Operator: Ladies and gentlemen, good day and welcome to the IDFC First Bank's Q2 FY 2027 earnings 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. Should you need assistance during this conference, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference to Mr. Saptarshi Bapari, Head, Investor Relations and ESG. Thank you, and over to you, Mr. Bapari.
Saptarshi Bapari: Thanks, Owen. Thanks, everyone, for joining the call. We will have the presentation first from Sudhanshu, who is our CFO, and then we will have some brief comments from Vaidya, and then we can open the house for the Q&A. I will now hand over to Sudhanshu for his opening remarks.
Sudhanshu Jain: Yeah. Thank you, Saptarshi. First of all, good evening, everyone. It is a pleasure speaking to all of you. In terms of sequencing, I will maybe first cover a few business numbers and then later on take on the profitability part. Business momentum continues to be quite strong. During the quarter, we saw a healthy growth in both advances and deposits. However, the key development during the quarter was the FCNR mobilization under the RBI scheme. Let me start with giving some numbers first on that front. During the quarter, the bank mobilized INR 34,390 crores, which is about USD 3.6 billion of FCNR deposits under this scheme. This constituted about 10% of the overall deposit that we have at 30 September 2026.
Sudhanshu Jain: Against this, we also extended leverage of USD 2.6 billion, which is in Indian rupees about INR 25,000 crores to NRI customers. If we see on the basis of these loans, then this constituted about 7% of the overall loan book at 30 September 2026. At mobilization of USD 3.6 billion, the bank garnered about 2.7% of the overall mobilization the country received under this scheme. This is about 1% higher than our NRI deposit share, which was this pre-FCNR announcement. As part of the exercise, we also obtained our debut international rating from S&P and KRH. Happy to report that we got an investment-grade rating for the bank on this front. On the back of the ratings, we also did a debut bond issuance. We almost raised close to USD 1 billion of bonds.
Sudhanshu Jain: The actual number was USD 950 million. These were raised from the offshore IBU branch from marquee international investors. Since this was a specific opportunity during the current quarter, wherever relevant, I will try to give out numbers with and without FCNR to keep underlying trends comparable with the previous quarters. Moving on to loans, that registered a strong growth of 30.1% on a YOY basis and 13.6% on a QOQ basis, including FCNR. That book has now reached about INR 3.47 lakh crores. If we exclude the FCNR backed loans, the loan assets on a gross of IBPC basis grew by 22.2% on a YOY basis and 5.7% on a QOQ basis, and was about INR 3.29 lakh crores.
Sudhanshu Jain: The incremental growth on the loan side during the quarter was primarily driven by mortgage, vehicle loans, consumer loans, and a slightly faster growth in business banking and wholesale loans, which individually grew by more than 30% on a YOY basis. The MFI book saw a marginal increase during the quarter. That book now stands at INR 6,825 crores and about 2% of the overall funded assets. 97% of the book is now covered under the CGFMU scheme. With respect to credit cards, happy to report that the cards in force crossed 5 billion during the quarter. The book on an outstanding basis stood at INR 9,875 crores, and the credit card spends grew at a healthy pace about 15% on a YOY basis.
Sudhanshu Jain: We have given more details around the asset growth on slide number 31 in the investor presentation. Moving on to asset quality. There also, we saw an improving trajectory across GNPA, net NPA, SMA across product classes. We give a fair degree of disclosure in the investor presentation around these numbers. On a headline basis, the gross NPA ratio of the bank improved by about 19 basis points from 1.51% reported in Q1 to 1.32% in Q2, and by 9 bps if we exclude FCNR leverage from the denominator. Similarly, on net NPA, we saw an improvement of 4 basis points to 0.40%. If we exclude the FCNR-backed loans, the net NPA ratio would be 0.43% as against 0.44% reported in the previous quarter.
Sudhanshu Jain: Further drill down, if we look for now the retail, agri, and the MSME book, the GNPA ratio here improved from 1.4% to 1.24% and to 1.36% if we exclude, again, FCNR-backed loans from the equation. Moving on, the collection efficiency for the current bucket for retail continues to hold well. It has been now stable around 99.5% for many quarters. The SMA-1 and the SMA-2 book for retail was at 0.72% in Q2 from 0.77%, which we saw in the previous quarter. SMA 1 and 2 for microfinance further normalized to 0.6% from 0.7 bps in the previous quarter. At an overall bank level, SMA 1 and 2 reduced by four basis points to 0.58%.
Sudhanshu Jain: The net slippage ratio for the quarter was stable at about 1.6%. Moving on to deposits. Total deposits, which is customer deposits plus certificate of deposits, that reached at INR 3.48 lakh crores. The growth was about 25.9% on a YOY basis and 11.8% on a QOQ basis. If I just talk of customer deposits, that has crossed INR 3.4 lakh crores. It grew by 26.9% on a YOY basis and 14% on a QOQ basis. This also included FCNR, and if we exclude FCNR deposits, customer deposits grew by 14.1% on a YOY basis. But here is where we slightly calibrated the growth because we got strong FCNR inflows during the current quarter.
Sudhanshu Jain: This was more a conscious strategy which we followed during the course of the quarter. As a result, we did reduce the bulk deposit ratio from 17.1% to 13.9% in the current quarter, and also repaid certain certificate of deposits as it came up for maturity. If I talk of CASA deposits, that grew to now INR 1.66 lakh crores. The growth on a YOY basis was 19.8%, while the CASA ratio for the quarter came to 47.6%. This was lower because of the FCNR deposit mobilization in the denominator. The average CASA ratio still, I would say, was healthy at about 48.4%. If I move on to profitability, happy to report that the profit has remained above INR 1,000 crores for the second consecutive quarter. And the profit for the quarter stands at INR 1,045 crores, which is an improvement of about 196.5% on a YOY basis.
Sudhanshu Jain: While it was marginally down, as we had reported higher treasury income in the previous quarter. We have also given in the presentation our numbers on a core PAT basis. When I mean core PAT, that excludes trading gains for all the periods and also certain one-off items which we had called out in the previous quarters, like the impact of the fraud incident, some income tax refunds and interest which had come in the previous quarter. The core profit, and these details are given in slide 5 of the presentation. Again, happy to report that on a core basis, the profit has crossed INR 1,000 crores, and this was about INR 897 crores in the previous quarter. Some more drill down. All operating metrics continue to demonstrate a healthy growth trajectory. For example, NII grew by 21% on a YOY basis and 3.5% on a QOQ basis.
Sudhanshu Jain: NII growth was in fact 4.5% sequentially, if we adjust for interest on income tax refund, which we had called out for Q1 2027. The NII growth in the current quarter was also broadly in line with 21.1% YOY increase reported in the previous quarter. The net interest margin for the quarter was 5.58% as compared to 5.90% in the previous quarter, excluding the income tax refund which we had reported. I will talk about why was the moderation in NIM during the current quarter. The NIMs moderated because of, I would say, three or four factors. One was the FCNR, which I would say was the primary reason. Since this came into the denominator, we had an impact of about 16 basis points on this FCNR-backed lending. Second, because we have mobilized strong, I would say FCNR deposit flows.
Sudhanshu Jain: We in the interim also parked such liquidity in low-yielding treasury instruments and nostro balances that had an impact on NIM of 7 basis points. There were also impacts because of change in asset mix, because we have grown wholesale banking and business banking at a faster pace that had an impact of 5 basis points. Last is the day count convention impact because this quarter had 92 days vis-à-vis 91 days in the previous quarter. To summarize, 16 bps is because of FCNR lending, 7 bps is because of excess liquidity, 4 bps is because of day count convention, and 5 bps is because of other asset mix changes. The one point which I want to sort of also put across is that the margin impact on FCNR should not be viewed in isolation.
