INDUSIND BANK LTD (INDUSINDBK) Q2 2022 Earnings Conference Call dated Oct. 27, 2021.
Corporate Participants:
Sumant Kathpalia — Managing Director and Chief Executive Officer
S.V. Parthasarathy — Head – Consumer Finance
Analysts:
Nitin Aggarwal — Motilal Oswal Securities — Analyst
Sameer Bhise — JM Financial — Analyst
Gaurav Singhal — DK Partners — Analyst
Kunal Shah — ICICI Securities — Analyst
Nilanjan Karfa — Nomura — Analyst
Rahul Shah — HSBC — Analyst
Aakriti Kakkar — Goldman Sachs — Analyst
Prepared Remarks:
Operator
Ladies and gentlemen, good day, and welcome to IndusInd Bank Limited Q2 FY22 Earnings Conference Call. [Operator Instructions] I now hand the conference over to Mr. Sumant Kathpalia, Managing Director and CEO, IndusInd Bank. Thank you, and over to you, sir.
Sumant Kathpalia — Managing Director and Chief Executive Officer
Good evening, and thank you for joining this call. I will start with some macro commentary and then go into the bank-specific details.
Economic activity is gradually improving with easing of mobility restrictions, rising pace of vaccination crossing 1 billion mark, growing exports, favorable financial and market conditions, and increasing government capital expenditure. Consumer and business confidence on future prospects is also improving. Strong performance of the farm sector, pick-up in manufacturing activity and now even a recovery in the contact intensive services bodes well for the growth in bank credit going forward. Decadal low interest rates across major segments is also expected to drive up credit demand, helped by the receding of the pandemic-related disruption as almost 65% to 70% adult population is likely to be fully vaccinated by year-end.
Key risks to the Indian macroeconomic stability and prospects are seen from adverse global developments around commodity price spikes, supply chain disruptions and faster-than-anticipated tightening by major global central banks. With foreign exchange reserves at record levels, improving external balances, inflation within the target band and the growth picking up, Indian economy can negotiate the global headwinds successfully over the coming year.
Now, coming to bank-specific commentary, we will upload this commentary on our website for ease of reference after the call in case you miss any of the comments. We have also refreshed our investor presentation with some new details. I hope you will find these useful.
Coming to Q2, during the quarter, we focused on strong loan momentum. Our loan growth continues to improve every quarter with Q2 growth at 10% year-on-year and 5% quarter-on-quarter. We saw most of our retail products disbursements crossing pre-COVID levels. The Corporate book too accelerated growth momentum. Overall Corporate grew 7% quarter-on-quarter, while Consumer grew 3% quarter-on-quarter.
Maintaining deposit traction: our deposit growth was strong at 21% year-on-year and 3% quarter-on-quarter, driven equally by CASA and term deposits. Retail deposits as per LCR grew even stronger by 48% year-on-year. The deposit traction was — has remained healthy despite the rate cuts on our savings as well as deposit rates last quarter. Our cost of deposits has thus reduced to 4.85% from 4.97% last quarter.
Asset quality: we saw collections getting back to normalcy across our portfolios, barring small pockets in microfinance. As the accessibility was impacted during quarter one, in some states — and in some states in Q2 as well and given the high touch nature of vehicle and MFI business, customer moved into NPA and came out as we collected payments. Overall collections for September were at 98% as against 96% in June. Slippages during the quarter net of upgrades and recoveries reduced to 0.57% as against 0.90% last quarter. As a result, our credit costs have fallen by 35% quarter-on-quarter from INR1,132 crores to INR752 crores. We have maintained our PCR at 72% and increased our contingent provisions to INR3,178 crores or 1.4% of loans. This includes prudent contingent provisions towards a stressed telco and will share further details later. With this, I believe, all legacy exposures are taken care of and balance sheet is well positioned to support growth.
Maintaining profitability of the franchise: our operating profit margin remains healthy at 6% of loans. Our NII grew by 12% year-on-year, ahead of the loan growth. Fee income grew by 18% year-on-year, driven by client fees, particularly the retail segment. While operating expenses have normalized as activity levels picked up, the cost to income ratio is still better than pre-COVID levels. This ensured maintaining a healthy operating margin.
Scaling up new initiatives: we continue to scale up our new initiatives of Affluent, NRI and Merchant Acquiring Businesses. Affluent deposit base grew 48% year-on-year to INR35,700 crores and AUM grew 42% year-on-year to INR61,800 crores. NRI deposits grew 31% year-on-year to INR27,500 crores. Our merchant acquisition through Bharat Financial added 120,000 merchants during the quarter, taking total onboarded merchants to 320,000 merchants now. Of this, 175,000 customers are borrowers and loan book originated crossed INR1,000 crores for the first time.
Digital launches: we continue to execute our Digital 2.0 strategy, and quarter two saw new launches in terms of Indus Merchant Solutions application, Indus Easy Credit stack for business and debit card EMI on IndusInd Bank debit cards. I will give you further details subsequently.
Capital adequacy: our capital adequacy remains comfortable and improved to 18.06% including H1 profits. We have received Board approval for raising Tier 2 bonds of over [Phonetic] INR2,800 crores. This will further augment our overall capital adequacy levels.
Strengthening the leadership team: we have made key changes in our organization structure over the last few months. The focus has been to strengthen our corporate franchise, along with the assurance functions such as risk, compliance and audit. There have been lateral hirings along with internal allocations — reallocations. Overall, I believe the leadership team is now all set to deliver on the PC-5 ambitions. We will talk about the leadership team changes in the specific segments.
