IndusInd Bank Q1 FY16 Results Analyst Conference Call

July 13, 2015


Moderator: Ladies and Gentlemen, Good Day and Welcome to the IndusInd Bank Q1 Analyst Conference Call. As a reminder, all participant lines will be in the listen-only mode. There will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference, please signal an operator by pressing „*‟ then „0‟ on your touchtone telephone. Please note that this conference is being recorded. I now hand the conference over to Mr. Romesh Sobti — Managing Director and CEO at IndusInd Bank. Thank you and over to you sir.
Romesh Sobti: Thank you and good afternoon, welcome to this Con Call. We have just declared our Q1 Results. So I will take a few minutes just to talk about the headlines and then I think some of the issues within the presentation… the „Investor Presentation‟ is already loaded on the website. So if you look at the highlights for the Q1 for IndusInd Bank, I would say that the biggest highlight for us of course was the raising of capital, I am just talking of the macros, the QIP issue was launched, Rs.4,300 crores was raised, it was oversubscribed at a premium of 2.9% to the SEBI floor price, another Rs.750 crores is also on its way through the preferential issue which should be completed by the end of the month, which means the capital addition of Rs.5,300 odd-crores would accrue to the bank. We already have a Tier-1 ratio of 11.55%, this should take it up to almost above 16%. So that is the new fuel in the tank for future growth.

The other I think highlight was the decision to acquire the Diamond and Jewellery Financing business of RBS in India. That remains on track. And the transfer of that book will happen to us later in this month… it is not reflected in Q1 but Q1 is when we signed the deal. I think overall otherwise we are seeing key performance vectors have remained extremely stable, I think most of the lines show not only a good and healthy year-on-year growth but also a good sequential growth and most sequential growths on the revenue side and the profit side are up by in the mid or the high single digits. Our Non-Interest Income engine continues to churn out a healthy 42% of total revenues; our NIM is stable, credit growth is above industry at 23% Y-o-Y and 5% Q-o-Q; Gross NPAs has actually come down slightly, and the credit cost is 13 basis points for the quarter, which includes 4.5 basis points of the carried forward credit cost which you will recall is a consequence of the ARC sale that we did in Q4.

So just headline numbers: Interest Income grew by 22% year-on-year and 6% sequentially; other income grew sequentially 10% and 26% year-on-year; operating profit was up 8% sequentially and net profit was up 25%; the loan book grew by 23% fueled by Corporate Advances which grew 27% and the Consumer Advances which have now grown 18%. So if you recall about two quarters ago the Consumer Finance IndusInd Bank July 13, 2015 Page 3 of 19 Loan book used to grow at around 12% or so. Deposits have grown 22%. The star in our liability side remains SA; SA has grown 33% and if you look back 2 years I think we have had a compounded annual growth rate of close to 32% on the SA side, which is reflection of the fact that our reading of the stickiness of our clients basis which we had reduced our interest rates is correct because we are not seeing any reduction in the acquisition rate of new to bank customers. During the quarter, we did toggle between Deposits and Borrowings, so we raised fresh borrowings on account of refinance. That is why you are seeing a spike on the refinance book. Other than that I think returns have remained stable; ROA is 1.9%, which is about one basis points less than last quarter; ROE has finally crossed 20%. If you recall that when we raised our last QIP this had fallen down to 15% and now we have steadily pulled it up and it has passed the 20%. There has been reduction in the cost-to-income ratio by about 40 basis points.

We have absorbed the cost of opening almost 74 branches in Q4. This quarter the number of branches opened is much less one because of absorbing the fact that there was a huge spurt in the branch openings in Q4 and also I think we are just taking a little time to look at how the new branch model will emerge as a consequence of more digitization of not only front end sales but also the back end, the processing side of the businesses. We still remain on track in terms of total branch openings, I think Q2 will see a higher branch opening. So we remain intact, we remain committed to opening 1,200 branches by March 2017.

The Loan book has started rebalancing we are at 42% on Retail, we are 1% up, and if you look at Slide #13 you will see that the Commercial Vehicles portfolio… this is MHCV part which used to be 15% exactly now moved to 16%. So clearly I think on Commercial Vehicles the upticks that we were seeing has certainly become a trend and the recovery in the Commercial Vehicles industry continues, in the industry we have seen 23% Y-on-Y growth. For us, of course, our Vehicle Finance disbursements are up 33% Y-on-Y and Q-o-Q also, the CV part has shown a healthy growth of 8%. So the Loan book rebalancing which is one of the things that we have articulated which is very close to our operational ambitions has started and we hope that in the coming quarters this will also continue.

