RBL Bank Ltd (RBLBANK) Q4 FY22 Earnings Concall Transcript

RBL Bank Ltd (NSE: RBLBANK) Q4 FY22 Earnings Concall dated May. 12, 2022

Corporate Participants:

Rajeev Ahuja — Managing Director and Chief Executive Officer

Harjeet Toor — Head – Retail, Inclusion and Rural Business

Jaideep Iyer — Head of Strategy

Analysts:

Nitin Kumar Aggarwal — Motilal Oswal — Analyst

Kunal Shah — ICICI Securities — Analyst

Unidentified Participant — — Analyst

Manish B. Shukla — Axis Capital — Analyst

M.B. Mahesh — Kotak Securities — Analyst

Abhishek Murarka — HSBC — Analyst

Rohan Mandora — Equirus Securities — Analyst

Jeetu Panjabi — EM Capital Advisors — Analyst

Pranav Tendolkar — Rare Enterprises — Analyst

Presentation:

Operator

Ladies and gentlemen, good day, and welcome to RBL Bank Limited Q4 and FY ’22 Earnings Conference Call. [Operator Instructions]. Please note that this conference is being recorded. I now hand the conference over to Mr. Rajeev Ahuja, Interim Managing Director and CEO of RBL Bank. Thank you, and over to you, Mr. Ahuja.

Rajeev Ahuja — Managing Director and Chief Executive Officer

Thank you so much. Good evening, ladies and gentlemen, and thank you for joining us for a discussion on RBL Bank’s financial results for the fourth quarter of financial year ’22. I hope you and your families have been safe and in good health. I am, as always, joined on this call by other members of our management team, who, along with me, will address any questions that you might have. We are sharing a little bit more background on Q4 considering the issues of late December 2021. On deposits and liquidity, as you are aware, we have started stabilizing our deposits by end January. That’s when we spoke last. And since then, have not only added to the deposits, but also kept improving the retail composition. Our overall deposits increased to about INR79,000 crores as of March 31, while the large deposit accretion over these three months did happen because of deposit flows from all segments. But even on this larger base, we were able to improve the retail LCR and CASA compared to December 31, 2021. And as we progress during financial year ’23, we are confident of continuing to work on this path of increasing granularity in deposits with a larger proportion of incremental deposits coming from retail. And given our surplus liquidity, we may not increase the overall deposit levels by a big amount. On advances, as you can appreciate, we took a little conservative stand as we first wanted to stabilize the deposits and then look at our growth in advances. This meaningfully commenced in early March. And as you can ascertain, most of the growth came from our wholesale segment, but we did manage to stabilize the overall retail segment too, which had faced depletion in the previous quarters. And as we look at financial year ’23, retail will be back on the growth track, while we will look to consolidate our wholesale segment advances with a focus on profitability. We’ll talk a lot more about it when Harjeet picks up his section.

On provisioning, I think this is something we have been guiding you in our previous quarter as well. We have continued to strengthen our balance sheet, take an accelerated provisioning, materially added to our provision coverage ratio and are confident in saying that we are adequately provided on both wholesale and retail portfolios, with the provisions largely reflecting the expected loss in the NPA and the restructured book. We are, therefore, now at a point when given the trends we are seeing in the recovery and resolution levels and the general external environment, we can say confidently that we are well provided and are entering financial year ’23 on a solid footing on asset quality and provisioning. Profitability has been better again in this quarter, and this will improve further in the coming quarters as our interest-earning assets increase, and the composition of retail grows up. On capital, we have sequentially improved our capital ratios, wherein total capital has gone up from 16.58% as of December end to 16.82% as of March ’22. Further, you would have seen our announcement of raising $100 million of Tier two capital, which will be completed in the next few days, improving our CRAR further by approximately 1%. And on liquidity, we continue to maintain high liquidity buffers, which would — we would unwind over the next few quarters as our advances growth precedes the pace. Now briefly talking about our results for the quarter. Starting with asset quality and related provisioning. Our GNPA and NNPA as of the quarter end were 4.40% and 1.34%, trending lower Q-on-Q from 4.84% and 1.85%, respectively. Gross slippages this quarter were lower at INR619 crores as against INR766 crores. Adjusted for recoveries and upgrades, which continue to be strong, net slippages this quarter were INR292 crores.

Of the gross slippages in this quarter, INR201 crores was in credit cards, INR163 crores in micro finance and INR182 crores in the rest of retail. Slippages in the wholesale were INR73 crores. Our gross restructured advances stood at INR1,964 crores, down from INR1,998 crores as of December end. And our net restructure stood at INR1,614 crores as against INR1,746 crores as at December end. As mentioned earlier, we have taken adequate provisioning on MFI and unsecured retail restructured book. Provisions. We took total provisions on advances, which is NPA restructured and standard asset of INR534 crores in this quarter as against INR482 crores last quarter. We had recoveries from written-off accounts of INR142 crores. Net provisional advances, therefore, was INR392 crores in this quarter. We have given a lot of detailed information on the provisioning on Slide 22 of our presentation deck. Our provisioning base is the RBI guidelines and our internal policy for this quarter was INR369 crores. Given that the SMA levels in micro finance have markedly dropped, bases which we had created the COVID overlay, we use the COVID-related provision towards specific provisions in the micro finance business, and we also increased the provisioning of the restructured book, primarily on the unsecured book by INR107 crores. As a result, coverage on our restructured micro finance and unsecured retail advances, ex-cards has improved significantly, largely reflective of the LGD we are seeing currently. So in summary, we have taken INR160 crores of extra provisioning over and above RBL internal norms after netting of the COVID provisioning reversal. As a result, PCR is now 70.4% as against 62.9% last quarter end. Operating performance. Overall, advances grew 2% Y-o-Y and 3% sequentially.

Retail advances declined 9% Y-o-Y, but grew 1% sequentially, whereas wholesale advances grew 18% Y-o-Y and 5% sequentially. Retail/wholesale advanced mix stood at approximately 52:48. Y-on-Y NII grew 25% and 12%, sequentially to INR1,131 crores. Other income was INR511 crores for this quarter. Retail was 77% of our core fee income. Y-on-Y total revenue was up 13% at INR1,643 crores. Our OpEx this quarter was INR985 crores, primarily driven by cards, retail build-out, branches and technology. PPOP this quarter was at INR657 crores and profit after tax was INR198 crores for the quarter versus INR156 crores in Q3 and INR75 crores in Q4 2021. Now on to our deposits. Summarizing the quarter, year-on-year trends were healthy with total deposits growing 8%. CASA deposit is growing at 20% and retail and small business deposits growing 13%. CASA ratio was 35.3%. Retail and small business deposit ratio was 38.9% as of March 31, 2022. Our liquidity levels continue to remain high with average LCR at 138% for the quarter, and it’s trended up in the months of April and May. Our cost of deposits was essentially flat quarter-on-quarter at 4.75% in Q4. Lastly, on capital adequacy. Our capex ratio as of March end was 16.82%, as I mentioned, with a CET increasing 45 basis points sequentially to 16.21%. As I mentioned earlier, we’re near closure on our Tier 2, which would add 1% to the overall CRAR. With this, we are comfortable on our capital position and don’t envisage any need for capital in financial year ’23. Outlook. On advances and growth. On advances, retail engines are now coming back to normalcy post-COVID, and we expect growth in retail to be in the mid- to high 20s in financial year ’23.

