Hello, everyone. Thanks for joining the call.

Today we have Mr. V.

Vaidyanathan, MD & CEO; and Mr. Sudhanshu Jain, CFO.

We will start the call with brief commentary opening remarks from Vaidya, followed by update on financials and business parameters from Sudhanshu. Post that, we will open the forum for Q&A.

I will hand over to Vaidya for his initial remarks.

Good evening, everybody. Thank you very much, every one of you, for joining us, and with with with here is Sudhanshu and Saptarshi.

It's exactly 7 years since the time the merger happened. December 31st, 2018 is when we put together our first financials.

The merger actually was announced to the markets on 11th December 2018, but the first quarter financials for 31st December. We 7 years have gone by.

It's a good time for us to give a quick brief about the business model of the bank because the the so let me just share that in the business model context, in as of 31st December '18 when we started, we had a a total deposits and borrowings in the bank of ₹1,18,000 crores. Of that ₹1,18,000 crores, ₹10,400 crores was retail deposits, rest ₹28,000 crores was wholesale deposits, ₹22,000 crores was certificate of deposits, and borrowings was ₹57,600 crores.

You can see that a good portion, which is wholesale deposits, certificate of deposit, borrowings, had to be repaid on due dates. We we therefore, the first priority of the bank at that point of time began to raise was to raise deposits because there's a large amount.

This is really very unlike any other non-bank finance company, small non-bank finance company converting to a bank because it doesn't start with such a situation. Or so therefore, think of it like a DFI converting to a bank, which is what our bank is, that too a large DFI, let me say, or a mid-sized DFI, comes with these these kind of starting point what I just described.

Let me just say the first thing the bank did was to raise deposits at, at a at a at a very serious pace. To give you context, for 4 quarters prior to the merger, the total deposits raised from the bank was ₹5,300 crores of retail deposits.

Obviously, we were not at that pace, we were not going to repay ₹79,000 crores of these kind of moneys even in 2 or 3 years. The the the the the thing that that is the reason you might notice that our bank's, liability franchise is probably among the more developed ones because that was the weakest muscle and we had to build that very, very quick.

I'm happy to say that at that, since then, the bank has really developed a a a good mobile app, we put out a 1,000 branches, we developed savings account propositions, current account propositions, startup banking, NRI banking, we built out a technology stack, brand positioning, hyper-personalization, analytics, technology, service center, and we made customer service, the customer first being like the almost front and center about what the bank is all about, that kind of positioning, then, made the culture of the bank from top to bottom to think like that in terms of customer, made products which were pro-customer, and launched commercial banking and reset our corporate banking, all the kind of stuff, and relationship manager. Net-net, we developed an entire franchise and also supported it with a 7% 7 7% interest rate on savings accounts.

Now, it's not that we were very proud giving money at, raising money at 7% savings account; market was giving 3% or 4%. It just had to be done, and in any case, it was cheaper than what we were what what we were otherwise raising.

Our our existing borrowing was like, 7.8% was the cost of funds at the bank at that point of time. The point is that having raised, serious deposits, I am, obviously all of you are of course happy in hindsight to note that we honored every bit of the transactions that were due.

We brought down credit-deposit ratio from 136% to 94% now. Frankly, it sounds like 136%, but if you remember if you note that the bank also had a lot of money given out in the form of investments, which is also effectively credit, that is like 165%.

That's now down to 94%. Things started, structurally became much better.

Having fundamentally structured the bank and settled the liability issue, which frankly is the biggest issue for the bank to settle, the bank along the way started cutting deposit rates. This this became let me say, in my scheme of things, to to to be to to pay off dues obviously becomes priority number one; then, of course, priority second priority is then then fixing the cost of funds.

I'm just happy to share with you that progressively, since then, we have been bringing down cost of funds from 7.8%, which was the cost of funds in February, oh, sorry, in 2019, that is FY, that is 31st of March 2019, the the first quarter after the merger, and frankly, that is the same rate all through the next 4 quarters also, 7.8%. We have brought it down today to 6.11%.

I'd like you to point out note this is a reduction of 169 basis points. I'd like you to just for a pause for a minute and think about what the cost of funds of the mid-tier banks were at that point of time, mid-tier banks, and we all know the mid-tier banks.

The mid-tier banks, when we were raising money at 7.8%, was at 6.3%. We were paying as high as small finance banks to start with, that the fact.

We were paying 150 basis points more than mid-tier banks. I'm happy to share that the mid-tier banks' cost of funds have now come down from 6.3% to 6.09%, and IDFC Bank cost of funds have come down from 7.8% to 6.11%.

Just in 7 years flat, we have not only raised serious deposits over ₹2 lakh crores with which we settled our entire, let's say, the the the upcoming maturities of that scale, but simultaneously we have also brought down cost of funds, and now we have become at par. We're basically paying 2 basis points more than mid-tier average of mid-tier banks; mid-tier bank 6.09%, we're at 6.11%.

We believe that end of this financial year financial year, I mean the fourth quarter, the way because recently we've cut our savings account rates, that full impact will come through this quarter, we'll come down below 6%. The transition to a low cost of funds is a journey that had to be done, but you can see from the numbers that we are firmly on that path.

That, in turn, opens up the new, areas for putting financing. Obviously, when you're raising money at 7.8%, then the the kind of segments you lent to are are more the the the the higher-yield and higher-credit cost ones.

Obviously now with these kind of rates, now we're as competitive as any other good-quality mid-tier bank, and hopefully, as the years go along, we can even, get better from here. Now, I'd like to, share some some very precise numbers to you.

What was 7% we were paying up to 200 ₹200 crores, and from ₹200 crores to ₹750 crores we were paying 8.5%—whatever it is, it is; it's not something to be proud of, but it is. Today, we have brought down our ₹0 to ₹1 lakh bucket from 7% to 3%, that's 400 basis points reduction.

The that the the ₹1 lakh to ₹5 lakh bucket, we have brought down by 200 basis points from 7% to 5%. Above that, we're paying 6.5%.

Above ₹10 crores, we are straight dropping it back to 5%, 4%, and so on. Net-net, we are we've structured this in such a way that large ticket, bulk money does not come to the bank.

