IndusInd Bank Limited Q1 FY2018 Analyst Call

Transcription

1 Limited Q1 FY2018 Analyst Call MANAGEMENT: MR. ROMESH SOBTI MANAGING DIRECTOR & CEO MR. S.V. ZAREGAONKAR CHIEF FINANCIAL OFFICER MR. SUHAIL CHANDER HEAD, CORPORATE & COMMERCIAL BANKING MR. SUMANT KATHPALIA HEAD, CONSUMER BANKING MR. S. V. PARTHASARATHY HEAD, CONSUMER FINANCE MR. SANJAY MALLIK HEAD, INVESTOR RELATIONS & STRATEGY MR. KALPATHI SRIDHAR SENIOR EXECUTIVE VICE PRESIDENT MR. RAMASWAMY MEYYAPPAN CHIEF RISK OFFICER MS. ROOPA SATISH HEAD, CORPORATE & INVESTMENT BANKING MR. ZUBIN MODY HEAD, HUMAN RESOURCES MR. RAMESH GANESAN HEAD, TRANSACTION BANKING GROUP MR. SANJEEV ANAND DEPUTY HEAD, CORPORATE & COMMERCIAL BANKING Page 1 of 19

2 Ladies and Gentlemen, Good Day and Welcome to the 's Q1 FY18 Results Conference Call. As a reminder, all participant lines will be in the listen only mode. And there will be an opportunity for you to ask questions after the presentation concludes. In case you need assistance during the conference call, please signal an operator by pressing '*' and then '0' on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Romesh Sobti Managing Director & CEO, Limited. Thank you and over to you, sir. Okay. So, just talking a little bit about the macros. So, two key reforms became operational, as I said, during the quarter, GST and IBC, which is the Insolvency and Bankruptcy Code, both of which has a little bit of impact on the banking sector as well. So, GST first, I think the real take away on GST so far seems to me that it was preceded by a de-inventorization and some disruption of supplies, but there are many elements of the GST rollout which are positive. Of course, the jury is still out on the extent of the disruption which will probably will play out during quarter two. But of course, certainly we believe that GST will provide sort of a tax audit trail and lead to improved productivity. As I said, GST seems to have got off to a relatively smooth start. The other one of course is the Banking Regulation (Amendment) Ordinance, the powers to direct corporate debtor to insolvency, the IBC. So, under that 12 accounts were listed and banks have been advised to make a provision of 50% on the secured portfolio and 100% on the unsecured portfolio as soon as the account gets admitted in the NCLT. So, we will talk a little bit about those 12 accounts and which of those affect us. But both these reforms I think will create some short-term turbulence, but they have massive implications for economic well-being. Other than that, I think sector growth continues to be anemic at 5% to 6%, retail has still got some buoyancy at 14%, but corporate is negative. And evidence points to sort of continuation of slow corporate credit growth due to lack of CapEx figure. And of course, there is a move to the bond markets which has grown by almost 20%. If you really combine these two then real growth probably is in the vicinity of about 9% or 10%, including the move to the bond market. On Rates, I think, the MPC minutes released after the last RBI meeting do suggest a more dovish tone. And CPI data continues to be very favorable, inflation is sagging, loan growth is weak. So we do expect that in the August Monetary Policy Committee meeting, you could see some change in the stance and may be a reduction of 25 basis points. I think that should resume the downward trending which was disrupted by the hawkish tone that we saw in the Monetary Policy two policies ago, which has actually caused a little bit of increase in the cost of incremental fixed deposits during the quarter. As far as our performance during this period is concerned, I think overall our loan growth came up with a healthy 24%, despite some sort of lingering impact on the growth in a couple of segments due to demonetization. For instance, in vehicle finance the impact of BS-IV and GST. However, we have seen that in the June disbursements, especially on vehicle finance, were slightly ahead of the April, May. The impact may wane over this quarter and we expect normalcy to actually return in these areas, especially vehicle finance in quarter three. So will talk a little bit more about that. Page 2 of 19