This growth will be from cards, micro finance, housing loans, rural vehicle finance with an initial start in used cars with a digital marketplace. In wholesale, while we will focus on adding clients which give us good economics, over the next few quarters, we also have the opportunity to rationalize some of the low-yielding book which we had primarily built up last year, which was liquidity passed in highly rated names. So this would mean that the earnings quality of the book will improve. In fact, in the wholesale business, we’re seeing a very strong traction across our client spectrum, and we think this could actually be a very, very strong year for wholesale bank. On an overall basis, therefore, we should see a 15% to 20% growth in advances in FY ’23 with a result in higher growth in better earning assets. The ramp-up in earnings advances in the first half would take NII, total income and PPOP to more normalized levels in H2 of FY ’23. On deposits, as I mentioned, given the surplus liquidity we are carrying, we expect to modestly increase overall deposits. In fact, we probably maintain our CD ratio around 85% or just under that. Within this, however, we will continue to improve the granularity of retail deposits, CASA and small business deposits. Operating performance. Our cost increases will be from growth in retail assets, cards, micro finance, investments in our housing and rural vehicle business, increase in branches staff and technology-related expenses. On asset quality, we expect credit costs to be markedly lower in FY ’23, having improved coverage on our existing NPAs as well as restructured advances, and we expect the trends of recovery from stressed accounts across both wholesale and retail to continue a pace. We are, therefore, targeting a cost of credit of around 2% to 2.25% in FY ’23. This, as you can acknowledge, will be less than 50% of the run rate of FY ’22. With that, I will now hand over to Harjeet to talk you through some details on the retail businesses for this quarter.

Harjeet Toor — Head – Retail, Inclusion and Rural Business

Thank you, Rajeev, and a very good evening to all. I will outline for you our Q4 FY ’22 experience and how we are seeing things as we move onward from here. Let me talk about advances and disbursals first. Advances declined by 9% year-on-year, but grew 1% sequentially. However, what is pertinent to note that we saw year-on-year growth in advances in cards of 10%, home loans of 48% and tractor loans over 600%, albeit on a low base. On the other hand, we did see a decline in micro banking of around 32% year-on-year due to our cautionary stand on the market and our enhanced provisioning, which led to lower net advances. And also a decline of around 25% in business loan segment, where the unsecured books, as part of our strategy are being run-off. We actually ran-off around INR1,500 crores of book — unsecured books in the last financial year. Disbursal, which started again, from Q3 onwards across all business segments picked up momentum in the fourth quarter, and we should see further pickup this year. For example, micro banking itself saw sequential disbursal growth of 25%. We do expect, therefore, the nonwholesale business advances to show significant growth of upwards of 25% in FY ’23. In fact, cards and micro finance would show a growth of upwards of 30%, home loans would double, and the tractor finance book would grow 3.5 times to four times of what it is today. How we are seeing things today? Markets are upbeat and are providing an opportunity for growth across all business segments. In urban markets, we are seeing 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 one has to be careful in deciding which businesses to lend, depending on the leverage levels, recovery post-COVID and the performance from COVID. In rural markets, we see buoyancy in demand across micro banking, agri and tractor loan segment. We should, therefore, see reasonable growth in FY ’23. Collection bucket resolution raise continue to be better than pre-COVID levels across all buckets in all retail business segments. This gives us confidence to now start scaling up our disbursal rates. Collection efficiency has seen a sharp improvement in micro finance. Overall, collection efficiencies on the non-NPA book has improved from 83% in June to 94% in September to 98% in March. The book originated in FY ’21 and therefore, not subject to any moratorium is running at collection efficiencies of 99.5% and gives us confidence that most markets are now stable and back to pre-COVID levels. As pointed out in our earlier commentary as well, West Bengal and Maharashtra continues to be challenging, and hence, have negligible share in our new disbursals. The new book accounts for 73% of our total micro banking advances, and this proportion is increasing every month. If I look at the non-NPA book, then the new book proportion is higher at about 85%. Slippages. As mentioned earlier, in overall retail, after a sharp reduction in slippages in Q3 FY ’22 of around 45% over Q2, slippages further reduced by 16% over Q3. Total slippage in Q4 FY ’22 were at INR546 crores versus INR648 crores in Q3.

This is the third consecutive quarter of reductions. As guided in our calls earlier, we had expected slippages in half two FY ’22 to be less than half of that in H1 FY ’22. And this did happen. Half two slippages account for only 1/3 of total slippages for the year, indicating that the worse still behind us. Further, recoveries and upgrades were much higher, resulting in a reduction of around 34% in net slippages post write-offs in Q4 over Q3. Card slippages were at normal levels at 1.5% in Q4. That is around INR200 crores versus INR248 crores in Q3. We expect a benign FY ’23 with total slippages in the region of around a little less than 6%. Further, the card GNPA for FY ’22 was now down to 2.4%. In FY ’23, we expect the GNPA to be in the ballpark range of around 1.7%. And the credit cost for cards in FY ’23 are expected to be at historic lows somewhere in the region of about 4% to 4.5%. While we saw a reduction in the core slippage run rate in other retail loans in Q4 over Q3, however, there was a one-off which we took, which was out of the implementation of the out-of-order criteria as defined by the regulator, which was to be calculated on a daily basis versus earlier, which was calculated on a quarterly basis. This did give us a onetime hit of INR60 crores in slippage. A large part of this will get upgraded in Q1 FY ’23. Including this impact, slippages were slightly higher in the retail loans, ex-cards and micro finance at about INR172 crores in Q4 versus INR140 crores in Q3. In micro banking, as indicated, we are seeing lower gross slippages across — low gross slippages sequentially in Q4 of INR163 crores versus INR252 crores in Q3. And this was INR375 crores in Q2. While these are still higher than normal.

As I said earlier, collection efficiencies have shown significant improvement, and we are seeing these customers stabilize in their existing delinquency buckets. As indicated previously as well, recoveries happened towards the end of the loan tenures as these customers do not catch up on their missed EMIs, hence don’t generally get upgraded or normalized. Now in terms of business momentum. Credit cards. After our ever highest card issuance of six lakh cards in Q3, largely on account of the higher pipelines post our Mastercard embargo on issuance in Q2, we issued 4.5 lakh cards in Q4 FY ’22. Retail spends in credit card also continued to show robust growth, and Q4 has seen a growth of 33% year-on-year. Q4 total spends were around INR12,276 crores, again the highest ever and slightly higher even than the festive Q3 FY ’22. And all this growth is coming from retail spends as we have negligible corporate cards portfolio. In micro banking, as mentioned earlier, we had started disbursals since the beginning of October, given collection efficiencies on new book were upwards of 99%. Q4 disbursals were at about INR1,338 crores with Feb and March clocking around INR500 crores monthly disbursal. However, on 16th of March 22, RBI issued new directives for the micro finance segment, which has significant changes in terms of definition of the segment, assessment of household income and profile, introduction of income to installment cap of 50% to control indebtedness at a household level and increasing transparency in terms of customer communication and documentation. We believe this is a step in the right direction and will be positive for the industry in the long term.

