Axis Bank Ltd 532215
Q1 2014 Earnings Call Transcript
Transcript Call Date 07/18/2013

Somnath Sengupta - Executive Director, Corporate Center: Thank you, and good evening, ladies and gentlemen. Thank you for being on this call. I welcome to you to our conference call with the presentation on the Bank’s performance in the first quarter, and I have with me in this call, as was mentioned, my colleagues, Mr. V. Srinivasan, ED, Corporate Banking; and Mr. Sanjeev Gupta, President and CFO. At the end of this presentation, we will be glad to respond to your questions.

Q1 of FY 2014 began on a note of optimism with cumulative result of reform measures initiated since the middle of FY ’13, diesel price hikes, FDI liberalization, attempts at fiscal consolidation and ample global liquidity.

In a vote of confidence on prospects for the future, Fitch had upgraded India’s sovereign outlook to stable from negative. However, since the end of May, financial market volatility has reemerged with perceptions of continued domestic policy in Asia, made worse by fears of global liquidity, tightening by U.S. Federal Reserve. While there is a marginal improvement in India’s macroeconomic fundamentals, core inflation is falling. The current account deficit is thought to be reined in. Attempts are made to keep the fiscal deficit at budgeted levels. There are sufficient concerns, which prevent a definitive view on a revival of growth. India’s external environment, in particular, might remain vulnerable.

The bottom line is that investment needs to increase. We hear of steps being taken to debottleneck critical segments like coal, power, railways, et cetera. Even if implemented, the effects will only become evident by the end of this fiscal year or in the next. We believe that India’s FY ’14 growth will edge up based on better agri production, increased government spending and a modest increase in exports, following a mild global recovery.

However, system credit growth is likely to remain subdued. Notwithstanding the various challenges and the fact that growth in the economy has been tepid, the Bank has fared well with strong performance since from its core businesses. So, let me now describe to you the highlights of the Bank’s financial results for Q1 FY 2014. Net profit in the quarter rose to INR 1,409 crores from INR 1,154 crores last year, registering a growth of 22.14%.

Net advances increased INR 1,98,151 crores registering a Y-o-Y growth of 16%. This increase was largely driven by a strong growth in retail loans, which rose 40% Y-o-Y and now accounts for 29% of the total loan book, against 24% last year.

Non-retail loans recorded an increase of 8% Y-o-Y in which the SME segment grew well at 27% Y-o-Y. The total deposits were INR 2,38,441 crores and grew 7% Y-o-Y with lower growth of term deposits and the result of the infusion of capital funds in Q4 last year.

The Bank continue to focus on growing low-cost CASA deposits and total CASA grew by 16% Y-o-Y, with savings bank deposits and current deposits growing 20% and 11% respectively. On a daily average basis, total CASA deposits grew 17%, constituting 39% of the total deposits, again 36% last year, and on a (NDA) position, current and savings deposits accounted for 42% of the total deposits.

The Bank’s asset quality remained healthy with its net NPA ratio at 35 basis points and we continue to maintain healthy provision coverage of 80% at the end of the quarter. We’re well capitalized and our capital adequacy ratio overall is 16.9% under Basel II and 16.4% under Basel III if we were to consider the net profit for the quarter. Similarly Tier 1 capital was 12.35% under Basel II and 12.25% under Basel III considering the profits for the quarter.

Let me now quickly take you through the business performance and the financial results of the Bank in little more detail. We have continued to expand our footprints across the country. We added 74 branches during the quarter, taking the total network to 2,021 branches across the country. We are present now in 1,300 centers against 1,080 centers last year with more or less equitable distribution of branches between metropolitan, urban and semi-urban areas.

In the current financial year, we proposed to expand our branch network by 15% to 20%. We also have as you know one of the largest networks of ATMs in the country, with 11,488 ATMs at the end of the quarter.

The balance sheet of the Bank grew 15% and stood at INR 3,34,061 crores as of the end of June 2013. Net advances grew 16% Y-o-Y and stood at INR 1,98,151 crores at the end of June. Growth in credit during the quarter was driven by retail loans as I mentioned earlier on and rose 40% Y-o-Y and constitutes 29% of the loan book.

The composition of the net advances book is as follows. Large and mid-corporate constitute 50% loans, SME segment constituted 14%, while lending to agriculture accounts for 7% of the total loan book of the Bank. Our SME business is strong and the portfolio behavior remains healthy. It is well diversified and carries lower concentration risk and this business too has grown well during the quarter.

Our retail loan portfolio continues to be focused on secured products and that accounts for 85% of the total retail consumer loans of the total portfolio. Home loans account for 65%. Loans against property account for 8% and auto loans for 12%. Personal loans and credit cards account for the remaining 10% of the consumer lending book. The Bank sources retail loans through 125 Axis sales centers covering 99 centers across the country which have standardized appraisal and oversight mechanisms. We have now also started originating retail loans from branches and currently, 1,236 branches spread over 621 cities also originate retail loans.

Around 35% of the incremental retail loans are now sourced through these branches while existing liability customers who already have accounts with the Bank contribute 60% of the incremental consumer lending business.

63% of our large and mid-corporate loans are rated between A and AAA. The share of loans rated AAA have improved to 12% at the end of June from 9% at the end of March. In the SME segment, 80% of the loans were rated between SME1 and SME3; and SME3 as we have mentioned earlier corresponds generally to an A rating.

Moving on to deposits, the Bank has grown it's deposit base by 7% year-on-year and stood at INR 2,38,441 crores at the end of June. The low growth of deposit is explained by the fact that we actually raised lower levels of wholesale term deposits than we have in the past given that we had raised capital at the beginning of the calendar year. The Bank's low-cost CASA deposit franchise, however, has grown very well at a rate of 16% year-on-year, within which savings bank deposits continue to remain healthy, continue to grow healthily at 20% Y-o-Y. Current accounts have also grown at 11% Y-o-Y.