3 So, together with a stable 4% margin, fueled by 31% growth in our interest income and core fee growth of 25%, steady cost income ratios, PAT grew by 26%. This outcome, we must emphasize of the profit growth of 26% at Rs. 837 crores is without taking any reversal of Rs. 122 crores standard asset provision into profit, so not a penny has gone from Rs. 122 crores into profit. And I will explain later how we have used that Rs. 122 crores, in fact we can do it now. Actually, out of the Rs. 122 crores reversal on JP, Rs. 70 crores floating provision has been created, so after a hiatus of two or three years we are back to having a floating provision in our books, as you know, earlier we had Rs. 50 crores. Rs. 33 crores have been held back as standard provision which has not been reversed, because some residual money is yet to come for the whole system from Ultratech. It is related to some CPs which are to be satisfied, so we expect that to come back in this quarter. So, that Rs. 70 crores plus Rs. 33 crores is in fact held as provisions, one floating and other one in standard. And we use balance Rs. 20 crores to accelerate provisioning in two areas, one, we provided extra Rs. 10 crores on the SRs (security receipts); and another additional Rs. 10 crores we provided on the microfinance portfolio, which explains to you how that was broken up. So, with this floating provision our PCR (provision coverage ratio), has actually now exceeded 60%. So, this is what we said that we want to use this reversal at least into our floating provision creation. That is this thing, we will talk a little bit more about that. On the loan growth, I think the quality of the loan growth was better. One of the outstanding features is that our capital adequacy has actually improved over the quarter. It was 15.31% last quarter, it has now moved to 16.18%. And I think that our strategy of competing selectively for high quality assets is paying off, our capital ratios therefore have improved significantly due to the improved risk profile. And you can see in the investor presentation that we gave the rating profile of our corporate book and see a very distinctive shift leftwards, which means towards the AAA and the AA+ rating profile. And that is why the risk weightage has not grown to the same extent as the loan book. Quarter-on-quarter if you see, our loan book grew by 3% while our risk weightages grew by only 1%, and that is why you are seeing a definitive improvement in our capital adequacy ratio. So, I will not go into other growth areas, I think you can see all that in the presentation. One more feature really on the highlights is the savings bank growth. So, our deposit growth for the quarter was 31%, loan growth was 24%, so there is improvement in the credit deposit ratio. And the CASA growth was 44% and SA grew by 65%. So, now you are seeing a very secular trending over the last six or eight quarters of SA growing very healthily, earlier in the 30s and 40s, and now this quarter we have seen 65% growth year-on-year. So, we reckon that the mission that we laid out in our PC4, Planning Cycle 4 plan of 40% may have to be rerated once we hit that figure, but that is some time in the future. So, I think these were some of the highlights there. Specifically, I think there are questions around what happened on the microfinance portfolio. Microfinance, I think the portfolio at risk or the gross NPAs came out to around Rs. 31 crores and we normally provide 60% so that was Rs. 18 crores, but we provided additionally Rs. 10 crores, so this is almost fully provided for. Going forward, in terms of the outlook, since microfinance is such a topical subject, we expect Page 3 of 19

4 the portfolio which may be at risk is about Rs. 50 crores but we expect that by end of the quarter recoveries will bring it down to may be Rs. 20 crores or Rs. 25 crores. And there will be also recoveries from the provisions made in the previous quarter because recoveries are coming with a lag but they are coming. And we do expect that net-net we may have to, if at all, provide may be Rs. 8 crores to Rs. 10 crores on microfinance during quarter two. And I think that will be the end of it. Growth on the microfinance sector has been sort of flat this quarter, we expect that maybe quarter two also growth may remain flat, but I think quarter three onwards we can go back into the high double-digit growths on the microfinance sector. Just to cover that IBC part first, I think we need to do that. So, IBC, in the exposure to the 12 accounts we had three accounts, on which our net sort of balance sheet exposure was about Rs. 50 crores. We had already holding provisions on one of those accounts which was Jyoti, so the incremental credit cost on that is now immaterial, whatever had to be provided I think we have provided in quarter one, even on these three accounts, may be a residual Rs. 10 crores or Rs. 12 crores may have to be provided on one account in quarter two. So, we have substantially taken care of these three accounts out of these dozens odd which RBI has sort of listed, which is very, very small as compared to Rs. 40,000 crores which will probably hit the whole banking system. There of course, I am not sure whether you know that RBI came out with instructions just a few days ago that the 50% provision on secured and 100% provision on unsecured would need to be provided from quarter two onwards and can be spread out over three quarters, but we have preferred to make substantial provisions for this portfolio, these three accounts in quarter one itself. So, I do not think the incremental credit cost is immaterial if at all. One more feature which is normally discussed is telecom stress in the books, our exposure is to the top three groups, telecom is about 2.1% of the loan book, down from 3.5% last quarter. So, a large telecom exposure was actually repaid. None of our telecom exposure is now rated below A, in fact some of them are AA and one is AAA. But nevertheless, we have increased pursuant to the RBI guideline for making higher standard provision for telecom sector review. The standard asset provision has been raised from 40 basis points to 75 basis points and we have taken an impact of about Rs. 8 crores as a consequence of that, so even that has been taken care of. I have already explained to you the breakup of how we used Rs. 122 crores. Other than that, I think there is microfinance I have already sort of explained to you, Rs. 31 crores were the GNPA for the quarter and we have provided Rs. 28 crores against that. We do not expect any material impact, as I said, in quarter two itself. Other than that, if you are looking at our investor presentation, if you look at slide 24 where we give our loan portfolio movement in NPA and restructured advances, you will see that the gross NPAs went up from 0.93% to 1.09% but the restructured book fell from 0.37% to 0.17%. So, there was a movement of two accounts, from the restructured books to the gross NPA book, therefore that sort of balanced out. And if you really see on a combined basis the restructured plus gross NPA last quarter was 130 basis points and this quarter is about 126 basis points. So, Page 4 of 19

