RBL Bank Ltd (RBLBANK) Q1 FY23 Earnings Concall Transcript

RBL Bank Ltd (NSE: RBLBANK) Q1 FY23 Earnings Concall dated Jul. 21, 2022

Corporate Participants:

R Subramaniakumar — Managing Director & Chief Executive Officer

Jaideep Iyer — Head – Strategy

Rajeev Ahuja — Executive Director

Analysts:

Anand — — Analyst

Deepak Poddar — Sapphire Capital — Analyst

Kunal Shah — ICICI Securities — Analyst

Ashish Kumar — Infinity Alternatives — Analyst

Alpesh Mehta — IIFL Securities — Analyst

Jai Mundhra — B&K Securities — Analyst

Rajkumar — — Analyst

Mohit Surana — CLSA — Analyst

Shubhranshu Mishra — UBS — Analyst

Anurag Mantry — East Bridge Advisors Private Limited — Analyst

Presentation:

Operator

Ladies and gentlemen, good day, and welcome to the RBL Bank Limited Q1 FY ’23 Earnings Conference Call.

[Operator Instructions]

I now hand the conference over to Mr. R. Subramanakumar, Managing Director and CEO of RBL Bank. Thank you, and over to you, Mr. Kumar.

R Subramaniakumar — Managing Director & Chief Executive Officer

Thank you very much. Good evening, ladies and gentlemen, and I thank all of you for joining us for the discussion on RBL Bank’s financial result for the first quarter FY ’23. I’m joined on this call by Mr. Rajeev Ahuja, and other members of our management team, who, along with me will address any questions that you have. I’m sure given the events over the last one month or more so, there are quite a few questions on your mind. I’ll make an attempt to address the key ones, and then, of course, we’ll have a Q&A session as well.

First on asset quality. As you can see from the numbers, which is there in front of you, our asset quality position continues to be an improving trend quarter-on-quarter, and I hope this lays to rest any concerns on any large stress book. Secondly, on growth and the bank’s focus on cards and micro finance. One of my important focus area is to ensure profitable growth with continuity. For the bank of our size, we have developed niche presence and scale in credit cards and micro finance, and this will continue to remain the focus area. Having said that, we would like to expand our product suite to be able to cater to the more holistic requirement of our growing customer base. We have a base of around 11.5 million customers, which is getting added at the rate of 0.15 million per quarter. This customer base is coming from urban India through liability products and credit cards, from rural India to the large microfinance customer base and distribution network we have built. So natural corollary will be to expand the product line and new product to continue — we will continue to invest in these products with an aim to reach a critical size over next two to three years.

We are a growing bank with aspirations and the move, and the more we widen our product offering, the more growth engines we will have, leading to better mining and serviceability of our customers. We specifically would want to focus in the area of vehicles, housing, small business lending and other retail products to build the niche areas. Some of the products which are capital light and other things, we will be focusing and we’ll be rolling it out as we move forward. This quarter, our growth has been mutated specifically in micro finance, as we passed consciously to implement the new regulatory guidelines. And in the past, I understand we have been understandably cautious given the external environment, the pandemic. But we will look to grow meaningfully from here on. To give you some context around this, we had around INR700 crores of disbursal in our retail business in Q1. This will be around 3x in Q2 and improve every quarter thereon.

I want to also briefly touch on the first impression of the bank and my focus areas. My first impressions have been very positive on the quality and the depth in the management, the financial strength of the bank, solidity of the platform across rural and urban India, and like I said earlier, there are interesting business where there is a scale in profitability. My key focus areas will be to provide clarity and focus on execution of the management’s plan and provide guidance from my experience in commercial banking, retail banking, technology, mean rural business, etc. Taking an outside in view, while there have been a success, the full potential of the platform has not been achieved. My focus would be to drive the bank towards that, in essence, leverage the present and build for a higher profitable future. I have been impressed by the digital capabilities that have been built and the market recognition we have received. The focus will be to drive — digital to drive incremental growth in the customers and reduce operating costs. As we invest in the business, we want to scale, we will also invest in hiring the necessary skill sets to add to the management depth and shall optimally utilize the branch network for retail asset business growth. The same breath I wanted to tell you about the existing depth. The existing depth is average eight years of experience in the bank, we understand the business heading it thoroughly and we continue to excel in the area and provide a lever for growth. And lastly, I will take opportunity to build relationship through transparent dialogue with all the stakeholders and continue to build trust and credibility. In the very short term, we will consolidate leverage and optimize the existing infrastructure so that we are able to expand and accelerate in the next two to three years’ time frame.

With that, I’ll briefly touch upon the results of this quarter, starting with asset quality. As I said earlier, our asset quality position continues to improve. GNPA and NNPA as of the quarter end were 4.08% and 1.16%, trending lower than QoQ. You know about it, how much is lower in the last quarter. Gross slippages this quarter was INR653 crores. Adjusted for recoveries and upgrades, which continue to be strong, net slippages this quarter was INR273 crores. Of the gross slippages in this quarter, INR228 crores was in credit cards, INR133 crores in micro finance and INR205 crores in rest of the retail. Slippages in the wholesale was around INR87 crores. Our restructured advances stood at INR1,739 crores against which we are carrying INR323 crores.

