INDUSIND BANK LTD. (INDUSINDBK) Q4 FY22 Earnings Concall Transcript

INDUSIND BANK LTD. (NSE: INDUSINDBK) Q4 FY22 Earnings Concall dated Apr. 29, 2022

Corporate Participants:

Sumant Kathpalia — Managing Director and Chief Executive Officer

Sanjeev Anand — Head of Commercial and Rural Banking

AG Sriram — Head, Consumer Finance

Analysts:

Mahrukh Adajania — Edelweiss Financial Services — Analyst

Kunal Shah — ICICI Securities — Analyst

Manish Shukla — Axis Capital Limited — Analyst

Nitin Agarwal — Motilal Oswal Securities — Analyst

Jay Mundra — B&K Securities — Analyst

Nilanjan Karfa — Nomura — Analyst 

Presentation:

Operator

Ladies and gentlemen, good day and welcome to IndusInd Bank Ltd. Q4 FY22 Earnings Conference Call. [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 Chief Executive Officer

Good evening. Let me start with some macro commentary and then get into the bank specific details. Over the course of Quarter 4, the economy was hit by a third wave of pandemic which ebbed by March helping by improving pace of vaccinations. Latest official estimates suggest the economy surpassed it’s pre-pandemic size by end of Quarter 4 with real GDP growth of 8.9% over financial year ’22 as major components of GDP went past its pre-pandemic level. However pace of recovery got impacted by Russia, Ukraine conflict which sent commodity prices, including of oil spiraling upward. India however is much better positioned to deal with the negative external spillovers and improved macroeconomic stability profile.

Government capex push, external sector buffers and our broadly supportive fiscal and monetary policy environment would help sustain recovery momentum. Much improved health of the banking sector, significant deleveraging by the corporate sector and gradually improving capacity utilization reinforced the case of an investment cycle over the next 3 to 5 years.

Coming now to the bank performance, we completed the second year of planning cycle with strategy in Quarter 4. I will spend a minute on PC-5 update before going into our quarter specific developments. We have also added a few slides in investor presentation providing a status update on PC-5. The financial year ’22 proved to be a challenging year due to the internal as well as external factors. While we saw spread of COVID second wave during the first half of the year, we faced residual allegations in the second half, followed by a COVID 3rd wave. The banks responded with measures to address these concerned — concerns comprehensively through slower growth in first half, focus on collections, building conservative contingent provisions ahead of the slippages, conducting internal and external review on micro finance operations and maintaining traction on consumer, corporate and digital initiatives.

With these concerns getting behind us, we steadily pivoted towards growth with loan growth improving every quarter from 3% in March ’21 to 12% in March ’22. We also project progress on our key initiatives for PC-5, retail liabilities surge. Momentum on retail liabilities are maintained with a share of retail as per LCR increasing from 37% to 41%. CASA ratio improved from 41.7% to 42.7% and top 20 deposit concentration fallen from 22% to 17%. The COD at 4.6% as at the lowest level in our journey over several years.

Fine tuning corporate bank approach. Corporate bank saw growth of 20% after less — last year sell down and net slippages of 160 basis points witnessing one of the best years in recent past. We have seen improving — improvement in average rating, improving from 2.76 to 2.69. Granularity in fees and reduction in long-term loan as shown in the investor presentation.

Holistic Rural Banking. Rural banking franchise saw a scale up Bharat — of Bharat merchant stores, agribusiness along with the recovery in vehicle and micro finance. These improved shares of rural loans from 19% to 20% this year.

Our domains. Our domains contributed 43% of the loan book and have outperformed the industry during COVID waves. Our disbursements in vehicle finance and micro finance have picked up well after a brief slowdown due to COVID 2. Diamond portfolio to participate in the strong growth in exports.

New growth boosters. We progressed well on scaling up our new initiatives such as affluent banking, NRI, tractor financing, small corporates with less than INR500 crore turnover, merchant acquiring, affordable housing and digital 2.0. Overall we navigated an otherwise turbulent tiers with outcomes broadly in line with our communication throughout the year. We had a consistent improvement in return ratios as well as growth metrics every quarter and our balance sheet continues to be at its strongest level in the last several years.

Coming to this quarter-specific development. Acceleration in loan growth. We achieved 5% quarter-on-quarter growth, driven by 5% quarter-on-quarter growth in consumer, 4% quarter-on-quarter growth in corporate segments. The year-on-year loan growth book improved to 12% from 10% previous quarter. All retail products including vehicle, microfinance and consumer saw one of the healthiest disbursement ever during Quarter 4. The corporate book has been maintained steady momentum driven by small corporates. This broad based disbursement growth was the key outcome for the quarter.

Our deposit mobilization continues apace driven by granular customers. Our deposits grew 3% quarter-on-quarter and 15% year-on-year including CASA growth of 5% quarter-on-quarter and 17% year-on-year. The growth in retail deposit as per LCR accelerated to 6% quarter-on-quarter and 26% year-on-year. The growth of deposit is achieved along with the reduction in cost of deposits by 6 basis points quarter-on-quarter and 43 basis points year-on-year.

Digital 2.0. During the year, the bank created Digital Centre of Excellence investing in building new capabilities and talent base. We launched Indus Easy Credit, Merchant Acquiring and vehicle finance portfolios and are being scaled up. The other 2 individual and SME offerings are planned for the launch in the current year. The digital transactions continue to grow from — forming 92% of the total with strong growth in mobile transactions, up 33% and WhatsApp 2X YoY.

Asset quality. We saw reduction in both gross and net slippages during the quarter across consumer vehicle and micro finance business. Our net slippages have come down from 0.9% to 0.6% quarter-on-quarter. Our restructured book has reduced from 3.3% to 2.6% quarter-on-quarter and continues to perform well specifically in vehicles. While we saw slippages from corporate restructured book, we have not written back any provisions on contingency buffer. Our GNPA was down from 2.48% to 2.27% and net NPAs reduced from 0.7% to 0.64% quarter-on-quarter. Our contingent provisions are at INR3,328 crores with total loan related provisions at 152% of gross NPAs.

