IDFC First Bank Limited (539437) Earnings Call Transcript

Ladies and gentlemen, good day, and welcome to the IDFC First Q3 FY '24 Earnings Call hosted by ICICI Securities. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Chintan Shah from ICICI Securities Limited. Thank you, and over to you, sir.

Yes. Thank you, Davin. Good evening, everyone, and welcome to the Q3 FY '24 Earnings Conference Call for IDFC First Bank. We have with us from the senior management, Mr. V. Vaidyanathan, our Managing Director and CEO, along with the other members from the senior management team. So without further delay, I would now like to hand over the floor to the management. Thank you, and over to you, sir.

Good evening, everybody. This is Vaidyanathan. Thank you very much for joining us.

Yes. Good evening, everyone. I am Sudhanshu Jain. Thank you for joining.

Hi. This is Saptarshi Bapari. Thanks for joining.

So good evening, everybody. First of all, thank you very much for joining us on this late Saturday evening. You have many results to deal with, so thanks for joining us. We are -- the key highlights, I think, for this quarter is that we have come out with Guidance 2.0. So when you think of for Guidance 1.0, which is what we gave at the time of the merger in December 2018, the -- we had guided for -- at that point of time, we almost thought that the first year will be gone in just dealing with many matters. So we gave a guidance for 2025. So that -- while that guidance stays, and we will still keep it on the website and we'll track ourselves to it, you will continue to see it. In the interim, we just saw that this quarter marks exactly the end of phase five exact years after merger. So we've come out with the Guidance 2.0. Now when we started -- when we gave the Guidance of 1.0, we could just share that we really had very little visibility, very little because merger just happened, Capital First, IDFC just merged and the deposit book was something like about -- retail deposit book was something like about INR 10,000 crores and -- INR 10,400 crores to be precise. The loan book was something like about INR 104,000 crores. The -- we had bonds and -- bonds of about maybe INR 50,000 crores or INR 55,000 crores. We had wholesale deposits of about INR 30,000-odd crores. We had certificate of deposits, just two-month money, which was about INR 28,000 crores. So that's sort of an odd base on the deposit side, the borrowing side is largely institutional, we call it, 92% institutional. So frankly, for any management to guess how quickly we will fix this and make it a retail would have been just -- let me give a good educated guess. Again, on the asset side, a lot of things, too, would have been -- still been uncertainty. Under those circumstances, we still came out with the guidance. And then after that, we saw COVID, we saw many things. But I'm happy to say that almost literally on every benchmark, we are coming good. On one front, probably maybe 1 or 2 elements, we are not right up there, but I think we'll get close. So we now -- as we gave guidance -- let me just say that during this period over the last 5 years, the key success for the bank has been deposits. Just to share with you that the retail deposits of -- as of 31 March, 2018 -- 31 December, 2018 was precisely INR 10,400 crores. Today, just 5 years, it is INR 139,431 crores. That is a growth of INR 129,000 crores. If you take the total deposits, we also had INR 29,000 crores of wholesale deposits with us. So INR 10,400 crores plus the wholesale deposit of about INR 29,000 crores, INR 30,000 crores will made it INR 40,000 crores or INR 39,602 crores to precise. That INR 39,600 crores is today INR 176,481 crores. So that is again a good growth on deposits. So the third is CASA ratio. CASA ratio now has come to about 46.8%, which is again quite strong. So let me just say that one defining factor for the last 5 years has been deposit growth period. And all of us know the deposits practically are the foundation of any bank. And this kind of deposit growth has come despite the fact that along the way, we dropped the interest rates. Most people thought that we'll stay with a 6%, 7% strategy for like -- for the long time. But literally, within 3 years we dropped it. And now we pay 0 to INR 1 lakh, we just paid 3%, just 3%. And still, last quarter, we saw deposit grow by 44% Y-o-Y -- 43% Y-o-Y. So I think that, frankly, once deposit is strong, we are sorted. We are sorted I say because the contra side is loan book. Now the loan book, if you see, has not grown very much during this period over the last 5 years. The loan book has grown from...

INR 105,000 crores.

