INDUSIND BANK LTD (INDUSINDBK) Q2 FY23 Earnings Concall Transcript

INDUSIND BANK LTD (NSE: INDUSINDBK) Q2 FY23 Earnings Concall dated Oct. 19, 2022

Corporate Participants:

Sumant Kathpalia — Managing Director and CEO

Analysts:

Kunal Shah — ICICI Securities — Analyst

Unidentified Speaker —

Nitin Aggarwal — Motilal Oswal Financial Services — Analyst

Adarsh — — Analyst

Rahul — Goldman Sachs — Analyst

Abhishek Murarka — HSBC — Analyst

Sameer Bhise — JM Financial Limited — Analyst

Mahrukh Adajania — Nuama Wealth — Analyst

Anand Dama — Emkay Global Financial Services Limited — Analyst

Presentation:

Operator

Ladies and gentlemen, good day, and welcome to IndusInd Bank Limited Q2 FY23 Earnings Conference Call. As a reminder, all participant lines will be in the listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes. [Operator Instructions] Please note that this conference is being recorded. 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 CEO

Good evening. And thank you for joining the call. I will start with some macro commentary and then go into bank specific details. Indian economy continues to be amongst the best-performing economies even in the wake of external disturbances and tightening monitory conditions. Global economic growth is expected to slow-down with synchronized and aggressive monetary tightening lingering uncertainty from geopolitical tensions, continuous supply-chain disruptions, and high inflation.

India’s external fundamental however remains stable and external financing remains manageable. High-frequency data suggests demand conditions remained strong during quarter 2 and poised to expand further during the festival season. In current quarter 2, global economic and market developments would dominate the domestic policy and market conditions. Improving domestic demand with an ongoing festival season boost and public capex push would help sustain growth, while export demand is likely to contract. Overall, we expect India is likely to remain among the fastest-growing economies despite the confluence of global headwinds driven by macro stability remaining intact and inflation expected to ease over from half to financial year ’23.

Coming to the quarter-specific developments. The quarter saw continued improvement across our business — key business units both in terms of growth and asset quality. The first-half of The year is seasonally weak for vehicles and micro-finance. We have nonetheless seen one of the best performances by all the three domains in the recent past. Corporate and retail businesses continue at pace, growing at 20% plus with no asset quality surprises. The liabilities and client fees to remain to maintain traction during the quarter. Overall the salient highlights for the quarter were, broad-based loan growth driven by all business units. Our vehicle business recorded the highest-ever disbursement of INR10,660 crores.

Microfinance too saw disbursements of INR9,700 crores, putting behind the blip from regulatory changes. Corporate Bank maintained momentum while non-vehicle retail accelerated sequentially. Overall we had a healthy 5% quarter-on-quarter loan growth with consumer at 4% and corporate at 6% quarter-on-quarter growth. Traction on deposit mobilization. We achieved 4% quarter-on-quarter and 15% year-on year growth in deposits during the quarter. Our retail deposit as per LCR accelerated during the quarter growing at 5% quarter-on-quarter. Our affluent and NRI business too saw acceleration in deposit mobilization during the quarter.

Asset quality. Our gross slippages during the quarter reduced by 30% quarter-on-quarter driven by a reduction in both standard as well as restructured slippages by 25% and 37% respectively. Our restructured book has now reduced meaningfully by INR1,277 crores from 2.1% to 1.5% quarter-on-quarter. Our net NPA too reduce to 0.61% from 0.67% with a PCR at 72%. Our contingent provisions are at INR2,653 crores, with total loan-related provision at 140% of gross NPAs. Our credit cost has reduced from 50 basis points to 44 basis-points quarter-on-quarter. Investment in the resources. We continue to invest in our physical and digital resources.

We have added 55 branches this year, along with 2,700 employees in the bank, an additional 3,650 employees in the vehicles and micro-finance distribution during this year. We are scaling up our digital launches and are on track for the planned launch of the individual and SME offerings in the year. High profitability of the franchise. Our net interest margin improved to 4.24%. Client fee — client fee income grew by 24% year-on-year, driven by healthy retail fees of 71% of total fees. Our cost-to-income was at 43.9% and our PPOP margin remained healthy at 5.7%.

Our profit-after-tax grew by 11% quarter-on-quarter and 57% year-on-year at INR1,805 crores. Our annualized EPS has now moved into the 90s at INR93 per share. Our return on assets improved further from 1.73% to 1.8% and return-on-equity was at 14.5% for quarter 2. We also maintained a healthy capital adequacy ratio with CET1 of 15.95% and overall CRAR at 18.01%. Now coming to individual businesses. Vehicle finance. The vehicle finance business continued its one of the best fronts in the last several years.

The business has been achieving record disbursements every quarter and the first half of this year is no different despite the seasonality pressure. The disbursements have been improving across all vehicle category, making this a diversified growth trajectory. Disbursements during the quarter were at INR10,664 crores, up by 6% quarter-on-quarter and 24% year-on-year. This is the consecutive second-quarter where we have achieved over INR10,000 crores of disbursement per quarter. The vehicle disbursement that typically weaker in H1 compared to H2 of previous year with seasonality factors such as monsoon, festival, etc.

This year however H1 disbursbersments have been higher than H2 of previous year, for that matter any half year in our history. Consequently, the vehicle finance loan growth accelerated from 8% year-on-year to 13% year-on-year over the quarter and 4% quarter-on-quarter growth. We have moved into double-digit loan growth after three years. Within vehicle categories, commercial vehicles, utility vehicles, car, and Three-wheelers saw more than 20% [Phonetic] year-on-year growth in disbursements. Disbursement growth in other segments, that is construction equipment, two-wheelers, and tractors was in mid-teens year-on-year. Vehicle asset quality remained steady and gross slippages during the quarter from standard customers improved from 0.8% to 0.6% quarter-on-quarter.

The restructured book in the vehicle finance reduced by INR861 crores to INR2,270 crores from INR3,131 crores quarter-on-quarter. We are seeing restructured customers completing satisfactory performance and becoming eligible for upgrade to standard category. Upgrades and recoveries contributed 70% of the reduction in the restructured book during the quarter. The collection efficiency of the remaining restructured book was at 83% in-line with our expectation of 80s [Phonetic] collection as mentioned earlier. Overall we are expecting disbursement momentum to gain further traction with tested demand in quarter 3 and new purchases were fully income tax benefits driven purchases in quarter 4.