Healthy profitability continues to remain. Strong retail disbursements and falling cost of deposits aided improving our net margin to 4.2%. Our client fees continued momentum growing at 8.8% quarter-on-quarter. Our cost accelerated due to business revival as well as investments in technology and distribution resulting in cost to income ratio of 42.6%. Overall, our operating profit remains healthy at 5.8% for the quarter.

Steady improvement in return ratios. Our profit after tax grew 13% quarter-on-quarter and 51% year-on-year to INR1,401 crores. Our return on assets improved to 1.51% and return on equity was at 11.9% for Quarter 4. Continued improvement in return ratios and low-risk density has ensured healthy capital adequacy ratio at 18.42% versus 17.38% YoY.

Now coming to individual businesses. Vehicle finance. Our vehicle finance disbursements for the quarter were at INR9,986 crores, reflecting 13% quarter-on-quarter and 19% year-on-year growth of full disbursements at INR32,000 crores surpassed previous COVID level despite weak Quarter 1 due to COVID second wave. Within vehicle categories, we saw healthy disbursements across commercial vehicles, construction equipment, utility vehicles, tractors and cars.

Disbursements in 2 and 3-wheelers remained subdued.

We have gained market share in light commercial vehicles, construction equipment, tractors and cars during the year. We have seen activity levels across our customer base increasing during the quarter. The vehicle supply constraints have ensured adequate capacity utilization for existing vehicles. This has also have customers to pass on increasing fuel prices burden without considerable impact on their viability.

The small road transport operator segment has seen good freight demand during the last couple of quarters. The segment refrain from exuberant vehicle purchase since pandemic resulting in near normal capacity utilizations now.This should pave way for fresh demand once fuel prices eased down. Two of our big product segment that is bus and 3-wheelers have also seen utilization improving as COVID restrictions are withdrawn to a large extent. Three-wheeler segment is quickly getting back to normalcy including demand for fresh vehicles after a long time, but bus segment too is expected to see fresh demand couple of quarters down the road. As a result, our vehicle finance restructured book has reduced from INR3,769 crores to INR3,298 crores quarter-on-quarter. The collections from the restructured book improved further to 90% during the quarter. Collection efficiency from the rest of the book is back to normalcy. Overall, we remain optimistic about the vehicle finance business outlook for the current year. The segment has withstood increased fuel prices till now. We continue to add to our distribution, invest in our digital ecosystem and maintain rational pricing to ensure growth and risk-adjusted returns across the cycle.

Microfinance. We were cautious on microfinance disbursements in Quarter 3 due to potential third COVID wave focused on collection and completion of business reviews. As you know, we shared findings of independent review in March. With these issues getting behind us, our microfinance disbursement bounced back nicely during the quarter. The microfinance book grew to INR30,612 crores with 16% year-on-year growth.

Our standard book collections excluding restructured loan book improved further to 99.1% in March ’22 compared to 97.5% in December ’21. While the collection efficiency of new client source during financial year ’22 was at 99.5%. The net slippage during the quarter was INR696 crores and cumulatively for financial year ’22 was INR2,547 crore. This was broadly in line with our slippage expectations for the year and we saw severe impact of COVID second wave specifically in rural India. We are carrying over 90% coverage on gross NPAs.

Our 30 to 90 DPD book has fallen from 5% to 2.6% during the quarter. With this reduction in overdue book, limited impact of COVID third wave on the portfolio and focus on collections, we believe the credit cost in microfinance should get back to normalcy soon.

Our merchant acquiring business managed by BFIL has scaled up impressively during this year despite multiple macroeconomic challenges. The loan book outstanding grew to INR1,943 crores from 1,463 crores quarter-on-quarter. The number of borrowers under this book increased to 324,000 from 2,60,000 quarter-on- quarter. The merchant acquiring book has been consistently reporting net collection efficiency of more than 98 for the past 3 quarters and the credit cost has been less than 1.5%.

IndusInd Bank through BFIL has been taking banking to the doorstep of its customers and we feel there is a large untapped potential in terms of liability sourcing in rural India. Whilst still small, we are — we still are happy to re-share that we are able to mobilize INR1,400 crores from the clients served by Bharat Financial. We look for — we are looking at various means to reach the last miles and efforts are on to make IndusInd the primary banking customer of our valued customers.

Overall, we believe microfinance business is steadily coming back to normalcy after the severe second wave. The activity levels are consistently improving and with the expectation of another year of good monsoon, the business is expected to show steady performance in the coming year.

Global diamond and jewelry business. The Indian diamond cutting and manufacturing industry had the healthy growth recovery during financial year ’22 showing a 50% growth in exports. Our diamond book too grew by 29% year-on-year on the back of strengthening exports and diamond prices. The business so far has not seen any material impact except for reduction in business volume due to ongoing Russia-Ukraine conflict. As you know, we are a working capital provider at the top end of the diamond and diamond studded jewelry manufacturing customers in formal economy.

We are engaged with all stakeholders and monitoring the situation broadly. On the base case remains that the conflicts may result in slower growth in diamond business, which although may not create an asset quality issue, but may impact growth in assets and income in the short run. The business however is only 4% of the loan book and thus overall impact on the bank should not be material. There has been no NPAs or restructuring in this segment.

Corporate bank. Our corporate loan book has maintained a steady performance growing around 5% quarter-on-quarter consistently throughout the year. We had realigned the stock as well as flow of the corporate book towards revised underwriting framework. This has played out well during the course of the year. Their growth was driven largely by large and mid corporate growing by 20% year-on-year. The growth was backed by increased disbursements and working capital drawings specifically in a strategic customer group.

This quarter was categorized by high activity levels with good disbursements as well as payments — prepayments due to deleveraging. Small corporates grew 26% year-on-year albeit on the small base. There are cooperates with turnover of — these are corporates with turnover less than INR500 crores, especially in SME some supply chain finance program. The proportion of A and above rated consumers has also improved from 68% to 71% YoY with weighted average rating improving from 2.76 to 2.69.

During the quarter, our corporate restructured book reduced from INR17 billion to INR9.6 billion. We saw restructured exposure in the construction segment of INR5.8 million being repaid. We also saw a restructured exposure in a retail group of INR1.4 billion slipping into NPA and fully provided for. The restructured book also includes around INR4 billion from other entities in the same group, which are performing as of now. The bank is carrying vision towards the restructure as well as NPA accounts on the retail book.