Sudhanshu Jain: As because FCNR also comes with a denominator, it correspondingly also reduces operating expenses and credit cost relative to assets. Hence, we have estimated that the overall impact on the ROA could be very minimal, as low as 2 basis points. Pursuant to the FCNR scheme, we have also estimated an additional benefit of 1%, including statutory benefits, which could accrue to us if we compare this with a normal deposit which we would have raised otherwise, if these FCNR flows were not there. This FCNR deposit also would not consume capital. Hence, whatever we earn, which I mentioned of 1%, that increases my NII, that increases my profitability, that increases my ROE, EPS and all of these numbers.
Sudhanshu Jain: Just in terms of how do we see NIMs going forward, we see this recovering to approximately 5.8% by Q4, as some of this excess liquidity would have been definitely put to use by then. Also the expected repo rate increase, which we also are factoring for the course of the year. Moving on to fee and other income. We saw a healthy growth that increased by about 24.5% on a YOY basis compared to 22.9% in Q1. We have given details of the fee composition in the investor presentation. As a result of the increase in the NII and the fee, the total income excluding trading gains for Q2 on a YOY basis was a growth of 21.9% versus 21.5% reported in Q1.
Sudhanshu Jain: During the quarter, the treasury gains were modest at about INR 11 crores as compared to INR 181 crores reported for Q1, which was largely due to the hardening of the G-Sec yields during the quarter. Moving on, the OpEx for the quarter was at INR 5,942 crores. This grew by 16% on a YOY basis and by 3% on a sequential basis. The increase of 3% corresponds to an increase in core income growth of about 4.6% on a sequential basis.
Sudhanshu Jain: As a result, the cost-to-income ratio, excluding trading gains, improved by 57 basis points on a sequential basis to 70.2% and was in fact 358 bps lower on a YOY basis. Operating jaw, which is the growth between the total income and the OpEx, that continues to improve. In fact, for the quarter, it stood at 592 basis points, and for H1, it stands at 553 basis points.
Sudhanshu Jain: If you remember, we had guided for an upwards of 500 basis points, which we would endeavor to maintain, and we are broadly on track on that front. As a result, the incremental cost-to-income ratio was about 55% for H1 and that has also resulted in some of these opening of the jaws, which I spoke of slightly earlier. If I talk of operating profit of the quarter, that saw a healthy increase of 38.5% on a YOY basis and 6.6% on a sequential basis.
Sudhanshu Jain: So for three quarters in a row now, we are getting an operating profit increase of upwards of 30%. Moving on to provisions, that reduced by 21.7% from INR 1,452 crores to INR 1,137 crores on a YOY basis. On a Q-on-Q basis, if we see, this has broadly remained at the same level as we reported about INR 1,144 crores in the last quarter.
Sudhanshu Jain: However, to point to note also here is that the provision for the current quarter also includes standard asset provision of about INR 100 crores on the FCNR-backed loans. If we exclude this, then the provisions for the quarter declined by 9.3% on a Q-on-Q basis. The bank continues to hold the contingency provision of INR 515 crores created last quarter. This is on a prudent basis considering the evolving macroeconomic and the geopolitical uncertainties. In terms of credit cost translation, the credit cost for the quarter further improved to 1.38% as compared to 1.53% for the previous quarter. If we exclude the FCNR-backed loans and the corresponding provision, since these are backed by FD, the credit cost for the quarter would have been further lower to 1.30% on average funded assets.
Sudhanshu Jain: On an average total assets, the credit cost, which we have reported, translates to a credit cost of 1.01%. Moving on to last few parts of my opening remarks. We all know that there has been a consultation paper which has been issued by IRDAI. While this is still, as I said, in a consultation stage, there could be a draft circular which could come in, followed by final regulations, and this is largely expected to come in from next year. But we have estimated the impact as is in the current form, that if this has to come, this will definitely reduce our fee income. But we feel that to a large extent, the impact can be offset by the expected repo increase and the FCNR benefit, which I have talked earlier.
Sudhanshu Jain: We will also continue to work on product mix changes and closely monitor the developments in this regard. Moving on to capital and liquidity. The capital adequacy ratio stood at 14.66% at September, with CET1 ratio of 13.01%. On the LCR, the ratio was at 125% on an average for the quarter, and with September being at higher at 139% because of the FCNR money which came in towards the fag end of August. As you would have noted, normally we have been maintaining LCR around the 115% mark. Hence, we would continue to deploy some of this excess liquidity. We also broadly feel that this will get largely consumed in a month or so. With this, I will hand over to Vaidya for his opening remarks.
V. Vaidya: Good evening, everybody. Really, really a pleasure to talk to all of you. First of all, I am really happy to share with everyone who have been observing us and tracking us for a while, that second quarter in a row, our bank posts a profit after tax of INR 1,000 crores. It is a landmark event for us considering where we started. It feels good. It encourages us to keep going. It appears to us that a reasonable look is that this should continue in the months to come as well, for the quarters to come.
V. Vaidya: Now, if you see the core profitability, the core profitability meaning that if you take off what can be considered a one-time income, like a treasury trading income, et cetera. Last quarter, the bank had posted a PAT of INR 897 crores, which we had rounded off at INR 900 crores.
V. Vaidya: We had called it out last time when we posted INR 1,070 odd. We had said that a portion of that is treasury income, like core is INR 900. The quarter before that, the core was like INR 746. The quarter before that was INR 430.
V. Vaidya: Quarter before that is INR 300. So you can see the trajectory. So I can safely say that the trajectory is fairly established by now. This quarter, on the core, without any adjustments, it is INR 1,036 crores. So we feel good about that. I always said that we will be increasing distance of 1% ROA. It looks like we will get there. In fact, this quarter also, we had ROA of about 0.93%. Sudhanshu mentioned the FCNR in the denominator effect, but for that probably it has been a bit higher than that. So broadly, in other words, the trajectory of profitability is looking good.
V. Vaidya: I also want to say that the trajectory of profit maybe is today, but actually it is because of many investments the bank has been making for many years. If you recall, you may not recall, it has been a while back, but in the year, that was the merger year, we were posting something about INR 700 to 800 crores, INR 750 crores as the core PPoP. Now PPoP is now touching something like INR 10,000 crores or annualized. So I think the trajectory is looking good and now you can take a sense where it might look next two, three, four years from there. In today's numbers, I will try to give you a picture of that. So the key thing to note is what is happening to the underlying economics.
V. Vaidya: This is very important to understand because if you see the H1 2027 actuals, the interest income is 10.7%, the interest expense is 5.0%, the NII is 5.7%, as you know. Now fee income is 2.1%. These are all actuals. So the total income for H1 2027 is 7.8%. Now, the cost-income ratio is currently 70.4% on stock. Now, if you subtract from that the credit cost, the ROA comes to about 0.99 for the half year. But for a minute on your spreadsheet, go and plug the cost-income ratio at 55%. Why 55? I will explain to you in a moment. So put it 55% and you see what it does to the OpEx. OpEx comes down to 4.3%, your PPoP becomes 3.5%, the provision is still 1.1, which is actuals, the PBT becomes 2.4, and ROA becomes 1.8 to 1.84.
V. Vaidya: The point is that on an incremental basis, the bank is now making return on assets of about 1.8% plus. On the stock basis, 0.97 or 0.93 that I mentioned to you. So what is the point? Why do we assume that 54, 55, and why you should assume so? Now, if you look at the incremental cost-income ratio, what you do is that you go to H1 2026. Our operating expenses was INR 10,000 crores and our operating expenses in H1 of 2027 is INR 11,000. You get the drift.
V. Vaidya: The incremental OpEx between H1 2027, H1 2026 is INR 1,627 crores and the incremental income is INR 2,900 crores. So on an incremental basis, the bank is posting 55% cost-income ratio. So eventually the incremental becomes the base as long as you keep repeating more of the same. Now you might ask how confident do we feel about repeating this?