So the loan book during the same period has grown just INR 104,000 crores to INR 189,475 crores, 5 years. So you might say that if the loan deposit grew so fast, 4.5x in 5 years from INR 39,000 crores to INR 176,000 crores, then how come loan book only grew this much? All of you seasoned investors know the reason that we slowed down loans just because we wanted to fix the CASA ratio. So basically, the point is that both the -- on the asset side, we have a strong, stable business model. I'm actually happy to share that our NPA now for 14th year running, meaning 14th year means it will become the 14th year in March of 2024. Now 14 years is really a long time, I hope you will all agree, that our gross NPA, net NPA has been 2% and 1%, really long time. And in these 14 years, we have broadly migrated from lending to the largely unorganized segment when we started. So now we have become more -- relatively more like the more prime bank, like, for example, if we did give loan against property, say, 8 years ago, 10 years ago, we would lend loan against property at maybe 12% or 13% because the banks were doing the prime loan against property of maybe 9%, 9.5% then. Today, we lend at 9%, 9.5% on the loan against property and then maybe there are other NBFC's doing lending at maybe 13%, 14%. So they've come down the risk curve. And therefore, we're feeling much more stable about our credit quality going forward. Now the gross NPA at the end of this quarter is just about 1.5% on the retail side, retail MSME and rural side, 1.45%, and the net NPA is only 0.5%. So it's been a very long time to have sustained quarter-on-quarter, year-on-year for 14 years, let me say, 13 years and 3 quarters to be more precise. It really gives us a lot of confidence. And now anyway, since you come down the risk curve to become a little more -- more like the mainstream bank, I think this should continue now for a while. So therefore, there are 3 things that jump out at our last 4, 5 years of growth is that the deposits grew, the loan book grew, the asset quality is stable. Now -- sorry, somebody is disturbing me on my mobile. So just pardon me. I'm going to just take a small -- Yes. Now the second thing is that once -- that's one part. Second part is that when we look at our bank, there's a lot of harmony within our bank. Harmony, meaning the way the bank is working, the way the system is working up and down across, up and down the chain, inter-division. There is a lot of tranquility and they just focus on the work. And that gives us an ability to move smoothly ahead. And with all a lot of teamwork going in the bank, today, myself, Sudhanshu speaking to you and Saptarshi, but frankly, we're speaking on behalf of all our employees, that this success is actually comes back a while from Dr. Rajiv Lall because we -- I really don't want to go back in time and say this was the issue or that was the issue because really someone worked very hard and almost against impossible odds got this bank license. So let me just say the first note of thanks starts with him. It's like an impossible feat. But after that, if he had not got the license, I guess, there will be no IDFC Bank today or IDFC First Bank. And after that, it starts with how the bank has built over the last 5 years and things have all come good. Now basis, what has happened and how the foundation was built, we are now -- and also based on momentum that we are having, we are now looking forward to how the next 5 years would look like. We look at next 5 years, frankly, today, we have a lot more visibility. I've started this conversation by saying we had less visibility when we started, when we gave the Guidance 1.0. But now we have far more visibility. We have a stable lending model. We know we are originating about INR 45,000 crores a year on deposits. And now we are trying to only extrapolate what it could take for us over the next 5 years. So we are now guiding that our deposit base as of December 31, 2023, is INR 176,000 crores as we spoke as we close this quarter. We believe that we will be something like about INR 585,000 crores as of 31st March, 2019. Now if you think that's a very steep climb, just remember that we came from INR 38,000 crores to here. Now the other reason why we should feel reasonably confident about this is that, currently, our deposits are growing upwards of INR 40,000 crores. For the next 5 years, we've assumed our deposit growing only by 24.8%. We think it should be reasonably easy for us. Next is assets. On the assets front, as you know, we started with INR 104,000 crores, today we are INR 189,000. Now we are guiding that our assets will be INR 500,000 crores in 31 March, 2029. So again, don't think too steep a jump from INR 189,000 crore to INR 500,000 crore because we are guiding for only a 20.3% growth 5-year CAGR. We're currently growing 24.5%. 