Our exposure to stress telco was at INR30 billion as of March ’22. With subsequent to the quarter and saw a meaningful reduction of INR1,150 crores in April, Our exposure as on date stands at INR18.5 billion including fund-based exposure of INR1,000 billion and balanced non-fund based exposure. Overall, we remain confident on the lookout for the corporate sector banking titrated growth.

Our interactions with corporates do indicate rekindling interest in private capex. Government spending on infrastructure, manufacturing boost through production linked incentives, rising new economic companies, stronger balance sheet etc. are all point towards likelihood of a fresh capex cycle across the country. We are having weather challenging times over the last 1 to 2 years and are well positioned to capitalize the market opportunity.

Other retail assets. Our retail asset loan book accelerated to 6% quarter-on-quarter driven by secured as well as unsecured assets. The retail business saw recovery in disbursement post-COVID Quarter 3, which was further strengthened in Quarter 4.

Credit cards continue to deliver strong performance and with spending of INR13,800 crores for March, reflecting 42% year-on-year growth. Our Business Banking segment has shown 5% quarter-on-quarter growth. We have been cautious on this segment due to COVID as well as loan pricing issues. We are now comfortable on both the fronts, resulting in strong disbursements.

Our new customer acquisition run rate nearly doubled from financial year ’21 as COVID impact receded and distribution-led strategy picked up. The loan against property book also grew 2% quarter-on-quarter after being stagnant for a year. The growth was achieved by increasing disbursement and easing competitive pressure on prepayments. We expect growth momentum in retail business to continue in the current financial year. We do however remain watchful of inflationary economic conditions, particularly on the unsecured consumption spends.

Now coming to liabilities. Deposit grew 15% year-on-year and 17% year-on-year growth in current and savings account respectively and retail deposits as per LCR grew by 26% year-on-year. The growth is achieved along with the reduction in cost of deposits. Our cost of deposits reduced to 4.60% from 4.66% showing a decline of 6 basis points during the quarter and 145 basis points cumulatively in 2 years.

We reduced concentration of top 20 deposits from 22% to 17% year-on-year. The certificate of deposits have remained a small component of 3% of our overall deposits. Affluent segment total AUM stood at INR60,000 crores, including deposits of INR35,000 crore. Affluent business also contributed to fee of INR350 crores for the current year growing 50% year-on-year.

Deposits from NR segment have been holding up well at INR26,800 crores despite weak fresh NRI deposit inflows in the country. We resumed branch expansion after COVID eased in second half of the year, taking branch count to 2,265 from 2015 from September. We plan to add another 200 to 250 branches during the year.

Our saving account was also recognized as the best savings products by Financial Express bank — Best Bank about 2022. Our seamless client servicing with minimal client disruption throughout the pandemic was recognized by the digital banker award for outstanding response to COVID 19.

Our retail deposit mobilization has been a cornerstone of PC-5 strategy. We have seen a sea change in deposit franchise from deposit attrition in March ’22, massive surplus in March ’22 coupled with strengthened deposit profile. Overall, we remain committed to liabilities — committed to liabilities-led growth strategy with emphasis on retail deposits.

The deposit mobilization is likely to see increasing competition due to tightening, liquidity as well as potential pickup in credit growth. Our investments in physical as well as digital distribution should help us maintain deposit momentum. The growth will also be aided by increasing market visibility as well as the new segments such as agency business.

Digital traction. The bank has created a digital Centre of Excellence and is taking a comprehensive view to deploying new in digital platform and build end-to-end digital client value propositions. We have built new capabilities and infused a lot of specific talent in digital. We have set up a digital factory, which is now a 100-member team across digital product, advanced analytics, digital marketing, digital partnership, digital revenue and growth throughs across driving our digital agenda along with our technology partners.

As mentioned at the beginning of the year, we are focused on 5 areas namely easy credit for unsecured retail loans, digital ecosystem for vehicles, particularly in the used segment, merchant solutions, differentiated payments and finance solutions for individual, SME trade and credit stack. During the year, we launched 3 of these 5 initiatives as far.

IndusInd’s easy credit for individuals is one-off it’s kind, end-to-end omni channel digital journey. This solution provides instant sanction and disbursal capability enabling superior client, employee and channel partner experience. We already have close to 200 offline partners live on the platform and several online partner in the process of integration into the stack. Consequently, 84% of the card origination business is now digital, up from 37% a year ago. The cost of origination too is down by 60% versus traditional model. The stack will be soon extended to personal loans as well.

IndusInd’s easy credit for business owners provide digital journey for MSME clients seeking secured, unsecured loans up to INR2 crores. It’s a completely digital process where we are leveraging advanced analytics to give an inconceivable sanction to MSME clients within 15 minutes for loans and up to up to INR2 crores in the form of unsecured term loan secured overdraft. The stack will be extended to other MSME offerings as well.

Indus Merchant Solution app is all-in-one stack for retailers to bring their payments, lending and banking needs together under a single umbrella. We went live in Quarter 3 and are seeing good traction already with close to 60,000 user base and 75% of the users being new to bank, another 20% of existing clients of the bank wanting to avail payment proposition on the back of digital merchant stack.

Vehicle business launched easy — launched Indus Easy Wheels portal, which host ancillary services like road aside assistance, mechanic services, insurance, which is the first of its kind in the market. This portal also hosts the repossessed vehicle of the bank for auction and provides a smooth user experience for anyone who are looking for pre-owned vehicles.

We are proud to share that it was recognized as the best new product launch for the year loans by the digital banker and at the Global Retail Banking Innovation Award and Indus Merchant Solutions was awarded Outstanding digital CX SME Award in the recently concluded digital CX award 2022. The other 2 initiatives of digital 2.0 Millennial and SME offerings are planned to launch in the current year.

During the year, we also strengthened the partnership, adding new strategic partners to our platform. Our mobile app continues to see strong user penetration growing by 20% year-on-year and our monthly active users and mobile transacts increased by 33% year-on-year. On WhatsApp banking, we continue to see healthy traction with monthly active users and transaction increasing nearly 2X YoY. Overall 92% of our transactions are digital and nearly 70% of the service requests are processed digitally.