Microfinance. Our micro-finance business too saw a healthy recovery in disbursments growing 29% quarter-on-quarter to INR9,740 crores making it the highest-ever second-quarter disbursements. We also saw new to bank customer addition growing 33% sequentially. Business lines of Bharat Merchant Store and Bharat Superstore too scaled up during the quarter. The slippages from the MFI book were lower quarter-on-quarter, resulting in Bharat Financial achieving growth and improved asset quality. Our MFI book at the end-of-quarter 2 at INR29,617 crores, was up 5% year-on-year and 1% compared to June ’22.

The RBI direction on MFI issued in March ’22 has been fully implemented and the disruption in business cost in quarter 1 now is thus behind us. Household income assessment were more than 70% of active and inactive clients has already been completed and the rest will happen as and when the customers come up for new loans. MFI standard book net collection efficiency for quarter 2 was strong at 99.1%. The collection efficiency for new client source in the last 12 months, that is post-October ’21 remain healthy at 98.9%, which is closer to the pre-COVID levels.

Our 30 to 90 DPD book including restructured customers was at 2.0% on September ’22 compared to 2.2% at the end of June ’22. The gross slippages during the quarter reduced to INR435 crores as compared to INR560 crores during the previous quarter. Considering the recoveries, upgrades, and write-offs, GNPA reduced to INR885 crores, which is about 2.9% as compared to 3.4% at the end of June ’24.

We continue to expand our merchant-acquiring business under the banner of Bharat Super Shop. Portfolios sourced through [Indecipherable] under this business has grown 20% sequentially to INR2,675 crores with 4.2 lakh active customer borrowers. We continue to make good use of Bharat Financial deep rural reach to broaden the banking relationship with our micro-finance customers. At the end of quarter 2 financial year ’23 the total liability book sourced from customer service to vehicles increased by 53% year-on-year to reach INR1,662 crores to 1.26 crore accounts with us. Our focus remains to be the banker of choice for our customer segment in Bharat.

Overall we continue to see improvement in rural activity levels, driven by another year of near-normal monsoons, government support, and through upward revisions in agri prices etc. and diminishing COVID impact. Our business model remains focused on growth and diversified across geographies, new customer acquisitions, low ticket sizes, and scaling up new initiatives.

Global diamond and jewelry business. The diamond business has achieved its highest-ever loan outstanding as well as revenue contribution during the quarter. The asset quality remains pristine at low NPA for SMA1-SMA2 customers or restructured customers. But portfolio saw a healthy growth of 29% year-on-year growth, aided by strengthening of diamond prices and stable demand from the largest market. The industry continues to work within the domestic and international trade norms absorbing the impact of geopolitical conflict. Corporate Bank. Our corporate business has been delivering steady growth with no asset quality surprises for the last several quarters and this quarter was no different. We achieved a growth of 23% year-on-year with standard book slippages of INR66 crores during the quarter.

We saw growth across segments with large corporates growing by 10%, mid corporates by 1%, and small corporates by 7% quarter-on-quarter. Loan book growth has broadly driven by large corporate segments like strategic client group and financial services and in mid and small corporates like SME, healthcare. The sectors driving growth were NBFCs, real-estate, steel, power, and power generation. We continued to actively reprice the loan book. Our yields in corporate book improved by 40 basis-points during the quarter versus 7 basis-point improvement during the previous quarter. A portion of A and above rated customers remain healthy at 72% with overall weighted-average all 2.65.

The gross slippages from corporate book reduced from INR603 crores to INR179 crores. The slippages for standard book was at INR66 crores. The restructure slippage was primarily from a stressed retail group and with this the entire exposure from the retail group has become NPA and fully provided for. Our corporate restructured book has now reduced from INR5.6 billion to INR4.7 billion. Exposure to stressed [Indecipherable] was reduced from INR18.5 billion to INR17.3 billion including fund based exposure of INR10 billion and balance non-fund based exposure. While there are anecdotal signs of capex revival by the private sector, the revival will skewed with select sectors and large players contributing to the bulk of investments in the economy.

Broad-based capex recovery is yet to percolate to mid and small companies in the midst of domestic and global economic uncertainties. Overall, we do see corporate book to maintain a steady growth, driven by mid and small corp. active repricing benchmark to the market print. We continue our journey of corporate growth driven by higher-rated granular shorter-duration loan book. Other retail assets. Our non-vehicle, non-microfinance retail book growth — book saw a growth momentum by accelerating during the quarter with 5% quarter-on-quarter and 21% year-on year growth. The growth was driven by both secured as well as unsecured assets. In secured assets, both our business banking and loan against property grew by 3% quarter-on-quarter continuing the momentum from last quarter. With rising interest rates and tightening liquidity we saw further rationalization of pricing in the market.

Credit card spends continue to remain strong for us. As well as the industry with spends of INR16,700 crores for the quarter. As a result, our credit card loan book grew by 10% quarter-on-quarter. While the implementation of new RBI guidelines — the RBI guidelines during the quarter impacted the outstanding card numbers for all players and new acquisition continues to remain robust with 81,000 acquisitions in September ’22. We also started the pilot of our home loan product during the quarter in select cities. Home loans will strengthen our universe of product offerings for retail customers. We aim to build a sizable loan book in the next two to three years.

As the festival season settled, we expect growth momentum in retail business to continue in coming quarters. Now coming to liabilities. Our deposits grew by 4% quarter-on-quarter and 15% year-on year. Deposit mobilization continues to be driven by granular customers and our retail customers as per LCR grew by 5% quarter-on-quarter and 16% year-on year. CASA book also grew by 15% year-on year in-line with the overall deposits. The deposit market saw withdrawal of surplus liquidity levels and heightened competition from peer banks. We continue to be selective in our rates action and focus on balancing between growth and cost of deposits. Contribution of certificate of deposits remains low at 3.2% of deposits.

