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Edited Transcript of INDUSINDBK.NSE earnings conference call or presentation 10-Oct-19 10:59am GMT

Half Year 2020 Indusind Bank Ltd Earnings Call

Pune Oct 14, 2019 (Thomson StreetEvents) -- Edited Transcript of Indusind Bank Ltd earnings conference call or presentation Thursday, October 10, 2019 at 10:59:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Romesh Sobti

IndusInd Bank Limited - MD, CEO & Director

* Sanjay Mallik

IndusInd Bank Limited - Head of IR & Strategy

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Conference Call Participants

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* Adarsh Parasrampuria

Nomura Securities Co. Ltd., Research Division - Executive Director

* Amit Premchandani

UTI Asset Management Company Limited - Fund Manager

* Jai Mundhra

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

* Kunal Shah

Edelweiss Securities Ltd., Research Division - Associate Director

* M.B. Mahesh

Kotak Securities (Institutional Equities) - Senior Analyst

* Pranav Gupta

Aditya Birla Sun Life Insurance Company Limited - Research Analyst of Banking & Financial Services

* Saikiran Pulavarthi

Haitong International Research Limited - Research Analyst

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Presentation

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Operator [1]

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Good day, ladies and gentlemen, and a very warm welcome to the IndusInd Bank Limited Q2 FY '20 Earnings Conference Call. (Operator Instructions) Please note that this conference is being recorded.

I'm now glad to hand the conference over to Mr. Romesh Sobti, Managing Director and CEO of IndusInd Bank Limited. Thank you, and over to you, sir.

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Romesh Sobti, IndusInd Bank Limited - MD, CEO & Director [2]

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Thank you. Good afternoon. Thank you for joining us. I'll just go through some of the headlines on the operating environment and then talk more about the bank. The set of numbers are already loaded. I think the investor presentation is already on our site.

But I think the quarter we saw sort of rapid deceleration in the growth, but consequently, we saw some very agile and fleet-footed responses from both RBI and the government to sort of ease the situation. So a slew of measures have been taken, some of them are sectoral, operation sectoral measures for NBFC sector, for the auto sector, real estate sector, et cetera. They're meant to release liquidity and to release capital in the hands of banks to persuade banks to actually start relending.

I think the other major headline was that moving to an external benchmark, and therefore, banks have taken a choice to move some benchmarks from 1st of October. I'll talk about that later in the listing. And so that's I think the broad headlines.

The tax benefit, of course, has a beneficial impact. The tax cut has a beneficial impact, and we'll talk about that also later on this call. The general sensing is that the cyclical elements that are prevailing and also sort of contributing to the slowdown may show some signs of easing out especially over the next couple of quarters. Some of the structural elements might linger on for a longer time. So that's a quick sort of review of the operating environment. The market is liquid. Banks have a surplus liquidity of almost INR 2,00,000 crores, so there's plenty of money in the bag. The question is about banks' risk-awareness -- averseness and is there a way out of that averseness.

System credit, of course, overall, we've seen down to 10%, and the volume growth also around to almost the same level of around 10%. So in this operating environment, I think we've come up with a good set of results. As I highlight the year, of course, our growth revenue and our fee income, which is reported 32% growth in our overall revenue. Good growth I'm seeing in the interest income and also in fee income, both of which have grown by 32%. More importantly, quarter-on-quarter also we've seen some good growth levels, 2% on NII, 4% on fee and 3% on overall revenues.

So this number is pretty robust. Of course, that's been supported by a loan growth of 21%, and we'll talk a little bit more about the breakup of that. And deposit growth has remained strong at 23%. For several quarters now, we have shown deposit growth well into the 20s.

The quality of the loan book has remained steady. And in fact, for reasons that we'll explain, net NPAs have actually gone down. The actual profit and we're talking here of the consolidated profit because the subsidiary is a very thin subsidiary, in any case, therefore, this will be a consolidated number as we had reported last time. And the consolidated figures that we've shown for profit is INR 1,401 crores, which is up 52%. I think the points to be highlighted here is that the actual profit that we have was something like INR 1,667 crores because it was fed also by the tax cut benefit that we have got that also contributed to the very strong growth and the PAT up to INR 1,667 crores. But we have chosen to strengthen the balance sheet by improving the provision coverage ratio, which has now moved up from 43% to 50% through an accelerated provisioning of INR 355 crores.

So while the natural profit would have been higher, we have kept the profit low by making a provision. And I think this is the first step, a good step towards moving towards well past of 60% that we hope to achieve in terms of provision coverage ratio, which is what we have said in the last couple of quarters.

The -- we want to talk about the tax benefit. We did have a tax benefit for the half year, net of the mark-to-market on the DTA, which is a deferred tax assets where we will mark down. And net of the markdown itself, we still had a good contribution from taxation in the vicinity of about INR 186-odd crores, so that has contributed to profit. And of course, there has been natural growth also, which contributed to the profit figure if you were talking a figure of INR 1,667-odd crores.

Other than that, I think, credit growth, let's talk about credit growth. Credit growth is 21%. And if you are looking for a breakup of the credit growth, then we've seen the vehicle finance book grow by 21%, the nonvehicle retail is 18%, MFI grew 32%. The corporate bank, if you look on an average basis, actually it was almost 14%. But because we had a very good size repayments and recoveries on a year-end -- quarter end to quarter end basis, which is ENR basis, it grew 7%, but that's depressed only to the extent of actually recoveries. Because I think in deposits, we had also sold some assets, sold assets of around INR 3,500-odd crores.

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Sanjay Mallik, IndusInd Bank Limited - Head of IR & Strategy [3]

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INR 3,000 crores.

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Romesh Sobti, IndusInd Bank Limited - MD, CEO & Director [4]

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INR 3,000 crores compared to I think last quarter in the vicinity of INR 6,000-odd crores. So the average growth, of course, is almost 14%. So that's the color on the -- sorry, of the loan book.