In provisions, if we took total provisions as wanted, NPA restructure and standard as a provision of INR329 crores in this quarter as against INR534 crores of last quarter. We had recoveries from written off accounts of INR80 crores [Phonetic], net provision was therefore as low as INR249 crores as against INR392 of last quarter. We have also given the details in our presentation. I’m sure you would have seen that, on slide 22 for more details. As a result of this provisioning our PCR is now 72.5% as against 70.44% of last quarter. We expect credit costs to be markedly lower in FY ’23 and we expect recoveries from the stressed accounts across wholesale and retail to continue. Coming to deposits and liability. Summarizing the quarter — sorry, coming to deposit and liquidity. Summarizing the quarter, YoY trends were healthy with a total deposit growing 6%, CASA growing by 14%, retail and small business growing 6%. CASA ratio was 36%, retail and small business deposit ratio 39.7% at the end of the quarter. Our liquidity level continues to remain high with LCR at 149%. Our cost of deposit was 4.84% for the quarter. Given our credit deposit ratio, which is around 76%, we have a portion of the wholesale advances to highly rated large corporates, while we may not grow the overall deposit number meaningfully over the remainder of the year, the focus will be entirely on growing the small retail deposits. This means that the proportion of the retail will be far higher in the overall deposit. The run rate of retail deposit granularly outpaced the run rate of other deposits in wholesale. This sets up well to absorb the surplus liquidity we have been carrying and increase the pace of retail deposit acquisition, which will be essential as we continue to drive asset growth in next year. This will also positively impact the margins as we run down the excess liquidity over the course of the year.

Briefly on advances overall advances grew by 7% YoY and flat sequentially. Retail advances declined 5% YoY and 3% sequentially primarily due to the down of micro finance book, as I mentioned earlier. While the wholesale advances grew 22% YoY and 4% sequentially. The advances mix the retail and wholesale stood at 51 I mean 49 [Phonetic] As I said earlier, we will start correcting this from Q2 as retail growth resumes. On capital, we sequentially improved our capital ratios were in total capital has gone up from 16.82% as at March ’22 to 17.5% as at June. We completed our $10 million Tier 2 capital, which has also improved the CRAR. Development Finance Corporation, an arm of US government investment in the bank is a strong endorsement of the platform. Briefly on our operating performance. NII grew by 6% to INR1,028 crores. Other income was INR614 crores for the quarter. Lower YoY as treasury gains this quarter were lower given the rate cycle. The total revenue was INR1,641 crores this quarter, flat sequentially and marginally 100 bps higher than last year. Our opex this quarter was INR1,112 crores, primarily driven by expenses in the cards, expenses in the cards, retail branches and tech costs, mostly were considered as an investment for the purpose of our journey for the growth as we plan ahead. CPOP this quarter was at INR529 crores, and profit after tax was INR201 crore for the quarter versus INR198 crores of last quarter.

Now briefly on our retail business. First, we advances and disbursals. Advances were 5% YoY and 3% QoQ, these are retail. However, we saw YoY growth in advances in cards by 17%, home loans by 65% and tractor loan by over 700%. Of course, it’s a low base. We saw a decline in micro banking by 36% in the quarter. The bank paused disbursals in April and May in this business to carry out the required process amendments to ensure they are fully compliant with the new regulations. More specifically, to ensure we have an end-to-end 100% digital process. Today, we achieved it, and the disbursal has started in the mid of June. Disbursal started second half of June. We are already back our pre-COVID run rate in July. As I said earlier, retail advances in Q2 will see a sharp increase, primarily as we ramp up the micro finance, business loan, home loan and rural vehicles during Q2.

How are we seeing things today? Markets are upbeat and are providing an opportunity for the growth across all business segments. In urban market, we are seeing a healthy uptick in credit cards and home loans. In the business lending segment, the demand is back with the opening up of the economy, but we are being careful in deciding which business to lend, depending on the leverage levels. Recovery post-COVID and the performance through the COVID. In rural markets, we see buoyancy in demand across microfinance and rural vehicle loan segments. Slippages. I would like to touch upon the slippages of the retail book. Total gross slippage in Q1 were at INR566 crores versus INR546 crores in Q4. The net slippage post upgrades and recovery was INR225 crores, lower than INR257 crores in Q4 of last year. Card slippage was at normal level, INR228 crores versus INR201 crores of Q4 last year. Cards GNPA for FY ’22 was 2.4%. In FY ’23, we expect the GNPA to be in the ballpark range of 1.8% in FY ’23, credit cards to be around 4%, 4.5%. In rest of the retail loans, while we saw gross slippage of INR205 crores, net slippages of INR12 crores, large majority of the upgrade from slippages is related to the impact of out-of-order criteria.

In micro banking, as indicated in recalls, we are seeing a lower gross slippages sequentially in Q1 F ’23 of INR133 crores versus Q4 of INR163 crores. As I said earlier, collection efficiency have shown significant improvement and we are seeing these customers stabilize in the existing delinquent markets. Recoveries and upgrades continue and as a result, net slippages were INR36 crores. The book originated FY ’21 onwards is running at the collection efficiency of 99.6%. And this gives us the confidence that most markets are now stable and back to pre-COVID level. This book now accounts for 81% of the standard book. We are also seeing almost 40% of the NPA borrowers paying now as we expect the recoveries from NPA pool to continue, although they continue to be an NPA, but 40% of them are paying one installment or other. The restructuring book in retail was at INR1,503 crores in Q1, which were carrying INR279 crores of provisions.

The business momentum. We issued — credit cards, we issued 4.3 lakh cards in Q1, maintaining the run rate from Q4. The retail expense in credit cards also continued to show the robust growth, and Q1 has shown a growth of 54% YoY, though of a lower base, last year second COVID wave. Q1 total expenses were around INR13,161 crores, again the highest ever. All this growth, like we have said earlier, is coming in retail spends as we have a negligible corporate cards portfolio.

Micro finance. As mentioned earlier, distributors in microfinance were mutated in Q1 FY ’23 at INR23 crores. Starting July, we are now back to the run rate of INR500 crores to INR600 crores per month. So we should be seeing a sharp uptick in Q2 under microfinance disbursal. On other retail business, the business traction in the secured business loans, home loans and rural vehicles continued to see a pickup in Q1. We expect this to ramp up further in Q2 onwards. Our rural vehicle business, especially, which is an end-to-end digital offering is performing well, and we are looking to grow this 3x this year. Of course, it’s at a low base.