Now coming to the financial performance for the quarter. Net interest income for quarter 4 was at INR3,985 crores, grew 13% year-on-year and 5% quarter-on-quarter in line with our loan growth. Net interest margin improved during the quarter from 4.10 to 4.20. The improvement was driven by continued reduction in the cost of deposits from 4.66 to 4.60. Other income grew by 7% year-on-year and 2% quarter-on-quarter.

Core fee excluding trading income grew by 8% quarter-on-quarter and 9% year-on-year. Share of retail fees has improved from 58% to 64% of total fee. Operating expenses grew by 15% driven by recovery in retail business, investment in technology and distribution growth. Our branch network saw addition of 162 branches during the quarter taking our branch count to 2,265. Our overall cost to income ratio increased to 42.6% versus 41.6% quarter-on-quarter.

On the asset quality and the provisioning front, our stress pool had seen meaningful reduction, which includes gross and net slippages have come down quarter-on-quarter, driven by a reduction in microfinance and vehicle finance. Net slippages for the quarter was — were at 0.6% of loans versus 0.9% for previous quarter. Our restructured book has seen a reduction of INR1,359 crores and moved from 3.3% to 2.6%, around 53% of this book originates from vehicle finance, the performance has been as per our expectation with collection efficiency of 90% for March.

The microfinance collection efficiency on standard book excluding restructure was at 99.1%. The collections on new loans in financial year is healthy at 99%. The restructured book carries contingent provisions. Exposure to stress telco has now come down from INR3 billion — INR30 billion to INR18.45 billion along with multiple positive developments in the telecom industry. Overall gross NPA for the bank has moved down from 2.48% to 2.27% quarter-on-quarter and net NPAs were down from from 0.71% to 0.64% quarter-on-quarter with a PCR of 72%.

While we saw slippages from restructured book during the quarter, we have made fresh provisions through P&L rather than using — utilizing contingent provisions. Overall, our contingent provision excluding specific provision remained at constant at INR3,328 crores. Our loan related provisions are at 3.5% of loans or 152% of the gross NPAs.

Our SMA 1 and SMA 2 book was at 43 basis points and 16 basis points respectively. Collectively SMA 1 and SMA 2 have reduced from 84 basis points to 59 basis points quarter-on-quarter. Net security receipts reduced marginally from 85 basis points to 83 basis points quarter-on-quarter.

Profit after tax for the quarter was at INR1,401 crores growing 13% quarter-on-quarter and 51% year-on-year. Our CRAR including profits remain healthy at 18.42%. Return on assets crossed 1.5% mark during the quarter and return on equity improved to 11.9%.

In conclusion, we completed the second year of the 3-year strategy cycle. We have closed the year putting behind most of the external — internal and external concerns and steadily pivoting towards growth. While the operating environments remain volatile due to Russia-Ukraine conflict, we are committed to achieving our planning cycle 5 ambition.

Our priorities for the coming year would be maintaining disbursement momentum. Our areas of domain expertise that is vehicle microfinance and diamond has seen good recovery in disbursement. The impact of increased prices has not been evident yet including this month so far. Our corporate and consumer to business too are contributing towards growth. Overall, we would aim to achieve our PC-5 growth ambition above 15% to 18% compounded growth for the financial year ’21 to ’23 period,

Retail liabilities. We continue to believe and execute on retail liabilities driven growth strategy, particularly through retail deposits. We’re investing in a physical as well as digital distribution to maintain our liability momentum.

Digital. We have launched 3 out of the planned 5 initiatives, Indus’s easy credit, Merchant Acquiring and finance — vehicle finance portal. These will be scaled up during the year. The other 2 millennial and SME offerings are planned for launch in the current year.

Launch and scaling of new initiative. We are adding new growth visitors across assets and liabilities business. Asset side should see launch of home loans, scale up of tractor, affordable housing, merchant acquiring and small corporates. Liability side to see scale up of affluent NRI agency business and wealth management.

Improving financial metrics. We have aligned our balance sheet towards rising interest rate scenario. We will drive towards maintaining a healthy NIM and operating profit margins. The provision should come down with COVID impact getting behind us, we believe that the coming year should see underlying profitability of the franchise with improved growth.

We can open the floor for questions.

Questions and Answers:

Operator

Thank you very much. We will 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 Mahrukh Adajania from Edelweiss Financial Service. Please go ahead.

Mahrukh Adajania — Edelweiss Financial Services — Analyst

Good evening, sir.

Sumant Kathpalia — Managing Director and Chief Executive Officer

Good evening.

Mahrukh Adajania — Edelweiss Financial Services — Analyst

Good evening sir.

Operator

Madam, sorry to interrupt you, but your audio is not very clear.

Mahrukh Adajania — Edelweiss Financial Services — Analyst

Yeah, hi. Hi, hello, sir. Sir, I just wanted to check on your outlook on margin.

Sumant Kathpalia — Managing Director and Chief Executive Officer

Mahrukh, we believe we’ve always given a guidance of 2 margin guidance that you’ve given. One is on net interest margins, we’ve given 4.10 to 4.25 and that’s where we are overall for the year and we’ve given a PPOP guidance of greater than 5%. We ended the year at 5.8%.

Mahrukh Adajania — Edelweiss Financial Services — Analyst

For it’s — and irrespective of the rate cycle that should be the margin guidance, correct?

Sumant Kathpalia — Managing Director and Chief Executive Officer

Yeah, that’s what I’ve said. I think we believe that we will be range bound in these 2 margins, irrespective of the rate cycle as of now, because we have the ability to change our product mix or the portfolio mix.

Mahrukh Adajania — Edelweiss Financial Services — Analyst

Got it. And sir, [Indecipherable] obviously you are scheduling the balance sheet by providing more and not growing up, but at one point in time, will you start drawing down?

Sumant Kathpalia — Managing Director and Chief Executive Officer

We have to wait for the right opportunity. I think we have not done it this quarter. Who knows that we — once we see that the flows are happening from the restructured book at that appropriate time, we will take a call. It’s not necessary that we were dropped. We may just keep the contingent provisioning holding on. It depends on how we are seeing the flows and we’ve given a guidance on the credit cost of 120-250 basis points. And I think you will start seeing that range bound activity from us going forward.