On a daily average basis, current and savings deposits grew at 17% year-on-year, with Savings Bank again growing at 20% and current account deposits growing at 11% at the same rate as on a end-day basis. On a daily average basis, current and savings deposits constitute 39% of the total deposits in Q1 against 35.7% in Q1 last year and 37.4% in the previous quarter.

If you were to look at the domestic liabilities business, daily average current and savings deposits constitute 41% of the total deposits during the quarter on a daily basis compared to 37% in Q1 last year.

In order to broaden the retail deposit base, the Bank continues to focus on increasing its share of retail term deposits. At the end of June, retail term deposits grew 18% Y-o-Y and stood at INR63,307 crores, constituting 46% of the total term deposits compared to 39% at the end of June last year and 42% at the end of March.

As on June 30, current savings and retail term deposits which really constitute the stable deposit base of the Bank constituted 69% of the total deposits compared to 63% last year, so this is something that we have consciously grown and now stands at 69%. At the end of June, the credit deposit ratio was 83% compared to 77% at the end of June last year, while the domestic CD ratio was 73% on June 30.

The increase in the credit deposit ratio is attributed to the growth in capital funds – is attributed to the infusion of capital funds and growth in borrowings, which has substituted the funding of assets through wholesale term deposits. Going forward, of course, we do believe that the credit deposit ratio will probably normalize to the levels that we have seen earlier.

Let me now turn to revenue and the profitability figures for Q1. The net profit of the Bank as we have reported grew 22% Y-o-Y to reach INR1,409 crores from INR1,154 crores during the same period last year. The increase in net profit was driven by growth in net interest income and other income. So the net interest income of the Bank during Q1 grew 31% and stood at INR2,865 crores, constituting 62% of the operating revenue. During Q1, net interest margin stood at 3.86% compared to 3.70% in the previous quarter.

An improvement in NIM during the quarter was partly due to the higher capital funds with substituted funding of assets, as we mentioned, through wholesale term deposits and partly through higher level of demand deposits. Other income, which comprises fee and trading profits and also miscellaneous income which is basically recovery from written-off accounts registered growth of 33% Y-o-Y during the quarters and stood at INR1,781 crores.

During this period, fee income grew 14% Y-o-Y and stood at INR1,317 crores. Fee income from retail businesses for the quarter showed robust growth of 23%, reaching a level of INR400 crores and contributing 30% of the total fee income of the Bank. Major business lines, which include retail liabilities, assets, third-party products have contributed to the growth of fee income from the retail businesses of the Bank.

Fee from Treasury including debt capital markets grew 37% Y-o-Y because the other significant contributor to fee income to reach INR332 crores. Fee income from transaction and business banking also grew strongly 21% Y-o-Y and stood at INR124 crores.

Similarly, fee income from small and medium enterprises; SME, grew 16% to reach INR49 crores, while fee income from large and mid-corporate declined somewhat and stood at INR381 crores. During the quarter, the Bank also earned trading profits of INR440 crores, largely contributed by the fixed income trading book.

Total operating expenses grew moderately at 16% year-on-year for the quarter, within which staff costs or employee costs increased 10%.

So, the contribution of the trading profits and the various steps which we have taken to bring cost efficiencies resulted in the moderation of the cost income ratio, which at the end of the quarter was 39% compared to the 40% in the previous quarter and 44% in Q1 last year. We do expect, however, that there will be some normalization in the cost income ratio too going ahead, but is likely to remain at a level below 45%.

At the end of Q1, the return on assets of the Bank stood at 1.73% compared to 1.62% in Q1 last year, while return on equity was 17.32% against 20.58% in Q1 last year. Of course, the decline in ROE is primarily due to raising of the equity capital in the last quarter of FY 2013. We expect that this will improve with the utilization of capital. The EPS annualized for the quarter was INR 120.08 against INR 111.24 last year.

Let me go on to discuss the asset quality. During the quarter, additions to gross NPAs were INR 681 crores. We’ve had upgradations and recoveries of INR 72 crores, and write-offs including prudential write-offs of INR 513 crores. Consequently, the net addition to gross NPA during the quarter was INR 96 crores. Gross NPAs at the end of the quarter stood at INR 2,490 crores, translating into 1.10% of gross customer assets, while the net NPA ratio at the end of the quarter was 35 basis points.

The provision coverage at the end of June was 80%. During the quarter, assets amounting to INR 686 crores were restructured and bringing the cumulative restructured assets at the end of the quarter to INR 4,211 crores, which constituted 1.87% of gross customer assets compared to INR 4,368 crores at the end of the previous quarter.

Provisions and contingencies other than tax for the quarter were INR 712 crores. Within which, the provision for loan losses was INR 572 crores and standard asset provisions was INR 26 crores. Provision for depreciation of investments were INR 120 crores, and we’ve also had a write-back of restructured assets provision of around INR 7 crores.

The capital adequacy ratio and the Tier 1 ratio of the Bank under Basel II as on 30 June, 2013 stood at 16.90% and 12.35% respectively if we considered the profits for Q1, against 13.51% and 9.49% respectively on 30 June, 2012. We are now required to disclose the capital adequacy numbers as you know under Basel III now. The total capital adequacy ratio, and Tier 1 capital adequacy ratio under Basel III stood at 16.40% and 12.25% respectively if we considered the profits for the quarter.

