IDFC First Bank Limited analyst Q&A

Thank you. The first question is from the line of Ishan Agarwal from Erevna Capital. Please go ahead.

Hi, good evening. Thank you for the opportunity. I would say, decent but slightly underwhelming performance by the bank. So I have three questions. Should I ask them together? Or should I shoot them one by one?

One by one better.

Okay. So the first one, in our previous earnings call the management has always highlighted that core total income will grow faster than opex for FY 24, FY 25 and FY 26, and that is how operating leverage was going to play out. It is slightly disappointing to see opex here growing 33% Y-o-Y and income growing 31%, which, in turn, has upped our cost to income from 72.1% last year to 73.3% this year. What is really causing this pain in opex? What are the factors playing out? And what the management could not envisage while giving the past numbers?

Let's take them one by one. So thanks for that very crisp question. See, the thing is I have always mentioned to you, I don't know Sudhanshu may have told you again and again that listen, please don't track it every quarter by quarter. See, very early stage banks, sometimes one odd item expense scatters up, some digitization expense scatters up on some other product, something happens one quarter to the other. If you go Y-o-Y, all our past guesses have come right, I want to just point out one number to you, that if you take a 4-year window, that is 2019 to 2023, you have seen that the balance sheet has grown by 9% from the time of merger to today, but PPOP has grown to 43%. So my point, and by the way, I'm not claiming jaw will be that wide. But definitely for a balance sheet, loan book growing by about 20%, and for the operating profit to increase about 30% to 33%, should be the kind of zone you should look for the next 4-5 years. So, you know, really one, I told you, it's an early stage bank, really difficult to point out, this quarter, this happened, that happened, it's a waste of your time and waste of our time.

I understand, but this was a Y-o-Y increase in cost to income, and that is why I highlighted this. So it's not quarter on quarter, which I'm comparing, even year-on-year from 72.1, it is up to 73.3, whereas we are expecting maybe a plateauing or maybe a decline from here on?

So, I agree with that. I fully agree with that. I'm just pointing out to you that , I say this result is a bit underwhelming, we should have expected to post a little better, at least at PAT level, we should have posted a bit better.

Actually, core operating profit, not even PAT, I mean there can be some one -offs, but that is slightly underwhelming on that part?

I agree, 100% agree. Could have done a bit better, could have expected a little better. But it's, you know, like I said, we are running a long game here for 10 year game, out of which five, we finished, maybe even longer from there, maybe many, many decades after that. You know, just take this part of just slight moments upon people here.

So, going ahead, do you expect that cost to income should start declining from year on, or do we still expect it to keep at this level for a year or two?

Our sense is that Q3, Q4 of FY 25 should begin to see material movement onwards. We feel that, there are some movement, for example, in next one or two quarters there will be some impact because we do the digital loans . In the digital loans, for a period of time, there was no FLDG permitted. And last quarter, FLDG got permitted. Now, we had a certain structure with the counterparty. Now, we moved on to the structure with FLDG. When we moved to FLDG structure, the benefit of not having credit cost, because the counterparty will guarantee that FLDG, that benefit will come two quarters from then, meaning when the credit cost would have hit us, they would have supported us, they would have paid for it. But in the interim, the impact would be there. So, I don't want to confuse all of you with all this mathematics, but the point is that our own sense is that next quarter we'll move over to the FLDG structure. So, the benefit of moving to FLDG structure will come in Q3, Q4 of FY25, and which will show up in credit cost line. So, therefore, these movements will slightly give better benefits for us by exit quarter of FY 25.

Okay. So, now, as you mentioned about FLDG, my next question was actually regarding credit cost. While our loan book has grown by, say, 24% Y -o-Y, our provisions have grown by 45% Y-o-Y in spite of all collection efficiency numbers, SMA numbers improving Y -o-Y. So, what is the reason for this?

Yes, I said this to you earlier also. Oftentimes, when we compare Y -o-Y for early stage banks, either last time there would have been something very much in effect. Remember, we were running credit cost of only 1.15%.

So, is there any one-off this time, or this is normalized?

