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Edited Transcript of AXBK.NS earnings conference call or presentation 21-Jul-20 12:45pm GMT

Q1 2021 Axis Bank Ltd Earnings Call

Mumbai Sep 1, 2020 (Thomson StreetEvents) -- Edited Transcript of Axis Bank Ltd earnings conference call or presentation Tuesday, July 21, 2020 at 12:45:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Amitabh Chaudhry

Axis Bank Limited - MD, CEO & Director

* Amitvikram Talgeri

Axis Bank Limited - Chief Risk Officer

* Puneet Sharma

Axis Bank Limited - President & CFO

* Rajiv Anand Prattipati

Axis Bank Limited - Executive Director of Wholesale Banking & Executive Director

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Conference Call Participants

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* Adarsh Parasrampuria

CLSA Limited, Research Division - Research Analyst

* Akalp Gupta

* Jai Mundhra

Batlivala & Karani Securities India Pvt. Ltd., Research Division - Research Analyst

* Kunal Shah

ICICI Securities Limited, Research Division - Research Analyst

* M.B. Mahesh

Kotak Securities (Institutional Equities) - Associate Director & Senior Analyst

* Mahrukh Adajania

* Nilanjan Karfa

IDFC Securities Limited, Research Division - Research Analyst

* Nitin Kumar Aggarwal

Motilal Oswal Securities Limited, Research Division - Research Analyst

* Parag Jariwala

White Oak Capital Management Consultants LLP - Senior Investment Analyst

* Prakhar Sharma

Jefferies LLC, Research Division - Equity Analyst

* Pranav Tendulkar

* Rahul M. Jain

Goldman Sachs Group, Inc., Research Division - Executive Director

* Sri Karthik Velamakanni

Investec Bank plc, Research Division - Research Analyst

* Udit Gadia

* Vishal Goyal

UBS Investment Bank, Research Division - Executive Director and Research Analyst

================================================================================

Presentation

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Amitabh Chaudhry, Axis Bank Limited - MD, CEO & Director [1]

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Thank you. We welcome you all to a discussion on Axis Bank's financial results for the first quarter of financial year 2021. As the world continues to grapple with the unprecedented pandemic, global economic prospects continue to remain uncertain. The COVID crisis in India also continues to worsen apace. Forecasts of a contraction of India's financial year '21 GDP are clustering around 4% to 5%, the first time a contraction of this magnitude since 1980. Inevitably, this will result in multiple challenges across almost every sector of the economy and lead to weaker economic and consumer confidence.

Government, including states, and RBI have responded with a broad spectrum of countermeasures. Economic activity has gradually improved, helped in the near term by the calibrated unlocking of restrictions on social interactions and commercial enterprises. The agricultural and rural picture appears relatively brighter though, with good sowing and a normal monsoon, more limited COVID disruptions as well as rural-focused government stimulus. This would promote, hopefully, a gradual pickup in the economy.

The recovery ahead is likely to be slow and gradual, and it is uncertain how quickly dislocations in labor availability and supply chains can be smoothened out. The large state economies, contributing almost 42% of GDP, which are more impacted by the virus, will go through multiple localized start and stop phases. This will continue to impact the ability of businesses across sectors to come back to pre-COVID levels. We continue to remain cautious and thus have been creating additional provisions and shoring up our provision coverage, maintaining adequate surplus liquidity, conserving capital and prudently managing credit and operations risk.

In response to the COVID-19 situation, we have fine-tuned our GPS strategy and launched various initiatives to ensure we are well prepared and are among the earliest to capitalize on the opportunities that present themselves. We have initiated around 20 projects aligned to our GPS framework but with more near to medium-term outlook. These projects put conservatism and sustainability at the core to drive profitable growth within appropriate risk frameworks.

We continue on our journey of being a more prudent and conservative franchise. This is demonstrated through our actions quarter after quarter. During the current quarter, we have done the following 3 things to continue to move the needle: One, changes in accounting policies related to fee recognition; second, increase in provisioning on standard investments, red flagged accounts and COVID-related provisions; and third, conservative stance on interest recognition for net interest income. With these changes, we believe we are now at the conservative end of accounting choices. The aggregate impact of the aforementioned changes in -- on quarter 1 financial year '21 PPP and PBT and PAT is INR 307 crores, INR 660 crores and INR 513 crores, respectively. Puneet will later in the call explain these changes in further details.

In these uncertain times, our balance sheet strengthening continues. The cumulative value of provisions, additional plus COVID-19, aggregates to over INR 6,898 crores. This number as of March '20 was INR 5,983 crores, implying 1.56% of our standard loans. Over and above, our provision coverage ratio improved to 75% as of June 30, 2020, from 69% as at March '20. On an aggregated basis, if we include specific plus standard provisions, plus additional provisions, plus our COVID provisions, our provision coverage ratio stands at 104% of GNPA as at June 30, 2020.

Our capital position is strong, and the bank is well capitalized with a capital adequacy ratio of 17.47% and CET1 of 13.5% as on June 30, 2020. However, we continually evaluate various capital raising initiatives from time to time for our business. We have an enabling resolution from our Board, pending approval from our shareholders, that will allow us to raise funds over the next 1 year.

During the quarter, we have continued to strengthen our management team. On the retail side, Sumit Bali has joined us as the Head of Retail Lending; and Ravindra Rao has joined the Axis family as Head of Collections and Underwriting. On the wholesale side, we had DK Das and Vivek Gupta joining us to lead our Government Coverage Group and Wholesale Banking Products Group, respectively.

With this, let me now offer a brief synopsis of Axis Bank's quarter 1 financial year '21 results. Our operating performance is steady with NII recording a healthy growth of 20% year-on-year. The bank has made progress on its cost optimization initiatives with cost to assets declining from 2.09% to 2% quarter-on-quarter.

Our net profit adjusted for onetime change in provisions is up 19% year-on-year. I would also like to touch upon the trend in fee income this quarter. The bank's total fee income in quarter 1 financial year '21 was down 38% year-on-year. Almost 60% of the decline was due to lower processing fees on retail loan disbursements, which were down 74%; and card fees, down 53%, impacted by lower new card issuance-related fees and interchange income. Other fee items, which have also got impacted are service charge waivers pursuant to regulations, cash management fees and syndication fees.

We have been focusing on building granularity across our different fee-generating businesses, both in the wholesale and retail segment. Some of the benefits are visible, as even in this environment, there were certain fee line items, which grew on a year-to-year basis. The top segments are insurance distribution fees, merchant ForEx income in transaction banking and retail digital banking fees. Though retail remains the major contributor to fees, we are seeing signs of momentum build up in several wholesale and transaction banking segments.

Our deposit book remains resilient and grew by 19% year-on-year and 5% quarter-on-quarter on a quarterly average basis. Our focus on building a stable and granular deposit franchise based on average balances continues to progress well, with healthy growth of 20% year-on-year in CASA and RTD balances, which now comprise 81% of total deposits.

The current account deposits grew by 8% year-on-year, and we can see granularity building here. Savings account deposits grew by 15% year-on-year, within which retail savings account deposits grew 19% year-on-year, led by higher customer engagement that has helped in deepening the balances. The salary and NRI segments within savings deposits grew by 26% and 27% year-on-year, respectively.

Our focus on premiumization of deposit franchise remains on track. It revolves around increasing the contribution from premium segments by delivering faster growth and deepening existing portfolio while continuing to improve account quality of the non-premium segments. We are witnessing better trends, both from a customer acquisition and balance buildup in the premium segments like Prestige and Burgundy Private. The Prestige balances have gone up by 26% year-on-year, while the Burgundy Private balances have gone up by 48% quarter-on-quarter on a small base. Total assets under management for Burgundy stood at INR 1.56 trillion as of the end of June 2020, which is among the largest wealth management businesses in the country. Last year, we had identified a gap in our savings account segmentation and curated the Prestige segment, which is doing very well. Similarly, our aspirations to provide banking and related services to the ultra-high net worth individuals led us to launch a Burgundy Private proposition, which too has now scaled up well. In a span of around 6 months since launch in December 2019, the portfolio covers over 980 families with assets of nearly INR 19,000 crores. Our Prime segment also grew 19% year-on-year.

Our loan book grew by 13%, while including TLTRO investments, it grew by 17% year-on-year. Retail loan book grew 16% year-on-year. Loan originations in April were severely impacted by the country-wide lockdown, and we also preferred to be cautious and increased our risk filters. As the economy started to open up partially, activity started to pick up. May was 3.4x April driven by rural, which was up 44%, and June was 3.2x that of May, rural grew by 30%. Overall demand in smaller towns and regions is recovering faster as compared to metro and urban cities. However, activity levels in the economy still remain below pre-COVID levels.

Our June '20 disbursements in home loans and personal loans were 68% and 37% of last year, clearly reflecting the incremental growth coming from the secured book, in line with our strategy. One of the important strategies for the bank is the Deep Geo project, which is an asset-led strategy for the bank in semi-urban and rural geographies. June rural disbursements were at 90% of last year levels.

Corporate loan book, including TLTRO of INR 18,000 crores grew 26% year-on-year. Disbursements, including TLTRO, grew 62%. Our top 30 loan disbursements during the quarter were spread out evenly over all 3 months, 2/3 of which were short-term working capital loans, 20% related to CapEx, rest refinancing and general purpose loans. The disbursals were well diversified across sectors.