To sum up, the Bank has continued to deliver a strong and consistently healthy financial performance in difficult times. Once again, I would like just like to recapitulate the key highlights of our performance. So the retail liability franchise continues to grow well. Within that, as I mentioned, savings bank deposits on a daily average basis, both on a daily average basis as well as an ND basis registered a growth of 20% Y-o-Y.

Retail term deposits grew 18% constituting 46% of the total term deposits. Current and savings and retail term deposits together now constitute 69% of the total deposits of the Bank. Retail or consumer loans also continued to grow well accounting for 29% for the total advances and fee income from these businesses grew 23% Y-o-Y accounting for 30% of the total fee income.

Earnings in the quarter were very strong from all income streams. So whether it was net interest income or fee income or treasury profits, this enabled us to get to an operating revenue of 32% and an operating profit of 45% Y-o-Y and ROA of 1.73% and a return on equity of 17.32%. The asset quality too continued to remain stable with gross and net NPAs at 1.10% and 35 basis points respectively.

So with that, I come to the end of the presentation and I will be glad now along with my colleagues to respond to your questions.

Transcript Call Date 07/18/2013

Operator: Manish Ostwal, KR Choksey.

Manish Ostwal - KR Choksey: My question on the margin side. Currently the margins stood at 3.86%, which is upper end of our margin guidance. So how do you see the margin panning out next nine months, given the current trend in the short-term market?

Somnath Sengupta - Executive Director, Corporate Center: See as we mentioned earlier on, 3.86% is obviously high because we’ve had the full utilization of the capital funds that we raised in the last quarter of the previous financial year. Now this obviously trend down as the capital gets utilized in our balance sheet growth and our guidance on margins has always been that we look at a range between 3.25% and 3.5% and going forward, so I don’t know whether it’s going to be next two quarters or three quarters but we should see a trending down. That is the range that we will probably see the margins in over a long period of time.

Manish Ostwal - KR Choksey: Secondly, sir, the credit cost guidance also – during this quarter, the credit cost was on a higher side against our guidance, so any reassessment of full year credit costs guidance?

Somnath Sengupta - Executive Director, Corporate Center: No. We have said that the credit costs guidance is between 85 and 90 basis points and that really holds good for the whole year. So we will have to take 12 months. In a particular quarter, it might go up a little or it might be subdued in a particular quarter, but I think we should look at the year as a whole for the guidance.

Manish Ostwal - KR Choksey: Lastly quickly two data points; one is what is the AFS book size in M duration under this credit asset number?

Somnath Sengupta - Executive Director, Corporate Center: You want the total risk-weighted assets number?

Manish Ostwal - KR Choksey: Yes sir.

Somnath Sengupta - Executive Director, Corporate Center: So the total risk weighted assets of the Bank was INR 5,64,512 crores.

Manish Ostwal - KR Choksey: Sir, the AFS book size in the M duration?

Somnath Sengupta - Executive Director, Corporate Center: The duration I have, I don’t have the book size. The duration is around 2.5 years.

Operator: Amit Premchandani, UTI Mutual Fund.

Amit Premchandani - UTI Mutual Fund: I just had a question on the deposit rates. Do you expect the short-term deposit rates to now move up (post) the RBI short-term rates on liquidity? In that case, do we change our strategy (indiscernible) in terms of growth?

Somnath Sengupta - Executive Director, Corporate Center: Firstly, we need to see how long these measures last and really it depends in terms of the tenure for which RBI holds these measures will drive in terms of what the strategy in deposit rates are. But if you look at the very short end, I think banks will raise deposit rates because that’s the alternate cost of funds you should see in other products. Now at the very short end, you will see some rise in deposit rates, but anything happens on that we need to see how durable the RBI measures are.

Amit Premchandani - UTI Mutual Fund: In your assessment – what is your assessment in terms of (indiscernible) in terms of whether they want the interest rates to move up or just that we are looking at some interest rate targets or is it just a current target and interest rate is just a derivative of that?

Somnath Sengupta - Executive Director, Corporate Center: I think, as I said, this is in response to currency volatility and to make sure expectations of currency are not unbounded. Here it is not the review of changing the policy stance, so they’ve not altered policy rates. They just tightened liquidity in order to protect the currency. So we need to wait and watch to see how the currency behaves and whether it is stable and then we will know in terms of how long these measures last.

Operator: Manish Karwa, DBN.

Manish Karwa - Deutsche Bank: Congratulations on good numbers. Few things, one on your balance sheet, your loan deposit ratio have shot up significantly. On a sequential basis, deposits have not grown at all or actually have declined by about 6%. Is it conscious or…?

Somnath Sengupta - Executive Director, Corporate Center: Manish, we explained a little while ago that our deposits have not grown because we’ve had the equity that we raised. So that was there for the full quarter. We had raised it in the end of January, first week of February this year. So, therefore, we haven’t had the need to raise wholesale term deposits to the extent that we normally would have. So that is the reason why number one, the odd deposit growth is muted, and why the credit deposit ratio has gone up to 83%. That's one of the factors. The other factors is that we have continued to have healthy growth of current and savings deposits, but really the bulk of the deposit growth would have been taken up by wholesale term deposits which we haven't had to do.

Manish Karwa - Deutsche Bank: On your restructured loans, on a sequential basis, it has declined, so has there been some upgradation or has some of the loans fallen into the infill category?

Somnath Sengupta - Executive Director, Corporate Center: Yeah, so there has been upgradation.

Unidentified Company Speaker: There has been upgradation of roughly about…

Unidentified Company Speaker: Apart from the upgradation those restructured loans which have completed their two years that has been taken out. (So it) is INR4 crore of the loans, which has come…

Somnath Sengupta - Executive Director, Corporate Center: INR484 crores.