As far as fee is concerned, fee grew by 31%, and quarter-on-quarter, it grew as much as 4%. The breakup of that fee is given in the presentation. Almost all the lines which we declare have shown a positive growth. General banking fee is flat. Commercial banking fee is a small variation because investment banking fee moves up and down in terms of its overall lumpiness. So core fee growth still in 21%. Total fee growth of 32-odd percent. Other than that, yes, CASA, CASA we showed was 41.5%. I think on the last day of the quarter, there were some withdrawals on the SA side, which have subsequently sort of come back and so they're not so sort of worried on the trending, but in spite of that, the SA growth was 14%. And still quarter-on-quarter, it grew about 1%. Also, there was a large escrow that was lying in the current accounts on account of a particular resolution where we have recovered a lot of money. That escrow also sort of petered off and gone down significantly.

So other than that, I think in terms of the book quality, GNPAs, well, was 2.15%. Last quarter, it was 2.19%. But net NPA has fallen from 1.23% to 1.12%. And the business as usual, credit cost is coming to 18 basis points besides, which, we had, as I mentioned, made the accelerated provisioning of INR 355-odd crores.

Other than that, I think the only thing to be talking about, this is given in the investor presentation. We've detailed that in the investor presentation that there were 3 groups, one each in media, diversified group and the housing finance sectors, which have been speculated as being stressed. We had declared the bank's net funded and nonfunded exposure to these groups in quarter 4. Quarter 4, it was 1.9%. In quarter 1, it was 1.7%. In quarter 2 end, it is down to 1.1%. And it is our expectation that in the next week or 10 days, this should be down to 0.8%. So there's been significant repayments that have happened. These accounts remain standard in our books, and we continue to have a consolidated security cover of 160% for the exposures, which are held by us. And as I said, all the above accounts remains standard in the books.

Additionally, since there was conjecture in the market on a particular housing finance cum real estate company, we had -- for that group, we had disclosed to the stock exchanges an exposure of 0.35% of loans to their financing business not just housing, the financing business. Mostly it is housing as on date, that has gone down to 0.27% from that 0.35-odd percent.

So there -- of course, there's exposure also to the real estate part of that company, that group, that exposure as on date is 0.45%, and we expect to reduce that to 0.2%, with scheduled repayments and prepayments, which are going to happen in this particular quarter. And as we have said repeatedly, all exposures are fully strongly characterized with no overdues. So I think this conjecture to some extent misread and misreporting of the figures relating to this particular group are not borne out. We have declared to the exchanges the real picture and we've also shown you how the exposures are actually reduced over time.

So that I think is the summary of the numbers. Is there anything else that we want to talk about?

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Sanjay Mallik, IndusInd Bank Limited - Head of IR & Strategy [5]

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Yes, maybe a couple of things. So I think one of the things people talk about is the retail deposit traction. I'm happy to state that the retail deposits on an LCR basis are up 1% year-on-year. The other element I think is that quarter-on-quarter, as a consequence of the restriction to warrants by the promotors, the capital of the bank is now 15.77% on a CRAR basis. And if I take the residual portion of the warrants to come in, then we would be past the 16.8% type of number -- 16.7% type of number. So just a quick -- a couple of quick points.

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Romesh Sobti, IndusInd Bank Limited - MD, CEO & Director [6]

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Okay. We're open to 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 Pranav Gupta from Birla Sun Life.

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Pranav Gupta, Aditya Birla Sun Life Insurance Company Limited - Research Analyst of Banking & Financial Services [2]

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Just a couple of questions. So this quarter, obviously, and including last quarter, we reported including Bharat financial, whereas the same quarter last year, we didn't. If you could give us some color on how the NII has moved? If you look at IndusInd Bank on a stand-alone basis, that would be helpful.

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Romesh Sobti, IndusInd Bank Limited - MD, CEO & Director [3]

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Yes. Sure. So you've seen a NIM expansion of 5 basis points. That expansion is -- it can be attributed entirely to IndusInd Bank on a stand-alone basis. I think we had shown in quarter 4 a NIM for the bank at 3.59%, that moved to 3.64% in quarter 1. And now it's 3.69% in quarter 2. So that's the split between the thing.

So as we had sort of said and forecast, the benefits of a falling credit cost -- sorry, cost of deposits on the one hand, and the fixed-rate book on the other hand, is beginning to give us those benefits. And I think that we will hope to continue seeing more accretion on the interest margin. So I mean, our ambition really is at the peak. If you would remember, the NIM of the bank alone was from 3.98% or close to that figure. And then when that event happened when we suspended interest on a large infrastructure exposure, the NIM actually fell to that figure of whatever 3.59%. And our experience is that in a falling interest rate scenario, clearly, we have benefits in terms of margin because of the fixed-rate book that we have, clearly. In every downturn in terms of interest rates, we have increased our margins. So our ambition here is that we slowly move away up to that figure of whatever at least 3.9-odd percent. And then I think Bharat's contribution is mainly in the range of whatever 35 basis points or 40 basis points, and therefore, that should be the ambition that we should be upwards of 4.25% on the interest margin.

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Pranav Gupta, Aditya Birla Sun Life Insurance Company Limited - Research Analyst of Banking & Financial Services [4]

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Right, sir. And secondly, if I were to understand this correctly, there was a -- there were bids which were received for certain old assets in the IL&FS group. One of those assets which we are in exposure as well. What is the progress there, if you would help us with that.

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Romesh Sobti, IndusInd Bank Limited - MD, CEO & Director [5]

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Yes, I wish I could. What we know is probably what you know. But the bids -- I believe bids have come in, bids have been opened technical evaluation, et cetera, et cetera, are being done, have been done. Overall, our sensing is that in early quarter 4, I think these bids will be allotted is what we heard, right? Therefore, hopefully, some resolution will happen before the fiscal year-end happens.

Now what the bids are, to what extent they cover the debt is to be seen. But I think the one particular asset that you mentioned, which is a very strategic sort of asset which we always said will -- should get good response, hopefully, it has got a good response. And hopefully, we'll cover a significant part of the exposures that we have there.