5 I think that explains the movement in the gross NPA has been caused by movement on those accounts from restructured book to the gross NPA books. Other than that, the ARC book is flat, it was Rs. 356 crores and it remains at Rs. 357 crores, although we did sell Rs. 57 odd crores to the ARC, but we also recovered almost an equal amount, therefore the net book on ARC remains flat. Other than that, I think we can get into the loan book growth, how it is broken up. So, loan book grew by 24% in which retail grew by 22% and corporate grew by 26%. And if you break it down further in the retail side, the vehicle finance book grew by 17% and the non-vehicle book grew by 35%. So that is the breakup. Now, for CVs it was a slow quarter, because of the issues I mentioned, one is BS-IV and of course partially the impact of GST. I think volumes declined 27% in the first quarter and is essentially a supply side issue because of the BS-IV conversion. And therefore, the M&HCV book grew by about 13% while the vehicle finance book as a whole grew by almost 17%. We expect quarter two to be similarly slow or slightly better, but quarter three and quarter four we would start seeing a little bit of surge back because manufacturers are probably getting their act right in terms of fitting the stocks with the new kits which are BS-IV compliant. So we do expect a more robust growth in the second half of the year as compared to the first half of the year. So, quarter one disbursement on the vehicle finance book was Rs. 5,274 crores, was slightly lower by 4.4% versus Rs. 5,500 crores in last year. But June disbursements were slightly ahead of April and May, so impact is waning and disbursement growth is expected to return, as I said, to normalcy by quarter three. I think we have covered our part of it, so we will throw open the floor to Q&A. Thank you very much. Ladies and Gentlemen, we will now begin with the question-and-answer session. Our first question is from the line of Mahrukh Adajania from IDFC Securities. Please go ahead. Mahrukh Adajania: Congratulations..! Just wanted to check on your corporate yield, that is up sequentially whereas your rating profile has improved, so? Yes, I think there is only one large factor explaining that. Last quarter we suspended the interest on JP and that is why last quarter yields got depressed. So that is the only reason, otherwise I think the rating profile has moved pretty nicely and our strategy of sort of improving the rating profile of our book through short-term working capital loans which are better priced, that seems to be paying off. And if you see that abstract chart that we present on the rating profile, we see a very distinctive move to the left which is really towards the AAA and AA+ names which is exactly what we had planned to do, so that equation of yield is only as a consequence of that one particular account where interest was suspended. Page 5 of 19

6 Mahrukh Adajania: Okay, thanks. And in terms of loan processing that has declined, so any explanation there? And also, would a part of the corporate fees be booked under investment banking, some structuring fees or everything would be loan per say, how does it work? Loan processing fee is linked to the assessment of loan proposals. So, this is not only for new loan proposals but it is also about renewals. So it is mandated by RBI to renew every proposal every 12 months and banks do that and there is a processing fee linked to that. So, if there is a bunching of the proposal then the processing fee goes up and if the volume is lower then the processing fee goes down, and there is no intermingling of the corporate fees. Loan processing is very distinctive, linked to the processing and the renewal of credit facilities or disbursements of fresh facilities. Mahrukh Adajania: So, it is just the bunching up thing? Yes. Thank you. We have the next question from the line of Adarsh Parasrampuria from Nomura. Please go ahead. Adarsh Parasrampuria: A question on your margins and more on NII to risk weighted assets over the last five, six quarters that has trended up well because risk weighted consumption is going down. And in spite of the leverage building up your margins have gone up. So, apart from say CASA improvement what would be the underlying factors driving that? So you are saying what is improving the margins? Adarsh Parasrampuria: Yes, margins and more so it is coming with less capital consumption and indirectly less risk taking, so I am just trying to understand apart from the CASA mix change what is driving that? So, you link all this together with drive towards creating a better quality book and therefore risk weightages go down. Now, CASA certainly improves the margins and these margins we are giving away in creation of the good quality books. The other, of course, feature is the fixed rate book that we have on the vehicle finance side. So as cost of deposits go down that fixed rate book is holding up and has sort of lagged re-pricing to it, and so it sort of decays over a longer period and that gives you some spread as well. So, it is both a combination of yields holding up on the asset side of the book and cost of deposits sort of falling. But as you know, as a strategy we have preferred to keep the margins static, we are okay as I turn to 4% here and there and therefore improve the quality of the book, therefore improve risk weightages and therefore very beneficial impact on our capital adequacy and the consumption of capital. Adarsh Parasrampuria: So, the second point that you mentioned in terms of margins, the impact of that fixed credit book, will that normalize now and should that impact margins because it would have been two to three years since you are getting to a point where incrementally your new rates on lending would have Page 6 of 19