Unidentified Company Speaker: Yeah – which has completed that two years (direct) record of the payment. That has been taken out from that restructured asset as per RBI guidelines. Apart from that, there is upgradation, what, of roughly about INR230 crores.

Manish Karwa - Deutsche Bank: Lastly, given what has happened to short-term rates, how do you – A, assuming that bond deals settle down 50 to 75 basis point higher than what they were last week, what would be the outlook on the Treasury front then? Do we see a significantly different trend given our portfolio in bonds and G-Secs.

Somnath Sengupta - Executive Director, Corporate Center: I think we had a very good quarter in Q1 in terms of Treasury profits. The RBI measures clearly would mean that such a performance is unlikely to be repeated this quarter.

Manish Karwa - Deutsche Bank: No, sure. But does it mean that we probably see some losses given where the yields are?

Somnath Sengupta - Executive Director, Corporate Center: We still have two months to go. We'll have to see how (indiscernible) and how long these measures last and what impact it has. So, it's just two days since the whole thing has happened; we need to wait and watch, and it's more than two months to go over the end of the quarter.

Operator: Anish Tawakley, Barclays.

Anish Tawakley - Barclays: So the economic outlook seems to be quite uncertain. I guess my question is, we have certain guidance for slippages and restructured assets for this year, how bad would things have to be for that guidance to be sort of tested? If the economy – like how confident are you that if GDP growth were to sub-5%, would you still maintain the guidance if this is around 6% mark or how is it sensitive to GDP is really the question?

Somnath Sengupta - Executive Director, Corporate Center: I think we take the macro economic conditions into account as well as we do a bottoms-up analysis in terms of our portfolio and what is likely to happen. We have done the (analysis) at the beginning of the year. As of now, we believe that (analysis) just didn’t hold and we’ll wait and watch for some more months to see if there is any traction or the economy further slips. So we need to – as of now we are not changing the guidance. We believe the bottoms-up analysis which we have done at the beginning of the year still holds.

Operator: Parag Jariwala, Macquarie Securities.

Parag Jariwala - Macquarie Securities: Just one small clarification. You said write-offs were INR 513 crores right?

Somnath Sengupta - Executive Director, Corporate Center: Yes. Write-offs including prudential write-offs was INR 513 crores. Yes.

Parag Jariwala - Macquarie Securities: Okay. And treasury gain was around INR 440 crores?

Somnath Sengupta - Executive Director, Corporate Center: Yes. That’s right.

Parag Jariwala - Macquarie Securities: Can you give us cut-off yield on your AFS, I mean overall investment book as on 30 June?

Somnath Sengupta - Executive Director, Corporate Center: No, I don’t have the figure with me. I had indicated the duration sometime back of around 2.5 years. So I don’t have the book size with me.

Parag Jariwala - Macquarie Securities: Can you able to disclose what could be our proportion of CD and bulk deposits as a percentage of deposits?

Somnath Sengupta - Executive Director, Corporate Center: Yeah, so total deposits are now 30%.

Parag Jariwala - Macquarie Securities: And how this breaks up into CDs and bulk?

Somnath Sengupta - Executive Director, Corporate Center: I don't have the breakup between CDs and bulk, but it's mostly...

Unidentified Company Speaker: It's mostly term deposits. CDs would be a small – would be relatively smaller amount.

Somnath Sengupta - Executive Director, Corporate Center: If you can see the composition of the deposits, roughly about 69% of the CASA and that retail term – CASA and retail term deposit constitute up to about 69% and remaining is the wholesale deposits are there, which includes some portion of the CDs.

Operator: Venkatesh Sanjeevi, ICICI Prudential Mutual Fund.

Venkatesh Sanjeevi - ICICI Prudential Life Insurance: Do you have the loan growth guidance for the year? I'm sorry if I missed this.

Unidentified Company Speaker: Yeah, we said earlier in the year that RBI guided for a system growth of anyway between 15% to 16% on loans, loan for credit, and we had said that we would grow at a premium to that. We still maintain that we should grow at anyway around 20% to 25% premium to system growth rates.

Venkatesh Sanjeevi - ICICI Prudential Life Insurance: The second question from my side is a bit related to what Mr. Anish had asked some time ago. So your guidance on credit costs were between 85 bps, 90 bps. If I just go back, it's been the same for about two or three quarters now. A lot of things have changed in the last two, three quarter. At least currency has moved a lot and things have changed. Just could you give us what's really giving you confidence on maintaining this guidance despite so much of change taken place in the couple of quarters?

Somnath Sengupta - Executive Director, Corporate Center: See last year was a challenging year. Last year, the environment was difficult. So even though we had guided for a credit cost of 85 to 90, we ended up with a credit cost of around 70 basis points. The enrollment continues to be still challenging and based on what we saw last year, we are confident and feel comfortable that we should be able to contain credit costs around 85 to 90 basis points.

Venkatesh Sanjeevi - ICICI Prudential Life Insurance: But in terms of specific currency move, is there a way you track up or (how they’re affected) especially SME borrowers. Do you think they will be able to manage this particular currency move and they will…?

Somnath Sengupta - Executive Director, Corporate Center: Currency moved quite sharply even in the last year. If you look at what happened last year, we saw a sharp depreciation in the currency even last year, and that move continued in the first quarter. So, the currency move is not just happening now. It happened in the last year too.

Venkatesh Sanjeevi - ICICI Prudential Life Insurance: And the slippage for this particular quarter? Are there any large bulky item which has slipped, slippage and restructuring?

Somnath Sengupta - Executive Director, Corporate Center: Can you repeat that please?

Venkatesh Sanjeevi - ICICI Prudential Life Insurance: Slippage and restructuring for the current quarter, are there any large corporate accounts which are part of this?

