Release Date: July 26, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Retail term deposits grew 47% year on year, indicating strong deposit growth.
- Product segments like housing and used cars have shown significant growth at 35% and 59% respectively.
- Small business loans have grown by about 27% year on year, showing robust performance in this segment.
- Investments in technology, including new CRM and Selfie Loan app, are progressing well and showing strong adoption.
- The bank remains healthy on liquidity with a CD ratio of around 86.75%.
Negative Points
- First quarter disbursement was quite low, with April being particularly weak.
- Credit costs spiked due to a one-time correction in the provision coverage ratio and weaker collections.
- Slippages during the quarter were 4.49%, above the comfort level of 4%, driven by micro-finance and commercial vehicles.
- Microfinance portfolio loan growth was just about 6%, indicating a slowdown in this segment.
- The net interest margin (NIM) dropped by 20 basis points compared to the previous quarter.
Q & A Highlights
Q: My question was regarding slide number 14 of the presentation, I see the yield on gross advances seem to have gone up by 10 bps or 11 bps. The cost of funds has gone up by 2 bps. But the NIM we have reported in Q1 versus Q4 has dropped by 20 bps. So just wanted to understand the math where am I getting it wrong.
A: Dheeraj here. Just to get you on the page on NIM, so the NIM drop, if I have to attribute it to the change in yield of the portfolio, that's about 11 bps. Now this drop is largely because of the composition of the portfolio. So microfinance portfolio is now a lower weightage than what it was before. So from a NIM perspective, if I put the denominator as earning assets. The yield on the portfolio has dropped by about 11 basis points.
Q: What would be the average yield on advances from housing finance business?
A: Average yield on advances in housing finance is close to now it's gone up, it should be close to about 12%.
Q: Now as PCR has gone to 70% and cost to income is also sticky. What do you think this happens to return ratios going forward over the next few years?
A: Hi, this is Dheeraj here. I hope I got the question right. So if you're looking from a two year perspective, like we said, we are trying to build a bank which has a sustainable ROAs of 2.25% and a high-teen ROE. So that's the objective. From a timeframe, we've also mentioned that we are in the process of building out a bank. We are about eight years in, we've got another three to four years left for us to emerge as bank where most of the investments would have happened. So now those are two time lines we have. Objective is to treat it as early as possible and just give it to Vasu for some more color.
Q: When do you think the cost of funds start falling because some of your peers have already started putting lower cost of fund quarter on quarter?
A: The cost of funds has two sides to it. One is cost of savings account, which is more or less stable between [6.16 and 6.18]. Second is the quantum of replacement deposits, what we do over a period of time. So if you see last year, we had close to 65% to 70% of the book came in for renewal, and so that it got repriced at a higher rate along with the high rate NTB sourcing. So this year, we have prefixed and the quantum which we have now to go is only maybe 20%, 22%, that's it, balance all either reprice it or that money has gone up. So that's the reason why cost of fund impact is only 2 bps compared to the last quarter.
Q: My question is on the SMA bucket, which is fell from 3% to 3.8%, which is 30 to 90 DPD bucket. What are the efforts that we have taken recently in terms of strengthening collections and not allowing them to forward flow and become slippages or trying to roll them back in the coming quarters?
A: Usually, what happens is whenever we have a collection risk, you move people into collections you add some people into collections. So that is the first thing that you do. You also separate the bucket-wise focus. So we have done that. We have separated bucket-wise focus. We have put more people into specific buckets. I think that will yield results. And basically, our SBL buckets are very good. It's only the vehicle finance, which we have to address.
Q: How should we look at our portfolio yield or loan book yield moving from your ex of portfolio mix change? I know the portfolio mix will keep on changing. But otherwise, my question is even at the product level, how do you see the portfolio yields moving and catching up with the disbursement yield because the reported disbursement yield have been way higher. So when do we see that catch up happening?
A: Over the past data, so that, I mean that probably might answer your question. Now if I look at ID product wise, for instance, SBL, in March '24 -- in March '23, it was 16.29%, in March '24, it was 16.75%, and in June, it has gone up to 17.49%, right. And in VF, March '24 was 17.23% and June '23, 16.69%. The simple reason is because the product mix, we've done some -- Sincere apologies. The connection was disconnected. So I'll restart, I don't know how much of it you heard. So I was going through the yield. So SBL, if you look at March '23 was at 16.29%, in March '24, it improved to 16.75%, and in June '24, it is at 17.49%. If you look at housing loans, it was 11.73% in March '23, which has gone up to 12.13% in June '24. So this is the direction that the yields will take. I hope that answers your question.
Q: Now from a mix perspective, we should see a bit of a sharper correction or reduction in the MFI mix in your overall AUM. Because on the one hand, you will wait to see clouds clearing up. And on the other hand, rest of the book will continue to grow. So I think that 17% could come down faster now?
A: It's too early to predict that at this point in time because I think by next two months, we will have a clarity on that. Because if micro finance does come back to reasonable normal levels of delinquencies, then our approach of reducing micro finance gradually will come back. I mean we'll kick to that original plan. On the other hand, if the next two months, three months, we don't see all of us collectively coming together and doing something on the ground and if slippages continue to remain at the level that it is in today, then we will naturally need to take a sharper call on reduction in micro finance. But I have a feeling, I mean, I'm just saying my assumption or my feeling that the industry players are coming together and so that should bode well for the industry. And if that happens, then we'll stick to our original plan of reducing it slowly over a period of time.
Q: On the operating profit to average asset ratio has declined from 3.4% run rate to around 3%. So there is almost 40 basis point decline
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
