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Edited Transcript of KOTAKBANK.NSE earnings conference call or presentation 22-Jul-19 12:30pm GMT

Q1 2020 Kotak Mahindra Bank Ltd Earnings Call

Bombay Jul 25, 2019 (Thomson StreetEvents) -- Edited Transcript of Kotak Mahindra Bank Ltd earnings conference call or presentation Monday, July 22, 2019 at 12:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Gaurang Shah

Kotak Mahindra Bank Limited - Chief Risk Officer & Whole Time Director

* Jaimin Mukund Bhatt

Kotak Mahindra Bank Limited - President, Group CFO & Member of Executive Board

* K. V.S. Manian

Kotak Mahindra Investments Limited - Director

* Shanti Ekambaram

Kotak Mahindra Bank Limited - President of Consumer Banking & Member of Executive Board

* Uday Suresh Kotak

Kotak Mahindra Bank Limited - MD, CEO, Member of Executive Board & Director

* Virat Diwanji

Kotak Mahindra Bank Limited - President of Retail Liabilities & Branch Banking

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Conference Call Participants

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* Nishant Shah

Macquarie Research - Research Analyst

* Prakhar Agarwal

Edelweiss Securities Ltd., Research Division - Research Analyst

* Prakhar Sharma

CLSA Limited, Research Division - Research Analyst

* Prashant Poddar

Abu Dhabi Investment Authority - Portfolio Manager

* Sachee Trivedi

Columbia Threadneedle Investments - Global Equity Fund Manager

* Sameer Bhise

JM Financial Institutional Securities Limited, Research Division - Research Analyst

* Sanjay H. Parekh

Reliance Nippon Life Asset Management Limited - Senior Fund Manager of Equity Investments

* Saurabh S. Kumar

JP Morgan Chase & Co, Research Division - Senior Analyst

* Susmit Patodia

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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 Kotak Mahindra Bank Q1 FY '20 Earnings Conference Call. (Operator Instructions) Please note that this conference is being recorded.

I'd now like to hand the conference over to Mr. Uday Kotak. Thank you, and over to you, sir.

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Uday Suresh Kotak, Kotak Mahindra Bank Limited - MD, CEO, Member of Executive Board & Director [2]

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Good evening, friends, and welcome to our quarterly conference call at the end of the June quarter. It's a good time for us to first sit back and evaluate the situation in the financial sector in India and obviously as also thereafter talk a little bit on the bank and how we are seeing our current quarter performance and the road ahead.

First, I think we're going through a very important and interesting phase in the Indian economy.

The fundamental fall in terms of government policy has been reflected in our budget, which essentially continues down the path of fiscal prudence and discipline, which is 3.3% of budget deficits, and this is consistent with this government's approach to fiscal discipline over the last 5 to -- over the last 5-odd years, and the government has continued down that path of fiscal discipline.

I do believe, therefore, with the government demonstrating that and also taking some of the load of borrowing, including from offshore sources, it's clear there's significant opportunity and room for the Central Bank to consider a further reduction in interest rates as we go forward.

We can debate how much will the interest rate drop will be, but I do believe that there is room between now and March or anywhere between 50 to 75 basis points drop in interest rates between now and March 2020.

And we think that's an extremely positive step at a time when we need monetary policies to be taking some of the load when the fiscal discipline is continuing to be maintained. This is, of course, my view that between now and March we should be seeing 50 to 75 basis drop in the interest rates.

In terms of what it does to the financial sector, I think the financial sector continues to be extremely fragile, but we have seen a significant reduction in bond yields. And the markets, of course, are operating in a certain level of drop in the policy rates, and that -- some of that maybe have been factored in and some more may be to go. But as banks are able to see a significant increase in its fixed income and bond portfolio, it also gives the banks room to be -- and I'm talking about the banking system as a whole, room to be more aggressive in terms of its ability to provision with a significant de facto increase in the capital business of many banks coming out of the fixed income gains.

However, I also see the marketplace, particularly the financial sector marketplace, getting to be extremely discerning, and therefore, availability of credit will be linked much more to the comfort of the market on solvency and governance of financial institutions, which will play a disproportionate role in availability of liquidity, deposits or loans through any financial institution than ever before.

And this choice of being so much more differentiated between institutions which get the funding and institutions which find it more difficult to get the funding will inevitably, over time, lead to primarily a combination of some level of mortality and some level of consolidation happening in the financial sector over the next year or so. And this is also consistent with what we have seen happen in the past, and it takes me back to my own experiences with 1998 to 2002. And I still recollect, of course, the prudential regulation was relatively in early days then. There used to be more than 4,000 non-bank financial companies in '97, '98. And post the events of '98 to 2001, very few financial NBFCs actually sustained themselves through this period.

So -- and therefore, between banking, NBFCs and different segments of the financial sector, we are moving towards a time where consolidation and some amount of mortality is inevitable. However, I do believe that with appropriate policy approach, we should be doing our best to ensure that there is no potential systemic outcome out of this mortality risk, which is more real than what we have seen in the past.

Moving from there, specifically to our product bank, Kotak Mahindra Bank, we've had results, which have come out, and my colleague, Jaimin Bhatt, will take you more through it.

But as I see it, the key to financial institution building, which is something we have deeply cared about, is the approach of, through thick and thin, having certain aspects of philosophy which are consistent. Therefore, fundamental philosophy of having higher returns relative to the levels of risk you take, which is what we, in our terminology, call a risk-adjusted return, ability to be disciplined in taking risks through good times and bad. And that means we should not be scared of taking risks, but take risks for the returns we can make. And as long as we can get -- or sorry, take risks commensurate with the returns we can make is the core to our philosophy.

And therefore as I think about it, while the economy certainly is slowing down, and there are many sectors which are going through tough times, if you recollect, I have talked about the real estate sector and the non-bank financial sector going through its challenges in my earlier calls. I do believe that taking appropriate risks for better results is the core to banking and lending. And therefore, we are beginning to see that strategy play out, and that is reflected in Kotak Mahindra Bank's NIM, getting that better.

The second consistent philosophy, which we have cared about, is low cost and stable liability as a core to our banking and financial franchise, and that is something which we continue to play with. We have seen that reflected in our relentless focus on low-cost deposits to (inaudible), and in terms of stable liability, a very significant continuing growth in our deposit base [below on growth]. Therefore, low cost and stable liability as core of our franchise is something which we have continued to believe in it.

In terms of loan growth, for the risks which we have been comfortable with, we have seen about an 18% growth in loans in the bank. We continue to believe. Of course, we will watch this situation closely over the next quarter or so, but we continue to believe that loan growth, we will be able to gain some market share as we go forward for sectors we are comfortable with. And therefore, around that 20% loan growth is something which we, at this stage, feel we can work towards, but we have to watch the space closer.