Somnath Sengupta - Executive Director, Corporate Center: So, it’s a mix of corporate and retail. It’s across segments, so SME corporate, agri and retail. So we have the slippages across the segments.

Venkatesh Sanjeevi - ICICI Prudential Life Insurance: My question is that is there a large ticket size item which slips this particular quarter which has caused the slippages number to look at this level?

Somnath Sengupta - Executive Director, Corporate Center: Well, there will be some large corporate accounts in any case. So it will not be possible to give a size of that, but yes I mean, there would be some which are relatively larger in size, if they’re in the large corporate. But if your question is that if the entire slippage is made up by a few large (MKA) account. The answer is no.

Operator: Abhishek Kothari, Violet Arch.

Abhishek Kothari - Violet Arch: My question was on slippages again. The run rate of INR 681 crores, do you expect the same to continue or like what would be your slippage ratio for the year, guidance anything on that front and restructuring in pipeline if any?

Somnath Sengupta - Executive Director, Corporate Center: At the beginning of the year, we have told roughly about there will be the gross NPA and the restructured assets of INR 5,000 crores and right now we’re holding that it will be around that level for the full year.

Abhishek Kothari - Violet Arch: Any pipeline of restructuring, right now you have seen in July so far?

Somnath Sengupta - Executive Director, Corporate Center: There is a pipeline of restructured accounts which are likely to happen. That is evident from whatever you see in the pipeline also, and some of these accounts will be a part of our books.

Operator: Vijay Sarathi, Nomura.

Vijay Sarathi - Nomura: Is it possible for you to share the new customer addition in this quarter, and how it is compared with say the last two, three quarters?

Somnath Sengupta - Executive Director, Corporate Center: Vijay we will have to revert on this. Do you have any other questions, we will be glad to answer? We will have to revert.

Vijay Sarathi - Nomura: One follow-up question. There was a drop of about 100,000 in your debit cards, between last quarter and this quarter. I mean, is there anything specific there or – debit cards outstanding?

Somnath Sengupta - Executive Director, Corporate Center: There is no specific reason. These are the cards which were not being activated or not being utilized for the long time, so that has been deactivated.

Operator: M.B. Mahesh, Kotak Securities.

M.B. Mahesh - Kotak Securities: If I do a calculation of your E-loan advances, that is coming up to about 10.5%. Is that a broad number that you would be having?

Somnath Sengupta - Executive Director, Corporate Center: Yes, you are right.

M.B. Mahesh - Kotak Securities: No, I just wanted to check because the base rate has not changed materially over the last three, four quarters, but if you look at the E-loan advances that have dropped by nearly about 70 to 80 basis points over the last three, four quarters. Is this shift that you’re seeing a decision of your movement into retail or is there pressure which is building up on the corporates on the loans that you are generating on the corporate side.

Somnath Sengupta - Executive Director, Corporate Center: If you just see that there has been an improvement in the rating profile of our large corporate books like in that one quarter itself, AAA rated corporate have increased from 9% to the 12%. So these are not the decline partly because of moving to the high rated corporates.

M.B. Mahesh - Kotak Securities: But this corporate book could be a very small portion, right, if I look at AAA and the SME portfolio and the retail, if I include everything as well, the decline seems to be slightly material. So just wanted to check…?

Somnath Sengupta - Executive Director, Corporate Center: In terms of material decline in the E-loan advances are there.

M.B. Mahesh - Kotak Securities: So you can attribute the entire decline to the change in the underlying AAA rated instruments?

Somnath Sengupta - Executive Director, Corporate Center: Underlying change in that rating profile.

M.B. Mahesh - Kotak Securities: Second one is on your – you have reported an upgradation of INR 230 crores in the restructured loans. Can you just explain how does this work because these are all restructured standard assets, right, the movement that you are reporting here? So what is the upgradation that is happening in this?

Somnath Sengupta - Executive Director, Corporate Center: Upgradation is basically the movement in the balance like there is a payment which had come out in these accounts. This loan has been repaid which was earlier to the restructure.

M.B. Mahesh - Kotak Securities: One last question. On the investment depreciation that you reported of INR120 crores, what is the nature of this because, is it all equity related depreciation that you have reported this quarter?

Somnath Sengupta - Executive Director, Corporate Center: No it is partly equity and partly on the fixed income investments.

M.B. Mahesh - Kotak Securities: In Q1 is it?

Somnath Sengupta - Executive Director, Corporate Center: In Q1, yes.

Operator: Umang Shah, CIMB.

Jatinder Agarwal - CIMB India: This is Jatinder. Just one question on your loan against property. Can we get a sense as to are these mostly new customers of the Bank?

Somnath Sengupta - Executive Director, Corporate Center: These are likely to be existing customers of the Bank who already have let us say liability relationships.

Jatinder Agarwal - CIMB India: What is the ticket size that you generally have in this book?

Somnath Sengupta - Executive Director, Corporate Center: Ticket size in that it will be roughly around INR30 lac to INR40 lac.

Jatinder Agarwal - CIMB India: For are these mostly people who are also related to the SME book?

Somnath Sengupta - Executive Director, Corporate Center: No, these are under the retail book.

Jatinder Agarwal - CIMB India: No. The classification of the loan is under the retail book, but is the guy who is actually taking the loan against property actually a SME customer or how does that happen? It is unlikely that it has to be a larger number in corporate. So logically it has to be either from the retail segment or existing customer or it has to be SME customer.

Somnath Sengupta - Executive Director, Corporate Center: It is largely that to salaried employees and to self-employed people also.

Jatinder Agarwal - CIMB India: No. (indiscernible).