20% should be easy, should not be problem. So INR 5 lakh crore loans and advances book, now including SLR, CRR, et cetera, will take us to an assets of about INR 7 lakh crore. Third thing is after deposits and assets is asset quality. Now asset quality, today, our gross NPA is only 2.04%. But remember, this has infrastructure. We know infrastructure will go away. We're bringing it down. So if you see ex infrastructure, today, our gross NPA is 1.66% and our net NPA is 0.47%. The day we are trending, we are guiding for a gross NPA of 1.5% and net NPA of 0.4%. That's what we'd like to keep the bank at. Again, considering it's already at 1.66%, 1.5% should not be a problem and considering we're at 0.47%, maintaining 0.4% should not be a problem broadly, give or take, economic conditions, another crazy COVID coming, caveating those kind of weird things happening, this should be achievable the way we're building the business. Fourth is profitability. Now profitability, now we believe that the bank is comfortably moving towards an ROA of 1.9% to 2%. Now if you do the math and you multiply 1.9% or 2% on INR 7 lakh crore of assets, you can see that INR 7 lakh crore was closing number. So the average assets of '28, '29 should be something about INR 6.3 lakh crore. On INR 6.3 lakh crore, you put -- apply 2%, you're getting to about INR 12,500 crore. So we are thinking that -- our broad guess is that we could be somewhere around INR 12,000 crore to INR 13,000 crore in profitability in March 2029. For context, for this year, 9 months, we are like INR 2,230 crore. If you annualize it, you're getting something like about INR 3,000 crores. So we believe that INR 3,000 crore going to INR 12,500 crores should be very possible. And frankly, if you deliver the first 4 items, you grow the loan book to about INR 5 lakh crores, grow the deposits to INR 585,000 crores, the rest should fall in line because our business model is pretty straightforward and if you maintain asset quality. Now ROE is the last one. We've had a tough time dealing with our cost to income ratios and ROE, et cetera, because we know our cost to income was always high. We did explain to many of you that because of setup stage of the bank, we have branches, this ATM network, technology, all the stuff we told you. But net-net, it has been a -- it's been part of -- we are very clear, it was the setup stage of the bank, and we had to do what we had do to, build the bank of the future. So think of it like the first half or let me say the first 5 years has gone into building the foundation of the bank. That process of laying foundation will never go away because banks are forever getting built. But we believe Phase 2, we will be able to reap the benefit of Phase 1. And therefore, we are guiding for ROE of somewhere in the zone of 17%, 18%, give or take. So I would say that these are all in good faith because we have done a reasonable -- we have done our spreadsheets and we analyzed it many times over between Sudhanshu, myself, Saptarshi, et cetera. But we're still saying this in good faith as results may vary. It can happen. We may have achieved, overachieved, underachieved, whatever. But hardly, I'd say more than achieved in Guidance 1.0. May or may not be achieved in Phase 2. So please take all our caveats seriously. But these are being given in good faith with numbers, which we believe are reasonably achievable. And frankly, for a bank starting where it was in 2018 December, in 10 years to reach a position of INR 5 lakh crore of loan book and INR 7 lakh crore of deposits -- sorry, INR 6 lakh crore of deposits and INR 12,000 crores, INR 13,000 crores of PAT with ROA of 1.9%, 2%, PAT -- ROE of 17%, 18% will be a solid position to be in. And more importantly, directionally, they'll be looking good and other things. Anyway, apart from these numbers, the bank is a good bank, really high-quality bank, good customer practices, good culture, good practices, good governance, really very, very -- very good Board, very high-quality Board with high-quality people. All of them have been through a lot, very sensitive to regulatory commentary and so on, and wanting to work within the guidance of the law and guidance of regulations. So that sort of a compliant bank, I think that we are set for -- we are reasonably well set. So that would be my brief comment to start the discussion.