We continue to leverage on our long-term relationship with better-rated corporates that has resulted in strong 77% and 13% growth in loans to AAA and AA-rated clients, respectively. 82% of our outstanding loans now are A- and above. Further, we have added 52 new relationships during quarter 1, spread across strategic clients, large corporates, mid-corporates, MNCs and government coverage group. We continue to deepen our relationships across our wholesale banking and are seeing the benefits of our One Axis strategy playing out.

We have a penetration of 9 or more products or services across our top corporate relationships. On our government business, we won many mandates, and our market share in GST payment collections has now gone up to 10% as on June '20 from 7% last year. On the SME side, we've been cautious in growing the book in the last couple of years and are entering this challenging period with a much derisked book. It is 88% secured by hard collateral and 91% self-funded, with 76% of outstanding being working capital loans and 55% qualifying for PSL lending. The book is also very well diversified across 35 sectors and 120 SME centers spread across the country. The book was down 7% as the overall utilization rates of working capital limits remain low.

As of June 30, 2020, we have sanctioned nearly INR 1,330 crores under the ECGLS (sic) [ECLGS] scheme, with 80% of our SME plus small business banking book being eligible for the scheme. During the quarter, focus has been on further strengthening the risk framework and driving collections while deepening relationships through liability and transaction banking products.

We have reviewed and optimized our overseas operations, in line with the overall corporate strategy. We are consolidating the services related to corporate banking, trade finance, treasury and risk management solutions through our Dubai, Singapore and GIFT City branches. Overseas operations in Hong Kong, Shanghai and Colombo are in the final stages of closure, while winding up of our U.K. subsidiary operations has been initiated.

Overseas corporate loans stood at 14% of corporate book, wherein we primarily deal with top Indian corporates and quasi sovereign entities. Our asset quality is improving as reflected in lower BB+ NNPA book, which declined to 2.2% from 2.7% quarter-on-quarter and provisioning coverage, which went up to 75% from 69%, showing an improving trend. Puneet, in his section later, will give you further details.

We have made considerable progress on our digital banking strategy. We are focused on select themes in our digital journey to scale digital direct-to-customer products, enable our staff digitally and to build and scale digital channels. We have now added 100 employees in our digital team, comprising product managers, developers, designers, digital marketing specialists, et cetera, and 80% of our digital team now comes from nonbanking background such as consumer Internet, fintech, et cetera. We have also made significant progress in simplifying our core tech architecture, becoming cloud-native and moving to an agile mode of development.

Digital products now contribute a significant portion of the bank sales with 78% of savings accounts, 75% of FDs, 65% of personal loans, 51% of credit cards and 48% of new mutual funds in quarter 1 sourced digitally. During the quarter, more than 2.12 lakh digital savings accounts were opened. We have launched video KYC-based Full Power Digital Savings Account that can be opened instantly and provide access to 250 plus services online. Onboarding for the full suite of banking products, leveraging video KYC will be launched in a phased manner over the year. This quarter, we also introduced a number of digital products, offering new investment, loan and insurance options for customers. We have also ramped up our digital collection infrastructure and capabilities.

We continue to maintain our strong position in the digital payment space. We are now the second largest remitter in PSP bank in the UPI ecosystem and the second largest remitter bank in the IMPS ecosystem. In credit cards, the monthly spends have now reverted to 75% of pre-COVID average spend.

We have also made significant progress towards enabling our employees digitally. We launched bring-your-own-device program that has now been rolled out to 36,000 frontline sales staff. We have also enabled access to critical systems such as CRM to our frontline on mobile devices, enabling the vast majority of our team to be active during the COVID times as well. Our digital channels helped us serve our customers during the COVID period. After the initial dip, activity and transaction volumes on digital channels are now back to pre-COVID levels. In fact, in certain areas, such as fixed deposits and MFs, we saw growth of 20%-plus on the digital channels through the COVID period.

We have made good progress on our aspiration to scale up and create value in our subsidiaries. The significant senior talent infusions across our subsidiaries and our One Axis focus have started yielding results. The domestic subsidiaries reported a total net profit of INR 459 crores for financial year '20 and INR 124 crores in COVID-impacted quarter 1 financial year '21, up 58% year-on-year.

I want to touch upon the key highlights on our major subsidiaries. Let me start with Axis AMC. It is the fastest-growing AMC in the industry with its AUM growing 31% year-on-year. Within equity funds, Axis AMC has built up an industry-leading franchise and has grown its equity AUM by 43% in the last 12 months. Current AUM market share is now 5.5%, up from 4% at the end of June '19. Client folios are up 50% to 6.4 million in last 1 year. Monthly SIP book has almost doubled in the last 15 months. Financial year '20 PAT was at INR 121 crores. In the first quarter of this year, they made INR 39 crores.

Axis Securities. It has moved to being a full-service broker from discount brokerage model earlier last year and is focusing on building an advisory model. It has one of the highest mobile adoption rates in the industry, with over 75% of the volumes coming from mobile in the first quarter '21. 45% of the clients traded through Axis Direct mobile app. Our total profits for this subsidiary last year was INR 16 crores. In the first quarter, they have made INR 35 crores PAT.

Axis Finance. We are following a conservative provisioning policy in Axis Finance, in line with our conservative stance. We have stepped up provision charges sequentially, which is up 26% quarter-on-quarter in ECL on our entire loan book, which is -- it includes 14% increase in provision charge on standard assets and 37% increase in provision charge on Stage III assets. We have provided for 100% on accrued interest on Stage III accounts till March '20. Further, no interest has been accrued on these accounts post March '20. For this fiscal, we have provided 100% accrued interest in standstill accounts over and above the 10% provision charge on principal amount. We are cautiously optimistic on growth. And we remain cautious, but we are utilizing this opportunity to ramp up the mass retail business. We've had a net hiring of 488 people in financial year '20 on the retail business.

Today, retail accounts for 12% of incremental business month-on-month. The retail book has grown to INR 300 crores in the last couple of quarters. Notwithstanding the retail ramp-up, the cost-to-income continues to be lowest in the industry at 21% for financial year '20.

We continue to have a higher CAR at 25% as on June 30, 2020. I just want to say that the morat numbers for Axis Finance for both morat 1 and morat 2 are at 7%, which we believe is one of the best across the NBFC sector. The IGAAP for financial year '20, the PAT was INR 193 crores. For the first quarter, it is INR 32 crores. Puneet will provide more details on the additional provisions that we have made.

Axis Capital has been a leader in equity and equity-linked deals over the last decade. In financial year '20, we continued to maintain this position. The -- obviously, the performance of the subsidiary has been impacted because of lack of any insurances in the first quarter. The financial year '20 PAT was INR 100 crores. In the first quarter, they've made a PAT of INR 8 crores.

On the Axis Bank and MFSL transaction, which we had announced earlier, we just want to state that since then, the parties have approached the regulators for approval of this transaction. The queries and discussions, which we have received are in the nature of routine ongoing discussions for transactions of such nature. We believe we continue to be on track, and both the parties remain committed to the transaction.

Very quickly on morat 2. The morat 2 number showed a declining trend and stood at 9.7% by value as on 30th of June 2020. There was a reduction across customer segments of retail, SME and corporate. It has been a good progress, which we have made between morat 1 and morat 2 and shows the resilience of the portfolio, our focus on recovery of morat 1 accounts and review and approval-based approach to morat 2. This is evidenced in the single-minded focus and rigor, which the bank approached morat 1 in comparison to morat 2.

During the last 3, 4 months, the bank has also significantly enhanced its collection capabilities, including work for home for collection staff, increased dialing capacity and feet-on-street to increase collection focus. Please do note that the customers will continue to have an option to request a morat 2. And while we continue to be judicious in granting moratorium based on COVID impact on customers, Amit will later in the call give you more details.

Overall, the quarter has been decent with steady core operating profits and healthy deposit growth driving loan growth. We have continued to build on our conservative stand, and subsidiaries are well on track to scale up. There are going to be few challenges for the sector related to surplus liquidity, muted loan growth due to economic contraction and general risk aversion and asset quality. In such an environment, large banks with healthy operational performance, strong balance sheet and capital position, superior operational capabilities and digital powers are better placed to withstand the challenges. We as a bank have quickly adopted to a new normal and have transformed the way we bring in greater efficiencies. We are confident of emerging from the crisis stronger and remain committed to achieving our medium-term aspirations.

With that, let me hand it over to Amit to take you through the bank's risk segment in detail.

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Amitvikram Talgeri, Axis Bank Limited - Chief Risk Officer [2]

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Thank you, Amitabh. Good evening, everyone. Let me now give you some risk insights into the portfolio. Strengthening the risk management framework over the last 18 months has actually helped us through these unprecedented times. Recalibration of the risk appetite, separated underwriting operations from business segments, prudent policies, raising the credit filters, extensive stress testing and proactive risk interventions all began during the pre-COVID era. We mentioned this in the last call. But just to reiterate, the bank entered this phase on the back of improvement in the corporate book, continued cautious outlook on the SME business over the last 12 to 15 months and strong performance in retail, evidenced by key risk indicators, which are significantly better than industry and peer bank benchmarks.

Our proactive efforts over the last quarter has only enhanced our ability to respond to the external environment much better and provides confidence to come out of this crisis stronger.

Let me start with our strength in risk analytics. The bank over the years has invested heavily in risk analytics to build proprietary scorecards, which continue to build -- provide a significant edge in decision-making. These scorecards based on internal and external data sources have performed significantly better than single model or stand-alone external ratings and scores. They continue to display significant, from almost 2 to 3x, discriminatory power over external ratings and bureau scores across different segments observed historically.