7 been lower so that will offset the older, higher rate CV book. Is that something that should normalize very soon? I think the way to look at it, Adarsh, is that there is a temporary sort of halt in our mix between retail and wholesale wherein retail is currently at 40%. I think from quarter three you will start to see the retail, especially on the vehicle side picking up. And as far as the non-vehicle business is concerned, that is growing at between 35% and 40%. So that is where the margin benefits will come as we move forward. And as explained earlier, we are using some of that margin to selectively create a high-quality book without impacting the ROE. Adarsh, I think if your question is that when will the effect of the credit book wane, I think door to door these have sort of a three-year impact. So what you disbursed one year ago still has got two years to go, but what you disbursed three years ago is playing out. And even the fresh loans given and if interest rates decline further you still have a little bit of a kicker. But you are right that the book we disbursed three years ago that would have waned, but the book we disbursed two years ago still have one year to go and the book disbursed one year ago has two years to go. So there will be some residual impact I think playing out over the next 12 months or so. Adarsh Parasrampuria: Understood. Sir, second question is on Opex, your Opex growths are moderating, I just wanted to understand what should be the steady state Opex growth one should look at over the next two to three years? And you have talked about cost of income benefits, so if you can just link it to that. So, Planning Cycle 4 target is to reduce the cost income ratio by 2%. And a lot of it has to come on the cost side of the P&L. So there are about 10 or 12 initiatives running which we have baked into our Planning Cycle 4. We gave an example of what is happening on the branch configuration and the branch cost and there we are already seeing some reduction in the branch costing. For instance the cost of opening a branch in the metros, we opened a 2,500 square feet branch, the last three or four branches we opened in the metros are 1,200 square feet. And the number of people are housed in those branches has come down say in a metro from to maybe 12 or so. So, suddenly we are seeing that and I think that is reflected now also on the fact that in two quarters, quarter four and quarter one there has not been an increase in the headcount. So we are seeing almost a steady headcount because people are being redeployed, we are not sacking people but we are redeploying people because we are still growing, so new branches are opening. For instance Digitization is also impacting on the account opening process on how end to end you digitize the account opening process to release something like 800 or 900 people once the thing is fully played out. So I think that is what sort of prompts us to have an ambition of reducing our cost income ratio by about 200 basis points over this three year period. Thank you. We have the next question from the line of Nilesh Parekh from Edelweiss Securities. Please go ahead. Page 7 of 19

8 Nilesh Parekh: So, firstly, we have highlighted the 12 accounts but if we look at may be the 50-odd accounts which RBI is looking at which would come over a period of time, do we see any risk in terms of the inch up in the NPL in that case? Look, the top 12, I do not know what percentage of total is Rs. 40,000 crores, you have seen our impact, total was around Rs. 50 crores, and we saw that. Now, we are not aware of any new list being released, there is a lot of speculation. But our sensing is that RBI is now going to leave it to bank consortiums to determine names, there may not be any specified names because there is some litigation, etc, which is happening as a consequence of all this. But I think our ticket sizes are small, we do not know what other accounts will come up, Rs. 50 crores - Rs. 55 crores, but we can have full sight of what we have in our books and we do not see any elephant sitting there, there may be smaller accounts, our ticket sizes are small. So, I would imagine that we are not going to see any spikes here and there as a consequence of this thing. But we do not know the next 55 names that are being branded about, we do not know which those names are. Nilesh Parekh: And in terms of GST impact, so you highlighted particularly with respect to CV but overall if you look at it in terms of the portfolio on the SME side, how are we trying to assess the overall risk which can build up in terms of GST implementation or say the delay in payments or something, do we see anything on the smaller corporate side, so when we look at the portfolio also it has been pretty much flat quarter-on-quarter, particularly the small corporates and all. So, is there any particular stance in terms of going slow in that portfolio and how do we assess the GST risk on the SME side? I think it is early days to really say whether there is any trending. But overall I feel that the GST rollout sort of on the face of it looks much smoother, now it is going to impact individual, SMEs, etc, I think the jury is still out on that on whether there will be impact. But we do different things in different segments and all, so we are very, very diversified. The issue here is about getting yourself registered and as soon as possible starting to get your input credits. So I would say that SME supplying to a large manufacturer, now if he does not register he cannot give the input invoices and therefore the large manufacturer will not pay him till he registers and gets his input invoicing done. So, that would prompt people to really push it through and that is what I think we are seeing. So there may be some delayed impact there but we are not seeing any screeches in the market so far. Nilesh Parekh: And lastly, in terms of LAP when we look at it there is some inch up in the G&PLs, so nothing significant but may be moving up by say 15 basis points - 30 basis points and Rs. 30 crores odd, so any specific thing or may be this is generally a seasonal uptick which is there? And similar thing even on the tractor side, so that has also gone up a bit as compared to that of Rs. 5 crores - Rs. 7 crores odd that is also moving up, so any industry wide trend or any stress in any of this? Sumant Kathpalia: That indication which you see is not LAP, it is LAP, PL and home loan. There is a very old book of home loans also which is there. So, the LAP continues to be between 35 basis points and 40 basis points. Our cost of credit has not gone beyond that up till now. So there is no signal on LAP as we continue to be between 35 basis points to 40 basis points. Page 8 of 19