I’ll end my speech by reiterating some of the points I touched upon at the beginning of the call. Our asset quality position is improving, and we expect this to continue. Our credit costs should also be sharply lower this year. Profitable growth with continuity and executing on our plans is a key focus, and you will see progress on both in the coming quarters. Deposit focus will be on the growing granular deposit even as we run off surplus liquidity. Capital position continues to be robust, and we don’t envisage any equity capital for at least next 18 to 24 months.

I will stop here. And with this, we will now take the questions. Thank you.

Questions and Answers:

Operator

[Operator Instruction]

The first question is from the line of Anand.

Anand — — Analyst

Thanks for the opportunity and congratulations. I just want to understand as to what is happening on the operating — the operating profitability of the bank has actually come down significantly both YoY and quarter-on-quarter. Can you please explain what’s happening on that front?

R Subramaniakumar — Managing Director & Chief Executive Officer

Yes. I’ll ask Jaideep.

Jaideep Iyer — Head – Strategy

Yes. So one of the challenges we’ve had is we’ve not seen growth in our inter bearing book, and it’s been for multiple reasons, COVID issues and other aspects. And therefore, that book has been — therefore, the interest income or the net interest income has remained at similar levels. Also because of lack of momentum in new disruptions on retail, which also was conscious partly. The fee income has been subdued in terms of processing fee and other fee that comes with disbursement. At the same time, we’ve been investing in branches, technology and other such things where costs have gone up. And till the time we get to a certain scale, which will come in my judgment between Q3, Q4 time frame, operating profit will remain a little subdued. It will grow, but it remains subdued. And therefore, the profitability is really coming from sharp reduction in provisioning which will also continue.

Anand — — Analyst

So what kind of operating profitability can we see going ahead? Can we reach the Q1 last year FY ’22 level operating profitability at some time in Q3, Q4. Is that what you’re suggesting?

Jaideep Iyer — Head – Strategy

Yes, I think that should be a fair estimate, yes.

Anand — — Analyst

The second question is that we have for our size of bank, we are actually carrying a lot of excess liquidity. Now this liquidity will it also impact our treasury is or like our treasury performs, is it going to impact us in the coming quarters?

Jaideep Iyer — Head – Strategy

No, Anand, we are not carrying risk on that. It is typically deployed in reverse repo type situation. So it is an extremely short dated. So there’s no risk we are carrying. We would have built some position now, but not commensurate with the excess liquidity that you’re seeing.

Anand — — Analyst

So how do you see treasury going forward? Like because in this quarter, we only had like half of the quarter then switch the rate increase should be calculated for. So how do you see this going ahead? Do you see another muted — or do you see losses on the treasury side going ahead for the next quarter?

Jaideep Iyer — Head – Strategy

So in Q1, we had a decent treasury income from a pure fixed income perspective. despite the fact that rates went up. So we had positioned ourselves light. From here on, it is unlikely that we will see losses, but one can never say. So it is not going to be an outsized gain situation for the rest of the year because of rising interest rates generally.

Anand — — Analyst

But we should not see any significant losses also coming from treasury. Is that like fair assumption?

Jaideep Iyer — Head – Strategy

Yes. So for our size of the bank and the book, we really don’t carry large positions either way.

Anand — — Analyst

Alright. My next question is that I remember I had gone through our Q3 and Q4 conference calls, we suggested that we could grow at 20% — roughly around 20% for this year. Our Q1 has been pretty much a stagnant kind of a quarter. How do we see like in order to achieve this 20% kind of a number, we need to actually accelerate much faster from here. How do you see that happening? And more, how do you see our MFI portfolio going ahead?

Jaideep Iyer — Head – Strategy

Yes. I’ll just tell you, Anand.

Anand — — Analyst

Just one second, MFI other banks who are into MFI lending are actually going growing very fast. Yes, go ahead, sir.

R Subramaniakumar — Managing Director & Chief Executive Officer

Alright. Just coming to the MFI since you maybe compare to other banks, as I said very clearly that we paused plus how other banks were did do in that period, I’m not commenting about it. But however, what we did was we were very, very conscious of the fact that it has to be into end-to-end digital. We strengthened our collection mechanism and our underwriting skills. So with this particular thing has been completed, as I said that we have already seen in July, we have touched the pre-COVID level of disbursement. With this disbursement continuing, we are confident that we will be able to surpass even what we have been doing it in the earlier months, and we will be able to achieve what we have planned for in micro finance. Second one, with regard to that growth of our 2020, we still hold the same view. Only thing is there will be a movement of, which particular segment is going to give you growth. If I look at the retail with the existing product of the card as well as the micro finance and with the new product which we have said about the tractor, agri and vehicle finance, we will be in a position to annualize growth in the next three quarters which 20%, 25% is given that we’ll be able to achieve it. With a moderate growth in wholesale, we’ll be — overall, the credit growth will be somewhere to the tune of around 15% to 18%. That is what has been we will be able to achieve that with our plan of action. we will be in a position to annualize growth in the next three quarters which 20%, 25% is given that we’ll be able to achieve it. With a moderate growth in wholesale, we’ll be — overall, the credit growth will be somewhere to the tune of around 15% to 18%. That is what has been we will be able to achieve that with our plan of action. we will be in a position to annualize growth in the next three quarters which 20%, 25% is given that we’ll be able to achieve it. With a moderate growth in wholesale, we’ll be — overall, the credit growth will be somewhere to the tune of around 15% to 18%. That is what has been we will be able to achieve that with our plan of action.

Operator

The next question is from the line of Deepak Poddar from Sapphire Capital.