Other than that I think I have already talked about CASA; CASA continues to move up steadily and SA as I said is the star with a growth of 33%. Total fee income has grown 26% in which core fee is 23%, and if you look at the diversity of the few revenues apart from trade and remittances we are seeing Y-on-Y drop only because of some one-offs which may have happened in Q1 last year, there is no trending at all IndusInd Bank July 13, 2015 Page 4 of 19 here, our sight on Q2 clearly shows that this is a trend that we reversed. Other income streams have gone a pace and are in the healthy double-digit growths. The NIM is stable; 3.68% which means your cost of funds have fallen as much as your yield on assets which is on Slide #19 which shows how these movements have actually happened.

I have already talked about credit costs; credit costs including the 4.5 or 5 basis points which is carried forward and which will come in every quarter for 6 quarters more. Actual credit cost therefore 8 basis points and we add this will come to 13 and net of recoveries our net credit cost is 12 basis points.

On NPAs, I think the net slippage is just Rs.7 crores. The consequence of which percentage of gross NPA had actually fallen from 0.81% to 0.79% and net NPA remains at 31 basis points. The PCR has moved optically by 2% points but that is just the arithmetical sort of event because there was an old NPA which we had written-off where 100% provisioning was there and that was sold for cash, and as a consequence of which both numerator and enominator reduced by the same amount I think Rs.16 or 17 crores it was and that is why I think there is an optical movement in this thing. The restructured book has gone up by 10 basis points on account of only one account, where I think the date of commissioning has been moved and there is no impairment or loss it remains standard and I think that is the only reason why this has happened. If you look at the product wise breakup in terms of NPA composition, then you can see clearly that the MHCV, the delinquency profile is beginning to improve, and there is a 9 basis point drop in the gross NPA on the Commercial Vehicle side. This is a big chunk the others are pretty small and so movements of Rs.1 or Rs.2 crores or Rs.3 crores here and there may make some basis points differences but they are not material to the whole scheme of things.

Capital Adequacy: I mentioned to you, Tier-1 is at 11.55%; post the QIP and the preferential it will go to almost 16%. During the quarter, if you will see the Tier-1 has actually improved and so has CRAR. That is a consequence of three or four factors – one, of course is that we have a higher percentage of rated investments and I think some cash backed disbursements that also happened. I think we have a lower non-fund book as well, some of the LCs and guarantees issued for PSU banks have run off, that is the thing and then also there is the market risk saving, the MTMs have gone down, and also I think finally there is that regulatory retail relief that we have got on some of the portfolios in our Retail book. So therefore you have seen in spite of growing Rs.3,500 crores, the RWA did not grow as much, and in fact, if you now notice the down trending is something that some analysts have been pointing out, IndusInd Bank July 13, 2015 Page 5 of 19 there has been a down trending in our RWA to total assets percentage, which has fallen actually 4% points over the last two quarters, and this quarter itself it has fallen by 2% points and now it has around 79%. I think that is a brief of the quarter‟s performance.

Of course that you will find other things that you will find in our „Presentation‟ which is this whole froth around digitization, I think digitization launches that you are seeing including ours are mostly becoming hygiene, so we also launched our QuickPay which enables customers to send and receive money instantly through sms or e-mail and you can choose any sort of social platform to do that payments, we also have a tie up with Worldpay, etc., We launched the loan against shares during the quarter. A new currency chest was opened in Kolkata, that takes our total currency chest to 4. We are now bankers to many other bankers who deposit their cash with us and these are actually profit centers.

So I think I will stop here and we will open the floor to questions.

Moderator:  Thank you very much, sir. Ladies and Gentlemen, we will now begin the questionand-answer session. Our next question is from Mahrukh Adajania of IDFC. Please go ahead.
Mahrukh Adajania:  On capital adequacy, could you elaborate the regulatory retail relief and even the market risk savings?