Yes. Thanks, Vaidya. I'll quickly touch upon certain key numbers. I'll try to keep it short. To start with the overall balance sheet size now is at INR 2.7 lakh crores and balance sheet expanded by 22% on a Y-o-Y basis. We continue to see a very strong momentum on our lending book as well as the deposit book. As Vaidya mentioned, customer deposits increased by 43% on a Y-o-Y basis, it's now INR 1.76 lakh crores. In fact, the growth in retail deposits was higher at 47% on a Y-o-Y basis. CASA ratio also, you would have seen, has improved sequentially to 46.8%. CASA deposits increased by 29% on a Y-o-Y basis. Average current accounts have increased by 33% on a Y-o-Y basis and while average CASA increased by 26% on a Y-o-Y basis. We also continue to see a faster growth in term deposits, which grew by 59% on a Y-o-Y basis as customers preferred to lock in the interest rates, which are prevailing in the system. The growth here also was predominately driven by retail. Retail deposit ratio to total customer deposits continues to improve and has increased to now 79% vis-a-vis 76% at the start of the year. We have opened about 35 branches during the current quarter, thereby taking the branch count to close to 900 branches. The high cost legacy borrowings further reduced by about INR 1,400-odd crores during Q3 and another INR 1,300 crores is scheduled for runoff in Q4 '24. We have given more details around this in the presentation. Moving on to the asset side. Overall, funded assets grew by 24.5% on a Y-o-Y basis to reach INR 1.8 lakh crores. I will cover this in 4 segments: retail book comprising mortgage, vehicle portfolio, that's essentially car and 2-wheelers, then consumer loans, credit card, education loan and vehicles. This portion of the book grew at 29% on a Y-o-Y basis. We have seen strong growth across all categories. Growth in certain segments like vehicles and consumers were also relatively higher on account of higher demand due to festive season and our increasing presence. Talking of credit card within retail, the bank has now issued more than 2.2 million cards. The book has almost touched INR 5,000 crores. The gross spends on credit cards increased by 61% in 9M '24. Further, the SME book, which is for business purposes and the corporate segment increased by 16% on a Y-o-Y basis. Also, happy to note a report that infrastructure book is now just nearly 1.6% of the total funded assets and now below INR 3,000 crores. Moving on to asset quality. The gross NPA of the bank further improved by 7 basis points during the current quarter and stood at 2.04%, and net NPA ratio stood stable at 0.68% during the current quarter. As Vaidya mentioned, if we exclude the infrastructure book, the GNPA improves to 1.66% and net NPA improves to 0.47%. GNPA in the Retail, Rural and SME segment also improved by 8 basis points to 1.45% and the net NPA is now just at 0.51%. The overall standard restructured book continues to come down and has further reduced to 0.35% of funded assets as compared to 0.38% last quarter. More than 93% of the restructured book is secured in nature. Moving on to profitability. Profit after tax for 9M FY '24 increased to INR 2,232 crores versus INR 1,635 crores in 9M of last year, up by 37%. For the quarter, profit grew by 18% Y-o-Y to INR 716 crores. This was largely driven by strong growth in core operating income. Core operating profit, which is NII plus fees excluding trading gains, for 9M FY '24 grew by 35% Y-o-Y. For the quarter, it grew by 24% to INR 1,515 crores. For the quarter, NII increased by 30% on a Y-o-Y basis to INR 4,287 crores. The net interest margin improved by 10 basis points on a sequential basis to 6.42%. Fee also registered a strong growth. It increased by 32% to INR 1,469 crores for Q3 FY '24, and this was largely retail-led, which is at 93% of the total fees. Operating expenses increased by 33% on a Y-o-Y basis due to strong business volumes witnessed during the quarter, I would say, branch expansion and some increase in other expenses, like marketing and so on. We had a trading gain of INR 48 crores during the quarter, and provisions came in at INR 655 crores for the quarter. The credit cost as a percentage of average funded assets for 9M FY '24 stood at 1.26%, which is well below the guidance which we have given earlier. We are not impacted by the guidelines which came recently around AIF investments at all. On an annualized basis, ROA stood at 1.16% as against 1.05% in 9M '23 and ROE stood at 10.7% for 9M FY '24 as against 9.9% for the same period last year. The bank has maintained strong capital adequacy. The capital adequacy now stands at 16.73% at December 31, '23, with CET ratio at 13.95%. This takes into account the capital of INR 3,000 crores, which we mobilized in earlier October. We continue to maintain healthy liquidity levels and average LCR was at 121% for Q3 FY '24. We have been maintaining this on a consistent basis across quarters, if you see our previous numbers. With this, I have covered all -- broadly all the facets, all the numbers, key numbers, we will be happy to take your questions.