It'll basically if it comes, it'll come at really low rates as if as any other big bank would have given. Then we are basically trying to accumulate money more in the early, smaller ticket ones.

Not really small small, like not like the less than ₹50,000, etc. That's that's that's rate is just 3%.

Maybe, in in the zone of the ₹1 lakh to ₹5 lakh kind of rates. Now, the similarly, of course, on the term deposit, we brought it down, and then I told you what what as a result, the cost of funds for the bank has come down.

Now, I would like to quickly then move ahead, move on the conversation to share with you what this does to us on the lending side with the reduction of rates. On the lending side, think of it like like, on the personal finance front, the we have let let us say there will be think of it like three categories of financing.

One is where we lend at about 18% to 24%, and the credit the cost of credit is like could be between 4% to 6%, maybe 3% to 6%, depending on products. These then then there is the products like your products which are where you lend at about 14% and credit cost is 2% to 3%.

Then there is the products which are where we lend at 8% to 9%, like mortgages, loan against property, etc., and there the credit cost could be like as low as 0.5%. Similarly, on the the business finance front, same logic.

We do lend at people at at at sectors is 20%, 25%, which is where credit cost is 4%, 5%. We do lend at segments for 10% to 14%, credit cost 3% to 4%.

Then we do lend at 8% to 9%, where credit cost is 0.5%, which is loan against property and home loans, etc. Net-net, the combo combo combination of this mix mix that we do, as a strategy for the bank, we aim to get a credit cost of 2%.

Now, I'd like to share with you what the real numbers of credit costs are for the last 5 years. Basically, 5 years is a our gross NPA and net NPA of the bank really has been, under 2% and under 0.5%, 0.6% for really very, very long time, you know the numbers.

All of us know that that that gross net gross net can be managed by can be handled by write-offs and the net NPA can be handled by provisions. Write-offs and provisions we take it as one family.

Therefore, we'd like to specifically call out credit cost. On the credit cost front, we'd like to specifically point out that if you take the and any of you and any of your analysts can do the maths, if you take FY21, '22, which is the peak of COVID that was raising, wave 1, wave 2 was happening, then the FY23, '24 were benign period, then FY25 was hit by microfinance, FY26 is still have a residual tail effect of microfinance going on.

All put together, good days, bad days, all averaged out through the cycle, our credit cost is 1.95% on funded assets. You you can do the weighted weighted maths for yourself; it is 1.95%.

Now, a 5-year period, 1.95% should give us comfort, should give you comfort that the combination of products we talked about is giving us that kind of credit cost. By the way, that 1.95% of average funded assets, average loan book, translates to 1.36% on average on on on on assets, just just just to mark the distinction there.

Now, we'd like to then say what is the risk-adjusted net interest margin for the bank. This is important to note: risk-adjusted.

Now, we've done analysis which I'd like to share with you. For our bank, again, look through 5-year cycle, all put together, good days, bad days, all put together, our our NII by assets is 5.65%.

For a 5.65% of assets, credit cost to asset is 1.36%. That translates to 4.3% is our risk-adjusted NIM.

If you take this number for top banks, it is basically 3.93% is NII by assets, credit cost is 0.58%, and that is a 3.35%. The point is that, we do have higher credit costs, that's our model, but the the the the but the income is also higher, but risk-adjusted, we're running 4.3% and and and mid-tier banks, little short of 3%.

If the bank's model is fundamentally so strong, and from the numbers I read that to you, then how is it that the return on assets is 0.5%? This is one people tend to sometimes tend to think of this that, look, if your if your return on assets is low, then there must be some problem with your business, which you might which which we should look into.

This 4.3%, if it's a risk-adjusted income, I'd like to then share with you that this is obviously going ahead and in building the bank. I mentioned to you this is a domestic financial institution with a large balance sheet suddenly raising deposits and trying to retire, retire liabilities.

We want to just share with you that this entire capability that we built of of this deposit franchise that we're building, this obviously will will will build scale. As of now, it's touching something like about ₹2.8 lakh crore.

In the next maybe we we're hoping that in the next few years, we'll let's call it 4 years or 5 years depending how it goes out, this will be ₹6 lakh crore. At that point of time, this breaks even.

Then the whatever return on assets of as of of the lending side translates to the P&L straightaway, okay? Now, I'd like to finally close this by giving the a quick input to you on how our operating expenses as a percentage of the book is today and what we expect it to be in a normalized way.

In this is important to understand because, again, these books are still under build-out mode. Our cost-to-income ratio for the lending side is 62.3% on the retail lending side, and we believe it'll come down to the like the low 50s just with scale.

Our wholesale book, the cost-to-income ratio is running like 36%, we believe it'll come down to 30% with scale. Our credit cards are running at about 97.5%, which will come down to about 70% with scale.

Blend and and and retail liabilities is running cost-to-income ratio about 149%, which will come down to about 100% with scale. What is the combo combination of the 73%, 74% that you're seeing here?

We believe, with scale, it should come down to about the the mid-50s. If you do the maths, you will get there.

None of these numbers are unrealistic; we believe they're all like should be achieved with scale. Therefore, at this 55%, 56%, if you plug that back into a business model, you would see that the ROA of this bank will start going to about 1.6% odd and and, and and then rest of the equation will become like any other good bank posting that 1.6%, 1.7% plus ROA, and life is great, and life moves on from there.

This is the long and short of the entire business model. Basically, you the bank is making good money in the earning side, not making money in the liability side, rather it's a loss, and as they scale up, the the cost-to-income ratio comes down and cost come down, and you will find the good bank and, you'll find the numbers coming through, and then then it's business as usual and life moves on, and then then challenges and successes of any other bank as as as it were.

It does take 10 years to build a bank, that much I'm realizing, and certainly takes 10 years to build a liability franchise when you convert a DFI to a bank. Like I said, if it is an NBFC which got a bank license, that would be much easier life.

If you're an NBFC tagged with a with infrastructure DFI, which is a three times your size—remember Capital First was 23,000 ₹25,000 crores on on books; IDFC was ₹75,000 crores on books. You you you walked the path to, to get the bank license, you paid, this is a part of building it out.