Our CASA ratio was at 42.3% versus 42.1% year-on year and 43.1% quarter-on-quarter. The current account saw a healthy growth of INR8,900 crores, which almost half was due to a spike towards quarter-end from [Indecipherable] dividend mandate. The savings accounts saw a reduction quarter-on-quarter, primarily due to implementation of centralized treasury settlement in budgetary account. This removes intermediary banks from government budgetary allocations and we had one such account, wherein the balances move out. We’ve only have this account and only have one account in the central allocation budget. Our new initiatives with affluent and NRI banking saw growth accelerating during the quarter.

Affluent segment deposits grew by 7% quarter-on-quarter from INR36,300 crores to INR38,700 crores. Affluent AUM at INR63,300 crores too grow by 7% quarter-on-quarter in-line with the deposits. The segment also contributed the highest-ever quarterly fee income of INR101 crores. Pioneer, the flagship affluent brand continues to gain prominence in the marketplace through campaigns and unique best-in class biennial lobbies. Currently we have 10 Pioneer branches and lobbies in six major cities and plans to launch five new branches in the current financial year.

After remaining stable for last few quarters we saw a pickup in the NR segment deposits aided by easing guidelines by the RBI. Deposits from NR segment at INR29,000 crores grew by 7% quarter-on-quarter. We have garnered about around INR2,000 crores of NRI fund so-far through the RBI dispensation window. We continue to expand our distribution with opening of 34 branches taking the total branch count to 2,320. We are aiming towards 2,500 branches by fiscal year end and around 3,500 branches over the next 3-year planning cycle. We have borrowing maturities during the quarter reducing outstanding borrowings by 3% quarter-on-quarter and 12% year-on year.

The borrowing mix is also move towards long-term stable sources such as refinance from development finance agencies. We continue to maintain a healthy average surplus liquidity of INR47,000 crores during the quarter. Overall we continue to remain focused on retail liability mobilization amidst the heightened liquidity environment. Our physical and digital distributors strategy had been aligned towards retail deposit. We continue to scale-up new initiatives like affluent and NRI. Digital traction. Bank continue to scale-up digital direct digital customer do-it-yourself and partnership led business, which nearly doubled year-on year. Bank has an earn model and not a burn model, which is reflected in the digital customer acquisition cost, which had been reducing steadily with increasing business volume across our easy credit, savings online, and merchant stack [Phonetic].

The new digital launches done by the bank are scaling up as well. Indus Credit for individuals is now live for personal loans and is enabling them drive scale with efficiency in personal loans and credit cards. Indus Merchant Solutions has seen a sharp organic growth since launch of more than 100,000 user base and monthly active user base doubling quarter-on-quarter. Indus Easy Credit for business has digitized MSME, unsecured, and secured credit up to INR2 crore exposure and nearly 50% of the up to INR2 crore MSME business is now digital which has unlocked process efficiencies and enhanced customer experience. Banks will soon be launching up the new digital proposition of individual segment with several industry-first innovative features.

On IndusMobile. During the quarter the bank went live with card tokenization mobile and UPI transactions continue to grow 2 times Y-o-Y and monthly active user base on the mobile app was up 28% year-on year. WhatsApp banking chatbot continues to scale with user base increasing 2 times Y-o-Y. WhatsApp banking now has a registered base of 5.3 million users. Overall 93% of the bank transactions are now digital. Sustainability. At IndusInd, we have embedded sustainability as one of our strategic cornerstones and integrated it with the way we do our business. We already have a large stable portfolio in the bank supporting livelihoods finance and you will see us launch several new sustainable banking products. During the quarter, we launched EV Financing Program partnering with a leading OEM. We updated our ESG Risk Assessment Framework and also on-boarding a leading rating agency as knowledge partner for ESG risk assessment.

We have also commenced forming strategic path towards achieving carbon neutrality by 2032. Climate Risk Management is now becoming an important agenda with the regulator and they have issued a discussing paper — discussion paper on the same. The bank has already integrated ESG risks as trade appraisal process and we believe that we are well-prepared for upcoming expected regulatory changes. The bank has been awarded as the Best Bank in India for ESG award — for ESG Award by Asian Money for financial year ’22 and acknowledged as the market-leader in the ESG in India by Euromoney.

We are committed to maintain our leadership position in ESG space and contribute towards a sustainable future. Now coming to the financial performance for the quarter. Net interest income continues to accelerate growing at 18% Y-o-Y in-line with the loan growth. Net interest margin improved sequentially from 4.21% to 4.24% quarter-on-quarter. Similar to the previous quarter, the net interest margin was aided by synchronized repricing of assets as well as liability. We saw loan book yields improving by 12 basis-points quarter-on-quarter. Yield on overall assets improved further by — faster by 30 basis-points due to lower dragger from excess liquidity. The cost of deposits increased by 31 basis-points and the cost of funds increased by 27 basis-points during the quarter. The core fees remained strong — maintained strong action going up by 24% year-on year and 5% quarter-on-quarter. The treasury income was positive and stable quarter-on-quarter. The overall other income grew by 9% year-on year and 4% quarter-on-quarter. Share of retail fees remained healthy at 71% of total fees.

Our, total revenue for the quarter was at INR6,313 crores with 15% year-on year and 4% quarter-on-quarter growth. Operating expenses grew by 5% quarter-on-quarter. Employee expenses grew by 9% quarter-on-quarter as we have rolled-out our annual increments during the quarter and also due to the fresh hiring in the financial year. Our overall cost-to-income ratio was at 43.9% quarter-on-quarter. The operating profit for the quarter was at INR3,544 crores, growing 10% year-on year and 3% quarter-on-quarter. The POOP margin to loans continues to be healthy at 5.7%. Our core operating profit grew by 18% year-on-year. On the asset quality and the provisioning front, our provisioning for the quarter have further reduced to INR1,141 crores, the provision our loan — the provisions to loans are thus down 244 basis-points now.