Sanjay Mallik:  Mahrukh, on the market risk, the G-Sec and T-bill portfolio has gone up, so that does not consume capital, whereas the non-SLR portfolio has gone down and also the MTM on the book has reduced, so as a consequence the market risk is a bit lower. As far as regulatory retail is concerned, if you look at the master guideline on exposures there are essentially four qualifying criteria for regulatory retail and that essentially boils down to our Retail book which has gone up, you have seen that in the last quarter our Retail-Wholesale mix has moved favorably by 1%, but just to elaborate on what the regulatory criteria are, these are essentially #1, it should be a selfemployed or small business loan; #2 it should be installment credit or overdraft; #3 it should be a granular portfolio where no account is more than 0.2% of the portfolio; #4 the exposure cannot exceed Rs.5 crores. So if you meet all of these four criteria your regulatory Retail risk consumption is 75% of the loan, so your Credit conversion factor is 75% whereas in the case of Business Banking it will be 100%, in the case of Cards and Personal Loans it would be 125%. So the lower risk weighted percentage was higher in the quarter.
Mahrukh Adajania:  What would be the proportion of your foreign currency loans or assets?
Sanjay Mallik:  Yes so foreign currency assets are almost 20-odd-percent of our Corporate Loans.
Mahrukh Adajania:  And borrowings?
Romesh Sobti: I think we have total borrowings of about $800 million.
Moderator: Thank you. The next question is from Nitin Kumar of Prabhudas Lilladher. Please go ahead.
Nitin Kumar: I have two questions; firstly, what is the view on coverage ratio going ahead, and how comfortable are we with the current levels?
Romesh Sobti: So the ideal coverage ratio is 100% but that is a utopian sort of a dream. I think even at 61% we are probably in the top quartile on provision coverage ratios. Our this thing is that we must climb back to the above 70% level not because it is a regulatory requirement, only because at one stage the regulator had said 70%. So it is a sort of artificial benchmark that we have kept for ourselves, and we would be I think more comfortable at 70%…. although mind you the need for higher provision coverage ratio is not there because we have a highly secured portfolio, especially if you see the Vehicle Finance portfolio, where LTVs are very low and the loss given defaults are also pretty low, and therefore, if you add all that back we are very close to 100% anyway, but those are not included for regulatory purposes. I think the short answer is we would want to climb back to 70%.
Nitin Kumar: Secondly, of the strong growth in Savings Accounts deposits that you have reported during the quarter, how much of this was led by the new account additions and how much was due to the increase in Savings balance?
Sumant Kathpalia: We actually added about 180,000 accounts in the quarter and our acquisition value was about Rs.780 crores on those.
Nitin Kumar: So, like to put this in perspective, how has it been like say a quarter before or last year?
Sumant Kathpalia: We have always been in the range of Rs.650 to Rs.700-725 crores acquisition value for the quarter.
Moderator: Thank you. Our next question is from Anish Tawakley of Barclays. Please go ahead.
Anish Tawakley: Just two questions: One is the RWA growth has come down this quarter which is a good thing. What would you expect RWA growth to be going forward from here for the year?
Romesh Sobti:  Clearly, I think they are trending towards a higher percentages of Retail book, which is one of our ambitions, certainly, I think we would be very happy by end of this fiscal year we would take our Retail book in ENR terms at least to a 47-48%. And if that ambition is met, then clearly I think the relief that you are getting on the Retail portfolio where you could have RWAs of 75%, except in Credit Cards and I think in Housing you would certainly get a relief, and therefore, I think this downtrending should actually continue, that is how we foresee.
Anish Tawakley:  So the non-funded exposure you are not intending to grow fast again?
Romesh Sobti:  There are a lot of misnomer around non-funded exposure, it is a very-very intrinsic part of our businesses, we have explained I think several times that our non-funded exposure is not project-related exposure, it is mostly short-term trade-related exposures, there are LCs guarantees, and, of course, FX contract, so you see how FX income has grown every quarter and year-on-year. So there will be non-fund income but non-fund this time has come down because there are some large non-fund LCs and guarantees issued for some PSU companies have matured.
Anish Tawakley: No, I understand that, my only question was like… I understand Retail Loan growth will mean that RWA to loans come down, but if non-funded exposures grow, that puts an upward pressure on the RWA to loan ratio? So net-net of that do you expect RWAs to grow faster than Loan this year or below loan growth this year?