V. Vaidya: Now look, for three quarters in a row, we have been pointing out that our OpEx growth is 500 basis points lesser than the income growth. It is three quarters in a row, so it has some predictability now and we feel we can reasonably give or take stay in the zone for the next few quarters as well. So we feel all of this year, i.e., in 2027, we can operate the bank at 55% cost-income ratio. So that explains to you why I requested you to plug that 55 into the stack. The moment you plug it into stack, you do not need to do any adjustment and you do not have to go by our projections of what cost-income ratio will be in the future. You do not need to go there.
V. Vaidya: You just need to take it what it is and plug it there, you get a sense of where it might get to. So we are actually happy to share with you that eventually our bank is not going to stop at one. This will increase because the incremental is what it is. Already described to you.
V. Vaidya: The second thing is that the loan growth. Now on the bank front is that the loan growth continues strong at least 20%, is clearly in a visibility. We have reported 30% this quarter, of course. Why? That is because FCNR(B) about INR 25,000 crores of FCNR(B) back loans are also showing up here. So though the FCNR(B) was actually INR 35, 34,000 crores, this 24 I am adding back because that is the amount the bank had raised in IBU and had lent to customers, which customers brought back as deposit to the bank.
V. Vaidya: So if you look at it like that, it shows 30, but actually think of it more like 22. On the deposit front, again, it is showing as 25.9, but really read it more like a capacity to raise to 20. Our net FCNR(B) is probably lesser than that, but that is because we quite consciously reduced it because there was too much liquidity.
V. Vaidya: But think of the core capacity of the deposit side to keep growing at 21%, 22%. Think of the loan growth growing at 20%. So 20%, 20% both sides. So you know that the income will keep flowing in strongly. For a 20% growth, if our OpEx growth is 15%, then you know 500 basis points I told you, and I told you how the cost-income ratio incremental comes, and then you plug in the ROA, rest of the story I told you.
V. Vaidya: Now, the next thing is that when you see this pay off, then straight away, when we see the 500 basis points increase, sorry, difference between the OpEx growth and income growth, you find that naturally operating profit then grows not in proportion of the book, but higher. So operating profit is now growing at 38.5%.
V. Vaidya: So that is how the stack is playing out. The good news is that after operating profit comes credit cost. On the credit cost, we have now come down to about 1.3% or so of the loans or about 1% of assets. Now, of course, it is all-time low for us. We are very happy about that. And we are very cautious about it because Q3, Q4, El Nino is yet to, full effect is yet to show. We will watch this very carefully.
V. Vaidya: But as far as our eyes can see, looks like this is reasonably achievable in the next two quarters as well. Therefore, if you take this at one, then the rest of the track lays itself out, how the path tree will play out. Now, next I would like to talk about FCNR. Now, the really good news that all of us should take note is that for a bank which is just about seven years ago, we started in full ownership setting up a deposit franchise.
V. Vaidya: If you remember, the deposit franchise for retail is just INR 10,000 crores, so it is just at the start. And let me say from the date we got a license is 10 years, let us take that date. But for a bank that is 10 years from a deposit license, just think that we could raise INR 34,400 crores, that is USD 3.6 billion of FCNR money.
V. Vaidya: We have no overseas branch, we have no subsidiary, we have no rep office outside India. Just customer trust and digital capabilities. It should give you a clue about how strong the bank digital capabilities have become if this is the kind of money the bank can raise in that window. Now, the other big benefit of FCNR is that they are three to five-year deposits.
V. Vaidya: So it has given the bank a lot of structural liquidity, and particularly now that interest rates have suddenly risen in the last 15, 20 days, we are now almost beginning to be overjoyed that we raised this kind of money for such long tenure at a low cost. The other thing is that there is some understanding in the market, let me say, understanding or misunderstanding, let me say, about what this FCNR does to NIM.
V. Vaidya: I have seen people tend to jump to conclusions that the FCNR has said whenever people have raised FCNR, through leverage. That is through leverage meaning having raised money through IBU and giving it to customers that come back to us as deposits. Particularly, there is a double counting on the, I mean, not double counting, let me say the balance sheet expands by that amount. In our case, that amount is INR 24,885 crores.
V. Vaidya: Since I spoke too fast, let me just slow down and explain that to you. In the IBU that we have, we have raised this amount of money as borrowings, which we have further given ahead as loans to customers, which came to us as deposits. Now, because of this, the asset side expands by that amount. Now, when the assets expands, then the NIM drops to that extent.
V. Vaidya: In our case, that impact is 16 basis points. Now, oftentimes, many are looking at the 16 basis points in isolation and then wondering that, "Oh, my God, your NIM has dropped, so is your profit going to reduce?" But that is not true. I want to clarify. While the NIM percentage dips by the 16 basis points because of this impact, when you go back to the ROA tree, because eventually it is a ROA tree. When you go back to return on assets tree, the OpEx is also now going to be divided by the expanded assets, which is the new number, which is add INR 25,000 crores to it. So there you get the benefit in operating expenses. Similarly, when you take a credit cost, again, that will get divided by a larger expanded base.
V. Vaidya: So when you come down and trace this down to the ROA tree, in our case, it is estimated as that is only 2 basis points. So I request analysts to not immediately read the 16 basis points as a red flag because please go down and see what it does to the OpEx and what it does to the credit cost also. You will see at ROA level, there is not much impact. So this is one important clarification I wanted to bring to you.
V. Vaidya: Now, the last bit I would say, like to talk about is what this FCNR has done to our cost of funds. Actually before I come there, let me just talk about the IRDAI and I will bring that back in context. So all of you know this, our IRDAI has come out with the insurance paper on commissions to be paid, et cetera.
V. Vaidya: Now, the paper is what it is. Let us assume it comes in its current form. So we have to be prepared for it, and we have to know what the impact will be. Our own sense is at our bank is that there are three countervailing factors which will, sorry, one second. Some disturbance at my end. Which will also compensate for that. One is that the FCNR deposits that we have raised are giving us about 1% benefit to the overall cost of funds, what we would cost of deposits, what it would have cost us had we raised it domestically. Let me read out the broad maths to you.
V. Vaidya: Basically, the impact, one is we have raised it at a rate, the rate differential between the rate we borrowed it in the IBU and what we lend to customers, there is a small margin out there, let me call it 40 or 50 basis points. Now, when you add that back to the eventual price we paid to customers, which is 6.75, and 6.75 becomes 6.85, I think, because of the quarterly impact.
Sudhanshu Jain: Because it is annualized.
V. Vaidya: Because annualized. Because if we pay customer 6.75, actually 6.85 because of the annualization of interest. Let me take that number of 6.85. Just wait, Philip, let us see. No, I do not think we can see the return of cost of funds. The numbers are with me. The annualized cost of FCNR deposit is 6.86%. We add some hedging cost to it, and then I told you that there is some positive spread in the IBU because between the rates that we borrowed and the rate we gave it to customers, there is about 40 basis points positive margin there. That gives us about a 20 to 30 basis points positive spread there. Then there is also the fact that there is no PSL requirement on the deployment of FCNR funds.
V. Vaidya: All in all, our own estimate of that cost of funds money is basically about 6.8% or so, or 6.85. Similarly, when we have to go had this money had to be raised in India at this point of time, and you know the rates currently, our own sense is it will cost us, including the CRR SLR cost, maybe the annualized cost would be, if a customer rate is 7.25, you add some annualization to 7.45 to 7.50, and then you add SLR CRR cost to it.
V. Vaidya: That is more like about 7.8 or so. So blend between the 680 to 780, there is about 100 basis points benefit in having raised this money at the right juncture. That on the INR 35,000 crores, we say, material amount that is going to come closing is not in our plan at all.
