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Speaker #1: I now hand the conference over to Mr. R. Subramaniakumar, Managing Director and CEO of RBL Bank. Thank you, and over to you, Mr. Kumar.
Speaker #2: Thank you, Michelle. Good evening. Ladies and gentlemen, and thank you for joining us for a discussion on our bank's financial results for the second quarter of the financial year 2027.
Speaker #2: We have uploaded the results along with the presentation on our website, and I'm sure you had a chance to go through that in detail ahead of this call.
Speaker #2: I'm joined by Executive Director Mr. Jaydeep and CFO Mr. Bhavi, and other members of our management team, to address any questions you may have.
Speaker #2: Before we get into the details, on the Q2 operational performance, I would like to briefly touch upon the macro trends. The Indian economy continues to demonstrate resilience, supported by the robust domestic demand and the healthy services activity improving manufacturing momentum that's supported by the government policies and sustained investment.
Speaker #2: The GDP growth expectations for FY27 have been revised upwards to around 7.1%, reflecting the strength of underlying economic activity. High-frequency indicators remain encouraging, while credit growth continues to be robust across the banking system.
Speaker #2: Providing a supportive backdrop for the banking sector. However, the global macroeconomic environment has become increasingly challenging in recent months. With heightened geopolitical tensions, elevated crude oil prices, tighter global financial conditions, and higher interest rates, contributing to greater volatility across currencies, bond, and capital markets, inflation risks are likely to remain elevated over the coming quarters.
Speaker #2: Driven by energy, freight, and food-related pressures, in response, the Reserve Bank of India has raised the repo rate by 25 basis points, to 5.5%, and shifted its policy stance to calibrated tightening.
Speaker #2: Signaling a continued focus on containing inflationary pressures. It has also undertaken measures to manage currency volatility including interventions in the spot and forward foreign exchange markets, and the introduction of a special window to meet daily dollar requirements.
Speaker #2: Market expectations point to the possibility of further rate increases. While the system liquidity is expected to gradually normalize, as surplus liquidities are clogged, elevated crude oil prices, whether related risks and external uncertainties will therefore remain key monitorable.
Speaker #2: Notwithstanding these challenges, India's strong economic fundamentals, the fiscal discipline, and the sustained domestic demand provide a solid foundation for medium-term growth. Fiscal pressures are modest and governments' efforts towards fiscal consolidation are paying off when several developed economies are on the other side.
Speaker #2: Despite rising inflation, the fact that it is rising from a low level and likely to remain within the upper tolerance band of Reserve Bank of India is comforting.
Speaker #2: The system-wide banking asset quality is robust, and therefore remain constructive on the outlook for the banking sector. With resilient economic activity and a healthy credit demand, expected to support its growth trajectory.
Speaker #2: The bilateral and multilateral trade and investment agreements is a lever to navigate external imbalances while domestic consumption and demographics will shift gear towards higher growth.
Speaker #2: In a scenario wherein higher interest rates, evolving liquidity conditions, and increased market volatility warrant continued vigilance, we believe that the overall medium-term operating environment within India remains favorable and offers meaningful potential for growth.
Speaker #2: In this backdrop, I will briefly touch upon our trends in the quarter. As you are aware, we have generated large amount of liquidity on our balance sheet between the capital rise and the deposit raised during the SNRB scheme.
Speaker #2: For context, between both, we have added 35% of our balance sheet as of 31 May 2026. This liquidity is deployed as follows: first, prepaid or chosen not to renew, the borrowings and bulk term deposits which were at a higher cost.
Speaker #2: Grow our business across both wholesale and secured retail, where we have seen demand and the business conditions continue to remain fairly stable. The wholesale lending is a highly rated corporate where we want to start a deepened relationship.
Speaker #2: The balance liquidity is tactically deployed in a combination of the short-term investments and the short-term loans given to our wholesale customers. Given the large liquidity still on the balance sheet, we expect to continue this for the next few months.
Speaker #2: Over the medium term, we expect this liquidity to be fully deployed in the wholesale banking segment, where we want to use both our ability to underwrite larger exposures and the liquidity to strengthen the relationship with a better rated corporate.
Speaker #2: And the secured retail through the branch banking route, again to deepen the customer relationship. At the same time, with corporate deposits and borrowings have already seen reduction in the cost.
Speaker #2: We will continue to focus on building granular retail deposit and the rationalize our deposit rates gradually. As you may have seen, we have already started on this journey across our savings and term deposits.
Speaker #2: We will continue our investments in upgrading our distribution across branches. People and technology to deepen our network and improve the quality of our products and services.
Speaker #2: Onto asset quality trends. In retail, a collection momentum including the rural businesses this quarter has been stable with the no disruption so far. However, given deficient monsoons in certain districts, we continue to remain very watchful.
Speaker #2: We have also not seen any material impact on our portfolio arising from the conflict in the Middle East so far. In our unsecured retail business, we have seen JLG return to normalcy for a few months now, with the bucket tax efficiency consistently close to 99.5%.
Speaker #2: We remain confident in the journey of credit cards and have seen the last quarter in line with the path laid out few quarters ago.
Speaker #2: We are encouraged with the asset quality trends and we expect slippages to trend materially downwards in line with our guidance in the last quarter.
Speaker #2: Onto business trends in the quarter. We continue to see robust growth across both sides of the balance sheet. Our credit rating upgrades have helped us add customers, especially in the wholesale, for both advances and deposits.
Speaker #2: Our advances grew this quarter by 42% year-on-year to 1,42,314 crore and the average advances grew 33% year-on-year. This includes leverage we provided to the customers of 10,000,300 crore for SNR deposits and the liquidity deployment in a better rated wholesale clients, where we are looking to deepen or start a new relationship.
Speaker #2: Similarly, our deposits grew 34% year-on-year to 1,56,272 crore in the quarter. Average deposits grew 24% over a while. This includes the SNR deposits raised by this quarter.
Speaker #2: As a result, our average CASA ratio stood at 24% as of 30 September. It would have been 28.1% ex-SNR deposits. Some of the milestones achieved in the quarter.