Sanjay Mallik:  RWA to total assets, Anish, I think it will fall at least I would guess close to 2% from here because of the increase in the Retail book. The impact as a consequence of the off balance sheet is actually much smaller than you imagine because the credit conversion factor, for example, for forwards and derivatives can be as low as 2%. So even though the notional principles are large, the risk weight consumption is low, and similarly, in the event of Letters of Credit which are sight LCs you only have a 20% conversion factor and if that customer happens to be a triple-A, it is only a 4% conversion factor. So the actual consumption of capital in off balance sheet is low and the ROE on that business is pretty attractive, and even if you take it on a standalone basis ultimately, you are looking at returns, the returns are measured on our funded book, on our non-funded book, on our Retail book, and there is an ROA measurement across the bank, we do not allocate capital unless we get return. So IndusInd Bank July 13, 2015 Page 8 of 19 even if in the event that risk weight assets go up, you will see that the returns will match.
Anish Tawakley:  But net-net you expect RWAs to grow slower than asset this year?
Sanjay Mallik:  Slightly.
Anish Tawakley:  What is the Savings Account cost? It was just below 6% last year. Has it dropped?
Sumant Kathpalia:  It continues to be below 6%.
Anish Tawakley:  Could you quantify that?
Sumant Kathpalia: We do not disclose those numbers.
Moderator:  Thank you. The next question is from Adarsh P of Nomura. Please go ahead.
Adarsh P: Just a question on the treasury income seems large during the adverse movement in yield. So if you can explain the source?
Romesh Sobti: Yes, so, it is really reverted back because if you look at Q4 we had a bit of an aberration in Q4 because the hedging costs had moved up, and therefore the propensity to hedge was lower and therefore the flows in income were lower, but this is more business as usual.
Adarsh P: I was referring more to the treasury income rather than the core fee part of the FX?
Romesh Sobti: So in Q1 you were allowed to move as we did in Q1 of last year, gains in the HTM book can be sold and so last year also if you saw Q4 and Q1 there was a upward movement and likewise we had some HTM mark-to-market gains which we crystallized when we sold that portfolio, we have not sold everything because we sold selectively, we believe that there is no money to be made and we are holding very decent level still there because I think all these news on Greece and all those sort of things plus I think expectations of further rate cuts. So some was moved out and some profits were booked there, but I think we are still keeping a nice healthy profit book there.
Adarsh P: The other question was on the CV book. Two to three quarters now we are seeing strong sequential growth. So I just wanted to understand some underlying IndusInd Bank July 13, 2015 Page 9 of 19 disbursement trend as to what the growth there is in, is the growth modeling to a book which had contracted quite a lot in?
S.V. Parthasarathy: I am Parthasarathy here. Actually, the book did not contract for the past 2-years, of course, it has been stagnant for the past something close to about six to seven quarters, there has been some upward movement in the last March quarter as well as some upward movement right now. We were doing close to about 4,000 to 4,500 Vehicles per month till about December, now the trend has moved closer to 6000 Vehicles. Therefore, too early to call it as a trend. If the same situation continues till about September I think it will be a definite trend and we should see a healthy growth in Commercial Vehicles industry and the Disbursement as well as assets for us. We have increased overall Automobile Disbursement by close to about 33%. Whole of last year our asset grew by about Rs.1600 crores whereas for this quarter alone the asset grew by about Rs.1000 crores, therefore that could show us that there has been a smart recovery.
Romesh Sobti: So Disbursement during the quarter were about Rs.4,560 crores.
S.V. Parthasarathy: As against Rs.3,240 crores.
Romesh Sobti: Which is a 33% year-on-year growth. And of course I think in the CV sector you saw a Q-on-Q Disbursement growth of 7.4%.
Adarsh P: Just on the way your base rate differentials are vis-à-vis peers, just want to understand how that pans out or how does that put you on a relative basis vis-à-vis some of probably better rated corporates?
Romesh Sobti: I think the question to be asked is how many banks lend at base rate because I think this is one of the assumptions that are made that everybody lends at base rate and your base rate is higher than X or Ys and therefore your ability to disburse and get triple-A clients is handicapped, I think it does not work that way not only in those client but also in the SME book as well. This is a function of the margin over base rate, so the margin over base rate shrinks as it is shrinking, so if we were lending at a 1.5% over base rate we are lending at 1% above base rate or 0.5% over base rate, but if you are working in a consortium and we are working in every consortium that you would want to work with whether it is the Tatas or whoever, we have 25 companies of the Tata Group where we are in the consortiums where SBI is also there and ICICI is also there, HDFC is also there, and I think the rate equalizes and the rate equalization really happens through reduction in the margin over the base rate. So we IndusInd Bank July 13, 2015 Page 10 of 19 are not specifically handicapped in doing that, but we want to be selective on who we give the lower rate to, we do not want to do across the board cut which the good, bad and ugly… we do not have ugly, but the good and bad also get the same relief, I think you got to work the risk-reward relationship where you see the lower risk, you take lower rewards. I think that is the way it works in the market.