Now, overall, coming to individual businesses, vehicle finance: our vehicle finance disbursements saw strong come back during the quarter. The disbursements for the quarter are at INR8,600 crores, grew by 62% year-on-year and 76% quarter-on-quarter. The disbursements have also been higher than the pre-COVID September 2019 quarter. This makes it the first quarter after COVID outbreak where disbursements have been higher than the pre-COVID levels.
The bank has caught up on disbursements to pre-COVID levels, whereas the industry volumes are still lower, indicating continued market share gains across the products. Within the vehicle categories, disbursements picked up significantly for commercial vehicles and cars. The tractors and construction equipment continued their good run throughout the pandemic period. We have been cautious on the small commercial vehicles and two wheeler growth. The loan book has remained stable owing to higher rundown — and remained stable owing to higher rundown due to contractual maturity and focused collections as evident from the recoveries. The collection momentum has resulted into strong recoveries, and vehicle gross NPAs have reduced q-on-quarter across various segments. We saw upgrades and recoveries of INR555 crores in vehicle finance during the quarter.
As highlighted earlier, we saw customers opting for restructuring to tide over the COVID-2 lockdown impact. The vehicle finance restructured book increased from INR3,089 crores to INR3,969 crores quarter-on-quarter. Of this restructuring, around 80% comes from the contact-intensive MHCV and three-wheelers segments. Balance 20% is spread across all other vehicle categories. The restructured customers have been of acceptable credit risks pre-COVID, and the portfolio is well collateralized, giving us comfort on potential delinquencies. We see freight availability improving every month. And as collections normalize, the disbursements should start reflecting in the loan book growth from this quarter.
Microfinance: microfinance has shown a strong growth recovery and COVID spread coming under control. We saw loan growth of 26% year-on-year and 9% quarter-on-quarter on a weak base. Collection efficiency for the quarter was at 94.7%. We have seen accessibility improving during the quarter across most of the country, except for in Kerala and a few districts of West Bengal. Collection efficiency excluding Kerala and West Bengal is close to pre-COVID levels.
The gross slippages during the quarter were INR1,070 crores. As the accessibility and collections improved, we saw customers clearing up the dues, resulting in upgrades and recoveries of INR610 crores. The slippages thus net of upgrades were INR460 crores, or 1.6% of the loans.
We had highlighted in the last analyst call that customers of INR500 crore of portfolio have invoked restructuring. We saw restructuring implemented for these customers during the quarter, along with fresh restructuring for INR407 crores. Thus the total restructuring as of September ’21 was at INR907 crores. Over 55% of the restructured customers have completed at least three loan cycles with us and over 81% completed two loan cycles. These customers have strong payment track record and expect majority of the restructured pool to show comfortable payment behavior.
Looking at the overall collection trends, COVID-2 stress in terms of credit costs and restructured pool is likely to be between 6% to 8% for the year in my view. The restructured pool is likely — the expected stress is higher than the first wave due to deeper COVID spread in the rural areas and non-availability of moratorium in second wave. We have conservatively fully provided on the gross NPAs and carrying contingent provisions to absorb the impact. The overdue buckets have also fallen by half during the last quarter, indicating the delinquencies should normalize post December quarter.
We’ve also scaled up our non-microfinance initiatives. The merchant acquisition business grew to 320,000 merchants. The loan book crossed INR1,000 crores for the first time from borrowing customer base of 175,000 merchants. We have also scaled Bharat Money Stores from 75,000 to 91,000 during the quarter. These businesses will add diversified revenue streams to BFIL.
Overall, we are seeing credit demand coming back in the rural economy. We have been cautious on new customer growth and acquiring them only from well performing districts. We remain vigilant on ensuring collection efficiency maintains upward trajectory.
Other retail assets: this system — this segment contributes 15% of the overall loan book and includes secured as well as unsecured retail assets. After navigating through a rather subdued quarter one due to COVID, asset disbursals resumed growth in quarter two. Growth in disbursal was witnessed across secured and unsecured loans. LAP and business banking disbursements are back to pre-COVID levels and expect to maintain traction in coming quarters.
We had highest-ever credit cards spends at INR2,230 crores, which was up by 55% year-on-year, which was highest-ever monthly new card acquisitions crossing 50,000 cards in September ’21. Our credit card spends per client in September have grown 52% quarter-on-quarter and 81% year-on-year. We have launched co-branded card partnered with Vistara during the quarter, which has seen good customer response. Our proposition is well received by affluent customers with an average transaction size over 2 times compared to other cards. The collection from this consumer segment has stayed stable throughout the COVID second wave.
Corporate bank: the corporate continued its growth trajectory this quarter as well with quarter-on-quarter growth of 7% and year-on-year growth of 15% with the loan book realignment getting behind us. This growth was driven by demand from NBFCs, roads, education and textile segments, particularly from the higher rating profile, shorter duration and granular exposures as per our revised underwriting. Average rating profile of the corporate book improved to 2.63 from 2.87 YoY, which is equivalent to A rating.
Slippages from the corporate book at INR252 crores have remained small in this quarter as well. We have also seen positive movements in a few restructured accounts and expect upgrades to happen at appropriate time. We had in the past disclosed to a stressed telco of INR995 crores of fund-based and non-funded exposure of INR2,276 crores. As you are aware, the government has announced major relief package improving the viability of the telecom sector. This and other developments have reduced default risks, particularly on the non-fund exposures in my view. We believe our guarantee exposure could come down in light of these developments, and I will update you once the clarity emerges. We have nevertheless prudently made contingent provisions to the extent of fund-based exposure. With these provisions and our inherent strong profitability, I think the last of the legacy exposure is also behind us.