Then this will land very well, in our opinion. The business model is strong, it's very solid.

I read out the numbers to you. With this business model, with the kind of margins I told you, moment when we fix this cost-to-income ratio, this is like this is going to fly, in my opinion, it's going to fly as well as like as any fantastic bank.

In fact, more so because the bank has actually built, rather slightly differentiated model on the lending side. This is not the regular model built, this is built on technology.

We've built many, for example, the last month of October alone, just in October, IDFC gave out close to about 1.3 to 1.4 million loans in 1 month. Obviously, this can't be done through the human people sitting and calculating incomes, and and all that.

Each of these loans had identity check, bureau, fraud check, KYC, mandate, stamping, registration, the whole thing, everything e, everything electronic. That is a very special capability bank has built.

Similarly on the on the deposit-raising front, we have developed capabilities for, personalization, hyper-personalization, and so on. That is the kind of capability the bank has built, and with our arrival of technology, cost is also coming down.

You get the drift. Therefore, we should look forward, and now frankly, this this picture I painted was from a larger picture that we're painting, like looking forward to the many years because the business model is looking more stable to us right now.

We're looking quite hopeful for the, upcoming Q4, Q1, Q2, Q3 of next financial year. We're looking at it with confidence because now I think with the microfinance issue behind us, rest of the model is anyway good, and it just proven out through this by coming out of the cycle.

Thanks very much. Over to you, Sudhanshu, for for the quarter details.

Thanks, Vaidya. Thank you, everyone, for joining on a Saturday.

I will start with outlining few key financial numbers for the quarter, and the sequence would be largely deposits and loans, and then I will talk about asset quality and finally profitability. On the deposit front, we saw strong growth in the deposits.

Deposits, in fact, has grown at 22.9% on a YoY basis to reach about ₹2.9 lakh crores. If I talk on customer deposits, then the growth here was about 24.3%, and this now stands at about ₹2.83 lakh crores.

Further to add, the 9-month average customer deposits has grown strongly at 25% on a YoY basis. Within deposits, the growth primarily came from CASA deposits, which I am happy to report that it has touched ₹1.5 lakh crores at December with a strong YoY growth of 33%.

Here also, if we see on an average basis, then we saw a strong momentum, and this growth has been about 32% on a YoY basis. This has been led both by CA and SA, and we have given some numbers in the presentation.

CASA ratio as a consequence on end of period basis inched up to 51.6%, and average CASA ratio was about 50% for the quarter. On an average basis, CASA mobilization accounted for about 75% of the incremental deposits mobilized during the current quarter.

Vaidya talked about that we saw a reduction in cost of deposits by about 15 basis points, and similarly, cost of funds reduced by 12 bps during the quarter. This was largely driven by FD repricing and strong CASA mobilization, which I mentioned before.

During the quarter, we have added about 25 branches, which takes the total branch count to about 1,066 branches. Even on an LCR front, the retail deposits as per LCR was strong at about 64.7%, and it's almost stacks like the big banks if you go and check out on that ratio.

Talking of a number which would speak of granularity, our CASA plus TD less than ₹5 crores was at 83% for the quarter vis-a-vis about 82% in the last year at the same time. If I now talk about loans and advances, then there also we saw a strong growth of 21%, and that has reached about ₹2.8 lakh crores.

We saw sustained and healthy growth across mortgages, vehicle loans, consumer loans, MSME loans, wholesale loans. These all collectively accounted for 89% of the total increase.

Needless to say, this growth also came on the back of a festive period sales, which further got a boost on account of the recent GST cuts. If we talk of MFI now, that book is at about ₹6,657 crores at December end and now comprises about 2.4% of the total funded book.

We saw the pace of decline reducing in this quarter as disbursements have started picking up slowly. From an insurance coverage point of view, the book is now 81% insured vis-a-vis 77% in the previous quarter.

Moving on to credit cards, the credit cards in force for the bank has reached 4.3 million mark during the current quarter, and the book has now reached ₹9,100 crores. The credit card spends were also strong, and for the 9-month period, has in fact increased by 35% on a YoY basis.

On the wealth management side, the AUM continues to grow at a steady pace of 31% on a YoY basis, and that book has now almost touched about ₹60,000 crores. I move now to the asset quality.

We saw an improving trajectory across NPA and SMA ratios during the quarter. If I start with NPA, then the gross NPA ratio of the bank improved by 17 basis points to 1.69% from 1.86% in Q2.

Similarly, the net NPA ratio of the bank stood at 0.53% compared to 0.52% in Q2. Some further break-up in terms of NPA for retail, rural, and MSME segment: there the gross NPA ratio also sequentially improved by 18 basis points to 1.55%.

Moving on, the gross slippage declined during the quarter by around 7%, and the net slippages improved by 9% sequentially. We saw a reduction in MFI slippages.

Further, if I talk of gross slippage ratio ex-MFI, that also was lowered by about 30 basis points during the quarter sequentially. In terms of collection efficiency, we continue to see a healthy trend ex-MFI.

On the early buckets, the collection efficiency has been steady at 99.5%. Even for MFI business, the collection efficiency for the quarter has now reached close to the pre-crisis levels of 99.4%.

The SMA of the retail, rural, and MSME book also improved to 0.88% in Q3 from 0.9% in Q2. In microfinance portfolio, the deduction was slightly sharper; it reduced by about 27 bps, and in fact, the SMA pool has come down with 33% sequentially.

In essence, both on SMA, NPA, we have seen a strong set of improvement during the current quarter. Moving quickly to profitability, we have reported a profit after tax of ₹503 crores, which is a sequential growth of 43% and a 48% on a YoY basis.

Profit for 9-month period stood at ₹1,317 crore rupees. If I talk of NII, NII for the quarter grew by about 12% on a YoY basis, and in fact, this growth has improved from 6.8% which we reported in Q2.

This was also led by an improvement in net interest margins that on an AUM basis improved by 17 basis points and was at 5.76% in the current quarter. Similarly, on the fee and other income side, we saw a strong growth, some also led because of, I would say, the stronger book growth.