9 Tractor you wanted to know? Nilesh Parekh: Yes, so tractor I think is very small amount. Nothing specific on that. Thank you. Thank you. We have the next question from the line of Rakesh Kumar from Elara Capital. Please go ahead. Rakesh Kumar: Sir, just one question on this like market risk if we see this quarter sequentially it has gone up and investment book has also gone up sequentially by around 15%. Yield has not moved so much, so like risk is going up but the return on the investment book is not there. So, what is happening there if you could explain? I mean, essentially the market risk has only gone up because the SLR book has gone up. I mean, they are all G-Sec, they are all government securities and that translates into market risk, so there is no other reason. But of course, G-Sec rates have fallen, so what you accumulate afresh into your SLR book linked to your balance sheet growth is obviously coming at a slightly lower yield. So I think there is no stark sort of movement and the market risk is only a function of how much we have in our books in terms of the G-Sec portfolio, mostly SLR. Rakesh Kumar: And secondly sir, the SA growth has been very strong actually, so what are the strategy which are giving us this result and what is the longevity on this? There are two factors, so one is sort of granular SA, we are getting 85,000 to 90,000 new customers now every month, that is new to bank acquisitions. Secondly, the branches which opened and acquired customers in the last 12 months, they are deepening their holdings, so the average ticket size of the same bank customers has actually improved, it has now gone to about Rs 60,000, it used to be in the 40s, then it went to 50s, now it has gone to about Rs. 60,000 per account. The other thing is also that there have been here and there some breakthroughs on the government business, because that wallet we have addressed very aggressively. And there is a whole new vertical set up just to do government business. So, while we are breaking into the PSU side of the business we are also looking at project accounts and things like that which are bringing in the SA. And as far as longevity is concerned, I think these are by and large stable funds, they would not see the sort of volatility you normally see in a current account. Sumant Kathpalia: These are made up of multiple projects. Yes. Sumant Kathpalia: So, the government business is made out of not one account, it may be one corporation but about 300 projects which are running in that association. And you get the government float as a consequence of the project, so in a number of projects the volatility is less when you disburse the funds over a number of projects. Page 9 of 19

10 And see these accounts do not come because you go and market. Mostly these accounts are now done on a bid basis, it is a very open and transparent process and the winning propositions really come not only from the interest rate you give, that also makes the difference, but I think it is also linked to the digital solution that you are providing because you are seeing a lot of these government organizations now demanding online sort of refreshment of the MIS flows. I mean, I allocated Rs. 2,000 crores to these projects, what was the status last months, what is this month in terms of disbursement, how much has been utilized, reconciliation and all those sort of things. So there is a little bit of digital solution also involved and I think that goes towards sort of winning these bids, we have got our share of wins also. And so there we feel that there is stability in this portfolio on the savings bank side. Rakesh Kumar: Sir, you said sir on this SLR thing like the SLR pie is going up for us and that is resulting into the market risk, so what is the risk rate we are allocating to that SLR? It is based on the amount and duration. So the capital consumption is very small, I think it is Rs. 100 crores over the quarter. We will give you that number as we go along, we will just check the numbers. Thank you. We have the next question from the line of Nilanjan Karfa from Jeffries. Please go ahead. Nilanjan Karfa: So, going back to the first question on the corporate yields, you said the last quarter obviously we did not recognize interest. So is it safe to understand you recouped back the interest in this quarter? And therefore, to that extent we are seeing a slightly higher yield in the corporate segment this quarter, would that be a fair assumption? Partially true because we have reversed some of that interest, but some of that we may have held back. The standard provision that we are still holding back, the Rs. 33 crores is still part of that. So, partially it is a consequence of that. So, you should see some normalization in the yields that will happen in quarter two. Nilanjan Karfa: And could you elaborate on the power sector exposure, it has gone up quite substantially, that is what seems to be the case, I mean, what kind of exposure this is? Roopa Satish: So, you are looking at power generation essentially. Nilanjan Karfa: all power sector. Roopa Satish: Yes, so there are sub categories there but we have clubbed it together at power sector. So one is power generation, one is transmission and distribution as well. So, in the generation side we have seen good amount of activity in the renewable sector in power, solar and wind there has been some amount of CapEx there. So, a little bit of increase which has happened there over this quarter. Page 10 of 19

11 And that is also to very strong sponsors. Roopa Satish: Yes, strong sponsors. I mean, I am not naming them but we have got very clear policy framework setup for especially exposures in renewable industry and it is in line with those policy standards. Then we have some amount of exposure in the transmission industry, that also is clubbed there. Transmission is an attractive space and we have seen some projects coming up there, again with large acceptable sponsors. Nilanjan Karfa: Right. Just to elaborate on this point, does the solar power bids which are happening these days bother you or do you think you are well covered up with the corporate you are dealing with? Yes, I think that has been our stance right from the beginning. We are quite aware that the nonsustainability of the rates at even Rs. 5 or Rs. 6 and therefore we are very, very careful looking at the risk. I mean, solar power rates have fallen from a high of whatever Rs. 10 or Rs. 12 per unit down to the last bid at Rs So we have a very clear and conservative approach on this thing, on sustainability of the PPAs because we know that they could be released and if they are not sustainable. Roopa Satish: On the states that have put up the projects, I mean there are multiple criteria, the quality of sponsors who are undertaking the projects, the kind of support that the sponsors are giving, the quality of the project itself, what kind of PPAs they have. So, there are about kind of set criteria, there is a standard policy that has been put up exhaustively dealing with all of these criteria approved in the board, etc. And so we are very cautious on this sector. And with clearly good strong sponsors and we go for short-term. So, these are not long-term exposures but very strong sponsors which are very, very acceptable risks and our solar portfolio is only part of their overall businesses. So it is not a first generation entrepreneur, that we are very wary of, who have no ability to cushion in case a particular electricity board or something decides to renege or forcing down on the rates. So we are very conscious and we do feel that solar for instance, and may be wind to some extent, all three rates of thermal, solar and wind probably will converge to may be a sustainable sort of may be Rs. 2.5 to Rs. 3 per unit. So this is something that we are fully aware of, we know that here in this sector also I think there probably will be delinquencies down the road, especially from the first generation entrepreneurs who have set it up. And there is also this drive to avail of tax benefits and things like that, so if it is based on that we do not touch it. Nilanjan Karfa: Final two questions, if I look at the CA portfolio, now that is kind of flattish and coming down, just have we changed our customer acquisition policy and now focusing more on savings accounts, just what is happening there? That is first. Second is, when we look at this chart of corporate credit rating, the move that we see towards that left, is largely reflection of the JP assets moving to Ultratech? Thank you. The portfolio is huge, JP was only Rs. 500 crores, so that could not move it so dramatically. It is a Rs. 50,000 crores portfolio so that probably would not sort of move the needle. But I think Page 11 of 19