Adarsh P: I agree for some Mid-Corporates, but some of the Larger Corporates even at 9.7, 9.8 or 10% base rate banks are of the opinion they are getting substituted now which is why you see bond issuances increases with, just from that perspective, you are 75-80 bps higher than peers even from 9.7 or 10% range. So, seem very difficult for AA+, AA or AAA Corporate to come and borrow at your base rates?
Romesh Sobti: Very clearly one basic assumption is that we want loan market share. We do not want loan market share, so we will neither over price nor under price, we are not interested in overall loan market share, and there is another way of countering that and that is through foreign currency loans. So there is a lot of foreign currency lending that also happens that I borrow in dollars and lend in dollars where I am very-very competitive, so you give a basket of facilities to that Corporate and that is how you run this business.
Adarsh P:  Is the nature of the FX book again short-term bill discounting or what is the nature of that 20% book?
Romesh Sobti: Of course it is mostly short-term and tenors are up to say 12-months and these loans do not distort the overall tenor of our Corporate Loan book.
Adarsh P: What spreads would you make because various PSU banks have seen a lot of compression in the shorter-term loans which the foreign currency loans because of liquidity outside, so I am just trying to understand how remunerative this book is as of now?
Romesh Sobti: It is remunerative, that is why we are doing it, and I do not think we can share margins with you.
Moderator:  Thank you. The next question is from Tabassum Inamdar of Goldman Sachs. Please go ahead.
Tabassum Inamdar:  Two-three questions; first of all, if I look at the interest income which is a third line balance with RBI, that seem to have jumped quite a bit this quarter. So, what is the reason for that?
Romesh Sobti:  So actually it is not RBI, it is RBI and banks, I think there are two parts to the thing. So I think we have had excess liquidity in many parts of this quarter and also towards the end of the quarter, which, of course, we deploy with other banks, the yields are higher than the cost of these funds and therefore there is a spread that happens. At least during the quarter, for instance, we had that INOX IPO where we raised Rs.6,000 crores where we took a huge market share and raised those funds. So there was excess liquidity and these excess liquidity is then parked in these banks, it gives us a spread, adds to our overall NII.
Tabassum Inamdar: The second question I have is on Non-Retail Loan growth. So that has been fairly strong, clearly, you are taking away market share from perhaps the public banks. So just wanted to understand, if the Loan growth remains fairly muted…it has been muted now for the past 2-years with Corporate India not really expanding, there is no much investments happening, there is not much working capital growth because of very weak macro. So if this sort of continues then how long can we continue to grow at this kind of high growth pace? Clearly, at some point in time, the market share gain which you have seen could get impacted or the PSU banks try and keep their good quality customers back with them.
Romesh Sobti: The issue is that if you look at market shares, our market shares are miniscule, if you look at everywhere our total market share is 0.8%. So what can we move up to? That is the other question that is being sort of raised that the PSU banks will lose market share. My own sensing is that this is a little exaggerated that what is the capacity of private sector banks to take market share, for instance, supposing market share moves by 10% in favor of private sector banks, ours will move by 0.1 or 0.2%. So in terms of market share I think we are still very-very small. Certainly, I think the PSU banks are going to give up more of the balance sheet and we are seeing that in consortiums, for instance, where I am interested in taking up a consortium share and somebody is interested in giving up consortium shares, especially the PSU banks. So I think our number and base line is so small compared to the market that we do not sort of move the needle so much and fortunately nobody notices us.
Tabassum Inamdar: Just to understand this a little better, if I look at the PSU banks, it is clearly not giving new incremental loans for projects or for working capital financing. So why are they giving up their share on existing say good loans to private sector banks so easily because clearly capital adequacy is a constraint but they are still growing at a certain pace?
