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Edited Transcript of INDUSINDBK.NSE earnings conference call or presentation 19-Apr-17 9:45am GMT

Thomson Reuters StreetEvents

Full Year 2017 Indusind Bank Ltd Earnings Call

Mumbai Apr 19, 2017 (Thomson StreetEvents) -- Edited Transcript of Indusind Bank Ltd earnings conference call or presentation Wednesday, April 19, 2017 at 9:45:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Sumant Kathpalia

IndusInd Bank - Head, Consumer Banking

* Roopa Satish

IndusInd Bank Limited - Head, Corporate & Investment Banking

* S. V. Parthasarathy

IndusInd Bank Limited - Head, Consumer Finance Division

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Presentation

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Operator [1]

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Ladies and gentlemen, good day and welcome to the IndusInd Bank Q4 FY17 Results Conference Call. As a reminder, all participant lines will be in the listen-only mode. (Operator Instructions) Please note that this conference is being recorded.

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Unidentified Company Representative [2]

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Good afternoon. Thank you for joining us today. We are going to talk of three things here with not just quarter four. So our agenda is really, March 31, we closed our three-year Planning Cycle. We call it planning PCs, PC3 closed. So I'm just going to take you through quickly what happened in PC3, and whether we met our ambitions or not. We specifically talk of quarter four results. And then I want to give you a glimpse of what we want to do over the next three years, in what we call Planning Cycle 4.

Just before that, just the headlines for financial year 2017. I think in all definitions financial year 2017 really fits the bill for being called a sort of watershed year. We saw really very difficult reforms being passed. We saw some very difficult legislations being passed in the form of the GST and the enactment of the Bankruptcy Act and these are going to have far-reaching impact on the economy and the banking industry per se as we go forward. Apart from this, we have had quarter four itself, of course, it was very comforting to see that the government sort of reiterated its commitment to the fiscal deficit and actually brought down the target from 3.4% to 3.2%. The other one-off cost was the change in tone of the RBI policy on - the market policy and that turned a little bit more hawkish than it used to be and the stance changed from accommodative to neutral. We are trying to figure out what neutral means because the system is in flush with liquidity. So I do expect that a few measures are going to be taken, and we've heard, I'm sure you also heard, talk of a new instrument called the standard deposit facility being set up and that may be a way of sucking out excess liquidity in the market, except that they'll give some relief to banks in terms of paying some interest on it. So you can suck out liquidity through a cash reserve ratio increase and not give you any interest. So I think there's some way of reducing their burden because a lot of the liquidity is going into the reverse repo right now and the reverse repo rate is high. So I think that's also being planned. That's the other part.

Quarter four also had one more event, which is really the appreciation of the rupee' that in one quarter, you've seen it appreciate almost 5.2% in the rupee and that's certainly going to have some impact on businesses and especially on the banks. Other than that, of course, you know the US fed rate went up, of course, on the global scenario, we're suddenly seeing a little bit more comfort on the IMF forecast of the economy growing by almost 3.6%. They revised their estimate from 3.4%, so that was quarter four. What do we need to watch out in quarter one because that's also the thing. I think the major events there are, people are still talking of the impact of demonetization. I would say you should start talking about the impact of remonetization. What's really going to happen now that remonetization is really happening. So our business is reverting back to the old model, what has it done to the economy? Are we going back to the old way? I think that's a very important component and certainly I think in this quarter we are going to see some measures on managing bank NPAs. We are seeing - we are hearing noises on bank NPAs. We certainly know that the larger banks have emphasized at all forums that all the measures we have so far whether the S4A or the SDRs have not really worked. So what more. We did hear the finance minister also say that some measures are going to come. I think we ought to watch out for that. US fed policy, we expect May and June hikes may come in, and of course, on the oil front, maybe we ought to see whether the OPEC extends its curb on oil production to keep oil at above $50. So that's some headlines, I thought I will reiterate before we go into planning cycle three closure. So we closed March 31 planning cycle three. This is what we said we would do. We said that we want to work on market share, we want to work on profitability and we want to work on doubling the bank and we had defined very clearly doubling the bank means what. Doubling the bank in terms of its client base, in terms of its branch network and its net profit, so that was the thing, and this is what happened. We said we'll deliver scale and scale has been delivered, whether it's in revenue or net worth or deposits or advances, I think the CAGRs speak for themselves and there clearly has been doubling on all these counts. We have delivered profitability, interest margins was one of our ambitions that we will touch 4% and for the last two quarters now we are at 4%. ROA, ROE, cost to income I think all follow the track where we wanted it to follow and, of course, we doubled the bank in terms of branches, in terms of clients, and in terms of profits.

So this was the second three-year cycle that we doubled the bank. Planning cycle two, we doubled the bank, 300 to 600 branches; planning cycle three, we doubled the bank 600 to 700 branches, and we'll talk about what we want to do in the next three years as well. This is what we had said in terms of plan and this is the outcome that we will do a loan growth of 25% to 30%, we came at 27%. CASA was exceeded, it's at above 36%. We said fee growth will exceed loan growth and that's been achieved. Branch network, I have talked about and customer base I've also talked about. So in terms of key achievements, I think, interest margin, growth capital, responsive innovation, tractor financing we never did, GIFT City was opened. So we now have a loan book, 10,000 new people came in, we acquired the diamond businesses, started the non-vehicle retail businesses, MFI business expansion has happened and Global Markets revenue crossed $0.5 billion and, of course, this IndusInd For Sports vertical is very, very close to our heart. So I think it was a nice rainbow of achievements that happened in planning cycle three. Quarter four results, I think the results have already been uploaded. I don't recall any quarter in the last two or three years where we had shown a operating profit growth of 37% and this quarter we did have operating profit growth of 37%. But it was fueled by the revenue side also growing similarly. So we had a revenue growth of 32%, which was fueled by interest income growth of 31% and fee at 33%. Now even if you take out trading part of fee, trading part of fee, all banks make good trading profits in quarter four. Even if you take out the trading part of fee, our growth is at 29% on the fee side of our businesses. Interest margins remained 4%. We had very handsome growth on CASA; CASA grew 43% and SA grew 57%, also unprecedented in terms of our quarter four performance. Operating profit grew 37%, net profit grew 21%, so why this mismatch between the growth of operating profit and the net profit and we'll explain, it's already in the notes that we've already given out, that there was a regulatory prescription, which obliged us to make a provision of INR122 crores on a standard account, which is not yet due for repayment, but is expected to be repaid in quarter one, it relates to a large M&A transaction in the cement industry, which is all but set to happen. But I think the regulatory prescription came because they said that it's an industry issue. Although ours is a sort of bridge loan against that particular M&A transaction, but we had the money and we provided for it. We expect a reversal of this provisioning of INR122 crores to happen sooner or later, but certainly we hope that it will happen in quarter one itself.