Somnath Sengupta - Executive Director, Corporate Center: In retail self-employed individuals under the retail segment.

Jatinder Agarwal - CIMB India: So are these cases where you actually see the (guy is) leveraging more than what he was probably a year ago. We've seen a very significant increase in this book in the last one year. It's almost doubled on a year-on-year basis.

Somnath Sengupta - Executive Director, Corporate Center: If you look to it percentagewise, it is not because of – last year, it was roughly about 6%. Right now, it's roughly about 8%.

Jatinder Agarwal - CIMB India: So as a percentage of your total loan book also it's just 2%, which is not really bothering me as much. What is concerning is the growth that we are seeing on a year-on-year basis is almost like doubled on a y-o-y basis.

Somnath Sengupta - Executive Director, Corporate Center: So, if you see the total consumer lending book, it is growing and within that, the components of growth have been in the mortgages and the loan variance properties, so it has moved within that trend. I don't think it is really abnormal.

Jatinder Agarwal - CIMB India: What type of collaterals could be there for some these loans?

Somnath Sengupta - Executive Director, Corporate Center: It is the property against which the loan has been given.

Jatinder Agarwal - CIMB India: Mostly residential, is it?

Somnath Sengupta - Executive Director, Corporate Center: Yes, it's residential, yes.

Operator: (Subramanian BS), Sundaram Mutual Fund.

Subramanian BS - Sundaram Mutual Fund: Just one question. In the notes (indiscernible) you said that you infused INR 250 crore in Axis Finance Limited. Just wanted to know what is the rational for floating this business and any near-term outlook on the same?

Somnath Sengupta - Executive Director, Corporate Center: Axis Finance will be an NBFC, which is primarily involved in businesses which a normal NBFC does. So we have capitalized that to the extent of INR 250 crores – an addition of INR250 crores just to help it kick start its operations and grow.

Subramanian BS - Sundaram Mutual Fund: Any lines of business that it would be specifically doing which the bank is currently not doing at the moment?

Somnath Sengupta - Executive Director, Corporate Center: Some of the normal lending business which a NBFC does.

Operator: (Niraj Jalan), CRISIL.

Niraj Jalan - CRISIL: I just wanted to know, what is the size of your international loan book and how is the demand holding up there?

Somnath Sengupta - Executive Director, Corporate Center: International loan book contributes roughly about 15% of the total loan book, and it will be about $5 billion in terms of (advance).

Niraj Jalan - CRISIL: How is the demand picking up there?

Somnath Sengupta - Executive Director, Corporate Center: The growth has been slow over the first quarter. I think the growth has been in high single digits.

Operator: Adarsh Parasrampuria, Prabhudas Lilladher.

Adarsh Parasrampuria - Prabhudas Lilladher: Just a question on your write-offs. It's a little – I just wanted to understand, are these accounts where recoverability is less or it’s more prudential in nature?

Somnath Sengupta - Executive Director, Corporate Center: Are you saying that write-backs are high or…

Adarsh Parasrampuria - Prabhudas Lilladher: No, no, write-offs in year end, write-offs of NPAs.

Somnath Sengupta - Executive Director, Corporate Center: It is basically prudential write-offs. It is not that these accounts are not recoverable. Just from the tax point of view, if we will write it off, there will be the (DTA) and there will be the higher tax outflow would have been there. That's a part of our tax planning tool.

Adarsh Parasrampuria - Prabhudas Lilladher: Just asking because it's a little higher than what we've seen in the last 10, 15, 20 quarters.

Somnath Sengupta - Executive Director, Corporate Center: These account are – recoveries, of course, are continuing for these accounts also and it did not mean – doesn't mean these accounts are not recoverable.

Adarsh Parasrampuria - Prabhudas Lilladher: Just one more question on large corporate fees. It started to contract now, do you think contraction will get a little higher because not too many larger projects sanctioned and happening and those kind of stuff? Do you see this contraction getting larger in terms of large corporate fees now?

Somnath Sengupta - Executive Director, Corporate Center: We don’t think so. I think over the course of the year we believe this book will grow, though at a slower rate compared to some of the other segments like retail and SME.

Operator: Ashish Sharma, ENAM Asset Management.

Ashish Sharma - ENAM Asset Management: This your guidance in terms of your retail book mix, I mean it is currently around 29%. I mean do you see this sort of a trend sustaining or I mean what will be the target?

Somnath Sengupta - Executive Director, Corporate Center: Well the retail book is 29%. I think we aim to get it up to about 30% of the total loan book. The Y rate has grown at 40%, Y-o-Y in this particular quarter. It might get a little slower going forward but it is still going to grow strongly.

Ashish Sharma - ENAM Asset Management: In terms of overall retail segments, any specific segments where you are seeing sort of an increase in delinquencies or overall the retail book is sort of performing very well?

Somnath Sengupta - Executive Director, Corporate Center: I mean it has generally been healthy but we have had some delinquencies on commercial vehicles.

Ashish Sharma - ENAM Asset Management: That explains the 12 % – 10% decline in this quarter, I mean sequentially? There was a decline in the auto loan books.

Somnath Sengupta - Executive Director, Corporate Center: No. it was – I mean, yes, the growth has been relatively slower in this particular segment.

Ashish Sharma - ENAM Asset Management: Just one question lastly, in terms of your branch network you mentioned about 10% to 15%. Do we sort of focus on the tier – I mean, in the non-urban side or we sort of focus on the urban side in terms of branch expansion, sir?

Somnath Sengupta - Executive Director, Corporate Center: So we are – actually we look at all geographical listing – categories and demographics. So, whether it's urban or semi-urban or rural, we have also been opening number of branches as we are mandated to in unbanked areas, unbanked centers. So, I think as we mentioned I think earlier on, the branch network expansion policy has been fairly well distributed across every category.