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Pranav Gupta, Aditya Birla Sun Life Insurance Company Limited - Research Analyst of Banking & Financial Services [6]

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Right. And just lastly, on the growth front, so we've seen not a slowdown but a slight, slight dip in growth. And if I were to adjust for the Bharat Financial impact on a Y-o-Y basis, growth looks even slower. So how are we looking at growth overall -- on an overall basis?

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Romesh Sobti, IndusInd Bank Limited - MD, CEO & Director [7]

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I think for us, it's not that we are pushing growth at a certain level and whatever growth we are currently seeing is your growth, that's the way we look at it. And I think Bharat is certainly going to get back on track. There was a little bit of a impact on the consequence of floods in terms of disbursements, but that's now petering out. Month on month, we are seeing very good growth on, for instance, Bharat, in September, overall, there's a growth of 9% is what we have seen. So I think, for us every month, please don't forget that this is after we have sold down almost 3,000...

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Sanjay Mallik, IndusInd Bank Limited - Head of IR & Strategy [8]

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And the recoveries.

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Romesh Sobti, IndusInd Bank Limited - MD, CEO & Director [9]

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INR 3,000 crores plus the significant recoveries or repayments that we have had from especially the so-called sort of stressed accounts. So if you allow for that, then I think growing in the 20s is what we are looking for without doing unusual sort of a stretch.

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Operator [10]

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The next question is from the line of Kunal Shah from Edelweiss.

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Kunal Shah, Edelweiss Securities Ltd., Research Division - Associate Director [11]

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So firstly, in terms of the overlap between SMA-1, SMA-2 and the 3 accounts which we have disclosed, so when we look at in SMA-1 and SMA-2, there is something which has flown into NBFC and the other industry. So is there an overlap between this 1.1% and maybe the overall 0.96%?

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Romesh Sobti, IndusInd Bank Limited - MD, CEO & Director [12]

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How much is it?

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Sanjay Mallik, IndusInd Bank Limited - Head of IR & Strategy [13]

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15 to 20 basis points. The overlap is 15 to 20 basis points.

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Kunal Shah, Edelweiss Securities Ltd., Research Division - Associate Director [14]

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Okay, 15 to 20 bps. Okay. And in terms of the subinvestment category, which we highlighted last time was almost 3.1% of the book, so how much would that be given there will be a few downgrades, which have been there across. So if you can disclose that number as well?

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Sanjay Mallik, IndusInd Bank Limited - Head of IR & Strategy [15]

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No, it's the same level. It's just very, very marginally up. It's exactly in line with the subinvestment-grade book that we declare internally. There's no -- virtually no difference.

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Kunal Shah, Edelweiss Securities Ltd., Research Division - Associate Director [16]

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Okay. And in terms of the overall MFI NPLs that have gone up from, say, 60-odd basis points to a 90 plus. So any particular geographies wherein we are seeing this? And what would be the overall growth in the MFI on a sequential basis as well, if we have to -- so last time, it was more or less flat. Okay? So now this time also INR 18,000 crores, but if we have to look at it in terms of BHAFIN, the stance of maybe going slow is still continuing?

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Sanjay Mallik, IndusInd Bank Limited - Head of IR & Strategy [17]

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No. So the number, NPA number is a momentary problem because of the floods. Essentially what happens is when the floods hit this sector, especially the poor, their day to day operations are disrupted. The repayments are back almost to 98%, 99% in these areas. But the areas that were there at the time of floods and the moratorium that we would have given will continue. So a 50-week loan will probably now end up becoming the 55th week or 58-week loans. So -- and when the flood happened, the disbursals also gets impacted in these areas. And this time, unlike all the previous years, the floods have impacted multiple states Orissa, Maharashtra, Bihar, parts of Madhya Pradesh and so on. So therefore, you saw that probably across the industry it's kind of a flat growth. But once the situation normalizes, we will start seeing growth. And Mr. Sobti pointed out, September, there was a 9% growth over August, so you see the growth momentum is back. On the conservative approach, I think we will always continue to maintain a slightly more conservative approach than the rest of the industry because that has paid off lot of dividends in the past. I hope I have all -- answered all the questions that you asked.

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Kunal Shah, Edelweiss Securities Ltd., Research Division - Associate Director [18]

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Yes. Yes. And in terms of the overall IndusInd book, last time, we disclosed the stand-alone book at INR 1,89,900 crores, so what is that number this quarter in Q2?

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Sanjay Mallik, IndusInd Bank Limited - Head of IR & Strategy [19]

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No. So you're talking about the loan book, right?

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Kunal Shah, Edelweiss Securities Ltd., Research Division - Associate Director [20]

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Yes, yes, loan book.

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Sanjay Mallik, IndusInd Bank Limited - Head of IR & Strategy [21]

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Yes. So the loan book is you net out the microfinance business, and about INR 2,000-odd crores is the bank's BC business outside Bharat Financial, and that would be the difference.

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Kunal Shah, Edelweiss Securities Ltd., Research Division - Associate Director [22]

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Yes. So 18 minus 2?

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Sanjay Mallik, IndusInd Bank Limited - Head of IR & Strategy [23]

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That's right. So it will be around -- so Bharat is about 17 and the rest will be just under INR 2,000 crores.

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Kunal Shah, Edelweiss Securities Ltd., Research Division - Associate Director [24]

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Okay. Okay. So we have to knock that off. But last time also the overall book was maybe [INR 189,000 crores]. But when we showed it, it was like IVL plus BHAFIN, that was [INR 193,000 crore]. So maybe it was not mere knocking off from the MFI and the BHAFIN portfolio. So just wanted to check if I have to look at it purely IndusInd?

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Unidentified Company Representative, [25]

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In quarter 1, the numbers would have increased.

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Unidentified Company Representative, [26]

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Bharat Financial also because it was not in March, right, that's why the number. And so you cannot just net it off because we had already -- we have to look at South Africa and (inaudible).

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Unidentified Company Representative, [27]

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Yes. In quarter 1, some part of -- there were term loans given by IndusInd to Bharat Finance because we were already replacing other banks, so there's an overlap there. So if you just net off, you won't come to the right number.

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Kunal Shah, Edelweiss Securities Ltd., Research Division - Associate Director [28]

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Okay. Okay. So just to understand, IndusInd book growth, how much would that be?