V. Vaidya: The second thing is about the repo rate itself. It just so happens that 25 basis points repo rate went up, so that will increase the yield on the books, on the floating rate book. Deposit doesn't rise immediately, as you know, it takes a year for the fixed deposits to get repriced as and when they mature. There is a gap in between or there is arbitrage in between. I can't call it arbitrage, but there's a time period in between where the benefit comes to us. Then we are also assuming that for the rest of this year, i.e., between now to March of this year, we are expecting at least a 25 basis points more increase. So that makes it 50. Then we are expecting something to come up next year as well, maybe 25.
V. Vaidya: That's at least the house view at this point of time. If numbers are different, then output outcome will be different. These are our current house views, about 50 basis points. That is 25 already done, 25 yet to come, and maybe 25 more next year. So that also is giving us a certain amount of income. Finally, this money, if we have to raise this INR 35,000 crores in India, in the domestic market, that also have a cost of raising, which is all not there now. When we add these things up, we broadly feel give or take, we should be in the zone that we should be able to manage. It'll be some give or take, the impact should be broadly managed. It should be in the zone.
V. Vaidya: We therefore feel that give or take, that should be managed, and other than that, let me just share with you that the book is building very well. We expect this trajectory to be stable at least or grow. We are of course very watchful of this El Nino and the impact it will cause to us. There are a couple of states that have declared drought, et cetera. We have to see how much portfolio we have to manage that. But as eyes can see right now, it doesn't look like there's an immediate impact in Q3 or Q4, and then we'll take it as it comes. That's all I have to share with you. Thanks for staying with us through this call.
Saptarshi Bapari: Then we can open the floor for Q&A.
Operator: Certainly, sir. Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to please use handsets while asking a question. Ladies and gentlemen, we will now wait for a moment while the question queue assembles. Our first question comes from the line of Akshay Jain with Autonomous. Please go ahead.
Akshay Jain: Thank you, sir. Thank you for the opportunity, and thank you for the detailed margin bridge as well as the ROA trajectory. Just one clarification on this. I do not see an impact of funding cost moderation in both the margin bridge as well as the ROA expansion which we discussed.
Akshay Jain: Since we have raised strong FCNR funds, should it not improve our ability to reduce funding cost differences vis-a-vis larger peers? That is my question number one. Second question is more of a clarification on the NIM bridge. How has the 34,000 odd crores which you raised in FCNR been deployed in loans, liquidity as well as repayment of bulk liabilities? What is the spread you are assuming between liquidity as well as loans to get this 7 basis points of liquidity drag which you have been quantifying?
Sudhanshu Jain: Yeah. Maybe Akshay, I will answer that.
V. Vaidya: Which I will follow that up. Yes. Hello?
Sudhanshu Jain: Akshay, maybe I will answer that question. As I said, most of this money came towards fag end, while we were able to reduce some bulk deposits of about INR 5,000 crores in September. Also, we did not roll over certain certificate of deposits again, about INR 5,000 crores in September. But there was still an excess liquidity which was parked in, I would say, low-yielding investments and nostro balances. As a result, the September LCR was about at 139%. As we speak, in October, the further usage of this excess liquidity has happened. As I said, we should come to the normalized levels of LCR of about 115% to 116% in a month or so.
Sudhanshu Jain: Which means that the drag which we had in September because of parking it in treasury instruments, that is largely sort of taken care, and hence we have said that in Q4, because this certainly gets solved in Q3. The 7 bps drag sort of vanishes from the 5.58% number which we have reported for at Q2, because that includes that drag.
Akshay Jain: Understood.
Sudhanshu Jain: Similarly, on the deposit side, where they mentioned that there is an overall benefit of 1% including PSL benefits, that will come over a period of time. But since these were deposits which were raised for three to five years, definitely this will flow into the P&L equation, certainly starting from next year, we could see the full impact.
Akshay Jain: Sir, my question was more on the structural cost of funding side. Since you are becoming big, your liability franchise is improving as well as giving you a strong performance on FCNR side. Should it not improve your ability to reduce the funding cost incrementally?
V. Vaidya: We'll keep a very close eye on that. We've been doing that. If you notice that we were earlier paying 7% on savings accounts, then we made it 6.5%, then we made it 6.25%, now we made it 6%. Above INR 25 lakhs, we are only paying 6% now. For us, it's a material change for somebody who's raising. It's a continuous process. Now only for a small slab in between, we're giving 7%. After that, it's now come straight down to 6%. It's a continuous process. We got to constantly moderate that and titrate that.
Akshay Jain: Going to
Sudhanshu Jain: Actually, some of the funding cost could also inch up because repos are also increasing, so you may have some corresponding increase on the liability side. Right.
V. Vaidya: What we've done, at least the cost of funds continues coming down. When we draw up our next year's plans for cost of funds also, we are by that time assuming that right now interest is on the rise. So, whatever fixed deposit rate there is next year, we assume it'll come at a higher cost. But overall, I think our own blended cost of funds of 28, don't take it as a guidance, but I'm just giving you a bit of an off-the-cuff estimate that next year should be maybe 3 or 4 or 5 basis points more, maybe in overall cost of funds basis over FY27, I mean, 28 over 27, give or take, we feel it should be able to manage about maybe 5 basis points or so.
Akshay Jain: 5 to 10 basis points. In this range.
V. Vaidya: Maybe 5, probably. Okay. Anyway.
Akshay Jain: What the repo rate hike you are building in this?
V. Vaidya: We are assuming 25 already done, 25 more in the rest of the year, probably in December itself, then April of next year, 25.
Akshay Jain: Okay. Even for a 75 basis points or say a 50 basis incremental rate hike, the cost of fund impact should be only 5 to 10 basis points.
V. Vaidya: Yeah. May not even be 10, but let's say 10. It could be somewhere there, yeah. Because the good thing is IDFC First Bank has, because you should remember IDFC First Bank is running high CASA percentage. This is super important point to note.
Akshay Jain: Yes.
V. Vaidya: Isn't it? Because IDFC First Bank runs a high CASA percentage, our FD percentage is only 50%. So when interest goes up, it isn't affected that much.
Akshay Jain: Understood. Secondly, on asset quality.
V. Vaidya: And fortunately, on the savings front, on the savings on current account front, there we are already doing well. I told you, we are actually reducing it. And money is flowing thick for us because we developed good tech capabilities, good mobile app, and good customer service and all that. So all put together, we feel like next year we will be able to manage comfortably.
Akshay Jain: Understood, sir. Secondly, on the asset quality front, while you have managed this quarter pretty well, though there was a minor inch up in the slippage ratio, but I guess that can be ignored for this quarter. But how should we think about it incrementally? Because a large number of your NBFC as well as bank peers have been guiding a bit cautiously on the El Nino as well as the macro impact and the oil prices. So, anything you are seeing over there and how should we think about it? And the credit cost guidance of 150 to 160 basis points stays, correct?
V. Vaidya: Well, let's take this. Now, in our case, we put out in our presentation very clearly what is our 0 to 30 DPD. We disclose the full funnel, 0 to 30. We then talk about 31 to 90, and then we talk from the 90-plus gross, then we talk 90-plus net. We show everything. As of now, our data numbers don't seem to suggest that there is a problem coming. The numbers per se. But numbers per se, oftentimes backward-looking doesn't tell the truest story. So when you look ahead, so to say, we don't expect that in the next one or two quarters immediately things are going to change dramatically. Because it doesn't change so quickly because after all, it's a large book.
V. Vaidya: But this impact of the El Nino and the drought in Maharashtra, Karnataka, et cetera, we want to watch it much more carefully and cautiously before we make new comments.