We have reorganized our corporate banking franchise. Sanjeev Anand, who was responsible for mid-corporates, will now head the overall corporate banking as one unit. We have also strengthened our team by lateral senior level recruitments, including Niraj Shah, who joins us as Head of Institutional and Strategic Clients Group. The investment banking as a product unit is now housed under the Deputy CEO, Arun Khurana, who is in charge of all the product units for the bank. A new head of investment banking is expected to join us next month. The corporate banking team is now well organized, has clear underwriting frameworks and is without any legacy exposures to worry about. I believe this positions us well to participate in the corporate credit growth revival.
Gems and jewelry: Our diamonds manufacturer financing unit continues to maintain its pristine asset quality with no NPA or SMA2 or restructured loans. The loan book saw a good growth of 4% quarter-on-quarter as borrower utilized working capital lines ahead of the festive season. We expect the stable loan growth and asset quality position in the foreseeable future.
Now coming to deposits, retail liability mobilization remains cornerstone of our PC-5 strategy. Deposits grew 21% year-on-year and by 26% year-on-year growth in current and savings account. Retail deposits as per LCR growing 48% year-on-year and 6% quarter-on-quarter. We had reduced our deposit rates across savings and term deposits last quarter, and the deposit momentum was maintained despite these rate cuts. Our cost of deposits at 4.85% saw a reduction of 12 basis points during the quarter and 120 basis points cumulatively in six quarters I took over.
Our reliance on certificates of deposits continues to remain low and has fallen quarter-on-quarter from 3% of deposits to 2.5%. Our affluent business has continued strong performance. Our deposits from this segment grew 48% year-on-year to INR35,700 crores. Our NRI business grew 31% year-on-year to INR27,500 crores. NRI segment saw strong CASA growth of 62% year-on-year, while term deposits grew by 24%.
We have also received the agency bank authorization from the RBI. As agency banker, IndusInd gets the privileges of doing collections and payments on behalf of the Government of India and State Governments. We have already signed MoU with central boards of direct taxes and indirect taxes. This will strengthen our foothold in the Government Business and increase stickiness of our retail and corporate customers.
We have maintained an overall average LCR at 148% and were running surplus cash balances and excess of investments of over INR59,000 crores. As we saw loan growth acceleration in the later parts of the quarter, the average surplus liquidity is expected to come down from current quarter onwards. As a result, our reliance on borrowings is coming down every quarter and moving towards long-term sources. We have shared details in the presentation with almost all of the borrowings from long-term sources.
Digital traction: we continued execution on our Digital 2.0 strategy, and quarter two saw new initiatives getting launched. During the quarter, we launched Indus Merchant Solutions app, Indus Easy Credit stack for business owners and debit card EMI on IndusInd Bank debit cards. These are in addition to the Easy Credit for Individuals launched in the last quarter. Indus Merchant Solutions provides small merchants and retailers a unified stack to bring all the payment, lending and banking needs under a single umbrella. Indus Easy Credit stack for business owners provides easy access to small ticket unsecured business loans as well as secured overdraft up to INR2 crores in a completely digital manner. Debit card EMI is a convenient consumer financing solution at point-of-sale for our customers. All these initiatives are cloud native, microservice driven, API-based stack, making us ready for platform banking and open banking and will give us the needed scalability and agility. The digital adoption and volumes continue to see growth. Digital transactions contribute 91% of our total customer transactions. Close to 4 million sales happened digitally during the quarter across retail products showing a 50% growth on a sequential basis. The mobile app user base increased by 36% year-on-year and mobile transactions are up 2.3 times YoY. Bank’s refreshed mobile app with cleaner interface and response time improvements continued to get positive feedback from the users. All-new IndusInd mobile app is now rated 4.3 on the PlayStore and amongst Top 3 rated banking apps now.
Overall, we remain on track on digital, along with the new initiatives on individual and vehicle finance segments planned for launch in a few months.
Now, coming to the financial performance for the quarter, quarter two witnessed acceleration in growth momentum with NII up by 12% year-on-year at INR3,658 crores and operating profits at INR3,219 crores was up by 13% year-on-year. Our PPOP over [Phonetic] loan was maintained at 6% in a tough operating environment.
Our NIM for the quarter was stable at 4.07%. Our yield on advances came down by 9 basis points due to mix in favor of corporate and shift towards higher rated borrowers. The cost of deposits also fell by 12 basis points quarter-on-quarter, maintaining the stability of margins.
Other income grew by 18% year-on-year. Client fees rebounded after a weak quarter one due to COVID. The client fees grew 24% quarter-on-quarter and 42% year-on-year, driven by strong retail fee recovery. Share of retail fees has improved from 48% to 59% quarter-on-quarter. Income from trading was at INR332 crores for the quarter. Our cost to income ratio inched up slightly to 41.4% as the business momentum picked up during the quarter. Overall, we are still below pre-COVID cost to income levels of around 43%.
Now, coming to provisions and some asset quality indicators, we continued to follow conservative provisioning approach. Our provisions for the quarter were at INR1,703 crores. With strong collections and recoveries, the specific credit cost provisions for the quarter reduced to INR752 crores from INR1,132 crores quarter-on-quarter, down by 35%. We prudently added INR978 crores of provisions towards contingent buffers, taking our surplus provisions to INR3,178 crores, or 1.4% of loans.
Our GNPA has come down to 2.77% from 2.88% quarter-on-quarter and net NPA was down to 0.8%, implying [Phonetic] a comfortable provision coverage ratio of 72%. Total loan-related provisions are at 3.9% of loans or 138% of gross NPAs. Our SMA1 and SMA2 book is stable at 30 basis points and 49 basis points respectively.
Our net profit momentum continues despite the conservative provisions. Profits for the quarter were at INR1,147 crores, growing at 13% quarter-on-quarter and 73% year-on-year. Our CRAR including profits improved to 18.06% from 17.89%. CRAR will be further augmented with planned Tier 2 issuance during this quarter.