[Operator Instructions] The first question is from the line of Ishan Agarwal from Erevna Capital.

I would say, decent but slightly underwhelming performance by the bank. So I have 3 questions. Should I ask them together? Or should I shoot them one by one?

One by one is better.

Okay. So the first one being, in our previous [Technical Difficulty] the management has always highlighted that core total income will be faster than OpEx for '24, '25 and '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. But listen, please don't track it every quarter-to-quarter. See, we're a early stage bank, sometimes one odd item, expense catches up, some digitization expense catches up on some of the product, something happens one quarter or the other. If you go Y-o-Y, our own guess is, if you take -- and all our past guesses have come right. I want to just point out one number to you that if you take a 5-year window, that is '19 to '23 -- 4 years, we've seen that the balance sheet has grown by 9% from the time of merger to today, 5 years actually, 9%, but PPOP has grown 43%. So my point -- and by the way, I'm not claiming it is still the 9%, 43% jaw will be that wide still, but definitely, for a balance sheet loan book growing by about 20%, which we've guided again now and for the operating profit to drive -- increase about 30% to 32% should be the kind of zone you should look for, for the next 4, 5 years. So really one -- I told you, it's an early-stage bank, really difficult to point out, oh, this quarter this happened, that happened. It's a waste of your time and waste of our time.

I understand. 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 were expecting maybe a plateauing or maybe a decline from here on, so.

I agree with that. I fully agree with that, but I'm just pointing out to you that the -- I'd say, this result is a bit underwhelming actually. We should have expected to post a little better. At least a PAT level, we should have posted a bit better.

Actually, core operating -- not even PAT [Technical Difficulty] to be some one-offs, but that is slightly underwhelming on that part.

I agree, I agree. 100%, I agree. Could have done a bit better, could have expected to do a little better. But it's -- like I said, we're running a long game here for 10-year game, out of which 5 we finished, maybe even longer from there, there'll be many, many decades after that. Just take this part as just some slight movements of upon people here.

So going ahead, do you expect that cost to income should start declining from here on? Or do we still expect it to keep at this level for a year or 2?

Our sense is that Q3, Q4 of '25 should begin to see material movement onwards. We feel that -- like I said, there is some movement, for example, some product categories. We are -- in next quarter onwards, in one of the quarters, there will be some impact because of -- we do the digital loans, for example. In the digital loans for a period of time, there was a -- there was no FLDG permitted, for example. And last quarter, for example, FLDG got permitted. Now we had a certain structure with the counterparty. Now we'll move to another structure, which is FLDG. When we move to FLDG structure, the benefit of not having credit costs because the counterparty will guarantee that FLDG, that benefit will come 2 quarters from then, meaning then the credit costs would have hit us, they would have supported us, they have to paid for it. But in the interim, the impact would be there. So the -- I don't want to confuse all of you with all these 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, '25, and which will show up in credit cost line. So therefore, these movements will slightly give better benefits for us by exit quarter '25.

Okay. 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 suggest you earlier also, oftentimes when we go for -- when you compare Y-o-Y for early-stage banks, either last time, there would have been something very much in the -- 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 are running so low. In fact, many people came, used to scratch their head, how can a credit cost be only 1.1%, even lower than many top banks? So we were -- 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 2 years, we were getting benefit of the recoveries. So some of the recoveries may also taper off. So that's 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 2 minutes because this quarter had a few here and there items. 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 2 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, check amounts is very low, let me say very low, meaning very low, which is like 6-point something. So -- 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's no reason like fundamentally to be disturbed or anything like that. I mean, you watch out next quarter, you see the results for yourselves.

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'll again have a Tier 1 capital to shore up the capital adequacy?

We will watch the numbers with the way the profits emerge over the next 4 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 don't want to go below Tier 1, say, 12.5% or 12% or?

No, we don't spell out precisely when you have to raise capital. It's not a good strategy for any bank exactly to like put out in the market and raise capital. I hope you'll agree. So we'll 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 in force for IDFC November has reduced for the first time as compared to September, which is -- so from 66.5 -- from 67.8 lakhs to 66.5 lakhs. So is there some reason, were there some dormant accounts which were closed or what?

Yes, could have been some dormant account cleanup being done with respective teams. Otherwise, inflow -- see, basically, the bank is more and more moving towards quality, and 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's how we saw growth of close to about INR 4,000 crores a month of deposits that kept coming in. So let me say, deposits are rising very well. That would have been some closure of some customers who are inactive and those kind of respective products teams keep doing the work.

And all the best, it's really commendable the way the bank is growing the deposits.

Thank you very much.

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

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 these 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? Second is on the vehicle finance, if we can give out the split of a car finance -- new car finance and used car finance, sir, and the outlook for the industry as such and our own growth estimates there in FY '25. These are my 2 questions.