Romesh Sobti:  I would say there are two things; one is capital adequacy that determines ability to lend; and secondly, I think the willingness to lend. We have seen this over last 20-25- years that whenever the Loan book explodes, they go into a shell, so you will see simultaneously the G-Sec book going up and they give up market shares. So that is a phenomena that happens every 4 or 5-years. It is likely that some of the smaller banks are giving it up. I do not think some of the larger banks are giving it up… SBI would not give up right, but I think somebody less who has not got the capital and who has not been classified as one of the more efficient banks by the Ministry of Finance they would give up because my sensing is that there are banks who have to mend their balance sheets then grow, and, of course, there are other banks in the PSU sector who will lend and grow. So there is mending that is required for these banks and I think that is what it looks like that the Ministry is also pushing that “I would not give you more capital, so you better do your recoveries and improve your returns.” Therefore, mend your book before you grow your book, and those are the banks that will give up shares in even good companies.
Tabassum Inamdar: Just last question on data point; what is the number of employees now?
Zubin Mody:  Exact number is 19,947.
Moderator:  Thank you. The next question is from the line of Haresh Kapoor of IIFL. Please go ahead.
Haresh Kapoor:  Just wanted to understand on a new initiative Loan against Shares. So your partnership with Bajaj Financial Services, how is it going to work and what kind of book do you plan, let us say over this year and how that is going to be?
Sumant Kathpalia:  No, loans against share, there are two components; one is less than Rs.20 lakhs ticket size book which we will have on our own books, there are other we get request for promoter funding, which we cannot do as a bank, and we give it to them to Bajaj for that we will get a referral fee. That is the business Yes.
Haresh Kapoor: Second question is regarding around your Equipment Finance book. So just wanted to understand in case you see any stress on that book and basically just noticing quarter-on-quarter also there have not been significant growth in that. So, is this a conscious effort to reduce it and what kind of stress do you see on that in case any?
SV Parthasarathy:  Our Equipment Finance basically is similar to the Commercial Vehicles, in the sense that most part of our portfolio is similar to that of JCB and small earth moving equipment. They behave in a pattern which is more or less similar to that of IndusInd Bank July 13, 2015 Page 13 of 19 Commercial Vehicles and the risk and returns more or less corresponds to the same. We are not in Large Equipments.
Romesh Sobti:  In fact, if I am correct, we have not gone for market share here, this is one area where we have released market share.
Haresh Kapoor: So just wanted to know like if we are going to be more cautious on this moving forward and some stress that you see, that is the reason…?
SV Parthasarathy: Actually most of these loans are to our existing customers who also have Commercial Vehicles portfolio, we have been with these customers for quite long and it moves in tandem with the existing Commercial Vehicle portfolio with a similar gross NPA, net NPA as well as the returns everything is more or less same, because customer base is more or less either same or similar.
Moderator: Thank you. The next question is from the line of Rakesh Kumar of Elara Capital. Please go ahead.
Rakesh Kumar:  Firstly, one question on yield on advances basically coming from the commercial book …non-consumer book. So, what is the reason that there is a larger decrease that has happened as compared to CFD book, so there is a retail book composition change which could be the reason for the CFD book yield being maintained, but on the CCB book, there are some drops?
Romesh Sobti: That yield movement if you see the last few quarters is essentially a consequence of higher percentage of foreign currency lending and foreign currency lending has lower yields but I think same margins. So it does not affect your NIM but it affects your gross yield.
Sanjay Mallik:  Just to add as and when the Diamond and Jewellery portfolio comes on to our books that trend will continue because that is also largely foreign currency financing.
Romesh Sobti: But it is NIM-accretiv.
Rakesh Kumar:  Secondly, for the other query you said that the risk weighted asset is likely to grow at the lesser pace and I believe that would be mostly coming from the credit risk being lower. So, like in the times when we have good amount of capital, we are already going to raise, we have already got capital and the risk appetite for the bank should have increased and capital is more than adequate. So, why are we planning to grow the risk weighted asset at the lesser pace as compared to the overall Loan book?
Romesh Sobti: So there are two answers to that question: One is if you have capital it does not mean you got to spend it unnecessarily, I think you got to spend it in the right direction, that is very-very clear. Our direction is that we should push up our Retail book and clearly that is a beneficial impact on this thing. The second is that there is a way of growing your Loan book without necessarily growing your risk weighted assets by the same percentage. So I think that is the focus area. So if you do a well rated companies for instance then you use less capital. We are going to use capital, we have the ability to do more than 25% or 30% growth, we have always held that our range is 25-30% but we have added some covenants on that that we want to grow higher on Retail, lower on the Corporate side, we also want to sell down some of our Corporate portfolio as we used to do 2-years ago so that usage of capital is not to the same extent as Loan growth.