12 it is also the new growth of working capital short-term loans which are in AA+ and AAA names, I think that is also one of the positive factors. Of course, this was also caused by some exits where we had lower quality books which we have exited, which have been repaid, and therefore I think that is also causing an improvement in this profile. As far as CASA is concerned, SA remains steady and accretive and has a very positive up trending, CA always remains a little volatile. So, if you have an IPO at the end of the quarter you will see a large CA and you know IPOs are flowing and we have seen in a couple of quarters. So, in one quarter if we do not have an IPO float lying around then the CA portfolio sort of goes down. But combined certainly, I think SA is more steady and SA is more predictable, CA always has some volatility to it and linked a lot to these one-offs on IPOs and things like that. Thank you. We have the next question from the line of Manisha Porwal from Taurus Mutual Fund. Please go ahead. Manisha Porwal: Sir, a small question on your working capital loans. As you mentioned in your earlier remarks that corporate is not picking up, in fact is negative for the industry also, the growth. This working capital requirement increase, is it something can we say it is a distress or a kind of stop gap arrangement in the form of distress kind of fill in? Is this the reason why the working capital has increased so much despite the normal term lending or loans not increasing? No, see there were two things we said, one is that the working capital loan has increased, and two, our AAA and AA exposures have increased. So there cannot be distressed loans to AAA names. So it is good quality working capital is being pulled. In the system as a whole, yes because state owned banks are not participating to the extent they used to participate, that is very clear. But you see private sector loans, even very large lenders, they are showing an improvement. So it is not any form of stop gap arrangements, working capital is a very intrinsic part of the cash flow of the company and if you look at these two together, improvement in the rating profile and growth in the working capital portfolio. Manisha Porwal: No, because if these are corporate, can these corporates be converted into CA balances at some point of time, are these new IndusInd's relationship, I just wanted to understand is there something to do where we can improve our CA portion also with this going forward, because these are PSU customers now coming to you, so any such? They are not only PSUs, there are also private sector companies. And those who borrow, hardly keep money in current accounts, I mean they sweep it at the end of the day in to the cash credit or over draft account and there is nothing left. So the whole cash management business has sort of shrunk. So, CA is now coming really out of what I have always said is involuntary deposits where you cannot help it, that is the only way you keep money. So, if you are doing a settlement account, if you are clearing and settlement banker, I think that is one of the areas. The other area is the IPO money, IPO money has to lie around in a bank for a week or ten days whatever. But these working capital linkages to the CA is very untenable, it does not apply that way, those who borrow hardly keep free money, unless they cannot help it. Page 12 of 19

13 Manisha Porwal: Sir, second question is with regards to the growth still going very good for the bank, would there be any kind of, there was news also, you have denied that but then is there anything inorganic requirement that a bank like will have to do keep the engine running faster, in the sense is this a right time to get into an inorganic deal, or some thoughts over there? So, there is no compelling reason for us to run faster, I mean we are very happy at a growth rate of 25%, and good times and bad times we have grown around 25%. So we are not going to do inorganic growth because there is a compulsion to grow, we feel that with our size of book growing in that 25%, 27% or may be 30% range is a very, very sustainable sort of a range. So, the compulsion of inorganic growth is not caused by the compulsion of loan growth, so it is not because we want to do loan growth. Inorganic play may happen as a consequence of the fact that we find something which is very accretive to us in terms of valuations, in terms of ROA, in terms of ROE, then only I think it really makes sense. Is it accretive to you on day one, that is one of the things we have always said, we will be driven by this consideration. Does it give you any form of specialization or domain leadership, that will be other consideration. So, not asset growth per say, so we are not compelled to grow at 40%, we believe that with our business model and the fee construct that we have, the fact that we do not use so much capital to generate that fee, the distribution play that we are having, I think that is holding up pretty nicely. So, there is no compelling reason for us to start looking for acquisitions. Having said that, we do have the acquisition currency, the market capitalization has improved smartly, we do have acquisition currency. So there is always an assessment going on whether it is portfolio or whether it is NBFC or bank or whatever, I think it is always on to this thing. But those two filters have to be met, has to be accretive to us on day one and should bring us some domain leadership and specialization. Thank you. We have the next question from the line of Roshan Chutke from ICICI Prudential Asset Management. Please go ahead. Firstly, what is our outlook on new CV and used CV business from a GST perspective? S. V. Parthasarathy: See, market should grow after the GST implementation and the timeframe or whatever we are looking at is about couple of months. I think the market will be fairly subdued for July and August, more on compliance and also monsoon related issues. Come September, I think we have reasons to believe that the market should grow. And then GST, on smaller clients also is net positive for the transport industry. Therefore, it should generate certain amount of benefit to them. Today most of the customers do not understand it therefore it is only a matter of time where they get to understand and then start getting benefits through the GST regime. And used vehicles is directly linked to new vehicles, almost should there be a new vehicle which is bought it is also used vehicle which is transacted. Therefore, once the market picks up for the new vehicles the used vehicles will also go in tandem. But is there any difference in the growth that you expect between the two segments, used and new? Page 13 of 19