Akshay Jain: Understood, sir. Just one more point on mortgage GNPA. I can see that it has been steadily increasing, and it is up by almost 27 basis points in the last one year. The credit card SMA has inched up by 14 basis points this time. Is it anything to read in this, or am I getting too much into the numbers?
V. Vaidya: You are getting too much numbers because actually mortgage, what happens is that we are practically not growing the mortgage book for the last, I think year-over-year growth is practically nothing. So there is normal aging happening because when you set up any business, it initially starts at zero, and then it increases, and then it stabilizes at some point of time when the book has a natural stable growth rate. As of now, because mortgage book hardly has any yield, so we are not pushing it very much. I mean, it is just if it comes in as it comes, that is about it.
V. Vaidya: So it is more because of the normal aging of the book. Nothing to read out there. I think mortgage only, if I am not mistaken, has grown from are you referring to the gross NPA or are you referring to the SMA?
Akshay Jain: Yeah. 1.27 to 1.54.
V. Vaidya: Yeah. 1.27 to 1.54. 1.54 by itself is 1.54 only, right? That too with the full security of a mortgage. So nothing to worry.
Akshay Jain: And on the credit cards?
V. Vaidya: Credit card is the opposite. Credit card you can see has come down from 1.99 to 1.49.
Akshay Jain: There I will need SMAs.
V. Vaidya: Oh. Let me see what is happening. Okay, fair point. So there it has gone up from 135 to 149, but nothing to read there. Nothing to call and nothing to read. These are normal variations of quarter to quarter.
Akshay Jain: And we are seeing credit costs actually coming down.
Akshay Jain: Actually-
Akshay Jain: on the credit card.
V. Vaidya: We actually see credit card scores coming down, actually.
Akshay Jain: Okay, sir. Thank you, sir. Those are my questions.
V. Vaidya: Thank you.
Operator: Thank you. Our next question comes from the line of Param Subramanian with Investec. Please go ahead.
V. Vaidya: Hi, Param.
Param Subramanian: Yeah. Hi, sir. Good evening. Thanks for taking my question. Sir, firstly, the question, the slide that you have given, slide 4, which you discussed also where you are talking about your incremental cost to income of 55%. Sir, is this something that you want to be held to going forward? That incremental cost will be at, cost to income will be 55% for the next year or so. Is that something that we should look forward to? Secondly, in that slide itself, you are saying 30 basis point drag from liabilities business, but there will always be some drag. So what should that number be on a steady state? That is my first question, sir. Yeah.
V. Vaidya: Okay. I think this is a good question. I like to be afraid, but I do not like to be held to. Okay, yeah. The thing is that, yes, currently it is cost-income ratio is coming at 55. We have done the maths also where we actually shown you how exactly to compute a 55. So indeed, for the last one year to, in other words, to get an income of INR 2,957 crore, you spent only INR 1,627 crore. So in other words, cost income is 55. Question is that will it stay this way? As far as our eyes can see for this financial year, i.e., for 2027, this number looks firmly in the bag. So in other words, for H2 also we expect similar number. And that is our planned business model.
V. Vaidya: And see, basically it all depends upon this, the 500 basis point differential between how much the income grows and the OpEx grows. So we feel that that is what we want to achieve. And we have been achieving now for three quarters. Let me leave it at that. And you can also plot it broadly in your scheme of things. Now with regard to your second, yeah, what is the second question? Yeah. On the drag.
Param Subramanian: Sir, on the 30 basis point liability.
V. Vaidya: Yeah. Let me explain that to you. I am happy you asked the question. See, basically, you know that we have been always calling out that the liability side business is a drag because of the new bank setting up 1,200 branches, 1,200 ATMs and all that, and setting up so many things, technology and all that.
V. Vaidya: So the thing is that think of it as a liability side. If the bank, for example, let us for a minute assume that the analyst estimates of this financial year for the bank is about INR 4,400, INR 4,500 crore. Let us assume for a minute these are the numbers. I think INR 4,400 crore is the estimate for this year. And for a minute you assume the bank will meet it, okay? Because so that can do a quick simulation out here.
V. Vaidya: Now if indeed those are the numbers, let's call it INR 4,400 for the year. Now, it is well known if you go to our slide, in the liability slide, we already called out the bank's current loss is 0.7% on the average deposits. If you do the maths and take it net of tax, you will find that the loss turns out about INR 1,500 crores on the liability side, maybe a little less than that.
V. Vaidya: By definition, the assets should be making something like about INR 5,900 to 6,600 crores. Now, assuming the bank is oversimplified and set as only two parts, one is assets, one is liabilities. Think of a bank makes INR 6,000 crores on the lending side, makes loss of INR 1,500 crores on the liability side, and net-net, suppose bank falls about INR 4,400, 4,500 crores. Think of this equation.
V. Vaidya: Now in this equation, if you divide this by the average assets of the year, you will find that assets is making 0.3%, you will find liability is making -0.3% by the same numbers I just described to you, and net will come to 1%. But obviously, if you see the trend line, we have given the trend line also in the presentation. If you see the trend line, we are not planning to lose 0.7% forever. It is coming down.
V. Vaidya: It is coming down from 3% to 2% to 1% to 0.7%. It has to come down to zero. So in other words, stretch this forward to maybe 3 years from now, you will find that this number of 0.7 becomes 0, which means the drag from liability will become 0, and that 1.3 is 1.3, which you can see even today.
V. Vaidya: Now on that 1.3, which is the asset side ROA the bank is making, now we assume 2, 3 more years go by and some more operating leverage comes. Therefore, you must expect this because 1.3 should go to 1.4, 1.5, 1.6. It should happen. That is where to read that.
Param Subramanian: Got it, sir. Thank you so much. A very detailed explanation. Thank you. Sir.
V. Vaidya: Which means that even today, if this was not a new bank, if this had no drag on liabilities, had it been like any other bank which has been 30, 40 years or 25, 30 years in business and there was no liability side loss. Imagine. The bank should anyway be making 1.3 even today from what it is seen from the books.
Param Subramanian: Fair enough. Yeah.
V. Vaidya: Operating leverage next three years, it should take you to something beyond that for sure.
Param Subramanian: Great. Yeah. Got it, sir. Thank you so much. Sir, next question is on the margin. I think this was asked earlier also. But see, this waterfall that you are showing where you are saying that the repo rate hike will help our margin by about 7 basis points. I understood, I think 50 basis point of rate hike. Right? Because there are other moving parts also, there is tight liquidity in the system. So we are pretty confident that despite all of that, this 7 basis point on a 50 basis point rate hike is what we are talking about on a NIM. Right? The assumption is of 50 basis point and some repricing on term deposits as well.
V. Vaidya: 8. This is 8 basis points.
Sudhanshu Jain: Well Param, I will answer that question. Our 25 basis points repo increase has already happened. We have assumed one more repo increase happens maybe in the next quarter. This is a NIM provision for Q4. Cumulatively, we should get some benefit of these repo increases, which are two increases in this year. However, there could be a corresponding increase in funding cost.
Sudhanshu Jain: What we have put out there, 7 basis points is a net impact, which could be an increase because the repo goes up, offset by some bit of a funding cost increase. For us about 32% of the book is linked to repo. On a 50 basis points increase, a 33 basis points should broadly translate to about 16, 17 basis points. We have assumed broadly half of it to sort of translate in terms of a NIM trajectory. That is the broad calculation here.
V. Vaidya: The other thing is that this 7 basis points factors 50 basis points basically. Basically, it assumes 25 already done and 25 yet to come.
Sudhanshu Jain: Yeah.
V. Vaidya: Because we are talking of Q4 only here. Just for context.
Param Subramanian: Fair to assume that Q2 to Q3, there might be a slight dip before this. Q3 to Q4 is when most of the expansion happens because Q2 to Q3, the FCNR drag will be higher. Just so that we are clear because you are putting out a margin expansion guidance here.