Specific to corporate, our internal rating models consider more relevant and recent information available across relationships, account conduct and information specifically available to the bank than external agencies. Performance of these models have been tested historically and are statistically sharper than the external ones.

Given the prolonged lockdown, we have introduced new analytical models in retail to calibrate both our sourcing and collection strategies on the retail side. COVID risk model incorporates current variables like conduct through moratorium, bureau information besides the existing risk models and is very effective in segmenting the COVID vulnerable population.

The collection segmentation model incorporating payment rates, contactability in high-risk and moratorium-opted customers allows us to take targeted action to increase payment rate and resolution.

Let us now look at each of the business segments, starting with the wholesale portfolio. The wholesale banking portfolio continues to see significant change over the last 18 months with tightening customer selection and underwriting standards. Over 82% of the book is now in the rating category of A- and better. 95% of the incremental advances in the last 12 to 15 months were in the A- and above rating category, with 75% in the AA- and above category. We have reduced our concentration risk in the portfolio with exposure to top 20 borrowers as a percentage of Tier 1 capital now standing at 102%, which used to be over 110% in FY '19. We continue to have a strong customer connect through this period to assess the impact of the crisis on the businesses, ensure recovery of moratorium 1 if they have availed it and have a clearly defined strategy for each of them.

Moving on to the commercial banking portfolio, which is basically the SME business. We continue to maintain a very cautious approach in this business, primarily due to the difficult operating environment over the last 12 to 15 months, reflected in our portfolio having reduced by 10% over the last 1 year, in line with our cautious outlook. 87% of this book is SME 3 or better, which is the equivalent of A- rating. 88% of the portfolio is secured and balance is supply chain finance with linkages to large and well-rated corporates. This portfolio is very granular in nature, with average ticket size of around INR 3.5 crores, spread over 35 broad sectors and geographically well diversified in over 120 locations across the country. The proprietary EWS, which is the early warning signals model, has been enhanced with new conduct and cash flow monitoring variables, given the COVID environment to monitor the COVID impacted portfolio much more closely. This model using advanced analytics has been successful in predicting early stress in around 80% of the NPAs in the last 6 months. This helps the bank monitor borrowers showing stress well in advance for effective actioning, especially during these times.

On the Emergency Credit Line Guarantee Scheme for SMEs, the bank has been actively reaching out to all the eligible customers to provide customers a funding through the ECLGS scheme. We have an eligible base of over 1 lakh customers with eligible loan value of INR 12,000 crores. And as of 30th of June, we have sanctioned close to INR 1,330 crores. The momentum has picked up since, and we have crossed sanctions of over INR 3,000 crores and disbursed over INR 1,100 crores under this scheme as of last week, with more in the pipeline.

Let me now turn our focus to retail. Before we move to the portfolio insights, let me take you through our approach on retail through this period and especially with respect to new acquisitions. The bank has been tightening credit underwriting standards over the last 12 months, given the market conditions pre-COVID. Commencing Jan, we have further strengthened the gating criteria, recalibrated our scorecards and ensured enhanced front end screening. We have pared our prequalified bases down to 20% of pre-Jan levels across product segments. Consequently, the new acquisitions were down by 80% in April, May from March levels across retail products. Post partial lifting of lockdown in some parts in June, there has been a marginal increase in acquisitions, primarily in the secured businesses of mortgages and rural lending. We continue to remain cautious in the unsecured products, and sourcing is restricted to existing bank customers with stringent credit filters.

Coming to the overall retail portfolio. Almost 80% of the retail portfolio is secured, consisting of mortgages, wheels and rural lending portfolio. Our retail unsecured portfolio is around 20% of the retail book. 84% of this book is from the salaried segment, which has a very low default rate, and over 80% is existing customers having banking relationships, providing comfort over cash flow and relationship visibility. Over 67% of the salaried are from premium corporates, government and MNCs, and a majority of them are corporate salary relationships with the bank, where we have -- and more importantly, where we have not seen any significant job losses or salary cut so far. We are, however, closely monitoring this portfolio in the coming months.

Asset quality performance on 90 DPD is 10% to 20% better than industry for unsecured portfolio and by 50% to 80% for secured portfolio and better than peer banks across most retail products based on bureau information.

Let me now provide you with a quick update on the moratorium offer. The bank has adopted an approach of recovery of moratorium 1 rather than the extension of the moratorium. Only customers impacted by the COVID crisis and through a review, approval-based approach have been extended the benefit of moratorium 2. As Amitabh mentioned earlier, the total portfolio under moratorium as of June 30 is 9.7% by value. We extended the moratorium to benefit only for retail MFI customers, given the profile of the customers, and this portfolio is less than 0.5% of the bank's total portfolio. The moratorium value of 9.7% mentioned above includes this retail MFI portion also.

Just to give you some color around the moratorium. 90% of the customers in moratorium 2 are common from moratorium 1 across all the segments. The overall value reduction of portfolio under moratorium is largely due to the active customer connect of the relationship managers on the wholesale and commercial banking side and focus on collections and recovery in retail. The borrower profiles of customers in moratorium are across all rating categories, industry, income bands, scores and geography. Most customers opting for the moratorium are still trying to do that to protect cash flows and conserve liquidity in view of the continued lockdown in most parts.

Around 78% of the portfolio under moratorium is secured. Collections from moratorium 1 customers have been over 80% in corporate and commercial banking segments and around 70% in retail in the month of June. In retail, collections from non-moratorium customers has been over 95%. I mentioned retail MFI customers being offered an extension of the moratorium earlier. 67% of this customer base actually paid in June despite us offering moratorium to this segment. In addition, customers with portfolio value of around INR 4,600 crores paid in the month of June despite opting for moratorium 2, and both of these are not part of the 9.7%. While the overall value has come down significantly as of June, we continue to offer this benefit to customers till August as per the guidelines, and customers may actually opt for this benefit in the coming months in view of the lockdown extensions and continued uncertainty.

Let me now also give you some insights into collections. We have significantly beefed up our collections infrastructure over the last 12 months, more so in the last quarter itself. We have added capacity, which includes reskilling sales teams, and we now have a 8,000-member strong team on the field collecting. Over and above this, we have close to 1,500 agents working from home in a secured environment, making customer calls. This is an area we will continue to invest in. We have also enabled digital and contactless collections, and these contribute to 25% of the unsecured recoveries, which has been a big differentiator during these times.

On resolution rates, we have seen early bucket resolution rates reach 60% to 70% of pre-COVID levels, while recoveries from written off accounts in June have already reached 60% to 65% of pre-COVID levels and are double of what was recovered in April and May, thus exhibiting pickup in momentum starting June. Collections is a key strength for the bank and together with extensive use of analytics and digital initiatives ensures that the bank is well poised to manage the challenges ahead.

In summary, given the continued lockdown in most parts, it is difficult to ascertain the exact impact on the portfolios. Our portfolio choices made in favor of secured lending in retail and commercial banking, higher-rated book on the corporate side and higher share of salaried and existing bank customers in the unsecured book provide comfort in navigating through this crisis. We will continue to assess the situation and monitor the portfolio very closely.

With that, I now hand over to Puneet for the final -- financials update. Thank you.

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Puneet Sharma, Axis Bank Limited - President & CFO [3]

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Thank you, Amit. Good evening, ladies and gentlemen. Thank you for joining us this evening. The salient features of the financial performance of the bank for Q1 FY '21 will be discussed by me, focusing on the following 5 areas: The journey of becoming a more prudent and conservative franchise, our capital and liquidity position, growth across our deposit franchise and loan book, operating performance and asset quality and provisioning.

We continue to take actions that enable us to progress on our journey of being a more prudent and conservative franchise and operate in a manner that strengthens our balance sheet on a sustainable basis. In that direction, we have taken actions in the current quarter across accounting policy changes, reserving on the NII line, additional provisions around COVID. Some of these have a bearing on our reported numbers and comparability to previous quarters.

Prudence driven changes in accounting practices. Our accounting practices were and remain fully compliant with the applicable accounting standards and the regulatory framework. In the current quarter, we reviewed our accounting practices and revised them to achieve more prudent outcomes. The broad areas where changes were implemented in the current quarter were fee and expense recognition and provision on standard investments and red flagged accounts.

The bank had a practice of recognizing nonrefundable fees upfront on letters of credit and annual fees on debit cards. During the quarter, the bank changed this practice from upfront recognition to amortization over the service period. As a result, other income for the quarter ended June 30, 2020, is lower by INR 65 crores, with a consequent reduction in profit before tax.

The bank continues to classify exposures as red flagged counts in accordance with its prevailing internal framework. During the quarter, the bank has introduced incremental provisioning on such exposures based on time scale and occurrence of predefined events. As a result, provisions and contingencies for the quarter ended June 30 are higher by INR 144 crores, with a consequent reduction in profit before tax.

The bank was recognizing net depreciation and ignoring net appreciation within a class of investments in its profit and loss account in accordance with the RBI guidelines. During the quarter, the bank has made 2 changes to its practice of recognizing depreciation and investment. The first change, the bank has elected to recognize net depreciation on each class of investments under the residual category of others, i.e., the category where we record mutual funds, PTCs, security receipts, et cetera, without availing the benefit of offset against another class of investment within the same category. To explain this better, illustratively, gains on mutual funds are not offset against, say, losses on PTCs.

For standard investments classified as weak based on the bank's internal framework, the bank has elected to recognize net depreciation on such investments without availing the benefit of set off against appreciation within the same class of investments that is permitted by RBI. As a result, provisions and contingencies for the quarter ended June 30 are higher by INR 209 crores, with a consequent reduction in profit before tax.