Deepak Poddar — Sapphire Capital — Analyst

Thank you very much sir for the opportunity. I just wanted to understand, you mentioned on the operating profit rate. I mean it to remain subdued. And to reach first quarter level of operating profit by fourth quarter of FY ’23. So can you just repeat or clarify on that front?

Jaideep Iyer — Head – Strategy

Yes. Basically, what I mentioned was that we’ve not been growing interest-bearing loans, there has been challenges like microfinance degrew quite substantially in Q1, as I said, so we will need some time to claw back on that. And therefore, the level of operating profit, which we had in the past have run rate, it will take us three to four quarters to get there.

Deepak Poddar — Sapphire Capital — Analyst

Three to four quarters right? So quarter-on-quarter, we will see some improvement in operating profit. Will that be a fair assumption to make?

Jaideep Iyer — Head – Strategy

See, honestly, I think please don’t box us into such precise numbers. So we are only saying that we will have steady kind of operating profit for a while before it starts inching up.

Deepak Poddar — Sapphire Capital — Analyst

Steady is kind of. So that — okay, understood. But reaching, I think, what, INR700 crores, INR750 crores, it will take three to four quarters, right? I mean, in terms of operating profit.

Jaideep Iyer — Head – Strategy

Yes, that would be a fair estimate, yes.

Deepak Poddar — Sapphire Capital — Analyst

That would be a fair estimate to me. Understood. And sir, in terms of your credit cost in FY ’23, you mentioned it to be lower than FY ’22. So are we looking at 1.5% to 2% kind of a credit cost range in this year, FY ’23?

Jaideep Iyer — Head – Strategy

We would — I would say we should be less than half of what we had last year in terms of absolute.

Deepak Poddar — Sapphire Capital — Analyst

Less than half in terms of absolute number.

Jaideep Iyer — Head – Strategy

Yes, yes, that’s correct.

Deepak Poddar — Sapphire Capital — Analyst

Alright. Alright. And lastly, on the cost-to-income ratio. I mean cost-to-income ratio has seen a stark jump, right, to 67%, 68%. So how do we see that? Is it because of the denominator effect?

Jaideep Iyer — Head – Strategy

So because that’s a function of operating profit, right? Till we get our income right and the cost — I mean the jaws are to open up, which will take, as we discuss three to four quarters.

R Subramaniakumar — Managing Director & Chief Executive Officer

Said about the investment we made in respect of the expenses now. We have technology and other things. So given that and the revenue is stable, so maybe operating profit will pick up, this will also get digested.

Deepak Poddar — Sapphire Capital — Analyst

Fair enough. I got the point.

Operator

The next question is from the line of Kunal Shah from ICICI Securities.

Kunal Shah — ICICI Securities — Analyst

Yes. So a couple of questions. Now firstly, in terms of the operating cost, if you can just highlight in terms of the incremental cost, which is coming in maybe like INR100-odd crores in the operating cost and even like INR30-odd crores coming in on the employee forehead. So what is — no doubt you alluded in general as to what is leading to that, but precise number would really help in terms of how much is — maybe of the incremental growth, how much is coming, say, from the technology towards the volume related? And maybe any new business or new product segment initiatives which we have been taking, so that would be really helpful.

Jaideep Iyer — Head – Strategy

Yes. So Kunal, on one clarification on employee costs, there is a disclosure in our release. We have this time taken entire ESOP cost through P&L. So if you recall, the RBI circular came sometime last year, where a material risk takers and control functions ESOPs given to these people were supposed to be taken through P&L basis fair value. Whereas prior to that, everyone operated on the intrinsic value method. So what we have done this quarter is we’ve now moved to all employees, all ESOP costs through P&L. And we also had to, therefore, catch up from 1st April ’21 for last fiscal in this Q1. The amount is approximately INR20 crores to INR22 crores, INR23 crores, which is unusual bump in Q1. But having said that, now the ESOP cost will go through P&L. So that’s one. Second, of course, we’ ve been investing in newer businesses like we mentioned, rural vehicle business, we are also investing in mortgages, which we need to set up branches, people, hire leadership, et cetera, in terms of regional leadership. So all those costs, when you are building a newer business, cost will be upfront and income will come later. And third is credit cards continues to grow, so that typically adds to INR50 crores to INR60 crores a quarter in terms of costs, but then that gets somewhat compensated by the income as well from cards. In terms of specifics And third is credit cards continues to grow, so that typically adds to INR50 crores to INR60 crores a quarter in terms of costs, but then that gets somewhat compensated by the income as well from cards. In terms of specifics And third is credit cards continues to grow, so that typically adds to INR50 crores to INR60 crores a quarter in terms of costs, but then that gets somewhat compensated by the income as well from cards. In terms of specifics around how much variable, how much for tech, I don’t think I’m carrying that level of details, Kunal right now. We will have to have that discussion offline.

Kunal Shah — ICICI Securities — Analyst

Yes. No, so just to broadly wanted to understand in terms of in larger part of investments still or they will seem to be elevated because maybe a newer business, some investments would have been done, but I think it’s not a significant part would have done in this quarter. And as we go and launch more and more products and try to scale it up, in fact, this will keep on going up from the current level?

Jaideep Iyer — Head – Strategy

Which is why I mentioned that operating profit to start increasing will take us some time, right? So which is an indication that income and expense will grow around similar levels for at least a couple of quarters before the start opening up.

Kunal Shah — ICICI Securities — Analyst

Safe. And second is, overall, broadly, we are targeting not many segments, but maybe from the management perspective, what would be the priorities out there? And overall, if we can just know in terms of how would we see the mix, say, two, three years down line? And any leasing in the portfolio, which we will try to do in terms of scaling down any part of the portfolio, say, quite substantially from the current level?