We do work with fintechs broadly, but we have not exactly sat and calculated, put out who's doing how much and all that. But the -- but let me say broadly, it's growing. We are very conscious that on the personal loan front, personal loan meaning -- and basically unsecured personal loan given, our model is largely lending to salaried people who want to take personal credit typically term loans. So in that model, I think things are running pretty well for us, some originated through partners, some originated through ourselves, some originated through DFS, et cetera, et cetera. Second question is about vehicle finance, new, I'd say, 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's 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 -- we give new cars. With the limited capital, we might as well use it for either 2-wheeler finance or for used cars. And credit quality they're behaving so fantastic. So why waste money on the new cars?

Right. If I can just squeeze in one last question in terms of fintechs, when we onboard 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's onboarded to our balance sheet, it's only we who own the customer in terms of any kind of cross-sell, upsell of credit, noncredit products or the fintech through which it was originated can also do any kind of cross-sell, upsell.

This is the typical complication that happens in this industry. So typically, digital partners like to also do other things for the same customer. So for example -- but we are very clear when you work with them that, with anybody for that matter, that our bank is 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 conscious issue. Now the same party, if there's some party originated with stockbroking firm, which will give stockbroking. And by the way, gave us some personal loan. 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 salaried customers and we lend to them, we feel more in control because it is our customer 100%. But when it's originated by party, sometimes party also does something with the customer, yes, of course.

Understood.

And we should be respectful of their income and P&L also, let them be happy, let us be happy as long as customer is happy.

The next question is from the line of [ Gao Zhixuan ] from Schonfeld.

So first question is just data keeping. Can I have the gross and net slippage number this quarter?

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

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

So we feel quite comfortable, as Vaidya mentioned, that we are seeing a consistent asset quality, right? So even in this quarter, the slippages have not gone up while the book has expanded. So we feel that we should be quite okay on this front.

So why does our credit cost is trending up, while our -- if our slippage is very similar to last quarter, our credit cost should not be trending up. And our coverage ratio seems to be similar to that of the last quarter. So I just want to understand that.

No, sir, if you see that credit cost has been -- for this 9 months, has been just 1.26%, right? We had guided the market for 1.5%. Of course, we have been coming to it. This quarter, we have seen a price 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 gross slippage, that has been quite stable, right? And other indicators also, right, if you see the check bounce, right, which we have presented the data in the presentation that it continues to be lower, right? It's at -- first check 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 the provisioning impact may come because of aging and so on. So we feel quite comfortable with [Technical Difficulty].

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Yes. I don't know I lost you guys at which moment. But the point which I was trying to mention was that gross slippage and net slippage has been quite stable. If you see the asset quality indicators, right, in terms of our check bounce, right, that's down from 9.9% to 6.3%, right, over the period. And similarly, collection efficiency is quite table 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 9 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 4 to 5 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 it's better to be guiding at a number which you feel is reasonably safe and in the bag.

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

One 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%. So we feel that -- and even in the guidance, if you see our deposit growth is a tad faster than the loan growth, which we are guiding. So this should keep coming down as we sort of move along.

Okay. And secondly on...

So I'm saying, just for the one data point, the 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. 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 color 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 '25 that you are indicating?

So Nitin, if you see that...

If you look at the guidance -- see, because -- go to the -- specifically go to 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 level 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 '25, we should see meaningful movement. And our own estimate is that the OpEx of '25, for example, should just increase by about 20%, where the loan book or the income could rise by, let me say, maybe 24%, 25% because of the reason. So we feel that in '25, we should start seeing material opening of the jaw. And again -- because, see, one thing you should note in the way we are running the -- building out Story 2.0, that the deposit numbers we have kept very modest, requirement. Imagine just going at 20% or 25%. For somebody used to be going at 40%, 25% is nothing. And remember what is something unique will play out after '26 onwards, which is '27, '28, '29. I'll tell you what is unique. Today, even when you're growing the loan book at 25% -- 24.5%, bank is funding this growth of 24.5% from deposits, A, 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 your past liabilities. Now, by 1.5 years from now, that lot of it would have gone, let me say, 2 years. And then after that, you're only funding your loan growth. For somebody who's used to carrying such heavy weight, that should be pretty lightweight actually for us. I mean, relatively lightweight. So that is a material change coming in our life from '26 onwards -- '27 onto 2030. 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 2, 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 '29, 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 '30, that would be like -- maybe like 57%, 58% or something like that by '29.