NII reserve. We have reserved, derecognized interest in the quarter towards various items, including, but not limited to future derecognition. I emphasize and reiterate that this reserving has been done on income on standard assets, I repeat standard assets, earned during the quarter ended June 30, 2020. This has impacted our NIM percentage by 5 basis points for the quarter.

The cumulative negative impact of the aforementioned accounting practice changes and NII reserves for Q1 FY '21 on operating profits was INR 307 crores and on PBT was INR 660 crores. I will guide you to look at Slide 53 in the investor presentation that shows the performance for the quarter with and without accounting changes and NII reserves for ease of comparison.

COVID provisioning. The bank has made an incremental provision for an amount aggregating INR 733 crores towards COVID risks during the quarter. With this, the bank as of June 30, 2020, carries an overall COVID provision of INR 3,733 crores, of which only INR 659 crores is required for exposures that are under moratorium at June 30, 2020.

While I will discuss in detail our reported operating performance after factoring the aforementioned accounting policy and practice changes in the later part of my commentary on the results, on a like-for-like basis, our performance is as follows: Net interest income Y-o-Y grew 22%, on a sequential basis grew 4%. NIMs for Q1 FY '21 stood at 3.45%, growing 5 bps on a Y-o-Y basis. Noninterest income stood at INR 2,652 crores, representing a Y-o-Y decline of 31.5% of the net interest -- of the noninterest income, fee income stood at INR 1,716 crores, representing a decline of 35.6%. The decline in fees can be attributed to fee waivers, pursuant to regulations, lower disbursements and velocity of throughput transactions with our franchise. There were some green shoots on fees, which Amitabh discussed as part of his earlier commentary.

Operating expenses to average asset ratio on June 30, 2020 stood at 1.99%, lower by 9 basis points on a Y-o-Y basis and 10 basis points on a sequential basis. Cost-to-income ratio as of June 30 stood at 36.9%, lower by 241 basis points on a Y-o-Y basis and 887 basis points on a sequential Q-on-Q basis.

Core operating profit grew 9.3% Y-o-Y and declined 1% on a Q-on-Q basis. PAT grew by 19% on a Y-o-Y basis.

Our capital and adequacy -- our capital adequacy is comfortable, and we remain -- and carry adequate liquidity buffers. We believe this places us in a strong position in uncertain times. Our overall capital adequacy ratio stood at 17.47% as of June 30. Same period June 2019, our capital adequacy was 16.06%. Our CET ratio is at 13.5%, up from 13.34% as at March and 11.68% as at June 2019. We've accreted 141 basis points and 182 basis points to our capital adequacy and CET1 on a Y-o-Y basis.

During the quarter, we maintained surplus liquidity which is reflected in the average LCR ratio increasing from 113% in the last quarter to 120% for this quarter. The excess liquidity that we carried along with our product mix change has impacted our NIMs for the quarter adversely by 9 basis points.

Towards the end of the quarter, in light of the outlook on funding availability, we reduced our excess liquidity. Our excess SLR stood at INR 26,640 crores. Our deposit book has remained resilient, growing 16% Y-o-Y, in line with our granularization strategy. Our retail term deposits grew 27% on a Y-o-Y basis. We consciously de-grew our corporate term loan book by 2% on a Y-o-Y basis.

Our focus was and continues to remain on quarterly average balances instead of month end because that reflects the strength of the franchise. The total deposits on a quarterly average basis grew 19% Y-o-Y and 5% on a sequential quarter basis.

Our CASA balances stood at 41%, similar on a Y-o-Y basis and a Q-on-Q basis. If we decompose the growth in our deposits, then on a quarterly average balance basis, SA grew by 15% Y-o-Y, 5% Q-on-Q. Our current account balances grew 8% Y-o-Y and were flat Q-on-Q. Combined CASA grew 13% Y-o-Y and 4% Q-on-Q. Our retail term deposits grew 27% Y-o-Y, 7% Q-on-Q. Our corporate term deposits or non-retail term deposits grew 15 -- 14% Y-o-Y and 3% on a quarter-on-quarter basis.

On the savings side, our strategy of premiumization and deepening are playing out well, which is reflected through the numbers I spoke about earlier.

Our overall loan book, including TLTRO, grew 17% Y-o-Y and 1% on a Q-on-Q basis. Granular secured retail loans, high-quality large borrower relationships are the key drivers of our loan growth. Our SME loan book de-grew 7% on a Y-o-Y basis and declined to sub-10% of our overall loan book. Retail advances constitute 53% of the overall advances of the bank. We continue to calibrate and recalibrate our risk parameters, scorecards and strengthen our risk management and collections framework around this book.

The retail loan book grew 16% Y-o-Y, declined 2% on a sequential Q-on-Q basis. The retail book continues to be well diversified across product and geography. 81% of the book is secured as at Q1 FY '21 versus 80% of the book at Q4 FY '20.

Our unsecured book is 19%. Our PL -- our entire PL book comprises salaried customers. 65% of the credit cards comprise salary customers. The LTVs on our mortgage business are low and stand at 61% for our loan -- home loan business and LAP at 37%, providing us sufficient cushion on our collateral. The bank's strategy on retail assets continued to be centered around existing customers. 76% of our retail asset originations by count in Q1 was from existing customers, 99% of the bank's credit card and 96% of the bank's personal loan originations for the quarter were from existing to bank customers.

Our Deep Geo strategy is taking root and 11% of sourcing of loans in the quarter were from Deep Geo locations.

On the corporate side, our One Axis initiative is gaining traction. Overall corporate book grew by 16% Y-o-Y, 1% Q-on-Q. However, it's meaningful to note that 96% of our incremental sanctions in Q1 FY '21 were A- and above. 37% of our book is for a tenor less than 1 year. Our total standard fund, nonfund and investments outstanding to NBFCs is only INR 23,638 crores, 83% of the same is rated A and above, and none of them have been granted moratorium. Our MFI book stands at INR 5,097 crores as at June 30.

Our small and medium enterprises business, which is our commercial banking business, is 88% secured, well diversified and with approximately 76% of the book being of short tenor. 91% of this book is self-funded. The book shrinking is attributable to our cautious stance on supply chain, and it is not a stance that we've taken on this quarter. It's been a problem that we identified in the economy early and have consciously been reducing it over the last 5 quarters.

Reported operating performance. In this section, the numbers that I read out will be comparable on a reported-to-reported basis. Our operating profit for Q1 FY '21 is INR 5,844 crores, flat Y-o-Y and Q-on-Q. Our PAT for the quarter stands at INR 1,112 crores, i.e., INR 1,112 crores. Our NII was INR 6,985 crores, representing a Y-o-Y growth of 20%. NIMs were at 3.40%, flat on a Y-o-Y basis. I have previously explained the sequential drop in NIMs of 15 basis points attributable to 5 basis points for prudence-related changes and 9 basis points for surplus liquidity and product mix.

Noninterest income comprising of fee, trading income and other income was INR 2,587 crores, declining 33% on a Y-o-Y basis. Fee income stood at INR 1,651 crores, declining 38% on a Y-o-Y basis. The decline in fees is attributable to fee waivers, lower disbursement velocity and throughput of transactions.

Trading income stood at INR 622 crores, representing a Y-o-Y decline of 25%. This is driven by our cautious stance on reducing our corporate bond portfolio. And we have not switched investments from HTM to AFS despite it having attractive outcomes in the quarter.

We have made progress on our cost initiatives that we discussed on our previous call. Operating expenses stood at INR 3,728 crores at June 30, representing a Y-o-Y decline of 2%. On a sequential quarter basis, costs have declined by 25%.

Operating expenses to average assets ratio on June 30 stood at 2%, lower by 8 basis points same period last year. Credit costs for the quarter were 2.26% as compared to 2.06% for the quarter ended June. It's important to note that the credit costs for the current quarter is impacted by the improvement in our PCR. That impact represents 1.09% of our credit charge for the period. We have incrementally taken higher provision on net slippages. We've provided close to 90% on our net slippages for the quarter in the quarter itself and risk-based classification of our exposures to NPA, and I'll cover that as part of our asset quality review.

The bank's NNPA and fund-based BB and below book as a percentage of total customer assets improved by 110 basis points from 2.2% at June 2020, down from 3.3% that we reported in June '19. Sequentially, the improvement is 50 basis points from 2.7% as at March '20. The bank's provision cover without technical write-offs improved significantly to 75% at June 2020 compared to 62% at June '19 and 69% at March '20. In fact, if we look at it on a segmental basis, we've shown considerable improvement across each of our segments. Our wholesale coverage improved from 66% to 80% on a Y-o-Y basis, our CBG coverage improved from 49% to 54%, and our retail coverage improved from 53% to 63%.

We've provided segmental disclosures of gross, net NPA and PCRs on Slide 35 of our investor presentation.

Slippages for the quarter is an important number. Gross slippages for the quarter were INR 2,218 crores, dropping 54% on a Y-o-Y basis and lower than Q4 by 43%. Of the gross slippages in the quarter, 21% of the gross slippages for the quarter were considered as NPA based on credit and risk assessment criteria and not basis the 90-day DPD aging. Further, on this judgmental downgrade to NPA, we've created 100% provision on these assets. Other than this, 42% of the slippage related to a single group. We have created 100% provision on the said group in the current quarter.

Net slippages in the quarter were INR 1,610 crores, with the bank made provisions aggregating to 92% of the value of net slippages within the quarter. I must state that slippages for the quarter are not reflective of a normal quarter due to moratorium and one will have to wait for slippages and asset quality performance to be viewed in the context of further regulatory forbearance or moratorium outcome.

