on our bank are high affluence.
Rohan Mandora
Got it. And sir, lastly, on —
V. Vaidyanathan
But we do people who open home loans, etc., we do open the savings account to a very, very-high degree actually.
Sudhanshu Jain
And sorry, before we put up the next question, just on the previous question, the number question which were asked, see, as you said 4.4% is the PPOP on assets, right? And 1.7 is the negative on liability, which makes it 2.7% and the asset book — advances book is roughly 70% of the balance sheet, right? And on the rest, 30% essentially investments or incomes coming from tool, right? If you apply these proportions, you will get a number of about 2.3% on PPOP, which is the disclosed number for us for the nine months, right? PPOP to total assets is about 2.29% and this is the broad reconciliation.
V. Vaidyanathan
So this is very useful.
Rohan Mandora
So you added that interest income from investment also, also addition to this? Because if we exclude that, then it matches. If we include that, okay, I’ll just take it offline and then just that.
V. Vaidyanathan
And also to the previous questions I was answering on how the economics of the longer run will play-out. This question-answers it very well because this 4.4-ish we’ve shown there, which we believe will move towards the 4.7-ish or so comfortably and you take-off the 1.7 from that, you come down to the 3-ish and then that math when you — that will also come back to the same answer because come net of you know net of your credit cost will come down like to the 3-ish. And then because of the fact that we are now going to compete as a percent of assets, not loans, that 3% will start looking towards like a 2.4ish or so and then you subtract the tax from it to come back to 2.
So we feel that any which way you look at it, this bank is feeling the heading there, whether you can reach that in 2030 or 31 or 32, I mean, it will be very hard to really pick a number. But this bank we will be — as zeroed out in my mind that this 1.7%, 1.8 kind of ROA is not a difficult thing for a bank with our economics. The true real issue is that our true economics, which is a true incremental profitability of this bank is getting clouded by the fact that all of you are looking at the whole thing and you’re not factoring for the fact that the liability loses money or loses money or by the way, there are many products which are not called out to you because it will become too complicated.
There are many other business bankers launched. Like I told you, you, like we’ve launched so many, they are all-in negative zone, but we have no interest in running business in negative zones forever. They are just meant to become profitable, which is a matter of time. So every product is going to its own J-curve of loss to profit. And when they all come up together, it will become a — it will come together.
Rohan Mandora
Sure, sir. And sir, lastly, just on this competition of operating expenses slide, the volume-related expenses and channel sourcing expenses. If you can help us understand what would be the contribution from the asset and the liability side, if there’s any thing that you can share there?
Sudhanshu Jain
Yeah. Yeah. So sourcing — the channel sourcing expenses would be essentially from the asset side, right, because this is cost for your DSAs, DSTs, business correspondents and so on. The volume linked, it largely, I would say it would be across, right, because you could have — for credit cards, the reward point expense which comes in, you could have the cashbacks and propositions, which go along with the credit card. On the liability side, it could be the premium, it could be, RTGAs, and so on, right? On the asset side, it could be the collection linked cost, it could be even like a bureau cost and all — which you incurred origination. So it’s across all of these verticals, I would say.
Rohan Mandora
Sure, sure. Thanks.
V. Vaidyanathan
Thank you.
Operator
Thank you. Ladies and gentlemen, we request you to please keep your questions brief. We have the next question from the line of Pritesh Bham from DAM Capital Advisors. Please go-ahead.
Pritesh Bumb
Hi, hi, good evening, team. Good evening, sir. Sir, just wanted to check on two-wheeler. In our — in our slide also, we’ve shown that the industry is seeing some uptick in terms of 30 plus DPT and asset quality issues. What is our sense? We have that as a large book and it’s a high-yielding, high credit cost business as well. So what do you see there?
V. Vaidyanathan
So now it’s growing quite stably but in this business we all learned never to be too sure. So we’ll be very, very watchful, but we built the business. We have some — we built this business over the last maybe 10, 15 years, actually more 15 years and 10, 15 years probably. And we’ve seen lots of cycles. So now it’s very well for us.
Sudhanshu Jain
Yeah, to be the bulk of the book in the vehicles segment and that’s roughly at about 70% of the vehicles book. If you see that the presentation, we have also given SMA-1, SME 2 numbers and NPA, right, at the vehicles level. So it has been holding up quite well. Our two-wheeler has been growing quite nicely for us. We have a formidable market-share here. We have been again invested in this business for quite long, right? So we are — while we are quite watchful because of the economic environment, but we feel comfortable at this stage, probably in terms of the sourcing and the portfolio sort of which is sort of moving on this front hello.