And in terms of penetration of organized finance within the rural households, which would therefore result in increased cross-sell at a household level and reduce volatility in risk outcomes through controlled buildup of leverage. As of now, we are in the midst of making these changes in our processing and acceptance rules and technology. Since the implementation timelines for these new directives was 1st April 2022, we are currently not disbursing any new loans. We should be ready for dispersals in a couple of weeks. Business traction in secured business loans has also started to pick up, and we saw a bump up in disbursals in Q4 FY ’22. As mentioned earlier, we have moved to a much safer segment here as well. So while yields may lower, this portfolio will be much more resilient in stress times than before. Our new business of home loans and tractor loans continues to grow along with the investment in infrastructure and distribution, and we saw a significant increase in disbursal run rates in Q4 FY ’22. While these portfolios have only start becoming meaningful in FY ’24, it is an important focus area for the bank towards building a secured book and the positive traction of giving us — is giving us confidence. I would now like to hand over back to Rajeev for his concluding remarks.

Rajeev Ahuja — Managing Director and Chief Executive Officer

Thank you, Harjeet. I will end our commentary reiterating some of the things we have done in this quarter and briefly touching upon our medium-term plans. As I mentioned on deposits, our position has returned to normalcy, and we’ll continue to grow granular retail deposits. On asset quality, we have increased coverage on our existing NPAs as well as increased provisioning on our restructured book, specifically unsecured. We are, therefore, well provided and are entering financial year ’23 on a very strong footing. On an ongoing basis, therefore, given our mix of businesses, we expect a steady state credit cost of between 2% and 2.25%. We’re planning for a 15% to 20% growth in the near term, of which we expect retail growth to be 25% to 30%. While in wholesale in the near term, we’ll gradually run off the low-yielding book, but still will be able to increase the overall business across a wider set of clients. On an ongoing basis, therefore, overall earning assets, yields, etc, should see continuous improvement. Within retail, besides the cards and micro finance businesses, which will still be a large component, we are growing our rural housing, vehicles and business lending segments. Overall, on a 3-year basis, we do see the bank growing closer to 20% on a compounded basis across all segments. In wholesale, the focus will continue to be adding more clients in the corporate mid-market supply chain, government and NBFC and new economy areas. With this, we will now take questions. Thank you for your time.

Questions and Answers:

Operator

[Operator Instructions] The first question is from the line of Nitin Aggarwal from Motilal Oswal Securities. Please go ahead.

Nitin Kumar Aggarwal — Motilal Oswal — Analyst

Yeah, hi, thanks for the opportunity. Congratulations on a strong performance on all the challenges.

Operator

Mr. Aggarwal, sorry to interrupt you, please increase the volume of your device.

Nitin Kumar Aggarwal — Motilal Oswal — Analyst

Is it any better now?

Rajeev Ahuja — Managing Director and Chief Executive Officer

Yes, Nitin, we can hear you. Go ahead, please.

Nitin Kumar Aggarwal — Motilal Oswal — Analyst

Okay. Great. So Rajeev, first question is like we have seen back-to-back pretty sharp improvement in margins over the past two quarters. So how sustainable this is? And where do we see this trending now that we are talking to further like you see a faster growth in the retail assets?

Rajeev Ahuja — Managing Director and Chief Executive Officer

So Nitin, I’ll let Jaideep answer. There’s a specific thing for this quarter. Let him answer that, and then we’ll give you a sense of where we see NIMs for the balance of this year.

Jaideep Iyer — Head of Strategy

Yes. So Nitin, in the past, we had mentioned that we’ve not recognized interest income on our restructured book. We were advised that we should — we will have to take it into income, and therefore, we have done that. So that has added about 45 to 50 basis points. So on a normalized level, we would be back to 4.5% to 4.6% in the next quarter and thereafter with a marginal increase after that. And therefore, we have obviously, therefore, taken all of that and more into provisioning from the restructuring book.

Nitin Kumar Aggarwal — Motilal Oswal — Analyst

Okay. And second is on the fee side, like fee income from cards, if I look at, the intensity is coming off like every passing quarter. And even if I compare it to the pre-COVID levels also, then fee income as a percentage of spend has come down. How do we see this?

Jaideep Iyer — Head of Strategy

Yes. Yes. Nitin, so there is, unfortunately, a quirk there as well for this quarter. We have reversed approximately INR50 crores of card fee income across late payment charge an over limit charges. This pertains to the COVID period where interpretation issues resulted in us now reversing that charge. So if you adjust for about INR50 crores, then it will be sequentially flattish in terms of card income.

Rajeev Ahuja — Managing Director and Chief Executive Officer

Nitin, this is just a onetime. So this will not recur. I think this is something which we discussed with regulators and the auditor, and we took it all in this quarter.

Nitin Kumar Aggarwal — Motilal Oswal — Analyst

Okay. And lastly, on the restructured asset provision that we have made this quarter now that we are guiding for a credit cost to decline to 2%, 2.25% range, what is the collection efficiency in the restructured portfolio currently? And how much slippages are you building in from this portfolio?

Jaideep Iyer — Head of Strategy

So Nitin, not a large part of the restructured book, at least — so the largest part of our restructured book is in the retail side is secured loans. And I think about 10%, 15% of the book has come out of restructured book. And that performance is very encouraging right now. So we will not expect any out of the ordinary slippages on the secured book. On — and even if there are slippages, given the LTVs that we carry, and then historically, we have never lost the principle on the secured retail book. So therefore, we are carrying 10% provisioning on that book, which we think is reasonably okay. On micro finance and unsecured, we have upped the provision quite significantly, and that should substantially reflect LTV give or take.

Rajeev Ahuja — Managing Director and Chief Executive Officer

And Nitin, sorry, there’s a credit card item there, which actually is more a technical issue. These are all performing customers, who from a technical reason, we had to classify them as restructured. But we all performing.

Harjeet Toor — Head – Retail, Inclusion and Rural Business

Yes. So yes, on cards, you have to keep in mind that this entire restructured book pertains to 2020. So if the loans are still live, which means they’re all good. And accounts that are live which means they’re good and they’re all paying.

Jaideep Iyer — Head of Strategy

I’m sorry, in this context, I also wanted to just clarify, we were asked this question in Q3 results. So the RBI inspection got completed and we have no reportable divergence. So the divergence number was barely single-digit growth — low single-digit growth.

Nitin Kumar Aggarwal — Motilal Oswal — Analyst

No single-digit growth okay. Thanks so much and wish you all the best.

Jaideep Iyer — Head of Strategy

Thank you.

Operator

Next question is from the line of Kunal Shah from ICICI Securities. Please go ahead.

Kunal Shah — ICICI Securities — Analyst

Yeah, hi. So firstly, with respect to maybe the induction of the RBI Director and since now it’s sometime long. So was it primarily with respect to the management transitioning? Or there were other observations as well which is coming on the any of the RBI Director? If you can highlight anything that has been there over 3, four months.

Rajeev Ahuja — Managing Director and Chief Executive Officer

Kunal, as I mentioned in my Jan commentary, it is entirely transitional. And as you — as Jaideep probably mentioned it, we already gone through a regulatory normal inspection. And barring that INR50-odd crores, which is a onetime thing, there’s been no other observation. And I don’t think there’s anything more than that. Otherwise, it would have to be reflected in our financials for FY ’22. So that much I can state.