Overall, our balance sheet strengthening continues. During the quarter, we reserved INR 1,028 crores on standard assets under various heads. The cumulative value of provisions additional plus COVID-19 plus other reserves aggregate to INR 6,898 crores as of June. This number was INR 5,983 crores as of March. Our standard asset coverage ratio, including the aforementioned provisions, has nearly doubled from June '19. Our number at June '19 was INR 0.80 crores, currently stands at INR 1.56 crores -- sorry, 0.80% now stands at 1.56%. On an aggregated basis, specific plus standard assets plus additional provisions plus COVID provisions, our provision cover stands at 104% of our gross NPA as at 30th June against 75% in June 2019.

Our BB book. During the quarter, our BB and below fund-based, nonfund-based and investments book declined marginally from INR 10,996 crores in March 2020 to INR 10,753 crores in June 2020. During the quarter, we, in aggregate, collected and upgraded INR 516 crores from the BB and below pool. During the quarter, we downgraded on a gross basis INR 1,313 crores, comprising of fund-based facilities of INR 796 crores, investments of INR 314 crores and nonfund-based facilities of INR 203 crores. There is no significant or large exposure or group that was downgraded in the quarter.

Slippages from BB and below book for the quarter were INR 1,041 crores, mainly on account of the one group that I spoke about on which we now carry 100% provision. The top 4 sectors in our BB and below book are cement and cement products, infrastructure, construction, power generation and distribution and hotels.

In summary, the salient features of our quarter performance were -- our operating performance is healthy, reflected through our NII and core operating profit growth. Our capital position remains strong. We carry adequate liquidity buffers reflected in our LCR and our 13.5% CET1 capital ratio. Our deposit book remains resilient. Our mix is improving with a significant percentage of new originations coming from better-rated corporates. Shorter tenure loans are increasing in the overall book composition. Our asset quality has improved as reflected in the decline in the BB+ and the net NPA book. Our prudence is demonstrated through choices that we continue to make in derisking and strengthening our balance sheet. Even and so far as our subsidiaries is concerned, Axis Finance carries meaningful excess provisions on its balance sheet and has a capital adequacy ratio of 25% with one of the lowest moratoriums in the NBFC space.

We reiterate our stance of stopping guidance till clarity on COVID-19 emerges. With that, I come to an end of my comments. We thank you for your patience, and we'll be glad to take questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question is from the line of Mahrukh Adajania from Elara Capital.

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Mahrukh Adajania, [2]

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Congratulations. I have a couple of questions. So this NII reserving is done mainly on accounts that you think would slip? And would that be a onetime thing?

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Puneet Sharma, Axis Bank Limited - President & CFO [3]

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So like I said, the reserving on NII has been done on standard assets. We had taken a prudent outlook in stepping back and creating provisions. This is on the same philosophy. It is not attributed to specific assets. And consequently, it is on a portfolio basis.

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Mahrukh Adajania, [4]

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Okay. But it would be largely onetime?

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Puneet Sharma, Axis Bank Limited - President & CFO [5]

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We will continue to evaluate this as we move forward. Like I said, as part of my early comments. They are on a journey of being more prudent. This is one of the steps that we've taken, and we will continue to reassess this on a go-forward basis also.

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Mahrukh Adajania, [6]

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Okay. And I just wanted one clarification. You said that INR 4,600 crores paid in June, and that is not included in the moratorium, right? That is what you said.

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Puneet Sharma, Axis Bank Limited - President & CFO [7]

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Sorry, I did not get that question.

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Mahrukh Adajania, [8]

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INR 46 billion by value of loans paid in June, was that or wasn't that part of the moratorium?

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Amitvikram Talgeri, Axis Bank Limited - Chief Risk Officer [9]

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So let me just clarify. The total value of portfolio, which is under moratorium is 9.7%. The point that I mentioned earlier is customers who had opted for moratorium 2 and still paid their June installment is not part of this 9.7%. So if we add this to say that from a June point of view, that number will come down even further, but we have not added for the simple reason that the customer has continued to be in moratorium 2, but he has paid or they have paid their June installments.

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Mahrukh Adajania, [10]

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Okay. Got it. And just one more clarification that today, Indiabulls filed their shareholding pattern, Indiabulls Housing, and your name appears as a new shareholder with 1.1% stake. So any comment?

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Puneet Sharma, Axis Bank Limited - President & CFO [11]

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So we are a professional clearing member of the F&O segment of the National Stock Exchange. So in our capacity as PCM, we accept securities from trading members as margin. So in the said capacity, among other shares, Axis Bank has accepted Indiabulls Housing Finance shares as margin from its trading members. So as of today, that holding is now 24,687 shares of Indiabulls Housing Finance. So it is only what we have received as margin and not as primary shareholders. I'm sure you know that this is now changing from 1st August, and we have made some changes to rules. We will -- these shares will actually be -- will no longer come to our account, but rather will be pledged to us as we go forward. So we have no holding -- Axis Bank has no holding in Indiabulls.

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Operator [12]

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The next question is from the line of Kunal Shah from ICICI Securities.

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Kunal Shah, ICICI Securities Limited, Research Division - Research Analyst [13]

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Congratulations for a good set of numbers. So just as you highlighted, maybe from morat 1 to morat 2. In fact, we have reviewed all of them. And only where there was a need, we have considered that. But would there be accounts, okay, wherein there would have been a delay or something, and which are currently not even the part of NPL, but we suspect that there could be threats out there. So maybe something in say SMA-1 or say SMA-2 or even SMA-0, what would be those accounts? Or how much would that quantum be?

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Amitvikram Talgeri, Axis Bank Limited - Chief Risk Officer [14]

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So like I mentioned, Kunal, the bank has adopted an approach on recovery of moratorium 1. So as far as we are concerned, if a customer has opted for the moratorium 2, then the recovery efforts doesn't happen on moratorium 2 customers. The recovery efforts only continue on moratorium 1 customers. And wherever you like to believe that this customer has requested for moratorium and based on our criteria around the fact that he's been impacted by COVID, we would offer him that moratorium. Otherwise, normal collections and recovery efforts will continue. And from a pure number point of view, I think I mentioned that during the -- my opening remarks, wherein close to collections from the morat 1 customers have been over 80% on the corporate and the commercial banking side and 70% on the retail in June. So effectively, this is collections and recovery efforts on all of those customers unless we look at them for moratorium.

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Operator [15]

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The next question is from the line of Shagun Verma from Goldman Sachs.

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Rahul M. Jain, Goldman Sachs Group, Inc., Research Division - Executive Director [16]

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This is Rahul here. Just again, continuing from the previous question on the moratorium. So on the 1st of June, when the first moratorium got over, we essentially didn't offer the window as such to anyone to apply for moratorium unless, of course, you were satisfied from moratorium 1. So is it fair to understand that 30% of the retail customers, where the recoveries couldn't happen, and 20% of the corporate customers, where the recoveries couldn't happen, are sitting under moratorium and no fresh -- or very little fresh moratorium has been considered in the second phase?

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Amitvikram Talgeri, Axis Bank Limited - Chief Risk Officer [17]

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No, that's not right. Let me just clarify that. So the way was that moratorium 1 ended on May 31. 1st of June, the second moratorium started. Effectively, what happens is simple, that any customer in moratorium 2 who opts and applies for it based on the criteria that we have looked at in terms of impact on COVID is offered that moratorium, especially on the retail side. Secondly, on the moratorium 1 customer, collections efforts continued. And as far as we are concerned, there is no question of somebody getting a moratorium unless the customer -- the recovery continuous on those moratorium 1 customers. So whether it is a 30% or a 20%, as far as we are concerned, there's collection effort, which is continuing.

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Rahul M. Jain, Goldman Sachs Group, Inc., Research Division - Executive Director [18]

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So let's say, if 100 customers have applied for moratorium 1 on the 1st of June, how many eventually ended up getting?

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Amitvikram Talgeri, Axis Bank Limited - Chief Risk Officer [19]

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So if you're asking the question as to how many customers are common customers, 90% of customers are common between moratorium 1 and 2.

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Rahul M. Jain, Goldman Sachs Group, Inc., Research Division - Executive Director [20]

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No. So the remaining 10% would be, let's say, if that absolute number is, let's say, 100, what would be the denominator? Because I think as a prudent policy, you adopted an approval based mechanism, wherein only if you are satisfied, you would give a moratorium. So what would that number be, denominator? I mean how many applications you would have received for a moratorium and how many got approved is essentially the question I'm asking, I must say.

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Amitvikram Talgeri, Axis Bank Limited - Chief Risk Officer [21]

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So clearly, the way we looked at it is that every customer who applied for moratorium need not have got a moratorium. We looked at criteria for each of those customers. Wherever we felt there was a requirement for impact on COVID, we offered that moratorium. Like I mentioned -- one thing you have to keep in mind, the rules from moratorium 1 were a little different. When we entered moratorium 1, we were bang in the middle of a lockdown. In moratorium 2, large parts of the country have opened up. And to that extent, some amount of economic activity has started. And hence, it was important for us to ascertain, and this will happen through a customer connect between all the relationship managers of the wholesale and the commercial banking team, specifically on the wholesale and CBG side. Only after assessing the requirement of impact of COVID were these moratoriums offered. And that's the way we've been kind of focusing on collections and recovery of moratorium 1 rather than looking at extension of those moratorium just because the customer asked for it.