Here, the fee income grew by 15.5%, and sequentially that number was 10.5%. We made a trading gains of ₹96 crores in the current quarter compared to ₹56 crores in the previous quarter.

If I now move on to opex, the opex growth was 13.4% YoY for the current quarter. In Q3 FY26, we have taken additional impact of ₹65 crores through the P&L on account of the new Labor Code.

Excluding this impact, this 13.4% would stand reduced to 12.1%, and it is slightly lower than the 12.5% which we reported in Q2. If I talk of operating profit including trading gains, that increased by about 8.2% on a sequential basis, and on an excluding trading gains, it improved by about 6.2%.

Moving on to provisions, this reduced by about 3.7% from ₹1,452 crores to ₹1,398 crores during the quarter. Overall credit cost percentage improved by 19 basis points to 2.05% during the quarter.

Excluding microfinance, the credit cost for the overall loan book was at 1.99% and was roughly 10 bps better than the previous quarter. In line with improvement seen in the SMA numbers, bank has utilized microfinance provision buffer of ₹75 crores during the current quarter, which is a similar amount which was utilized in Q2 as well.

On a cumulative basis, ₹150 crores has been utilized during the current year, and the bank continues to carry forward ₹165 crores as a contingency provision. Moving on to the last section on capital adequacy, the capital adequacy including profits for 9M was at 16.22% with CET1 ratio at 14.23%.

During the quarter, CCPS of ₹7,500 crores were converted into equity, and these ratios do incorporate the effect of this conversion. Average LCR deposits were also quite stable and healthy at 115% for the quarter.

This is broadly within our guided range. With this, I have broadly covered the key financial numbers, and we can take the questions from here on.

Thank you. Thank you, friends.

Please take over and ask your questions.

Hi, sir. Thank you for the opportunity and congrats for a good set of numbers.

Three

questions. Starting with margins.

How should we look at the margin movement this quarter? The margins have improved by close to 17 basis points quarter-on-quarter.

You indicated that cost of funds have dropped by 12 basis points. What other factors are contributing to the margin improvement?

How should we expect margins to go incrementally? What proportion of your term deposits are yet to be repriced?

My second question is on SA rates. Now that you have started to cut SA rates, should we expect IDFC to be more open to SA rate cuts in order to protect margins?

Is that the thought process going forward? Lastly, on asset quality.

Last quarter, you had indicated that for the full year FY26, your credit cost guidance was reiterated at around 2.1%, which meant that in 2Q you had to achieve a credit cost of close to 2.05%, 2.1% this quarter. While slippages have declined, PCR has also dropped by 3 percentage points.

Could you provide some guidance on how should we expect credit costs to trend from here onwards? On segmental, credit card SMAs have increased quarter-on-quarter.

Anything to read over here? Even mortgages and MSME GNPAs have increased by around 25 to 30 basis points over the last three quarters.

Anything worth highlighting over here? These are my questions.

Thank you for the questions. I think you have asked a series of questions, but we'll make best attempt to answer all.

On the margin front, yeah, out of that 17 basis points, as you said, 12 bps came because of reduction in cost of funds. I would say about 2 to 3 bps came because the CRR requirements were lower during the current quarter.

Last quarter, the CRR was broadly at 4%. This quarter, it was reduced during the quarter to about 3%, so that gave us some benefit.

Third, I would say, is that we got capital in the mid of the quarter last quarter, and hence we saw some full impact of that also sort of playing out by few bps. That essentially is the bridge for the margin increase of 17 basis points.

The next question was on SA rates. Maybe, Vaidya, if you...

Yeah. On SA rates, basically, yeah, you can see we've cut at least in the bulk bucket, the biggest bucket that we had, the ₹5 lakh to ₹10 lakh bucket, we cut it by 200 basis points straight.

We'll watch. We feel that this will pass through comfortably in the sense we don't see any outflow in a serious manner, etc., because we believe that we're supported by good service levels and brand and all that.

We will keep a good eye out for an opportunity to reduce it. The key thing to watch out for IDFC is the thing that depends on the growth that we need because end of the day, if our balance sheet got to grow by this order of magnitude, say about 20 odd percent, it could be anywhere in that zone, let's call it 18%, 19%, 20%, 21%, something in that zone, then correspondingly we need to raise deposits.

This is to be seen in the context of how much funding we will really need and what kind of branch architecture or physical architecture we have to support it. In other words, for example, let me put it like this: theoretically, not just as a thought experiment, if this bank did not have 1,000 branches, they had 2,000 branches, right, and we had incurred the cost to that line, then we don't need to pay even the current rates, we could have cut it by 100 basis points probably.

You're paying through this route or that route. Right now we're running less number of branches for the kind of deposit we raise.

It appears we pay more on the rate, but end of the day, we're running less branches and therefore incurring less cost there. We got to pay for it through one line or the other, either through expense line or the interest line, because we're still in the phase of building out.

We'll keep a very close eye on this and we'll balance the situation.

Maybe I'll take the few other questions which were sort of put out. On the credit cost, yes, we have come at about 205 basis points for the current quarter, and our guidance in the earlier call was about 210 basis points.

We are quite hopeful that Q4 also should be strong on this front, and we are hopeful that we will still try to get close to that number. That's on the credit cost front.

In terms of PCR, it has marginally come off, but if you take into account the contingency provision which we still hold, then the PCR is about 72.7%. We feel quite comfortable as far as the PCR is concerned.

Your last question was on the SMA increase in credit card. There also, if you see last two or three quarters, it came down in the last quarter, it has marginally gone up.

We feel quite comfortable on this front, and hence nothing specific to call out on that front.

Frankly, on this last point that Sudhanshu answered, you see, I don't know if you noticed or not, but we disclose product-by-product SMA and both SMA-1 and SMA-2, and we also give it by product by quarter, you can see the full trend out there. You can see that most of them are in the zone, almost every product is flat, plus-minus 20 basis points here or there, maybe 10.

Every product is flat. You can get good clear look-through visibility of what's happening underlying in the portfolio.

Understood, sir. Thank you.