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Sanjay Mallik, IndusInd Bank Limited - Head of IR & Strategy [29]

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So IndusInd book growth, I mean, if you look at the retail business, for example, the retail finance business has grown 21%. Nonvehicle retail has grown 18%. MFI, which is all put together, has grown 32%. The corporate business has grown lower. The average is around 14%, 15%. But the ENR numbers are in single digit, 7%, mainly because of these repayments. And the overall bank growth would be around 14% without counting the fact that the underlying repayments have happened and also the sell-downs which have happened, otherwise, the numbers would've been in the high teens.

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Operator [30]

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The next question is from the line of Saikiran Pulavarthi from Haitong International.

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Saikiran Pulavarthi, Haitong International Research Limited - Research Analyst [31]

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Just continuing on the liabilities, I think the CASA has been weakened. However, the retail liabilities conducive to overall deposits have been improving. How do you look at what I can say, the deposits at the same point of tender costs of deposits have come down, but similarly, the cost of funds have not come down meaningfully. How do you want to look at your funding profile going forward?

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Romesh Sobti, IndusInd Bank Limited - MD, CEO & Director [32]

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I think first of all, this retailization drive is going to continue. That is, clearly, has many benefits to us, with the analyzation of the retail deposits, we've been doing this at the rate of INR 5,000 crores or INR 6,000 crores every quarter. This is certainly going to continue. You'll see one trend this quarter is actually that our borrowings have actually come down. There's a 10% degrowth in our borrowings because we found that the cost of deposits is now actually lower than the cost of the borrowings. And in fact, during the sort of quarter end, we repaid or prepaid some $450 million of borrowings, right? And there was a small cost which were linked to that. And that is also -- that's not been factored in when you look at the cost of funds. So that's why you've not seen the cost of funds fall to the same extent. But I think the benefits that are growing to us from the prepayment, I think will -- in the next few quarters. So that's how we view this, continued impetus in growth on retailization of deposits. The toggle between borrowings and deposits will continue with a strong focus on retail deposits.

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Unidentified Company Representative, [33]

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And on the CASA side, I think we've always said that we'll continue to grow the SA piece at about 25% to 30% CAGR. I think this year, this quarter, we've grown 14% because we did lose a significant amount of money in the last day of the quarter. And I think we see the growth happening. The retailization growth will continue. We continue to acquire 1,30,000 accounts. We continue to see our average ticket size being around INR 70,000 now. We will continue to -- continue to do this drive. And I think the 2 new initiatives on the way, one is Pioneer, and the other is the NRI business, which have taken off. I think you'll continue to see this drive happening.

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Romesh Sobti, IndusInd Bank Limited - MD, CEO & Director [34]

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And there is a wealth management platform which we have launched in 10 cities, 10 cities now?

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Unidentified Company Representative, [35]

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7 cities.

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Romesh Sobti, IndusInd Bank Limited - MD, CEO & Director [36]

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7 cities?

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Unidentified Company Representative, [37]

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Yes.

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Romesh Sobti, IndusInd Bank Limited - MD, CEO & Director [38]

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So that's I think will bring in significant AUMs. And the other one is the NRI listing where we are making a very strong push to sort of boost up this particular segment, which in the past has not been sort of addressed with the same vigor.

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Saikiran Pulavarthi, Haitong International Research Limited - Research Analyst [39]

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Got it. And the second question on the corporate slippages and then the overall slippages as well has been relatively higher even if one has to adjust for the technical what I can say is slippages this quarter. Would you like to comment on the reasons? And then, what do you expect going forward?

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Romesh Sobti, IndusInd Bank Limited - MD, CEO & Director [40]

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So I think what you need to see is additions and deductions. So if you look at on a net basis, actually, net slippages have actually fallen. I think they've fallen from a figure of 0.54% to a figure of 0.35%. But these additions and subtractions where they're technical in nature. You can see that the net addition to NPA, gross NPAs was only INR 170 crores in the whole process. But the gross loss looks larger because the deduction figures is also pretty large. So I think you should be looking at the net slippage, and the net slippage is only 35 basis points. Actually, it's in quarter 1 of last year. Quarter 1 this year, it was 0.54% and net slippage is now down to 0.35%.

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Saikiran Pulavarthi, Haitong International Research Limited - Research Analyst [41]

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Have you built any change in the recognition policy of NPAs probably this year or it's the same?

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Romesh Sobti, IndusInd Bank Limited - MD, CEO & Director [42]

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No, no, we can't -- you can't make changes on your own, they're all defined by RBI. I mean the only thing is that now we have fully moved to daily -- on a daily basis -- on a fully automated basis recognition of NPA on a daily basis.

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Saikiran Pulavarthi, Haitong International Research Limited - Research Analyst [43]

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Even the last year also remained the same that is on the daily basis? Or is the -- move to the what daily basis has happened this year?

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Romesh Sobti, IndusInd Bank Limited - MD, CEO & Director [44]

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No, no, it is progressively growing. Portfolios after portfolio, we started growing in. So last year, it was partial. Now it is -- actually last year, corporate was pretty significant. And retail, of course, now we're getting on to -- we will get on to the daily basis recognition on retail also. But corporate, we had moved pretty significantly last year also.

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Saikiran Pulavarthi, Haitong International Research Limited - Research Analyst [45]

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Got it. So essentially, the better way to look at this number is on the net slippage number than on the gross slippage number. That's what...

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Romesh Sobti, IndusInd Bank Limited - MD, CEO & Director [46]

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Yes, yes, absolutely, absolutely. That's what really comes into your book.

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Saikiran Pulavarthi, Haitong International Research Limited - Research Analyst [47]

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Got it. And final question on the SMA-1 and SMA-2, again, there is a significant deterioration, and also, the SMA-2 is primarily higher on the other industry. Would you like to comment on that?