Overall, I think we are trending towards our PC-5 ambitions. The strong disbursements in the retail segments, coupled with reinvigorated corporate franchise, provides us comfort on the continued loan growth and NII acceleration. The deposit side has been chugging along nicely with growth in retail liabilities to 41% of deposits, along with reduction in cost of deposits. We have been able to maintain our strong PPOP margins at 6% of loans in one of the toughest operating environments. We have built strong coverage on stressed exposure, including all legacy accounts.
Our restructured book has been performing well and has adequate contingent provisions. Our bottoms-up conservative simulation of credit costs from restructured pool is of 20% in vehicles, 10% in corporate and secured retail, and 50% in unsecured retail including microfinance, leaves surplus even after making 100% for telco funded exposure.
The return on assets has improved to 1.29% and return on equity has moved into double digits this quarter at 10.29% and should have been in mid-teens if not for the contingent provisions.
As risks from the COVID and legacy exposures are diminishing every quarter, we are well poised to show underlying growth and profitability of the organization. We are committed to our PC-5 growth ambitions.
With this, we can now start the question-and-answer session.
Questions and Answers:
Operator
[Operator Instructions] The first question is from the line of Nitin Aggarwal from Motilal Oswal Securities. Please go ahead.
Nitin Aggarwal — Motilal Oswal Securities — Analyst
Yeah. Hi, thanks for the opportunity. So my first question is on the contingent provisions that we have [Indecipherable] this quarter. So is it some formula based or purely discretionary? And how will the drawdown approach be from this reserve that we are building?
Sumant Kathpalia — Managing Director and Chief Executive Officer
So first of all, I think this is very thought-through — on a thought-through basis and of course formula based. So 100% of Vodafone — the telco provision has been provided on our funded exposure. That was what we committed, and we’ve done that already. So that’s number one. Number two, I think we looked at our flow-throughs and the collection efficiency of the restructured book. So one is the regulated guidelines on what you need to do, and we have taken excess provision basis our cash flows and to be comfortable and taken a very conservative approach on what the flows will be, and basis that, we’ve taken a provision. In addition to that, we kept a buffer of about INR300 cores to INR400 crores, which can help us and make sure that if there is any other flow. We will continue to see this pace. And if we see that there is an acceleration or a deterioration, we will provide. Even if there is an accretion, we’ll maintain this provision because it will come in handy at some point of time.
Nitin Aggarwal — Motilal Oswal Securities — Analyst
Right. But as of now, shall we take it that we don’t need to provide anything more there? Or will we continue to make these provisions?
Sumant Kathpalia — Managing Director and Chief Executive Officer
Actually, really speaking, we don’t need to provide. But being a prudent banker, I think we may provide for it if we see there is a need for it, but I don’t think we need to provide anything extra. What we may do is, for the non-funded exposure of Voda, we may provide some amount extra and keep it aside.
Nitin Aggarwal — Motilal Oswal Securities — Analyst
Got it. And secondly, on the restructured book, how much of this is paying currently and how much is under moratorium? And what sort of slippages are we building from this pool?
Sumant Kathpalia — Managing Director and Chief Executive Officer
So let me answer this question in two ways. And I think our restructured book has been performing very, very well and had adequate contingent provisions. If I see the book, overall 90% of the book is paying. Where we are seeing a little bit and you have to go by segments to see that, I think on the corporate side, in fact you will see some accounts moving out actually and a large part of the account, 80% of that restructured book moving out because I think almost a lot of this has got factored for us. On the, what you call, the commercial vehicle side of the book, there are two things which you need to observe. All this was — most of these clients were very good clients of the bank, majority of these clients. And I think they’ve asked for a deferment or a smaller EMI payment because of the pandemic, and they were scared of the COVID 3 at that point of time. I think they are regular in their payment. And I do not believe the flows of this book will be more than — I have — we have taken 20% but not more than 10%. It is absolutely performing well for us as of now.
On the unsecured side, which is the micro finance side, I think these are cycle 2 and cycle 3. On a conservative basis on unsecured, we have taken up 50% flow-through [Phonetic]. Actually, the collections on the microfinance has not started because they’ve just happened. On the unsecured side, I think we are seeing 50% to 60% collection efficiency on the unsecured side. On the secured, we are seeing a 90% collection efficiency on the secured retail side of the book — non-vehicle side of the book. So I think that is how our provisions are and that is how we are seeing the book perform.
Nitin Aggarwal — Motilal Oswal Securities — Analyst
Got it. Thanks Sumant. And a couple of more questions. One is like while we have added a few senior management team members, are we also seeing any churn within the top management or in the mid-level management given the rising competitive scenario overall — in the overall banking and financial space.
Sumant Kathpalia — Managing Director and Chief Executive Officer
So, there I stress, specifically in the technology side or in the digital side of the place. Where do we see? We see stress at certain areas. We are not seeing the stress in our corporate banking, in our retail banking or in our vehicle finance unit at all. Of course not. So that’s what we are — I must give you this confidence that the bank has adequate succession [Phonetic] planning in place and we make sure that when we create an organization structure, the second person in charge or multiple back-ups are created to make sure that the continuity of the business remains.
Nitin Aggarwal — Motilal Oswal Securities — Analyst
And lastly, if you can offer any comments on the bid that you have submitted for Citi’s consumer business, like how are we looking to pursue growth in the consumer assets?
Sumant Kathpalia — Managing Director and Chief Executive Officer
I have never accepted the fact that we have submitted a bid. That’s number one. Number two, what I’ve always said is that we, this is speculative, the news appearing in media and we continue to evaluate businesses which are accretive to our — to our stakeholders, which is our customers, to our investors as well to our shareholders and to our employees.