Sanjay Mallik:  So in terms of usage of capital you can either use it faster or you can keep it longer and I think our answer is longer.
Sumant Kathpalia: Thank you. The next question is from the line of Manish Karwa of Deutsche Bank. Please go ahead.
Manish Karwa:  Just two-three questions: On your Deposit growth front, historically, we have generally been very strong on the Self-Employed segment. Is the new growth also coming from a similar segment for us?
Management: Yes, it is; however, in the Home markets I think we have now also started doing mass, so the Home market I think we are going mass and we are getting the individual segment but in the other markets we are still focused on the business owner segments. The metro markets we continuously focus on the business Owner segment.
Manish Karwa: As of date, how much would be Salaried or non-Salaried, do you have a number for that on your Savings Account?
Romesh Sobti:  We do not have a number on that, but we are not such a big bank on Salaries because I think Salaried are either high transactors which is also a misread that is happening in the market that number of transactions is a measure of efficiency, I think the high transactors are very costly. They use lot of money and keep very few balances. So Salary Accounts is not such a profitable business as people imagine because you are working on the basis that give me freebees so the Head of HR will say I want a free credit card, personal loan at this thing, home loan at this thing and you give all that IndusInd Bank July 13, 2015 Page 15 of 19 and the fellow takes off his money and puts it in the bank next door. This is what happens. And high transactors are costly. I have read somewhere about number of debit card usages and transactions and things like that. I think it is a complete misread. You got to see what you got in your books. We are a low transactor but high balances because I do the Business Owner segment, I do not do the Salary segment, I am not such a big player on the Salary segment. So you got to see what each bank has got within its book before you come to conclusions.
Manish Karwa: No, sure. Then it clearly reflects that for us the clear high profitable CASA is what we are increasingly getting.
Romesh Sobti: Correct.
Manish Karwa: On the Gems and Jewellery thing, is it a delay in completing a transaction or it is always expected to take this much time?
Romesh Sobti: It is a normal process, the first part of this process was take regulatory approvals, that regulatory approvals have come, that includes Competition Commission, that takes its own time, I think that is the usual thing. We had built the time in. By and large it is within the timeframe that we have envisaged. So we do expect that within this month this transfer should happen.
Manish Karwa:  Even despite this acquisition, you are saying that your Retail Loans will move to about 47-48% of the Loan book by the end of this year?
Romesh Sobti: The rebalancing is not only Retail versus Corporate, it is also Corporate versus Corporate. If you recall two years ago, if you are following us then, we used to sell down some Rs.3,000 -4,000 crores of Corporate book during a quarter, then Loan growth fell off, we stopped the selling. Now, with this surge which will come, I think we can get back to that because the yields are going to be better here. That is how we will balance.
Manish Karwa: On the CV side, of the new disbursements that we did, how much was new versus old?
SV Parthasarathy: Used Vehicles or Old Vehicles is about 16% of the total and the book as well as the disbursement remains more or less at 16%.
Moderator: Thank you. The next question is from Parag Jariwala of Religare Capital Markets. Please go ahead.
Parag Jariwala:  Regarding your acquisition of Gems and Jewellery business, whenever it will come in this quarter, will it be at a 100% risk weight? The reason I am asking is since it is Gems and Jewellery business, it will be a higher risk weight or it will be 100%?
Sanjay Mallik:  No, it is less than 100% because a fairly large chunk of the portfolio is rated, these are Mid-Corporate customers and mostly have investment grade rating. So the capital consumption will be in line with where we are today.
Parag Jariwala:  Secondly on the SR you sold last year, what I believe is that these SRs are rated by the rating agency. So is there any upgrades/downgrades which you have seen since you have sold that SR?
Sumant Kathpalia: None.
Romesh Sobti: In fact, the SR book has shrunk, if you see the SR book, it has actually gone down; SR book is now down to Rs.214 crores, it was Rs.223 crores last quarter, and this is after accounting for Rs.21 crores sales in this quarter which is a normal repossessed vehicle book that we sell every quarter, so if you actually take that Rs.21 crores and the other Rs.9 crores, we are at Rs.30 crores reduction in the SR book.
Parag Jariwala: So that part is working in line with what was our initial expectations?
Romesh Sobti:  Yes.
Moderator:  Thank you. The next question is from Hiren Dasani of Goldman Sachs. Please go ahead.
Hiren Dasani:  Just one clarification; on this loan against shares financing, is the tie up with the listed entity Bajaj Finance or it is unlisted Bajaj Financial Services Limited?