Kunal Shah — ICICI Securities — Analyst

Sure. So this INR50-odd crores is what you are highlighting in terms of the daily recognition one or maybe the paying company reversal?

Jaideep Iyer — Head of Strategy

Yes. The paying company reversal, correct. Yes.

Kunal Shah — ICICI Securities — Analyst

Okay. Okay. Okay. Got it. Yes. And secondly, with respect to OpEx. So I think the margin trajectory was quite strong, but still cost to income is at around about 60-odd percent.

Jaideep Iyer — Head of Strategy

Yes, Kunal, I think we didn’t been in ballpark for a while till we — see, if you look at our last two to three years, we have interest earning book has actually come down from maybe INR58,000 crores, INR59,000 crores to INR53,000 crores, INR54,000 crores on a daily average basis. So until the time we grow our businesses back, which will take us maybe a couple of quarters, we will have this challenge where costs have to grow because we are investing in branches, technology and so on and so forth. Retail asset business is coming back where costs are upfronted. So till the time there is somewhat of an increase in the interest earning book, which we will expect the next couple of quarters to give us, this will remain in this range at least for two to three quarters.

Kunal Shah — ICICI Securities — Analyst

Okay. So that investments, both at the employee side, I think, again, the cost was higher quarter-on-quarter, and even on the operating side and you highlighted maybe in terms of the retail build out as well as technology that is containing. So that will still — so any guidance on that part, maybe you had highlighted with respect to growth, credit costs, etc. But how should we look at the cost line item?

Rajeev Ahuja — Managing Director and Chief Executive Officer

Yes. I think, Kunal, I think suffice it to say, I think you should assume in the same ballpark. Also maybe when we discuss June, we’ll give you a little bit more analysis at segment level so that you understand. Because the balance sheet structure, if you can understand, credit cards has come back faster and stronger. Micro finance, we started in Feb, March and now 30, 40 days of hiatus, but it will come back. Retail loans are coming back. So there is a need to understand at a segmental level, what is driving the overall economics of the business, which then translates back to OpEx ratios, etc. So I think we’ll give you a little bit more flavor, but I don’t think for right now, we are continuing investment in these areas, which you mentioned. And those will eventually lead to better economics for the bank, and we will get our retail/wholesale mix back to 65:35 in the not-too-distant future.

Kunal Shah — ICICI Securities — Analyst

Sure. And one last question with respect to the — when we look at the segmental breakup of slippages, so in fact, in absolute term, the business loans, it’s still inching up quarter-on-quarter. And even in terms of the growth, that’s the only segment where we have again since 7-odd-percent quarter-on-quarter decline. So how should we look at this particular segment? What would be our maybe the near term strategy out there? And could this throw in a relatively higher stress going forward, given maybe the input cost and everything is going up. So would there be more problems with respect to the business loans?

Jaideep Iyer — Head of Strategy

So Kunal, on slippages, as Harjeet mentioned, we implemented the new RBI circular, which came in effective November 12th. And that did result in a increase by about INR60 crores, INR65 crores on slippages on retail. A good part of that we expect to be upgraded next quarter. This is a fairly stringent criteria for OD cases, not term loans, but OD cases. So if you adjust for that, we will be sequentially lower. I will let Harjeet comment on the business growth.

Harjeet Toor — Head – Retail, Inclusion and Rural Business

Yes. On the business growth, as I said that we’ve done two things. One, the segment itself has changed. And as more and more months pass, you’re getting more and more clarity in terms of the leverage levels of these customers, which we have taken during the last one year as they came out of COVID. I expect business loans to grow — core business loans to grow at around close to between 15% to 18% in FY ’23. What we need to keep in mind that when you look at the aggregates, we are running off an unsecured book. We ran off about INR1,500 crores last year. And therefore, that does mute the growth which we are seeing. But otherwise, that’s how we look at this business.

Kunal Shah — ICICI Securities — Analyst

Sure. Okay. Okay. All the best.

Harjeet Toor — Head – Retail, Inclusion and Rural Business

Thank you.

Operator

[Operator Instructions] The next question is from the line of Rupesh Tatiya from Intelsense Capital. Please go ahead

Unidentified Participant — — Analyst

But that’s one thing. Yes, thank you everybody. Okay, thank you. Thank you for the opportunity. Sir, and congratulations for good set of numbers and a fairly strong commentary. My first question, sir, is in between, there was this news item that NBFCs can issue credit cards now. I mean, obviously, they have to go to RBI and take approval and all that. So with respect to Bajaj, do you have any comments to offer?

Rajeev Ahuja — Managing Director and Chief Executive Officer

Look, I mean, Rupesh, I don’t think we see any challenges for our growth either from Bajaj or otherwise. I have no idea on what the final regulatory approval structure will be because we’ve seen this circular discussion come once in every 12, 15 months. Obviously, with Bajaj, our plans are very, very set, not just for this year, but for the next 3, four years. And I don’t think those plans will basically be rolled back in any form as far as we are concerned. Other than that, we don’t deal with any other NBFC. So we are pretty good there. Harjeet, anything more?

Harjeet Toor — Head – Retail, Inclusion and Rural Business

No, that’s it. So I mean the circular has got — the circular is the same as what it was for the last 3, four years. There’s no change in the circular.

Unidentified Participant — — Analyst

Okay. Okay. And then, sir, in general, in qualitative aspects, can you talk about non-Bajaj credit card organization in terms of acquisition, in terms of credit cost, what kind of profitability you make. If you can just give some color maybe with respect to Bajaj portfolio and also maybe with respect to industry?

Harjeet Toor — Head – Retail, Inclusion and Rural Business

Yes. So we did mention that both portfolios actually from on a credit cost basis and the ROA basis. Both portfolios are fairly similar, give or take, 25 basis points, 30 basis points here and there. We are obviously now over the last two quarters, I would say, putting in a lot of efforts to grow our non-Bajaj book, especially around our co-brands around Zomato and Bank Bazaar and Paisabazaar, which have started to pick up fairly well. Our spend levels on the non-Bajaj book are, I would say, almost double that of the Bajaj book. And as a result, if you look at it, our portfolio distribution despite the SKU in terms of number of cards, is roughly 50-50, 45% is non-Bajaj and 55% is the Bajaj portfolio overall. So from an earning potential, ROA potential fairly similar. But obviously, the dynamics are very different. Bajaj portfolios are more widely spread across almost 400, 500 cities and towns versus non-Bajaj book, which is close to about 80, 90 towns.

Unidentified Participant — — Analyst

Okay. Okay. That is good to hear, sir. My second question, sir, is, historically, I mean there is a problem with the bank, which is with respect to Wholesale Banking because the spreads in Wholesale Banking, at least by my calculation, 75 to 100 bps. And it is an extremely competitive space. And there is always this year large slippages across the cycle. This is a structural issue. And this being a small bank, we have a slightly higher cost of funds. So obviously, we have a slight disadvantage. So how do you address this? How do you build this 75 to 100 bps spread to, let’s say, 125 or 150? And how can you assure us that across cycle now, we’ll make a good ROA relatively compared to industry in wholesale book?