Just hear me one second. So, we were running really very low credit cost for a book that is giving the kind of yield and NIM it is giving us. Our credit costs were running so low. In fact, many people used to scratch their head here, how can a credit cost be only 1.1%? Even lower than many top banks. So, during post -COVID, we were getting certain recoveries. Because, if you remember, during COVID, we took provisions. Now, many of the recoveries started coming. So, the last two years, we were getting the benefit of the recoveries. So, some of the recoveries we also paper off. So, that is why I said sometimes, there might be some odd jumps here and there. Also, we moved over to the 90th day recognition of NPA rather than 91st day. And that also had some impact. Think of it like here and there. But our guidance is that, let me step back for two minutes, because this quarter had a few items here and there. Let me just step back and just give you what we see. And that is the heart of it. What we are seeing is our collection percentage, which we reported at 99.5% now for literally like two years at a stretch now. Last month in December, it stood at 99.6%. Let me call it 99.5% for simplicity's sake. So, if collection percentage stays the way it is . Cheque bounce is also very low at 6.3%, which also we are collecting during the same month in a big way. So, the point is that the underlying parameters are strong. So, there is no reason like fundamentally to be disturbed or anything like that. I mean, you watch our next quarter, you see the results for yourself.

Okay. Okay. And one more from my end. With the new RBI norms on risk weights for unsecured credit, our Tier 1 capital adequacy is down to less than 14 in spite of the capital raise that we did last quarter, that is in October. So, now given that it is at 13.95%, when do you think we will again have Tier 1 capital to show up the capital adequacy?

We will watch the numbers with the way the profits emerge over the next four quarters and then make up our mind.

Because we do have an idea of the capital consumption that the bank will do. So, what is your target that, okay, we do not want to go below Tier 1, say 12.5 or 12%

No, we do not spell out precisely when you raise capital. It is not a good strategy for any bank to exactly put out in the market and raise capital. I hope you will agree. So, we will make up our mind as it goes along, depending on the numbers.

Okay. Just one more. So, if I look at the cards data released by RBI, it is unusual to notice that the number of debit cards enforced for IDFC in November has reduced for the first time as compared to September. So, from 67.8 to 66.5 lakhs. So, is there some reason? Were there some dormant accounts closed or what?

Yes, there could have been some dormant account cleanup being done by the respective teams. Otherwise, in flow, see basically the bank is more and more moving towards quality. We are like very first about it. So, we are opening lesser number of accounts than before on the bank account, especially on the digital side. But we are focusing on quality. So, the inflow is very strong. That is how we saw growth of close to about Rs. 4,000 crores a month of deposit that kept coming in. So, let me say deposit is rising very well. There would have been some closure of some customers or inactive and those kind of respective product teams keep doing the work.

Okay. Thank you and all the best. It is really commendable the way the bank is growing the deposits. Thank you.

Thank you very much.

Thank you. The next question is from the line of Shubhranshu Mishra from Philip Capital. Please go ahead.

Hi, good evening. Thank you for the opportunity. Two or three questions. The first one is around the personal loans. I just wanted to understand the run rate of personal loans that we originate from various fintechs and the level of FLDG that we do from t hese fintechs. My fair understanding is that a lot of lending partners do slightly above 5% or maybe above 5% which is the mandated requirement of FLDG? The second is on the vehicle finance. If we can give out the split of a car finance, new car finance and used car finance and the outlook for the industrial search and our own growth estimates in FY 25. These are my two questions. Thanks.

We do work with fintechs broadly but we have not exactly calculated and put out who is doing how much. But let me say broadly it is growing. We are very conscious that on the personal loan front, personal loan meaning basically the unsecured personal loan given, our model is largely lending to salaried people who want to take personal credit, typically term loans. In that model, I think things are running pretty well for us. Some originated through partners, some originated by ourselves, some originated through DSA, etcetera. Second question is about vehicle finance. We have more on the used car financing side than the new car type though we also do new cars. But new cars have no margin and it is just a waste of time and money. So we give it only to our customers. Our customers who come to our branches and our base, we lend for new cars. With our limited capital, we will use it for either two-wheeler finance or for used cars. And credit quality has been so fantastic. So why waste money on the new cars?

Thank you for that. If I can just squeeze in one last question in terms of fintechs. When we on - board a customer onto our balance sheet when we are taking the risk, that customer permanently becomes ours. What I mean by that is that once it is on-boarded to our balance sheet, it is only we who own the customer in terms of any kind of cross-sell, up-sell of credit, non-credit products. So the fintech through which it was originated can also do any kind of cross-sell, up-sell as well?