On the MSME and mortgages, there the GNPAs seem to have inched up by 25 to 30 basis points over the last three quarters. Anything to read over there or

is that just... No, no, nothing to read out there because if you see the mortgages also, it is flat.

What's happening is also that the books are also not growing at the pace, every business when you start, they have a aging process, and finally they age and they stabilize. The mortgage running at SMA of 0.54% in itself is a pretty low number.

In fact, last quarter also 0.54%, the quarter before that 0.49%. It's normal aging that's happening of the portfolio.

In absolute terms, they're absolutely safe. They're doing well.

Understood. Any credit cost guidance for next year?

It should come down actually. At least the next quarter also should come down, when we're looking at the numbers and analyzing them, not just in percentage terms, in credit cost percentage, in absolute terms also we see it coming down next quarter, we think, yeah.

Because the MFI problem we feel is by and large done and dusted. Of course, the normalization of credit cost may still take 1 or 2 quarters.

It's beautifully coming down every quarter. Definitely next year we should see an improvement in the credit cost

from here. I also pointed out to you, I don't know if you really concentrated, if you got that or not, our bank's credit cost has been 1.95% of average book in a look-through through the cycle.

5 years is a long period. Which is of and I told you as per assets is 1.36%.

We should come back there because the crisis is behind us, of course, in banking, you should always watch out, God knows what's around the corner. We should be very careful, but for now, as far as our eyes can see, next quarter, next year we should come back to those levels or probably a bit better, hopefully.

Thank you. Maybe better than 1.95% because our mix has improved over the last few years.

Yes, hopefully. That's true.

We should hope so because subsequent years mix should even look better. At least you should expect from us, we say 2% so that all of you are anchored to a particular number because that's our model.

Hopefully, if you take '27, '28, '29, '30, it should be even lesser than that. Who can talk that long?

We should play it by the ball.

I guess we missed on the margin guidance. How should we expect margins to move?

That's the last question. Thank you.

Yeah. If you remember, for Q4 we had earlier guided that margins could be upwards of 5.80%.

We would slightly want to revise that guidance upwards to 5.85%. This is also on account of the SA rate reduction which we have done, which Vaidya talked about.

That should give some benefit. We expect that margin trajectory to improve in the next quarter.

Thank you, sir. Those were my questions.

Thank you.

Yeah. Hi, team.

Congratulations on the quarter. Just getting back to this SA thing, right?

VV, last time when we had this concall, you said you're a bit cautious about cutting SA rates because you think the same customer will then go and put in TD. You were debating with your colleagues out there as to what to do.

It seems like that didn't happen, your CASA has actually improved. Has it improved because of CA or has it improved because of SA?

That's there. We would expect that over the next few years, you keep pruning your cost of funds by getting it in line, now you've got it in line with the mid-tier banks and then hopefully in the future closer to the larger banks.

How should we think about whether you want to pocket these gains in terms of NIMs or you would rather compromise on that and grow in safer segments or safer customers, if you get what I mean?

Yeah. It's a very good question.

On the SA strategy, yeah, of course, we were debating internally, should we, shouldn't we, and we did do it. One, because we saw the market also, almost all competition had cut it, and we were kind of an outlier where we had, our rates were standing out quite high.

We actually felt that even if we cut it, it'll we we're safe to cut it, meaning we had we felt comfortable about it firstly. Secondly, we also the fact that this quarter has gone up, you shouldn't read too much into it because this quarter all of this quarter we've we've been having substantially higher SA rates than the market so to say.

The truth will tell next quarter, the quarter after that. Let's see where it goes.

We we we frankly feel comfortable even if to say internally, if you were to talk to us, we would say internally comfortable even at 45% to 50% in that zone. It doesn't have to be like 50% plus and all that.

It gives us enough headroom right now sitting at the current CASA ratio as as it plays. We'll we'll see this, as I told you earlier, end of the day, mind you that we have only for the kind of deposits we're raising, we have only 1,070 odd branches.

Now, therefore, it's the more network we grow, the the more ability for us to cut the rates because the output we need to raise, the 60 odd thousand crore or 50 odd thousand crore, that is a given because that amount balance sheet is growing. If your output is given, then it's a it's a it's a product of the the the network we have and the and and the rates, and we just play as a combination of that.

Because other items other than these two variables, the bank has fine-tuned really very well. Brand is known, products are good, service levels are good, the and so on.

Now, coming back to the second question, how do we want to deal with this, that if we get an opportunity to reduce it, what are we going to do with it? Are we going to go on safer segments or are you going to pocket to the P&L?

That's really a very good question. Our own thinking is that we'll probably walk down the the safer segments route and increase that as a combination because as we walk down the path into 2028, 2029, 2030—remember I always say, I hope you'll remember that right from day one 2019, we've been saying thinking long, thinking long.

Even now we're thinking long, we're not thinking for one quarter, two quarter, we're thinking 5 years, 8 5 years ahead. When we wake up 20 2030, we we don't see ourselves as a bank lending out at 13.5% and having cost of fund of maybe 3.5% or 4% and, pocketing and having ROE of some insane ROEs, we don't see like that.

We do see ourselves that we would have become a more mature institution, we would have probably come down the risk curve, we would have had a larger proportion of mortgages, business loans, loan against property, gold loans, and these kind of businesses. Hopefully our credit rating, I am hoping we'll get to the AAA league, we are AA+ today.

We are shooting to be one of those institutions which, people can look back and look and feel more happier about. By that time, hopefully, the entire the loss from liabilities will have would have gone away.

That is the picture we have for the future.

Piran, just to add to your specific question on CA, SA, I'm saying as I said earlier, 75% of the increase during the current quarter came from CASA. Of course, CA for us still happens to be a lower proportion vis-a-vis the overall customer deposits, and so there also we saw, I would say, a very decent growth during the current quarter, and the balance was led by SA.

Given generally speaking, which all of us internally also acknowledge, that our CA as a percentage of our CASA and current account as a percentage of our total deposits quite low relatively because I told you we had to pay a lakh of crores upcoming. At that point of time, the quickest way to raise this was savings account through our various methods.

The current account is one of our spots that we are relatively, I'd say, on the lower side. This we will fix.