Rajeev Ahuja — Managing Director and Chief Executive Officer

Rupesh, that’s a fair question. And I think we’ve been sharing some of the work we’re doing, but let me just summarize it. So post 2019, we basically put a very firm underwriting structure, which reflected not just our learnings of several years, we had a few relationships where I think the challenge was concentration and not maybe initially the choice. I think those were really what hurt us. We put a very strong regime of underwriting target operating model in terms of concentration. And that helped us during COVID. Actually, if you see our COVID performance in Wholesale Banking has been extremely satisfactory because we’d already implemented that. But to your point, and I also alluded to the fact that because of lack of credit growth between 2021 and — sorry, ’20 and ’21, a lot of our wholesale deployment went into high yielding — sorry, high-quality, low-yielding borrowers, where obviously, you will not make money given our cost of fund. So gradually, over the last two quarters, we’ve seen growth come back. And my guess is that we will continue adding more and more customers in the mid-market, some in the corporate, NBFC, new economy. We have got seven or eight subgroups, Rupesh, which operate under the overall wholesale banking. And besides the NII on advances, which is an important part, I think we do a lot of work on FX, trade, cash management and digital services, which actually adds a lot more to the economics of the business.

So as I mentioned to you that we will not hesitate in pairing down some of the low-yielding exposures over the next 12, 18 months and start filling them in with the mid-market and the other segments, which will help us improve the overall economics. Long term, I think you will see our book as the retail growth continues at pace now, we will get into a 1/3, 2/3 structure. But 1/3 will be more granular, a lot more around trade flows, transaction flows, supply chain, with a lot of deposits and cash management thrown in, which we’re already doing a lot of. So that’s the only way you will juice up the economics of the wholesale business. But that’s the strategy, which got interrupted in 2019. Obviously, ’20 and ’21 because of COVID, we were extremely conservative, and now we are gradually opening up. And I think this will continue reflecting in the overall business we are doing.

Unidentified Participant — — Analyst

Okay. Okay. So one just small follow-up there. I mean I am more interested in the qualitative aspects of the business. So you’re focusing on mid-market and let’s say, also MSME. So in terms of employee talent, can you talk about it? Can you talk about recovery? What sort of new to credit or single bank relationship or two bank relationship accounts in these small accounts. Can you just give some qualitative flavor of what has changed in the last 15 years there?

Rajeev Ahuja — Managing Director and Chief Executive Officer

Yes. So I think invariably, in most credits, we will not be a single lender. I mean, so that’s, I think, pretty much — if it’s a reasonable credit, you’d at least have three or 4, if not more. So that’s, I think, one thing I’ll say upfront. I think in terms of the opportunity available for us, it’s fairly large. I mean we are a very, very tiny part of even the narrow segment I have highlighted to you. Now I think what will — what is important is that you have very strong coverage guys in the front line, which we have enough of when we’ve added a lot of youngsters over the last one year, which are now being blooded in terms of taking junior relationship manager status, strong on credit. In fact, starting with our target operating model implementation, our credit structures have become very robust, where basically, we are pre-identifying a lot of credits we want to do business with, and heading to the market with something in our hand before we start prospecting. And I think very, very rigorous follow-up from an early warning system, from a relationship ROA perspective. And over a time period, we have to ensure that the credit and the liquidity allocation to this segment starts making returns. So all of these things are now being almost enshrined. Obviously, we were working in an environment where growth was not there. Now growth is coming back. So some of these things are being implemented, and we are seeing early signs of success. So for instance in Q3, we acquired between 80 to 90 new customers in wholesale bank.

And I think in this quarter as well, while we had our other challenges, but we’ve actually had almost another 40 to 50 new clients acquired in the wholesale segment. And I can tell you that is the most exciting part outside of the asset levels of wholesale bank, which everybody looks at, that how many new customers we are acquiring across the spectrum. We are one of the top two or three new economy bankers, where the credit deposit ratio perhaps is more like 5% to 10%. We do a lot in deposits, trade, foreign exchange, salary accounts. In the NBFC segment also, we have a decent share in cash management, MNC also. There’s a lot of subsegments which are not exactly asset-intensive and where you can actually improve your overall economics. Obviously, at the very top end, AA and up credits, you would never make money, which is what I was suggesting that we will run down over the next 12, 15 months in terms of a book we built because of liquidity reasons.

Unidentified Participant — — Analyst

Okay. That is good to know for a focus on the business economics. My last question is — question, with this 2/3, 1/3 retail/wholesale split, what kind of gross slippages do we see in a normalized environment?

Rajeev Ahuja — Managing Director and Chief Executive Officer

Yes. So I cannot — I don’t know if I can comment right away, but I think a modern cost of credit for the portfolio should be in the 2-ish range from a long-term perspective. And the only reason it will be 2-ish because we’ve got cards in micro finance, which by their very nature, will be on the higher end of the credit curve — higher end of the cost of credit curve. Homes and business lap, which Harjeet talked about where we’re moving to the safer end will be lower. Wholesale will try to push lower. And all the others we are doing are — we will have three or four more segments like rural vehicle, used cars, while they will be a little higher on a percentage basis, but the overall size of that contribution will be — won’t be dramatically high. So I think 2% to 2.25% over a life cycle of this business evolution should be the model cost of credit for us.

Operator

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

Manish B. Shukla — Axis Capital — Analyst

Good evening and thank you for the opportunity. Harjeet, first question on micro finance. You mentioned the higher rates because of RBI circular. Can you please elaborate what part of the circular made you do that? And what is it exactly that you’re changing in the MFI business?

Harjeet Toor — Head – Retail, Inclusion and Rural Business

Yes. So the core itself in terms of assessment of credit has changed. Earlier assessment was done base is the borrower only, and hence, you would take the obligations of the borrower and be in a position to decide the credit and disburse the loan. Today, what has changed is that you need to take a household income as well as the household obligation, which means I need to take the spouse and if there are children which are unmarried, their obligations and then also their income levels and then apply that and put an income installment ratio. Now that means multiple hits to the bureau, which then needs to be factored in before you are giving us. I think this is the single biggest change which one needs to get right before one goes ahead and does this and which is where — and these things, we believe, cannot be done on a manual basis. Because you end up disbursing about 150,000 to 200,000 loans a month. And hence, hopefully, we are in the fag end of UAT testing. In a week’s time or so, we should be live with it.

Manish B. Shukla — Axis Capital — Analyst

And just to be — sorry…

Rajeev Ahuja — Managing Director and Chief Executive Officer

But let me just add. I think the other important thing is, while I think this is a necessary build-out investment, the collateral benefits of putting a robust system at a household level will give us more opportunities with the household, especially the household above a certain income level beyond micro finance, which today because it’s a very simplified operating model, we are not able to capture. So those are things which obviously will take a little while, but that’s our expectation from a medium-term perspective. Sorry, please go ahead.

Manish B. Shukla — Axis Capital — Analyst

Okay. And just to be clear, every loan even after 1st April has to be compliant with this new norm, right? So this is — there’s no bothering again.

Harjeet Toor — Head – Retail, Inclusion and Rural Business

No, that’s correct. That’s correct.

Manish B. Shukla — Axis Capital — Analyst

Okay. Moving on to cards, I mean we discussed the cards circular. So besides the NBFC, there were other parts of the circular, including data sharing for co-branded cards, etc. So the rest of that circular, how do you think that impacts any part of the card business for you? And then your comments on the broader industry as well the way card business is being running?