14 S. V. Parthasarathy: I do not think, historically used and new more or less goes in the same trend, but used vehicle grows about with a quarters lag. But with efficiency gains because of GST don t you think the new CV vehicles should see a slightly muted growth? S. V. Parthasarathy: New CV should have a muted growth. Muted growth because of efficiency gains? Efficiency gains because the vehicles are now moving freely therefore the days of utilization is more S. V. Parthasarathy: Actually, these have been discussed in the past also, should the GST bring in economic growth the efficiency factors and things like that, economic growth will outnumber the efficiency gains. Okay. And any comments on the muted treasury income books sir, this time? We do have gains, it is really a question when you decide to book it. But I think having said that it was still pretty attractive. And we also saw a reduction in exposure in the LRD book, could you please comment on that? LRD book, essentially in LRD very competitive pricing is going on. So, some parts of LRD we are seeing I think irrational pricing also happening and so we do not hesitate in not participating to the same extent as we used to in the LRD book because we are not going to do business at 8%. And ARC sale of Rs. 57 crores this quarter, what was the proportion, if you can just talk a little bit about the deal data? Actually, I think that was the normal CV portfolio that we sell every quarter, that is usually around Rs. 30 crores - Rs. 35 crores, and there are some small accounts, etc, so there are no biggies. And what is the outstanding SR book for us? It is about Rs. 357 crores. Okay. And just one last question, how do we do our accounting on the MFI book side? What accounting are you referring to? As in for the managed loan book that we have, managed portfolio, so BC takes a first hit to the extent of 15% and then the incremental hit comes to us, right? Page 14 of 19

15 Yes, we only take the NPAs that relate to our risk profile, not that which is paid by or to be paid by the partner. So the Rs. 31 crores is the amount that we are responsible for. That is right, Rs. 31 crores is what you are responsible for and it comes with a lag. I mean, there is an incremental hit before Rs. 31 crores that BC had taken and the recovery also will first hit us, if there is a recovery from this portfolio we will be the first beneficiaries of that recovery, is that right? On an individual loan basis. So we know exactly which Rs. 31 crores we have NPLs for. Sir, this could be the November, December disbursements right or are they defaults, I mean the first time overdue happened in the month of November and December and then incrementally the first lot of delinquencies were absorbed by the BC and now in April and May we are absorbing it, right? Yes, that is correct. But if there is a recovery it will first hit the December dues, but that will be absorbed by us? Kalpathi Sridhar: No, the recoveries will be specific accounts, so whichever accounts get recovered will be booked. Suhail Chander: The same account does not become an NPA in two books, right. It is an account by account accounting, so it depends on which account the recovery took place in. Thank you. We have the next question from the line of Rahul Jain from Goldman Sachs. Please go ahead. Rahul Jain: Sorry, just repeating this question again on current accounts and savings accounts. So, savings account the growth has been impressive at about 16% quarter-on-quarter and the trajectory versus the last few quarters has also been pretty good. I guess Sumant mentioned that part of the reason is also some of the government business that we are doing. So, if I were to just kind of remove that and just look at the individual lead saving balance improvement, what would that be? Just to get some get idea may be qualitatively it would be better. Sumant Kathpalia: If you look as the previous quarters we were always going at about Rs. 2,500 crores to Rs. 3,000 crores. This quarter we have grown at Rs. 4,000 crores, that is the impact of government business. Rahul Jain: Okay, so about Rs. 1,000 crores would be Okay, got it. And second question is on current account balances, so if I look at last few quarters the absolute balance is kind of stable while we are gaining market share across different corporate businesses. So when do we see inflection in current account balances, if you feel that there could be some market share gain opportunity out there? Page 15 of 19