This is the typical complication that happens in this industry. So typically, digital partners like to also, do other things for the same customer. But, we are very clear when we work with them that with anybody for that matter, that our bank have absolutely one condition non -negotiable for us is that we have full rights to access the customer and we will do business with the customer. This is very important to us. It's a fundamental consensus issue. Now, the same party, if some party originated with a stockbroking firm which did stockbroking and by the way gave us some personal loan, well, I'm sure they'll do other things for the same customer as well.

Understood. So the status of the customer is transient and not permanently ours. That's a fair understanding?

That's a fair understanding, Yes. But when we get our salary customers and we lend to them, we feel more in control because it's our customer, 100%. But when it's originated by a party, sometimes the party also does something with the customer.

Understood. Thank you so much. I'll come back and meet you. Thanks.

We should be respectful of their income and P&L also. Let us be happy as long as the customer is happy.

Understood. Thank you so much. I'll come back in the queue.

Thank you. The next question is from the line of Gao Zhixuan from Schonfeld. Please go ahead.

Yes, slippage for the quarter was about Rs. 1,400 crores. If you see, it's broadly flat as in the previous quarter. And even if the net slippage is flattish, it's at about Rs. 850 crores for the current quarter.

Got it. So last quarter, we talked about there's some timing issues at one of the last quarter slippages. So is there any such issue that is repeating this quarter? Or are we expecting, you know, slippage to be gradually trending up from here?

No. So we feel quite comfortable as Vaidya mentioned that we are seeing a consistent asset quality. Right. So even in this quarter, the slippages are not gone up as the book has expanded. So we feel that we should be quite okay on this one.

So why does our credit cost is trending up while our slippage were similar to last quarter, you know, our credit cost should not be trending up. And our coverage ratio is similar to last quarter. So I just want to understand that?

If you see that credit cost has been for this nine months has been just 1.26%. Right. We had guided the market for 1.5%. Of course, we have been coming lower. This quarter we have seen a slight jump. Right. But that's a combination of an existing book where you as the aging happens, some more provisions come in. So as you rightly said, the growth in the gross slippage that has been quite stable. Right. And other indicators also like if you see the cheque bounce rate which we have presented the data in the presentation that it continues to be lower. Right. First cheque bounce is about 6.3%. Even the collection efficiency is quite stable. Right. Over the quarter to 99.6%. So which talks of that the incremental book which is getting built is quite pristine. Right. We may have, as I said, some of these provisioning impact become because of aging and so on. The point which I trying to make mentioned was that gross slippage and net slippage has been quite stable. If you see the asset quality indicators, right. In terms of our cheque bounce, right. That's down from 9.9% to 6.3% , right, over the period. And similarly, collection efficiency is quite stable for early buckets in 99.6%. So we feel quite sort of confident on the incremental assets which are getting generated. As I said, some of these provisions could come in because of aging, there could be some smaller, lesser recoveries during the quarter. So that is precisely the impact, which some of that impact, which has come during the coming quarter. For the nine months , if you see, the credit cost has been just 1.26%, and which is well below the guidance, which we had given earlier. So we feel that things should normalize from here and should continue to stay so. Of course, we are very cautious in terms of sourcing, in terms of credit underwriting and so on. So we'll continue to exercise prudence on this front.

Got it, sir. And second question is on the guidance. Just wondering, if I remember correctly, previously, we were talking about next four to five years, 25% growth is quite sustainable. So I'm just wondering, our 20% growth kind of guidance now is it just on a conservative basis? Or is there some change in strategy that we may be focused a little bit more on the profitability side, maybe slow down growth a little bit or it's some RBI-related issue?

See, basically, when you look out, probably better to be guiding at a number which you feel is reasonably safe and in the bag. Does that answer your question?

Yes, sure. Thank you, sir.

The next question is from the line of Nitin Aggarwal from Motilal Oswal. Please go ahead.

Yes, hi. Good evening. So, o ne question on CD ratio. While the bank has been doing well and the CD ratio has been coming down pretty consistently every quarter. And any discussions about this with the RBI given the ongoing like media reports about this? And any near -term targets, therefore, that you have?

So if you see that we have been bringing down the CD ratio because deposits have been growing faster, right? Of course, we had legacy problems, right? That's why our CD ratio was 137% at merger, right? If you see even into this year, so far, we have brought it down from 109% to 101%. And maybe by the end of the year, we will be lower than 100%. And even in the guidance, if you see our deposit growth is at faster than the loan growth, which we are guiding. So this should keep coming down as we sort of move along.