V. Vaidya: Yeah. Q3 should be flattish probably.
Sudhanshu Jain: We feel it to be quite range bound from the current levels which we have reported for Q2.
V. Vaidya: May not dip that much. But then Q4 you will claw back a lot of it because the day convention will give you back your 8 basis points. Your excess liquidity drag will be gone. The repo hike would have given you the 7 basis points. Just to tell you that repo assumes 50, and that is 25 more, which I hope you agree probably will be a fair guess. Would you agree with that comment?
Param Subramanian: Yeah. Fair enough.
V. Vaidya: Therefore the reason we put out this slide as to where is the drag and how will it come back is that we did not want people to suddenly start worrying that, oh, my god, it has come down so much. Where is it headed? We want to give a two-quarter picture that within two quarters these things will normalize. Then by our own internal estimates, I am using the word internal estimates that for 2028, when we do our spreadsheet and projections, we assume some cost of funds increase, we assume some repo increase, all that. We expect this next year, as far as our eyes can see today, to be around 5.8% into 2028 also.
Param Subramanian: Got it. Fair enough.
V. Vaidya: You can factor it in when you do your work on us.
Param Subramanian: Yeah. Sir, will there not be an asset mix impact? Because I think we are still on excess liquidity. September LCR is pretty high. So the asset mix impact will not hurt us in Q3, Q4 because we still have to deploy that liquidity. Will there be a higher wholesale proportion of that deployment? Just so we are clear on the NIM.
V. Vaidya: We have reasonably factored it in. That's why I say we have given two quarter view. We haven't given next quarter's view.
Param Subramanian: Yeah.
V. Vaidya: All that is factored. We have done the maths. Looks like we are comfortable, and we wanted the market also to be comfortable that things will come back because of this detailed explanation. That is the purpose. To be honest, Param, when you read this report, does this give you adequate clarity? It doesn't? Or you feel analysts will require some more explanation from us? What do you think? Just be honest with us.
Param Subramanian: No, I think, sir, you are sitting on excess liquidity, which is what we are trying to understand that you are clearly calling out you will benefit from rate hikes. Logically that should play out. So we are just trying to understand, sir, the extent of the benefit which you are calling out. I think it's very helpful. Yeah.
V. Vaidya: No, I am asking is the bridge clear, I am asking you. I am using a sample of one to ask this question. Is the bridge clear to you?
Param Subramanian: Yeah, it is. It is very clear what you are guiding for, sir. That is very clear. Yeah.
V. Vaidya: Okay.
Param Subramanian: Okay. Sir, lastly on the slippages. From asset quality perspective, I think I heard you mention on Q3, Q4, El Nino is something to watch out for. Any early signs of any pressure or anything in your rural portfolios especially because some of the lenders are calling out pressures in some of the drought-affected districts. Any pressures you are beginning to see in your portfolio as yet?
V. Vaidya: No. Nothing yet. You should expect a reasonably good number from IDFC next couple of quarters also. I always put the caveat because unknowns are unknowns in life. But from whatever we can see right now, you will be comfortable for the couple of quarters as well.
Param Subramanian: Okay. We are very comfortable with our 1.5% to 1.6% credit cost guidance.
V. Vaidya: Yes, definitely.
Param Subramanian: Okay, sir. Thank you so much. Congrats on the quarter and thanks for taking my question.
V. Vaidya: Thank you.
Param Subramanian: Thank you, sir.
V. Vaidya: Thank you.
Operator: Thank you. Our next question comes from the line of Piran Engineer with Citic Securities International. Please go ahead.
Piran Engineer: Yeah. Hi, team. Congrats on the quarter and thanks for taking my question. Just once again.
V. Vaidya: Thank you.
Piran Engineer: I do not want to harp too much on NIM. But since you have put it out here, would not the September month NIM be meaningfully lower than the Q2 average NIM?
Piran Engineer: If so, would not we be starting off a much lower base?
Sudhanshu Jain: For Q3.
Sudhanshu Jain: In that whole waterfall chart.
Sudhanshu Jain: No, we should be okay for Q3, Susanta. Definitely September, as I said, we ran higher LCR because the FCNR money had just come in and LCR was at 139%, which means September NIM would have been slightly lower. But as I said, this liquidity is getting fast deployed.
Sudhanshu Jain: In October, as we see LCR issues have further normalized, and I expect this liquidity to be put to use in next maybe 1 month or so. We have taken this into account and also some bit of a repo increase benefit which would come in Q3 for the one which has happened. Taken all of this together, we expect that NIMs could be very range bound in Q3 from the current levels and before it sort of again picks up in Q4. That is the number which we have put out in the presentation.
Piran Engineer: Just to be clear.
Sudhanshu Jain: We are confident on all of these angles.
Piran Engineer: Okay. Fair. No, that's good to know. Also, just to be clear, this does not factor in capital raise, right? Your 5.8% NIM. If you do it before Q4, that will be further additive.
Sudhanshu Jain: We will see on the capital depending on the market conditions and so on. That is something could also slightly benefit whenever it comes into the overall equation. It will add more cushion to this actually.
Piran Engineer: It will add Okay. Fair. Okay, then just moving on from this. Just firstly on CASA growth, and here I am looking at quarterly average CASA. Used to be 30% last year. Then last quarter moderated to high 20s. Now it's down to 22%, 23%. How do we really think about Is it simply just a question of you all being much larger now and scales sort of beginning to grow?
Sudhanshu Jain: CASA?
Piran Engineer: Yeah.
Sudhanshu Jain: Sorry, Piran. Which number you mentioned? We were not able to hear you clearly. Can you just repeat?
Piran Engineer: Susanta, I am talking of the average CASA growth.
Sudhanshu Jain: Yes, so that has been about 30% on a year-on-year basis. Average, average.
Piran Engineer: No, 23.
V. Vaidya: 23.
Piran Engineer: CASA growing at 30 and slightly lower pace.
V. Vaidya: But okay, Piran. Somewhere there, 23 or so. Yeah, you should expect that from us. Maybe. Why? You feel it is low? You feel it is low? You feel or you felt it was
Piran Engineer: No, I am trying to just understand whether it is a matter of scale catching up
V. Vaidya: Yeah
Piran Engineer: or it is a question of, say, governments are moving out, which is what the large banks talked about
V. Vaidya: Mm-hmm. Scale.
Piran Engineer: Which is kind of what happened to you all two quarters back.
V. Vaidya: No. That whatever had happened already gone. We don't worry. That's not a concern anymore. Think like 23 like a base case for us. Not base case, meaning you're right, it's more arrival of the bank is no longer it's already built some reasonable scale. If we can maintain even 20 to 22-ish kind of zone. This is 23.
V. Vaidya: Even if we maintain, if the deposits will grow by 20 also from here on, because if the overall deposits grow by 20 and CASA also grow by 20, we're fine. We'll maintain the CASA percentage, which will be good enough.
Piran Engineer: Yeah. No, fair. I think the only risk is maybe a year later this 23 goes down to 18 and then to 16 just as scale builds.
V. Vaidya: Unlikely because we are managing this very closely and we just like to see a CASA percentage in the zone of the high 40s. Unlikely we will let it go there. We will double up our work, but our intent is to keep our bank in the high 40s. We have worked hard for the first 7, 8 years to build a discipline of the high CASA. We have no intention of raising more money through fixed deposit and threading the pin hole so finely that we let go of the CASA percentage down to the 40s and below 40s. We have no such plans. We intend to keep it in the high 40s and we will do whatever it takes to keep it there.