Therefore, a continuing focus on low cost and stable liability, focus on lending for -- or -- any sort of investments for which we get our commensurate return, which we are beginning to see in the marketplace reflecting in our NIM and also therefore getting some market share as well, we actually feel quietly confident in this particular cycle.

Other sectors which we need to watch closer, of course, and that is something which we have very significantly stepped out -- as you know as I, on segments, which we have confirmed with. And we will take the tough calls whenever we need, but I would like to reiterate that through this turbulence, which the financial sector has seen, we see a quite consistent medium-term opportunity, which we are actually continuing to be excited about as we go into the future. And this is reflected in our business and execution strategy, some of it, which is in the first quarter numbers, but you'll see it play out through the year as we go forward.

With that, I will now ask my colleague, Jaimin, to take you through the specifics on our financials, and then, of course, look forward to Q&A. Thank you.

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Jaimin Mukund Bhatt, Kotak Mahindra Bank Limited - President, Group CFO & Member of Executive Board [3]

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Thanks, Uday. We've circulated the numbers some time ago, so I'll keep it short and just opt for the highlights.

Our post-tax profit at the bank stand-alone level for the quarter at INR 1,360 crores, which is about 33% higher than the same period last year. As Uday mentioned, NIM continues to be healthy. We are at 4.49% for the quarter as against 4.28% last year same period. Gross NPA is at 2.19%, and the net at 0.73%, which is against the 0.86% last year.

Capital adequacy again continuing to be healthy at an overall level of 17.8% with a Tier 1 itself of 17.3%.

As I talked about the CASA focus and the low cost deposit focus. Our CASA at the end of June at 50.7%, which doesn't include TD Sweeps, which is another 7%.

Average current account growth this quarter versus same period last year has been 23%, whereas the savings growth has been at 21%.

Our focus on the low cost, which is the low ticket size deposits of less than INR 1, that too has grown 25% year-on-year. The CASA plus the INR 5 and lower deposits contributes now 82% of our total deposit base.

Advances growth for the quarter -- for the year, YOY basis, is about 18% on a YOY basis. We've seen growth coming in various segments, that the corporate book has seen a lower growth on a YOY basis, corporate and business banking. That's been about [8% odd] growth. Whereas the consumer and the commercial side as we call it, as we look at it internally, have both grown (inaudible).

Our SMA2 number as of June at 0.16% of our overall advances book. On the P&L side, we only had to (inaudible) as employee cost for this quarter compared to the same period last year. So it was a little high, thanks to the fact that this year, thanks to interest rate falling, provision on retirement benefits has been significantly higher.

Last year, at the end of quarter 1, in fact, I touched upon the fact that if interest rate's going up, the retirement benefits were much lower. And that's what leads the difference between last year to this year. So other than that, the P&L is secure. And I'll let Shanti to take the digital one, and I'll come back on the consolidated numbers.

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Shanti Ekambaram, Kotak Mahindra Bank Limited - President of Consumer Banking & Member of Executive Board [4]

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Thank you, Jaimin. Digital continues to be focused and mobile first [at quarters,] while digital app continues to be highly rated.

I would just focus on 1 or 2 key things. With the passing of other regulation in the parliament, we -- customers can now open 811 account through E-KYC, which is a digital savings account, with voluntary consent on AADHAR as well as biometric authentication, which is paperless booking of account at the time of E-KYC. We launched this in June, and this hopefully should give us traction on both accounts and values as we go through the rest of the quarters.

The rest of the numbers, they're there for you to see. Suffice to say that the growth in volumes through net and mobile continue to increase across a variety of products for us. On the savings side, UPI continues to see -- continued traction in terms of volume. And our new initiative on open banking has begun to see results. We have about 34 API relationships across lending, payments and cash management. And we will continue to grow this platform, and thus providing a lot more products, services, convenience and experience for our customers.

In our subsidiaries, again, digital, whether it's in securities, life insurance or general insurance, focus continue to be digital-first aimed at both customer experience as well as internal efficiencies. Jaimin, back to you.

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Jaimin Mukund Bhatt, Kotak Mahindra Bank Limited - President, Group CFO & Member of Executive Board [5]

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Sure. I'll take the consolidated numbers. For this quarter, the consolidated profit is INR 1,932 crores, which is about 23% higher than the same period last year. Apart from the bank, a big contribution's coming from Kotak Mahindra Prime at INR 153 crores, Kotak Life Insurance at INR 134 crores, the broking company, Kotak Securities, at INR 110 crores, which is -- in addition, that is the investment banking [CC] at INR 45 crores. The mutual fund and the trustee -- the AMC and the trustee company is bringing in INR 73 crores, whereas Kotak Mahindra Investments are getting INR 63 crores for the quarter.

Our net worth at the consolidated level at INR 60,231 crores, giving us a book value of around INR 313 per share.

Advances, while the stand-alone growth had seen an 18% growth, at the consolidated level advances is about 15%. Largely coming from the fact that auto, which is in the subsidiaries, has had a negative growth, both year-on-year and quarter-on-quarter.

Kotak Life has seen new business premiums growth of 42% on a year-over-year basis. Kotak Securities has seen cash volumes growth or market share of 10% for this quarter. The investment bank has been in the middle of several transactions, both on the equity and the advisory side.

The assets under management across the group grew 19% on a YOY basis. We're now at -- manage about INR 2 lakhs 37,000 crores, and the relationship value of wealth and priority customers, which we advise, is about INR 2 lakhs 18,000 crores, 30 of June.

Those are the broad highlights, and we'll be open to taking questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) First question is from the line of Prashant Poddar from Abu Dhabi Investment Authority.

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Prashant Poddar, Abu Dhabi Investment Authority - Portfolio Manager [2]

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Quickly, Uday, on the agri segment, if we see, there is some difference in the way you have grown your book vis-à-vis some of the other well-run banks as well. So the book has grown as well as the asset quality. We don't know the interims of -- we don't know the internals of agri specifically, but if you could highlight that, how agri has performed for you and how is the outlook going ahead.

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Uday Suresh Kotak, Kotak Mahindra Bank Limited - MD, CEO, Member of Executive Board & Director [3]

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Yes. I'll have my colleague, Gaurang, answer in more specifics, but I think all of the things within agri, which we added also tractor segment, where we have a significant improvement in our market share, and we actually found that segment doing well. But Gaurang, can you give the overall picture on agri?

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Gaurang Shah, Kotak Mahindra Bank Limited - Chief Risk Officer & Whole Time Director [4]

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Yes. Our agri portfolio differently. So on the tractor segment, as Uday mentioned, even though the industry has not grown, we have grown our market share in the various markets in which we are present. And we find that even on our collection efficiency, nothing much has changed as compared to the previous few quarters. So while the market as they grown, we've gained market share. And that's how we've been able to grow our portfolio on the tractor side. So it's the case with the agri lending on the SME side.