We've fixed many things in the bank, this also we will fix. The last thing I must say that while we talked about the fact that broadly we will use this as and when we can bring down cost of funds either through distribution or whichever way, when we do it, I said we'll go towards safer segments, lesser credit cost products, that's a broad picture we have.

I want to just point out one thing to you and to everybody here in the call that a unique DNA built at IDFC, which is coming actually from Capital First, which we've been honing and honing for 15 years now, which is lending to these segments by using technology and underwriting models and scorecards and machine learning-based scorecards—we have 100 machine learning scorecards to give you an idea, for example, 100 of them, a little more. That kind of a very unique capability where we can power up at scale and open unserved, underserved segments in a profitable way, that DNA we don't want to give away.

In fact, we treat credit costs as a bit like a research and development cost. It's not something for us to zeroise, that's not what we're striving for.

That is a unique model capability we have. We want to keep that model.

Just that the percentage of that will come down, and the traditional businesses will increase.

Understood. Okay.

Second question is, what percentage of our unsecured consumer lending, be it consumer durable loans, personal loans, digital personal loans, credit cards, etc., to our own deposit customers?

Very high. I can't say that for consumer durable because consumer durable and two-wheelers are largely new to bank customers and so on.

The credit card is largely to our base. Largely, I'm not saying only to our base, but largely.

The salaried and professional loans?

That we are doing should say okay job, I use the word okay job because we have a lot more to do on that front. Because our personal loan business is still a good portion is originated through direct marketing associates, etc., that we engage with.

Increasingly, considering that we have developed a really good savings account base and also we are digital in our capabilities, our ability to give personal credit to this base is very good. Not just that we have the base, we have the ability to give also in a very seamless way.

We are growing that and we are developing capabilities on our app, etc. I used the word okay because we feel there's a lot of scope to improve on that front.

Understood. Just last question for Sudhanshu, what are the standard asset provisions we are carrying right now?

When we migrate to ECL, what sort of impact do you foresee: A, on transition, and B, on a steady-state basis?

Yeah. Our standard asset provision, the number roughly for the quarter is about ₹50 odd crores, and typically it's about 30, 35 bps of the overall loan book which we carry.

It should be about that ₹950 crores to ₹1,000 crores.

No, the overall buffer.

Yeah, ₹1,000 crores.

The outstanding buffer?

Yeah. It's around those numbers.

In terms of ECL, yeah, this was a question which sort of came in the last call also. Of course, we have responded to the draft paper in terms of suggestions and that has gone from all the banks.

I did touch upon that from first from a capital point of view, we feel that if the guidelines have to come through around ECL, around credit risk, around operational risk, this should be marginally positive for us on implementation. In terms of credit cost, of course, there could be some increase on a steady state, but we could have some benefit which could also come because of an EIR implementation.

We actually need to look into in what form and shape it sort of eventually comes through. There could be some increase in credit cost, just to put it straight.

Got it. Because the standard asset provision of 35, 40 bps won't be enough, right?

That's what...

No, but I'm saying your ECL you also have to see in conjunction with the PCRs which you're holding, right, and that also sort of has a play there, right?

Understood. Okay.

That's it from my end. Thanks and wish you all the best.

Thank you.

Yeah. Hi, good evening.

Congrats on the quarter. Firstly, could you give a breakup between CA and SA of that 51.6% CASA ratio?

What is the impact on cost of savings from the change that we have taken in January?

I'll put numbers for you, that helps you. Our CA number is about ₹20,000 crores, correct?

Yeah.

Yeah.

Your CA will be about 7% in that 7%, 7.5% in that 51.6%, and balance will be SA.

That's why we said that we are punching low on CA, I told you.

Yeah. To your question on the saving rate impact, this would lead to a reduction of about 15 to 16 basis points on the SA cost.

Very clear. Second question, in this quarter, the previous participant pointed out, our SMA in credit cards is up.

Also our write-offs are inching up. Would it be fair to say that some of this is unsecured-led and our write-offs could stay elevated for some time or could this also start falling?

Yeah.

It's very simple actually. See the write-off is the measure of what policy we have after provisioning.

The way to look at it is that you track us and finally what hits the P&L, provisions.

That's it.

We track ourselves to credit cost. Don't bother too much about the write-off or write-off in the sense because they're all a line item.

End of the day, it is credit cost. That's why we call out credit cost every single time, and we track ourselves to that.

I told you the number of 2% and 1.95%, etc.

Fair enough, Vaidya. Okay.

My next question is actually on the CGFMU book, right? About 80% of our book is now in MFI is now CGFMU-insured.

How do you on the CGFMU NPAs, how exactly do you provide? Because one of our peers actually called out that they only provide on the uninsured portion, a portion of that 28% which is uninsured.

Is that how we do it as well?

No, on this one, I would say we slightly follow conservative norms. In fact, we end up providing 100% as the account touches 180 days.

We have a slightly differentiated policy here.

See, frankly, they all come back to the same thing

because,

end of the day, you're probably 70%, 72% of that is covered. Frankly, they're all even other people are doing...

Later in the year we will get write-backs whenever we invoke these guarantees, right?

Obviously,

yes. Fair enough.

Okay. Lastly, sir, our ROA has started trending up.

When do we think we can get that 1% ROA run rate? I heard you mention 1.6%, but when do we start hitting a 1% plus ROA run rate?

I know, we should be very careful about putting numbers out there. We'll take it by the quarter, no?

We are quite hopeful that every quarter from now on should look better, and I'm not ducking the question, please don't get me wrong, except that sometimes putting these numbers specifically out there puts us into a position where we can't take market moves after that. I don't want to pin ourselves down because market is market.

If you got to cut the rate somewhere, cut the rate; we want to increase the rate somewhere, we want to increase it; we just want to be able to play our shots. I must say that fundamentally, you can think that if you're borrowing money at 6%, we're lending at the rate we're lending, posting a NIM of 5.8%, it just has to make money.

It just has to mathematically it has to make money. As the loss from liabilities comes down, it just has to become more and more profitable.

I think hopefully by end of next year, I don't know, and operating leverage, so. I don't want to specifically pin ourselves down to it.