R Subramaniakumar — Managing Director & Chief Executive Officer

See this journey, if you look at it in two to three years, initially in the short run, we will be protecting the turf in retail in respect of the credit and microfinance. Thereafter, they will continue to grow. But the run rate in respect to the other products which we wanted to increase. First one is the housing loan. The second one is the vehicle loan. The vehicle loan, we wanted to define into two different parts. One is that the commercial — one is that used vehicle and as a new vehicle. And then we are a rural 2-wheeler, then we’ll be expanding ourselves some of the products like the rural, rural consumption products, and we will also be going in for a capital-light products as we move forward so that we are able to leverage the growth as well as the NIM can be easily managed over there.

Kunal Shah — ICICI Securities — Analyst

Alright. And our last question in terms of the movement on the restructured side, if you can just explain in terms of how much would have actually slipped into GNPA? How much would have got recovered or not? And what is leading to a higher recoveries? And where — from which segments are we seeing the recoveries and the recovery from the return of account as well?

Jaideep Iyer — Head – Strategy

So Kunal, approximately restructuring book reduction would have come approximately 50-50 from reduction in principal and slippage into NPA. Recoveries are coming from everywhere. We’ve had corporate recoveries, we have MFI recoveries. We’ve had credit card recoveries. So that’s coming from all segments.

Kunal Shah — ICICI Securities — Analyst

Alright. So nothing specific and nothing chunky out there [Indecipherable]

Jaideep Iyer — Head – Strategy

No, not really.

Operator

The next question is from the line of Ashish Kumar from Infinity Alternatives.

Ashish Kumar — Infinity Alternatives — Analyst

A couple of things. One is that — as you mentioned that the recovery on the PPOP operating profit will take three, four quarters, as a management team, when do you believe we can kind of start looking back at, let’s say, double-digit ROE numbers? What is the

Rajeev Ahuja — Executive Director

No, no, see, I think at this stage, given what we have seen in the last 18, 24 months, I think we will take some time to kind of lay out that plan for double digit ROE in terms of time frame and how. Early days yet.

Ashish Kumar — Infinity Alternatives — Analyst

And maybe what will be helpful is, and I think just taking out from what the last speaker talked about, is that maybe three years down the line how do you expect the bank to kind of pan out maybe as as things settle down over the next couple of months. If we can get the — try and understand the guidance as to what the bank will look three years down the line? And what kind of an ROE profile would that entail? That will be very helpful. That’s a request from the investor because a lot has changed in the last 18, 24 months.

Rajeev Ahuja — Executive Director

Agree that. Leave it with us. We will come back.

Operator

The next question is from the line of Alpesh Mehta from IIFL Securities.

Alpesh Mehta — IIFL Securities — Analyst

A few questions from my side. In between there was some network issue. So sorry, it’s repetition. But sequentially, I see that investment book has grown significantly on a Q2 basis, any strategic reason for that?

Jaideep Iyer — Head – Strategy

No, this is just liquidity getting passed. There is no other reason.

Alpesh Mehta — IIFL Securities — Analyst

No, but 25% QoQ increase case there is any issue with the numbers, but the 25 — almost 23%, 24% QoQ increase in the investment, it seems to be quite higher. Anything related to the record transactions with RBI or something like that because that number seems to be quite high.

Jaideep Iyer — Head – Strategy

No, I’m not aware of anything unusual. I will come back to you offline. There is nothing specific that we’ve added to the investment book as well.

Rajeev Ahuja — Executive Director

Rajiv here. We squared off all our long-dated securities well before the April policy, okay. So after that, we went majorly into the short end of the market and up to 1-year Look, we’ve been sitting on a lot of liquidity over June — May, June. So that has been passed. We also raised about INR800 crores of Tier 2, that was incremental liquidity somewhere on mid-May. So that also — I mean — and if you’ve seen the growth rate of our advances is being muted. So I think all of this is, frankly, excess liquidity we’ve been carrying. I don’t think there’s anything which is very specific to Jaideep is just checking the numbers we let you know.

Jaideep Iyer — Head – Strategy

Yes. Sorry, if you look cash and cash balances with RBI has come down. So we would have just moved from reverse report with RBI to shorter dated securities. So if you look at both of those together, you will find nothing unusual to combine.

Alpesh Mehta — IIFL Securities — Analyst

Alright. And now we — as the things are stabilizing for us, what’s your outlook on keeping the excess liquidity on the balance sheet, as the LCR is still at around almost 150%, right, so where do you see it stabilizing under or by when do you expect to reach around 110%, 120%

R Subramaniakumar — Managing Director & Chief Executive Officer

So if you just recall what I said in my narration in the commentary, we said that we’ll be in a position to gradually just under the liquidity over this period so the two-pronged strategy. One, we wanted to maintain that deposit to whatever we are having into the current position, but there will be — I mean, the composition will change from that of the bulk deposits as granular. So there will be a movement within that deposit portfolio itself. So — but at the same time, we wanted to grow our retail, which we said that maybe in Q2, Q3, the growth will be approximately at the annualized rate of around 25%, which will consume part of the liquidity as we move forward. And we feel that by end of this year we will be in a position to consume a major part of the liquidity what we have without any stress on the need for maintaining

Alpesh Mehta — IIFL Securities — Analyst

So sir, in that case, if I summarize everything liquidity coming down the — that there will be increasing to the high yielding loans into our balance sheet. And some bulk deposits also running off. So is it fair to assume that every quarter from here on we will see a sequential improvement in margins?

Jaideep Iyer — Head – Strategy

Yes, Alpesh, I think quantum of improvement, I will not want to hazard a guess, but yes, the trend will be on the upward side, yes.

Alpesh Mehta — IIFL Securities — Analyst

Alright. Also, Jaideep, can you just remind me what was the one-off in the 4Q because there were certain restructured loan-related interest accounting that happened in the 4Q in the interest line item? So — and what was the quantum of it? And if you adjust for it, what’s the sequential drop in the margin?