The gross NPAs are down from 2.35% to 2.1% quarter-on-quarter and net NPAs are down from 0.67% to 0.61% with stable provision coverage ratio of 72%. The improvement in the asset quality was driven by reduction in slippages from both standard as well as restructured book as disclosed in the investor presentation. We’ve utilized INR360 crores from restructured slippage in-quarter 2 and contingent provision stands at INR2,653 crores or 1% of loans. The net security receipts have reduced from 72 basis-point to 67 basis-points quarter-on-quarter. The loan related provisions are at 3% of loans or 140% of the gross NPA. Our SMA1, SMA2 book was at 15 basis-points and 43 basis-points respectively. Profit-after-tax for the quarter was at INR1,805 crores growing at 11% quarter-on-quarter and 57% year-on year. Our CRAR, including profits remained healthy at 18.01%. Return on assets continued upward trajectory from 1.73% to 1.80% quarter-on-quarter and return-on-equity improved to 14.45%. Overall, we continue to demonstrate consistent improvement in performance metrics every quarter driven by all round contribution across business units.

We expect to maintain that trajectory on key metrics. We are comfortable with achieving our PC5 loan ambitions as vehicle and microfinance disbursements are seasonally stronger in H2. The corporate and consumer businesses are scaling up every quarter along with the traction on new initiatives such as home loans and merchant acquiring. We remain focused on our strategy of regionalization of deposits. We are investing in our distribution. Our new initiatives are effluents, NRI to have gathered momentum and almost all these deposits are retail as per LCR. Our Digital 2.0 launch too shift further boost our retailization agenda. Asset quality trends are also as per our communication and we expect the stress book to continue to fall. We will continue to maintain conservative contingency provision [Phonetic].

The operating profit margins are expected to be stable factoring in the near-term pressure from treasury and investment in the — in franchise compensated by revenue building up from retail disbursements and retail fees. The ROA and ROE should thus continue to expand as our earnings scale-up with annualized EPS now in 90s. We can now open the floor for question-and-answers.

Questions and Answers:

Operator

Thank you very much. We’ll now begin the question-and-answer session. [Operator Instructions]. Ladies and gentlemen, we will wait for a moment while the question queue assembles. [Operator Instructions] The first question is from the line of Kunal Shah from ICICI Securities. Please go-ahead.

Kunal Shah — ICICI Securities — Analyst

Yeah. Hi, Sumant. Congratulations for good set of numbers. My question is with respect to yields. So as you highlighted actually corporate yields are up 40 odd basis-points and there is huge competition and we are seeing more growth coming in on the large corporate side which was up 10% quarter-on-quarter. So what is actually driving this improvement on and at the same point in time when we look at consumer banking yields, they are more or less steady on a quarter-on-quarter basis despite slippages also being lower. So just wanted to get a sense in terms of the rate action on the retail products. Okay, and how do we see the momentum over here?

Sumant Kathpalia — Managing Director and CEO

So, you’re absolutely right. I think our corporate banking yields up 40 basis-points. It is because of the — the book which was linked to the external benchmark rate getting repriced in the quarter and our focus on the small and the mid corporates getting us the better yield and the repricing of that book, which happened. That’s number one. Number two, on the retail side, I think it takes time for the yield to come up. While our disbursement yields have gone up in the business, I think it’s only a matter of time that you will see the yields going up in the business as we move forward and I think that’s the only reason. In my opinion, I think you will see the yields in the — in the Consumer Bank specifically microfinance has already seen a 35 basis-point yield increase. I think the CfD [Phonetic] is almost static on the yield right now and I think the corporate bank — the non-vehicle part of it is also static and so start seeing the yields coming up. It’s more of our fixed-rate book of debt.

Kunal Shah — ICICI Securities — Analyst

Okay so overall MFI we had still seen the improvement and this is on the book business, which you’re highlighting or this is on disbursement?

Sumant Kathpalia — Managing Director and CEO

So, no, it’s on the book basis because as you saw the NPA is going down on the book, you saw the yields coming up. So I think we saw our yields — last quarter we saw a 20 basis-point and this quarter we’ve seen another 20 basis-point improvement in the yields.

Kunal Shah — ICICI Securities — Analyst

Okay. And despite that this is flat so the other product segments would have been actually down because of the competition, yeah?

Sumant Kathpalia — Managing Director and CEO

Yeah it will. It’s not like that. I think the run-off of the book has to be taken into account. Some run-off pictures happening in the book which is three years-old, which was at larger — higher part of the yield is also running off so you have to take all that into account.

Kunal Shah — ICICI Securities — Analyst

Sure, sure. And secondly, in terms of guidance so now you alluded in terms of the factors which have led to spike in CA and even maybe the run-down in but then how should we look at it going-forward? Maybe even though it was a quarter-end phenomenon with respect to CA do we see it sustaining or maybe it should run-down and there could be some pressure on CASA going-forward because SA was quite down on a quarter-on-quarter basis yeah?

Sumant Kathpalia — Managing Director and CEO

Yes, you’re absolutely right. I think our CASA should remain in the range-bound between 42% and 43%. We’ve always said, between 41% and I think we should come back to 41% and 43%. I think yes, on the CA side there was a dividend mandate, which came in INR5,000 crores of — was of a visibility in mandate. I think you will continue to get such deals. Our SA was on the consequence of the change in the government strategy where I think the centralized depository, they all set budgetary allocation accounts which are centrally — which are centrally allocated go through the treasury accounts now, and they don’t use the intermediate at the brand end as a settlement center. So, I think that’s what has happened and I think it’s being — it has it got implemented in the roads or the road and transport, it will get implemented in the power, shipping as well as other industries and I think we have to watch out for that space.

I don’t think we have only one such account which is on the central and that has got impacted. In my opinion, you should see the CASA coming back. I think you should see us in the range-bound between 41% and 43%. The only thing I can tell you our NIMs will remain range-bound between 4.5% to 4.25% as a consequence.

Kunal Shah — ICICI Securities — Analyst

Okay. And lastly, in terms of data points. So if you can give the breakup of the outstanding restructured pool you highlighted on vehicle but what would be the other segments? Corporate is also down so I think if you can give the breakup of the slippages as well as outstanding restructured?

Sumant Kathpalia — Managing Director and CEO

See what I’ll do.

Unidentified Speaker —

Kunal, we will disclose this like last quarter in the commentary.