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Rahul M. Jain, Goldman Sachs Group, Inc., Research Division - Executive Director [22]

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Makes sense. The other question is on the early bucket movements. So can you just help us understand how the trend has been since the 1st of June compared to the pre-COVID levels, particularly in the unsecured and the loans against property bucket.

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Amitvikram Talgeri, Axis Bank Limited - Chief Risk Officer [23]

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So I think I mentioned that very briefly on the call, April and May were very, very muted in terms of what was happening on the collection side. We had beefed up collections quite considerably. One of the things which we did invest in during April and May was to build on analytical models around payment behavior, moratorium performance, bounce information, et cetera, to look at if and when the lockdown ends, field collections gets activated. And that's really helped us in the month of June. So if I were to really give you numbers, early bucket resolutions have currently hit somewhere in the region of 60% to 70% depending on the products on the retail side, which is pre-COVID levels. Similarly, from a recovery point of view, we've already hit 60% to 65% on a pre-COVID level. If I were to just do a comparison between June and this number, both of these numbers are almost double those of April and May. So clearly, we see that momentum increasing substantially in June.

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Rahul M. Jain, Goldman Sachs Group, Inc., Research Division - Executive Director [24]

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And would the bounce rates be also come -- would the bounce rate have also come down? Let's say, if the bounce earlier was 5%, 6%, would it be down in the month of June?

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Amitvikram Talgeri, Axis Bank Limited - Chief Risk Officer [25]

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So it would be fair to say that between April and May and June, there has been considerable improvement.

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Rahul M. Jain, Goldman Sachs Group, Inc., Research Division - Executive Director [26]

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But not back to the pre-COVID level essentially. It's still some way to go?

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Amitvikram Talgeri, Axis Bank Limited - Chief Risk Officer [27]

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Not yet back to the pre-COVID levels.

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Operator [28]

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(Operator Instructions) The next question is from the line of Vishal Goyal from UBS.

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Vishal Goyal, UBS Investment Bank, Research Division - Executive Director and Research Analyst [29]

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Just a quick question on this morat book of 9.7%. Is it possible to get some more color on -- in 2 ways. One, segments like basically, are there kind of salaried versus SME and corporate? And also within that, how well you are protected in terms of -- are you seeing salary credits happening or you're seeing cash flows for the borrower? Any color if you can help us.

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Amitvikram Talgeri, Axis Bank Limited - Chief Risk Officer [30]

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Vishal, one is we're not giving segmental breakup of that, but it would be reasonable to estimate that a large part of this is the retail portfolio. Just to kind of look at from a retail perspective itself, almost 78% of this portfolio is secured. Again, a large part of this portfolio, over 70% is existing bank customers when they started off. Our historical default rates on these portfolios has been low. Just to kind of again give you numbers, more than 70% of the customers are bureau prime scores. And obviously, our scorecards are a lot more stringent. If I look at specifically on the mortgages side, which is where, again, a large part of this moratorium in retail is the mortgages between home loans and LAP. Nearly 80% of the borrowers are in ready properties, which reduces the construction risk. Say, more than 70% -- 77% of our customers have LTV less than 75% and 90% of the mortgage customers have bureau vintage more than 3 years. Just gives you a flavor of the reason behind why we would like to believe that the comfort around security covers, salaried cash flows and credit tested profiles is helping us in this book.

Specific regard to your question on unsecured, again, we see some amount of benefit that we get from the fact that a large part of our portfolio is salaried and existing bank customers, historically low default rates. 95% of the credit card customers was 0 DPD. 98% of the customers have bureau vintage more than 12 months. Personal loans, all of them are salaried. And we haven't yet seen significant changes in the salary reductions or job losses, et cetera. But I will only put a caveat there to say that we're still in the middle of lockdowns in large parts. We don't know how that will span out in the coming months, and we kind of continue to monitor this portfolio closely. What gives us comfort is the fact that our current book on salaried around credit tested, around existing bank customers has been historically low default and that's really what's playing out right now as well.

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Vishal Goyal, UBS Investment Bank, Research Division - Executive Director and Research Analyst [31]

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And 1 clarification, you kept saying about that INR 4,600 crores paying in June. So 9.7% includes INR 4,600 crores, right, like that 80 basis points?

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Amitvikram Talgeri, Axis Bank Limited - Chief Risk Officer [32]

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It does not include. It does not include. So let me just reclarify that. Anybody who is on the system where the customer is opted for the moratorium is part of the 9.7%. So this entire INR 4,600 crores is currently part and sitting as a part of the 9.7%.

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Vishal Goyal, UBS Investment Bank, Research Division - Executive Director and Research Analyst [33]

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That means it's included, right?

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Amitabh Chaudhry, Axis Bank Limited - MD, CEO & Director [34]

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The customer is sitting as part of 9.7%. INR 4,600 crores has not been included in the value as a payment.

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Puneet Sharma, Axis Bank Limited - President & CFO [35]

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Hi, Vishal, Puneet here. Let me clarify this for you. 9.7% is customers that have opted for moratorium by value. Out of this 9.7%, for the month of June, we had collected INR 4,600 crores.

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Vishal Goyal, UBS Investment Bank, Research Division - Executive Director and Research Analyst [36]

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INR 4,600 crores worth of loans have paid, right? Or you've collected already INR 4,600 crores in that? I'm sorry, I'm just -- you aren't saying like INR 4,600 crores loan value has paid their EMIs or INR 4,600 crores is already been repaid in this book?

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Puneet Sharma, Axis Bank Limited - President & CFO [37]

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INR 4,600 crores worth of loans had paid the EMI in the period. So let me write this out for you and for abundant clarity on this call as a numerator denominator exercise. Total value of loans outstanding for which moratorium has been flagged in our system is the numerator, the loan book is my denominator, in arriving at the 9.7%. Of a cumulative value of outstanding loans of INR 4,600 crores, we have had collections in the month of June.

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Vishal Goyal, UBS Investment Bank, Research Division - Executive Director and Research Analyst [38]

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That is absolutely clear. That is perfect. I think that clarifies completely. So last question from my side, 1 question, which we are getting, and I'm sure you're also getting from a lot of investors is, the senior management exit, especially the ones who have been recently hired by Amitabh himself. So if you can give some color on that, that will be really helpful.

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Amitabh Chaudhry, Axis Bank Limited - MD, CEO & Director [39]

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We mentioned 4 hires. One was Sumit Bali, who joined us as the Head of Retail Lending; one was Ravindra Rao who heads -- who came and headed collection. We had lost these 2 positions in the last quarter. And over and above that, we have done 2 additional hires on the wholesale banking side. We had a new government coverage person. The existing government coverage person is no longer with us. And he's DK Das who comes to us from TCS. And then we have Vivek Gupta, who's joined us as Head of Wholesale Banking Products, who has joined us from ANZ Grindlays. I mean that's part of our normal exercise. Now we'll keep hiring the right kind of talent across the industry, wherever required. If we believe that adding them to our set of senior management will allow us to reach our strategy faster. So that process will continue. You will continue to hear Axis Bank adding to its bench strength if and where necessary. So that's a regular exercise for us.

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Vishal Goyal, UBS Investment Bank, Research Division - Executive Director and Research Analyst [40]

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I mean, maybe I can take it offline, Amitabh. I think the question is that why people are leaving. I'm sure you have a lot of ability to hire people, but what is causing kind of people going out. Is it like -- is it that too much pressure that they can't handle? Or there are some other personal reasons for them?

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Amitabh Chaudhry, Axis Bank Limited - MD, CEO & Director [41]

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You are giving me answers already in your questions so -- no, I don't think there's nothing to do with that. I think in some cases, we have had some very specific personal issues and people had to find or look for other alternatives because of some specific personal issues they might have had. In some cases, people have moved out because they have found an alternative or an opportunity outside which they thought were potentially bigger in the long run. People have worked and served Axis for a long period of time. Yes, obviously, with the strategy which we are driving, there is additional pressure. And there is also a clear movement in Axis on meritocracy and transparency. And in the process, some people will align to it. Some people might not align to it. Some people will be asked to go. I mean you'll have all those combinations there. And we will be relentless in pursuit of our strategy. And we continue to hope that people will continue to get aligned to it and if some people are not able to do that, we might end up losing some people. So that's part of normal corporate life. We need to get used to it. Only good news is that we have not enough bench strength, and we can absorb some of these people leaving now. And that does not change the momentum. That does not change what we intend to do, and that does not change our ability to hire also. So I guess it's part of normal corporate world we live in.

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Operator [42]

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(Operator Instructions) The next question is from the line of Udit Gadia from Khazanah Nasional.

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Udit Gadia, [43]

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In the last call, management had mentioned that based on stress testing, that we don't see the need for the capital at that moment. Subsequently, we saw approval to raise capital. We have been very aggressive in comparison to peers in creation of the contingency provisions, coupled with the conservative accounting policy. Sir, do we foresee significant stress in our loan book?

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Amitabh Chaudhry, Axis Bank Limited - MD, CEO & Director [44]

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So as far as capital is concerned, in my remarks, I was quite categorical that we have taken a resolution, and we keep evaluating the need to raise capital at any point in time. That's exactly, and that's all that we're going to say. We -- our provisions are based on what we see in our stress models and what we know today. We also have continued to emphasize that we will continue to move the needle on being conservative and that journey continues. Your specific question was, do we -- are we seeing some stress, and because of that, you're making those provisions? No, we are making provisions at a generic level. We can see that if -- as and when the moratorium is lifted, in spite of the fact that our moratoriums have come down materially, that there are a lot of people in terms of value have taken moratorium. And it is important for us to be cautious. So no, we are not seeing any specific stress, which we are not sharing with you. And -- and just to repeat what we said in the last call, we also made a statement that based on our stress models, which we have shared with our Board, our current capital continues to be sufficient to manage through the crisis, and that stance remains. So I'm giving you all kinds of answers and all kinds of inputs. You need to obviously make your call in terms of what that means. But this is all the data we can give to you at this point in time.