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Prashant Poddar, Abu Dhabi Investment Authority - Portfolio Manager [5]

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Sorry. If you can help us understand. Can -- or I mean, could you be able -- would you be able to highlight some reasons why -- I mean, some of the other better run banks as well have not -- and your performance is different in terms of asset quality. I understand growth could be higher or lower for one or the other company. But if I look at DCB Bank or HDFC Bank, which are decent run banks -- sorry, well-run banks, you -- I mean, the performance in agri is especially very, very challenging in these banks. So if you could highlight to us what has happened really in that segment? And how are you doing differently from them?

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Uday Suresh Kotak, Kotak Mahindra Bank Limited - MD, CEO, Member of Executive Board & Director [6]

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Okay. One of -- let me -- actually, there's one segment within the agri segment which really we have been cautious about. That is the crop loan segment. We (inaudible) crop loan (inaudible) ING Vysya Bank. ING Vysya Bank was a reasonably aggressive lender in crop loan.

So one of the things when we acquired ING Vysya Bank is we thought that there's a very big advantage of acquiring this bank because we have always been very circumspect about crop loans, while ING Vysya Bank was quite aggressive on it. And once we got ING Vysya Bank in, and when we started going into detail of the crop loan segment, where some of the other better run banks were also very aggressive, we -- it took about us about 1 year, 1.5 years to really figure out that portfolio. Essentially, it was lending against agricultural land. And in this desire to achieve the agri targets, which [is required of our agri] sector as well as the ability to do larger ticket size, particularly in states like Punjab and some of these other agri states, we found the ticket size of lending, which including what ING Vysya Bank was doing, was extremely large.

And when we started, and you know the cycle for repayment, this was another strange thing which has allowed us to (inaudible) requirements that you don't need to ask for money for one year. Okay. So you can easily merely have a situation through where therefore 1 year is out of the question. That is true even in tractors, but being from [these zero exporters], we're doing tractor financing and recognizing payment at the end of 90 days. So there are a lot of discipline, which we always had in our tractor business, but we already supplied that in agri crop loan business, you could merely lend against so-called land, larger ticket sizes, particularly in states like Punjab.

And for 1 year, nothing is to be paid by the farmer when effectively it was real estate financing under the guise of crop loan. So we -- when we saw that, we've dramatically cut down our exposure to crop loans by design. And in fact, I'm actually happy to share with you that the size of our crop loan portfolio today is probably lower than it was what ING Vysya Bank on a much smaller balance sheet, in absolute amount, carried.

So one of the things in the [hectare] agri lending is -- which, I think, the banking sector has suffered, is crop loan and the ticket sizes of crop loans having significantly large as the banking sector. So this is something which we, by choice, move away from.

On the other hand, over the years, since we are the largest lender amongst banks in tractor lending in India, larger than any other bank in terms of the tractor lending portfolio as a bank, it is a segment which we have understood we have got a great level of efficiency into that, into managing the whole cycle end-to-end, and approach which is recognizing pain early rather than waiting for a year before you start recognizing. Some of those practices actually have helped us. And similarly, in agri SME, otherwise, when we saw some of this come out, we actually cut down on lending. And what we are now finding is as more and more people, including some of the NBFCs, moving away from this space, it is now possible to do underwriting and better spreads than what we were getting earlier. And therefore, risk-adjusted return being something we are comfortable with has enabled us to continue that.

Having said that, we are obviously working the monsoons. We are working on a number of factors. And therefore, we will take a view as we go forward. But as things stand, both the portfolio which we are running and considering that we have recognized this pain long, long ago and not allowed this 1 year and other things to really cloud our judgment, we are not seeing as much pain today as the system maybe see.

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Prashant Poddar, Abu Dhabi Investment Authority - Portfolio Manager [7]

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One quick question. On CV/CE, also similar trends, I mean, would these banks have or -- some others also are probably likely to do the same. CV/CE also has been a pain point, right? If I look at your numbers sequentially, the portfolio has been flat. But year-on-year, the year-on-year, there has been a strong growth. And from your slippage number, which looks like a net number of 0.5% looks like even slippage here has been decent. So -- I mean, low. So what has happened in this segment?

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Uday Suresh Kotak, Kotak Mahindra Bank Limited - MD, CEO, Member of Executive Board & Director [8]

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First of all, [agri was] smaller quarter-on-quarter. So -- and year-on-year, at times a year is a long period. So we are obviously watching the situation...

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Prashant Poddar, Abu Dhabi Investment Authority - Portfolio Manager [9]

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Asset quality, is it fine -- on asset quality, is it okay?

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Uday Suresh Kotak, Kotak Mahindra Bank Limited - MD, CEO, Member of Executive Board & Director [10]

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We are -- so far, we are in good shape. And Jaimin, again, back to you.

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Jaimin Mukund Bhatt, Kotak Mahindra Bank Limited - President, Group CFO & Member of Executive Board [11]

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Yes. Asset equality has been good. As Uday mentioned, what -- if you look at our growth as compared to the previous quarter, we have slowed down, but we're cautious. We are observing what's happening around, but our collection so far has been good in spite of the fact that collection cycles for our customers are well elongated.

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Uday Suresh Kotak, Kotak Mahindra Bank Limited - MD, CEO, Member of Executive Board & Director [12]

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And I think that what we also we will keep in mind is with the significant slowdown in the NBFC sector, we are able to get underwriting quality of the kind we want at a higher spread. And yet as we always say, we are not -- we don't look at risk absolutely, we look at risk in relation to the returns we make. And we are beginning to get our spread for what we think are the risks. That does not mean we are getting into a higher risk portfolio, but we have seen -- but having said that, I do believe that 1 year ago versus one quarter, there is a difference in the marketplace. Marketplace is slow.

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Prashant Poddar, Abu Dhabi Investment Authority - Portfolio Manager [13]

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And sorry, one last one. Do you think the financial sector stress that we are seeing across the market as well as a lot of smaller companies almost getting close to the verge of bankruptcy. A lot of companies will get [dealer spread], it looks like, from stock exchanges or smaller ones, but they have large loans, if we put together all of that.

If you look at these 2 things combined, NBFC and stress as well as these small companies in stress, could this have -- I mean, a second order impact on the economy, part of it is happening. Part of it, can it stretch further? And could that turn your stance on probably pricing of -- pricing getting better -- risk adjusted pricing getting better. Could that stance change?

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Uday Suresh Kotak, Kotak Mahindra Bank Limited - MD, CEO, Member of Executive Board & Director [14]

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No. It there's one thing, we have to be nimble on our feet, certainly. But I think if you look at the stress in the sectors, there are 2 lenses which we need to constantly keep and both of them at the same time. On the one hand is the opportunity of getting share, on the other the risk because fewer and fewer people are getting funding, and what was weak underwriting in the past, whether we don't make the mistakes of taking some of that weak underwriting on our portfolio.