16 Sumant Kathpalia: So, there are two components which affect the current account business, one is the retail business where you get the trade account, that is going very nicely and it will continue to grow as the branch expands and maturity happens. So our CA per branch now has moved up to about in the retail piece to about Rs. 7 crores per branch as of today, so that will go to about Rs. 9 crores and I think that is the market benchmark of Rs. 9 crores to Rs. 10 crores in the retail piece. Then there is another piece which comes in which is the float money which comes and moves out which is Escrows, IPOs and all, that is market dependent and will continue to get the balance moving up in that balance sheet. So, I think that also is a stable money and it continues to come, so that is about Rs. 5,000 crores to Rs. 6,000 crores. Then there is a corporate balance sheet which comes on top of it which are made of big corporate floats and cash management deals which comes up, that is also another Rs. 5,000 crores to Rs. 6,000 crores which will come up. So, that is how you keep on growing this balance sheet, but the retail balance sheet needs to also start growing now and it started growing with the branch network happening. So there are three components in this current account. Rahul Jain: So of Rs. 20,000 crores is it safe to assume half of it would be retail balances which you talked about? Sumant Kathpalia: Yes, half of it is retail, about 25% to 30% will be IPO money and the balance is corporate. Rahul Jain: Just one data point, can we get the absolute number of employees as of this quarter as well as last year? Zubin Mody: So, I think this quarter we have ended the number of employees at 25,413 and the quarter before that we were at 25,612. Rahul Jain: Fourth quarter is it, 25600? Zubin Mody: Yes, fourth quarter. Rahul Jain: And as in last year first quarter? Zubin Mody: There was a growth of about 22,500 people. Rahul Jain: And so on the MCLR book, I believe most of our corporate book would now be on MCLR, would that be a fair assumption? Suhail Chander Yes, that s right. Rahul Jain: So, of the total book of about 40% - 45% would be MCLR now, total loan book? Suhail Chander: Yes, that is true, thereabouts I mean. Page 16 of 19

17 Thank you. We have the next question from the line of MB Mahesh from Kotak Securities. Please go ahead. Just a few questions to the management, first to Mr. Parthasarathy. Just trying to understand if the disbursement number was flattish on YoY, how would you explain kind of loan book growth of 17% on the consumer finance, especially vehicle finance portfolio? S. V. Parthasarathy: That is with reference from last June to this June, it is not last quarter to this quarter. Yes, so even if you look at on a YoY basis the overall disbursement as reported in the fourth quarter was roughly about 10%, so if you look at the last quarter numbers the loan portfolio grew about 20%. S. V. Parthasarathy: Yes, we are comparing the advances and book size, as of June 2016 and June 2017 it grew by 17%. The disbursement, is it. S. V. Parthasarathy: No, the loan portfolio. It appears as if you are seeing a flattish number on a quarterly basis and on a YoY basis it has just been S. V. Parthasarathy: No, it was not flattish throughout the last year, it was flattish only for first quarter. Therefore the last few quarters have been fairly good, as a result the book which was in June vis-à-vis the present June is about 17% more. There has been no increase in the average ticket size which is of material amount is it, it has been more or less flattish on that front? S. V. Parthasarathy: See, on the disbursement between the last quarter and this quarter there has been a small dip between March quarter and this quarter. The book more or less is the same and the ticket size is also more or less the same. And there will be no major repayments that you are seeing, no major changes? S. V. Parthasarathy: No. Okay. The second question is to Mr. Sumant Kathpalia. On the deposit side while you are seeing a significant improvement on CASA, the share of top 20 deposits continues to remain fairly high. If you could just kind of explain what is happening on that front and also if you could explain what is the cost of savings that we have today? Page 17 of 19

18 Sumant Kathpalia: Okay. The cost of savings is less than 6%, we have always said that and we now are below that hurdle rate. So, there is no cause of concern for the cost of savings and on the top 20 deposits. Top 20 depositors that we have explained from CASA, there fixed deposits as well so your PSU gives you Rs. 1,000 crores that comes in top 20, but it could happen that some government accounts where there is a savings bank balance of Rs. 500 crores or Rs. 700 crores could also come in the top 20. But mostly these are fixed deposits and the ticket sizes there are pretty large, I mean top 20 depositors is an issue which has been talked so much and the understanding has to be that top 20 depositor size I can reduce them any day, but what happens is that if a ticket size, let's say what an ONGC will give me or a HPCL will give me will not be less than Rs. 1,000 crores. So the large PSUs have these large ticket sizes. Now, we keep changing them, the thing to be noted here is that the top 20 depositors last quarter will be different from top 20 depositors this quarter, it is a very dynamic sort of a situation. But we feel that this top 20, importance of this is really overplayed because you keep churning, you have got new depositors every quarter and it does not matter, the ticket sizes are large, that is about it. Now, because there is some degree of concern around this we have said let's not take anybody beyond Rs. 500 crores or Rs. 700 crores or whatever, so we have put a cap now, now we are saying we will not take anybody beyond say Rs. 700 crores or Rs. 800 crores, so that will automatically take away this whole issue of top 20 depositors. Okay, no because the overall top 20 deposits was about Rs. 31,000 crores. Yes, but that includes CDs. And just two questions on the corporate side, these unsecured loans which you report in the business, in the corporate portfolio as a percentage of Rs. 30,000 crores that you report or is it on the overall non-consumer finance book that you have? Suhail Chander: You are talking about our balance sheet or you are talking about the presentation or you are talking about the rating profile? If you look at the annual report it shows an unsecured loan portfolio of around Rs. 14,000 crores and Rs. 2,500 crores pertains to your exposure which you have in your retail book. If I look at the balance portfolio of roughly Rs. 11,000 crores what should I compare that with? You are looking at the annual report numbers or the investor presentation? The annual report and then I am comparing with what you report in the presentation as well. Presentation what we report is the corporate book. And that will correspond to Rs. 33,000 crores, right? Suhail Chander: Corporate book is almost Rs. 60,000 crores. Page 18 of 19