So I'm saying, just for the one data point is that incremental CD ratio if you see for this year is about 80%. And for this quarter, it was just 65%. So as long as our deposits continue to come strong, right, and we feel that we should be able to improve on this ratio. We feel quite confident of bringing it down.

Okay. Sure. And second question is on the opex, wherein we are seeing a fair bit of an increase. So if you can provide some colour as to what are the key drivers within this number so that we can better appreciate the operating leverage that is likely to play over the coming years and from Q4 FY25 that you are indicating?

If you look at the guidance. See, for you to really appreciate where this gain is headed and I read out the operating leverage numbers at a bank level that we've been seeing year -on-year. This year let me say that the operating leverage has not paid out that much because there's digitization expenses and technology and we are building the bank for the future. And that has been our consistent strategy, as you know, thus far. So therefore, we feel that from next year onwards, like we said, Q3, Q4 of FY25, we should see meaningful movement. And our own estimate is that the opex of FY25, should just increase by about 20%, where the loan book or the income could rise by maybe 24%-25%. So, we feel that in FY25, we should start seeing material opening of the jaw. And again, one thing you should know, in the way we are building out Story 2.0, that the deposit numbers we have kept very modest. Imagine just going at 20% or 25%. We used to be going at 40%, 25% is nothing. And remember , what is something unique will play out after FY26 onwards. I'll tell you what is unique. Today, even when you're growing the loan book at 24.5%, bank is funding this growth of 24.5% from deposits, and assuming we were not borrowing anymore, funding it from deposits. Plus, we are repaying bonds pertaining to the pre-merger. So we are carrying double burden. You fund yourself and also pay the past liabilities. Now, by 1.5 years from now, that lot of it would have gone away, let me say two years. And then after that, you're only funding a loan growth. For somebody who's used to carrying such heavy weight, that should be relatively lightweight actually for us. So that is a material change coming in our life from FY26 onwards. And we've done the math, there is a big relief in the requirement for deposits then. And actually, who knows, we might even cut deposit rates, and that might be positive for the bank.

Right.

Or we’ll put lesser branches, one of the two, if you give.

Yes. And sir, last question is on the Guidance 2.0 wherein you are giving guidance on key metrics. But when you look at the ROA of 1.9% to 2% by FY29, what levels of margins and cost to income ratios are you baking in?

Cost to income ratio looking like more like about 55% by the exit year FY30, that would be like like 57-58% or something like that by FY29.

Okay. And margins?

Margins resuming similar stuff.

Okay. The earnings is like implying a 30% CAGR.

We request you to please re-join the question queue for further questions.

Sure. I am done. Thank a lot.

Thank you.

The next question is from the line of Sameer Bhise from JM Financial. Please go ahead.

Yes, hi. Thanks for the opportunity. Just wanted to get a sense on the others portion of the loan book, which is roughly Rs. 15,000 crores and growing at a fast clip.

So this would include digital loans portfolio, which we have. We have given in the presentation that it includes digital loans, it includes some portfolio buyout, which we have done and some revolving credit. So that's part of the others book.

And would this portion be secured or unsecured? I mean in entirety.

Okay. This is helpful. And secondly, I think in the opening remarks, Mr. Sudhanshu said that there's no impact of the AIF guidelines on the bank. I just wanted to reconfirm.

Yes, that's correct. We have nil impact on that account.

Okay. Great. This is helpful. And congratulations on a good quarter, strong guidance. Thank you.

Thank you, Sameer.

Thank you. The next question is from the line of Rohan Mandora from Equirus Securities.

Thanks for the opportunity. Just on that guidance for FY 29. What will be the normalized credit cost that we are assuming there? That's first. And secondly, what would be the losses that we are incurring currently on the credit card portfolio and on the branch liabilities piece right now?

See, all products are mixed up, when we announce a bank level credit cost, we guide for 1.6%, so our current numbers include everything. So we will not step -- product by product. But let me just say that, for the upcoming five years, we have assumed a little higher credit cost than what we are currently incurring because there's one benefit we have been getting in our credit costs thus far. One is that I mentioned earlier, during COVID, there were charge -offs and now recovery is happening because you may charge off a loan but end of the day you're collecting. So that kind of a recovery has been coming to us last two years. And we believe that all those benefits will go away. And also, we should be prepared for a slightly higher credit cost, generally, in the ecosystem, nothing to do about us. So we assume a slightly higher numbers than what we're currently incurring. At least when we've given this guidance, we've parried it up reasonably, I'd say.