The headline in terms of credit growth is 28% and we'll show you that how corporate and consumer grew as we go along. Net NPA remains steady 39 basis points, gross NPA actually fell slightly by 1 basis point and we opened 125 branches, so these are the headline numbers. I think what is the more interest is the quarter-on-quarter growth. Quarter-on-quarter growth has been pretty handsome, 6%, 19%, 11%, 15% and net profit, of course, was flat as a consequence of that extra provisioning that we did on a standard asset, if you were to factor that in then the net profit growth is similar to the growth in our operating profit. That was quarter four. This is the full year. The full year comes up at 25% on net profit. And you see all the lines also are in solid double-digits.

Loan growth, I've already talked about. Corporate grew faster in quarter four compared to retail. And what is happening is we saw a little surge on the working capital financing side and that's a consequence of the fact that we certainly have become much more competitive on the pricing. And the MCLR regime really allows us to compete on a tenure basis. The base rate was a disadvantage for us. So MCLR actually has come as a nice little boon. So a 90-day working capital, for instance, I can match anybody in the market now and still make money. That's the more important part of it. So we saw a longer runway on the corporate side happening because we are more competitive on pricing. That's one factor. Certainly, we've got new client base. Certainly, we are deepening our existing client base, and certainly, the non-vehicle retail part of our businesses is still growing in the mid-30s.

I don't think we need to focus on balance sheet and detailing of the P&L. So the ROA was impacted because of the flat profit; quarter-on-quarter, we were flat although interest margin still remained at the same, but net NPAs were okay, net interest margin was fine. The loan book, I talked about, because corporate grew faster actually the loan book is 60/40 now. And we hope that over the next three years we have said, we will reverse that particular trend. And within retail, it's 70% vehicle and 30% non-vehicle, which also we want to move to 50/50. I'll explain that later. There isn't any [part in] the sector, which has grown out of turn. Gem and Jewellery still remain our largest thing. And other sectors are, I think, well diversified. We don't have concentration risks per se.

I don't know how much sense you can make out of this abstract chart, but this chart is meant to actually indicate the rating profile of this thing. We disclose that every quarter. So if you compare quarter-on-quarter, you'll see shifts and then you will be to make out what's happening to the risk-weighted assets. I think that's the big takeaway out of this. CASA, I told you SA grew by 57% and CASA grew by 43%. So there is a residual amount of CASA remaining from demonetization. So it's not that the entire amount has been retained but we have still retained 35%, which means that we have grown post demonetization as well. So even if you exclude the impact of the demonetization outflows, we have still got a net inflow, which means that there's good traction on new to bank customers.

The fee income was 33%, and there's always this thing about how much did you make on trading. That shows you what was the trading income. And if you net this off, this is the core fee income, what we call, that also grew 29%. So you see a nice blip on the distribution fees, and that you can clearly link to demonetization. Why? Because as the money flew out, the banking system went into the mutual fund industry, and the mutual fund industry had a bumper quarter four I would imagine. So we as distributors also shared a little bit in a part of that growth.

Nothing happened really on the cost of funds, fell equal to the yield on assets. Therefore, net interest margin remained the same. Cost of credit, net has come to 59 basis points. Quarter-on-quarter, it certainly went up and that's as a consequence of two accounts that we wrote down and sold to ARC and we've said that the ARC sale was about INR190 crores. We wrote down quite heavily on those two and then sold down and we chose not to amortize. You know that RBI has now allowed banks to amortize for four quarters any losses on the sale to ARC but we chose this time around not to amortize that. So we are still in the sub-60 on a net credit cost and that was our guidance always that we will come around the 60 basis points. This is the composition of the NPAs. So there were additions, but there were solid deductions as well. So if you see, the net slippage was about INR84 crores for this quarter.

Gross NPA, net NPA are standard; provision coverage ratio stable; restructured advances actually have improved. That doesn't mean anything. If you move an account from restructured to NPA, your restructured book will improve. So nevertheless, it's still about 37 basis points. This is the product-wise we gave. We don't see any large movement. In fact, we are seeing a slight improvement in the gross NPA of the retail book. Capital adequacy, there is a little bit of a affiliation to do. Quarter four guzzled a lot of capital because in quarter four it's not only credit, but market and operations is also taken into account. That only happens in quarter four for every bank. In spite of that, our CRAR has remained flat at 15.31% because we raised INR1,000 crores of additional Tier 1 in March. And yesterday, we raised another INR1,000 crores for AT1. So we are okay on overall Tier 1 as well at 14.72%. So it's meant lost only 2 basis points. I don't think we need to talk about that.

We'll talk about planning cycle four, and what we intend doing over the next three years ending March this thing, clearly we are going to do a lot of what we've been doing in the past, but we're going to do it differently. So I don't know whether you recall that when we did planning cycle three, we had this 3 D logo that we downloaded to our staff, our people, we said 3 D, to differentiate, diversify and create some domain leadership in selected areas. We've added a 4 D to it, see, digitized to do all that. Digitized to differentiate, diversify and domain leadership. We continue to focus on livelihood loans. It's a theme that has emerged within the bank. And it's not just microfinance. What do we do in vehicle financing for instance. I man, whose two wheeler do we finance? We finance the plumber and the carpenter and the milkman. Why? It's a livelihood loan. Why the focus on livelihood? Because livelihood loans have lower delinquency because it's livelihood. So why do we do to transport operator with two vehicles and not the fleet? Because the fleet is a corporate loan.

But the two vehicle guy or the four vehicle guy loses his food on the table if I repossess his vehicles and that's why we have seen lower delinquencies in the commercial vehicle for instance. So this theme of livelihood loans we certainly like that, and the other themes like finding customers, reengineering our businesses and sustainable banking, all that is encompassed in these seven initiatives that will drive our planning cycle four. So there is the rebalancing of the loan book, rural banking, of which microfinance is a subset. There is a huge focus on productivity, and I'll talk about each one of them. The digitization of businesses and digitization doesn't mean front office and what happens with the customer. There is digitization in the mid-office and digitization in the back office, and a lot of the gains of digitization really lie in the back-office and that's not been focused upon, because that's where all the productivity gains really come on.

There is a very strong initiative on client experience, and this is something absolutely new. It's not client servicing. It's clients experiencing. If you walk into a bank, into a branch, and your check is encashed in three minutes, you're happy with the service. What was the experience? What sort of letter do you get from the bank when you ask the bank why you charge me this INR500? So the whole concept of service is being redefined. We believe that you should take a lead in this. It's not just servicing, it's an experience and who defines the new experiences? The Ubers and the Amazons of the world. Nobody in banking or financial services.

We've got a very large initiative running together with McKinsey. It's a large sum of money that is being invested over the next 12 months. Then, of course, the internal collaboration and cross-sell. I'll talk about it and the last element is sustainability.