Jaideep Iyer — Head of Strategy

Yes. So the way I see it is from a data sharing point of view, I think we were fairly okay even before the circular because we don’t share data with any of our partners. And if we are showing the cardholder, their credentials on, let’s say, the partner app and these are all direct SDKs and data in is our environment. So while they just see it on the app, the data is never available to the partner. So I think we are okay from that point of view. I think where the changes are coming is more in terms of things like transparency. There was a big talk about activation of cards, which hopefully, we’re getting a little more clarity with engagement with RBI. I think as an industry body, we’re doing that as to what is meant by an active card. Because the circular says within 30 days if the card is not active, then you have to block it. And cards which have not been active for 12 months, you have to close. And the card which you block in 30 days, if they don’t get activated in the next seven days, then you have to close. So they’re pretty — some of those things are, I think, big changes. There are some accounting changes which need to get done. So there is engagement as of now going on with the industry. You will see some element of, I would say, maybe fee reduction as a business. For example, if over limit is not allowed, then over limit fee will not happen. One has to start building up interest rates from grounds up. So those are some of the things which have been managed in the circular. So we’ll see how things are going. So as of now, we’re in the phase where we are engaging as an industry body with RBI. And I think RBI has been fairly open in terms of discussing this. So let’s see how it comes. But yes, this time, the circular is more prescriptive, I would say in nature.

Manish B. Shukla — Axis Capital — Analyst

So that 12-month rule, if it is implemented as it stands now, do you think the number of outstanding cards can decline meaningfully at the industry level, not something specifically for us?

Jaideep Iyer — Head of Strategy

Dramatically.

Manish B. Shukla — Axis Capital — Analyst

Dramatically, right? Yes, that’s what I would thought.

Jaideep Iyer — Head of Strategy

We do a more conservative approach because we actually — if the cardholder not active, we kind of drive them or close their account, but that’s not the industry practice. We are also not a benchmark because we are fairly young in the card industry. I think people have been there for very long, and therefore, carry cards for very long, and therefore, would have a far larger base, which is not active. Now the definition of active is being discussed with RBI. So let’s say. It will not be only spend.

Manish B. Shukla — Axis Capital — Analyst

So on that point, when you say when card is not active for you, how do you define active?

Jaideep Iyer — Head of Strategy

Yes. So today, when we say card is not active, when we close cards after 12 months not active means, the card is not spent anything. So we take it in that spirit. But I think there is a discussion that any customer initiated action need not only be spent should be treated as activation.

Manish B. Shukla — Axis Capital — Analyst

Okay. All right. Moving quickly to liabilities. Can you share any data around the number of retail accounts SA or TD. Because for this particular quarter, the difference between average CASA and period end CASA is the highest that we’ve seen in a very long time.

Jaideep Iyer — Head of Strategy

So yes, Manish, on average, and I think the issue, obviously, was that we lost on December 25th and subsequent to that for a couple of weeks. So obviously, averages for this quarter would be lower because of the impact. And the build out happened subsequent to, let’s say, third, fourth week of Jan, and now it’s back to where some semblance of normalcy, but obviously it became back ended. So that is the reason why average CASA is lower. It will start — begin to normalize by the next quarter. And in terms of our new acquisition number is the numbers are actually much higher than ever before, even in the month of December, what we were doing, we are doing about 15% to 20% higher than the account, both on the terms of accounts as well as the manual time deposit accounts as well.

Manish B. Shukla — Axis Capital — Analyst

All right. The other question is that given that we are in a rising rate environment and probably a pretty steep rising rate environment, what’s your approach going to be on the liability side, I mean, between TD and SA rates, how are you thinking about changing those rates?

Jaideep Iyer — Head of Strategy

So Manish, we will be lazy to increase clearly because we are on the higher side. So this will be an opportunity to narrow the gap by either cutting less than what we were earlier planning to or clearly not raising on the SA side at least. So that’s one. And I think the rising rate environment also benefits in terms of being able to reprice a lot of the loans, both not necessarily linked to external benchmarks, but also otherwise, given the competitive dynamics will also move. If you notice, we’re already hearing larger private sector banks moving materially up in terms of new business, both wholesale and retail on rates.

Manish B. Shukla — Axis Capital — Analyst

Yes. And for you, the entire wholesale growth plus home loan in retail would be floating, right?

Jaideep Iyer — Head of Strategy

Yes, we will pretty much only have realistically the cards and micro finance book, which is fixed rate, almost all of — almost everything else materially would be floating.

Manish B. Shukla — Axis Capital — Analyst

Okay. Sure. Sorry, one last question to Harjeet. Harjeet, you mentioned that the — on a value basis, the card split between Bajaj and non-Bajaj would be 55%-45%. But what would be your success in terms of cross-sell between Bajaj and non-Bajaj, especially on the liability side? Is it better in one channel versus the other?

Harjeet Toor — Head – Retail, Inclusion and Rural Business

No, we haven’t really done much. We had a pilot where we had opened about close to 80,000 accounts and then left it there because we were still figuring out how to get the balances going. Well, it’s easy to open the account because it’s digital in nature. The customer just needs to consent, but the issue is to start getting the customer to use it. I think that because of COVID was something which we had left aside, we’ll have to start looking at it again in FY ’23.

Manish B. Shukla — Axis Capital — Analyst

Those are my questions. Thank you very much. The next question is from the line of Mahesh M.B. from Kotak Securities. Please go ahead

M.B. Mahesh — Kotak Securities — Analyst

Good evening, just a couple of questions. One is, first of all, let me just ask clearly this question, in the consolidated and standalone numbers, there is a bit of a difference, especially a bit in this quarter.

Jaideep Iyer — Head of Strategy

Sorry, Mahesh, we can’t hear you clearly.

M.B. Mahesh — Kotak Securities — Analyst

The business within consolidated and stand-alone, the number seems to be quite high.

Jaideep Iyer — Head of Strategy

Yes, yes. We made a loss of approximately INR90 crores in our subsidiary because their earnings are basally interest-earning book, and we went slow in micro finance, as you know. And therefore, the subsidiary unfortunately also had to kind of be in a situation where the earnings fell, but the cost did not see a fall as much.

M.B. Mahesh — Kotak Securities — Analyst

Because some of it is kind of — some of it is just an OpEx between the subsidiary and income like what growth is negative within?

Jaideep Iyer — Head of Strategy

No, no. So see, our payout to all DCs, including the subsidiary is on the interest earning book. Now we ourselves when cautious on naturally the subsidiary, unfortunately, does not have the ability to do business with other banks. So they are dependent on us in terms of business growth. And if we became risk covered post-COVID for the right reasons, naturally the business — the interest earning AUM of the subsidiary on which they earn fees from us fell. And therefore, they became suboptimal in terms of their branch network versus the book they were dealing with.

M.B. Mahesh — Kotak Securities — Analyst

Okay. Second one is on the credit cost. And again, you kind of indicated about 3%. When you go back to the commentary that you guys have made of wholesale, it seems to be reasonably as you just been talking about…

Operator

Sorry to interrupt you, Mr. Mahesh. This is the operator. Sir, please use the handset mode. The audio is not clear from your line.