Nitin Aggarwal — Motilal Oswal Securities — Analyst
Sure Sumant. Thanks so much and wish you all the best.
Operator
Thank you. The next question is from the line of Gaurav Singhal — my apology Sameer Bhise from JM Financial. Please go ahead.
Sameer Bhise — JM Financial — Analyst
Hi, thank you for the opportunity. Just a quick question. This is on the micro finance piece. What is the nature of restructuring offer here? Is it like a moratorium, say for how many months and any details there?
Sumant Kathpalia — Managing Director and Chief Executive Officer
So I think you could have offered an extension up to one year to two years in the business and that’s what we’ve offered. I don’t think there is a moratorium, which has been offered. I think there may be some cases where we have offered a moratorium of interest only payments, which have been offered for six months to the customer.
Sameer Bhise — JM Financial — Analyst
So the weekly or monthly outgo whatever it is, it goes down when we don’t offer morat but just extend the term, right?
Sumant Kathpalia — Managing Director and Chief Executive Officer
Yeah just extended the term.
Sameer Bhise — JM Financial — Analyst
And secondly on the corporate book within a reasonable amount of growth sequentially, any comments on pricing there?
Sumant Kathpalia — Managing Director and Chief Executive Officer
Yeah. Pricing is very competitive in the corporate world. But please understand I’m sitting on excess liquidity and I was putting it in the reverse repo at 3.4%. So please understand, there is an opportunity to do short term lending, working capital loans in the corporate side at 4.5% to 5%. That’s number one. Number 2, we’ve got very good AAA rated and AA rated paper in the good public sector enterprise where we’ve done these businesses and we felt very comfortable doing that businesses at that point of time. Also we found good exposures coming in NBFCs, Textile business and we got some exposures in that and we did some very good loans in that business.
Sameer Bhise — JM Financial — Analyst
Okay. Okay. And just breakup in — of the restructured book between corporate, commercial and details around, you could try to probably take it offline also. But if you can give the details?
Sumant Kathpalia — Managing Director and Chief Executive Officer
So let me give you the restructured book. I think our restructured book as of September 21 is INR7,982 crores, up from INR5,657 crores. I think our vehicle finance unit is INR3,969 crores, which is 49.7% of the overall book, secured retail is INR763 crores, which is 9.6% of the book, unsecured retail is INR365 crores, which is 4.6% of the book of the overall restructuring. MFI is about INR907 crores, which is 11.44% of the total restructuring and corporate is INR1,978 crores which is 24.8% of the restructuring.
Sameer Bhise — JM Financial — Analyst
Great, thank you so much and all the best.
Operator
Thank you. The next question is from the line of Gaurav Singhal from DK Partners. Please go ahead.
Gaurav Singhal — DK Partners — Analyst
Hi, thanks for taking my question. You mentioned earlier in the call, I think I missed that number. What was the fund based exposure you had to the telecom operator, which you took provision?
Sumant Kathpalia — Managing Director and Chief Executive Officer
It’s about INR990 crores and nothing.
Gaurav Singhal — DK Partners — Analyst
INR990 crore?
Sumant Kathpalia — Managing Director and Chief Executive Officer
Yeah.
Gaurav Singhal — DK Partners — Analyst
Got it. Okay. So that’s the majority of your contingent provision.
Sumant Kathpalia — Managing Director and Chief Executive Officer
Yeah.
Gaurav Singhal — DK Partners — Analyst
Okay. And in this press release that Vodafone had released around the time of this government package, they had mentioned that there was a lot of relief on the non-fund based side. I was just reading it. There were 80% reduction in BG requirement for license fee, I think there is no BG requirement now for this AGR dues. So how much is our BG — is the non-fund exposure today, how much will be released based on this new rules?
Sumant Kathpalia — Managing Director and Chief Executive Officer
So I think Gaurav — I think you still await the final print from the DoT and Birla. In my opinion, I think we have a INR2,320 crores of BG — INR2,276 crores of BG and I think what we have been informed is I think it will move down substantially and that’s what we are waiting for and that’s why — we are waiting for the final details and the final print before we reduce that exposure.
Gaurav Singhal — DK Partners — Analyst
Got it, got it. But if that number is close to that 80% number, which was in the press…
Sumant Kathpalia — Managing Director and Chief Executive Officer
I cannot comment till I see the final details and we have to see the document and we await that final details.
Gaurav Singhal — DK Partners — Analyst
Okay, thank you. Congrats on the good results.
Operator
Thank you. The next question is from the line of Kunal Shah from ICICI Securities, please go ahead.
Kunal Shah — ICICI Securities — Analyst
Congratulations for a good set of numbers. Firstly, in terms of opex, across most of the peer banks we had seen huge investments in opex this particular quarter and wherein there was a jump on a quarter-on-quarter, year-on-year. Are they still managed well? So how should we look at it, in fact, we are done with most of the investments over the past few quarters and prepared for the growth now without incurring too much of the opex or we would see a flow through coming in the coming quarters for the higher investments we might need?
Sumant Kathpalia — Managing Director and Chief Executive Officer
So Kunal, let me answer these questions two ways. One is, have we stopped our investment cycle. The answer is no. We will continue to invest in branches till we reached 2,500 branches and we will continue to invest in technology. The major investment which is going to come is in the individual proposition, which I think we still not launched and it’s going to come. And I think you will see some investors coming in. I have always said — having said that, I’ve always said that we will be in the range of 41% to 43% cost to income ratio. And that is where I think a good universal bank should be in and we maintain that throughout and that is where we are. We may fluctuate at some point at 40%, sometime at 42%, but between 41% and 43% is what our range is on the cost to income ratio.