So let's take each one of them. So 50/50 between corporate and retail and 50/50 between non-vehicle and vehicle retail in three years time. You can work out the arithmetic. What it does to my interest margins? What it does to the yield structure. If I move my balance sheet 7%, 8% in favor of retail at a yield differential of 4.5%, the NIM impact - the interest differential impact is 35 basis points. On the balance sheet, that would probably come to about 22 basis points, 23 basis points. Clearly, this move if you can satisfy over a three-year period, so higher yield retail book supports margins and improves the return on risk-weighted assets. And I'll talk about this RORWA new concept that is being introduced.

Rural banking is not just microfinance, it goes well beyond microfinance. 350 of our branches, 1,200 branches, are actually in rural areas. Do I have a plan for them? Are they cost centers or are they going to generate some money for you? So that whole planned with agri, microfinance and the branch banking part should be able to generate 10% of my profits over the next three years.

The digital strategy and theme we have presented at different times, what is it going to do to our businesses but the net takeaway is that digital to be 14% of our profits by 2020. That what you do digitally and incrementally should be at least 14% of your profits by 2020 and these are all the vector. How will you use digitization for innovation, for decision-making, for analytics, all that stuff.

This is internal collaboration in cross-sell and this is a huge multiplier for us. Today, we have 3 million customers in vehicle finance. We've got 5.5 million customers in retail consumer bank and we have 1.2 million customers in the microfinance. What are we selling to them? So we sell 3.6 products to every customer in the consumer bank, but whose products? Consumer bank products. They don't sell vehicles, they don't sell two wheelers, they don't sell cars, they don't sell commercial vehicles.

Likewise vehicle finance doesn't do the same thing there. A large initiative, it took us 12 months to crack this nut, because there is always this question about who shares the dollar, who gets the money. We hopefully have cracked this and this can, if you work it properly, could really - we want to improve this six times over the next three years and that has got a huge impact on profitability.

The focus on productivity is very simple. Nine years of success have all the makings of sowing the seeds of failure. I can tell you this. It happens to all successful organizations. A strong linearity appears between revenues and costs. Five guys do 100 units of work, 10 guys do 200 units of work, 15 guys do 300 units of work. That linearity you ignore, because your revenue side is very bullish. And when the revenue side starts staggering, you find all your costs are fixed costs. And that's why people [I refer] - I'm reminded by Peter Drucker said 40 years ago, he said something. He said that those whom the Gods wish to destroy, they first give years of success, and that is the linearity. It's all around the cost structures. That linearity has to be disrupted.

So I'm giving you two examples. The average branch size, for instance, will come down by half, it will halve, and the average branch costs will go down by one-third. That's the measure of productive. So their measures of success are also going to be articulated.

Customer experience, I talked about the initiative we've got with McKinsey. We are spending a lot of money on that but we believe that you get it right, it has a solid impact and one of the outcomes, success outcomes is that CASA should grow by almost INR10,000 crores through deepening of existing relationships.

And the last one is really sustainable banking. It's not about just environment and social impact, it's also about governance and also about regulatory compliance and we have embedded a lot of these themes into our business. For instance, who will you lend to and who will you not lend to? Will you lend to those industries which hire child labor, for instance, right? Started being defined now into a policy, which has been approved by the Board.

You want to sum it all up, this is what it should result in, that we will have a loan growth of about 25%, we will have a CASA ratio of above 40%, revenue growth will exceed the balance sheet. And this is a new vector that we will show you every quarter; the return on risk-weighted assets.

So the ROA concept is one concept, the return on risk-weighted asset has an embedded concept of how you use your capital, which means, are you taking higher risk to generate the same amount of revenue. So this is a new vector that has been embedded into our business plans. Every quarter we will show you the return on risk-weighted assets. Branch will go to 2000 and the customer base will double to more than 20 million.

This is the logo that we - this is the theme that we'll download to our 25,000 people. We call it 4-D to double clients' loans and profits.

That's it. I don't think we need to work on these parts. I'm done. If any questions, more than happy. Questions are always on a one-on-one basis. Yes.

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Questions and Answers

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Unidentified Participant [1]

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Sir, first of all many congratulations on your PC4 strategy rollout. It's excellent, simply excellent.

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Unidentified Company Representative [2]

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Thank you.

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Unidentified Participant [3]

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The targets, the goals, the roadmap are clearly defined. The highlighting feature in this, one of them, one of them was the emphasis on rural and microfinance. Sometime back, there was a lot of noise in the market that IndusInd Bank is looking to take the biggest micro finance company in India. How true or false or otherwise?

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Unidentified Company Representative [4]

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Will you get a yes or no answer to that. So I think I will only repeat the answer we gave to the stock exchanges when they asked us the same question. They said, tell us. And we said, yes, we are looking at many options, one of them is this. But we have not reached any stage that we have taken it to the Board. None of these have gone to the Board.

And I can only tell you a few things about our philosophy on acquisitions. We are not going to acquire anything to make news in the market, right, number one. Number two, any acquisition, whether it's portfolio or not, must fulfill two criteria. That it must bring more value to my existing shareholders, not to the shareholders of the company I buy. You understand? Our existing shareholders, I have a duty towards the existing shareholders. Therefore, it must be ROA, ROE and earnings accretive on day one, not presumptive on 18 months down the road that is 18 months I'll do synergies and all that sort of stuff, right? So that's one criteria.

The other criteria it should either bring domain leadership to me or specialization. Two very clear criteria. We acquired diamond businesses, number one financier diamonds in the country and specialized. We acquired, which is the latest acquisition, while all of you were talking about microfinance, we acquired the professional clearing membership from ILFS, right. ISSL is the acquisition we have done. It's still going through regulatory approval. What does it give me? 20% market share in the clearing and settlement business of professional clearing membership. Fantastic deal. Small, but really fruitful and really fruity. That's the sort of thing that has to go through. So acquiring big is not necessarily a driver. Acquiring good is the driver.

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Unidentified Participant [5]

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Sir, couple of questions here. Sir, going by the recent guidelines wherein banks have to update a provisioning to the stress sectors, for instance, telecom by June. So going by your Basel III disclosures by December 31, the funded plus non-funded comes to 4.7% to telecom. So what's your view there?

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Unidentified Company Representative [6]

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We have no project financing to the telecom sector. First of all, the rationale of asking for standard provisioning, the standard provisioning you do today is 0.4%, right. That's standard across the area. That you have accumulated over a long, long time, and that's not even counted for the purposes of provision coverage ratio, right. So on top of that, they are saying that some sectors are stressed. Should you be making more than the 0.4%? You decide. They're not prescribing. They say you decide, you go to your Board and say okay, this is the quality of my exposure, right. Am I project financier, am I doing this? Is the Company so indebted all that sort of stuff. Should I make 1%, right? That's the sort of call that we'll have to make. And the provisioning will not be made on the funded and non-funded, it's always made on the funded part, and the funded part for us is less than 2.5%.

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Unidentified Participant [7]

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Sir, I also remember last time you mentioning 10% of the deposit accretion will be channelized into mutual fund business because you see lot of potential out there. So, anything that has happened on that front?