Operator: Anand Laddha, HDFC Mutual Fund.

Anand Laddha - HDFC Mutual Fund: Just wanted to get your view on your fee income side each of the element. In general, with the slowing loan book, do you see those slowing down, also, on the wealth management and on the third-party distribution, if you can comment?

Somnath Sengupta - Executive Director, Corporate Center: The fee income, as you know, it's been growing 14% year-on-year and one of the large contributors has been the retail segment of the book. Third-party continues to grow. So, I can talk about some of the business lines which have actually contributed fee income. So, if you look at Retail Banking business, debit card, credit card and interchange, the fee income, for instance, together contributes something like 13% of the total fee income of the Bank. We also have the debt capital market and the arranger-ship fee, which has contributed something like 6% around 7% to 8% of the total fee income. So it has come from a variety of items, actually business line. ForEx including merchant profit has been around 12% of the total fee income. Our processing fees from loans, et cetera, has contributed about 24% to 25%. So it's been across various business lines and this should be sustainable.

Anand Laddha - HDFC Mutual Fund: If I had to assume a growth of 14% to 15% would be in line with the balance sheet growth, suppose I assume if you were at 15% to 20% this year, it would be similar.

Somnath Sengupta - Executive Director, Corporate Center: Yes. So it should trim the balance sheet (indiscernible).

Operator: Aadesh Mehta, Ambit Capital.

Aadesh Mehta - Ambit Capital: I just missed out your movement in NPAs, so can you please repeat your slippages, recoveries and write-off, sir?

Somnath Sengupta - Executive Director, Corporate Center: So the total NPAs were INR 681 crores additions to gross NPAs, and upgradations and recoveries were INR 72 crores, and we wrote-off INR 513 crores. Net addition to gross NPA at the end of all this was INR 96 crores.

Operator: Prashant Kumar, Credit Suisse.

Prashant Kumar - Credit Suisse: So just on RBI policy actions, with the tightening of liquidity like, do you expect some disruption of flow of fund to the SME and smaller sector players, and could this result in like some pressure on asset quality. So, just I would like to hear your thoughts on this?

Somnath Sengupta - Executive Director, Corporate Center: As you have seen none of the banks have increased base rate as of now. So the corporate segments relates to large corporate SME or retail. I don’t think so any of the RBI measures have caused an impact as yet. Banks will take a call depending on what we see over the next few weeks and see how long these measures are going to last and what seepage into cost of funds it has before we take a call on base rates.

Prashant Kumar - Credit Suisse: You mean that this liquidity tightening environment this continues for say a couple of quarters, so in that scenario would you see some pressure on the smaller players?

Somnath Sengupta - Executive Director, Corporate Center: A couple of quarters is a long time. We will leave it last for the next four to six weeks then we should probably review our base rates most of the banks.

Operator: Sri Karthik, Espirito Santo.

Sri Karthik Velamakanni - Espirito Santo Investment Bank: Just a couple of detail points. Can you just help us with the number of employees?

Somnath Sengupta - Executive Director, Corporate Center: Number of employees, it is 38,589.

Sri Karthik Velamakanni - Espirito Santo Investment Bank: Also if you can just repeat the breakup of the provisions, please?

Somnath Sengupta - Executive Director, Corporate Center: Provision for NPA and bad debts are INR572 crores, standard assets INR26 crores, depreciation on investments INR120 crores. There is a right size of around INR7 crore on the restructured assets.

Sri Karthik Velamakanni - Espirito Santo Investment Bank: Outstanding contingency provisions on the balance sheet, I remember last year you have substantially provided for that. Can you just help me with that number please?

Somnath Sengupta - Executive Director, Corporate Center: Which number?

Sri Karthik Velamakanni - Espirito Santo Investment Bank: Outstanding contingency provisions which you have provided for the last year.

Somnath Sengupta - Executive Director, Corporate Center: Yeah, it is still INR 375 crores.

Sri Karthik Velamakanni - Espirito Santo Investment Bank: No drawdowns during the current quarter and then that classifies for the Tier II capital, correct me if I'm wrong.

Somnath Sengupta - Executive Director, Corporate Center: It is not classified as a Tier II capital and no drawdown has been happened from there.

Sri Karthik Velamakanni - Espirito Santo Investment Bank: The last question on the cost side. In the initial remarks you mentioned 15% to 20% branch expansion for this year, right, or is it 10% to 15%?

Somnath Sengupta - Executive Director, Corporate Center: Yeah, we did mention 15% to 20%, yes.

Sri Karthik Velamakanni - Espirito Santo Investment Bank: On the cost side specifically if you look at last year was much lower, and then also this quarter also has seen a lower operating expenses growth, that too when the distribution is growing and the retail proportion is growing. If you can just explain what is helping us to have a tight leash on the cost and then how do you see this panning out?

Somnath Sengupta - Executive Director, Corporate Center: So we've actually taken several initiatives on cost management a couple of years back which are benefiting us. Also, I think some of the branches that we are now opening are of smaller format. As we open branches in unbanked areas, these are definitely much less expensive than opening branches in metros. Overall, there has been a cost management initiative which is holding out and that is the reason why we see a trending down of the costs overall.

Sri Karthik Velamakanni - Espirito Santo Investment Bank: How do you see this panning out for this year, sir? Do you see that around 15% to what we have seen last year?

Somnath Sengupta - Executive Director, Corporate Center: It will not be as low as that. It'd probably be in the range of between 18% to 20%, and the overall cost/income ratio, as we indicated earlier, should be below 45%. That's what we look at.