Speaker #2: One, the balance sheet crossed 2 lakh crore to end the quarter at 2,22,344 crore. More than doubling over from financial year 2022. The term deposits crossed 1 lakh crore to 1,13,746 crore.
Speaker #2: Operating profit crossed 1,000 crore mark to 1,396 crore for Q2 FY27. Cost to income ratio for the quarter was 56.5% versus 70.7% in Q2 FY26.
Speaker #2: In summary, as we look ahead, our growth priorities are focused on building scalable, resilient, and profitable franchise. Our normal business trends are improving quarter on quarter as unsecured stress normalizes.
Speaker #2: At the same time, we are working on putting together building blocks which we will articulate in greater detail over the coming months, but briefly we would focus on deepening and starting new relationships with large corporates which were not accessible earlier either due to constraint of credit rating capital position or our cost of funds.
Speaker #2: We are also working to target the trade flows in the corridors where ENBD is present. Where we believe we have a competitive advantages because of the ENBD network.
Speaker #2: Continuing to build granular and stable liabilities. With the objective of progressively narrowing the cost of deposit cap reserved with the larger banks. At the same time, we want to leverage the momentum from the SNR deposit relationship we have onboarded to target non-resident flows starting with the Middle East and over the time in all the geographies where ENBD is present.
Speaker #2: MNC and in sectors where IT and IT services the relationships are being strengthened. Especially on the liability and non-funded side. Due to the group's cross-border strength and the bank's strong credit rating.
Speaker #2: We will invest in the distribution infrastructure be it branches, people, and technology to strengthen our presence in the relevant geographies. We will also take early steps on investing in a wealth proposition for our customers.
Speaker #2: I invite Mr. Pavin to take you through the specifics of our results.
Speaker #3: Thank you, Mr. Prabhat. Briefly touching on some of the specific aspects of our financial performance. Our advances grew 42% year-on-year to 1,42,314 crore in the quarter, average advances grew 33% year-on-year.
Speaker #3: Wholesale advances grew 56% year-on-year, retail grew 32% year-on-year, within wholesale the corporate segment grew 60% year-on-year and commercial banking segment grew 47% year-on-year. While in the retail segment, secure retail assets grew 52% year-on-year and unsecured retail assets grew 46% year-on-year.
Speaker #3: Secure retail advances include the FCNR leverage we have provided to customer for approximately 10,300 crores. The retail wholesale mix was therefore at 5,644. Our total deposits grew 34% year-on-year to 1,56,272 crore.
Speaker #3: This was helped by the FCNR deposit excluding the FCNR deposit the growth was 6% year-on-year as we look to optimize the cost of deposit as mentioned earlier.
Speaker #3: Average deposits grew 24% year-on-year. Our CASA grew 14% year-on-year to 42,526 crore. Average LCR for the quarter was at 148%. Now on our operating performance.
Speaker #3: Our NI was up 37% year-on-year and 29% sequentially to 2131 crore. Our NIM for the quarter was at 4.61% an increase of 48 basis points sequentially.
Speaker #3: Non-interest income grew 16% year-on-year and 12% sequentially to 1,077 crore. This was also helped by foreign exchange income from the FCNR deposits. Free income grew 12% year-on-year and 13% sequentially to 1,040 crore.
Speaker #3: Our net total income grew 29% year-on-year and 23% sequentially to 3,208 crore. Our OPEX grew 3% year-on-year and 7% sequentially to 1,812 crore. The credit cost for the quarter was at 771 crore or 63 basis points which included standard asset provisioning of 11%.
Speaker #3: The specific credit cost was lower at 52 basis points versus 62 basis points of last quarter. Or 641 crore was the vis-à-vis 670 crore for the last quarter.
Speaker #3: Our net profit for the quarter was up 170% year-on-year and 90% sequentially to 482 crore. On asset quality, GNPA was down 28 basis points sequentially to 1.02% and net NPA was down 8% sequentially to 0.29%.
Speaker #3: The PCR stand at 71.5%. Our capital adequacy ratio was at 30.1 and CAT1 ratio was at 29%. With this, we will open the session for question and answer.
Speaker #1: Thank you very much, sir. Ladies and gentlemen, we will now begin with the question and answer session. Anyone who wishes to ask questions may please press star and one on the touchstone phone.
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Speaker #1: Ladies and gentlemen, we will wait for a moment while the question queue ascends. You may please press star and one to ask questions. The first question is from the line of Rikin Shah from IIFL Capital.
Speaker #1: Please go ahead.
Speaker #3: Hi, good evening everyone and congratulations on very strong FCNR mobilization in this quarter. I had seven questions. The first one if we look at the period and CASA growth, it's up almost 15% QOQ.
Speaker #3: But the average CASA growth is flat. So could you just elaborate on progress on various initiatives to strengthen the retail deposit accretion including branches etc.
Speaker #3: I do notice that the employee headcount has been rising but any progress on strengthening the retail franchise. That's my first question.
Speaker #2: Yeah, Rikin. As far as the CASA today what you are seeing is down is it conscious decision of let go some of the high cost because you saw that we have reduced our CASA rate considerably.
Speaker #2: Whenever the rate of interest is reduced in the CASA there will always be a downward dip and it gets catches up. You would have seen it in two quarters before we reduced the rate and around 1500 crores we lost and our team could mobilize it the same amount within a period of four to five months time.
Speaker #2: So the recouping is a little time. So even if suppose any correction takes place there will be some exit and those exits will be corrected with the revised rate of interest.
Speaker #2: Number one. Number two the strategies are very simple. We have expanding our branches and densifying the respective branches. That means the number of people whose productivity has reached that the desired level more number of people are being added in the respective branches.
Speaker #2: That's where you saw that the people addition. And second what is being done is that we are just expanding in the with the wide number of branches.
Speaker #2: We will be adding approximately 30 to 50 branches in a quarter. This quarter branches are proposed to be opened in next two weeks time.
Speaker #2: We will open it today but for that the crowded program of four and other things we couldn't do it today. Another time around 38 branches are getting opened in a couple of weeks time.