Kunal Shah — ICICI Securities — Analyst
Sure. And in this MFI, there is significant expansion in the branches out there or — so this is more to do in terms of, so at one place we had seen almost like INR1,000 odd crores kind of task slippage, INR900 odd crores kind of a restructuring. You highlighted that two states particularly Kerala and West Bengal is giving the pain. So is it like major proportion of slippage has flown from there and other states we are seeing a lot of comfort and that’s the reason we have seen a lot of investment, so that’s like almost 280 [Phonetic] orders now branches, which have been added on the BFIL side?
Sumant Kathpalia — Managing Director and Chief Executive Officer
No, don’t look at it this way. I think what has added on the BFIL business correspondent side is the merchant acquiring branches. So we have got into a business where we’ve created a 1,000 — see as we talk today, we sit on a INR1,200 crores of merchant acquiring business, which we have created afresh and it’s a separate independent branch and a vertical which is working on this business. So this is a business which runs at an efficiency of over 42% and is at a yield of 23.6%. We are very, very confident of this business and this is a new line of business, which we are growing under the Bharat Financial umbrella which we are going. Having said that, I think on the — on Kerala as well as West Bengal, I think we will add resources, we’ve added collections resources there. So that old branch managers who are more experienced cannot move towards the collection because our collection efficiency in these space are hovering around 65% to 70% depending on the state which you talk about. And I think it is very important and 48% to 50% of our flows have come from this unit, from these two states.
Kunal Shah — ICICI Securities — Analyst
Flow first businesses.
Sumant Kathpalia — Managing Director and Chief Executive Officer
Absolutely.
Kunal Shah — ICICI Securities — Analyst
Sure. And lastly, in terms of the overall credit cost, so we have been guiding earlier as well, maybe first half is high, but that is on account of contingency. So are we now equally confident that we could settle in that range, or with the improvement in the environment and looking at now the way the trajectory is, are we more comfortable in terms of credit cost coming further down as most of the legacy stressful is provided for?
Sumant Kathpalia — Managing Director and Chief Executive Officer
So I think Kunal — I feel three things will happen. One is, you’re absolutely right. I think the flows have normalized and I believe that our non-vehicle finance, vehicle finance will continue to see a moderation in our — in the flows, which will happen and you will see a dramatic reduction in the flow as we move along. Number 2, our corporate book has never been so good before. I think all the legacy issues are behind us and our corporate book and if you look at the SMA2 or the SMA1, you will find get the comfort from the book as to how the book is performing. I think on the microfinance side, I’ve said that outflows will be fixed — our delinquency cost, cost of credit will be around 6% to 8% and that will have flows which we’ve built in. I have already taken 70% of those flows. There may be 30% flows, which are balance left, and we will take those flows, as when it will come up, most of it will get covered, but yes, having said that, our guidance of 160 basis points to 290 basis points remain and I continue to pay an additional 50 basis points or 60 basis points on account of the telco provisions will be there, nothing else. We will continue to maintain that guidance, and I continue to believe we will be in that. I have not taken into account the recoveries, which will also start coming in now.
Kunal Shah — ICICI Securities — Analyst
Sure. Yes. And this is helpful here. Okay, thanks, and all the best.
Operator
Thank you. The next question is from the line of Nilanjan Karfa from Nomura. Please go ahead.
Nilanjan Karfa — Nomura — Analyst
Hi, thanks, Sumant. So a couple of questions. One data question, if you can give the breakup of slippage in those same bucket, vehicle secure retail, unsecured MSN corporate. Again, sorry, if you have repeated it earlier?
Sumant Kathpalia — Managing Director and Chief Executive Officer
No problem. I’ll give you the number, I think, I’ll give you, what is the gross slippage and what is the net slippage, after considering only recoveries, which is cash recoveries as well as upgrades. So I think of a CFD was INR590 crores of gross slippage and net slippage is INR35 crores only. So there was a huge recovery which happened on the vehicle finance unit. Secured retail is INR432 crores and INR273 crores of net gross slippages. Unsecured retail is INR314 crores of gross and INR249 crores of net slippage. MFI was INR1,070 crores of gross slippage and INR460 crores of gross net slippages and corporate was INR252 crores and INR175 crores. Overall, our slippages were INR2,658 crores and net after taking recoveries into account was INR1,192 crores.
Nilanjan Karfa — Nomura — Analyst
Great. Second question on the vehicle side, I mean, given that I think 90% plus of our CV book, are typically SRTUs right? Any comment around the operator profitability, how are you seeing the cash flows? Have they been able to pass on the increases on the freight? Any sort of comment on that sir?
Sumant Kathpalia — Managing Director and Chief Executive Officer
Yeah. First of all, I think you’re absolutely right when you said that all the diesel prices did affect — did affect the profitability because the diesel price did increase by 35%. Also the freight took time to catch up and I think there was a supply — demand-supply issue at that point of time, and I — but having said that, I think the things are improving and that is why the restructuring of that book is so high when you see the restructuring, because people wanted a lower EMI to play rather than the full year, but I have Partha who will answer this question in a little bit more detail to you.
S.V. Parthasarathy — Head – Consumer Finance
Yeah. Yeah off late diesel price increases certain amount of concern. Definitely people are reasonably stressed to pay their instalments. But so far, there has not been major issue in terms of payment of instalments, which we have been getting quite regularly, the portfolio has been showing considerable amount of improvement ever since the last quarter and it is likely that the portfolio would improve. Whether the business would improve or not would hinge on the diesel price as well as the freight — economics on freight rates. Having said so, close to about 40% of commercial vehicles are in infra segment which is tippers segment which is used when mining, as well as earth moving equipment segment where the economics has been extremely good. Therefore there — I would say that there is absolutely no impact, zero impact or extremely good listing for about 40% of the vehicles and 20% to 25% are contractually covered, balance about 20%, 25% struggles but they keep paying.