Before you request a very close watch, and I would like to tell you that our team is looking at it with a [hot side], we are certainly aware of the fact that there is challenges in the broader economy, which we need to be aware of. But we are -- let me give you the example of car. I think the problem in the car financing industry is not availability of finance, okay? There are a few NBFCs which are not financing, but there are many of us who work for the right risk-adjusted pricing, not to lend more against the security of car. But if the ultimate car demand is low, we can't push against the wall. We can't keep on hitting our head against the wall. Therefore, we are focused on is for the risks we are taking is -- number one, is the return commensurate? And do we need to take a view on some sectors where it is just not worthwhile taking the risk irrespective of the return? And that is also something which we are watching.

For example, lending against illiquid land, as many of the financial institutions have done, we've been cautious on that for a long, long time. Therefore, irrespective of returns, some of that you have to be careful about. But you, at the same time, while keeping some areas where you will just not tread, there is a very significant flow of opportunity, which is [stunning, which otherwise] there are 5 other lenders out there to take the opportunity and without distinguishing between good or bad the probability of 5 lending opportunities, out of it, one is good.

Okay. Earlier, all the financing opportunities, lenders would lend at the same price. Now we have the ability of choosing 1 or 2 which we think we can lend and get our price.

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Operator [15]

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(Operator Instructions) The next question is from the line of Anisha Khandelwal from Edelweiss Securities.

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Prakhar Agarwal, Edelweiss Securities Ltd., Research Division - Research Analyst [16]

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This is Prakhar. So a couple of data points to start with. One is in terms of your loan book breakup. This time, we have [club,] corporate and business banking together. Can I have a separate breakup for each of them?

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Uday Suresh Kotak, Kotak Mahindra Bank Limited - MD, CEO, Member of Executive Board & Director [17]

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Yes. I think let me first clarify. We have done an -- mergers can be external and internal. So we have done an internal merger. So within the corporate bank, we had large corporates and mid-market corporates, okay? Actually, we have 3 categories, very large corporate, large corporates, mid-market corporates. Then we have the SME segment, and then we have the small business segment in the consumer bank.

In the interest of efficiency and getting tighter in terms of how we run, we decided to do an internal merger of mid-market and SME. So this internal merger was done in April 2019. So as we have done these 2 mergers, we have moved some of the mid-market customers into large corporates and some of the mid-market customers into SME. And the very small end of SME, we have moved into the consumer bank along with small businesses. Therefore, there is a rehash which we have done in terms of managing our book better and reducing the number of overlaps and verticals. Therefore, the reason why we have combined the 2 and returned it that way is that there is a mid-market piece. Some of it has gone to large corporates. Some of it has got merged with business banking. There's a business banking piece which has been merged with the corporate bank. And there is business banking, small business piece which has moved to the consumer bank. But what you are seeing is an outcome of that, and we have therefore tried to compare it in totality this last year, but individual breakup of this is much tougher for us to be able to give you in a precision which all of you love.

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Prakhar Agarwal, Edelweiss Securities Ltd., Research Division - Research Analyst [18]

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So where it's coming from, sir, in the fact that there will probably be at a rate of 20% growth for the full year. So essentially, my point is, if I look at, going forward, business, where do you think that probably...

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Uday Suresh Kotak, Kotak Mahindra Bank Limited - MD, CEO, Member of Executive Board & Director [19]

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You have said around 20%, which can be plus or minus a bit either way. But around this, if you look at for the quarter wholesale banking, with the business banking piece has had a growth of 7%. 7% to 8%.

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Prakhar Agarwal, Edelweiss Securities Ltd., Research Division - Research Analyst [20]

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This was why I -- was coming from a perspective that going forward, do you think some opportunistic pickup happening in corporate side? Or do you think that this auto loan things that probably is currently with (inaudible) that will grow on an overall basis?

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Uday Suresh Kotak, Kotak Mahindra Bank Limited - MD, CEO, Member of Executive Board & Director [21]

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I'll ask my colleague, Manian.

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K. V.S. Manian, Kotak Mahindra Investments Limited - Director [22]

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Just a clarification. Uday clarified the corporate and business banking combination. The other one, if you just notice last year, June season, end of March, you will see that there is a base effect involved here. Our June number was 76,000 roughly, and March figure was about 80,000. So there were some (inaudible) essentially added at the end of June last year. And therefore, some base effect to the overall growth, while it is not 20%, but it is not -- so we are hopeful -- just the 8% for that. So we are hopeful that the following quarters, we'll have better growth figures in the corporate and business banking segment.

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Prakhar Agarwal, Edelweiss Securities Ltd., Research Division - Research Analyst [23]

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Sure. And sir, in terms of margins, so what we have seen is that we have been pretty much holding above margins. So where this benefit is coming over? Is it from better pricing that you have in the sector? There's a lot probably because of funding cost benefit first. And any thoughts on rationalization of saving costs that occurs our mind as of now?

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Uday Suresh Kotak, Kotak Mahindra Bank Limited - MD, CEO, Member of Executive Board & Director [24]

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I think the benefits on margin are from both sides, more efficient liability management, and second is, of course, on the asset side with [congested] pricing. On the savings side, as you are aware, in the quarter April to June, our savings deposit's below 1 lakh. We have crossed the savings deposit rate to 4% instead of 5%. So our current savings deposit base up to 1 lakh of rupees of deposits is now 4% versus 5% earlier. And we have not, at this stage, change between 1 lakh and INR 1 crore and [about] INR 1 crore.

We will -- keep in mind a number of factors. Number one is the growth rate, at which our savings is growing. Number two, what is the deposit rate in the market? Even now, 1-year deposit rates offered by banks is at 7%. Therefore, at our overall weighted savings deposit cost, which has come down very -- this will come down post this reduction to 4%. We still feel that, as I said, 5.3% or 5.4% cost of savings versus term deposit costs at 7%, there is still a significant positive carry between savings deposits and term deposits.

And the rate of growth of our savings deposit base and improving our franchising CASA NPV overall is core to our retail [corporate and] overall franchise, and we will think very hard before we let go of this.

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Prakhar Agarwal, Edelweiss Securities Ltd., Research Division - Research Analyst [25]

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So sir, and what was the margins impact? Because of the [citing] during this quarter, it was all we can contemplate.

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Uday Suresh Kotak, Kotak Mahindra Bank Limited - MD, CEO, Member of Executive Board & Director [26]

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Within 2 phases in part and only for part of the quarter. The full benefit will come from the second quarter.

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Prakhar Agarwal, Edelweiss Securities Ltd., Research Division - Research Analyst [27]

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Okay. And sir lastly, your thoughts on unsecured business. So we are having some concern in there. Anything that incrementally you would want to add into that?