Sure, sir. So this essentially means ROA expansion is predominantly driven by improvement in opex, so NIMs is flattish and credit cost would marginally go up from current levels. Okay. And on the question on credit card portfolio losses that we're incurrin g right now and the branch expenses?

I told, we're not calling out how much we lost in LAP or at this sort of used car. We're not giving you product by product. But broadly, at a bank level, we are in a very good control. It's super low.

Yes. I was trying to understand operating losses in the credit card portfolio, like we used to disclose earlier?

So I told you when we put out our numbers, we put our credit cost numbers at the entire retail level or at the overall bank level, because some products you have a good quarter, some products doesn't have a good quarter, some products have more slippage, something has less slippage, something else. But you should look at a composite manner from quarter -to-quarter and year- to-year. And that number is trending very well. Last year, our credit cost was 116 basis points. Even in the month of year of COVID, just think of two minutes, I don't want to take it too much back in time, FY 21-22 was a period of COVID second wave. I think April, May, June of 2021. In that period, moratorium did not happen, but lockdowns happened. So obviously, in Q1 a provision was taken. But for the full year, provision to average book was only 2.51%. So we feel that one of the best things that is happening to our bank is that even in the worst period of COVID, our credit cost average book was, among the best among the peers. You would imagine for a book that is yielding a NIM of 6.3%, 6.5%, you'd imagine 2.5% or maybe 2% even in normal conditions. In COVID, we had only 2.51%. So, the moment COVID vanished, that is FY 22 & FY 23 credit cost came down to 1.17%. in FY 22-23. This is super low. So, we are very confident that we're underwriting good credit, numbers are speaking for themselves. But we believe it cannot stay this way all the time. So, we have now factored for higher numbers.

Got it, sir.

And just to add with respect to your question on credit card, there is definitely, the economics have been improving there as we are building in more book, right? The cost to income, we have given out numbers that, that was 164% as of the previous year. And we expect that to come down meaningfully to around 110% for this year. And so we have been guiding that we expect credit card to sort of breakeven into next year and be profitable in the year to follow. So we feel that it takes some time, right? We have been just three years before when we had launched this product. So we feel that we are well on course on this book.

See, one thing we want to tell all of you and I want to just share with all of you, that we have never let you down in credit cost and asset quality for like 14 years now. Anybody who's been with us in capital first years will testify that we never had a credit problem. It's been five years, we haven't put one foot wrong on credit . Every year-on-year NPA is good, year-on-year credit cost is low, it's been like 14 years. Now obviously, such a long period of time comes from disciplined underwriting processes, continuous tightening of the norms and revising the norms, continuously staying in the cutting edge of technology, good governance in terms of the number of people who inspect the portfolio. So all these things, we have no intention to relax. And at least, while we have mentally factored for a slightly higher credit cost because we believe we should be generally pessimistic about these things, or cautious about these things. But we haven't had a problem and we'll make sure that we'll try our best to ensure that we don't give you any surprise on this part.

Thank you. The next question is from the line of Anand Bhavnani from White Oak Capital. Please go ahead.

Thank you for the opportunity. First of all, congratulations for the strong deposit growth in such a challenging environment. A commendable job by the management. Sir from our business model perspective, just wish to understand how much of the collections we do is outsourced.

It's increasingly becoming more and more digital and online. You know, there's a massive shift underway there. The whole thing is changing , to give you one very simple idea for you to understand. Earlier, if a customer bounced a cheque, we'd have a call center, call the customer and request the customer to pay and some agent would go and collect the money from the customer. Now, it's not like that. Now, you just lot of analytics and technologies that happen. Calling itself is not necessarily done by human being. The call it will probably done by a bot and the bot will take some promise and then the bot will send a link to the customer saying that, you promised to pay me, here's a link for you to pay. And customer just pays from the link and the bank gets the money. So bank is a very digitized bank and we are able to do such massive progress.

Sure. I specifically want to understand the outsourced collection cost. So if I were to look at the nine-month total operating expenses, it's around Rs. 8,200 crores. Approximately how much would be the cost we pay out of the Rs. 8,200 crores to outsource collection agencies?