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Operator [45]

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The next question is from the line of Akalp Gupta from ICICI Prudential Life Insurance.

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Akalp Gupta, [46]

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My question is, again, with regard to the moratorium. So you mentioned that our collection is close to, let's say, 70%, 80% of the morat 1 clients. So my question is, what about the remaining 20%, 25% where we aren't able to collect? So are these clients whom we aren't able to reach? Or they aren't able to pay? And so would it be a fair judgment to say that, let's say, 20%, 25% of the morat 1 clients, so that comes to around 4% or 5% of the overall book, this is a particularly sticky NPA kind of a book, would that be a fair assessment?

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Amitvikram Talgeri, Axis Bank Limited - Chief Risk Officer [47]

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So no, that's not true. The reason why I say that is because if I look at the profile of those customers, it is across all rating banks, it is across all bureau scores, it is across all industries, it is across all geographies. I gave you a color of some of the customers who are lying in that morat book. Clearly, what we see is that the easiest thing for us is to give and offer the moratorium. What we are doing is the difficult thing, which is to ensure that we do collections and recovery from those customers, and that approach is something which is a marked difference from the approach in morat 1. And that's the reason why if you see what we are currently focusing on is purely collections and recovery efforts. Yes, they are linked to the external environment in terms of the economic lockdown. Some of these industries taking time to recover. Some of the shopkeepers taking time to come up, open their shutters. So all of that is reflected in what's happening on the ground. And as far as we are concerned, our collections and recovery efforts continues even for those customers where we've not given the moratorium.

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Akalp Gupta, [48]

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Sure, sir. So I mean, the remaining balance, 25%, which is not being collected right now, you are saying potentially there's a fair chance that this can get collected over the period of time is what you're suggesting right now?

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Amitvikram Talgeri, Axis Bank Limited - Chief Risk Officer [49]

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Absolutely. Absolutely.

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Operator [50]

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The next question is from the line of Mohit Surana from CLSA.

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Adarsh Parasrampuria, CLSA Limited, Research Division - Research Analyst [51]

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This is Adarsh from CLSA. More question on morat, right? So we started off with 26, 27, and the number is down to 9 now. So the 18% of the book, which would have been in morat over from 1st June to 21st of July would have had either 1 or 2 installments that would have come their way, right, which if they don't pay, they would be in SMA-1, I believe, correct? So I just wanted to understand if you can give some more color, right, around SMA-1, that gives us the comfort that the fall from 27% to 9% that we have seen or 27% to 8% because 1% is actually coming from outside, these guys, most of them have paid, because most of them would have either got at least 1 installment to be paid in June or many of them would have actually got 2 installments because we've completed like 20 days of July. So if you can give some color, it will really help to kind of bridge the gap between the 26, 27 that we had and where we are. So this 17%, 18%, all of it was just cautionary, and they are relatively safe customers.

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Amitvikram Talgeri, Axis Bank Limited - Chief Risk Officer [52]

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So let me just give you some of the -- I think I mentioned that in terms of the fact that a large part of it is related to collections and recovery of these customers. A lot of them are still conserving capital cash flows and conserving liquidity. Even in our retail books, for example, we see large portions of customers, where salary is coming, they're still ensuring conserving capital and opting for moratorium. We are being a little careful with offering some of these customers moratorium. So from a collections and recovery of the balance portion, and I think I mentioned that earlier as well. Is that as far as we are concerned, if the customer is not impacted by the COVID crisis, we will continue and collect and recover from these customers. And as far as we are concerned, if these collections and recovery efforts, as far as we are concerned over a period of time, based on how the lockdown lifts up and the collection and efforts, activity commences in a lot more sustained manner, we will collect from these customers. Puneet, do you want to just add?

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Puneet Sharma, Axis Bank Limited - President & CFO [53]

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I think -- let me -- this is Puneet here. Let me give you a specific answer to your question. As of 30th June 2020, our SMA-2 reporting to CRILC was less than or equal to 0.4% of our book. Does that address your concern?

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Adarsh Parasrampuria, CLSA Limited, Research Division - Research Analyst [54]

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Sorry, can you repeat that? I didn't catch the number.

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Puneet Sharma, Axis Bank Limited - President & CFO [55]

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At 30th June 2020, our reporting to CRILC for SMA-2 book was less than or equal to 0.4% of our total loan book.

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Adarsh Parasrampuria, CLSA Limited, Research Division - Research Analyst [56]

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Puneet, what will really help in this case, because June would have been only 1 month, would be pre-COVID SMA-1 to pre-COVID -- like Feb or December SMA-1 to SMA-1 in June end, right? Because by -- you started for 18% of the book, the payments, if you are not in morat, started only in June, right? So essentially, you could have got tested only for -- you could have been due maximum for 1 month, right, at best, for example. So SMA-1, any sense, that will be more useful than SMA-2 in this case?

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Puneet Sharma, Axis Bank Limited - President & CFO [57]

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So let me clarify 2 things to you. I think in terms of the analysis, the SMA-2 would be equivalent because if you had aged going into the moratorium, you will come out of the moratorium with the same aging. Technically, SMA-2 would be 60 plus. And therefore, if I went into moratorium at 30 plus, I would have come out of moratorium at the end of the month at 60 plus, and that's the number I'm giving you, which is 0.4% of total loan book. That is a good proxy of where we stand. And so far, as your other ask for data point, currently we are not sharing the SMA-1 number.

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Adarsh Parasrampuria, CLSA Limited, Research Division - Research Analyst [58]

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I think the -- sorry for persisting here. The only reason to ask this is, while I understand that and it is absolutely correct that the bank shouldn't be offering customers moratorium there, you can at least sense from activity level or cash flow level that they don't need one, moratorium. What I'm just trying to understand is you're need to be a little choosy about who you want to give. Some of this 18% could end up becoming -- could end up slipping over the course of the next couple of quarters. So I just wonder if you can give -- you have talked about 70%, 80% collection. But I just wanted to understand that in your opinion, would this 17%, 18% of book would be now because they've not opted for morat 2 be similar in asset quality, not a material difference versus the rest of the book? Or do you still have to test that?

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Amitvikram Talgeri, Axis Bank Limited - Chief Risk Officer [59]

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So you're right. We don't see it as materially different from our existing book to a large extent. And like I said, I gave you some color around what the book has been and the morat performance of that book has been, et cetera. But let me be very honest with you. At the end of the day, some of it is linked to the fact that you would have some slippages, which will happen. But that's part of normal collections recovery efforts. By giving the moratorium, we are only delaying the inevitable. You'd rather get into collections mode quicker, and which is the approach that we have adopted in moratorium 1 customers, and which is what you see. Will all of it slip? Clearly, not. The profile, like I said, I think we mentioned that entering COVID crisis, the profile of these customers has been good. Even as of today, we see the profile of these customers has been good. I gave you enough data points around that. All we are saying is that today, because of lockdown, you could probably have some mismatches around field collections, some mismatches around customers not able to pay out immediately. By ensuring that our efforts around collections and recoveries continue through this cycle, yes, the whole objective is to ensure that while we collect from wherever it's possible, whatever slips through is something which we are envisaging in terms of our stress test scenarios, which we've actually put through, and that's the incremental provisions that Puneet has been taking over a period of time.

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Operator [60]

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(Operator Instructions) Next question is from the line of Parag Jariwala from White Oak Capital.

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Parag Jariwala, White Oak Capital Management Consultants LLP - Senior Investment Analyst [61]

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Yes. So given the -- about the question on morat, when you say 70% collection for retail and 80% for corporate and SE, are you referring only for that month of June? Or are you referring from April, May and June?

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Amitvikram Talgeri, Axis Bank Limited - Chief Risk Officer [62]

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Whatever was due is what we are referring to.

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Parag Jariwala, White Oak Capital Management Consultants LLP - Senior Investment Analyst [63]

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No. So due for the month of June?

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Amitvikram Talgeri, Axis Bank Limited - Chief Risk Officer [64]

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That's right. So effectively, what happens is, if a customer was in moratorium 1, effectively he did not have to pay any installments for March, April, May. His first installment after that period when he got out of moratorium started in June, that's the installment that we are referring to. Or similarly, on the wholesale and the CBG side, if there was an installment due in the month of June, that's the installment or if there was interest payments due, that's the payment that we are mentioning or we are referring to.

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Operator [65]

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The next question is from the line of Jai Mundhra from B&K Securities.

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Jai Mundhra, Batlivala & Karani Securities India Pvt. Ltd., Research Division - Research Analyst [66]

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More or less, same question here, sir. Sir, the residual -- I mean, the 1 minus collection efficiency, so 20%, 25% of the portfolio, which was under moratorium 1. They are now no longer under moratorium, and they would be classified as overdue or standstill. Is that understanding correct?

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Puneet Sharma, Axis Bank Limited - President & CFO [67]

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Accounts that are not in moratorium will continue to age as per normal process like all accounts did even prior to moratorium.

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Operator [68]

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The next question is from the line of M.B. Mahesh from Kotak.