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Romesh Sobti, IndusInd Bank Limited - MD, CEO & Director [48]

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Yes, yes. First of all, there is no -- there is a significance. I mean we're talking about 0.58% SMA-2 data. And that also, there's one particular account which is in the process of getting resolved because we are monetizing the securities that we hold where, of course, significant recoveries have already happened. If you take that off in the vicinity of 0.45% and I think it remains well under control. The other are really spread across a few accounts, so there is no large figure that's sitting there, it's spread across a number of accounts of small values.

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Saikiran Pulavarthi, Haitong International Research Limited - Research Analyst [49]

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Do you foresee that getting into the corporate slippages as such? Or do you think that these are primarily getting regular in nature might get resolved over a period of time?

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Romesh Sobti, IndusInd Bank Limited - MD, CEO & Director [50]

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Yes, yes. I think we expect a very high degree of resolution here. We don't expect any of these to actually slip into a doubtful nature or substandard, sorry.

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Unidentified Company Representative, [51]

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SMA-1 is smaller number, checking the rest of the book is okay.

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Romesh Sobti, IndusInd Bank Limited - MD, CEO & Director [52]

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Yes. The SMA number -- SMA-1 number is much smaller.

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Unidentified Company Representative, [53]

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SMA number is much smaller showing the -- rest of the book is okay. So these are only specific ones where resolution is being worked on.

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Unidentified Company Representative, [54]

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I think we've also highlighted that there's one which should get resolved pretty soon in the course of this month, so that's also a significant part of the SMA-2.

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Saikiran Pulavarthi, Haitong International Research Limited - Research Analyst [55]

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Got it. And one final, I think in one of your interviews early this month, you hinted about the potential fee will change announcement this month. Would you like to comment on that?

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Romesh Sobti, IndusInd Bank Limited - MD, CEO & Director [56]

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No, I think the comment has been made, no need to wait for the announcement. That's the priority of the board. We've said many times, it's the board that decides so management doesn't really take those decisions.

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Operator [57]

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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 [58]

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Couple of questions. Sir, on these 3 large, bulky, stressed exposures, can you sort of revisit the LGD assumption? Because now a lot of things have changed. In one of the group, there have been some stake sale. In the other, there was some resolution, which was prepared by the consortium leader and third group also there were some resolution which was proposed. So can you highlight what is your sense of LGD in each of these links?

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Romesh Sobti, IndusInd Bank Limited - MD, CEO & Director [59]

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I think a fair indication of that would be from the trending that we would see over the last 2 quarters. So from 1.9%, they're already down to 1.8% and with -- and particular -- 1.1%, sorry. And with the resolution that we're expecting, we made a note of that, this thing that we actually -- should actually go down even further because of the monetization that is happening to a figure of what 0.8%.

Our best case scenario is that there's no residual, what you call it, impact on the P&L on these ones, especially if the resolution happens of the particular HFC. And for the other 2, actually, we don't see any residual impact. The HFC-1 is what we are watching where resolution plan, the way it plays out I think will determine. But that's -- we are a bondholder there. There we have already done mark-to-market sort of markdowns already. So we hope that the best-case scenario here is that no residual loss is given, or the residual loss is a small and more digestible number.

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Jai Mundhra, Batlivala & Karani Securities India Pvt. Ltd., Research Division - Research Analyst [60]

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Sure, sir. And sir, could you also talk about the ICA which you would have signed in standard cases or would be in pipeline maybe the number of cases where you would have signed the ICA and the quantum?

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Unidentified Company Representative, [61]

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Yes. I'll give it to you. Just give me a second. So total ICAs signed is 0.18% of our loan book.

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Jai Mundhra, Batlivala & Karani Securities India Pvt. Ltd., Research Division - Research Analyst [62]

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Okay. Great, sir. And this would include the sign as well as pipeline, I mean, very near term, pipeline, or...

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Unidentified Company Representative, [63]

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Yes, yes, yes.

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Jai Mundhra, Batlivala & Karani Securities India Pvt. Ltd., Research Division - Research Analyst [64]

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Sure. And the second question is sir, I mean, the Chairman position is vacant as of now. So I don't know if you can comment if you want to fill that position now? Or you are waiting for, of course, some other contingent events?

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Romesh Sobti, IndusInd Bank Limited - MD, CEO & Director [65]

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I think that decision also lies with the board, but I don't think anybody is going to wait for contingencies. That position is going to be filled up and you'll probably see that happening sooner than later.

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

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Sure, sir. And sir, if you have the write-off number for second quarter, that would be helpful. And as you mentioned in your previous question that we are still not on fully -- in retail slippages, we are still not on fully daily stamping basis and in full portfolio, right?

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Unidentified Company Representative, [67]

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So everything is on a daily basis. Only the vehicle part is moving product-by-product. It's on monthly, so that's moving to daily.

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Jai Mundhra, Batlivala & Karani Securities India Pvt. Ltd., Research Division - Research Analyst [68]

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Sure, sir. I just need the write-off amount in the second quarter and if you have the first quarter as well.

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Unidentified Company Representative, [69]

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I'll -- can I give it to you separately? I don't have it ready here.

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Jai Mundhra, Batlivala & Karani Securities India Pvt. Ltd., Research Division - Research Analyst [70]

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Sure. No issues, no issues.

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Operator [71]

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The next question is from the line of Adarsh Parasrampuria from Nomura.

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Adarsh Parasrampuria, Nomura Securities Co. Ltd., Research Division - Executive Director [72]

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Sir, just wanted your comments on growth on the nonvehicle or nonretail side. In the context that if you try and see the Y-o-Y trend, it's almost not growing for some time and pulling down the overall growth. And in that same context, you've been able to migrate the portfolio a lot towards retail because vehicles have continued to grow. And in that context, your margin improvement has not been adequate for the loan mix change for the improving liquidity and the slower growth, which kind of helps improve your balance sheet compositions, so if you can comment on both these things.

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Romesh Sobti, IndusInd Bank Limited - MD, CEO & Director [73]

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Yes, I'll pick up the second one first. The loan mix growth actually is more optical because these were already there in our books. So MFI, for instance, which is a higher earner in terms of interest rates used to be part of the corporate book, right? Now I think about 2 quarters or 3 quarters ago, we sort of said that right because the legacy was that the corporate banks started doing the microfinance business, and therefore, it kept on. Now with the addition of Bharat, which adds very significant weightage to this portfolio, we have sort of declassified it from corporate and moved it there to retail.