M.B. Mahesh — Kotak Securities — Analyst

Okay. I kind of indicated that the credit cards should be reasonably at about historical lows, and despite doesn’t seem to be a big issue now. So where is the 2% coming from? Or is it just that you guys are looking at it from an outside rates?

Jaideep Iyer — Head of Strategy

So credit card — credit costs in FY ’23 will still be between 4%, 4.5%. Credit costs normally are in the region of about 5.5%. FY ’23 will be an exceptionally low year for two reasons. One, the recoveries will still kick in. The second is that the bad book was almost washed off completely, and therefore, it will take time for those things to build. Even — and another factor is the reward rates are also extremely low. So FY ’23, you will see a lower credit cost, but still be between 4%, 4.5%.

Operator

[Operator Instructions] We’ll move on to the next question from the line of Abhishek Murarka from HSBC. Please go ahead.

Abhishek Murarka — HSBC — Analyst

Hello.

Operator

Yeah, go ahead please.

Abhishek Murarka — HSBC — Analyst

Yeah, hi. Yeah, thanks. So, thanks for taking the question. Actually, my question is on credit cost again. So I believe I heard that you said retail slippage would be roughly about 6% this year. And on the retail, I would assume at least 60% or 70% coverage. So would have to provide roughly about 3.5%, 4% and roughly half the book that is retail. So approximately 2% provision would simply come out of the retail book by this math. So are you factoring in very, very low slippage and therefore, the very low credit cost on the wholesale side? Or are you factoring in any reversal? How are you getting to that two?

Jaideep Iyer — Head of Strategy

So, Abhishek, part of the answer also lies in recoveries, right? We are carrying a largish NPA book, while very healthily provided, will — on a good day should also be giving back more than what we provided at least in certain segments.

Abhishek Murarka — HSBC — Analyst

Okay. So your 2%, 2.5% is net of recoveries?

Jaideep Iyer — Head of Strategy

Yes, credit cost is always net of recoveries. Absolutely.

Abhishek Murarka — HSBC — Analyst

Yes. I mean, I’m just trying to ask is…

Jaideep Iyer — Head of Strategy

That were only cards.

Rajeev Ahuja — Managing Director and Chief Executive Officer

It is net of recoveries of cards only.

Jaideep Iyer — Head of Strategy

For everything, yes. Yes, go ahead, Abhishek.

Abhishek Murarka — HSBC — Analyst

Okay. Sure. My second question is on MFI. Would you be looking at higher lending yields over there? I mean after the new regulations, does that give — that give you any way a little more room because some of the market participants on the NBFC side would also look at increasing rates. So how are you thinking about that?

Harjeet Toor — Head – Retail, Inclusion and Rural Business

Yes. So one of the things in the regulation is that you need to build up your just equation for interest rate grounds up. And therefore, we would see that our current yields, I think, minus about 100 basis points is what we would be at. Can you hear me, Abhishek? Hello?

Operator

This is the operator. We can hear you.

Harjeet Toor — Head – Retail, Inclusion and Rural Business

No, I don’t think Abhishek can hear me.

Abhishek Murarka — HSBC — Analyst

Yes, sorry, I couldn’t hear you for a bit.

Harjeet Toor — Head – Retail, Inclusion and Rural Business

Okay. So what I was saying was that one of the thesis in the guideline says that now you need to be able to build up your interest rate, which you charge to the customer grounds up within some of your cost of funds upwards. And therefore, if we — when we are implementing that, we would be actually seeing a cut in our yields being or interested being offered to the customer by about 100 basis points than where we are today. So for us, you will see a little bit of a drop. What you are referring to is some of the MFIs which were governed by the 10.5% kind of cap, they might be increasing. But I think from the bank side, at least for us, you will see a little bit of a drop.

Abhishek Murarka — HSBC — Analyst

What would be the rate right now?

Rajeev Ahuja — Managing Director and Chief Executive Officer

Today, it ranges between 25% to 26%.

Abhishek Murarka — HSBC — Analyst

Okay. Sure. Yes. Understood. And just another question on cards. So a couple of entities now including yours have shown that a share of cards in self-employed and Tier three and all of that is going up. So just what is really happening in the industry? Is it that the Tier one centered, salaried is completely saturated and therefore, you’re going deeper. What’s really happening in terms of the customer profile?

Rajeev Ahuja — Managing Director and Chief Executive Officer

Yes. So see, the generic trend is that the leverage levels in your Tier three cities are far lower. And therefore, that is a segment you would want to target to be able to bring into the credit card fold. Now it’s always been a challenge of being able to get the scale in Tier three cities. And I think that was the reason why the concentration was largely around the Tier one, Tier two cities. And therefore, most of us were issuing cards to the same customer. And you had average about two or 2.5 cards per person, which was running. But I think over this period, what has started happening is: one, as some of the larger banks have started getting into their liability base deeper down into smaller tier cities; and the second is this entire piece around shift to e-commerce, and therefore, in partnership with some of the e-commerce players’ ability to be able to now enter into smaller cities without actually investing too much in terms of distribution infrastructure there, is enabling Tier three card penetration to go up. That is the reason why across the industry, you’re seeing Tier three go up. And it is also as of now proving to be better credit. Spend lower than the Tier one, Tier two.

Abhishek Murarka — HSBC — Analyst

Okay. So for you, how is the sourcing coming through your — because you said…

Rajeev Ahuja — Managing Director and Chief Executive Officer

For us, Tier three is largely coming through the Bajaj partnership..

Abhishek Murarka — HSBC — Analyst

Okay. And how — what is the ability to collect that? So that any way collection is done by Bajaj. So that’s okay.

Rajeev Ahuja — Managing Director and Chief Executive Officer

Yes. So we have dedicated collection infrastructure, which does the cards collection, which is independent of Bajaj’s own collection infrastructure. So they have created a separate independent card collection infrastructure for us in lead cities.

Operator

The next question is from the line of Rohan Mandora from Equirus. Please go ahead. Sir,

Rohan Mandora — Equirus Securities — Analyst

Thanks for the opportunity. Sir, just wanted to check, is there any update on timelines with respect to the MD and CEO where is the process right now on that?

Rajeev Ahuja — Managing Director and Chief Executive Officer

Rohan, I’m Rajeev here. I think it’s in the final leg. So maybe I don’t know the timeline. Obviously, this is with the regulator now. So it should be soon, but I cannot give a timeline, but that’s where it stands.

Rohan Mandora — Equirus Securities — Analyst

Sure. Secondly, if you look at the presentation data, the 3Q FY ’22 numbers that this kind of core fee have been restated. So is that restatement primarily because of the same thing that you explained on credit cards? Or is there something else there?

Jaideep Iyer — Head of Strategy

No, Rohan. That restatement is actually also, if you notice, it be on cost side. So there was a netting issue, which — typically, there are certain costs which get netted, where it is directly related to income. So there was an approximate INR35 crores we’ve got netted, which is why there is an equivalent difference in cost. That’s got nothing to do with the reversal that we spoke about in this quarter.

Rohan Mandora — Equirus Securities — Analyst

Sure. And sir, lastly, what is the PSL level for the bank? Are we PSL surplus right now?

Jaideep Iyer — Head of Strategy

No, no. We would be falling short by about 4% to 5%.

Rohan Mandora — Equirus Securities — Analyst

4% to 5%, okay. So if you can just share what is the rate on the PSLC right now? And given the fact that HDFC with the merger may look to aggressively acquire PSLC, how do we expect the market to evolve there?