Piran Engineer: Got it. Got it. Lastly on your corporate banking business. It used to be possibly the less focused or less talked about one. But from 15% of loans 2 years back, it is now up to 20%. Just trying to understand really if you can share more color around this in terms of which sectors, what is the rating of the corporates out there and really what is our right to win out here, especially when we have a higher cost of funds and there are so many PSU and large private sector banks in this space.
Piran Engineer: In retail, we get your moat, right? That you are targeting a different consumer segment. You have got an excellent app, frictionless banking services. You have got all of that which helps you in retail. But how does any of this or what are your moats in wholesale really?
V. Vaidya: It is really very good question. People often tend to think that this technology and tech stack et cetera is a very retail thing. But you will be surprised to know, I feel that the same tech stack and capabilities IDFC First Bank has built in the retail side, though you are not using it as a user because you are an individual, but same thing as an enterprise. You will see a real difference of IDFC's technology stack with every year. Let me say what might be available elsewhere. For example, in cash management, we have built some really good cash management capabilities on trade, on FX. On many of the solutions we built some really good tech stack there. So that is an experience thing which enterprise person who is accessing it can tell you.
V. Vaidya: A second thing is that we have kind of been very successful in building a really good governance capabilities in the bank, even though we may be lending to, let me say, mid-tier company. Our delinquency has literally been nil. There is only one ATM company in the last 7 years where we lost INR 100 crores or so. But that is it, in 7 years. Just imagine. No bad loans.
V. Vaidya: 7 years. We built when you disperse not less than maybe INR 1.5 lakh crores, net book is INR 70,000 crores. So that book is coming really well, so our confidence has increased. The third thing is that the demand is a lot. We can grow as much as we want, but currently we are growing at the numbers we are growing. So delinquency is good, yield is reasonable. Surround products are very good. We are really liking the business, actually.
V. Vaidya: We think that in a sense that the book also gets more diversified, better rated corporates, all that. To give you an idea, A and above rated companies, since you said what kind of customers we lend to in the corporate side. A and above rated companies makes 76% of the book.
Piran Engineer: 76?
V. Vaidya: 76%. Triple B companies is 20%, and double B and below is 4%. That is our composition. It is quite comfortable actually, and with zero default practically. Just imagine seven years have gone, no delinquency. It is something really.
Piran Engineer: No, that.
V. Vaidya: This.
Piran Engineer: But how do we think about ROA in this?
V. Vaidya: It is pretty good now, because if you take out the credit cost is not there. I am not saying it will never be there, like we face the ATM company issue. It could lurk in the corner. But as of now, it is quite low. So when delinquency is low, we are able to get and our speed is very good, our decision-making is pretty quick. So all this also matters. So our total corporate exposure, including non-funded exposure. We said INR 370 to you, but if you take the non-funded that we put, it is probably INR 1 lakh crore. And the rating distribution I told you belongs to the full book of INR 1 lakh crore.
Piran Engineer: Got it. No, sorry, but I meant what is the ROA differential or maybe incremental ROA differential between retail and corporate?
V. Vaidya: I will tell you. Our cost-income ratio corporate side is more like 32% or 33%. Our yield on book is something like about 9.5%.
Piran Engineer: 9.2%.
V. Vaidya: 9.2% now, sorry. So 9.2%.
Piran Engineer: Okay.
V. Vaidya: If you take out the cost of funds, we probably be pricing the asset side people about maybe 7.5% or so, give or take, I do not know. But if you do the maths of that and add back fees to it, and if you do not have credit cost, maybe at least 1.6%, 1.7% ROA is easily in the bag on that front.
Piran Engineer: Understood. Okay, yeah. That is good color.
V. Vaidya: Probably even a bit more, actually, to be honest.
Piran Engineer: Got it. Okay, yeah, that is good. Thanks, and wish you all the best, and Happy Diwali to you and team.
V. Vaidya: Thank you. Thank you, Piran.
Piran Engineer: Thanks.
V. Vaidya: You are welcome.
Operator: Thank you. Our next question comes from the line of Abhishek Murarka with HSBC. Please go ahead.
Abhishek Murarka: Hi. Good evening, everyone. My question is on this insurance circular impact. If I go through that paragraph that you have given in the PPT, I wanted to know, have you assumed that the entire revenue that you make will be covered, or are you assuming a percentage of the revenue which you estimate to be a hit that will be covered? What are you assuming? When I back calculate, the number that I am getting is a fairly high number, so it would pretty much encapsulate the entire revenue you are getting. I just wanted to get that clarification.
V. Vaidya: No. If you do the back calculation of the benefits of INR 35,000 crore, where we say 1%, I did the maths for you earlier. That is also quite a meaningful amount. If you assume that our, we already mentioned what we assumed in terms of rate increase, and then the 25 plus 25. Then you put it on a INR 1 lakh, maybe INR 20,000 crore protected book and multiply that and you see that is also a very meaningful amount.
V. Vaidya: We will also do the product changes and all along the way, we have done some thinking among us. When you do the maths, give or take, it is matching up in that zone. We feel that we know what analysts have estimated for us for next year, et cetera. We do not see any material changes to those numbers. We believe broadly they are achievable.
Abhishek Murarka: Sure. That is fair. Basically the hit you are expecting and the recovery from FCNR cost saving and 75 basis point rate hike, is it coming to something like INR 1,000, INR 1,200 crore of that order?
V. Vaidya: We do not really call out because then it will take us down to a lot of calculations and maths to explain. You can go by whatever public numbers you see.
Abhishek Murarka: Got it. But net-net your message is that things will offset the revenue loss and therefore sort of
V. Vaidya: Yeah
Abhishek Murarka: neutralize the impact.
V. Vaidya: In our mind, we are assuming it will come as it is. We are not doing any more optimistic. We are not expecting. We don't want to assume anything optimistic from here. It is what it is. It will come out and let's be prepared for that. That's it.
Abhishek Murarka: Got it. The second thing is on fees and OpEx. Can you just call out how much of the fee and OpEx would be due to FCNR? If you can give those two numbers, that would be
Sudhanshu Jain: Fee was a very small component of about 30 odd crores during the quarter. On the OpEx front, that number, because we did mobilize borrowings and bonds, that number was more around 60 odd crores.
Abhishek Murarka: Okay, got it. Got it. Thank you so much and all the best and Diwali greetings to everybody.
Sudhanshu Jain: Thank you.
V. Vaidya: Thank you very much.
Operator: Thank you. Our next question comes from the line of Jai Prakash Mundhra with ICICI Securities. Please go ahead.
Jai Prakash Mundhra: Yeah. Hi, good evening, and thanks for the opportunity.
Sudhanshu Jain: Thank you.
Jai Prakash Mundhra: Sir, first question. Yeah, hi. Sir, first question on foreign borrowings. Do you have any more pipeline for raising foreign for ECB or OCB or some not much?
Sudhanshu Jain: No. Jai, we have largely mobilized the borrowings. We do not have any pipelines as such.
Jai Prakash Mundhra: Right. Akshay, secondly, on LDR, loan to deposit ratio was improving as deposits were outpacing loans. Now, because of this quarter wherein the FCNR(B) was strong. Going ahead, would deposits still outpace loan growth or LDR is not a very relevant metric in the current situation?
V. Vaidya: Well, there are broad numbers we have to meet because they are the regulatory requirements, and maybe we will keep a little cushion on top of it. But we do not think that, at least for our bank, since you have seen a deposit growth for last seven years now, we feel that we will be able to comfortably raise the deposit we need to raise. We have done our planning for Q3, Q4. We have estimated our outflows. We estimate our inflows. We are feeling comfortable.
Jai Prakash Mundhra: Right.
Sudhanshu Jain: Jai, we will ensure that deposit grows slightly higher than the loan growth, right? So directionally, LDR should keep improving or stay in a particular zone.
Jai Prakash Mundhra: Right. Sudhanshu, you mentioned repo-linked book at around 30% to 33%.