Nilanjan Karfa — Nomura — Analyst
Right. Would you believe Partha that by December, I mean if things don’t December — don’t improve by December, then things will look tough?
S.V. Parthasarathy — Head – Consumer Finance
Yeah, fundamentally what I would state is, fuel price increase, I’m not very sure about this. Government, I think will have to take some action or other — it is a very, very unlikely that it will brought in the GST regime. But they would absorb certain amount of taxation element arising out of the diesel price. Once it comes below INR100 sentimentally, I think there will be a certain amount of buoyancy and that as of today, what really has happened is the excess capacity in the market has already been more or less absorbed. There has been a growing requirement in terms of addition to the capacity but addition to the capacity has been put in certain amount of cold storage because of operating cost increase. That should not affect the existing vehicles, but it will have an impact in terms of commercial vehicle sales and possibly our financing in this area.
Nilanjan Karfa — Nomura — Analyst
Yeah, yeah. I understand Partha. Very helpful. And a small last question. Sumant, is it possible to get a sense of that INR2,300 crores roughly of non-funded to — specifically how much is tied to the BG — sorry, the spectrum?
Sumant Kathpalia — Managing Director and Chief Executive Officer
Half — 50% to the spectrum and 50% to the ARPU. But our latest discussion show that the spectrum of course the government has said, even the ARPU in one month’s time there is something coming and we are waiting for the final details. That’s why I’m not commenting on it. We have to wait for the final details.
Nilanjan Karfa — Nomura — Analyst
Perfect. Perfect. Thanks so much. Thank you Sumant. Thanks team.
Operator
Thank you. The next question is from the line of Rahul Shah from HSBC. Please go ahead.
Rahul Shah — HSBC — Analyst
Sir. Thanks for taking my question. Can you share the overdue loan in the MFI book. So, you mentioned in opening remarks that it has reduced by half?
Sumant Kathpalia — Managing Director and Chief Executive Officer
So if you look at the MFI collection efficiency, I said it is 94.6%. If you look at the 30 plus book, it’s about INR2000 crores. That’s what it is, INR2,200 crores to be precise, including NPAs also.
Rahul Shah — HSBC — Analyst
And so, like more qualitative understanding, so within this book, how many customers would be like completely non-themed?
Sumant Kathpalia — Managing Director and Chief Executive Officer
This I don’t have the final details but we can have Shalabh — you can have a one-off call with Shalabh who runs the MFI business and you can have a call with him. I don’t have the final details on number of clients on this.
Rahul Shah — HSBC — Analyst
Yeah, thanks. And just one more data keeping question. So what would be the size of three wheeler book? Would it be around INR3,000 crores?
Sumant Kathpalia — Managing Director and Chief Executive Officer
Yes, you’re absolutely right.
Rahul Shah — HSBC — Analyst
Okay, thank you so much.
Operator
Thank you. The next question is from the line of Aakriti Kakkar from Goldman Sachs. Please go ahead.
Aakriti Kakkar — Goldman Sachs — Analyst
Hi, Sumant and team, good evening. This is Rahul here. Just one or two clarification on the MFI point. Sumant, your said gross slippage is about INR1,070 crores and the net were INR460 crores. So the differential of INR600 crores is on account of what exactly?
Sumant Kathpalia — Managing Director and Chief Executive Officer
So there was — there were recoveries which happened as a consequence of the clients and we contacted the clients, there were accessibility issues on three or four states. I think we were able to access Orissa in certain districts where we got the recoveries and there were certain states where we were at INR92 crore, INR93 crore, we got into INR95 crore. So we got some recoveries as a consequence of that.
Aakriti Kakkar — Goldman Sachs — Analyst
And write-offs significant in this portfolio or manageable.
Sumant Kathpalia — Managing Director and Chief Executive Officer
Not so much. I’ll give you the number exact, we actually did a write-off, all the MFI of zero last quarter. No, write-off.
Aakriti Kakkar — Goldman Sachs — Analyst
Got it. And how do you see this MFI panning out now across portfolio in particular, even for West Bengal and Kerala?
Sumant Kathpalia — Managing Director and Chief Executive Officer
When I tell you my numbers 6% to 8%, I mean I have assumed that there will be — we will remain maybe improve by 10% but we will remain static as that and I have taken that call that we may have to take a hit and provide for it and that’s where I said that there may be an additional flows which may be coming. And that’s why I’ve said 6% to 8% of the book and there may be an additional restructuring, which may happen of INR200 crores to INR300 crores. Having said that, I must say we carry enough provisions to take care of that and that is why our building in additional provisions. It’s not that I require it, I just that I — and that is where I have said, this is my flow and this is how the provisions will happen. I do expect — though I do expect Rahul [Phonetic] that in October, November, December, where we are seeing buoyancy all over, I believe, a lot of these issues may be behind us and we may be talking a different language when we talk in the month of November. We are seeing very good pickup in the microfinance bit, in collections now.
Aakriti Kakkar — Goldman Sachs — Analyst
Interesting and the troubled states also like Bengal, Kerala where you talked about?
Sumant Kathpalia — Managing Director and Chief Executive Officer
Kerala is now becoming accessible, though the floods did play a little bit of a barrier. In West Bengal I think the issues were different. And I think those issues are getting addressed, it is not really accessibility issues.
Aakriti Kakkar — Goldman Sachs — Analyst
Okay, got it. The other point was on Vodafone again. You talked about that of the INR2,276 crore of BG, you’ve earmarked the entire contingent provisions of 100% towards this and NFV also you would expect to make something which you said INR990 crores.