Mahrukh Adajania — Edelweiss Financial Services — Analyst

[Indecipherable last question. You’re sounding constructive on private capex, but did not the case with other banks. So I mean when do you see that peaking in?

Sumant Kathpalia — Managing Director and Chief Executive Officer

So, we’ve said that it will happen over a period of time. We’ve not said it will happen immediately. So we — so while we see some green shoots coming up here or there, but I think the public capex will come up before the private capex. But we do see in private sector also some one or two proposals keep on coming to us. We have Sanjeev Anand here. He can answer that question. Sanjeev, would you?

Sanjeev Anand — Head of Commercial and Rural Banking

Yeah. So actually, we have been speaking to lot of our clients and everyone over the last 4, 5 months. I would say at least 60%, 70% of the large strategic analysts spoke to us, talked about capex now because we are pretty much reaching their capacity utilization. So definitely in the coming 5, 6 months, we will see a big boost out there

Mahrukh Adajania — Edelweiss Financial Services — Analyst

Okay, sir. Thanks a lot.

Operator

Thank you. [Operator Instructions] The next question is from the line of Kunal Shah from ICICI Securities, please go ahead.

Kunal Shah — ICICI Securities — Analyst

Yeah. Congratulations for good set of numbers. So firstly in terms of the entire deposit, okay, the way the environment is shaping up, liquidity is going to be tight and in fact many of them are raising rates as well. So how should we look at our retail plus CASA, no doubt you have argued it in terms of effluent and NRI to be the focus segment, but how should we look at the overall retail and kind of — should we see like there will be reliance on the bulk deposits in case we get towards our growth guidance of 18 odd percent, yeah.

Sumant Kathpalia — Managing Director and Chief Executive Officer

We are very clear, Kunal. We want to get our retail franchise correct and we’ve given our guidance on PC-5 to be between 45% and 48% on a retail LCR ratio. I believe that we are on our way. If you look at our rates, term deposit rates were still higher than the 4 private sector banks. And I think we will continue to be at that range and I think while people may catch-up, I think we will — we have also positioned ourselves correctly in the 2-year plus where we mobilizing deposits in the 2-year plus bucket to make sure and I think we we’ve got some initiatives behind it to make sure that our retail growth and liabilities is enough to catch up.

Our bulk deposits are today at 21% of our overall portfolio and we want to continue to believe that we don’t want to raise that, in fact maybe it should go down and we believe that we can manage the margins and the NIMs in the range, which we have set.

Kunal Shah — ICICI Securities — Analyst

Overall, even in rising interest rate environment, the way our book is more skewed towards the fixed rate given the vehicle plus maybe on the MFI, still we would be confident in terms of low impact, in terms of like the repricing being there?

Sumant Kathpalia — Managing Director and Chief Executive Officer

See, what happens is if the interest rates are rising and re-rising, also the MCLR of the external benchmark rate does right. So there may be a 30 to 60 day gap, but you may catch up with that with that over a period of 2 months or 3 months. That’s number one. Number 2, the new fixed rate book, we are also seeing in the vehicle as well as we are seeing a rate increase and cautious rate increase happening in that segment. What was gone down to 7%-7.5% is now at 8%-8.5% happening already on the commercial vehicle side. Number 3, the mix on the fixed rate book is also changing. So on the vehicle side for example, used vehicles and used cars are coming up to make up the mix change. In microfinance, you’ve diversified the microfinance into merchant acquiring business by INR2000 crores and now at 23.6%. So you continuously change the mix to make sure that your margins are are taken care of.

Kunal Shah — ICICI Securities — Analyst

Sure. And in case the environment gets tight in terms of deposits and mobilizing — mobilization of the deposits, what would be our priority, would it be in terms of sacrificing some growth and retaining the margin or maybe investing more in terms of the scaling up the franchise and still try to get towards the growth guidance which is there.

Sumant Kathpalia — Managing Director and Chief Executive Officer

I think we’re looking at long-term, I think we will continue to scale up our franchise. We will continue to invest in our franchise, we are going to launch a new initiatives on the liability front, which is on the digital capability completely and hopefully, we should be able to launch in the next 7 months, which should give another impetus to our growth in the liability business. So we are cautiously doing a lot of things to make sure that we are ahead of the curve in liabilities as we go ahead because we’ve been a little bit behind.

Kunal Shah — ICICI Securities — Analyst

Sure, kind of wanted to ask question in terms of MFI, so how is the leadership out there now post maybe we saw the June, which has been there and how should the entire business be now even going forward?

Sumant Kathpalia — Managing Director and Chief Executive Officer

So I think I’ve answered this question before also. And I’ve said that we had a very strong succession planning in place to take care of any leadership issues, which may have come in the microfinance segment. Like I said, I think we have put an Executive Vice Chairman, J. Sridharan there, who manage the business very, very well, sitting there and I think we’ve been able to not hire a CEO, but each business had a distinct feel and has been able to manage. We are still contemplating whether we need a CEO on top of the 3 CEO and another Executive Vice Chairman. So I think the way the business has stabilized, we have not felt the need for it right now, though we have 2 external candidates.

Secondly, I think on the processes and the governance side, we had an internal resource Srinivas Bonam who was actually from the microfinance industry who bought stability into the operations and the whole financial accounting and the operations bit of it. The third thing, which we did was I think the in-house senior management team into the bank and I think that created a lot of stability in the workforce, and there is an opportunity for others also to move inside the bank without taking the agility of the microfinance industry. Having said that, I think if anything to go by this quarter has been a representation of how micro finance industry will look, we’ve seen very good growth quarter-on-quarter and year-on-year on this business. We believe that that this business will continue to grow at about 27% to 28% year-on-year and we believe that the issues of quality of the portfolio are behind us and we should come back to 2.5% on the credit cost. Having said that, also I must compliment and I must inform that MR played a very constructive role with us as a consultant, he guided us during this time and his term ended with us on March 31. He continues to be available if we require him to be, but with mutual consent, we said that now that the work is done, we can continue and create a new organization. So I think that’s where we are and I think the organization is now pivoting towards what it was supposed to be process-driven technology led group as we go forward.

Kunal Shah — ICICI Securities — Analyst

Okay, thanks, and all the best.