Speaker #2: So the branch expansion is on on track and now we are going to have a differentiated approach which is going to be a unique for us in the sense that we are entering into the affluent which we said almost three four quarters before that we are getting into the wealth business.
Speaker #2: Now with the ENBD's partnership we are pretty confident of expanding this growth and our segment growth you would have seen it it is growing fairly well and it is providing us a lot of confidence because of the various propositions which has been introduced into this particular segment organization.
Speaker #2: And if you see it our retail term deposit continues to be growing at a very healthy rate last two quarters it did around 22% this time again it grew around 16%.
Speaker #2: That will again continue to grow and support our the deposit growth another thing. I mean our our advanced deployment.
Speaker #3: Yeah, we are also praising our NRI proposition and the journey is well to capture the entire UAE corridor which will help us to build the liabilities business.
Speaker #2: Got it. The second is the data keeping
Speaker #3: question. If you could provide a breakup on loan book mix based on various interest rate benchmarks and also vendors repo loan reset happen for your customers.
Speaker #2: So the reset is a 90-day reset. So you will expect that most of the loans will get reset by end of the quarter. So you will see the full benefit in next quarter.
Speaker #2: The if you look at overall the 58% is linked to external benchmarks 32% is linked to repo you have about 11% which is to the FCI benchmark 12% to other external benchmarks and about 3 and a half 4% is TP and the internal MCLR rates.
Speaker #3: Got it. The third one is on margins. So how should we think about the trajectory in 3Q and 4Q because on one hand while you will have full quarter impact of FCNR in 3Q but on the other hand you may also have interest reversals from the interest reversal on cards going down and cost of fund may also potentially improve given the recent signed TD rate cuts you have taken.
Speaker #3: So the outlook on 3Q and 4Q margin trajectory would be helpful.
Speaker #2: So Rikin I think there are quite a few pushes and pulls. Some of that you mentioned. On the on on a blended average basis we would expect it to be slightly lower than what we have reported in this quarter.
Speaker #2: It will also depend on the speed at which we can deploy normal advances growth because a lot of this is now lying in lower yielding investments and within advances also we've been tactical.
Speaker #2: So it will be a it will be a question of what kind of opportunities we get. But on the margin I would imagine that we should be slightly lower next quarter.
Speaker #2: And then probably inch up in Q4.
Speaker #3: Got it. Q4 inch up reminds on the rate hike that has already happened and got it. The fourth question is on bank. Got it.
Speaker #3: The fourth one is on bank assurance income. So while it constitutes 8% of your FY26 P income and 3% of total revenue assuming there are no cost offsets and watering down of the IRDA guidelines what kind of impact should we expect if this gets rolled out from next year?
Speaker #2: So Rikin I I think the total banka income generally disclosed in the annual report I think we have approximately 300 crores plus minus and of income per annum and I would imagine based on you know plain reading of this I think that will get substantially impacted.
Speaker #2: I would imagine anywhere between 50 to 60% impact should be minimum to be penciled in.
Speaker #3: Enough enough research reports have been written by you guys to make a map of it. We have not done as much detail as you guys have.
Speaker #3: So but you would expect a substantial drop in the income which may come through. If nothing changes from this perspective of where the draft circular is implemented the way it is set.
Speaker #3: Got it. Fair enough. The fifth question is on OPEX growth. So it has been quite low in the last few quarters particularly led by the line item of other expenses.
Speaker #3: I do see that employee expense has inched up this quarter presumably due to salary hikes that may have gone. But what kind of growth should we expect on overall OPEX going ahead assuming some need to invest in the franchise branches etc.
Speaker #2: From the same range of 70. So so I think Rikin I think there has been an opportunity for us to rationalize certain areas and you know including one of the major areas that we've rationalized is collection cost specifically in cards.
Speaker #2: And I think that's flowing through you know that's been flowing through a bit that's been part of the reason. And you know we've now pretty much coming down to normalized rates on that.
Speaker #2: And and from here on I think there will be there will be a a increase I think it's a question of how quickly we are able to or what is the kind of quality we want to in terms of adding branches people.
Speaker #2: And we will also want to invest in certain newer businesses. I mean not exactly new business but a greater focus on wealth management. So some expenses will start getting incurred from from next couple of quarters onwards.
Speaker #2: But I don't think the the delta materially changes. We'll probably inch up to low single digits maybe a little higher but we will come back with details on this rather than you know there is a lot more pen to paper that we put on the on the on the model going forward.
Speaker #3: Got it. And I think some investment in you know marketing etc. may also perhaps help. We have seen some mid-size banks investing a bit aggressively on marketing.
Speaker #3: So if that happens as well that would be fairly okay. The next question is on asset quality. So you know the gross and net slippages have continued to trend down in absolute terms.
Speaker #3: You had earlier guided for credit card slippages to come off materially from 3Q onwards. So could you just provide some color on the underlying trends in credit card and how do we think about the improvement in credit cost here on?
Speaker #2: So Rikin yes the cards slippages are in line with expectations. So so while the quarter still had a 600 plus number but if I take the last last month number of the of the quarter we are already in the 125 130 zone and and therefore you know I would imagine that that trend should hold give or take a few percentages here and there.
Speaker #2: So that's something that quite happy to report that while it took us a little more time to get this in order but we are now actually seeing that on the ground as we speak.
Speaker #2: So we we would expect credit card slippages to to to come down to a you know a around a 400 plus minus number for Q Q3 Q4 kind of numbers.
Speaker #2: And and therefore trade costs on cards should come down from the you know low double digits that we've seen to the 6% zone. And and the rest of the businesses will hold where they are give or take unless we see some any material deterioration in in any of the rural businesses which so far we have not seen at all.
Speaker #2: Including the October first week collections that we have on retail assets. We've not seen any any change in bounce rates or anything like that.
Speaker #2: So so Saturday's paribus you know cards comes down from 11 plus minus to closer to 6 5 and a half to 6 reach.