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Unidentified Company Representative [8]

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Yes. Let me go back. Did I show you that number? I'll show you the number. The distribution fee grew by 74%. And Sumant is here, how much was that mutual fund?

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Sumant Kathpalia, IndusInd Bank - Head, Consumer Banking [9]

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Our assets under management as well as the mutual fund fee actually grew very handsomely during the [quarter]. We've seen a lot of money from savings accounts also moving into alternate assets.

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Unidentified Company Representative [10]

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Yes. That book has grown very, very handsomely. So that blip that you see, the surge that you see in distribution fee, a lot of that distribution fee is coming out of the flows that are happening into the fund industry.

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Unidentified Participant [11]

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Sir, lastly, can you comment on car loan, GNPAs, they were a tad higher if I'm correct in Q3?

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Unidentified Company Representative [12]

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GNPA?

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Unidentified Participant [13]

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Yes.

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Unidentified Company Representative [14]

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1 basis point lower.

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Unidentified Participant [15]

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If I compare sequentially?

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Unidentified Company Representative [16]

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Sequentially, quarter three was 1 basis points higher than quarter four. Quarter four GNPA is lower by 1 basis point.

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Unidentified Participant [17]

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My question on the Planning Cycle 4 strategy. You have indicated 2000 branches and we are working on digital side also and you indicated focus on productivity in terms of lower size and I believe it will result into lower - [improve] density per branch also. So will it result into a reduction in the employee base meaningful way?

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Unidentified Company Representative [18]

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No. Incrementally the hiring maybe lower, because you are shrinking the branch size, for instance, right. So branch size becomes half of what it was. A typical metro branch was 2,500 square feet. It's already 1,600 square feet going to 1,200 square feet. But I still need the brick and mortar. That's why we are still growing the 1,200 to 2,000, because we still believe that we have not yet got full coverage.

What you do inside the branch is [same], for instance, there is no operations left in the branches now. So the number of people in a metro branch coming down from 23 to 12. So incrementally, I don't think we will be needing as many people. We hired 10,000 new people in the Planning Cycle 3. Certainly it's not going to be the same number in Planning Cycle 4, even if we double our branch network.

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Unidentified Participant [19]

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Secondly, sir, on the near-term question on especially investment increase, now the base of investment banking fee on a yearly basis is quite large. So given the environment how do you see this income - the investment banking fee sustainable growth at least one to two years?

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Unidentified Company Representative [20]

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So the percentage will fall as well as will grow. That's the standard way when the denominator keeps growing. So the percentage growth may not be the same. But certainly I think investment banking now contributes about say 13% of our fee or something like that. And we hope that it will continue to contribute well over 10% of the fee. Percentages may fall, because this is chunky business. But certainly I think over the last three or four years, we have consolidated our positioning. We saw the latest Bloomberg numbers, which actually place us Number 1 on number of deals on the [debt side], not in terms of volumes, but in number of deals of [debt side]. And I think we have sort of migrated from just a small mid-market stuff to the higher than mid-market stuff. So there are some transactions happening with the larger groups as well. So this business will continue to attract full management attention. We will provide all the resources that they need to sustain our position. We want to be a top three debt player in the investment banking field. So full attention, maybe percentage share will fall.

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Unidentified Participant [21]

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Last question on the rural banking [piece]. One is, how's the growth environment there? And secondly, overall behavior in terms of paying on dues on those things after the demonization thing, many things impacted that side, so how's the things on that side? And secondly, the whole CV portfolio how that portfolio is behaving? Thank you.

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Unidentified Company Representative [22]

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So the rural banking part is being driven by few new drivers. So essentially what this whole this thing of jam has done is to make millions of people who were considered unbankable now certainly bankable. And now you're certainly working on three elements to go into rural banking.

One was, of course, the lending part, which is the microfinance and things like that. The other is payment products. And payment products are going to get a huge uplift as a consequence of what is happening on this transition. And the third element is the savings product. Saving bank means how much money do they keep, they have very small amount on this thing. But I think that the flow of subsidies and things like that, which is now happening and the direct benefit transfers that are now happening, slowly we'll see balances growing up. Now, of course, [generally in] accounts, we see some mind-boggling numbers in terms of the deposit base. But even if you're going to discount that, at least people are starting to keep money there. So I think the unbankable are becoming bankable.

There's a regulatory obligation that you have to put at least 25% of your branches in unbanked areas. Now certainly, I discover that out of my 1,200 branches, over 300 branches are rural branches. Do I have a business plan for that, or do I consider them a cost center? That's why this whole plan has been worked out. Payment products, lending products and saving products, all three over time we're going to become viable. You have to be there.

Viability today for us is coming through the microfinance route, because microfinance is viable on day one. So our ability to sustain the losses that we have on some of those branches is higher, because we are already making money, [obviously]. But we have converged all parts of the bank into our rural banking vertical. So there is the agri-finance part. Agri finance coming in from the corporate side of the agri businesses. There is a vehicle finance part. Vehicle finance does a lot of stuff in the rural areas and we will quantify and show you the thing. And the third element is the microfinance. The four element is branch banking. All are now converged into a plan, which we presented to our Board 12 months ago, and that's why we believe that 10% of our profit in three years' time will come from rural banking.

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Unidentified Participant [23]

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RBI has not mandated, it just asked for the additional provisioning on your [cement] sector. So this INR122 crores set aside by you on one particular deal that you're talking about on the cement sector. So this amount has been decided by you, or has it been mandated by RBI to do it from - ?

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Unidentified Company Representative [24]

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Mandated by RBI.

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Unidentified Participant [25]

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That has been mandated.

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Unidentified Company Representative [26]

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Yes. This circular came yesterday. But this happened in the last 10 days of March. They looked at this particular industry, this particular name where this large cement M&A transaction is happening. You can figure out what it is. It was in the news yesterday only. And they said, oh, it's an industry issue and things like that. And though our account is standard and is due for repayment in May, and we hope that it will get repaid in May. But in the meantime, [we'll] make some provisioning for standard asset. How do you argue with that?

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Unidentified Participant [27]

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So this is separate and this yesterday's circular is a separate one.

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Unidentified Company Representative [28]

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Yes, this is yet to [wave], this is going to be debated by the banking industry as a whole, what is the level and things like that. That's the most futuristic. It was prescribed for us on March 31. We took it, we didn't fight. We had the money. We said, we'll take it, it's just a quarter. It goes over the March 31 and hopefully it reverses -- very strong chance is it recovers, it reverses in the month of May. So it's a provision. Now what do you do with that extra provision, do I show much higher profit next quarter or do you increase your provision coverage ratio, we are going to debate that. It's not that we want to put that whole money back into profit. If possible, we want to create a higher provision and keep the money for future use.

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Unidentified Participant [29]

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So this INR122 crores is a certain percentage of the total large deal that RBI mandated to - told you to set aside?

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Unidentified Company Representative [30]

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Correct.

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Unidentified Participant [31]

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And this could be varying from case to case basis, from bank to bank, RBI would mandated to some other banks also? I'm just asking is that the probability?