I don't think we know the number offhand or nor have we put it out. But broadly speaking, the directionally, let me tell you that we're trying to become a more direct to consumer bank. But of course, we do have agents, for customers who don't pay through your digital methods. For some of our customers, agents chase them down and follow them up for PTP. And by the way, a lot of our collections in rural areas happens directly by our own employees, not even the agents. Just for information, many locations, we don't use agents in rural India. There are many products in which the early bucket collection done by employees themselves where customers are not. So all that comes to cost of a bank.

Thank you. All the best.

Thank you.

Thank you. The next question is from the line of Jai Mundhra from ICICI Securities. Please go ahead.

Yes. Hi, sir. Good evening. Thanks for the presentation and the slide on guidance.

Yes.

The first of all, we'll keep the slides out there for Guidance 1.0. Because we've given Guidance 2.0, we don't want to escape from a Guidance 1.0. So, we will be true to that guidance and we'll retain the guidance for sure. We'll keep it publicly out for you till the last day. That's our commitment. Now, second part, your question about how we're going to perform against that. You know, the cost to income ratio, I think we are a little behind what we set out to do. The good news is, let me tell you one countervailing factor for being behind schedule. Supposing we are at 65 and we turn out to be 68. I'm just making up a number, but I could broadly be right. Let me put it like that. So let me just say that we are behind to be just to be straightforward with you. Now, how does this play out? What plays out is that income line turns out to be higher than what we guided. Remember, we guided for 5.5%, now we're delivering 6.3%. So we're already delivering about 1.3% more over on income. So even if your cost to income is higher, your ROA may still you get there. Are you with me on the mathematics? Jai?

Yes. Yes, sir.

Therefore, the way we look at it is that , if composition of book changes, more than slightly, it turn out a little different than what we initially planned . When we gave the guidance of 1.2%, we had only that much visibility. But broadly, give or take, we are in zone. We are going to be in the zone of meeting our deposit numbers. We are in the zone of meeting our loan numbers, let me say, our asset quality numbers, capital adequacy numbers, we're hitting all the marks. We don't expect to meet exactly the cost to income numbers. But because the equation I told you right now, we may still meet the ROA and the lower end of the ROE mark by that time.

Understood, sir. And sir, the ROE mark is, I mean, this, of course, assumes capital raise at a frequent level as you would still be growing at a much faster pace. So is this ROE is a more normalized kind of an ROE that one should see?

You'll be a little surprised about how the game has changed. Because what's happening is that we believe that from FY 25, FY 26, as it is I told you Q3, Q4 of FY 25, we do expect a positive momentum cost to income ratio definitely and improvement in ROA, ROE, okay? Just take that as a sense as of now. When you move forward into FY 26, now remember, we are talking of a loan book growth of only 20%. We're talking about deposit growth of only 25%. So our need for investing opex is going to be much lesser than before. The first 5 years, we are in complete build-out stage. We had no choice. We were racing against time, back against the wall, huge amount of big deposits, corporate deposits, certificate of deposits, bonds to pay back, it was like really tough. It's not going to be that tough now. So our expense requirement will be lesser. So FY 26 over FY 25, the expense growth will not be very much. FY 27 over FY 26 expense ratio will be even lesser. And also by the time bonds will be paid back, need for money will be much lesser. So we feel that , like I said earlier, the things will get easier for us from that point of view. And life is never easy, God knows what new problems will come. But at least on these front of deposit raisings, we feel much more assured now.

Understood, sir. Thank you so much and all the best.

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

Good evening and thank you for the opportunity. If I look your sequential growth in assets or loans, it is one of the lowest in the last 8 or 10 quarters. Anything particular to read into this here for the quarter?

No, we want to keep our asset growth within a zone where our capital adequacy and our credit deposit ratio, etcetera, all good. So then we have access, we do IBPC and take them off the books.

Interestingly, if I look at it, your sequential moderation seems to be driven more by home loans and LAP rather than other products.

Sometimes we do IBPC and sometimes we do assignments, meaning direct assignments with other banks also. Basically, we are clear that we don't want to grow the loan book too much even now. So we have taken out some of these loans and done IBPC, inter-bank participant certificate, with other banks purchase these loans off from us.

Understood. Specifically on personal loans and credit cards, any change of strategies since RBI regulations on risk-weighted assets?

No change of strategy fundamentally, they're good, phenomenal products in the sense that there's a real customer need. Asset quality is good, they're all cash flow analyzed, they're risk adjusted, they make good returns, and they are shareholder value accr etive, fundamentally nothing. But yes, what we have done is we increased interest rates on these products because cost of equity has gone up.