Speaker #3: Got it. And Jaydeep what was this 125 to 135 number that you mentioned?
Speaker #2: Slippages in the month of September. Monthly monthly.
Speaker #3: Oh. Okay. Got it. And then just the last question on yield on investments they have jumped almost 80 basis points sequentially. So is it just this temporary FCNR liquidity passed into money market and an extension to this that given the yields have moved up sharply should we expect any significant M2M on investment book in the coming quarters?
Speaker #2: So we've stayed light on duration so Rikin no problems on that on mark to market. So second part of your question. On yields of course you know money market has given us opportunity to maximize on yields and we've done that.
Speaker #2: So whatever uptick you are seeing is thanks to that. There we don't carry too much of duration.
Speaker #3: Understood. Thank you so much for answering all the questions. That's all from my side.
Speaker #1: Thank you.
Speaker #2: Thank you.
Speaker #1: Thank you sir. We'll take the next question from the line of Kunal Shah from Citi Group. Please go ahead.
Speaker #4: Yeah. Thanks for taking the question. So again coming on to the margin side so when we would look at it in terms of this deployment of the liquidity if you can highlight in terms of what is the incremental yield compared to that of the book yield which is there at 10.8 odd percent and maybe what is the kind of decline which we can expect and the savings rate tweak which we had done recently.
Speaker #4: So maybe from 5 odd percent cost of Saa where do we actually see that coming down. No doubt you have indicated some directional trend on margins but maybe specifically on yield and cost of deposits how the trend should be.
Speaker #2: So let me see if I can give an answer. Let me explain right there are so many moving parts and I'll give you some of those which will help you maybe build something.
Speaker #2: So the if you see yield on advances which has gone down from 11.2 to 10.8 if you actually see individual segments nothing has gone down.
Speaker #2: It's it's just a mix issue. As wholesalers picked up and the unsecured retail has come down that is reflecting in what's happening on the yield on assets.
Speaker #2: Yield on assets obviously is impacted also by the FCNR leverage that we have done. If you actually exclude that this number would be another 10 15 basis points higher but it's a more a mix issue rather than a incremental yield issue at a individual product level.
Speaker #2: Now the way to think about it from a going forward perspective as well the liquidity which is generated is currently sitting in investments in non SLR investments which is still lower than what the advances liquidity advances yield are.
Speaker #2: So going forward as your stage one will be the fact that we'll move from the investment yield to wholesale yield and from then wholesale yield to the blended advances yield that's a journey but it's not a one quarter two quarter journey that's gonna take a little bit longer.
Speaker #2: That's that's on the positive side. The flip of this is that you will see a full quarter impact of the FCNR leverage given in gift because you see only a month and a half or you know that's just a little bit more than a month in this quarter so that full quarter impact will come.
Speaker #2: And offset somewhat by the increase in the repo rate which will flow through little bit in this quarter and little bit in the next quarter.
Speaker #2: So too many moving parts to actually pinpoint on to say this is the this is where we would. They're fairly confident to say you will see a little bit of reduction in the next quarter just on account of where the mix is sitting right now on the balance sheet and as that moves forward you would see an increase going through.
Speaker #2: But based off that will remain on deployment of the liquidity which is available.
Speaker #3: Kunal I think the the longer term I think we will also want to see trends where liability costs come down as we rationalize retail deposits savings account deposits as our mix of current account and savings account improve from here on because I'm hoping that this is as low as one gets given that we are you know saddled with FCNR as well as a as a one off event.
Speaker #3: So I think the idea would be to reduce rates on liabilities as well as improve the mix over time to to add to margins and some of that we will be more than happy to lose to to the kind of lending that we will look forward to doing over the next few quarters.
Speaker #4: Sure. And in terms of the provisioning so there is a standard asset provisioning which obviously on this 26,000 crores of incremental advances which have been built we would have taken 40 basis of 40 basis points of provisioning but besides that was there any other standard asset provisioning or buffer which was created during the quarter?
Speaker #2: No.
Speaker #3: No not physically not.
Speaker #2: Between what was provided from a FCNR because there are two specific things. One is the entire FCNR on which we have to carry the 40 and the pick up in gross loans itself right.
Speaker #2: So while it doesn't.
Speaker #4: Yeah yeah yeah.
Speaker #2: Average right. But that's the larger one. There's nothing no buffers on the standard asset side.
Speaker #4: And how much was credit card in the overall provisioning? You said like it might come down to six odd percent which is closer to 400 odd crores.
Speaker #4: Okay. So maybe currently is it still near 600 650 and that's the delta. Maybe 200 250 odd crores which we could see on the credit cost side.
Speaker #2: So if you see and I'll I'll sort of.
Speaker #3: So are card provisioning for the for the quarter was approximately 575 crores. And yes this should come off a reasonable bit.
Speaker #4: Yeah so six percent would almost on 27 500 would translate to 400. So almost like 175 odd crores on credit cost getting into the second half.
Speaker #2: Yeah yeah yeah.
Speaker #3: Sorry what are the total amount you said? 20,000. Yeah that's right. Roughly 20,000 crores.
Speaker #4: Yeah.
Speaker #3: Card is about 19,000 something.
Speaker #4: Got it. And one last question maybe this year would still have some FCNR noise but getting into FY28 what would be our overall guidance on the ROA trajectory the overall growth looking at the higher base which would have been set already in FY27 if you can just provide that outlook that would be really helpful in terms of how we are looking because there is a huge liquidity almost 35 percent of balance sheet liquidity good time to reconstruct the balance sheet and improve the ROA profile.
Speaker #4: So what would be your targeted ROA for FY28?
Speaker #3: Kunal I would rather say that is settle down with what we are seeing it now and the immediate growth what we are looking at and with regard to what is 28 and all no let us let us wait for some more time and then I I did say that to our period of next few months we'll come back to you with a complete details.
Speaker #3: Now let us settle down with the current 0.92 and how it is looking positive for next couple of quarters.
Speaker #2: So Kunal Kunal just to kind of give a little bit of flavor here. We are you know it's very interesting to have a situation where there is a significant amount of liquidity between FCNR and equity which is effectively fixed rate.