Operator
So the current participant seems to have dropped from the queue. We will proceed to the next question now, which is Ms Piran Engineer from CLSA. Please go-ahead.
Piran Engineer
Hi. Sorry, I probably got dropped off from the line earlier. So just on MFI, how much money can we expect back from CGFMU right now? Is it fair to say that since half the loans are insured and assuming the same slippage ratio between the insured and the non-insured book, this should be the amount we get back?
Sudhanshu Jain
Yeah. So essentially, today also when we have an NPA pool, which has got piled up, this has some proportion which is out-of-the CGFMA portfolio and there is some portion which is out-of-the old sourcing, right? So on the — particularly on the CGFMA insured book, right, we would start getting claims starting from FY ’27, right? And the recoup of credit losses could be as high as about 70%, right, of the losses which we incur on the CGFMA-linked NPA.
Piran Engineer
Oh, it’s only up to 70%.
Sudhanshu Jain
Yeah, it’s up to 70%.
Piran Engineer
So like 30% is sort of co-pay, is it? Is that how I have to think about it? In insurance store.
V. Vaidyanathan
So let’s take it — let’s skip two years ahead just for simplicity’s sake, so that’s 100% is insured.
Piran Engineer
Okay.
V. Vaidyanathan
And let us say that 2028 you wake-up and you find that credit cost in microfinance is 4% so your credit cost books will probably be you know 30% or 28% be more precise, 28% of that. If it’s 3%, it will probably be 1% will come to us and 2% will go to CGFMEO. It’s like that.
Sudhanshu Jain
Got it. But the policy which we have, we end-up providing earlier, right, while the money generally comes within two years after the date of disbursement. Hence, I said for the disbursements which we started from January ’24, we expect the chance to sort of come in from FY ’27. So we would have provided to a great extent on these NPAs. So we could expect a recoup in credit costs in that year.
Piran Engineer
Got it. Got it. Fair enough. And just lastly, how are things on the credit cards front? I see that your NPA stable SMA-1 and 2 has improved quite a bit. You know your comments on this would be useful.
V. Vaidyanathan
Our credit cards are doing well. You can see our numbers, our SMA-1 and 2 credit cards has come down last quarter. It’s come down from 1.69% to 1.32%. In fact, last 3/4 come down to 1.88%, 1.69%, 1.32. So even on the NPA number.
Sudhanshu Jain
Yeah, the NPA has come off to 1.91% vis-a-vis 1.95% in the previous quarter. I had mentioned in the call last-time that on credit card, we feel quite comfortable because of various policy timely policy interventions which we had done and credit cost in credit card on the book is marginally lower than the previous quarter and we expect the view that this trajectory could continue.
V. Vaidyanathan
Okay. So reason to get very disturbed anything of that. We have one problem, that’s a known problem NFI. It’s not 10 trucks.
Piran Engineer
Understood. Okay. No, because for the industry, it’s been an issue. And since you have now started disclosing SMA 1/2 data, it was quite useful.
Sudhanshu Jain
Yeah. Thank you.
Piran Engineer
Yeah. Okay. That’s it from my end. Thank you and wish you all the best.
Sudhanshu Jain
Thanks.
Operator
Thank you. The next question is from the line of Anurag from Capital. Please go-ahead.
Anurag Mantry
Yeah, hi. Just one question on the credit costs ex NFI. So eventually, if I do the math you for this quarter and for the last couple of quarters, it seems that the normal book ex MFI and infra account that you had last quarter, so the credit cost is coming more like 1.7, 1.8, 1.9 like the trajectory for the last 3/4 as such. So just wanted to understand how you’re looking at it because there has been a margin increase every quarter in that as well. Do you see like the current level is more stable? Do you see maybe potentially some bit more increase and if you can point to any reasons why this increase has happened in the last couple of quarters will be?
Sudhanshu Jain
Thanks. Yeah. So on this front, the credit cost ex MFI and the total account, if you also keep it aside, for Q1, the credit cost was about 1.7%. In Q2, it was 1.8% and Q3 has also come in at 1.8%. We also — we feel that this could broadly remain in this range, maybe could be or maybe 180% to 190 that kind of range. So we per se don’t foresee this to materially go up or it could marginally sort of inch here and there, right? So we feel quite comfortable on the rest of this book.