Okay, sure. Last question for me. The 25% to 20% CAGR loan growth over the next 5 years, right?

Correct.

Is it likely to be a step function now or more a glide part, in the sense that you grow more than front end and back years as balance sheet becomes bigger, you grow slower? How should one think about it?

As you know, when you look 5 years ahead, we can't be sitting and taking judgments on these step function jumps, what happens 5 years from now. So to be more fair and reasonable, what we have done is we have just extrapolated it at 20%, like five years at a stretch. But we have not not done steps up, step down. We have not complicated it.

Got it. Thank you. Those were my questions.

And in this country, you see on large banks, forget our loan book is hardly anything, Rs. 1.8 lakh crores to Rs. 1.9 lakh crores. With the large banks having Rs. 10 lakh crores, banks having Rs. 15 lakh crores, Rs. 20 lakh crores, they're all growing 20%. So really, 20% is nothing. And we have to do nothing crazy for that. In fact, growing at 25% with good asset quality , imagine growing at 20%, we can further cut-out the edge customers and further improve asset quality. So 20% is nothing, trust me. We don't feel there's any stress at all growing loan book at 20%.

Ladies and gentlemen, we will take that as a last question. I would now like to hand the conference over to Mr. Jai Mundhra for closing comments. Over to you, sir.

Sir, just a small clarification. I think it looks a bit confusing. So just for the benefit of all. If you can clarify that what we have done is we are growing at a much faster pace at around 25%. And I think that was more or less understanding given to the participants. And now we have unveiled the new strategy, new guidance, which talks about 20% CAGR. So is this going to be the new normal? Or do you think because of conservatism, forecasting 5 year out, you have given the 20% range? I mean, that is the clarification, I think, that is needed.

I appreciate the question. It's a very good question. It's our job to clarify this. See, this thing about 25%, the current growth, it's not that next quarter is going to come to 20%. It won't happen. There's no such plan that, oh my God, you have to apply breaks, there's no such need. But yes, I mean, if you wake up in FY 25 and see the book growth, then you might see that the bank's loan book growth is growing by 20% - 22%. It's possible because we are planning to slow down. There are 2 reasons. One is, it eases a lot of requirements on the deposit side, and we need to put less branches. We could even cut rates. So things happen there. Two is that in an era when everything is looking so fantastic on credit cost front, we do want to warn ourselves again and again here, a trim off the bottom marginal customers. And for example, if your score for lending a customer, I don't mean bureau score, I mean internal score. Suppose there's a cut-off score of 750, you might say let's say move 750 to 780 so that the marginal customer goes away. So we might tighten credit or all that kind of stuff. So the intention is more to slow this down on a sustainable basis, this can compound for a long period of time. I know you might be a little disappointed with 20% , you may be, I don't blame you for that. But trust me, even at 20% compounded for a long period of time, especially when the operating leverage will open out from there and the opex requirement will be lesser, it actually is a good strategy, a more sustainable strategy. And like that. For now, we have assumed this strategy. We could be slightly higher. God knows, maybe slightly lower. But think of us in that range as an intention at this point of time. Did I answered the question?

Yes, that answers very well. So yes. So that is all, sir. If you want to have any closing comments?

No, no, closing comments, really, I wanted from you only, you can be honest with me. Are you disappointed about the 20%? Or are you okay with it? What would you think would be the feel of the house?

No, no, sir, it is not about, being happy or disappointing. As you said, you are clearly right that, if this helps you in maybe a more better filtering of the marginal customer, that is one. And of course, it will ease off some pressure on the deposits. It looks like, at the system level, a narrative build up that suggests that RBI or at system level, the growth needs to be calibrated a little bit. So I think that is in that direction, but nonetheless, sir.

You could say that. To be honest, you could say that also because yes, there is a message from the regulator also to curb exuberance. And you could hear public comments on this and exuberance does build up in good times. So we do think seriously about that. So this is a time to cut, trim the marginal customers and the slowing down from 25% to 20% also helps in that process. So it will be a more stable story. I hope. Even if you're disappointed, hopefully you'll become or convert after some time of our line of thinking.

Sure, sir. Yes. That is all from our side, participants. Thank you so much for joining. And thank you, management, for giving us the opportunity to host the call.

Thank you.

Thank you.

Thank you. On behalf of ICICI Securities, that concludes this conference. Thank you all for joining us. You may now disconnect your lines.