Speaker #2: In a rising rate environment. So there will be tailwind to margins. There is tailwind to growth. So so clearly I think there is gonna be material and and the fact that our BAU business which is excluding all this noise is obviously trending much better in terms of costs.
Speaker #2: Predominantly cards. MFI is in the in the pretty much normalized. So I think one should see significant tailwinds. But I don't think we should we would want to comment at specifics at this stage.
Speaker #4: Okay. Thanks. Yeah this is helpful and all the best for the future quarters. Thank you.
Speaker #1: Thank you. The next question is from the line of Jayant Kharote from Axis Capital. Please go ahead.
Speaker #3: Thanks for the opportunity. Sir data keeping end of period deposit term deposit versus last end of period there seems to be a delta of 26 27,000 crores and we've raised 34,000 of FCNR.
Speaker #3: So if you could tell me as of to Q end what is the stock of FCNR on the book as of September end and against that can you also tell me the stock of wholesale deposits plus wholesale borrowings some of which we could expect to be repaid in the third quarter.
Speaker #2: The FCNR UOP only is around 32,000 300 crores or something like that. And the other thing there's a downward trend. I don't know the exact number.
Speaker #3: We'll we'll maybe pick it up offline. See in effect if I mean if we have to explain to you which you're saying what's the generation of FCNR deposit has allowed us to not necessarily remove some of these Q2 time deposits which we had on the books.
Speaker #3: We've chosen consciously to let go of run run down some of the high cost time deposits as a result what maybe it's your math not working out but maybe we can pick it up offline and we'll see.
Speaker #2: So maybe you can just let us know what is the amount you've run down this quarter and how much do you plan to run down next quarter.
Speaker #3: It doesn't work that way right because what comes up for renewal is what we can run down. We are still willing to pick up all deposits which is available at a particular price point.
Speaker #3: Correct. So it's not a conscious call. It's more about the fact that what comes in when we there's a rate which is available. It's a choice of the customer.
Speaker #3: If if the customer renews with us we are happy to renew it at our rate. It's not like I'm telling no to a customer.
Speaker #3: It's just that I've I've put up a rate which if the customer is happy with they will come. So I don't have a number to say this is what I'm running off.
Speaker #3: Unlike let's say borrowing which I may consciously say I will run off which is what we already done in the first quarter.
Speaker #2: Understood. So thanks. So second question is on more of a two year or or you know slightly outer year question not immediate quarter. So we currently have this liquidity deployed in GSEC yielding decent 7 percentage or maybe slightly lower.
Speaker #2: We are increasing our mix on corporate clearly doubling down. So I can understand near term margins will look up after three Q maybe an inch up in four Q.
Speaker #2: But with the mix shift happening is it fair to assume directionally we are looking at a lower nim lower credit cost model let's say for 28 29 should we think about it like that.
Speaker #3: So I don't have an answer to that and I I do want to leave a thought which was Jaideep mentioned earlier and I'll I'll draw your attention to slide eight on the right hand side bottom you see that quarter on quarter our total cost of funds is coming down.
Speaker #3: Our cost of time deposit is also coming down. So while you will see a little bit lower yield on assets you would expect that to be either coincidentally or with a lag the cost of funds catching up as well.
Speaker #3: So not not telling you that I continue with a high nim or etc. It's a nim is a function finally of what happens to what the credit cost and what the at the end of the day customers profitability is important not necessarily individual productivity or individual product level line items right.
Speaker #3: There are two levers here and we'll try and play both of them with the hope that we continue to be in an elevated net interest margin levels from where we are.
Speaker #3: But no guidance per se to say it's coming down or staying there or not right. It's too many moving parts.
Speaker #2: Understood. So the last question is on the SAA growth with a low single digit sequentially not in line with the rest of the balance sheet.
Speaker #2: Is there any number in your mind that if if you're unable to grow SAA at this pace you're willing to slow down balance sheet growth or at this point it is not consequential?
Speaker #3: You know what are you linking SAA to balance sheet growth I don't know. But anyway the SAA growth we have decided as I said a little little while earlier to retain we are going to expand the branches.
Speaker #3: We are getting into the NR segment which is hitherto we were not able to penetrate much. And this will see a lot of positive growth in SAA as you move forward in coming quarters.
Speaker #2: Existing growth in SAA.
Speaker #3: So I was saying is it is it a prerequisite for you for SAA to grow at least let's say double digit for to continue the balance sheet growth or you're willing to wait till it builds out over the next one or two years?
Speaker #2: See I think we will want to look at CAA and SAA as well together. I think there are multiple things here. There the fact that we want to go down the path of lower funding costs is a is a reasonable assumption to have.
Speaker #2: Now that will come down through a combination of you know higher access to wholesale deposits because a lot more corporates are willing to now bank with us given rating profile etc.
Speaker #2: There is a large amount of trade corridor business that one will look at which will also come along with its current account opportunities. There will be an increased focus on NR as Mr. Kumar mentioned.
Speaker #2: So I I think it's a combination. Maybe the better way to look at it is will we continue to grow loan book when our cost of funds is going up or not coming down?
Speaker #2: Probably there will be some level of you know give and take that we will need to look at. But I don't think we will link it to any single metric like you're talking about.
Speaker #3: That perfectly answers my question. So thank you very much and congratulations on a great set of numbers.
Speaker #1: Thank you. The next question is from the line of Piran Engineer from CLSA. Please go ahead.
Speaker #2: Yeah. Hi team. Congrats on the quarter. Just firstly one question Bhavin did I hear you correctly when you said cost of deposits that 5.97 number is ex FCNM?
Speaker #3: Sorry?
Speaker #2: Ex FCNM.
Speaker #3: No that one total deposit is there but you've broken that up into the PD and SAA separately. You can see that on the page eight.
Speaker #3: Page eight right hand side bottom chart gives you the breakup of cost of SAA cost of PD and cost of INR PD.
Speaker #2: Yeah. So the cost of PD of 6.86 is FCNR and INR both? That's correct. Got it.