V. Vaidyanathan
In fact, people often ask us because it’s a concern because an investor, you should worry all-the-time we should. Many people do ask not just us, I’ve seen some television interviews on these business channels, etc., saying that is the issue on MFI going to spill-over to consumer credit and people do half-an-hour discussions on these things. Really, we are not seeing any spillover or anything of that. This is just a — that’s a very rural this MFI is a very rural, rural little kind of stuff. Within, we’ve seen no impact at all, there is no reason for any impact, sir, why is the question of spillover.
Now we’re talking of rural, it’s — the is a very unique business as compared to any other business. What is unique about microfinance? Microfinance is when the group of borrowers are coming together and repaying when our people have to go to the customers you know, or to a common venue and customers to come and pay, meaning we have no right to debit the customers’ bank accounts for an EMI. Every other product we sell, we have a right to debit the customers’ bank account and we have to only deal with the returns that come.
In MFI, the nature of business is different. We give the money on the duty to go and sit in the college or the school or somewhere and at a joint and customer has to pay. So MFI is a unique thing. So it’s a unique thing behaving differently. It has its odd behavior sometimes, but it’s only very, very MFI focused thing for us, rest of the book. We said that before, I’m saying it again. It’s doing well. I mean, in the sense, the entire corporate book is doing well, entire retail book is doing well, entire MSME book is doing well, business banking is doing well, credit card is behaving well, they’re all doing well. And you see the numbers.
And let me just tell you one very, very important thing, which you know towards the closing I’ll share with you. We are giving you not just NPA or credit cost. These are standard, of course, everybody should give it and that’s part of the job. We have in our investor presentation and even otherwise, we are explaining our basis of lending. We are giving an EMI check bounce, EMI bounces, we are giving correction percentage efficiency on those bounces, then next we’re giving SMA data, then we give SMA data by-product, then we give you NPA data, NPA data will give a product, then we get NPA data by-product and by the four, four quarters there is stretch, then we give vintage analysis, then we give industry comparison 30 of our bank versus our industry.
So the amount of detail we give is something, I mean, we’re giving the full funnel to you. So it should not be difficult to estimate any number — and all our numbers reconcile. So it should not be difficult for you to realize that this is only a microfinance problem. Others are being there, all the numbers are there. In fact, if you went to Page 30 to maybe 45, you’ll find all the information.
Sudhanshu Jain
And just to add, even into the next year, so as said that on MFI, we expect the peak to sort of come in Q4 and that should — the credit cost should keep coming down into the next year, every quarter. And for the rest of the book, we feel provisions could be very range-bound or more or less around the current levels, right? So which means that the overall credit cost is expected to come down for the next year vis-a-vis the pain with some of the pain on the MFI which we saw into this year.
V. Vaidyanathan
So only as a KVR just to be safe because we are — we’re speaking and lot of people listening to us, etc. Now we have seen this, like I said for a long-time, I’m sorry, ex-MFI, I told you, we have given every part of the chain and funnel we’ve given to you publicly there in the presentation. Now we have seen that every business have their own nature, they have their own credit cost behavior. If you do some product of all of that, you’ll get a reasonable estimate of our bank credit cost, which is the 1.8 we’re talking about.
Well, you know we are human. We’re running a business at 1.8 can become 1.9 can become 2, who knows, maybe it can become 1.86 also. But it’s going to be range-bound. It’s going to be here. It’s not like — I’m not saying, by the way, it will come to tomorrow morning or something, but I’m just telling you that it is the range. It is never going to become — it’s never gone completely off back because there is a certain credit criteria we lend to. We don’t fiddle with our credit criteria.
We have lent and we learned and we refine and we refine. So as long as you don’t get greedy and we don’t want big business and we don’t want to get aggressive, et, which we don’t want to, it will behave a particular way and it is behaving a particular way, it will behave a particular way because it has a particular you know, cadence to it.
Anurag Mantry
Got it. Thank you so much. I think it’s quite a while though. Anything.
Operator
Thank you. The next question is from the line of Anand Dhama from Emkay Global. Please go-ahead.
Anand Dama
Yes, sir, thank you for the opportunity. Sir, my first question is on your opex. I think you said that, 18% 19% of OpEx will go down to 13%. Any three to four key drivers that you see where basically you will see this kind of a cost-reduction going-forward.
Operator
Sorry to interrupt, Anand, but your line is not very clear.
Anand Dama
Is it better now?