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M.B. Mahesh, Kotak Securities (Institutional Equities) - Associate Director & Senior Analyst [69]

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Just 1 question to Rajiv. Rajiv, if you could just give us some color on how are you now looking at the balance of the corporate portfolio in terms of stress? Continue to see high slippages on that front?

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Rajiv Anand Prattipati, Axis Bank Limited - Executive Director of Wholesale Banking & Executive Director [70]

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So what we've been guiding investors towards is the BB book, which I think Puneet and team have put together, I think, on Slide 34, 35, that gives you a good indication on where the risk sits at this point in time, which is, I think, a little over INR 10,000-odd crores. And in percentage terms, that's really come off at this point in time.

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M.B. Mahesh, Kotak Securities (Institutional Equities) - Associate Director & Senior Analyst [71]

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Sorry, just to clarify that, see, the problem which we have is that the book remains constant, but what comes in and goes out of the book remains very high making it harder for us to understand that book in the first place.

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Puneet Sharma, Axis Bank Limited - President & CFO [72]

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See, the way that this actually works is that the BB book is, in a sense, a live organism. So yes, there will be some stuff coming in. There'll be some stuff going out and there'll be some stuff, which is going to get upgraded/repaid as well. But on a net-net basis, when you're thinking about the portfolio on an incremental basis, that is the overall pool that you should be looking at.

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Operator [73]

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The next question is from the line of [Dhawal] from Jefferies.

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Prakhar Sharma, Jefferies LLC, Research Division - Equity Analyst [74]

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This is Prakhar. Just want to check with you this morat number of 9.7%, is it like-to-like with the 25% to 28%? Or the definitions are now wider than that one?

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Puneet Sharma, Axis Bank Limited - President & CFO [75]

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So the 9.7% number takes the all moratorium divided by total advances of the bank. We had clarified that the 25% to 28% was only opting moratorium.

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Operator [76]

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The next question is from the line of Sri Karthik Velamakanni from Investec.

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Sri Karthik Velamakanni, Investec Bank plc, Research Division - Research Analyst [77]

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Could you reclarify about your NII reserving accounting change once again?

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Puneet Sharma, Axis Bank Limited - President & CFO [78]

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So what we've gone ahead and done is we've gone and reserved interest income recognized in the quarter on standard assets on a prudent basis for potential future reversal. So that's what we've done in so far as the NII reserving is concerned. That NII reserve will cover items like interest on interest, could cover future derecognition, contingencies, et cetera. It's a prudent provision that we have gone ahead and made in so far as reversals that may occur at future date.

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Sri Karthik Velamakanni, Investec Bank plc, Research Division - Research Analyst [79]

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Would it be fair to say that this would be product categories, where the interest rates are unusually high, like maybe an MFI? Or is it across about all products?

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Puneet Sharma, Axis Bank Limited - President & CFO [80]

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It is on the Axis Bank loan portfolio. It is not targeted to a particular product or a particular loan or a particular customer category.

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Operator [81]

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The next question is from the line of Nilanjan Karfa from IDFC.

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Nilanjan Karfa, IDFC Securities Limited, Research Division - Research Analyst [82]

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Rajiv, going back to an earlier question. What you want us to focus is the BB book. The problem is -- the flows keep on -- there are flows which will keep on from the, let's say, the BBB book. That I think is the problem 1, because the numbers are still fairly large. Can you clarify how should we look for it, or rather would you want to talk a little bit about the BBB book itself?

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Rajiv Anand Prattipati, Axis Bank Limited - Executive Director of Wholesale Banking & Executive Director [83]

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So I think a couple of quarters, we had -- a couple of quarters ago, we had guided that we thought that this book would sort of wind down sooner than later. But because of the fact that the situation is what it is, we had actually guided that this BB book both in terms of number as well as in percentage terms will continue to be where it is for longer rather than a shorter period. So I think we will have to wait through some of these conversations that we've been having around moratorium and how the book will behave post moratorium. But fundamentally, at this point in time, I will continue to guide you towards BB book.

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Amitabh Chaudhry, Axis Bank Limited - MD, CEO & Director [84]

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What we -- I can add to what Rajiv is saying, what we are definitely seeing is that the size of exposures which are getting into BB are -- forget about the amount, the total amount, but the size of exposure per borrower is definitely coming down slowly gradually. That is the trend one is definitely seeing.

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Operator [85]

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The next question is from the line of Pranav Tendulkar from Rare Enterprises.

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Pranav Tendulkar, [86]

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Congratulations on reduction in moratorium. So could you just elaborate how many percentage of people who were denied moratorium are not paying, or are not current?

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Amitvikram Talgeri, Axis Bank Limited - Chief Risk Officer [87]

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Yes. Sorry, so you're saying how many customers were denied moratorium have not paid. Is that what your question is?

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Pranav Tendulkar, [88]

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Correct. So out of, say, 27% that was previously and 90% of them have continued, so remaining customers that were obviously out of moratorium, right? So out of those who are out of moratorium that are not present in current or previous moratorium are not paying, or are not current as of June 30.

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Amitvikram Talgeri, Axis Bank Limited - Chief Risk Officer [89]

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Yes. So the way we look at that number is that when we started off at a 70% number, that number will keep coming down -- the 30% will keep coming down gradually as collections continues, right? So while we start off with 70% having paid moratorium 1, the balance 30% over a period of time will start reducing that number given the collection effort, which is happening on the ground, which is why the emphasis that I've been laying around the fact that instead of giving moratorium for those customers and happily sitting in that moratorium book, we are focusing on collections and recovery. Whatever doesn't get collected or recovered as per the normal DPD movement, we will ensure there is provisions which will happen based on the normal accounting regulatory provisions required. And that's really the approach that we have taken to moratorium 2. And I think Puneet clarified that in terms of the movement of all of that.

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Operator [90]

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The next question is from the line of Nitin Aggarwal from Motilal Oswal.

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Nitin Kumar Aggarwal, Motilal Oswal Securities Limited, Research Division - Research Analyst [91]

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I have one clarification to ask for. Just on morat 2, you said that 90% customers comes from morat 1 and then probably 10%, if I take the same loan value also, then it got added. So had this all accrued, probably this 9.7% number would have come down to approximately around 6.5%. Is this a right assessment? And how do you differentiate in terms of probability of default between morat 1 and morat 2? Do you think the morat 2 customers can be rated better than morat 1?

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Puneet Sharma, Axis Bank Limited - President & CFO [92]

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So let me just -- we didn't catch your question entirely. So I'll just repeat it for our understanding. Your question was in 2 parts. The first part of your question was is morat 2 customers have better asset quality than morat 1. And your second part of your question was that if we consider the INR 4,600 crores of customers on which we have been able to collect, will the percentage drop from 9.7% to 7.6%, which is a competition that you have done.

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Nitin Kumar Aggarwal, Motilal Oswal Securities Limited, Research Division - Research Analyst [93]

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No. I'm sorry. So what I meant was like because this number at 9.7%, this includes 90% from morat 1 and then 10% got added. So our original number of morat was around 28%. So if I work with 90% of that assuming the same loan value, then probably 3% further reduction could have happened from the morat pool. So I'm just asking this because the range that we are now looking at is very small, like, it's now come down to single digit. So if you can get this morat 1 number could have come down to 6%, is it really a case as I ask to have these morat 1 customers can be relatively more riskier than morat 2?

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Puneet Sharma, Axis Bank Limited - President & CFO [94]

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Right. So let me clarify the math for you. When we say 90% of the customers in morat 2 are in morat 1, if I were to round up the 9.7% to 10% only for ease of mathematics on the call, 8% of the 10% would be from morat 1 and 2% of the 10% would be from morat 2.

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Nitin Kumar Aggarwal, Motilal Oswal Securities Limited, Research Division - Research Analyst [95]

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Okay. And on the second part?

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Puneet Sharma, Axis Bank Limited - President & CFO [96]

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Sorry?

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Nitin Kumar Aggarwal, Motilal Oswal Securities Limited, Research Division - Research Analyst [97]

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On the second part, in terms of how do you rate these customers differentiate between them and their perceived quality?

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Amitvikram Talgeri, Axis Bank Limited - Chief Risk Officer [98]

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So I think we answered that initially, but just to kind of reiterate, like I said, there are a whole host of data points around that in terms of the credit performance of some of these customers, the profiles of these customers, the fact that a large part of this book is salaried, the large part of this book is secured, backed by property collateral, credit tested customers. Let's take example of, for example, on the mortgages side, which is a significant portion of the retail book on the morat 2, I mentioned a large part of that book, 80% is ready properties. So the construction risk doesn't exist there. 77% of the customers have LTVs, which are less than 75%. 90% of these customers are with bureau vintage of more than 3 years, with good scores. So a large part of these customer profiles are good customer profiles. And that's really what we would like to believe is holding in the portfolio in terms of where we stand. Also, just to kind of give you a data point, a large part of the moratorium mirrors the portfolio in terms of existing to book -- existing to bank customers and salaried customers, where traditionally we've had low default rates on the retail side. The wholesale and the commercial bank book has dropped dramatically. It's a very small percentage of the new morat 2.

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Operator [99]

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Thank you, ladies and gentlemen. Due to time constraints, that was the last question. I now hand the conference over to Mr. Puneet Sharma for closing comments.

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Puneet Sharma, Axis Bank Limited - President & CFO [100]

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Thank you, ladies and gentlemen, for taking the time to join our quarterly results call. We appreciate your time and patience and the questions that you've asked. Abhijit would be happy to engage with you if you have any future questions. Thank you. Have a good evening, and stay safe.

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Operator [101]

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Thank you. On behalf of Axis Bank, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.