Kunal Shah — ICICI Securities — Analyst

Okay, okay. Cool, yeah, thank you.

Operator

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

Nitin Aggarwal — Motilal Oswal Financial Services — Analyst

Yeah. Hi, Sumant. Congratulations on strong numbers. Few questions like firstly on the credit cost now that over the first-half we have consumed almost 1% credit cost [Indecipherable] guidance of 122 odd basis-points. So how do you see this on context to the guidance and by when do you expect the slippage to normalize completely?

Sumant Kathpalia — Managing Director and CEO

I think the slippages are getting normalized. I think you will see us in the range of 120 to 150 basis-points only for the year. I can only tell you this. I think it is what you are seeing — what you have to see is the guidance is on ENR, not on ANR and I think that is where the guidance. I think we’ve always said our credit cost will be around INR4,000 crores, INR4,200 crores to INR4,400 crores and it was given in the overall ENR at the end-of-the-year and that is where we will be at 120 to 150 basis-points.

Nitin Aggarwal — Motilal Oswal Financial Services — Analyst

Okay sure. And secondly, on the mortgage side of the business wherein we are like look into grow quite rapidly over the coming years. So what customer profile, geographies, any color if you can provide on the distribution strategy that you want to employ to grow this business? And how much book size are we looking at over the next couple of years?

Sumant Kathpalia — Managing Director and CEO

So I think you have to look at mortgage in two parts. One is the affordable housing and one is the normal mortgage. The affordable housing is in 23 cities already. And I think that book is about INR1,600 crores to INR1,900 crores. We want to grow this book to about INR5,000 crores. And that’s our strategy on that. It comes at a yield of 11%, and we are very fine with that.

On the branch banking side, our strategy is to grow where Pioneer growth, number one. So I think our Pioneer is in 10 to 11 cities, which is that to expand to 20 cities. So we will launch mortgage in 20 cities wherever. Pioneer or affluent goes, we will follow that cycle in the Pioneer — for the Pioneer.

The other thing is we have a home market strategy, and we are at 16 markets on the home. The Pioneer would overlap with that, but I think wherever Pioneer is not launched, and there is home market that we want to expand to 25 cities, we will also launch mortgages in that city. So I think our segment is affluent plus a segment of branch banking, which is — you can’t call it mass affluent or what you — mass affluent. So that’s what we will focus on.

We are not going at the lowest level. And the lowest level at the affordable housing space, we are having — our vehicle finance unit will drive that business. Have I answered your question?

Operator

Line for the participant dropped. We move to the next participant. The next question is from the line of Adarsh. Please go-ahead.

Adarsh — — Analyst

Hi, Sumant. Congrats on good numbers. Sumant, obviously, the macros look strong. But just if you can reflect on how do you expect to tight through liabilities? There will be smaller banks, which will give higher CA rates, there are large banks which need to increase deposit mobilization and wholesale deposit rates have moved up quite sharply. So if you can just elaborate on the liability side, how do you expect this to pan out over the next 12 months?

Sumant Kathpalia — Managing Director and CEO

Adarsh, we have — our strategy is very clear and I talked to you before, but let me just reemphasize that. We have 5 playing level fields, which we will play our game on. One is we focus on an affluent and NRI and you’ve seen the growth. And I think that’s the business which will continue to invest in. And we believe in the next 12 to 24 months with these books will double. And I think our INR25,000 crores to INR30,000 plus crores liabilities will come from this segment in a big way.

The second is, we believe that branch expansion still plays in India a very important role. And we’ll continue to expand our branches. We’re going to 2,500, and we’re going to 3,500. I think the difference is, I think the branch look and feel will be different as a process. And I think what we are doing is, we are going into a concept, which we call as community banking.

And I believe we have selected 5 communities [Indecipherable] and you will see our branches around those communities developing. We believe that when you’re fighting in a very crowded market, you’ve got to find the niche for yourself. And we believe we found a niche when we were — when we had come in and we launched the liability in the home market strategy, which we continue to expand.

Now we believe in the client segment, the niche will come in the communities, which we want to offer. So I think, for example, the very strong on diamond. We believe diamond is the community which has an end-to-end capability, and we will launch the diamond where there are 800,000 workers on the ground, which get an average salary of INR100,000 per month.

So I think there is an opportunity of a very different nature there, which we are going to that. The second, I think — can be at the front. We are very strong on the defense vertical. I think some parts of the defense and we believe that there is a very strong opportunity in the defense area, which we think that we can make a very good comeback. So I think the strategy around segmentation along with the branch expansion is the #2 strategy.

The third strategy is I think we are launching digital. I believe that digital will play a very huge role as we move forward in the client acquisition. And scaling up of the client acquisition, you’ve seen the [indecipherable] will get launched in the month of December or January. We believe that in the first 12 months or 24 months — first 12 to 24, we will acquire 2 million customers with INR15,000 crores to INR20,000 crores of balance sheet.

Now that balance sheet is what we think will help us create a very differentiated. I’m not saying it will come from digital, but clients will be identified.

We will start giving relationship management and everything through the [indecipherable] proposition. So I think that’s a very, very big opportunity.

Fourth in my opinion, the Bharat Financial network is still not being fully exploded. I think we have 70 lakh accounts, but I think — I believe that — I think if we can start engaging with them in a different way, we are planning to take this book to INR5,000 crores in the next 12 months, and I believe that’s a very, very big opportunity for us.

And last, I think our client acquisition, specifically our current accounts position is taking a very different shape. And I believe that current accounts growth of around INR10,000 crores in the next 12 months to 18 months will give the bank a COD advantage. And the last point is our rates will continue to be higher than the market and our pricing will be differentiated. We will continue to price basis selective segment and selective geography and bank, we will play a very differentiated game.

Adarsh — — Analyst

Perfect. That was useful, Sumant. And just a clarification on — on the CA base. If you adjusted the large account, the government balances, would the core CA would have grown or?

Sumant Kathpalia — Managing Director and CEO

Yes. That is what we are saying that we grew 5% quarter-on-quarter. And our retail balance sheet is what we have bothered. I could have filled in this balance sheet. I could have got a bulk CA. I think the issue’s I want to move out of the bulk CA, whichever is there in the book. And I’m saying retailization and granulization of liability is happening, and that’s where the growth was 5% quarter-on-quarter on that book.