Operator
Yes, this is better, please. Request you to please ask your question again.
Anand Dama
Sure, sure. So basically you said that your opex, which is about 18% to 19% growth, but where you were hurting it to come down to 13% for you.
Sudhanshu Jain
Yeah. So essentially, we — the overall theme is that we expect the operating leverage to play-out, right, clearly as we move along into the next year. If you see — we have given some level of details like if you see employee cost, right, that was growing at a much higher pace and the pace has considerably come off. So even into the next year, we expect — we expect that employee cost percentage increase could come down, right? It’s a combination of the number of employees, which we foresee could sort of come in terms of addition for the expansion, which we are planning and so on, right?
So we expect that the employee cost to taper down even on the non-employee cost, right, I’m saying there, as I said, there is some fixed component and there is some variable component, right? So there also the fixed-cost will grow in a particular trajectory and the volume is something which will go — which is linked to the volume, right? And some of the examples which I can sort of give here, like we have said that we may grow the deposits at 25%, the branch may not come in that tandem, right?
We may add about 75 to 100 branches into next year, which is 10% over the current stock. So clearly some leverage sort of comes in there, right? Then we — our tech cost and so on, we have already done a lot of front-loading in last few years, right? So that could increase at a particular pace. So we feel that because lot of expenses have sort of already come in, there is clearly an operating leverage or the proportion increase could definitely come down from the current levels.
Anand Dama
And would that also mean that next year our growth could be sub-20% and that also to some extent will contribute towards this kind of a lower OpEx.
V. Vaidyanathan
No, we are not planning to slow-down the growth. I mean like 20-ish of the loan and about ’22, ’23, ’24 of the deposits because frankly, as you’ve seen for the last many years, we are good at deposits. If you wanted, we could go 25%, 27% whatever we want but the need will come down next quarter — next year. So therefore, 24-ish.
Sudhanshu Jain
So we may require only 23% 24% kind of a growth on deposits next year for fueling a 20% growth on the asset side.
V. Vaidyanathan
So our deposits are growing well already. So we don’t need very many branches. The short answer is Sudanshush, if I were to sum it up for you. On the loan side, on the deposit side because deposit is one part of our expense, as you know, on that front, we are not planning to load very many branches because current branch architecture of a 1,000 odd is good enough to give us roughly the numbers we want. Of course, we think a little ahead, I don’t want to be caught in the wrong foot for ’27 or ’28 or ’29. So just as insurance, we still go and put about 100 odd. But we are comfortable. And of course, we may tinker the size of the branches, we may reduce the size and put a little more or we may increase and put a little less, whatever, but you get the drift that this is out of magnitude are planning to grow. So let’s Call-IT 100. So if a current base 1,000, you go 100, you’re going to adding only 10% branches, but we are expecting book to grow by 20% plus. So that is operating leverage.
Operator
Thank you. Ladies and gentlemen, we will take that as our last question for today. I would now like to hand the conference over to Mr Nathan for closing comments. Over to you, sir.
V. Vaidyanathan
I want to just thank all of you. I think you’ve had a long-time with us today and we thank you for being with us for this long. And we do request you to think a little ahead. We’ve given you quite a few new things at four, four years were known issue suddenly come with the MFI issue, feeling — we are also feeling a little disturbed by that as to why we are surprising like this and we are a bit unhappy with ourselves that after settling everything right, suddenly this MFI has come at us and we are having to have this conversation. But we believe after this, we see the back of MFI and they should be — we are not seeing any major crisis other than that. Yeah. Thank you.
Sudhanshu Jain
Yeah, thank you, everyone. Just to add to it. So I’m seeing while we are seeing some top-line pressures which could come in, but clearly, we are working towards improving the operating leverage and that’s why the opex growth could moderate and so on. I also touched upon that provisions could be lower on an overall basis. So we are very much sort of working on improving the set of numbers. Thanks. And thank you for a patient hearing and have a great weekend.
V. Vaidyanathan
Thanks, everyone. And from all of us at IDFC First Bank, if any of our employees are hearing this call, I wanted to just take the opportunity to say that we’re building an amazing bank, have confidence in confidence in yourself. In a long journey, these things can happen in a quarter, two quarters, 3/4, but I have confidence in-building something amazing. Yeah, thank you, everybody. And if any those are hearing, that’s for you. Thank you, everybody.
Operator
Thank you. That concludes this conference, ladies and gentlemen. Thank you all for joining us. You may now disconnect your lines. Thank you.