Jaideep Iyer — Head – Strategy

No. So yes, if we adjust for that INR90-odd crores, then there is flattish margins. That was essentially Alpesh, we had not taken interest income on our restructured book in Q1, Q2, Q3, substantially Q2, Q3 because restructuring started in Q2, Q3, which then we were guided by auditors to actually take it to income. And then, of course, we took that opportunity to provide heavily. And so that was approximately INR90-odd crores. And if you adjust for that, then sequentially flat.

Alpesh Mehta — IIFL Securities — Analyst

Alright. Got it. And just last question from my side. It’s related to the provisioning guidance that you guys gave last year, full year was around INR2,800 crores, right? And for the full year, you are saying that it will be half of that. But still it works out to almost INR1,400, crores, anywhere between INR1,400 crores, INR1,500 crores. Our 1Q number itself is around INR250 crores per se. And logically, since the things are improving for us, what is keeping us to — what is leading us to give an aggressive — or very conservative guidance for, say, which is higher than even the 1Q run rate of around INR250 crores?

Jaideep Iyer — Head – Strategy

So Alpesh, we said less than half. We haven’t said half, and I will leave it at that.

Alpesh Mehta — IIFL Securities — Analyst

But any specific concern on the asset quality that you see that, that could lead to a higher charge because in last year, 1Q, we had almost INR600 crores of

Jaideep Iyer — Head – Strategy

Alpesh we are essentially there is a restructuring book, which will come out. Part of it has come out in Q1, part of it — substantial chunk will come out in Q2 and Q3, we’re just wanting to be a little cautious there. So that is it, but I’m not suggesting that we are talking about 50% or 49% or 48%, it will be lower. It will be somewhere between the run rate and less than half kind of a range.

Operator

The next question is from the line of Sai from BNK Securities.

Jai Mundhra — B&K Securities — Analyst

This is Jai Mundhra from B&K Securities. Congratulations, Subramaniam on your MD sir, if you can comment any change already happened or envisage change in the senior management team? While in your opening remarks, you had mentioned that there’s a decent depth, but if you can comment on — is there already change or maybe over the next 6, 12 months, do you change there?

R Subramaniakumar — Managing Director & Chief Executive Officer

As I said, when I joined this bank itself, I have to continue to work with the team, which has been already anchored themselves in the last one decade. When I look at that depth of the management they are — the first layer and second layer, the heads of various departments are well entrenched in their respective area. They have it, and we will continue to work with them. And the only thing is wherever we are taking an expansion, wherever we’re venturing into the new area of use. We’ll be looking at some of the skill set, which we’ll be hiring it, which also is said about it. So we are not averse to hiring these skills, while assure that I don’t think that there will be a change in the management team. The current team, which is heading it are well entrenched in their area of operations. Each of them average eight to 10 years of service, all of them are having. They know that the bank and the DNA fairly well, and I’m very comfortable with the team, their knowledge level and their depth and commitment.

Jai Mundhra — B&K Securities — Analyst

Right. And sir, in your opening remarks, you mentioned that the bank, of course, I mean, this is — would be the prudent strategy also to consolidate and then reaccelerate. And I think you had mentioned that rural businesses and some of the secured businesses will probably be getting more focus. Could you highlight the few areas where you would actually want to go slow? Or considering the current trend, it looks like MFI business is undergoing a bit of a pressure. So any two, three areas where you would like to consolidate and then have a relook and then maybe…

R Subramaniakumar — Managing Director & Chief Executive Officer

When I said about the consolidation, I said the current book and it’s a run rate, which will be happening in the last one year. We’ve seen that it is more or less a flat or muted growth. That particular thing is not going to be there as we move forward. There will be a growth acceleration that takes place. For example, you take the microfinance. We consolidated in the last one or two months — three months rather, wherein we said that we will put end-to-end the control on it. Then once it is there, the engine will start firing that almost. Same way we are trying to do it in respective every area as the bank has already done it. Then another assessment, what has been done is that there are three different channels which we observed as the one which can propelled growth. One is that the branch channel. Second is the digital channel. The third will be that of the BC channel. The BC channel — all the three channels have been consolidated and leveraged. So you know for sure that the digital channel cannot start delivering it unless otherwise the consolidation of the platform and take some time for leveraging the platform. This is what I was meaning that. The third one is there is nothing like one area is going to be slowed down or one where the bank has already created niche in respect to the credit card and micro finance. And already started doing well in tractor loan and agricultural loan and those will be ramped up and especially the one which has the low base will be ramped up at a faster rate. Whatever is doing in respective areas there, there is already an established one that will be strengthened and the growth will be continued in those areas also. When we we will be identifying some of these new products and services, which we will be in a position to roll out, that we will identify and prepare the platform for that. And thereafter, we will start accelerating after maybe a couple of quarters going forward.

Jai Mundhra — B&K Securities — Analyst

Just remember that you said that capital right — capital-light products would be more favorable. Any — so if you can highlight, let’s say, specifically for credit card, would this proportion of this business would it be similar? Or would it be higher? Or would — or it can potentially decline over the next one, two years?

R Subramaniakumar — Managing Director & Chief Executive Officer

We are making two issues here. When I said about capital-light products, I said moving forward, then we wanted to identify the products for launching, which is going to expand. That is going to be the capital light because we said that we are not going to look for the capital for the next 18 to 24 months. We wanted to optimize. So there are — you will take the case of the housing loan. I mean the housing loan is one good product where we’ll be in a position to go forward and it is going to be risk weight is low. Similarly, there are so many other products we are looking at maybe that I’ll share with you once the product line is ready and then we are ready to launch it. All those retail products will be — I also said that we’ll leverage the existing platform. We have branch channel. We have a DC channel. We’ You will be able to leverage for — mean selling or making this product to reach the customers. And I also said that our customer base is a mix of urban and rural. So we wanted to launch a product which is suitable to both the segments.