Speaker #3: And only INR is 7.12.
Speaker #2: Understood. Understood. Okay. That clarifies. Just firstly from a you know wholesale lending perspective now you mentioned a few times that wholesale lending is a priority with high quality corporates.
Speaker #2: How should we think about over the next say one one and a half years what is your target ROA in this segment? Like for example hypothetically if you think you'll make an ROA of 50 bits lending to some Tata company would you do that business or not?
Speaker #3: So that goes away to actually think about it at all especially at this point of time but generally as well I would think because you know you need to look at on a wholesale side especially to look at the risk adjusted capital adjusted returns and not necessarily pure ROA but that's a separately right now from our standpoint the way you think about this is what money is sitting right now in a liquidity in a short term money market instrument would I lend to what you mentioned absolutely because that's a clear pickup of 50 60 70 basis points from where there it is.
Speaker #3: Right. So that's the way you start thinking about it given where our situation is our position is but I would generally say for a bank who doesn't have the nexus liquidity that we have would also still think of a wholesale not necessarily only from an ROA standpoint but a larger relationship that they would have and it's definitely consumes less capital right.
Speaker #3: I mean these are not constraints that I have as a bank.
Speaker #2: Got it. Got it. Okay. And maybe it's too soon sorry were you saying something?
Speaker #3: No no go on.
Speaker #2: Yeah. No maybe it's too soon but any targets that the you know the board now has for management over the next three years or so that you can share with us?
Speaker #3: Nothing on that chart now.
Speaker #2: Okay. Piran I think we we we are in a situation where there is enough and more you know.
Speaker #3: Activity to do.
Speaker #2: To be done and I think you know it will take some time for us to put all that together and and and look at any specifics for the longer term.
Speaker #3: Understood. And is a name change on the cards also soon?
Speaker #2: See we told you sometime back now RBL Bank name is there and we'll deliberate and then do any based on the market feedback and I think we'll take a call at the appropriate time.
Speaker #3: Got it. Got it. And just lastly given that you are pretty close to ECL transition how do we think about steady state credit costs you know the impact of that from next year onwards?
Speaker #2: So again you know there's just too many moving parts a lot of things will depend on the mix the way we are seeing it right now is at an individual product line level whether it is credit card whether it's the microfinance business or the secure retail business wholesale has always been pristine we've not seen a mishap in wholesale for a while we've seen individual product lines all trend better and we would expect that to continue especially given that we would start moving up the value chain in terms of the customer profiling and selection as well.
Speaker #2: A lot of the absolute credit cost at a bank level will depend on the mix which I don't really have a viewpoint at this point of time at what the mix would be at the end of next year to be able to give you a sense of that.
Speaker #2: Okay. Yeah. That's it from my end. Thanks and wish you all the best.
Speaker #1: Thank you. The next question is from the line of Param Subramanian from Investech. Please go ahead.
Speaker #2: Hi. Good evening. Thanks for taking my question. Firstly on the NII for the quarter so quarter on quarter the NII is up like 476 crore.
Speaker #2: So could you help me with the walk of that because when I do the rough math the capital itself you know contributes that much which which seems to indicate that you know the rest of the business we did didn't accrete much NII.
Speaker #2: So what am I you know doing wrong over here? Yeah. So the rough math is 27,000 crore into 7% by 4. It comes to a similar number.
Speaker #2: Yeah.
Speaker #3: The capital if you can give us opportunities to deploy risk free quickly 7% please meet us after the call.
Speaker #2: Yeah. Yeah. Two three things right. So there's part of a little bit of there was in the first quarter as well. It's not necessarily just the second quarter that you know you need to adjust that.
Speaker #2: It's not that it makes a too much of a difference but there is a little bit of there. If you were to as Jaideep mentioned the ability to say that I can deploy everything at seven is even today not the case actually.
Speaker #2: And had you done by the way done the seven and not you know you would have actually be sitting on right now a mark to market given the fact the rates are.
Speaker #2: So you have to be very careful of deployment when we did at that point of time to say we need to be putting in a place that I mean rate expectation hike expectations at around for a while so we actually gone short on duration in the initial piece so your expectation of seven for the full 27,000 crore which came out of capital and 30,000 crore with 34,000 crore came out of the FCNR is a little bit of ambition.
Speaker #2: Ambitious rate to go with. It's very difficult to now say listen for capital it is this much and FCNR it is this much with hypothetical you can keep doing that but you will keep growing in a manner which is sustainable is the only thing that I can say.
Speaker #2: Back from FCNR.
Speaker #3: Okay. Okay. Was there a negative drive from FCNR in this quarter? Is is there something like that as in on absolute.
Speaker #2: The NII will not be negative net interest margin will be a negative drive.
Speaker #3: Got it. Got it. Not absolute NII. Yeah. Yeah. Fair.
Speaker #2: Yeah. Yeah. Absolute NII is not a drive.
Speaker #3: Okay. Okay. Secondly on on fee income right. So if I look at retail fee it is growing at 9%. Your overall core fee you're saying is growing at 12%.
Speaker #3: So it is lagging maybe balance sheet growth. Now if we are say focusing more on wholesale going ahead is that you know sort of par for course going ahead because of the cards business pressure from the card business or or how do we think about this line going ahead?
Speaker #2: So you know again this is a very unique quarter where the balance sheet has grown many fold on account of the FCNR and not just the deposit which is landed in the country.
Speaker #2: If you recall there's also a leverage that we did outside so actually the balance sheet growth is is multiplied by that and you would expect that you're not expect too much of processing fee out of the FCNR piece.
Speaker #2: Having said that you know as you start dealing with a better rated customers better rated corporates you your ability to extract fee then becomes that much more challenging.
Speaker #2: I wouldn't encourage you to link it to the balance sheet growth but we will as we continue to as we start thinking of trade as we start start thinking of some of the processing side of things we would expect that to grow as well.
Speaker #2: Work in progress as we start detailing out some of these things we should be having a better position to model it as well.