Sri Karthik Velamakanni - Espirito Santo Investment Bank: Last question from my side. Do you see any impact on a change in the regulation specifically on the proprietary trading on the ForEx and the capital allocations on an ongoing basis, specifically on the treasury income side or capital consumption side?

Unidentified Company Speaker: We didn't understand the question.

Somnath Sengupta - Executive Director, Corporate Center: Change in regulation, did you say?

Sri Karthik Velamakanni - Espirito Santo Investment Bank: Yeah.

Unidentified Company Speaker: What regulation?

Sri Karthik Velamakanni - Espirito Santo Investment Bank: If you remember, the proprietary trading I believe RBI has come out a few – last week on the increased margin requirements and then capital allocation and also restricting the banks in terms of the trading on the ForEx side.

Somnath Sengupta - Executive Director, Corporate Center: I think there was a restriction in terms of no proprietary positions in currency futures in the exchange-traded markets. That will have not a material impact for us.

Operator: Abhishek Murarka, IIFL.

Abhishek Murarka - IIFL: Couple of questions. Firstly, can you talk a bit about your savings and current account. Basically on the current account side, every year in the first quarter typically we see INR4,000 crores to INR5,000 crores of outflows. However, this quarter it has been a bit protracted almost around 11,000 crores. So, is it just a normal outflow, or is it maybe some account which has migrated elsewhere? Can you give some color on that? On savings accounts as well, this has been a pretty weak quarter. In fact, there has been some bit of a decline in absolute balances. So, can you just talk about that a bit?

Somnath Sengupta - Executive Director, Corporate Center: You are talking about that (LD) balances of 31 March, 2013 to decline from INR 48,000 crores to INR 38,000 crores on 30 June?

Abhishek Murarka - IIFL: Yeah.

Somnath Sengupta - Executive Director, Corporate Center: This is at normal trend, and it is not that some account we have lost to some other banks and other competitors. So, typically at the end of the year we do see somewhat higher balances, but it doesn't indicate anything. There is cyclicality, as you know, in the last quarter always.

Abhishek Murarka - IIFL: Except that the quantum has been a bit pretty high this year compared to last few years that there has been?

Somnath Sengupta - Executive Director, Corporate Center: If you will see in the CDAB side, there is a growth of about …

Unidentified Company Speaker: I think what we should look at is the balances that we have in current and savings on a daily average basis, which is if we get evolved how much of the business, how much of current and savings deposits we have been able to sustain over the period.

Abhishek Murarka - IIFL: That has grown by around 11% as you have indicated.

Somnath Sengupta - Executive Director, Corporate Center: So the last difficulty is always a bit of a distortion that is why…

Abhishek Murarka - IIFL: What about savings account?

Somnath Sengupta - Executive Director, Corporate Center: Similarly. I think the same holds true for savings as well.

Abhishek Murarka - IIFL: What will be the average let's say average SAR per account or some – just some indication you would have done some analytics there. How that – how is it…

Somnath Sengupta - Executive Director, Corporate Center: I don’t have the figure readily with me, so we will have to revert to you on that.

Abhishek Murarka - IIFL: Secondly on your asset quality can you give a let's say a sectoral NPA number, retail, agri, SME, what is has been as of June?

Somnath Sengupta - Executive Director, Corporate Center: No we don’t – we actually do not disclose the sectoral NPAs.

Operator: (Rakesh Kumar, Elara Capital).

Rakesh Kumar - Elara Capital: Just a couple of questions, firstly like let me see, the branch expansion what is happening, like in the semi-urban and rural areas the competition has risen quite a lot. But if you see the agri like agri-loan composition has been falling. So like if we are opening branches in those locations, so why that credit is not rising to that extent? So that is the first question. Second question is that, like if we see the – on a daily average basis costs are, so that has actually increased from fourth to first quarter. But if you look at that terminal number, quarter-end number, that has actually fallen. So, like, this is again related to use of branch franchise, where you are expanding in the rural and semi-urban areas. So can we conclude that we are getting incrementally some pressure on the CASA side or maybe CASA per branch side? This is the second question.

Somnath Sengupta - Executive Director, Corporate Center: Okay. No. So, I think that would be a wrong conclusion to draw. I do not think that we are losing current and savings per branch from the new branches. So the daily average balance which you see from both these products, current and savings have actually been holding up pretty well and have been growing. So we are quite confident that this business actually stands out well. Now on your question on our branches, not actually extending more agricultural loans despite more and more branches being opened in semi-urban and urban areas. I think the answer is that these are relatively new branches, so they start off with liability businesses, they start off with current and savings, and in course of time when we evaluate and assess the prospects of doing agricultural advances well in these branches, that business will grow. So it's going to take some time to grow actually.

Rakesh Kumar - Elara Capital: On the PSL side, where – what is the current status we are, are we meeting…

Somnath Sengupta - Executive Director, Corporate Center: At the end of the last year, our achievement of PSL was around 86%, and this year, of course, we have a while to go, so it will be premature to sort of warrant to this.

Operator: Ladies and gentlemen, due to time constraints we'll be unable to take any further questions. I would now like to hand over the floor back to Mr. Somnath Sengupta for final remarks. Over to you, sir.

Somnath Sengupta - Executive Director, Corporate Center: So, all I have to say is that it has been a good quarter in challenging times. Our core revenues have grown well. We have managed our costs well. We have managed our credit quality well. So, all in all, I think this is a quarter in which we have seen very, very robust growth of the operating profit at 45% year-on-year, and if you look at the any of the financial ratios, actually we have – the bank has performed quite well and we are quite satisfied with it. Thank you very much for being on the call.