Sudhanshu Jain: Yeah.
Jai Prakash Mundhra: What is the number for FCNR and then maybe fixed and others, if you have that split?
Sudhanshu Jain: I have taken FCNR in the maths.
Jai Prakash Mundhra: Right.
Sudhanshu Jain: Out of INR 100, about 60% is fixed, 61%, 62%, then about 31%, 32% is repo link, and balance is MCLR. That is the broad maths.
Jai Prakash Mundhra: Sure. Last question, sir. On ECL, now we are very close to actual implementation. If you have any only pure ECL transitional impact. I know in the last calls you have mentioned that it will broadly be offset by a new credit risk weight circular. If you have only the number separately for ECL transition hit and maybe the recurring impact. Thank you.
Sudhanshu Jain: Jai, my commentary on ECL continues to remain the same. In fact, the positive development in this quarter is yesterday only when revised operational risk guidelines have come in. I did mention in the previous calls that we could be a big beneficiary on that front, and that also kicks in from 1 April 2027. If we take all RWA changes through this operational risk guideline, credit risk guideline, offset by capital impact which could come through ECL, the impact is broadly sort of neutral on the CET1 ratio. The commentary broadly stays on that front. We are still fine-tuning some of these numbers, so maybe in a quarter or so, we will be able to give further more clarity around this front. We feel that it is broadly manageable.
Jai Prakash Mundhra: Sure. Anything on recurring basis? Any number to call out here?
Sudhanshu Jain: Again, as I have sort of said in the past, on a recurring basis also, steady state credits will slightly go up. Since we have a large proportion of a retail book, we will also get benefit because of amortization of OpEx and processing fee put together, which to some extent neutralizes this impact of a steady state increase in credit cost. On a total, the net impact on a ROA should be still small and manageable.
Jai Prakash Mundhra: That is very clear. Yeah, that is very clear. Thank you and all the best.
Sudhanshu Jain: Thank you.
Operator: Thank you. Our next question comes from the line of Pritesh Bomb with Elara Capital. Please go ahead.
Pritesh Bumb: Hi. Good evening, sir. Can you hear me?
Sudhanshu Jain: Yeah. Hi, Pritesh. We can hear you.
Pritesh Bumb: Yeah. On the credit card business, congrats on crossing 5 million cards. Just wanted to check. In the past, you have mentioned that once we cross a particular number, which is about 5 million, I think, if I remember, we will see a material cost to income decline. Especially when we look at the disclosures we made in the past, that credit card business was one of the high capital intensive business. Do we see that falling in the cost to income in the subsequent quarters?
Sudhanshu Jain: Yeah, cost to income has been coming down. I also did mention that credit cost also has been coming down. If you see the cost to income ratio for the Q2, this is more now into 70s. So we feel that the profitability is certainly getting better, and we are well on track on this front.
Pritesh Bumb: Sure. On the flip side, this quarter, we reduced or we made a feature where zero forex charges in terms of swipe. Any material impact from that could have been there? On the?
Sudhanshu Jain: No, not a material impact on this front. In fact, we feel spends could increase as the product offering is quite lucrative in that sense.
V. Vaidya: We have got to wait and watch how the reaction is, because of course, we lose some money in the whole base, and the payback will come when it comes. Anyway, as you know, from day one, we are building customer-first bank and building on customer first and pro-customer products and all that. So hopefully this will be one more such feature launched by the bank. The benefits will come over time in terms of customer goodwill, trust, more spends, hopefully.
Pritesh Bumb: Sure.
V. Vaidya: Maybe even more optica cards over time.
Pritesh Bumb: Sure. Second question was on the wholesale book. I think you have mentioned in a call-out that you take a 360-degree approach. Just wanted to understand quantitatively that with the strong growth, will we have taken significant market share in some of the other features like transaction banking, salary accounts? If you can give some assessment on that.
V. Vaidya: At the State Bank, we cannot call ourselves any material market share, so to say. Actually, for that matter, even on the retail side, we cannot call ourselves great market shares because we are still a mid-tier bank, let me say, in terms of size. But certainly the corporate side, we cannot claim that. But we find our space in the corporate banking side. You could obviously be giving large exposures of INR 4,000, INR 5,000 crores to some top-tier groups of this country, and you could be earning maybe 6.5%, 7% or whatever. We have found our own space. And by the way, we are finding huge opportunities, just not small. We are finding huge opportunities in the space we have chosen.
V. Vaidya: More than market share, we are finding it, when we say 360-degree approach, we are very keen on cash management, and I told you we build some really good solutions on that front. If time permits, maybe next time I will tell you what those solutions are. Because today we are running out of time. We have built some really good cash management solutions, so that brings current accounts. We are looking at more in terms of it is building as a good book, high-quality book with many embeddings of multiple products into it, and making good revenue out of that in a stable manner, which over the years can only compound.
Pritesh Bumb: Sure. Just lastly, as a feedback, if you can put one or two slides on what we are doing on AI and cybersecurity, that will be very appreciated. For the bank.
V. Vaidya: Okay.
Pritesh Bumb: Given that we have a very technology orientation.
V. Vaidya: Yeah. Thank you. We will do that next time, maybe. The thing is that we sometimes feel that, of course, there are different organizations have different styles about talking about AI. We feel that frankly, talking about AI is like, "Yeah, it's like do we ever talk about internet anymore?" It is part of internet banking. Like that, AI is now embedded deeply into our products, our journeys, our processes, our customer experiences, our employee experiences, everything. It is everywhere. We felt that finally it has to deliver. That is the reason we actually chose to focus on the outcomes thus far. Of course, if many of you feel the same way like you are feeling, maybe we will do some more explanations.
Pritesh Bumb: Yeah. Whatever is happening across the globe in terms of cybersecurity is very concerning.
V. Vaidya: No, cyber is a different point, by the way. I meant AI. On AI, we felt finally AI should deliver, and so we are focusing on outcomes. Okay? I will give a small example so that you will understand. For example, if our people are processing loan applications a particular way yesterday, before the arrival of AI. Today, the same loan application, their ability to see the bank statement, see the GST, see the income tax statement, the combined count, for the AI to read the documents easily, to analyze them, to process them, and give it back to us, all that has become much quicker.
V. Vaidya: So we felt that anyway it is going to deliver results. So that is why we focus on results. Now, let me talk about cyber. On the cyber front, of course, thanks for pointing that out.
V. Vaidya: I agree it is super important, and maybe we will bring some more angle into that. Yeah. It will give people more security. It will make people feel more secure. I agree with you.
Pritesh Bumb: Yeah. Thanks so much. All the best.
Operator: Thank you. Ladies and gentlemen, we will take that as our last question for today. I would now like to hand the conference over to Mr. Vaidyanathan for closing comments.
V. Vaidya: No, nothing more to add. We have discussed in detail. Thanks very much, everybody, and really many thanks for being patient with us and spending over an hour with us. The key thing we want to point out is the NIM angle so that there is no confusion among others. I want to just point out to you one last time that while NIM, you may tend to think that this FCNR brings down NIM.
V. Vaidya: Remember, FCNR expanding the base also brings down OpEx, also brings down credit cost in a percentage sense. In a ROE, ROA sense, not going to impact you very much. The second point I want to flag was the insurance thing. We feel comfortable that we will broadly manage it. These are the only two things. Other than that, I think growth continues and life will be fine. Thank you, everybody.
Sudhanshu Jain: Thank you, everyone, and Happy Diwali in advance.
V. Vaidya: Happy Diwali.
Sudhanshu Jain: Thanks, everyone.
V. Vaidya: Happy Diwali, folks. Thank you. Bye.
Operator: Thank you. On behalf of IDFC First Bank, that concludes this conference. Thank you all for joining us. You may now disconnect your lines.