Speaker #3: Got it. Fair enough. And and this quarter there is no one off in the fee right? FCNR related anything?
Speaker #2: No. There will be a little bit on an FCNR on the fee because of the currency swap that both have happened. The fixed to floating swap as well.
Speaker #2: So there is a one off which is why you see sequentially fee going up by 12% right? That that you cannot expect that to happen on ongoing basis.
Speaker #3: Okay. Okay. So largely that is the one off fee. Okay. Fair enough.
Speaker #2: That is correct.
Speaker #3: Okay. Okay. And I think this was asked earlier. Just one last question. The OPEX will also you know from here on this is the more normalized trend because on the first quarter the number was sharply lower.
Speaker #3: Is this the more normalized trend? So going into the second half? On OPEX.
Speaker #2: See more or less it is just trending in the clients. There will be a small uptick with our investment in the branches go up and investment in the people goes up and technology but it's not materially way away from what you have been showing it.
Speaker #2: There will be a marginal you know increase will be there in the OPEX.
Speaker #3: Got it. So so we are still committed to thousand branches in two years that we had called out earlier.
Speaker #2: Yeah. Around two and a half three years you can put it that way. Because if you just have around 30 40 branches it will become thousand two and a half three years maximum.
Speaker #3: Okay. Okay. And so when does the ENBD India business acquisition get completed?
Speaker #2: This is an evaluation application in submitted Reserve Bank of India. Once application is approved by them they have to start. Definitely in this financial year.
Speaker #3: Okay. Okay. Thank you so much. Congrats on the call. Thank you.
Speaker #1: Thank you. The next question is from the line of Karan Sangvi from ICICI Securities. Please go ahead.
Speaker #3: Yeah. Hi sir. This is Jay. Thanks for the opportunity and congratulations on the quarter. Sir, most of the questions have been asked. I just wanted to check on the loan growth.
Speaker #3: Overall loan growth right this quarter was maybe an exceptional because of the excess liquidity and strong capital which still stays a little bit of that still stays.
Speaker #3: So how to how to look at the overall loan growth for the bank going into for FY27 and maybe if you have a view on FY28 also.
Speaker #2: It's too long a period you asked about it. See this quarter is in the 40% is an exception. No doubt about it which you also said.
Speaker #2: You just look back in March and June we set the baseline of within 22 to 25. So that baseline will be continued as an informal.
Speaker #2: That's the minimum.
Speaker #3: Yeah. But if I do that sir then it would mean that we may have actually a negative QOQ growth also. That is why I was thinking that is at least for this year could it be like 30% or maybe you know more than 30 types.
Speaker #2: Let us look at the see it all depends upon an opportunity and availability. The baseline is what we have planned about. So so sorry I got what you meant.
Speaker #2: You might want to model a a a six percent or a five to six percent quarterly. So so whatever that translates into you are right.
Speaker #2: Why why? Because of this increase will be higher.
Speaker #3: Right. Right. Okay. And and and when we let's say on a normalized 25% types are you seeing any opportunity for credit card growth also and MFI?
Speaker #3: I mean what would be your let's say baseline projection for credit card business going into FY27 and maybe MFI also?
Speaker #2: So on cards we we expect to to stop degrowing in a in a quarter. I mean hopefully next this coming quarter is a festive season.
Speaker #2: So we'll we'll have some balances build up. And and I think you know given that we will also move towards better quality and stuff like that I would imagine and the industry also kind of not really showing massive growth.
Speaker #2: We will be happy with the you know low double digit kind of a growth for high single digit low double digit kind of growth on cards.
Speaker #2: If you look at industry given the guardrails and and fortunately all the players adhering to the guardrails again and it's a short product as you know it's a it's a 24 month product.
Speaker #2: There's a large amount of run off that happen every month. Again the growth rates are going to be in that zone. Is the way I would look at it right now.
Speaker #3: Okay. Sure. And on the wealth business right? So that could be a new area of focus but do you have the let's say I mean what are the milestone for us to track?
Speaker #3: Do you have the product team and they already there or you know after this transition you would you would like to introduce new products and that.
Speaker #3: So I mean where are we in the entire wealth business? Is it is it set up? Are the products ready or it will take I mean it's it will take some time for two for you to reintroduce this product.
Speaker #2: So I I I'll take you back to what Mr. Kumar mentioned and I'll just say it again saying we're taking early step into investing in a wealth proposition of our customers.
Speaker #2: It's very very early and we will you know whether it's a product whether it is a proposition whether it's the RM will take time to build.
Speaker #2: So don't expect something to be launched next week.
Speaker #3: Sure Marvin. And lastly if you have the movement of movement for AFS reserves just because the the yields have have risen quite sharply. If you have the Q2 number and maybe set the end of Q1 number.
Speaker #3: Thank you.
Speaker #2: Got it. We are at 43,000 crore of book right now. Previous quarter was 37,700 crore. So that's the size of book right now.
Speaker #3: No no sir. AFS reserve. Sorry.
Speaker #2: No. We'll we'll get back to your offline on this one. Not something we can do.
Speaker #1: Thank you. The next question is from the line of Jesua Gao from Sconfeld. Please go ahead.
Speaker #2: Hey. Thank you for the opportunity. My first question is about power. So now something else here is 148%. In a couple quarters time when.
Speaker #1: Mr. Gao. I'm sorry sir. I'm sorry to interrupt you. Your audio is not clear. May I request you to kindly use your handset?
Speaker #3: Am I audible now?
Speaker #1: Yes. Please proceed.
Speaker #3: Yeah. Yes. My first question is on LCR. So there are 148% of. In a couple quarters of time while while we are have 534 excess equity.
Speaker #3: What kind of LCR do we want to run in a normalized scenario?
Speaker #2: So normally we would want to be in the 120 to 125 zone. On LCR because there will always be some cushion that we will want to keep.
Speaker #3: Got it. And on our earlier test we still want to have gradual reduction in size and GD rates this is despite an expected maybe.
Speaker #1: Sorry sir. Your audio is still not that clear. I'm sorry sir. Your audio is still not that clear.