Operator

Thank you. The next question is from the line of Manish Shukla from Axis Capital Limited. Please go ahead.

Manish Shukla — Axis Capital Limited — Analyst

Yeah, good evening. Firstly on credit deposit ratio. You are significantly below where you were earlier and much below your PC-5 target also. So how do you see credit deposit ratio moving for you?

Sumant Kathpalia — Managing Director and Chief Executive Officer

So this is a cautious call. I think at one point, we were 116% to 118% and we were beaten us. So I think we should move. We’ve always said our target is to be between 88% to 92% and we will get there as the credit growth comes back and what we are pivoting towards growth, you would see us moving to 88% to 92%.

Manish Shukla — Axis Capital Limited — Analyst

And what part of the asset book would be floating in nature for you today?

Sanjeev Anand — Head of Commercial and Rural Banking

Around 50% is fixed rate, as you know, the vehicle finance, microfinance and parts of credit cards, balance 50% is being predominantly Corporate, which largely is a variable rate book. Within that also, there is a short-term book which by nature is a floating rate. So, yeah, broadly 50% of the book is fixed rate, balance is variable.

Manish Shukla — Axis Capital Limited — Analyst

And the fixed rate book, what will be the average tenor?

Sanjeev Anand — Head of Commercial and Rural Banking

So fixed rate, vehicle finance business average tenor would be around 24 to 26 months, microfinance is typically a one-year book.

Manish Shukla — Axis Capital Limited — Analyst

Okay. Last question is the fresh editions of NPA of INR1742 crore in consumer. Can you let it across segments please?

Sanjeev Anand — Head of Commercial and Rural Banking

Yeah. So I’ll — let me just give you, think of slippage. So I think the slippages on consumer are INR553 crores, which happened from CFD business, secured retail was was about INR212 crores, unsecured was INR162 crores and MFI was INR815 crores and the net numbers were INR239 crores in CFD, INR148 crores in secured, INR116 crores as unsecured and INR696 crores in MFI.

Manish Shukla — Axis Capital Limited — Analyst

Okay. All right, thank you. I believe there are no questions.

Operator

Thank you. The next question is from the line of Nitin Agarwal from Motilal Oswal Securities, please go ahead.

Nitin Agarwal — Motilal Oswal Securities — Analyst

Yeah, hi Sumant. Congratulations on good results. Carrying over on the slippage number like in the MFI, we still had a pretty elevated slippages. So just wanted to understand if this like has done and are we going to see a normalized slippages from FY ’22 beginning or is it still going to take time?

Sumant Kathpalia — Managing Director and Chief Executive Officer

No. We said that we should be in the range of 2.5% on the credit cost as we move along. That’s what our guidance is and this is where we will be.

Nitin Agarwal — Motilal Oswal Securities — Analyst

And — but just wanted to understand if this is going to be back ended improvement or?

Sumant Kathpalia — Managing Director and Chief Executive Officer

No. so from quarter — see what you saw in Quarter 3 was the maximum. In Quarter 2, you saw — Quarter 4, you saw half of it. In Quarter 2, you will see another half of it. So I’m just saying you will just see it going down because there is no — the 30 plus bucket is INR800 crores only. So it’s just going to go down as we move forward.

Nitin Agarwal — Motilal Oswal Securities — Analyst

Right. And secondly on the vehicle business, how do you see the growth trends over FY ’23? We have been running stack covered up like the loss that was going on earlier in terms of growth. How is this permission to go for it?

Sumant Kathpalia — Managing Director and Chief Executive Officer

See, I’ll tell you what has happened on the vehicle. If you go back 4 quarters or maybe 2 quarters ago, we were not growing at all in the in the business and I think we were actually having an issue of excess — running down of the book. I think what you’ve seen now is disbursements catching up on Quarter 3 and Quarter 4, and of course, the Quarter 4 was a 2% growth. But going forward, I think I have Sriram here, who heads our Vehicle Finance unit. He is taken over from Partha. So letting to Partha this question for you, it will help you get the answer correctly. Yeah.

Nitin Agarwal — Motilal Oswal Securities — Analyst

Commercial vehicle — sorry.

AG Sriram — Head, Consumer Finance

Commercial vehicle, we had, what you call COVID 2, which was very fatal and people had very difficult time running the vehicles. So post that people are running the vehicle quite well. Even despite the diesel price increase, people are able to run the vehicle and people are able to pay more than 1 month instalment though they are not able to like come back from the entire 3 months deficient, what has been like — which has happened during the COVID 2 scenario, but they have been paying more than 1 instalment and the portfolio is looking good and month-on-month like the overviews are coming down, but for commercial vehicles, the rest of the field like LTV, construction equipment, they are doing very, very well, even the recovery is good, and also the people are looking at our new purchases and we are also looking at improving our market share and presently, we are looking at also affordable housing as a good unit and we are trying to invest like more money in that segment.

Sumant Kathpalia — Managing Director and Chief Executive Officer

Thank you.

Nitin Agarwal — Motilal Oswal Securities — Analyst

Thanks. Lastly, on the liquidity coverage ratio, now that has declined almost 30% over the past few quarters.

Sanjeev Anand — Head of Commercial and Rural Banking

So sorry, you are losing your audio. We are not able to hear you properly.

Nitin Agarwal — Motilal Oswal Securities — Analyst

Sorry. Am I audible.

Sanjeev Anand — Head of Commercial and Rural Banking

Yes.

Sumant Kathpalia — Managing Director and Chief Executive Officer

Yeah.

Nitin Agarwal — Motilal Oswal Securities — Analyst

Sorry, I was asking on the liquidity coverage ratio that has declined almost 20% over the past few quarters. So how do you see this and can this limit the overall balance sheet growth in FY ’23?

Sumant Kathpalia — Managing Director and Chief Executive Officer

We are at 127% on average on the LCR right now and I think it’s a question of how much of retail liabilities are we able to mobilize and I think we said that we’ve got initiatives and we’ve done all — in fact in a bad year where the NR flows were down, we’ve still been able to grow our LCR — we are able to maintain our LCR. I think we will continue to grow this.

The second thing is, please understand, if you look at our balance sheet, we have an excess cash sitting there are INR50,000. I think we are able to manage our business well, and I think we should be able to manage the LCR as we move forward.