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Unidentified Company Representative [32]

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Ours is a specific case. Ours is a bridge loan, not a project financial. Ours is a bridge loan against that transaction. I have a undertaking from the buyer that he is going to pay me. It simply is different. Therefore, it is being treated differently. That's why it's being allowed to be kept standard, others they'll say you make it an NPA. But this was a specific deal (inaudible) I'm going to pay you off.

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Unidentified Participant [33]

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Such instances has never have occurred in past. This was the first time RBI has -.

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Unidentified Company Representative [34]

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You'll see more of them happening now.

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Unidentified Participant [35]

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Now it would be happening, but it never happened earlier.

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Unidentified Company Representative [36]

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No, no, no. Food Corporation of India.

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Unidentified Participant [37]

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Okay.

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Unidentified Company Representative [38]

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Standard asset is with the whole industry, Food Corporation of India, they asked us to make provisions on the standard asset. So, the regulator has the rights, you don't fight those rights.

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Unidentified Participant [39]

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Okay. And secondly, just on your IL&FS, your deal, that custodian business, can you specify the quantum or anything further - how you want to go further into that particular business or what's the goal behind it? And are you seeing any such other businesses or acquisitions in your books, that's the second question.

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Unidentified Company Representative [40]

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Who's going to take this, Roopa?

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Roopa Satish, IndusInd Bank Limited - Head, Corporate & Investment Banking [41]

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On the clearing and custody business of IL&FS, so we already have a very small capital markets business in the bank actually. It basically caters to brokers and security companies providing them facilities for their trading with exchanges. But the offering was not complete what we have had and there were pockets, which were totally absent in terms of solutions, for example, we were not be providing this clearing, we didn't have a PCM business there called Professional Clearing Membership business, we didn't have a custody business and the DP business was very small with us. So this acquisition kind of fitted in very well comprehensively completing the product suite and making a very strong product offering. It also fitted in very well in terms of a strategy by giving us domain leadership because they have a very strong market position with 20-plus market share in these businesses. And then, of course, it has got synergies with the rest of the bank. We can lend to the brokers' clients, it's a very low capital consuming business, transactional fee-oriented business, so high on return on capital there and providing good amount of CA deposits and fees, so it kind of fits in extremely well with our overall strategy. And we would see this -- today the contribution of this business is very insignificant in the overall business. But going forward over the next three years, it will play a significant role if it really shapes out the way we have planned it. It's still subject to regulatory approval, we are awaiting that, but if it pans out the way we have planned it out, it will contribute to a sizable portion within the entire wholesale banking [space].

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Unidentified Company Representative [42]

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After we get regulatory approval.

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Unidentified Participant [43]

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Hello. Yes, sir, I just wanted to know the total exposure of our this thing to the cement company for which we have made a provision of INR122 crores?

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Unidentified Company Representative [44]

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It's only the provision number, you can work out the exposure there.

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Unidentified Participant [45]

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But suppose, sir, if the deal is not happening before May, then we need to make additional provisions going forward?

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Unidentified Company Representative [46]

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No, provisions are [enough] for the next 12 months.

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Unidentified Participant [47]

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Okay.

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Unidentified Company Representative [48]

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Provisions are higher than [IREC] norms.

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Unidentified Participant [49]

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And sir, I just also wanted to know the impact of this BS4 implementation on our overall vehicle financing business?

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Unidentified Company Representative [50]

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Yes, vehicle finance, Partha?

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S. V. Parthasarathy, IndusInd Bank Limited - Head, Consumer Finance Division [51]

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See so far till March, whatever vehicles, which have been sold is BS3 vehicles only. As far as cars are concerned, our cars have already met the BS4 norms. There are gaps in commercial vehicle and two-wheeler industry, some of the manufacturers are ready and some of the manufacturers are still progress, not been substantial volume, which has been done in April to start commenting on what is going to happen in terms of DS4. But we do expect this to also lead to a subdued quarter for the first quarter not because of pent-up demand, more out of manufacturers' preparedness.

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Unidentified Participant [52]

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Okay. But will it also lead to your used vehicle financing business growth in that case?

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S. V. Parthasarathy, IndusInd Bank Limited - Head, Consumer Finance Division [53]

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Yes, see the traction in the ground is fairly good in the sense that there are infrastructure projects, which are starting big way. We do expect this industry to be robust in the medium term. There's only a small blip in the first couple of quarters and year as a whole we do believe that it should be better than even the current year.

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Unidentified Participant [54]

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Okay. Sir, in terms of our acquisition strategy, you had mentioned about particular portfolios are the value accretive acquisitions going ahead. So any plans to go for mutual funds or just say broking businesses near-term?

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Unidentified Company Representative [55]

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It's a conglomerate approach. I think we are very happy with core banking, we love being in the core banking and we are not driven by this whole ambition to be a conglomerate because there's a belief that there is a conglomerate premium always. So we don't really believe in that. So mutual funds were never in our radar screen. Brokerage has been considered because the consumer bank has a lot of throughput now going through a brokerage that we have a tie-up with. So it makes sense for us to look at it, right. We are not saying that we are doing it. General insurance - life insurance, we have zero interest clearly. General insurance, we generate INR1,000 crores of premium as a distributor, so should we become a general insurer ourselves. Now we look at the economics of that thing and we find that are you going to wait for four years for getting some gains out of the business, does it really make sense to do that. So all these, one and by one, we've looked at all these things and mostly they have been discarded.

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Unidentified Participant [56]

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Just coming to corporate slippage for the quarter, looks a bit elevated even looking at past trends?

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Unidentified Company Representative [57]

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Corporate?

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Unidentified Participant [58]

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Corporate slippage.

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Unidentified Company Representative [59]

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Yes, yes. There were two things, one we talked about the standard provisioning that happened. The other one was there were two accounts, which were troublesome accounts, we wrote down the value of those two accounts, took a INR125 crore provision on that, did not amortize that provision and sold it to the ARC for a value of INR190 crores. That is the disclosure that we've already given. So that's the little blip that happened on the credit cost. But the overall credit cost still coming at 59 basis points.

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Unidentified Participant [60]

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(inaudible - microphone inaccessible) before that we may have to go up to maybe 80 or whatever that number could be, a higher normalized provisioning?

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Unidentified Company Representative [61]

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See, there is one more element to that, they also looked at one stage they looked at the loss given default, so if you look at - if you have a history of loss given default maybe on our retail portfolio, you look at our vehicle finance portfolio, we have a loss given default of 30%, but 70% is lying there as well. You're not allowing standard provisioning to be classified as provision coverage, right. Then you have a loss given default thing. So do you want 110% provision coverage? So that's the asset cover I'm talking about, the loss given default, the rest is asset cover, right. So how much do you want? 100%, 110%, but the theme is that they want higher standard provisioning; now instead of saying across the board, they're coming through sectoral routes instead of across the board, they would say across the board, say 60 basis points. Right now, it's 40 basis points. But there seems that there is a thinking now that let's look ahead on stress sectors, and may banks provide, but they're not prescribed. They've left it to each bank to work on it. I think this will devolve into a prescription also at some stage. Certainly, this is how it all starts. So at some stage they will make it more prescriptive, but the theme seems to be higher provisioning.