Operator

The next question is from the line of Rajkumar, an Individual Investor.

Rajkumar — — Analyst

Sir, I just have a couple of questions. Sir, if I see your update on the advances and deposits, I see that your advances have gone up by 7% year-on-year. And I think that retail has come down by 5% and wholesale has gone up by 22%, right? But if I see your income line, Q-on-Q, the income line is kind of static, between June ’21 and June ’22. And if you see a 10-year sets direction has moved from 6% to 7.5%. That is about 20% move. But why is your income line static? I mean I’m not able to marry the balance sheet growth vis-a-vis the income line.

R Subramaniakumar — Managing Director & Chief Executive Officer

So you look at our product line, we said that the microfinance has degrown to the tune of around 36% last year, which is one of the product, where the revenue stream is higher. Whereas in respect of the corporate loan there, we 22% here and around 7% sequentially. So that particular thing, if you look at it, that is — I mean, I will not say this a normal or low. So the revenue firing products in the last one year were not high. So those products which are — the credit cards or which continues to be performing, and this has also had a small blip last year during the pandemic period. And in respect of this micro finance, we consciously did not do the business for the simple reason that we wanted to comply with all the regulatory So these two things just brought down our revenue stream. So in that essence, you’ ll see this mismatch because of this reason. But this is going to be corrected as we move forward. As I said very clearly that we wanted to ramp up. And already in July, our microfinance has already touched the pre-COVID level of disbursement. And we are confident that with the new regulation setup and a new digital platform, which has been established, we will be able to ramp up that also to cover up the gap which we lost it. So the revenue stream has been opened up. That’s why Jaideep in his responses may very clear that it’s taken a couple of quarters ahead for achieving the revenue stream what we have been planning to achieve. Thereafter, this correction, will take place. our microfinance has already touched the pre-COVID level of disbursement. And we are confident that with the new regulation setup and a new digital platform, which has been established, we will be able to ramp up that also to cover up the gap which we lost it. So the revenue stream has been opened up. That’s why Jaideep in his responses may very clear that it’s taken a couple of quarters ahead for achieving the revenue stream what we have been planning to achieve. Thereafter, this correction, will take place. our microfinance has already touched the pre-COVID level of disbursement. And we are confident that with the new regulation setup and a new digital platform, which has been established, we will be able to ramp up that also to cover up the gap which we lost it. So the revenue stream has been opened up. That’s why Jaideep in his responses may very clear that it’s taken a couple of quarters ahead for achieving the revenue stream what we have been planning to achieve. Thereafter, this correction, will take place. s taken a couple of quarters ahead for achieving the revenue stream what we have been planning to achieve. Thereafter, this correction, will take place. s taken a couple of quarters ahead for achieving the revenue stream what we have been planning to achieve. Thereafter, this correction, will take place.

Rajkumar — — Analyst

Alright. And sir, how about your expenses are more by 30% compared again Q-on-Q. So it would be helpful if you are doing some correction on the income side, then there should be a corresponding drop on the expenses, that’s right. So we can’t take a 30% hike in expenses and the corresponding drop in the income side. That is what — I mean it kind of shows the D&A of the bank has changed from what it was in June ’21. So I just wonder whether the DNA of the bank will be retained or we are going to be more conservative when it comes to the advance side?

R Subramaniakumar — Managing Director & Chief Executive Officer

No, advance, I said it very clear that analyze growth of around 20% to 25% in respect of the retail, which I don’t think that by any strange conservative. And when it comes to the total growth of the credit, I said that it is between 15% to 18%, which in the given circumstances, is definitely something which I mean, although I don’t call it as an aggressive, it is a very decent number which we wanted to post it. While the cost you said about 30% increase, it is well explained it is a one-off case in respect to the employee cost, which has been accounted for in the stream. I mean the ESOP accounting principle has been changed. The second one was that fair amount of investment has gone in credit card, and it was explained that credit card is a business where the continuous investment has to be made when you ramp up the number of expended money. Of course, it will come back to us in the form of profit. And the third point is that the technology and other related investment is continuing to go. You know that pretty well when you have opened up a couple of new products, there has to be an investment. Last year, 80 branches were opened and the branches have to be ramped up for providing it. Now having invested in all those things, all these channels are to be leveraged. And we will be in a position to enable these channels to contribute in respect of CASA deposit and a granular retail deposit and enabling the bank to ramp up their retail advances, which consisting of four, five products I told you about. So I mean, it is something a combination of both.

Rajkumar — — Analyst

Has the DNA of the bank changed from what it was the year before from a risk growth standpoint?

R Subramaniakumar — Managing Director & Chief Executive Officer

Yes. We wanted to — we have crossed that bridge and we have come out of it and everything is left behind. Pandemic is behind us. And now whatever we have been — stabilization or rather testing the stress level has also gone behind. You would have seen the last year the provisions which has been made — I mean I would rather say that last year, the cleanup effort has taken place, which definitely brought the book to the current stage. Now the book and the platform has been stationed for growth. So there is a starting point of it. Rather it started in the month of July itself. And moving forward, you’ll see the growth. The growth cannot — it’s a gradual growth in a couple of quarters and where you will start seeing the momentum gaining as we move forward.

Operator

The next question is from the line of Mohit from CLSA.