The other one was the business banking group, which is already managed by the consumer bank but it was classified in corporate. That is also been moved to the -- this thing. So I think this is more optical in that sense. The margin expansion is not a consequence yet of the reset in the construct of the book. The margin expansion today is happening on account of the fact that we have fixed-rate book, large fixed-rate book, almost half of the book is fixed-rate, and the cost of funding in deposits is actually falling, I think that. I think going forward, we will expect that more in the optics real change happens in the mix between corporate and retail, and therefore, a little bit of bump up in terms of the margin should actually happen. That was the second part of the question. The first part of your question -- what was the first part? Can you repeat that?

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Unidentified Company Representative, [74]

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Nonvehicle retail assets.

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Romesh Sobti, IndusInd Bank Limited - MD, CEO & Director [75]

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Yes. Vehicle and nonvehicle?

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Unidentified Company Representative, [76]

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So on the nonvehicle assets, there are different components of the nonvehicle assets. There are secured assets, which is the BBG and LAP. And then there is an unsecured business, which is BL, PL and the cars business, and of course, and I agree on the secured. I think the first 2 parts of the business, we said about LAP, we have slowed down LAP for 2 years and we are growing at 8% to 10% CAGR, and that's one of the reasons why the book is not good, it's INR 10,000 crores of that book. The other book from the last 12 months is

(technical difficulty)

the other part of the book is on the BBG piece where the [edge of] the SME. I think last 12 months, we've not seen a good growth on that book because we're growing at 10% to 14%. And more importantly, it is because the balance sheet, which were coming were not very good to us. And we did not approve a lot of credit as a consequence of this.

Unsecured continues to grow at the pace which it was growing. We're not seeing any slowdown on that. We continue to grow at the pace of 25% to 30%. We're not seeing any issues on that book. So we continue to be on that. So that's one of the reasons. The big chunky part of that book which is INR 20,000 crores to INR 21,000 crores, INR 22,000 crores, is actually slowed down, and that is why the growth is looking a little what -- and is looking about 18% right now.

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Adarsh Parasrampuria, Nomura Securities Co. Ltd., Research Division - Executive Director [77]

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Maybe just -- but thinking about the momentum, right, so when I add BHAFIN's book to your base, which is the way one should look at it, you are down to like 13%, 14% growth. And your revenue growth is down to under 10%, so that was what I was pointing to. Nevertheless, the second question was on trying to be a little more proactive about while you've disclosed top 3, these 3 accounts and how the exposure is moving. If you see in the last 3, 6 months, more accounts are at least facing problems either be the NBFC, HFC space. Telecom space, you're seeing a lot of competition, so I'm referring to names like Vodafone, Piramal, Indiabulls, you've disclosed details. So I just wanted to understand how you all are thinking about these accounts? Do you want to create contingencies given how difficult it's got for these companies to operate in the current environment?

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Romesh Sobti, IndusInd Bank Limited - MD, CEO & Director [78]

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Yes. I think that our preparation, first of all, I think, in terms of fresh accounts that are being talked about, I think even for a particular HFC cum real estate company, we disclose our exposures because there were a lot of misconceptions and misreads on that, so we've done that. But to the larger question, this thing is, for us, really -- a lot of this gets absorbed in the business as usual credit costs. I mean if I look at the last 10 years, there's no year where we didn't have a few of these accounts. They always come. That's how the credit cost is actually coming from, right? So the credit cost to whatever 60, 70, or 75 basis points or whatever, we will achieve, is a consequence of these, right? That has been sort of taken care of in our run rates in terms of our earnings profile, so that is clearly realistic.

The other part where we are more focused now is really to bump-up the provision coverage ratio. And I think that's why we have instead of showing much higher profit that we could have shown, we have used that to raise our PCR. You see in quarter 3 as well, we will move aggressively towards raising our provisions coverage ratio. And I think we have the sort of the means and the ammunition to actually move that. And in doing so we are not yet taking into account any possible recoveries that may happen. These are repayments which have happened. The recoveries are for those already classified as NPAs, and there is a large infrastructure exposure that we hope some resolutions will happen well before the fiscal year ends. So that's how we are preparing for the future.

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Adarsh Parasrampuria, Nomura Securities Co. Ltd., Research Division - Executive Director [79]

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Sorry, sir, just harping on this question, again, right, while I agree that you've made some disclosures incrementally on the -- on your exposure to the real estate cum NBFC group, there are more NBFCs or HFCs facing problems. You know a few. And then you have telecom accounts where there are both fund and nonfund exposures. So I'm just trying to think of -- I'm just trying to understand from a company angle, how much of these large exposures would worry you? And how should investors from IIB's perspective look at these accounts from because while you say that they get absorbed in run rate, the last 6 quarter credit cost to the bank has been 170, 180 basis points and now including, say, IL&FS and whatever has happened. So it's been 2.5, 3x of the normal credit cost. So -- and some of these bulky names are -- they are fundamentally getting weak, I don't know, weak enough to get to this point of becoming credit cost for the banks. So I'm just trying to understand how do you think about some of these emerging risks because they will certainly cannot be part of the normal credit cost of the bank.

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Romesh Sobti, IndusInd Bank Limited - MD, CEO & Director [80]

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Yes. So I think the same question or this thing would have been raised 6 months or 8 months ago when these 3 bulky accounts were mentioned, right? These 3 bulky exposures are also being mentioned and see how they have been resolved. So there was such a lot of hullabaloo about them. We know how we were in situation, that we know how we were secured in this thing. We know what the repayment programs and possibilities were. So this is how it works. If you had seen this particular diversified group exposure 6 months ago or 8 months ago, you would have said the same thing about that.