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Uday Suresh Kotak, Kotak Mahindra Bank Limited - MD, CEO, Member of Executive Board & Director [28]

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No. I think there's been a point here. We are not hostage to being in love or out of love with any segment. We are only hostage to our principle of risk-adjusted return. And if we believe the risks are worthwhile, we will do it. If we believe that it's not worthwhile, we do not just give absolute return. And it will be -- even within unsecured, there is a hell of work you can do. You need not be reckless. You can choose your segments. You can choose your [big and small]. You can choose geographies. You can choose customers or segments of customers. You can do a variety of cuts. And as long as you maintain that discipline, you will always be better off than what I call it the [official value, the official] lending in unsecured.

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Operator [29]

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The next question is from the line of Sachee from Columbia Threadneedle.

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Sachee Trivedi, Columbia Threadneedle Investments - Global Equity Fund Manager [30]

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Can you hear me?

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Uday Suresh Kotak, Kotak Mahindra Bank Limited - MD, CEO, Member of Executive Board & Director [31]

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Yes. Yes, Sachee.

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Sachee Trivedi, Columbia Threadneedle Investments - Global Equity Fund Manager [32]

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Congratulations on another fantastic quarter. My question, I wanted to pick your brains on the macro a little bit. Everything that you said in your prepared remarks and in response to questions apparently sort of talk of a slowdown specifically in certain areas driven by real estate, NBFCs, et cetera and liquidity tightening. Contrary to that or in contrast to that, the honorable prime minister has laid out a vision for a $5 trillion economy by 2024-25, and it's assuming a 4% inflation, that equates to an 8% growth that is needed to achieve that target.

So my question to you is, a, do you think things need to sort of get a bit worse before they sort of get better? B, do you think there is political will and tools to actually drive the economy towards that target? Now the national economic survey said that they need to do a massive reduction in cost of funding. So I'm wondering if that is the only tool they have and whether that will work. So I'm just curious I guess on what's in the macro.

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Uday Suresh Kotak, Kotak Mahindra Bank Limited - MD, CEO, Member of Executive Board & Director [33]

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Okay. I guess, first of all, the -- I believe we are seeing (inaudible) in the financial sector. So we're going through that phase of (inaudible) in finance, and we are in the middle of it. I don't think it is fully done, and some of it is playing as we go forward. And we're all going to be very alert and paranoid to make sure that we take care of ourselves as we see this cleansing process going through our financial sector. If you look at the economic survey, the survey for this year is for the 7% GDP growth. The economic survey also recognizes that in this aspiration for the $5 trillion economy, we are starting slow, which is a fact. And we can debate what the level of inflation is. The last inflation count was 3.1%, 3.2%.

And therefore, as we go down this path, the climb over the hill gets steeper if we start slower. That is undoubtedly the fact. The key question we got to ask is we need to ensure, in the financial sector in particular, that as we go towards through this cleansing process, we need to ensure that this is not systemic and is more specific rather than getting more across the board. I think that is the first thing we should see. And if we can get the act right, then you have a much stronger foundation and base to be able to accelerate the growth as you move forward. Getting the foundation right from some of the practices and issues which the financial sector has faced are extremely important.

And of course, there are a number of things, structural things, which the government has to think about. I think we should do it on a separate discussion altogether including the role of different segments in the financial sector, long-term thinking on state-owned banking, especially when we are on the 50 years of nationalization. We need to ask the questions on measuring of outcome, point number one, and point number two, financial returns to taxpayers over 50 years because -- finally it's the taxpayer's money. So outcome independent of financial returns and the financial returns, both need to be looked at and weighed.

So we need to think structurally. We need to think of fundamental improvement in the solvency, quality and governance of the financial sector in this country. And of course, lower interest rates additionally will also help. So a combination of lower interest rates through monetary policy, fundamental structural changes, how ready we as a country are and third is how good is our governance mechanism in the financial sector are the factors which will have a major import into the growth of the economy.

So I think we should have a separate discussion on this. But it is -- I mean most of us in India are very keen on ensuring that we walk towards the $5 trillion dream. And if we don't dream with boldness, we won't even get close.

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Sachee Trivedi, Columbia Threadneedle Investments - Global Equity Fund Manager [34]

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That's very kind of you. Just as a follow-up. As the government hopes to achieve this dream obviously in the financial sector, particularly private sector, banks are -- or at least I would like to believe that they are deemed as key participants, key partners in achieving that dream. However, last year, one of the things -- I mean that's -- I think we've been frustrated by how heavy a hand RBI has come down. Whether it's a -- the retirement age for another bank's CEO, whether it's sort of your own bringing the stake down. Do you see any sort of respite in that? Or do you think that the RBI will just continue to have a formulaic approach regarding this particularly at a time when the sector itself is struggling on many other fronts?

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Uday Suresh Kotak, Kotak Mahindra Bank Limited - MD, CEO, Member of Executive Board & Director [35]

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I think that the right people to ask this question is to the Reserve Bank of India. They will be in a better position to answer this question.

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Sachee Trivedi, Columbia Threadneedle Investments - Global Equity Fund Manager [36]

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But you're lobbying for it, right. I want to believe you're lobbying for it.

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Uday Suresh Kotak, Kotak Mahindra Bank Limited - MD, CEO, Member of Executive Board & Director [37]

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I'm in no position to comment what the RBI does.

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Operator [38]

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The next question is from the line of Sanjay Parekh from Reliance Mutual Fund.

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Sanjay H. Parekh, Reliance Nippon Life Asset Management Limited - Senior Fund Manager of Equity Investments [39]

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Congratulations to the entire team on a great set of numbers. I had one question on this monetary transmission. We've seen several liquidity providers (inaudible) significantly come down as the regulators clearly spelled out that the monetary transmission is not asking for [something]. So do you see this clamp down coming to the PSU banks and then impacting margins ahead? How do you see this piece?

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Uday Suresh Kotak, Kotak Mahindra Bank Limited - MD, CEO, Member of Executive Board & Director [40]

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Beyond monetary transmission, let's first see the facts here. The MCLR formula that's been transparently laid down by our bank, I don't know the formula of other banks, which is transparent and available to everyone -- to our regulators. Okay? Our regulator is aware of the MCLR formula, which has been approved and which has been in practice for quite some time. So it is out there transparently available to the regulator. And based on that, we just have to fill in, as per that formula, over a long period of time, which -- the numbers and which gives us output and an outcome. Okay? And based on that, we have to fix our MCLR.

Therefore, I am actually surprised that any bank, including a PSU bank, can fudge the number higher or lower, different from the formula. And we are all -- I mean especially when we have a regulator who is certainly looking at what each of the banks does with reference to the formula. As long as the formula is met, I think it has to go with that. In the absence of -- there was a move earlier, which has been dropped by the RBI, which was linking MCLR's market benchmarks, the regulator must have had good reason to not pursue with that. But if you ask me, if we believe that we really want to see transmission, maybe that is something which the regulator had in his badge as the regulator always has the ability and opportunity to take. But for good reason, the regulator decided to drop that, which was supposed to be implemented from April 1.