Fair enough, sir. One last question if I may, LCR for this quarter and what is the impact of this transition to the new LCR calculation?

Average LCR for the quarter is about 115%, broadly at similar levels as the previous quarter. On account of these new guidelines which will come in from April 1st, of course, we will get some benefit on the wholesale front, but because on the retail LCR also we are at 65%, which I mentioned earlier, on a composite basis, we may have a small impact about 1% to 1.5% on LCR, but it's a quite small number in that sense.

To the previous question, don't get disappointed that we're not putting a number down. Don't be, because like I said, it's not about 1 year, we're building the bank for year after that, and the year after that.

We are building an institution here. If we and clearly, unit economics of this bank is pretty good.

I told you the numbers risk-adjusted income of this bank on a 5-year look-through period. It's really good.

It just will play out. You'll see it quarter by quarter, and we'll take it as it comes.

Absolutely, sir. All the best and congrats on the quarter.

Thank you so much.

Thanks, Param.

Yeah. Hi, good evening, sir, and congratulations on the quarter.

Sir, across large products—mortgage, vehicle, consumer loan—would you have an idea, can you tell us how much is let's say DSA-led or co-lending-led, because I believe the co-lending norms would now be much tighter, and hence, it could be difficult to originate through co-lending. How much is DSA, co-lending, and maybe branch-led?

Not much. We don't do in our business not much of co-lending model.

It's broadly what we originate from our branches, what we originate directly and digitally, and what we originate through regular third-party originators.

Okay. Sir, any number, sir, for DSA and or online this thing at least for few large products?

Of course. If you take large products, then it's easy question to answer.

For example, you take loan against property, or take education loan, I'd say it's largely third-party originated. Or if you take a two-wheeler loan, or a vehicle loan, they are done at the dealership point.

It's not that customer is walking to our branch and asking for a car loan, right? The thing is that so if you think of those products, they are the obvious ones, they're more third-party led and, I'd say, majority, I'd say.

We have also developed our ability to have our branches originate. As a bank, we're a bit shy of If you're a customer of the bank, you might have noticed that you don't get too many cross-sell calls, you don't get repeat calls from the same customer.

If any of you have got an odd person, I'll apologize for that, but 99% quite confident you won't have got that because we are very careful about anti-repetition rules which we inbuilt in our system, anti-spamming rules we built in the system. We kind of constrain cross-sell such that we think from a customer experience point of view.

Therefore, our own cross-sell, I'd say, has some room for improvement, and it's for these products it is more outside. For credit cards, we'd say largely is in-house.

In-house meaning existing customers where we reach them digitally, and they come to the app, and they take the card away. If you take personal credit, like I've said earlier, we're also developing that capability in-house.

We also have tie-up with some of these platform companies, the digital platform companies. We originate through that model because we have very good API architecture in the bank and which we use.

Those kind of products, we're also originating digitally. We don't have the number offhand, next time maybe we will share with you.

Param, I can just add that definitely in some of these products whether the proportion of sourcing from branches are increasing.

Are increasing.

Whether it's mortgages, whether it is like business banking that's entirely done out of the branches, credit card, whether already talked about, personal loans also we are trying to source more through our internal channels. In all of these products, we are trying to reduce the dependency on DSAs as well.

One number, it's coming to me just minute ago when I spoke. It is not on my head.

Basically we tracked ourselves at how much is the origination by the bank from branches for the last 5 years, and it's almost growing by about, despite all the anti-repetition rules and anti-spam rules, while the book is growing by 20%, that business originated from branches give or take is growing at about 35% to 40%. Proportion is obviously by this mathematics improving, but what is the exact percentage maybe next time we'll share with you.

Sure, sir. Sir, question on your opex and opex strategy, actually.

Let us say, now so far the NII growth was lower than loan growth because the NIM was under pressure, and this quarter seems to be a pivot quarter, and NIM has started to expand, and maybe this trend could continue. Increasingly NII growth should become better.

If that is the case, then will opex remain at 12%, 13% or you believe the opex could also rise because you have at least in the last four 4, 5 quarters the opex has been constrained, and as NII growth also increases, maybe you'll maintain the delta or you believe opex is now more or less steady at 12%,

13%? Let me take that and Sudhanshu.

The thing is that, yes, of course, last 4 quarters or 5 quarters you can see that we have kept it very, very, very tight in terms of our expenses. The thing is that this could even go back to say 14 odd percent, it could well be if you look ahead into say 2027.

Still the fact is that income will also grow by probably because now the mix issue is already done, right? Because the microfinance book had to shrink, has shrunk already.

Hopefully, next year's income also should grow by 18%, 19%,

Sudhanshu? I'm saying, definitely, next 1 or 2 quarters we see income sort of normalizing much more and maybe keep pace with the book growth.

That's fine. Coming back to the point...

Of course, just to caveat, I'm saying if there any further rate cuts or in any sort of systemic changes, then that could have a different bearing.

No, that is one thing. Broadly, the opex front, really, I'll throw a number to you, and if I'm wrong in my assessment, then you can correct me also, all of your analysts, that frankly, if the book grew by maybe 20% and the income grew by say 18%, but if the opex grew by say 14%, just to simulate that, that's still operating leverage.

We'll see how next year looks like, but I'm just giving an order of magnitude the way we are thinking about

it. As I said, income growth could to a great extent normalize starting into the early next year.

It could keep pace with the advances.

Because this year, we really, really constrained it. Like I said, you could choose to pay through the opex line or you could pay through the interest line.

We do believe that setting up some cost structures is part of building the bank.

Sure, sir. Last question, and a bit of an observation.

Sir, if I look at your SMA-1, 2 has been very, very reasonably stable at 70, 80 basis points, and your slippages non-annualized is also similar, right, 70, 80 basis points. It looks like that either the people who slip to SMA-1, 2, they straightaway slip or other banks, they have much higher SMA number, and only part of that will slip to NPAs, whereas in our case the slippage is around 3% annualized, and the SMA number has been very, very stable.

Either the migration from SMA-1, 2 to NPA looks a bit higher, that is an observation if you have any comment around that.

It's possible. Maybe the combination of our products are such, it's possible.