Now the question here is, only we know what is the construct of our security there, what is the monetizeability of our security there. We know the cash flows on these accounts, right? And we also have a proactive way of dealing with them in the sense that you don't sit tight and wait for repayments to happen, right? You work very actively towards resolutions and recoveries. This is the whole job of these teams who also market, to also make sure that we don't get hits on this account. So the issue here is that you can talk about the accounts -- there are other accounts that are being mentioned are much smaller values as far as we are concerned, as I say. Particularly telecom accounts you particularly mentioned, yes, sure, that is the main state but I think we are seeing the beginnings of, I think, a slightly more supportive regime as far as telecom is concerned because we've seen bloodbath over the last 5, 7 years and the number of players there shrunk from, how many, to -- down to only 3.

So the question is whether India will live with a duopoly finally or a monopoly or will there 3 people who will survive. Now the particular entity you talk about, today, of course, has a solid sort of a net worth and has also pumped in money. Certainly, I think we have a plan. So we're not sitting tight on this plan. The first part of the plan was to strengthen our security, which we have done. And that's why you're seeing the registration of charges which people have picked up. The exposure is already there. Now it is secured, and that's why our charge has been fine. That's how you actually move on this basis. So I think there is a clear cut resolution plans and, of course, exit plans that are in place, and that's how you're seeing that these particular 3 groups how we have reduced our exposures.

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Adarsh Parasrampuria, Nomura Securities Co. Ltd., Research Division - Executive Director [81]

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Understood. Perfect. And sir, last question is, what was the investment provision that you had during the quarter? Can you split the provision, give the provision breakup?

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Sanjay Mallik, IndusInd Bank Limited - Head of IR & Strategy [82]

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Can I give it to you? I don't have it right here the breakup?

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Adarsh Parasrampuria, Nomura Securities Co. Ltd., Research Division - Executive Director [83]

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Sure, sure. Okay, Sanjay, I'll take it later.

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Operator [84]

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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) - Senior Analyst [85]

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Just a few questions, again, first thing on the NPL line. On the corporate slippages, for this quarter, can you just kind of give us some color as to what is the nature of these slippages? And from which sectors have they come from the reported stress that you reported on the 3 accounts? And also if you can clarify, actually the rationale as to why would you kind of declare the account as a technical one and also write-off in the same quarter?

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Sanjay Mallik, IndusInd Bank Limited - Head of IR & Strategy [86]

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No, no. So there's nothing there from those 3 accounts. Those 3 accounts are all cash repayments there. So the reduction that you have seen from 1.9% to 1.7% down to 1.1%, which will soon become 0.8%, is all cash repayment. There's no provision or write-off, no, nothing.

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M.B. Mahesh, Kotak Securities (Institutional Equities) - Senior Analyst [87]

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Sir, then what would explain the slippage for the quarter?

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Sanjay Mallik, IndusInd Bank Limited - Head of IR & Strategy [88]

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So there are some technical -- so for example, under IRAC, I mean frankly, it's an internal issue as well. There are a few accounts that were not renewed beyond 90 days. And therefore, once they were renewed, they were added back to deductions. So it's actually an account renewal process that unfortunately got a bit delayed.

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Romesh Sobti, IndusInd Bank Limited - MD, CEO & Director [89]

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Credit, sir. The credit is to be renewed every 12 months, as per existing RBI requirement. That there is a renewal of facilities that will be done every 12 months. Now if there is a delay in our fashion getting the, what do you call it, balance sheet and all those, I would say, balance sheets and all, then technically if it crosses 180 days, I think.

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Sanjay Mallik, IndusInd Bank Limited - Head of IR & Strategy [90]

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Yes, from the original review date.

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Romesh Sobti, IndusInd Bank Limited - MD, CEO & Director [91]

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You can explain.

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Sanjay Mallik, IndusInd Bank Limited - Head of IR & Strategy [92]

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Yes, from the original review date, if it crossed 180 days without completing the annual review, then the IRAC norms requires you to classify it as a nonsubstandard asset. Once the review is completed, again, there's was no payment overdues, there was no other thing, it was purely technical in nature. Since there were some delays in receipt of the details, we have now...

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Romesh Sobti, IndusInd Bank Limited - MD, CEO & Director [93]

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It could be a 1 day, 2 day...

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Sanjay Mallik, IndusInd Bank Limited - Head of IR & Strategy [94]

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It was only 1 day in these cases. But because of on a daily NPA basis and we automate it, they slipped to NPAs and the reviews are complete and they have been upgraded.

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Romesh Sobti, IndusInd Bank Limited - MD, CEO & Director [95]

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That's why you're seeing additions and deductions, very large figures on deductions as well.

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Sanjay Mallik, IndusInd Bank Limited - Head of IR & Strategy [96]

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The impact on the processes.

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Romesh Sobti, IndusInd Bank Limited - MD, CEO & Director [97]

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The net sort of increase in our NPA, gross NPA, is INR 170 crores.

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M.B. Mahesh, Kotak Securities (Institutional Equities) - Senior Analyst [98]

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Perfect. Perfect. Second question is on the NBFC exposure. Again, you've seen an increase on a sequential basis for other than HFC. We've seen this across the board for the entire sector as well. Can you broadly give us some color as to what are you guys seeing which is positive that the bond market is not seeing it too favorably at this point in time?

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Romesh Sobti, IndusInd Bank Limited - MD, CEO & Director [99]

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So there are -- look, in this sector, there are good companies that you still compete for. I mean for instance, the sector -- the gold finance companies, those companies are doing extremely well and...

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Sanjay Mallik, IndusInd Bank Limited - Head of IR & Strategy [100]

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Financial services.

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Unidentified Company Representative, [101]

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Retail NBFCs and bank subsidiaries with strong sponsors, we took some exposures on them and that's where we see the increase coming from. They are -- INR 200 crores, INR 300 crores et cetera given to few -- 3, 4 large NBFCs we are very comfortable. They are extremely highly rated companies.

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Romesh Sobti, IndusInd Bank Limited - MD, CEO & Director [102]

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Thus, I think these gold plan...

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Unidentified Company Representative, [103]

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Yes. Largely not corporate NBFCs, not corporate-lending NBFCs, they are all retail-focused NBFCs, gold finance...