Adarsh — — Analyst

Perfect. That’s helpful, Sumant. Thanks a lot.

Operator

Thank you. Next question is from the line of Hardik Shah from Goldman Sachs. Please go-ahead.

Rahul — Goldman Sachs — Analyst

Yeah. Hi, thanks. This is Rahul. Hi, Sumant, and team. Sumant, just a couple of questions. One is on the loan book growth side. I’m just trying to understand the logic behind growing the large corporate book so significantly as well as the unsecured PL and credit cards. So can you just help us understand what’s driving these two components so sharply?

Sumant Kathpalia — Managing Director and CEO

So I think let me answer the point number two. If you have seen, we’ve not grown the Bharat Financial book, and I think the Bharat Financial book has remained and gone down as percentage of our 10% to 11%. And I think we have always said that we will not cross the 5% margin on the unsecured book. So I think we’ve remained within that margin and the growth happens. And it happens during this period, and that is why the growth happened. So I think we are within the unsecured gap of the regulator. And I think there was an opportunity and we grew that book at a faster pace. And I think we were at 3.5%. We have moved to 4%, 4.2%. We’re still within the bar of the 5%. And I think that’s why we grew the book where we grew.

On the first part, I think on the corporate side, I think we’re getting into a very good A rated paper about relationships. It’s about balancing the books and getting the risk density. Now — and that is where we are working on the risk density and this was very good opportunity and very good fee opportunity also and cross-sell opportunities, which came into us, and we did those businesses. And I think we got into new relationships, and we got some very good deals.

Rahul — Goldman Sachs — Analyst

Got it. Just one more small point. Can you just help us understand the duration of this corporate book that we would have onboarded, this is largely working capital loans, what will be the duration of these loans?

Sumant Kathpalia — Managing Director and CEO

So there is — there is 60% — 70% is working capital, 30% is term loans but all these term loans are less than five years, five to six years.

Rahul — Goldman Sachs — Analyst

Okay. Got it. That’s helpful. The other question is, have you — have you kind of changed our savings deposit rates in this quarter?

Sumant Kathpalia — Managing Director and CEO

Yeah. Yes, I have changed the rates. We’ve changed effective October 1. I think the rates are now at less than INR1 lakh remain at 4%. INR1 akh to INR10 lakh remain at 5%, and INR10 lakh to INR100 crores remain at 6%.

Rahul — Goldman Sachs — Analyst

Got it. Understood. Just 1 last question. Sumant, the CA growth has also been very strong. So is there any inter-linkage between the large corporate growth on the loan book side as well as the CA growth? And do you also plan to kind of moderate this corporate loan growth as the retail — other pieces of retail picks up like Bharat Financial and CVs, etc?

Sumant Kathpalia — Managing Director and CEO

See, I’ve always said that the ratio mix for us is range bound. And I think we have always said 55% to 58% will be retail and 42% to 45% will be corporate. And that’s where we will — 1 quarter here or there doesn’t matter, but I think that’s where our loan mix will be to get an efficient NIM as well as our contributions. So I think that’s what we have decided. And that’s where we will be.

Number two, the second question was, will we continue to grow — will we continue to grow — what happened on the liabilities? I think there was — these dividend warrants come from various undertakings from us. And we’ve been business of transaction banking for a long time. These are our clients. And we will mandate as a process. These are mainly PSUs. And we have very strong fixed interaction, which we have INR9,000 crores book. So I think the deals on that book may not be very high, but these are the type of businesses which we get for them and we [Indecipherable] we do this business very well.

So that’s why we continue to get this mandates. Why did we do the corporate bank? I’ve always told you that you got to do your risk adjustment. And I think these are very good businesses, and they have a lot of prospects and as a consequence, we get a lot of fees. And if you look at the FX revenue and the growth in the FX, if you go through, 1 of the reasons are we’re doing this business.

Rahul — Goldman Sachs — Analyst

Got it. That’s helpful. And quickly on current account?

Sumant Kathpalia — Managing Director and CEO

I just answered you. That INR5,000 crores came as a consequence of dividend mandates, which we got. I’ve written that in my speech.

Rahul — Goldman Sachs — Analyst

I think I missed it, I missed it. Thank you. Thank you so much Sumant.

Operator

Thank you. Next question is from the line of Abhishek Murarka from HSBC. Please go-ahead.

Abhishek Murarka — HSBC — Analyst

Hi, Sumant. Congratulations for the quarter, great numbers. So 1 question again on yields. Can you give some sense of the yields on your large corporate, mid-corporate and small corporate segment individually and how they would have moved between last quarter and this quarter?

Sumant Kathpalia — Managing Director and CEO

We don’t disclose it. That’s something we don’t disclose it. But I can assure you, the yields in the large corporates have moved the lowest. I think the yields in the SME and the small corporates have moved higher. That’s all I can tell you.

Abhishek Murarka — HSBC — Analyst

Right. And so could you give a sense of the kind of movement? 40 is your blended, but on an incremental, would it be higher by 100 basis points or so?

Sumant Kathpalia — Managing Director and CEO

Incremental?

Unidentified Speaker —

No, no. 40 bps was the difference between — between Q2 and Q1 on the entire corporate book. So what’s your question?

Sumant Kathpalia — Managing Director and CEO

See incremental disbursals, let me tell you, are happening linked to an external benchmark rate and our market. So I think the yields will be higher because it is linked to the external market. That’s the answer to your question, Is the — if it is linked with the [Indecipherable] — what is treasury — all is linked to the CD rate, so the rates will be higher accordingly.

Abhishek Murarka — HSBC — Analyst

Right, right. The second question is on SME. Now because of this increase in rates, right, a lot of it obviously has to do with the EBLR. Are you sensing any kind of pressure in SME or any kind of early delinquency indicators? How are they trending? Just wanted to get a sense of it.