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Unidentified Participant [62]

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And just quickly on the IFRS part, how IFRS impacts our financials, maybe from topline and also [credit cost]?

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Unidentified Company Representative [63]

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Yes. We've done a distinct simulation and maybe [Shirish] you should mention that. So RBI asked banks to stimulate as of September 30. Their results as per IndAS and so, maybe you can talk about -.

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Unidentified Company Representative [64]

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No, we have been interacting with the regulators. We have submitted our six monthly results to RBI. The point here it is the ECL, the exact model and how it works for different banks is a big challenge. We are awaiting some guidelines and clarity from Reserve Bank of India. We haven't heard anything so far from RBI on this. So we don't have much issue.

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Unidentified Company Representative [65]

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See what is happening is, our sensing is this. They are testing the waters. If IndAS is not changed, what is the impact on the bottom line of banks. Our impact we saw it was about 4% on the PAT - 4%. So it doesn't move, because we had lots of benefits coming out of the retail portfolios, where provisioning norms actually allow us to release provisioning compared to this thing. So the impact was 4% or 5% as far as we are concerned. But I think they're looking at impact across the whole industry. And if the impact is very large, there may be modifications to the IndAS, which our regulators allowed to do. So some sort of dispensation they will allow. They don't want now the whole industry suddenly, which is already facing a lot of issues now being hit by IndAS and profits going down dramatically. So they are testing the waters.

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Unidentified Company Representative [66]

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To add to then, what we have done is we have engaged one of the big [fours] to study our models of credit [process]. And on the basis of this, they will analysis our vehicle finance book, because we have been doing that for last 25 years. So we have got very reliable data available with us. And on the basis of that data, we found that our provisioning requirement under this IndAS will be lesser than which otherwise we are providing for. So that will help us in enabling to shore up the credit losses in corporate segment and will be beneficial for us going forward.

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Unidentified Participant [67]

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That's good news. Last question from my side on the microfinance business, and, obviously we are clearly excited about it both organically and inorganically. Then we keep seeing every three, four years there is a cycle there either led by a politician or by something else. There is a cycle in the microfinance lending and currently what we hear is like 25% kind of delinquencies are overused, which is for the sector, need not be for one particular company. So you really think you want to do this like such a volatile business?

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Unidentified Company Representative [68]

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Yes. So when the Andhra explosion happened, right, that's the first time it happened, and that was some seven years ago. So it's really seven years later that demonetization destabilized it. Now when the Andhra Pradesh this thing happened, MFIs fell straight under the umbrella of the Money-lenders Act. The regulatory intervention then happened and that's why contagion didn't happen. Otherwise, from Andhra it should have gone to West Bengal and then Odisha and the whole lot, would have excluded enough space. Then the regulator said, hold on, I'm coming. And then they brought in regulations, which is that you can't finance, interest rate can't be more than 10%, you can't do more than INR60,000 or things like that. So it came under the RBI regulatory framework.

Our experience says that when the regulator comes in, even the politicians stay away. Now what happened in Maharashtra is that one particular politician stood up and said, oh, this is usurious rates of lending and things like that. The usual, they are fishing in troubled waters. At that stage what happened was, in the southern, Maharashtra southern, the Chief Minister said, all right, I will appoint a committee to look into this thing, but the report will be sent to RBI, we will not intervene. Are they violating RBI's directors, right, on interest rates and things like that. That was, I think, a very comforting part of this thing.

These issues will keep rising, but who's the final arbitrator on deciding whether -- which rates are using. So they have said you can't charge more than 10% from your cost of funds. Is somebody charging more than that? The other thing is that the stick that they beat you with is that you are using strong arm tactics to recover your money. It doesn't happen. So in this particular case, the district collector actually went and told a politician that you're misleading the public and this is wrong. He said, election (spoken in foreign language). That's the sort of thing that happened.

So there is this risk. We are not ignoring that risk. There is the risk of political intervention that sort of thing. The comfort really comes from the fact that the regulator intervenes. Now having said that, there are a few hotspots where the recovery rates are lagging behind. But even the lag areas, slight improvements are there. Other than that, they are all back. I mean, in our own portfolio, we are seeing 98% recovery rate or 89% recovery rate, but we know that there are some hotspots.

Maybe (inaudible) wants to talk about it, Sanjeev can you some more color on how we are monitoring that and certainly we are very conscious. So we aren't going to jump into it, I can guarantee to you this. If it's a hotspot where every three years we're going to have a write-off of INR200 crores, we are not going to go into like this. That's one thing. So if we got to go through it in detail, look at the implications, watch and at the right valuation only if you could do that. Otherwise, organically, we have got a good model going. We will go with that model.

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Unidentified Company Representative [69]

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So in fact, even if you see the trend when the demonetization happened and what's happening now, so the non-hotspot areas are pretty much back to normal, 99% or so. Hotspot areas, the collection efficiencies are lower, but the trending is much higher. So, there is collections happening but with a lag. So I think that's the main point. And secondly, a post-AP kind of crisis, after that besides the regulator, we also have this whole issue of credit bureaus and this whole Aadhar thing and all that stuff, which has happened.

And moreover, now the same people, we are also getting them as deposits as savings. So, there is lot of plan stickiness which is happening. So I think the risk in the sector definitely has reduced.

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Unidentified Company Representative [70]

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We have a first loss guarantee.

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Unidentified Participant [71]

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That is only because your BC --

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Unidentified Company Representative [72]

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Partnership.

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Unidentified Participant [73]

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Yes. But the moment you have it on your book like --

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Unidentified Company Representative [74]

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Yes, when you run a high risk.

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Unidentified Participant [75]

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So one extended question from this part only, so of late, we have been hearing quite a few things in terms of more than two lenders lending to microfinance customers, the kind of bubble that has been going on and there have been talks about the indebtedness, the way it has grown in certain pockets, especially Tamil Nadu and certain southern states and probably some eastern states. So how do you look at it and when we say over a period of time this is our focus area, how does it [does] to the riskiness of the overall business?

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Unidentified Company Representative [76]

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See, I'll ask Sanjeev to answer that, but our own studies have shown that 95% of these borrowers are now under the CIBIL rating, right? They are rated. You know the indebtedness now. No longer -- you don't need to conjecture now. You actually look at the indebtedness. Our impact studies and we've had several impact studies -- maybe you want to talk about this.