As well as we are concerned, we believe that transmission is a transfer in process by which we have to manage this within a framework, and we will adhere to that framework. And there is no question of massaging or doing something which is dramatically different from what those numbers will throw up. And in that context, I know a lot of people have talked, but the fact of the matter is MCLR drops by banks. I mean larger than drops by the government on [small payment] rates.

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Operator [41]

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The next question is from the line of Prakhar Sharma from CLSA.

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Prakhar Sharma, CLSA Limited, Research Division - Research Analyst [42]

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I just had a couple of questions. One in the annual report that you've discussed a bit of unit pressure that was evident in the portfolio for the SME book. And you've taken corrective measures around it. I just wanted to get a sense like have things stabilized. And from the reclassification perspective, does that book get reflected in the corporate book? Or is it part of the small business and the [NLP card] sort of a book?

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Uday Suresh Kotak, Kotak Mahindra Bank Limited - MD, CEO, Member of Executive Board & Director [43]

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I'll hand it over to Manian, but bulk of the SME book has got merged with the mid-market corporate book to the extent that mid-market has been further split between large corporates and SME.

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K. V.S. Manian, Kotak Mahindra Investments Limited - Director [44]

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So yes, it is part of the business banking and our corporate portfolio. We have seen clear progress on that. There is a little slippage that has happened, additional slippage that has happened on the asset side here. So clearly, it seems to be under control. Now we are hoping that -- if the environment permits us, we are hoping to grow that book from here.

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Uday Suresh Kotak, Kotak Mahindra Bank Limited - MD, CEO, Member of Executive Board & Director [45]

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And I think -- let me also highlight. For the last 2 years at every call, I used to get a reverse question which is why are you not growing your SME book faster. And we said that still we are comfortable for the risks. For the results, we will take a very circumspect view on that.

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Prakhar Sharma, CLSA Limited, Research Division - Research Analyst [46]

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And have things changed since then? Or you would still be a little cautious on that part?

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Uday Suresh Kotak, Kotak Mahindra Bank Limited - MD, CEO, Member of Executive Board & Director [47]

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I think we are right now -- see my point is back to we are open. As I said, if there are (inaudible) there are 5 loans and 10 banks jumping on it, we are now able to, out of the 5, pick up 1 or 2 loans with relatively much less number of banks or finance companies jumping into it.

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Prakhar Sharma, CLSA Limited, Research Division - Research Analyst [48]

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Got it. On (inaudible) investments, the NPL ratios have moved from 0% last year and like 30 bps to about 60 bps. Probably an early sign, but is there an imminent stress here?

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Uday Suresh Kotak, Kotak Mahindra Bank Limited - MD, CEO, Member of Executive Board & Director [49]

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No. We don't see overall -- said it is one single account. And we are fairly confident that we'll not lose money in this account. It is very, very well secured. So it's just an isolated case. There is no stress in the portfolio either way.

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Prakhar Sharma, CLSA Limited, Research Division - Research Analyst [50]

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Got it. In the quarter, think of prime, just to -- 2/3 of the book is outside cars. Could you just clarify what this is and if there is...

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Uday Suresh Kotak, Kotak Mahindra Bank Limited - MD, CEO, Member of Executive Board & Director [51]

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Hold on.

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Prakhar Sharma, CLSA Limited, Research Division - Research Analyst [52]

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Sorry, the other one. Sorry, my mistake. Please leave this question. Last question. In the Life Insurance part, can you clarify what proportion of the new premiums have guaranteed returns?

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Uday Suresh Kotak, Kotak Mahindra Bank Limited - MD, CEO, Member of Executive Board & Director [53]

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So I think -- let me just step back. I think I'll ask (inaudible) to speak. But roughly about 20% to 25% of the book is guaranteed returns. Everything else is not guaranteed or not part of the same product.

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Unidentified Company Representative, [54]

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That's right.

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Uday Suresh Kotak, Kotak Mahindra Bank Limited - MD, CEO, Member of Executive Board & Director [55]

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Between 20% and 25% is guaranteed returns, not in terms of AUM, in terms of new business.

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Operator [56]

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The next question is from the line of Susmit Patodia from Motilal Oswal Asset Management .

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Susmit Patodia, [57]

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(inaudible) .

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Uday Suresh Kotak, Kotak Mahindra Bank Limited - MD, CEO, Member of Executive Board & Director [58]

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We can't hear you.

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Susmit Patodia, [59]

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Can you hear me now?

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Uday Suresh Kotak, Kotak Mahindra Bank Limited - MD, CEO, Member of Executive Board & Director [60]

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Yes.

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Susmit Patodia, [61]

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Okay. In your annual report, you had mentioned about getting into the consumer durable finance business and that being an exciting opportunity. Could you give us a little more thoughts around that?

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Uday Suresh Kotak, Kotak Mahindra Bank Limited - MD, CEO, Member of Executive Board & Director [62]

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Yes. First of all, we normally like to enter a sector when things are not as a bet, and we like to do it slowly. And we now see the opportunity coming. So we will do it in our own slow way, which is gradually and build it up. And we're also doing a lot of stuff which is very different on technology. I will ask my colleague Shanti to share with you how on a differentiated basis we are going about that opportunity.

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Shanti Ekambaram, Kotak Mahindra Bank Limited - President of Consumer Banking & Member of Executive Board [63]

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Thank you, Uday. So Uday mentioned 3 things. First, look for the opportunity within this space, which is both risk and price. Second, look at the profit differential, which is largely digital, which is what we have -- historically the first one on the street to do that with [out-of-base] end-to-end processing. And we are finding spaces which from a risk-adjusted return perspective, we are looking at. And you've got to build it slowly. You've got to be careful given the business metrics environment and risk. That's exactly what we are going about today.

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Susmit Patodia, [64]

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And this will be under in the bank and not in prime?

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Shanti Ekambaram, Kotak Mahindra Bank Limited - President of Consumer Banking & Member of Executive Board [65]

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This is in the bank.

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Susmit Patodia, [66]

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And the second question was on your East India. The number of branches there are significantly lower than your national average. Any thoughts there?

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Uday Suresh Kotak, Kotak Mahindra Bank Limited - MD, CEO, Member of Executive Board & Director [67]

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My thoughts are we will increase it, but we are very clear. We must get more than our normal bang for the buck. If we get more bang for the buck, we'll open more branches.

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Susmit Patodia, [68]

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Is that a reflection of the credit culture there or the kind of business that is going on there?

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Uday Suresh Kotak, Kotak Mahindra Bank Limited - MD, CEO, Member of Executive Board & Director [69]

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We are also -- keep in mind that our overall strategy on branches, we will certainly grow branches. But sorry I didn't -- I think I missed your second question, sorry.

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Susmit Patodia, [70]

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Sorry?