Sumant Kathpalia — Managing Director and CEO

I’ll tell you my data. I have no delinquency no SME, 0% delinquency. I have a small book. It is about INR4,000 — INR3,800 crores book. On the [Indecipherable] side, we have taken a lot of losses over the last 2 years, what we had to take. And I think the flows have slowed down dramatically. What we have to act. You should ask me a question, are you seeing attrition in your book, because of the retail. And I think we have to watch out for that space this quarter.

Abhishek Murarka — HSBC — Analyst

Right, right. Got it. And finally just a quick data point. In your credit card book what is the revolver mix?

Sumant Kathpalia — Managing Director and CEO

It’s about — I don’t know why the revolving rates are all going up. We’re still struggling at 27% to 29%. It’s not growing. The revolver base is not growing. But what we do well – sorry, we do well if we do the EMI portion very well on the business.

Abhishek Murarka — HSBC — Analyst

Okay, how much would that be?

Sumant Kathpalia — Managing Director and CEO

It would be around 25% of the book as of now. So we have a book of INR7,000, INR1,400 crores to INR1,500 crores will be that book.

Abhishek Murarka — HSBC — Analyst

Okay, okay.

Sumant Kathpalia — Managing Director and CEO

So it will affect the yield on the books because the EMI book comes at a lower spread while the revolver rate comes at a higher spread. Yields — your question should come what is your credit card book, it fluctuates between 16% to 18%.

Abhishek Murarka — HSBC — Analyst

Yes, and any sense of when the revolver rates would pick up? Just a broad sense, whatever?

Sumant Kathpalia — Managing Director and CEO

So history tells you that when there is an inflationary environment, first, the personal loan disbursement increases dramatically. So if you go historically into the unsecured business, historically, the personal loan disbursal business will rise and then the revolving rates on the OD product starts rising. And that’s where the card revolving rates will increase.

So I think first, you have to watch out for the personal loan disbursements in the banking sector. And I think you’re seeing already a spate of increasing personal loans. We are very watchful of that. And then you will see the credit card revolving rates going up. And that is where the debt trap happens.

Abhishek Murarka — HSBC — Analyst

Got it. Got it, Sumant. Thanks. Very useful and all the best.

Operator

Thank you. The next question is from the line of Akshay Jain from JM Financial. Please go-ahead.

Sameer Bhise — JM Financial Limited — Analyst

Hello?

Sumant Kathpalia — Managing Director and CEO

Yeah, Akshay.

Sameer Bhise — JM Financial Limited — Analyst

Hi, this is Sameer here.

Sumant Kathpalia — Managing Director and CEO

Hi, Sameer.

Sameer Bhise — JM Financial Limited — Analyst

Just a quick question on fees. So gradually fee as a proportion of assets is kind of inching up. Do you think it probably goes back to about 2% as it used to be long back because corporate balance sheet growth is also now coming back. So just wanted some thoughts here.

And secondly was on the opex trajectory. Some outlook there in terms of branch additions and spends. Those were my two questions.

Sumant Kathpalia — Managing Director and CEO

So Sameer, on the fee part, if you look at our fee composition, 71% of our fee comes from our consumer. And I think what is more important is you must see how a client acquisition and consumer is scaling up and what is the product holding and consumer happening. So if you look at 12 months ago or 18 months ago, we were at 3.6% product holding, and we come to 3.9% to 4% of product holdings. As consequence, your fee composition is increasing.

So it’s the composition of the upfront measures rather than the downstream measures. The upstream measures are showing an improvement in the consumer bank and as a consequence, the fees is increasing. It’s not the downstream measure. So I think as long as the upstream measures are doing, I think we were 68%, is now moved to 71%, and I continue to believe that we will fluctuate between 70% to 75% in the consumer bank fees as we move forward.

On the corporate side, I’ve always said that our fees in asset ratio should be between 1.6% to 1.9%. That is where good corporates are. And we will continue to be that. Overall, I see the fees between 1.8% to 2.1% and that is our guidance that we should be in fee to assets at 1.8% to 2.1%.

Unidentified Speaker —

And 95% of the corporate fees is from trade FX and the normal processing fees so IV piece is very less.

Sumant Kathpalia — Managing Director and CEO

The second part of your question?

Sameer Bhise — JM Financial Limited — Analyst

And secondly on OpEx, yeah.

Sumant Kathpalia — Managing Director and CEO

On the OpEx? So if you look at our OpEx, we’ve seen a gradually upswing on the OpEx. And I think we should quarter or two come back to 43%. But I think it will take a quarter or quarter or 2. And I think we are — I think the revenues will start coming up. See the problem is also, I think the — OpEx, there are 3 as long as you’re investing in new businesses like mortgage, your cost is going to come up. As long as you’re investing in new technology, the cost is going to go up. Digital, there is different — and the employee cost.

And I think we have done our appraisal process in this quarter and I think what we thought will be the appraisal cost actually came out a little higher because I think the market had moved dramatically at that point of time. And I think we took out, so that’s why 9% quarter-on-quarter cost increase.

What you are seeing is not because we’ve taken upfront cost, but it’s also of new hiring as well as that we hired 6,400 staff. So as long as we are growing new businesses like in merchant — like in micro finance, we grew businesses. So I think the cost sector, I think the maximum we will go on the efficiency is 44% to 44.2% and then I see it settling down to about 41% to 43% range.

Sameer Bhise — JM Financial Limited — Analyst

Fair enough. Thank you and congrats again on the good set of numbers. All the best.

Operator

Thank you. Next question is from the line of Mahrukh Adajania from Nuvama Wealth. Please go-ahead.

Mahrukh Adajania — Nuama Wealth — Analyst

Yeah hello, congratulations. My first question was on MFI. Why has the book grown only 1% Q-o-Q? Because of the reorganizations, I mean the new guidelines?

Sumant Kathpalia — Managing Director and CEO

No. It is — yeah. And also the runoff factor, which is coming in. You have now — with this book, you have INR8,600 crores of runoff on a INR9,400 crores book. That’s the issue. So please understand that the book is very big and runoff factors coming into play. Yes, so we’ll have to go to a disbursement of INR10,500 to INR11,000 crores to achieve the growth thing. But you should push the pedal when it’s required. It is not required as of now.