Speaker #3: Sorry. Am I am I audible now?
Speaker #1: Yes.
Speaker #3: Yeah. So your earlier comment of we still want to have gradual sell and TD rate reduction. And that is despite a potential 75 basis point rate hike.
Speaker #3: Shall we understand that your sell and TD rate will still come down despite that?
Speaker #2: TD rate. It would be a gradual. TD rates I think I would I would you know caveat that by saying that it'll obviously be a function of economic interest rates so when we say reduction it'll be relative to what we see in the market.
Speaker #3: Got it. Last question is from the ROA. We mentioned that the credit credit posture compound by about 100 crores. And then this quarter we have about 100 crores of standard depreciation which we know how heavily normal business.
Speaker #3: So if the credit cost 300 crore reduction after this quarter and that itself is 70 80 basis points of ROA you know if you think about 1.5 ROA going forward as a base or you know how should we think about that.
Speaker #1: So the participant has a network issue. Audio is not good sir.
Speaker #2: Yes. If you take it offline you just get in touch with us.
Speaker #1: Sure sir. May I request Mr. Gao to kindly get in touch with the investor relation team of RBL Bank Ltd? Thank you. In the meanwhile we'll take the next question from the line of Avto Joshi from Trivantage Capital.
Speaker #1: Please go ahead.
Speaker #3: Hi. Thank you for the opportunity. This is Avto Joshi from Trivantage Capital. My question is on the wholesale advances. Last two quarters we have seen a significant growth into the wholesale advances in the I want to just have a breakup of it.
Speaker #3: Which are the sectors we are lending majorly to? That's first. Secondly on in the big beginning you you have put put up like short term lending is also happening.
Speaker #3: So what's the proportion of it to and the third part is ITI and IT related MNs as you mentioned into the beginning that lending is happening to that part also.
Speaker #3: Is it to IT or IT related or is it more to a AI related Capex going on? These are the three questions just broadly on the wholesale advances.
Speaker #3: Thank you.
Speaker #2: So the third one was more in the context of deposit. Because we have now added to a lot wider chain of corporates. On on on sectors I think we've not seen any single sector stand out.
Speaker #2: I think you know if you look at while the headline growth of percentage looks high but in the larger scheme of things this is you know maybe 0.75 to 1% of incremental growth that the system would have seen.
Speaker #2: So it is largely working capital driven. Yes we've taken some bites on project finance or longer term loans but predominantly continues to be working capital driven which is what Bharat said that we are looking at trade related opportunities that are coming our way.
Speaker #2: And and the reduction in in in in corporate deposits which is already let's say reflecting the the rating upgrade and the and the demand supply mismatch in our favor that we have where we need lesser deposits and there is a wider population of constituents willing to give deposits.
Speaker #2: I think that's reflected in the rates at which we can raise corporate deposits. That's allowing us to to get into either to difficult opportunities given the advantages that we have.
Speaker #2: But I don't think there is any specific sectoral trend that we are either chasing or seeing.
Speaker #3: Understood. Understood. Thank you and all the best.
Speaker #1: Thank you. The next question is from the line of Kaur from MLP. Please go ahead.
Speaker #3: Yeah. Hi. Good evening. Thanks for taking my question. So the question was regarding the unsecured loan. So on a sequential basis the overall unsecured pie is is flattished.
Speaker #3: So let's say from this year perspective what is the sort of growth that we are looking at? And typically ballpark what is the drag of 1 percentage point shift from unsecured to secured mix?
Speaker #3: Is it 12 basis points? Broadly 20 21 22 percent is the yield on the unsecured loan. And the secured retail would be more close to 9 10 percent.
Speaker #3: So is that math right?
Speaker #2: Yeah. I think the mix math is is broadly right. 21 percent plus minus would be the yields on unsecured. In terms of growth as I mentioned earlier I think cards we expect to start seeing at least some positive growth in the next six months.
Speaker #2: Before we start delivering a 10 to 12 percent growth for next year. And in microfinance I think we should we should look at again 25 percent line wise.
Speaker #2: Yeah. Year on year growth is quite strong but sequentially we will probably see 5 6 percent.
Speaker #3: 5 6 percent.
Speaker #2: 5 5 5 5 percent growth as well.
Speaker #3: See the strategy for the microfinance is very simple. We wanted to grow only to the extent what we wanted as a PSL. This is not an engine which is going to add up the numbers.
Speaker #3: It's primarily for PSL. Understood. So and next year so coming to F28 where where so currently if I look at the share of unsecured is about 19 percent.
Speaker #3: Where does this share settle?
Speaker #2: So so you can look at an overall growth of let's say early to mid 20s and an unsecured growth of let's say high single digits.
Speaker #2: Or low double digits.
Speaker #3: Oh. For next year?
Speaker #2: Yeah. I mean I think we've been guiding with long growth of some same order.
Speaker #3: Okay. Same for FY28 as well? Hello?
Speaker #2: The share will be more or less the same range you can just keep it that way and then tightly lower.
Speaker #3: Okay. Understood. Understood. And my second question is is on the interest expense line. If I look at the overall balance sheet has expanded by 25 percent sequentially but the interest expense seems to be flat.
Speaker #3: Probably is explained by the average deposits and period end deposits. Is that the sole reason? I mean deposit typically on an average came mostly towards the end of the end of the period and hence the interest expense is flattish in this quarter.
Speaker #2: It's a mixture of what you're mentioning and a mixture of the fact that we've let go of some of the high cost deposits as well which is coming through.
Speaker #2: And hence you will see coming. And also the balance sheet got funded by equity right? So full impact of equity has come this time right?
Speaker #3: Yes.
Speaker #2: So that's.
Speaker #3: I was only mentioning the deposit.
Speaker #2: Cost of the. Cost of the.
Speaker #3: Sure. Got it. No perfect. That that's all from my side. Thank you.
Speaker #1: Thank you. Ladies and gentlemen. We now conclude the Q&A session. If you have any further questions please contact RBL Bank Limited via email at ir@rbl.bank.in.