Jaideep Iyer — Head of Strategy

So we don’t buy too much of PSLC. We end up being somewhat short with PSLC prices also fluctuate. So we have bought some this year. It starts being higher in Q1 and then it comes quite substantially down. But one of the reasons why we were a little short this time was also because of the MFI business being much lower. So this should at least partly improve automatically next year.

Rohan Mandora — Equirus Securities — Analyst

Sure, sir. And lastly, if you can share what is the tech spend as a percentage of total opex?

Jaideep Iyer — Head of Strategy

Yes, about 7% to 8%. Only OpEx, there will be capex, which will be different.

Rohan Mandora — Equirus Securities — Analyst

Okay. So if you were to include both of them?

Jaideep Iyer — Head of Strategy

Yes. But then I can’t express that in percentages because of the denominator will be opex, but that should be doubled, so about 15% to 16%.

Rajeev Ahuja — Managing Director and Chief Executive Officer

Rohan, if you take a depreciation on, then you are more like 9% to 10%. If you include the depreciation, which is the right way to look at it.

Operator

The next question is from the line of Jeetu Panjabi from EM Capital Advisors. Please go ahead.

Jeetu Panjabi — EM Capital Advisors — Analyst

Rajeev, I have two questions. Part of it which got asked was the [Indecipherable] new MD and — or who’s the route person to be. The linked question here is with an RBI observer now on the Board, does this, in any way, curtail you guys from doing anything? Are there any restrictions that are out there? And how much — what level of gets curtailed to that?

Rajeev Ahuja — Managing Director and Chief Executive Officer

No. Jeetu, in fact, there’s no restriction or curtailment or guidance on our business. I think as a normal director, they get involved in all reviews and participate in general discussions. And actually, the way I see it — and maybe it will be tough for me to convince you. But actually, there’s been no difference. In fact, we have got a much better engagement with the regulator across the board as well as an understanding both sides or what needs to be up. These are normal general day-to-day things which happen to most banks. So it’s not just us. So I don’t see that as an issue at all.

Jeetu Panjabi — EM Capital Advisors — Analyst

Okay. And a second question, if I may ask. I mean, while technically your term to interim MD or the terminology is, but you’re effectively running the bank, are there long-term investments and longer-term thinking that goes out of play on running the bank? Or is it more just tactical in kind of keeping the shop running while — but I just thought it’s important to get the doubt cleared.

Rajeev Ahuja — Managing Director and Chief Executive Officer

Absolutely right. Look — I mean, look, we have a — all of us have been around for years and also understands that. So we are taking long-term decisions, and some of these decisions have been in place not just now a year ago, 1.5 years ago. I don’t think there’s any changes which have been necessitated by this situation or the fact that I have an interim. I mean I take calls for three to five years, along with my colleagues. So I don’t think we want to either shortchange our stakeholders or ourselves by taking more immediate calls. And there’s an active process with the Board. We have processes on annual operating plans, capital allocation. And actually, if you go back, Jeetu, to our conversation of — at the peak of COVID, too, we had outlined certain principles, which I reiterated in Jan, which was quite fresh after the event. We are proceeding exactly on that. And obviously, preparing a bank which has a lot more robust cost of credit model, predictability and an earnings profile, which can be defended in most market environments. The challenge of COVID actually taught us that. And I think one of the conversations with Rupesh was in wholesale, which was already implemented and has now been vigorously pursued. So nothing is short term. In fact, if you see our provisioning, if it was short term, then I wouldn’t have been doing a lot of provisioning in this quarter, if I were just to mention that I’m an interim MD. So we’ve taken a long-term view because we want FY ’23 and beyond to be really a solid year for our troops, for our positioning in the market because we have been a little bit defensive last two years. So I don’t think we should be defensive anymore. With — as long as it’s disciplined businesses, we have many businesses right now. We want to take the right calls and these calls are taken with the relevant level of disclosure, discussion and analysis across the board.

Operator

The next question is from the line of Pranav Tendolkar from Rare Enterprises. Please go ahead.

Pranav Tendolkar — Rare Enterprises — Analyst

Hi. Hi, thanks a lot and congratulations for actually seeming to be a turnaround quarter. My question is that whenever you — when you’re giving the guidance of 2% to 2.2% credit cost, what PCR you are assuming for the end FY ’23?

Jaideep Iyer — Head of Strategy

We should be broadly in the 65% to 70% range. It is very unlikely we will want to go below 65%.

Pranav Tendolkar — Rare Enterprises — Analyst

Right, right, right. So that is one. Second is that on the other income and fee side, are there any other initiatives to actually improve the fee income growth?

Jaideep Iyer — Head of Strategy

See, I think the business franchise growth as it is coming back will naturally carry the fee momentum as well. So when you look at new business across retail and wholesale, which were subdued for multiple reasons over the last 12, 18 months. As that engine starts coming, the fee income engine will also, therefore, in parallel, come back. And as Harjeet was mentioning, card, for example, is a very high fee business. So when the growth momentum comes from last year, we grew only by 10%. So assuming we grew by 20%, 25%, the fee income should, for example, reflect that growth in that business. So I think we’ve been constrained by growth given the situation. And I think that now is really turned around. And therefore, all levels of income — all lines of income should start firing.

Pranav Tendolkar — Rare Enterprises — Analyst

Right. Correct. So last question from my side. Other than the MFI yield compression that will happen a little bit. Other than that, the spread and NIM outlook, if you could share, that would be helpful.

Jaideep Iyer — Head of Strategy

Yes. So as I mentioned, the — this quarter, we had approximately 50 basis points excess. So we should be in the 4.5% range for the next couple of quarters, maybe next quarter, and then it should start improving. Improving because the mix between retail/wholesale should again start favoring retail. And second, as Rajeev had alluded before, even within wholesale, there will be a progressive realignment between low-yielding assets versus more commercially logical leading assets. And therefore, we would be — I would be surprised if we don’t have NIM expansion as we go along the year.

Rajeev Ahuja — Managing Director and Chief Executive Officer

And Pranav, sorry, I was just about to chime in when you asked your last question. Just so that you know, from an other income perspective, we had the best year in trade FX. In spite of having a tough COVID, this was the best year and I will not share numbers. Almost 50% plus came from retail. And the other 50% came from wholesale, which is what I was mentioning to Rupesh, that we have a very large franchise in trade FX and related areas from a variety of segments. So see, these are all the functions of the underlying economic activity, and are obviously, what is our target addressable market and how much are we engaging with them. This is an area which will continue growing, Pranav, and this needs very strong execution, very strong turnaround times. And this is an area where a few private sector banks go very highly. And I think those are the areas we are focusing on. Five years ago, retail was almost 0 in that area. Today, it’s about 50%. So as a branch catchment, customer catchment improves in retail, and that is — becomes just almost like a regular kind of income forever.

Operator

Ladies and gentlemen, we now conclude the Q&A session. If you have any further questions, please contact RBL Bank Limited via e-mail at ir@rblbank.com. On behalf of RBL Bank Limited, we thank you for joining us this evening. You may now disconnect your lines.

Rajeev Ahuja — Managing Director and Chief Executive Officer

Thank you so much.

Operator

Thank you.