Mahrukh Adajania — Nuama Wealth — Analyst

Got it. Got it. And Sumant, you very well explained about the third quarter demand that the festive demand is picking up, it’s strong. Second quarter was also good. But would you have any slightly longer-term outlook on how demand pans out beyond the third quarter in terms of loan? And also deposits you explained community and your other strategies. But just in terms of loan growth, where do you see — where or when do you see demand peaking?

Sumant Kathpalia — Managing Director and CEO

I think as long as public capex pick up, I think the demand for loans will pick up. And I think — and that demand will come from the SME and the midmarket corporate side. I think we are seeing that public capex picking up and I think that should create demand. There are demands which are coming I think from certain segments. I think real estate the demand is very high right now.

Cement, the demand is coming up. I think we see demand in the steel side. We are seeing demand in the power generation side. So I think we are seeing demand and we are seeing some private capex here or there coming up. But I think, yes, as you rightly pointed out, I think we have to see how the macro plays out in the long run before we start pressing the pedal on the growth on all these vectors. So I think while quarter 3 and quarter 4 look that and we should see a very good demand. I think we have to wait and watch. I can’t give a projection for the long.

There are a lot of geopolitical as well as macro factors which are at play here. And I don’t think anybody can predict the next 12 months today. I can predict the next 2 quarters. And the next two quarters, I feel India will see a very strong demand coming up. So if the — the example is if the macro — the growth does not come back in the — come back in the Western world, I think you can see exports going down.

So I think you have to see how the demand shapes up overall to say that what will be your growth in the asset. Though we have given that thing, then this year we will grow at about 20% plus. And I think we continue to maintain our plans, that we will continue to grow at 20% plus. Though we’ve grown at 18%, I think we should hit the 20% mark this year.

Mahrukh Adajania — Nuama Wealth — Analyst

Got it. That’s helpful. And just one very specific question on your comments. Your power generation is private thermal or it’s public only?

Unidentified Speaker —

It was one of the public entity, which increased during the quarter.

Mahrukh Adajania — Nuama Wealth — Analyst

Yeah. Thank you so much. Thanks a lot.

Operator

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

Anand Dama — Emkay Global Financial Services Limited — Analyst

Yeah thank you for the opportunity. Sir, my question was continuing with what Mahrukh asked where you said that you can predict for the next two quarters. But therein do you believe that the run rate that we have seen in terms of growth in the current quarter, can we clock about 20% odd growth for FY ’23, which you have earlier predicted about 18%-odd?

Sumant Kathpalia — Managing Director and CEO

Yeah. I think that’s what we said. I’m very comfortable. Please understand this 18% growth has come in the background of no MFI growth which happened in the [Indecipherable].

Anand Dama — Emkay Global Financial Services Limited — Analyst

And what’s the outlook on the CV books? Do you see that book picking up in the second half of the year?

Sumant Kathpalia — Managing Director and CEO

See the first — what we said is H1 of the year, we’ve never seen such disbursement. So it was a record disbursement in the H1 of the year, which was higher than what we saw last year in the H2. And I think as a consequence, we believe that 45% of the disbursements happened in the H1, and we see a very strong H2 for the — for the vehicle segment.

Anand Dama — Emkay Global Financial Services Limited — Analyst

Okay. So you believe that even the commercial vehicle book will contribute meaningfully in the second half of the year?

Sumant Kathpalia — Managing Director and CEO

Again, I would like to correct you, pardon my saying so. But I think you please understand, look at the vehicle categories which we are in. We are in 7 vehicle and commercial vehicle book is only 25% to 30% of the book. The balance book is coming from somewhere else.

Anand Dama — Emkay Global Financial Services Limited — Analyst

You’ve seen decent growth in EUV as well?

Sumant Kathpalia — Managing Director and CEO

Yeah. So you are seeing growth in personal vehicles, used cars, scooter loans, tractors, construction equipment, small commercial vehicles. So I think you should not only focus on the medium and we have also diversified into light commercial vehicle, where we have got 10% market share. We’re growing very fast from that. So I think you should see it in all the segments where we are growing.

Anand Dama — Emkay Global Financial Services Limited — Analyst

Okay. And lastly, what percentage of the corporate book will be — corporate and SME book will be linked to your EXIM trade, like export import trade?

Sumant Kathpalia — Managing Director and CEO

I didn’t get your question. It was a little garbled, please?

Anand Dama — Emkay Global Financial Services Limited — Analyst

So what — yeah, percentage of your corporate and SME book is linked to EXIM trade, export or import trade?

Sumant Kathpalia — Managing Director and CEO

Yeah, okay. So I think if you look at our export to import, I think — I can’t tell you about it, but I think 25% to 28% of our client.

Unidentified Speaker —

Not in the corporate. Not in the SME. He is asking for the SME book.

Sumant Kathpalia — Managing Director and CEO

SME book?

Unidentified Speaker —

As many —

Anand Dama — Emkay Global Financial Services Limited — Analyst

Corporate, SME both put together?

Sumant Kathpalia — Managing Director and CEO

[Indecipherable] Consolidated how much is the gap? So I think 70% of our clients do a trade transaction with us in the overall corporate book whether it’s export or whether it’s import. Let’s not confused. 70% of our clients do transactions with us in the corporate bank.

Anand Dama — Emkay Global Financial Services Limited — Analyst

I think my question was the outstanding number that we have fund and non-fund both put together on the corporate and the SME side, how much is linked to EXIM trade, so the corporate is engaged into some kind of export or import for our business?

Sumant Kathpalia — Managing Director and CEO

So if you just go into the corporate, I have just told you 70% of the client will have EXIM trade. Like, for example, the diamond is 100%, so it’s 70% of top line.

Anand Dama — Emkay Global Financial Services Limited — Analyst

Okay. I will take it offline.

Operator

Thank you very much. Ladies and gentlemen, we’ll take that as the last question. I now hand the conference over to Mr. Sumant Kathpalia for closing comments.

Sumant Kathpalia — Managing Director and CEO

So thank you for joining the call. I wish you and your family a very happy Diwali and season greetings for the year. If you have any further questions, you can contact Indrajeet or me and we will be available. Thanks a lot, and god bless.

Operator

Thank you very much. On behalf of IndusInd Bank Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.