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Uday Suresh Kotak, Kotak Mahindra Bank Limited - MD, CEO, Member of Executive Board & Director [71]

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Was your -- on the branches? No, it's...

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Susmit Patodia, [72]

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For East India, yes. I mean is that a reflection of the credit culture of that part of the country?

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Uday Suresh Kotak, Kotak Mahindra Bank Limited - MD, CEO, Member of Executive Board & Director [73]

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Our approach to any branch is both liabilities and assets. So on liabilities, East India continues to be a good marketplace. On the asset side, obviously, it is something we are a little more cautious about. When you're looking at a branch strategy, you look at both. But also on the liabilities side, we are combining the significant physical and digital strategies. So we will certainly grow East India. And keep in mind, before the merger with ING Vysya Bank, we had a disproportionately large presence in North and West, and our South presence was relatively low, which is what we filled up with the merger with ING Vysya Bank. We have grown really through that -- the merger with the bank, which is our largest...

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Shanti Ekambaram, Kotak Mahindra Bank Limited - President of Consumer Banking & Member of Executive Board [74]

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Operationally, yes.

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Uday Suresh Kotak, Kotak Mahindra Bank Limited - MD, CEO, Member of Executive Board & Director [75]

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But we are quite open to growing our branch network in a measured manner and simple bang for the buck. Bang for the buck not in 6 months to 1 year but over 3 to 4 years.

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Operator [76]

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The next question is from the line of Saurabh from JPMorgan.

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Saurabh S. Kumar, JP Morgan Chase & Co, Research Division - Senior Analyst [77]

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A question on your operating cost. You've spoken a lot about...

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Operator [78]

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I'm sorry. You're not audible.

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Saurabh S. Kumar, JP Morgan Chase & Co, Research Division - Senior Analyst [79]

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Sir, just on this digital strategy, sir. On your operating cost on OpEx to asset or cost income, depending on however you want to guide it, what kind of reduction one should expect over a 2-year view?

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Uday Suresh Kotak, Kotak Mahindra Bank Limited - MD, CEO, Member of Executive Board & Director [80]

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Yes. I -- with -- post Aadhaar coming back, we are going full steam in terms of getting customers both physical and digital. And I'll ask my colleague, Mr. Virat Diwanji, who's responsible for the higher operating costs, how he sees it over 2 years and how he's going to improve it. Virat is Head of Branch Banking and Retail Liability.

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Virat Diwanji, Kotak Mahindra Bank Limited - President of Retail Liabilities & Branch Banking [81]

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Look, customer acquisition, in that sense, could be what we call a number game with the number of people that you have brokered with this kind of technology, who's coming in, where you can acquire and the efficiency is going up. We continuously drive to improve the productivity year-on-year. And from that perspective, as the -- what do you call it -- the number keeps going up, perhaps and relatively going up, we would be able to bring down the cost, as we have attempted in the past. We were midway when this Aadhaar thing came up.

But even without that, now we have the various methods of relationship management, also [inverse], which brings in efficiency. Yes, the virtual relationship management thing that we have set up. And if you have seen the earlier results, it was yielding good results. And we will expand that base, whereby customer is contacted regularly. He feels (inaudible) with the bank. His value builds up and hence, that will make him feel happy to be with the bank. So maybe around 10%, 15% cost control can be impacted through the use of this technology as well as the differential relationship model that you're talking about.

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Saurabh S. Kumar, JP Morgan Chase & Co, Research Division - Senior Analyst [82]

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Sir, on acquisition cost. I mean, for new customers, what will be the acquisition cost like if you can help us quantify it, sir?

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Uday Suresh Kotak, Kotak Mahindra Bank Limited - MD, CEO, Member of Executive Board & Director [83]

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Yes. On that, just to give you a sense maybe in the physical world and the digital world. The 811 world, the acquisition cost is 15% to 20% of what it is in the physical world. So it is very significant. Of course, you want to keep in mind the balances are lower. The revenue per account is lower reporting this -- so keep that in mind. But in the digital world, you'll be just dramatically able to increase the size of our footprint at a much lower acquisition cost compared to the physical world, though the physical world ticket size per account is larger.

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Saurabh S. Kumar, JP Morgan Chase & Co, Research Division - Senior Analyst [84]

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Okay, okay, sir. And sir, second question is on your HFC portfolio. Sir, exposures have gone up sharply quarter-over-quarter, so I'm guessing you are now comfortable with that sector.

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Uday Suresh Kotak, Kotak Mahindra Bank Limited - MD, CEO, Member of Executive Board & Director [85]

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Housing Finance, right?

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Saurabh S. Kumar, JP Morgan Chase & Co, Research Division - Senior Analyst [86]

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Yes, yes.

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Uday Suresh Kotak, Kotak Mahindra Bank Limited - MD, CEO, Member of Executive Board & Director [87]

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Housing Finance portfolio does not include real estate development. That is -- Housing Finance...

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Saurabh S. Kumar, JP Morgan Chase & Co, Research Division - Senior Analyst [88]

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Yes, yes. I know that.

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Uday Suresh Kotak, Kotak Mahindra Bank Limited - MD, CEO, Member of Executive Board & Director [89]

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As we don't put any real estate development portfolio in that number. Rest assured on that.

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Operator [90]

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The next question is from the line of Parameswaran, S from JM Financial.

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Sameer Bhise, JM Financial Institutional Securities Limited, Research Division - Research Analyst [91]

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Yes. Hi, this is Sameer. My question has been answered. Thank you.

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Operator [92]

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The next question is from the line of Nishant Shah from Macquarie.

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Nishant Shah, Macquarie Research - Research Analyst [93]

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So around last year this quarter, you had given some details about the amount of -- the number of customers you've acquired through the 811. You also mentioned that roughly around 70% of them have the same kind of profile as your normal branch banking customers. Would you now be able to give some more color about what kind of -- like, how have you been able to monetize these customers? Like, any gradient of like the average cost of balances that are maintained or dormancy or frequency of transactions or any cross-sells that you have? Any numbers here about this whole 811 experiment?

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Uday Suresh Kotak, Kotak Mahindra Bank Limited - MD, CEO, Member of Executive Board & Director [94]

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Okay. First of all, on the digital with Aadhaar coming back, keep in mind, Aadhaar was audited and has become law post-election and post the Indian government passing it through Rajya Sabha. We are a banking business. We have made changes, including voluntary Aadhaar. All...

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Shanti Ekambaram, Kotak Mahindra Bank Limited - President of Consumer Banking & Member of Executive Board [95]

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In June.

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Uday Suresh Kotak, Kotak Mahindra Bank Limited - MD, CEO, Member of Executive Board & Director [96]

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In June, all the changes have been made, and we are quite confident of a very significant run rate, maybe at least equal to the run rate which we have achieved last year. And maybe if we find the volume work, we could even accelerate it further because we see this as a very significant long-term acquisition strategy for us. I will ask Virat to take you through (inaudible) of how both the physical world and the digital world accounts are shaping up and his experience with that. Virat?