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Unidentified Company Representative [77]

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Yes. Today, in fact, just two weeks back I had gone to a village, we had gone to one of these listings, immediately on the spot and this whole thing we talk about digital and stuff, you're seeing it in front of your eyes, all of them have an Aadhar card, all of those people the moment they put that fingerprint on the tab, the CIBIL report comes out within 30 seconds the total indebtedness and then what's happening immediately there is a - you can make out what kind of loans you can give to the person. So, there are pockets of, like I said, the issue right now is these pockets of hotspot areas, but there also, we have clearly, I think, on a week-to-week basis, we are seeing that the collections are happening. So there is a lag, but today I might be getting a collection in the hotspot, which was [new] four weeks ago and once these collections start happening then we have seen it over a period of time, the whole thing, which has come back to normal. So I think the credit bureau is one of the biggest things, which has happened because today I know immediately what is the total indebtedness of a client and that credit bureau is not something, which is a magical thing out there, we just see right in front of us.

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Unidentified Company Representative [78]

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Yes, so I don't think you are groping in the dark to see how many loans actually you have taken? A triple finance, a double finance or things like that. There were some element of that, but now you find that if the single finance is this bar, the double finance is this bar and the triple finance is this bar. There is some element, but it's a very small element.

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Unidentified Participant [79]

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(inaudible - microphone inaccessible) density, more banks coming in, more payment banks, small finance banks, all of that coming in. I mean of course, there's a large PSU segment, which is obviously not growing. But otherwise, your sense in the private space, what's your sense on that?

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Unidentified Company Representative [80]

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Yes. So now, first, we had the payment banks, which created so much dust, which has settled down now. And we all realized that it's not about competition, it's about collaboration. All of them are collaborating with the bank. The biggest of them and the noisiest of them, they've got three products running with us. So it's all about collaboration, not about competition, because it's become clear that the economics don't stack up, right, that if you have a single product listing and I can't lend and I've put it into GSEC, so with GSEC rates falling, where do I make money from? I make money out of selling third-party products. This is what is happening another thing.

Then, of course, came the small finance banks and the jury is still out on what they are doing, a lot of them are sensibly working on the basis that let's stay in our domain and thus reduce our cost of funds. And any guy who has got a model like that, you should put your money in there. He says, I'm making a nice yield but I'm borrowing at 11% from X bank. Now if I can reduce my cost of funds to 8% or 7%, I've got a 4% [kicker]. So those who work on that area, I would finance them or put my money on them, but those who say, okay, now I'll take the big ticket loans, watch out for them. So I think that's the competitive space that is there. The third one is now we're talking about the wholesale bank. There is a other proposal that's coming on financing of wholesale banks and again, they will have the same issue, single product and the wholesale banks will have the lowest pricing in the market. And they also have restrictions.

So all these single products sort of or single sector banks will have their own deficiencies and will have their own challenges I would say. Of course, they will nibble away. They will nibble away a little bit here and nibble a little bit there, some of the wholesale banks but now whether the wholesale banks will do term lending or working capital lending? That whole thing is still out. So the space is growing. So it's not that you lose sleepless nights because suddenly you're saying that another set of bankers are going to come in. We worry about irrational behavior. Fortunately, we are not seeing irrational behavior even on pricing that we're seeing it, partly because maybe the PSU banks are not into the business. And that's why I think margins are still being held up although yields are falling and cost of deposits are falling because of that. So I think there is enough space in this country for new banks to come in, but all of them have some of the other impairments, which a universal bank does not have. So I would put my money behind universality.

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Unidentified Participant [81]

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Sir, I have one question that if one of your largest DP gets acquired by some third-party, then how would you grow your microfinance business from hereon? So that's my -

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Unidentified Company Representative [82]

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I have to look for somebody else then, but there are not many people. You're right. So if you look at the microfinance area in terms of partnerships, after the Top 15, the quality really falls off quickly. It's very, very -- they don't have processes, they don't have capacity building capacities. And that's why we have been given a grant from ADB, a $1 million grant, we will use for capacity building. So you're right, it's a challenge. If it gets acquired by this thing, then certainly my partnership reduces to that extent and therefore I have a genuine concern on that because I can't find another replacement. So 11 out of the Top 15 we already have.

When some go off, I think it will be a challenge. That's a challenge, which Mr. Sanjeev Anand will have to beat. He is responsible for microfinance. So I don't know whether he has a different answer for that.

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Unidentified Participant [83]

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And I have one more question on the standard asset provisioning, so you said that the bridge loan was guaranteed by the buyer.

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Unidentified Company Representative [84]

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Not guaranteed.

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Unidentified Participant [85]

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They have agreed to pay.

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Unidentified Company Representative [86]

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They have undertaken to take us out. When they pay the money, they'll pay us directly.

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Unidentified Participant [87]

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Sir, I have a couple of questions. First is on cost of your business. So if you look at cost of income ratio is currently around 45%, 46%, with this digital strategy and all, do you think structurally the cost to income ratio can go down to, let's say, 40%, let's say around five, seven years period, is it possible?

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Unidentified Company Representative [88]

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Yes, I don't know whether - in one of the slides we had that we will reduce our cost to income ratio by 2% in the next three years.

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Unidentified Participant [89]

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Technically it is possible that, let's say, below 40% on this?

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Unidentified Company Representative [90]

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Not technically, physically it is possible. We will do 2% reduction. If you got productivity running, if your cost of regulations go down, because you are finding customers from within, if your branch sizes are shrinking, then you should be having a plus, digitization plus depreciation. So your branch network is depreciated, right. So depreciation cost should also go down. A lot of your IT assets are getting depreciated. So you're getting depreciated also, you keep refilling them and this thing as well. So we are conservative and we say that we should reduce our cost to income ratio by 2% over the next three years.

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Unidentified Participant [91]

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Would it fall down to ROA level, or you think that something can be passed on?

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Unidentified Company Representative [92]

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ROA?

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Unidentified Participant [93]

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ROA level, like can it improve your ROA substantially on that [2%] basis?

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Unidentified Company Representative [94]

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Yes, see ROA, we have moved away from the ROA concept to the RORWA concept, more meaningful. Now see what it does, and I'm sure you're going to start asking everybody about this question, return on risk weighted assets. Return on assets, we will touch the 2%, it is not such a massive challenge this thing. Return on risk-weighted assets is, who are you lending to, what [other] actions you have capital usage, it encompasses a lot of stuff, RORWA. And that's why the new measure of success we have laid out for ourselves is that RORWA should be ahead of 2.4%, and it should be ahead of 2.5% actually. So what we're saying is that you see how it's going to stack up.

If I'm more competitive on the pricing and my margin expansion happened because of the balancing of the book, I've got ability to subsidize my AAA book. Should I increase my NIM to 4.2% or 4.3% or 4.4%, or should I use this to subsidize AAA NIMs, because I'm now price competitive (inaudible). And if I do that, then my risk weightage is reduced, number one. Number two, as I balance my corporate and retail book, the retail has lower risk weightages. So that's why directionally, what I'm trying to say is that we are forcing ourselves to be more efficient on capital, and therefore, take lesser risk in the process and therefore RORWA and since we have taken this noose around our neck, we have to show it every quarter to you.