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M.B. Mahesh, Kotak Securities (Institutional Equities) - Senior Analyst [104]

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For us to get some color on what are you having in this 3.7% of loan book on the NBFC side? Some color on what is the composition between retail, wholesale, within retail, some color on -- something more on whether it's conglomerate say businesses which are in multiline businesses of NBFCs or single line, some color to just get some handle on this business?

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Romesh Sobti, IndusInd Bank Limited - MD, CEO & Director [105]

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There is a variety. I mean there is gold, there is multinational subsidiaries, there is vehicle finance, all kinds of...

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Unidentified Company Representative, [106]

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Difficult to do that because most NBFCs have diversified. They have perhaps started corporate and then they shift their focus into retail. And over a period of time, they have mix of businesses. So it's very difficult to put them into one particular slot. So we'll not split the NBFC exposures like that, except real estate NBFCs which kind of stand out and we were not there in the NBFC that went bad, but -- so the real estate NBFCs sort of stand out in that manner. The other NBFCs mostly have multiple businesses and it's difficult to really classify them this way or that way. So we can only say that some NBFCs have a preferred bias towards retail lending and some very specialized NBFCs like gold loans, like -- and gold loans NBFCs are also easy to distinguish. And we have created a bias towards those very large NBFCs with very large sponsors.

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M.B. Mahesh, Kotak Securities (Institutional Equities) - Senior Analyst [107]

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Perfect. Just 2 questions. One, the retail loan slippages this quarter at INR 600-odd crore levels. You have explained part of it because of MFI. Is there anything if you can just kind of give us some color as to what other sectors have contributed to this?

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Romesh Sobti, IndusInd Bank Limited - MD, CEO & Director [108]

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No, I think there's -- vehicle finance has these additions and deductions, which also work on the same basis.

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Sanjay Mallik, IndusInd Bank Limited - Head of IR & Strategy [109]

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This is more or less same in the quarter. It has not significantly deteriorated or improved.

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Romesh Sobti, IndusInd Bank Limited - MD, CEO & Director [110]

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You see in the consumer that mostly on the vehicle finance side, you will see additions and you will see deductions. Deductions means it will be restored to its standard status because of payment of interest.

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Sanjay Mallik, IndusInd Bank Limited - Head of IR & Strategy [111]

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Payment of installment.

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Romesh Sobti, IndusInd Bank Limited - MD, CEO & Director [112]

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Current payment of installment, that's what it is. That's why you have a large movement both on additions and deductions.

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M.B. Mahesh, Kotak Securities (Institutional Equities) - Senior Analyst [113]

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Perfect. And last one, sir, the coverage ratio calculation that you have, does it include the contingent provision as well?

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Romesh Sobti, IndusInd Bank Limited - MD, CEO & Director [114]

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There is no contingent provisioning in our book.

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Sanjay Mallik, IndusInd Bank Limited - Head of IR & Strategy [115]

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Yes, we have a floating...

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M.B. Mahesh, Kotak Securities (Institutional Equities) - Senior Analyst [116]

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300 -- yes, that floating provisions which is there of INR 355 crores...

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Romesh Sobti, IndusInd Bank Limited - MD, CEO & Director [117]

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No, no, that was a specific provision.

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Unidentified Company Representative, [118]

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Those are accelerated provisions.

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Romesh Sobti, IndusInd Bank Limited - MD, CEO & Director [119]

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Those are accelerated provisioning. That's only... no, they are only -- they have only one floating provision of INR 70 crores. We have no contingent provisioning now.

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M.B. Mahesh, Kotak Securities (Institutional Equities) - Senior Analyst [120]

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Sorry, there is an extra provision of INR 355 crores for the quarter, that is part of your coverage ratio?

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Romesh Sobti, IndusInd Bank Limited - MD, CEO & Director [121]

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Yes, yes, yes.

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Sanjay Mallik, IndusInd Bank Limited - Head of IR & Strategy [122]

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It was done with that purpose and mind to take it to 50%.

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Romesh Sobti, IndusInd Bank Limited - MD, CEO & Director [123]

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This provisioning was done only for that purpose.

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Operator [124]

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We will take the last question from the line of Amit Premchandani from UTI Mutual Fund.

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Amit Premchandani, UTI Asset Management Company Limited - Fund Manager [125]

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You had clarified, but again I just want to ask, these 3 accounts, this dropped to 1.1% from 1.9%. Everything is related to repayments, right? There is no provision which you have done again in these 3 accounts?

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Romesh Sobti, IndusInd Bank Limited - MD, CEO & Director [126]

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No, no, no.

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Sanjay Mallik, IndusInd Bank Limited - Head of IR & Strategy [127]

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All retail.

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Romesh Sobti, IndusInd Bank Limited - MD, CEO & Director [128]

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All cash payments, prepayments.

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Amit Premchandani, UTI Asset Management Company Limited - Fund Manager [129]

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All -- and...

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Sanjay Mallik, IndusInd Bank Limited - Head of IR & Strategy [130]

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There is a very small provision which is a mark-to-market on a bond but that's immaterial frankly. It's a very small provision. All repayments from 1.9% to 1.1% if I account for the provision, it maybe 1.15% gross, has come in through cash.

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Amit Premchandani, UTI Asset Management Company Limited - Fund Manager [131]

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And this INR 257 crore SMA-2 against NBFC, is there a overlap in this against the 3 accounts? Or there is some other line item has overlapped?

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Sanjay Mallik, IndusInd Bank Limited - Head of IR & Strategy [132]

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Yes, so there is an item of INR 257 crores, I think.

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Unidentified Company Representative, [133]

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Yes, yes. That...

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Sanjay Mallik, IndusInd Bank Limited - Head of IR & Strategy [134]

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Which is the overlap between the 3 accounts, 1 of the 3 accounts and the SMA-2 and therefore both will go down by INR 257 crores very, very shortly.

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Operator [135]

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I now hand the conference over to Mr. Romesh Sobti for closing comments.

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Romesh Sobti, IndusInd Bank Limited - MD, CEO & Director [136]

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Thank you, again, for joining us. I'm sure, as usual, we'll do a lot of one on ones in the coming days. Good day.

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Operator [137]

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Thank you. (technical difficulty)