Sanjeev Anand — Head of Commercial and Rural Banking

Yeah. Regulatory requirement is 100%. So and if you see all peers banks also, I mean they have come up and there is an average. So it may not translate to the 50 odd thousand that you see as excess cash because this is done on an average basis. So if you see the ENR, LCR, it will be like 137%. So that’s where we are. But like to like, yes, we are around 15% to 20% down as what you rightly said, as per disclosures and I think that’s a level that I think consciously, we are seeing, how to utilize our excess cash.

Nitin Agarwal — Motilal Oswal Securities — Analyst

Thank you so much and wish you all the best.

Sumant Kathpalia — Managing Director and Chief Executive Officer

Thank you.

Operator

Thank you. The next question is from the line of Jay Mundra from B&K Securities. Please go ahead. Yeah, hi, sir. Thanks for the opportunity. On — I have couple of questions, first on liability. I think we had earlier stance that loan growth will be preceded by deposit growth. If you can just refresh things on both loan growth and deposit sir and and do you see a case for higher competition in deposit given the largest private banks are going to get more aggressive in deposit mobilization?

Sumant Kathpalia — Managing Director and Chief Executive Officer

I think there will always be, it’s a big market. Don’t assume that there will not be enough size for average. Our asset growth, even if we grow at whatever percentage, we need to grow at 20%, we come from a very small base. So I think we do need so much of growth and I think we are doing enough initiatives to back the retail deposit growth in my opinion. So, in my opinion, if you are looking at 15% to 18% CAGR growth on the loan, our deposit growth will actually be more than the 15% to 18% — retail liabilities will be greater than 15% to 18% CAGR year-on-year. So we will continue to grow at that level.

Jay Mundra — B&K Securities — Analyst

Sure. Understood. Okay. And sir, on asset quality, especially on real estate, would you say that real estate is also a bit of a domain of the bank because in terms of size, maybe on relative basis that is also as we guess gems and jewelry. Of course, you have not put out yet as a domain of the bank. But I just wanted to check your view. Are you comfortable growing in that segment and how would you assess the riskiness of that book at present?

Sumant Kathpalia — Managing Director and Chief Executive Officer

It depends on what you call as real estate. So lot of people define real estate differently. We don’t have a mortgage portfolio today. lot of banks are much bigger than us on the real estate business. So if you are defining real estate as commercial real estate, I think we are very selective on that real estate book and I think it has done very well for us, which stood the test of time, has stood and given us very profitable growth. So we continue to believe in that segment. And I think, but we have internal yardsticks and barometers again of what our portfolio would be and that’s defined in a Board policy as well as our internal guidelines.

Jay Mundra — B&K Securities — Analyst

Right. So, sir, on slide 11, you have created real estate, commercial plus residential, which is 4.05%.

Sumant Kathpalia — Managing Director and Chief Executive Officer

Yes.

Jay Mundra — B&K Securities — Analyst

I believe is your real estate developer because LRD is clearly the second line item of 2%.

Sumant Kathpalia — Managing Director and Chief Executive Officer

Correct.

Jay Mundra — B&K Securities — Analyst

So I wanted to check a. out of this deal estate book with as per last basal was around INR8,000 crores, how much is restructured at present? How much is NPA and is there any other portfolio, which is under some sort of a dispensation?

Sumant Kathpalia — Managing Director and Chief Executive Officer

Not at all. There is nothing on the restructure, nothing on the NPA on this book and I don’t know what the restructure is. Is there any?

Sanjeev Anand — Head of Commercial and Rural Banking

Yes. No on restructure, there is none. There was only one account, which was recognized in the past as a performing actually during the last one or 2 quarters, it’s been robust that we have been able to reduce exposure, get prepaid in some accounts we need to book better new accounts because there is enough activity and positive activity. We closely monitor the overall concentration across the different parts, but we have not seen any signs of stress. It’s actually been a bit of a robust period and you would have seen rating upgrades in some of the larger real estate companies itself, some of them gone to A category and better because of the large collections they’ve have achieved.

Sumant Kathpalia — Managing Director and Chief Executive Officer

Just to add whatever our book was on April 20, when COVID hit us. Today as we talk about 75% of that book has been churn, repaid, or whatever it is. So it just shows the quality of the book. So it’s — I mean we have a very good mix. We have some 110 odd projects across the residential and commercial and they’re all doing pretty well. I mean there is no real concern out there.

Sanjeev Anand — Head of Commercial and Rural Banking

No concentrations really.

Sumant Kathpalia — Managing Director and Chief Executive Officer

Yeah. No concentrations.

Sanjeev Anand — Head of Commercial and Rural Banking

Different regions, different good builders and that’s way we will able to do.

Jay Mundra — B&K Securities — Analyst

Sorry, I missed the bit on churn. So what did say? From April 2020 to now…

Sumant Kathpalia — Managing Director and Chief Executive Officer

Our book. When COVID came in April 2020 when there was this whole concern on that. So since then till now in the last 2 years, around 75% of our real estate book both on the commercial and the residential side has been churned. Churn means either repaid, prepaid or we have sold it down, added some new this thing because we have an active sell-down strategy in our real estate portfolio. So basically what I’m saying is, it’s a very good quality book, which we had on-boarded at that time also and it’s stood the test of time and today Also, it’s a pretty well diversified good quality book.

Jay Mundra — B&K Securities — Analyst

Right. And sir, on LRD exposure, would it be fair to assume that all of the projects exposure here would be operational and none of them would be under any dispensation sort of the thing. Right.

Sumant Kathpalia — Managing Director and Chief Executive Officer

Yeah. So we have 2 types. We have a construction period loan with a right to take up the LRD but LRD being a highly competitive market. Depending on the, let’s see the rates. They don’t work out, somebody else may take it over from us and a construction loan gets repaid. On our LRD book which we’ll closely monitor. We did see initially some delays and vacancies, but the latest the portfolio is performing very well, tenants are back, rentals are back and there is no account, which is in any stress the promoters have also supported during this period when rentals were lower, but now the rentals are back at full swing and there is demand. Actually we are seeing fresh leasing at better rates. You would have read about that in the embassy had given a written, ROE guidance that you’re reading. There is good demand again. So the concerns that all move towards work from home and they won’t be demand for commercial assets doesn’t seem to have played out as much from what you’re seeing these days. But it’s highly competitive on the rate side. So we will be selective on the kind of transactions we’ve done.