If you're giving mortgages and all, you probably got a lot more recovery. Maybe in our combo of products, it moves ahead.

Still, end of the day, as long as this 85, 85 or 90 is stable, and our credit cost is on the guidance, see, end of the day, it all comes down to credit cost, okay? If our credit cost is in the line, our income is 5.8% of our assets, and credit cost is 1.36% of assets, 1.36% of assets, it's a lot of money.

Right. Sure, sir.

That is very, very helpful, sir. Thank you and all the very best.

Thank you.

Yeah. Hi, am I audible now?

Yes, Suraj,

yeah. Thank you, sir.

Thank you for the opportunity. Sir, two, three questions.

First question is on the operating income ex-trading gains in MFI. That number seems to have dropped from ₹1,500 crore last 9 months last year 9 months versus ₹650 crore this year 9 months.

Also if I look at as a percentage of loans, this number seems to have dropped from 14% last year to 10% this year. Even it is lower than the 9-month FY24 also.

However, as you have highlighted and also as we are seeing the trends that slippages are improving in MFI, the interest reversal should be lower, and does the operating income. Why is the decline?

Are my numbers correct or there has been any reclassification or any sort of that things? If the numbers are correct, then probably can you give some rationale for this core operating income decline in MFI?

I couldn't relate the full numbers, but let me tell you that ex-MFI this year has been impacted because of MFI. Yeah.

I'm calculating basis your slide 41. If you look on slide 41, you have mentioned that ex-MFI, the operating income has increased 15% YoY.

I think last year, December quarter you had given some disclosure where the non-MFI portion, the operating income was ₹17,805 crore. This year 15% increase would be somewhere around ₹20,450 ₹470 crore.

If I minus that from the overall operating income, ₹21,134, hence I'm getting that ₹650 crore kind of a number.

Got it. In fact, if you again see that number for Q3 ex-MFI, that income has grown at 18%.

Ex-MFI also we had some impact because of the fast repo reductions which happened this year. We saw almost 100 bps reduction in the repo rates, which in terms of our cost of funds have translated with some lag.

I would say some part of the impact is on that account, right? Things are normalizing, and that's why we also said earlier that even both MFI and non-MFI, we expect the operating income trend to continue to improve from here on every quarter.

Things are normalizing on that front as our cost of funds are also coming off.

Okay. You have not taken any rate cuts or in card rates changes on the MFI side?

MFI, we lend at the market rates. I'm saying these are pretty standard rates prevailing for some of these products across players.

Sure. Probably I'll connect offline on this for more understanding.

The second question is, sir, on the retail liabilities. I think if I look at the cost to assets on the retail liabilities, that seems to be really flat at negative 0.8% for last three, four quarters.

Do you believe there is still scope for cost improvement here, and if yes, what are the drivers?

This has come by scale. If you notice, FY24 it is -1.7%; FY25 it is -1.2%.

Now, this quarter, this year is running trending at 0.8% or -0.8%. This is what we call as the investment that is going in the business.

Investment meaning that liability side is not yet productive because it's a new bank as compared to somebody which is a 30 25, 30-year-old bank. They are running a marginal costing bank.

This is very important to note, okay? A bank which is there for 15, 20, 30 years, they are running a bank on marginal costing.

We are running a bank on full costing because it's a new bank, everything is a cost. That is why this -8 is -0.8% is there.

It should gradually come down. You should not expect miracles here.

It should not gradually, but it should come down year-on-year from here on. We think that building a bank takes 10 years at least to not just building a bank 10 years, actually to fix a ₹75,000 crore, funding ₹1 lakh crore funding problem, legacy, plus build the growth of the bank, that takes, it's already spent this time, maybe by next 4, 5 years, this -0.8% should come down towards zero.

That's when the full ROA what I talked about, that 5.65% NII to assets minus credit cost 1.36% giving 4.3% at a risk-adjusted NIM, minus cost-to-income ratio to pass to P&L, that thing will fully start reflecting in the ROA of the bank when this becomes zero.

Sure. Understood.

The last question on credit cards. I think if you can highlight what is the proportion of EMI, revolver, and transactor as of December quarter versus last quarter.

Because I believe that the transactor portion has gone up because you have reported an uptick in QoQ uptick in cost-to-income in credit card, and also I think the loan book growth has been lower than the spend growth. If you can highlight what is the proportion of EMI, revolver, and transactor this quarter versus last quarter, maybe, or maybe YoY?

No, the revolver has been, I would say, quite steady. I'm saying we see a run rate of about 17% to 18% there on revolver.

EMI as a proportion has been increasing for us bit by bit, and that's about 35% 35% to 36%, and the rest is the transactor book. These are pretty standard trends which we are observing in last few quarters.

Sure.

In fact, I think I got one number, which might be useful for you. Sudhanshu, I got some extra numbers here.

Wait a minute, just if I can fetch it for you. Our revolver is about 16.5%, and our EMI is about 36%, and our transactor is 47.5%.

Yeah. Those were broadly the numbers which I also sort of called out.

I didn't call it, sorry about that. Yeah.

Sure, sir. Thank you for answering all my questions.

All the best for the future quarters.

Thank you. Are we done?

We have 1 or 10 minutes in case any other serious questions? If they are, we'll still ready to answer, but I assume most of them are answered by now.

No further comments to make. Thank you for being with us this late Saturday evening, and we're feeling the bank is on a strong ground now.

We think that subsequent quarters, next three, four quarters, they should all look up gradually but steadily, I'd say, more than gradually, it's steadily. I think we are quite hopeful that the next 4, 5 years now we are on a steady track.

Frankly, it's been 5 years, 7 years, except the microfinance thing, which was an industry issue, we haven't put a foot wrong. We got our strategies right, deposits came, our book grew, our credit cost was in control, except this microfinance problem.

We think that with MFI behind us, things should stabilize again, and rest are playing to plan. No major call out.

We are behind on cost-to-income ratio, but frankly, when we started the bank, we had no clue that this is going to be so complicated. Overall, we're on track.

Thank you.

everyone, for patience. Thank you.

Thanks, everyone. Thank you.