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Virat Diwanji, Kotak Mahindra Bank Limited - President of Retail Liabilities & Branch Banking [97]

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Yes. Look, especially on the 811, we -- as we said that the cost of acquisition is lower. The profile of the customer is extremely important. Here we find moments, people in the age group of 25 to 35 years, and that means that we are catching them early.

The second thing is majority of them are salaried class, so that also gives us an opportunity to do a cross-sell. And the blessing in disguise has been, between this period of this downtime because of Aadhaar, we have developed strategies and the processes whereby we have been able to connect with 811. And there are cross-sells of the personal finance products like credit cards, the personal loans have seen significant improvement. As we mentioned earlier, as far as the upgrades of the customers from 811 to the normal banking type of accounts continues to be holding between 12% to 15% and we see that a positive there as well. So that's on the 811 customers.

As far as the physical world is concerned, what do you call, the numbers which -- on which we were doing a full KYC kind of a thing using Aadhaar in the physical world as well. With that opportunity, [lasting] from September to now, I think it has impacted the productivity. But now with Aadhaar back in the works, we will be able to get back to the productivity levels that we had got earlier.

And this time also give us an opportunity to get our systems and processes, whereby we would be more efficient in managing the customer relationship. So overall, opportunity to get more customers higher within Aadhaar back. In terms of cross-selling products to them, we have seen some good results, and we hope to even better it going forward.

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Nishant Shah, Macquarie Research - Research Analyst [98]

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Okay. I didn't quite understand this upgrade from 811 to normal, of 12% to 15%. What does that mean?

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Uday Suresh Kotak, Kotak Mahindra Bank Limited - MD, CEO, Member of Executive Board & Director [99]

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What it means is some of these customers want full-fledged branch banking facilities and all the services which the physical world customer wants, and who keeps much higher balances. So there is an upgrade program also which is the choice of the customer, and that is also working well.

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Nishant Shah, Macquarie Research - Research Analyst [100]

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Okay. So the -- actually, I don't know if my answer -- like I understand completely. So the context of this question is like I am an 811 customer, I am a salaried employee. I already have a bank account, so the likelihood of me banking with you now, it's limited. So like, what I'm trying to understand is, okay, how many of these customers have you been actually able to monetize or cross-sell a credit card, to cross-sell a home loan or personal loan to? Or even taking away some wallet share in terms of the CASA balances that are maintained by offering a higher rate?

In the implementation, what kind of progress have you achieved in the year or maybe a couple of years now since you've had...

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Uday Suresh Kotak, Kotak Mahindra Bank Limited - MD, CEO, Member of Executive Board & Director [101]

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I think we got there a fair amount of cross-sell. The percentages, we are monitoring them every month. The ratios are improving month-by-month. And we believe that breakeven level, including the acquisition cost of the digital customer, are coming down. And on a fully costed basis, the breakeven level of our digital customer is now faster than a normal branch banking acquisition customer.

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Nishant Shah, Macquarie Research - Research Analyst [102]

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Okay. Fair enough. Just one more question separately on the auto space. So how is your asset quality moving in like some of the other spaces like dealer finance or loan store, the auto ancillaries or something like that? Because it -- logically, it'll affect the entire ecosystem. So how is the other ecosystem generally fared?

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Uday Suresh Kotak, Kotak Mahindra Bank Limited - MD, CEO, Member of Executive Board & Director [103]

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Please keep in mind, on the auto sector, knowledge of which dealers and what situation are released -- our understanding of the dealership space started from mid-'90s. And in general, the broad dealership space has been around for a long, long time. Before all our dealerships, we have an inside-out view about what's doing right and what's doing wrong. And if there's one thing which we are very clear about, that's when we feel that there is -- [it's difficult] moving money, we just make sure that we [don't protect the line]. And therefore, we have actually had a negative -- or a situation in our dealer finance with building down the growth of the book. And we have also found in the last 1 or 2 -- last 2 years in particular, some of the newer banks have been pretty reckless in how they're lending dealers without adequate security. And in some cases, we hear that wherever we are there, just because we are there, some of the other banks and financial institutions have blindly lent on that basis. And there has come a time when we've actually quietly pulled out and let some of them carry the bank.

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Jaimin Mukund Bhatt, Kotak Mahindra Bank Limited - President, Group CFO & Member of Executive Board [104]

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On the auto component side, we are working on the situation on a case-by-case basis, but let me just give you an assurance that the -- most of our limits on the auto component side are self-liquidating in nature. And they're not the limits that the company can use irrespective of their volumes. So some of our volumes -- volume determines the utilization of our limits. So we manage that quite closely, and we will act suitably as we see reason to act.

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Operator [105]

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We will take the last question from the line of [Kabir Gulati] from [HL Capital].

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Unidentified Analyst, [106]

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So even as the Y-on-Y growth numbers still look quite decent at around 18%, but the sequential tender -- like, just around 1%, I think. So in that context, just 2 things: First, in the context where sequential growth is just around 1%, which are the segments which are offering you pricing -- some kind of pricing bargain?

And second, what are the downside risks in this sequential growth context to the overall year-end growth number?

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Uday Suresh Kotak, Kotak Mahindra Bank Limited - MD, CEO, Member of Executive Board & Director [107]

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My advice to you is, first, we should go back to history. In most of the situations between fourth quarter and first quarter, fourth quarter normally -- and there is some element of seasonality which happens. The fourth quarter to first quarter normally shows a sequentially growth, which is good. But be very careful not to misread it as a more sustainable trend quarter on quarter because, normally, fourth quarter is -- there's a certain level of easing, which happens. And therefore, do not compare fourth quarter versus one quarter's sequential as the basis for making a trend for the full year. That's my only advice to you.

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Operator [108]

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Thank you very much. That was the last question. I now hand the conference over to Mr. Uday Kotak for closing comments.

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Uday Suresh Kotak, Kotak Mahindra Bank Limited - MD, CEO, Member of Executive Board & Director [109]

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Yes. I think -- thank you very much. Really appreciate this. We are in a very interesting time. And as they say, once upon a time, as we've said, in politics, 1 week is a long time in politics. I can assure you, one quarter is a long time in banking, okay?

So we are now of course in -- we will be discussing the June quarter. Lots can and will happen in this quarter. We are very alert. We are focused on doing the right thing. We are both making sure that we don't take undue risks. At the same time, we do see -- whenever we find that there is a sustainable opportunity to build, we are out there taking advantage of that opportunity through this turbulence.

And thank you very much for being on the call.

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Operator [110]

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Thank you. Ladies and gentlemen, on behalf of Kotak Mahindra Bank, that concludes this conference call for today. Thank you for joining us, and you may now disconnect your lines.