Jay Mundra — B&K Securities — Analyst

Great. And last thing, sir. From my side. One is, I mean if I see your large corporate book clearly in rupees absolute rupees crore, it has moved from, let’s say, 44,000 crores 40,000 crores to roughly 60,000 crore over the last 4 quarters. But if I look at your credit rating and the risk profile rating mix that you gave, there is not too much of a change on slide 11. So from Y-o-Y 26% of BB and below is only led by 200 basis point. So what does it, tell you that on an incremental basis is the same as outstanding basis or there is something, which I might miss.

Sumant Kathpalia — Managing Director and Chief Executive Officer

No, sir. First of all, there is — we have mentioned on the slide that there is a little bit of reclassification on the corporate side, as we have reorganized the business, the slide depicting large mid small is also reorganized and the growth rates which Sumant mentioned in his opening remarks are adjusted for the reclassification. So the large has grown 20% year-on-year, that’s one. Secondly, the rating profile that we saw on the slide 11 includes both fund and non-fund based exposure and during the year, we saw some cashback guarantees getting repaid. Plus combined to that, there is a growth in small corporate gems and jewelry and real estate, which typically come in the triple B side. While the inherent risk is quite low. So, those 2 have contributed into the loan, the rating mix has been what it has been shown in the slide 11.

Jay Mundra — B&K Securities — Analyst

Understood, sir. And just last data keeping question. We have shown this security receipts portfolio, which is given in the BSE. What is the provisions that we are carrying on debt?

Sumant Kathpalia — Managing Director and Chief Executive Officer

So net security receipt is 83 basis points against last quarter as 85 basis points.

AG Sriram — Head, Consumer Finance

This 83 is net number, right. Is that, sir?

Sumant Kathpalia — Managing Director and Chief Executive Officer

Yes.

Jay Mundra — B&K Securities — Analyst

Okay. Great, thank you, sir 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, good evening. Two questions, one is on EBITDA keeping, if you can also give the restructured loan breakup whatever you felt [Indecipherable]

Historically mentioned.

Sumant Kathpalia — Managing Director and Chief Executive Officer

Okay. Let me just give it to you. So our restructured book is about INR6,172 crores as of now, CFD is INR3,298 crores, secured retail is INR686 crores unsecured is INR233 crores, MFI of INR995 crore and corporate is INR961 crore.

Nilanjan Karfa — Nomura — Analyst

971. Okay. Okay, great, thanks, Sumant. When you look at the movement of cost of deposits and cost of funds at least this specific quarter declined quite sharply might about 18 basis points. Could you highlight what exactly happened when compared to cost of deposits, which was down only 6 basis points.

Sumant Kathpalia — Managing Director and Chief Executive Officer

Yeah, we had some borrowings that were maturing and they are contracted at abysmally low rates, the new borrowings that came in. So for 5 year tenure, just to give example, we got rates of SOFR plus a 100 basis points for 5 years tenure. So we had around 3,000 odd crores of maturity — around 3,000 crores of maturities on on borrowings, which got finance at very low rates, I mean the spread would have been at least 2% lower than whatever existing app.

Nilanjan Karfa — Nomura — Analyst

That’s interesting steps. Okay and on the asset side now,on the basically the yield on retail, which is basically flat and about 14.18. If you look at the loan book, there is a quite a sharp growth in micro finance about 11.5% sequentially in the business banking piece has also grown, right. And the others part which also I guess is a little higher yielding book has also grown so across other segments, are you seeing a higher pricing pressure?

Sumant Kathpalia — Managing Director and Chief Executive Officer

So there is a pressure on loans against property, which is there and I think that is also getting normalized because people are now getting back to normalcy at 8.5%, which was growing at 7-7.5.5% and we did not participate so much in this. So I think that’s, number one. Number 2 in the commercial vehicles, medium and heavy commercial vehicle side, I think there were some competitors who are buying market share at a certain price, which we were not willing to do because the risk adjusted return did not make sense for us, but I think that’s all coming back to normal. And we are seeing normalcy is under turning back and people getting much more, aware of the rising interest rates. Okay. Microfinance business as you know does not have any — if we do at 19.6, there is no problem in that rate at all in the microfinance book.

Nilanjan Karfa — Nomura — Analyst

Right. Okay, great. And a final question. If there are some resignations from top management team, but need to be disclosed or something like that?

Sumant Kathpalia — Managing Director and Chief Executive Officer

No. Nothing of that sort. I just told you that one person, which is our advisor M. R. Rao did opt for a mutual separation because the work on the microfinance was done, but otherwise we have not seen anything. Of course, Sanjay Malik, who was vertical for the last one year did decide not to join, and he has moved on. So that’s what it is. Sanjay Malik was our investment advisor — Investor Relations.

Nilanjan Karfa — Nomura — Analyst

Okay. Okay, great. Thanks.

Operator

Thank you very much. I now hand the conference over to Mr. Sumant Kathpalia for closing comments.

Sumant Kathpalia — Managing Director and Chief Executive Officer

Okay, thank you for joining the call. I think the bank, I just wanted to leave some messages. I think the bank is progressing well on all performance metrics, including getting future ready for the investments in digital and distribution. The second message is the bank is — I believe the Bank is well provided towards asset quality and domains provide us a competitive edge. We’ve said that we will be in the range of 120 to 150 basis points. We will be in that range. A competitive edge is the 3 domains where you say that big guys survive, we will be the big player in these 3 domains. The true earning power of the franchise to start reflecting from the current year. So we’ve had 2 years where we will continue to do provisions and we have not shown our return on assets or return on equity. I think the true earning power of the franchise to start coming back. You’ve seen Quarter 4, We delivered a 1.5% ROE from 1.31. I think we are all set to what this bank was supposed to be. And I think the next year should see a lot of what we have committed to the market being delivered. Thank you so much for your time and me and Indrajit are available if you need any clarification at any point of time. Thank you.

Operator

Thank you very much. [Operator Closing Remarks]