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Unidentified Participant [95]

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The last question is on GST front and CV cycle. We have been asking this question to the industry as well, but you can throw more light. What's your assessment that the CV volume growth would be under GST framework, will it move towards more [M & HCV/LCVs], or how you look at post -?

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Unidentified Company Representative [96]

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Yes, I think we have done a internal study impact analysis, but I will leave it to Partha to answer that question.

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S. V. Parthasarathy, IndusInd Bank Limited - Head, Consumer Finance Division [97]

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See it's a considered view that GST would make the logistics business much more efficient. As a result, more and more organized players will come. The industry would be that lot of warehousing activities will start. There will be lot more LCV, there will be higher capacity of commercial vehicles, the M & HCVs and LCV will also improve.

The medium-term effort on GST is the GDP will improve consequentially vehicle sales as well as the vehicle utilization will also improve.

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Unidentified Participant [98]

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Sir, coming back to RORWA, what does it do to your ROE target for the next three years?

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Unidentified Company Representative [99]

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ROE targets remain intact.

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Unidentified Participant [100]

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Which is around 18% to 20%?

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Unidentified Company Representative [101]

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Yes, so we've always said 20% and ahead is our target. We raised a big chunk of capital and we went down from 20% odd to 14.5%. We are inching back to 16%. Over the three-year period, certainly we hope that we are back in the 20s.

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Unidentified Participant [102]

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Sir, going back to microfinance, what do you think is the risk of all these loan waivers, which have happened in the state elections and perhaps can continue because that's one way that the government actually came to power in UP and the [size banks] of UP because Punjab is asking and then there are other states who are asking. So isn't there a big threat on the whole sector and the business? And would you review your outlook?

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Unidentified Company Representative [103]

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See, when I saw that whole thing, I also saw that they are specifically excluding microfinance in the loan waiver. So that's mostly the largely agri related. So you can't say it won't have any impact. So it is not impact free, but I think it will have minimum impact because they don't want to touch this particular sector because of the fear of contagion. I mean, it spreads across the whole this thing.

So I think it was specifically from Ministry of Finance this thing, I saw that they said that excludes microfinance, but the contagion impact will happen.

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Unidentified Participant [104]

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Because behavior can get impacted?

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Unidentified Company Representative [105]

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Yes, certainly. I think it's not the best of things to happen, but I think that states are going to -- sorry.

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Unidentified Company Representative [106]

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Loan waiver is more for the farm loans and microfinance is by and large not farm loans and small part of microfinance can be an agri-related, but it's ancillary agri, not proper farming. It's for, let's say, somebody buying a goat or a sheep or something but it's not a proper farm loan as such. By and large, the farm loans don't cover microfinance

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Unidentified Participant [107]

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And sir, lastly on the overall outlook on the economy because you seem to be confident of 20% loan growth, but we don't seem to see credit growth happening?

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Unidentified Company Representative [108]

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Look, whatever could go wrong in the world and in this country went wrong in the last eight years, a lot of the stuff has happened in these eight years. And in spite of those stuff, country kept growing even at a lower rate. You see, our own stock market still grew 8,000 points.

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Unidentified Participant [109]

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Sir that on hope.

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Unidentified Company Representative [110]

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In spite of all of that. In spite of all the bad news that you could get, includes the elections in the USA, what happened all over the world, everything, demonetization, all those things.

Now if you have all that behind you, then you have reason to believe that what's ahead should be better. The macros look fantastic. I can tell you this. The macros look really good. You never had it this good. And when the Finance Minister says, I'm going to cut my fiscal deficit to 3.2%, you really believe it because I think it's going to be less than 3.2% because the impact of the taxation gains that you're going to get out of demonetization has not been built into the budget. So if this macro remains stable, you have a benign interest rate regime, we feel that, because the inflation regime is going to be hopefully benign, benign interest rate regime. The bad news is behind you. Macro is good. Why should you not be more optimistic on this country?

I mean this morning, our Chairman told us in the Board meeting that he had seen some business confidence survey, he said that business confidence was never as high, but unemployment was never as low. So you see contradictory parts to the economy and therefore it depends on which side you want to sit on, you want to sit on the optimistic side or you want to sit on the pessimistic side and say, nothing is going to happen. We certainly are right of center on the optimistic side. I think we'll take the last question.

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Unidentified Participant [111]

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Thank you so much. Just one last question, you mentioned IndAS impact on retail portfolio would be positive for you, if you can just elaborate a bit on that?

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Unidentified Company Representative [112]

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Retail portfolio.

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Unidentified Participant [113]

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Right.

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Unidentified Company Representative [114]

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Yes.

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Unidentified Participant [115]

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So can you just talk a little bit more about that how exactly, what are you --?

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Unidentified Company Representative [116]

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How it happens, Yes, Sudesh, you want to take that.

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Unidentified Company Representative [117]

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Essentially it's like this. The theme behind it is that, do you have a behavioral element to a portfolio, which has had longevity in your books?

That means, you've got vehicle finance for 10 years. I've got 10 years data on vehicle finance, they say the loss given default is not more than 25% or 30%. Those behaviorals then allow you to take a lower provisioning requirement per se. That's the benefit on this. And that's happens more on the retail portfolios. So last question.

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Unidentified Participant [118]

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(inaudible - microphone inaccessible) how much improvement in RORWA you expect over the next three to four years, because of [issues] that you have laid out?

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Unidentified Company Representative [119]

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Well, I think the benchmark we have kept and I showed it to you, it's greater than 2.4%. I don't think we're going to go beyond in terms of specifying what our targets are, but it should be upwards of 2.4%. And we do believe that 2.4% -- 2.5% is not easily achievable. So we have to do the right things, press the right buttons, do the right lending, reduce your risk weightages. And we are conscious that RORWA in the last three years actually worsened, because the retail portfolio went down because of vehicle financing and the corporate book went up. That's reversing now. And if you can keep that pace going then certainly I think crossing 2.5% RORWA would be a good measure. I don't have a global benchmark on what is a good RORWA, but I'm sure you guys will come up with something.

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Unidentified Participant [120]

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Sir, last question is with regards to RBI's notification last evening about the diversions and all, so do we have anything do you want to disclose or there is none --?

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Unidentified Company Representative [121]

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All banks will disclose. We will also disclose, absolutely disclose. There is no escaping that, they are making sure. But the point is this, it has no impact on the P&L, because this is March 16. This is March 16 divergences. All of them, if they have not taken those and provided for those, then you're a banana sort of a bank. If March 16 divergences you have not yet provided, then you are in big trouble. So I don't think unless you're very, very creative in deferring your NPAs, any bank would have kept things still March 2017.

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Unidentified Participant [122]

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It should not be a large number.

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Unidentified Company Representative [123]

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Thank very much for joining us.

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Operator [124]

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Thank you very much. Ladies and gentlemen, on behalf of IndusInd Bank that concludes this conference. Thank you for joining us and you may now disconnect your lines.