Sumant Kathpalia: I think it is Bajaj Financial Services.
Hiren Dasani: So it is not the listed company?
Sumant Kathpalia: No.
Hiren Dasani: Can a Business Banking Loan be classified as a Retail Loan for availing the lower risk weighted asset?
Kalpathi Sridhar:  Those loans which are less than Rs.5 crores and also meet the turnover criteria.
Hiren Dasani: If I as an individual proprietor of a small business take the Loan Against property that will be treated as a Retail Loan?
Kalpathi Sridhar: I need what is the total size of that portfolio, what is his turnover and what is the amount. So if all those criteria are met, then that entire portfolio of those small loans will get categorized as regulatory…It cannot be on a loan-to-loan, I cannot just decide that this particular loan is regulatory.
Hiren Dasani: No, I understand that criteria, but I am saying, in practicality it maybe more of a small business loan but it can still be classified as a small retail?
Kalpathi Sridhar: Yes, small business loans can be regulatory retail, and that is permit.
Romesh Sobti: Also, Self-Employed.
Hiren Dasani: Thirdly, on the preferential allotment, which is yet to happen, because the EGM and all is yet to be done, will it happen at the same price or it will follow the other set of guidelines in terms of the average prices and all?
Romesh Sobti: Preferential allotment will happen at the SEBI-driven formula which is really the 6- months average or the last 2-weeks average whichever is higher and as things stand today the record date of course has been established, it is likely to be I think higher than the QIP price.
Hiren Dasani:  So the record date for both are separate?
Sanjay Mallik:  Yes, the record date is separate. QIP is over and the record date for the preferential will be 30-days from the date of the scrutinizer which will be around 30th July or somewhere in the first week of August, so the effective relevant date will be 30th June or sometime in the first week of July, and that takes the price above the QIP price.
Hiren Dasani:  On the margin outlook, there are two levers which are likely to favor the margins going forward – one is obviously, the capital raise and the other is the movement of the Loan book towards the Retail, but at the same time the Corporate Loans yieldsare likely to come off even further from here. So, overall, what is the margin outlook if you were to look at all these things?
Romesh Sobti:  I think the driver of margin you have identified two of the drivers; one, of course, is the capital raise; two is the loan book rebalancing. Further margins are improvement in the CASA book then of course the overall drop in cost of deposits which may largely be eaten up by the drop in the yield on the asset side of the business, but I think that as rates drop, the other booster for margin is really the fixed rate book on the Vehicle Finance side, because that part at least is not going to fall like the Corporate book; the Corporate book will reprice as swiftly as cost of deposits godown, so far it is not because people are holding back rate transition to some extent,but I think the fixed rate book which is the Vehicle Finance book also should give usimproved margins, as a consequence of drop in the deposit rates.
Moderator:  Thank you. The next question is from Ashwini Agarwal of Baroda Pioneer Mutual Fund. Please go ahead.
Ashwini Agarwal: On the book which we have recently bought, what will be the yield on the book and what is our margin which we are making on that book currently?
Romesh Sobti:  We can say that it is accretive in ROA, ROE and NIM. That is all I think we can share with you. It is yet to come, the book is not yet transferred. But it will be accretive and that is the only reason why we have bought that book.
Ashwini Agarwal:  The risk profile will be similar?
Romesh Sobti:  Actually, risk profile of that portfolio is very-very sound, in the sense that on this book of Rs.4,500-odd crores we have gross NPA of only Rs.17 crores and it is very highly collateralized, there is a very strong security which is mostly of properties, therefore, the losses that have happened to the banks who finance them, where there is collateral, I think have been miniscule, of course, there are fringe players who have also entered this industry which have given some grief to some banks, but this book is very clean, very safe, secure and has good yields.
Ashwini Agarwal:  Can you just touch upon the valuations at which the book was bought?
Romesh Sobti:  That is not going to happen.
Moderator:  Thank you. Ladies and Gentlemen, that was the last question. I now hand over the floor back to Mr. Sobti for closing comments. Over to you, sir.
Romesh Sobti:  Thank you. My opening comments cover my closing comments as well, nothing more to add, but I am sure there will be a lot of one-on-ones to be done.
Moderator:   Thank you members of the management. Ladies and Gentlemen, on behalf of IndusInd Bank that concludes this conference. Thank you for joining us and you may now disconnect your lines.

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