Sumant Kathpalia — Managing Director and Chief Executive Officer
No, I have made a provision Rahul on the fund based exposure of INR990 crores, number one. Okay. And this account was standard and not — this account is absolutely standard. There is no overdue on this account. On the non-funded exposure, there is a document which is going to come out, the finer details and we will act accordingly. In my opinion, a lot of these guarantees will follow. But I don’t want to commit that right now unless until I see the final details myself.
Aakriti Kakkar — Goldman Sachs — Analyst
Got it, got it. So contingent upon that, we will take a call as to, we need to earmark more provisions or not and this would not be part of your INR160 [Phonetic] crore to INR190 [Phonetic] crore guidance that you are giving now?
Sumant Kathpalia — Managing Director and Chief Executive Officer
No, we have said — otherwise I will be lower on provisions. I have said, if I take the Vodafone provisions to 50% to 60% of the original provisions, that is there I require 50 basis point to 60 basis point extra.
Aakriti Kakkar — Goldman Sachs — Analyst
Okay. In addition to INR160 crore to INR190 crore range you’ve talked about?
Sumant Kathpalia — Managing Director and Chief Executive Officer
Yes.
Aakriti Kakkar — Goldman Sachs — Analyst
Got it. Just final question in terms of business momentum. I think frankly, I mean the bank seems to have now come out of the woods and it seems to be on a stronger footing. But ROAs are of course trending around 1.2%, though significant improvement from the time you took over. What’s kind of strategy you and your senior team are sort of working on over the next 12 to 24 months. Where do you see this ROE could go to — of course provisions would fall, but do you see any improvement in PPOP ROAs to also come through from the current levels and also on the loan growth side. So can you give us some sense qualitative or quantitative over the next 12 to 24 months, where do you want to see the bank to be?
Sumant Kathpalia — Managing Director and Chief Executive Officer
So, Rahul, we have disclosed our PC5 strategy very, very transparently. I continue to believe that we are going to grow 16% to 18% CAGR on our loan growth. Unfortunately this year we’ve only grown by about 10% of the loan. I think what you will see by the, in the next 18 months, we will ramp up our loan growth and we will grow faster than the market on our domain specialization and in corporate bank, we will be ahead of the market by 200 basis points, 150 basis points to 200 basis point. That’s something. There are new lines of businesses which are acting as accelerator to our business momentum. Those are merchant acquiring business, mortgage business which will act as accelerator to our business and the non-vehicle asset business which has been a very, very low line business and we will accelerate those business. So I think these will accelerate the growth of this business as we move along. We also have a very clear strategy on getting into digital in the SME stack and creating a very good value proposition on the SME stack on the business. So I don’t see a risk to our 16% to 18% CAGAR growth on the PC5. Having said that, we’ve always said that we have a PPOP margin of 6% and I think we’ve always said 5%. But I don’t see any reason why we will fall below 5.5% at any point of time. And we’ve not fallen for the last five quarters below 6%. I can assure you this. Having said that, if you do all our calculations, we’ve always said our normal credit cost should be around 120 basis points to 150 basis points — less than 150 basis points. You do your calculations and you will see our ROA will never be less 1.5% to 1.8%. In fact, you may see us cutting that ROA in quarter 4 itself.
Aakriti Kakkar — Goldman Sachs — Analyst
Okay. Okay. And lastly on the opex side, technology spend or customer acquisition cost, I mean we’ve seen most of your peer groups — have reported saw sharp increase in opex side, yours seems to be a bit more contained, but going forward, how do you see the spending likely to play out of your bank?
Sumant Kathpalia — Managing Director and Chief Executive Officer
So I generally feel and as I’ve answered this question before we will be in the range of 41% to 43% and I think that’s the fluctuation, which we will have on a mature — see please understand — micro finance business that runs at an efficiency of 23%. Our vehicle finance unit runs at an efficiency of 34%. Our diamond business runs at an efficiency of 6% or 7%. Look at the value which I get as I’m scaling up these. Our consumer bank runs at an efficiency of 58% and the more they get, the more are bringing value, there actually efficiency is only improving as we talk. And our corporate banks are running at an efficiency of 30%, 35% and you will see with and our global markets runs that an efficiency of 5% to 6%. I think we are very efficient businesses as a business of what we’ve created and our focus on fees as well as on asset growth has really helped us believe that. And I think as we add new businesses into our unit, the merchant acquiring business, I think we are not talking much about it, but it will be a INR5,000 crore to INR7,000 crore business by the end of year two and it is at a yield of 23.6% and its credit guaranteed and you will have a response [Phonetic] which will not be more than 80 basis points to 100 basis points on the business. It is an ROE 8% or 9% business which we have created, our affluent business. It’s actually a new business and giving me INR100 crores fee per quarter. So I got the excavators in place. So why my cost will increase? I believe it will be range bound between 41% to 43% efficiency because my revenues will grow faster as I grow my business, because I have very good accretive businesses where I have domain specialization which will give me the value.
Aakriti Kakkar — Goldman Sachs — Analyst
Got it. Interesting. Thank you so much Sumant and wish you good luck and your team. Thank you.
Operator
Thank you. I now hand the conference over to Mr. Sumant Kathpalia for closing comments.
Sumant Kathpalia — Managing Director and Chief Executive Officer
So thank you and thank you for your time and patience. I just want to tell you that I think finally you’re seeing us out of the woods and I think the growth story is back, the old IndusInd story is back. And what you had invested four and what you had waited for all of this while, I think that took up maybe a quarter or two extra but you will see this growth coming back in a very strong way. So thanks a lot and for any questions, which you may have you can contact me or Indrajit. Thanks a lot and God bless.
Operator
[Operator Closing Remarks]