Mohit Surana — CLSA — Analyst

I have two questions. First is on your breakup of fixed rate and floating rate loans. So if you can give the breakup? And if you can clarify the extent of repricing that has been passed on the floating rate loans. So if there is a lead lag between the benchmark and the loan pricing? So — and if you can also give us some sort of guidance or your thought process on the margin trajectory because you’ve guided that the operating profit will take a couple of quarters to normalize. So if you can also give us your thoughts on the NIM trajectory? And the second question really is about in the — bank has in the past spoken about a recalibration in the business banking segment in terms of moving towards more secured assets and the runoff in the — maybe the unsecured piece of that business. So is that recalibration in this business over now? And what’s the growth outlook in this segment?.

R Subramaniakumar — Managing Director & Chief Executive Officer

First question I’ll ask Jaideep to answer that, the floating rate mix.

Jaideep Iyer — Head – Strategy

Apart from cards and micro finance and maybe as all part of retail loans, the book is pretty much floating. So I would say somewhere between 65% to 70% — 65% or so would be floating. What is fixed is, of course, high-yielding cards and micro finance. The wholesale book is largely floating on benchmarks like or T-bills, whereas the retail book is floating on repo. The retail book reprices, all repricing happens — and then, of course, we have approximately about 15% of our loan book, which is on MCLR, which is the legacy book, which continues. So MCLR gets repriced depending on the benchmark of three months, six months or one year, whereas repo and T-bill typically reprice every three months. So some of the repricing of the 90 basis points hike in repo and corresponding hikes that we have seen in benchmarks like T-bills and MIBOR has happened. And some will happen in this quarter. Having said that, with all these pulls and pushes, we believe margins should — trajectory should be improving as we go forward from here on.

R Subramaniakumar — Managing Director & Chief Executive Officer

The recalibration part, what we talked about it. And we said that we will be focusing on secured asset in respect of the products and services, products and the product line which we order to unfold as we move forward. It doesn’t mean that overall, we are going to shrink unsecured portion. And unsecured portion will continue to grow the rate at which it is growing. Whereas the other secured portion will grow at a higher rate. So when my — the total size of the book is going to increase, the proportionately, if you look at it, the portion will look like — I mean it will be balanced as we move forward in two, three years’ time.

Operator

The next question is from the line of Shubhranshu Mishra from UBS.

Shubhranshu Mishra — UBS — Analyst

A couple of questions on the credit card portfolio. First of all, what’s the steady-state ROA that we make on this particular portfolio? Second is, what’s the outstanding from the Bajaj Finance customers and from other sourced customers? And what is the incremental mix that we are getting from Bajaj Finance versus others? And the third would be understand that Bajaj Finance is also thinking of sourcing it from having a co-brand with other banks. Are we also thinking or are in the pipeline of having various other brands apart from the Bajaj Finance, question sir.

Jaideep Iyer — Head – Strategy

Sansu, on the first one, steady-state ROA, I mean, let me put it this way, we had achieved ROA pre-COVID in the range of 4-plus or thereabouts. And I think we should head in that direction over the next few quarters. On the mix between Bajaj Finance and other partners those cards, we will be approximately 55-45 in favor of Bajaj. Incrementally, the — in terms of number of cards, we will probably be a little more skewed towards Bajaj than the book. And what was the next question? And yes, of course, while Bajaj Finance has gone ahead and tied up with another bank, we’ve always been doing partnerships anyway. So we’ve, of course, are continue with Zomato, Book My Show, ET Money, kind of product. And we will continue to add partnerships. We are — and of course, we are also now giving a lot more thrust to our own branch customers because now somewhere we are getting to some sort of critical size in terms of our customers liability as well. So all those growth engines will continue and accelerate.

Shubhranshu Mishra — UBS — Analyst

Just to clarify, the 4% steady state is on the credit cut portfolio, right?

Jaideep Iyer — Head – Strategy

Yes, correct.

Shubhranshu Mishra — UBS — Analyst

And just if I could squeeze in one last question, sir. Are we — do we have any kind of plans to take advantage of the present regulatory conundrum around the PPI, again talks with CMB fintechs issuing the PPIs?

R Subramaniakumar — Managing Director & Chief Executive Officer

Yes. So this bank, if you look at it, it is having one great advantage vis-a-vis the rest of the folks in this particular space. See, we are known for — rather the first chance for any of these fintech companies always work with us. We will continue to work on. That’s what I said that we wanted to leverage in the digital platform, which we have already established maybe that work is in progress. And we’ll definitely continue to maintain our leadership position in respect of these times.

Operator

The next question is from the line of Anurag Mantry from East Bridge Advisors Private Limited.

Anurag Mantry — East Bridge Advisors Private Limited — Analyst

I just had one question on the MFI disclosures that you have on your deck, Slide 45, where you showed the ticket size for the outstanding and the new loan. So I think this outstanding balance that you show is on a per loan basis, right, because each borrower also as per the databases seems to have about almost 1.8 to 2 loans. So the outstanding for borrower is actually larger, almost double. Just was curious that — I mean, why is the outstanding — the ticket size on the new loans almost double of the outstanding on the balance? Is it that — I mean, incrementally, like for one borrower is having two loans instead of that, I mean you guys are doing — make a larger loan? Or I mean, the outstanding loans per borrower sort of remain an on the ticket is high?

Jaideep Iyer — Head – Strategy

Yes. So let me clarify. The outstanding is also a function of — if we haven’t grown in general and the repayments have kept coming, right? So the proportion of new disbursements is less today than it was let’s say, three months back or six months back because the book has come down. The chart on the left, which indicates is ticket size is — we don’t have multiple loans to a borrower. So that’s a single loan.

Anurag Mantry — East Bridge Advisors Private Limited — Analyst

Got it. So I mean, the reduction from this is the outstanding on the new is much higher than on the balance because the balance is also on reducing

Jaideep Iyer — Head – Strategy

Correct. Because I think the moment we start originating significantly higher, there will be a convergence between outstanding and new to some extent.

Operator

[Operator Closing Remarks]