Q4 FY-21 Earnings Conference Call

April 30, 2021

MANAGEMENT: MR. SUMANT KATHPALIA – MANAGING DIRECTOR & CEO MR. ARUN KHURANA – DEPUTY CEO & HEAD, PRODUCT GROUPS MR. S. V. ZAREGAONKAR – CFO & HEAD, CORPORATE SERVICES MR. SANJAY MALLIK – HEAD, INVESTOR RELATIONS, STRATEGY & PORTFOLIO MANAGEMENT UNIT MR. S. V. PARTHASARATHY – HEAD, CONSUMER FINANCE DIVISION MR. RAMASWAMY MEYYAPPAN – CHIEF RISK OFFICER MS. ROOPA SATISH – HEAD, CORPORATE & MR. ZUBIN MODY – HEAD, HUMAN RESOURCES MR. RAMESH GANESAN – HEAD, TECHNOLOGY, CORPORATE & GLOBAL MARKET OPERATIONS MR. SANJEEV ANAND – HEAD, COMMERCIAL BANKING MR. BIJU PATTNAIK – HEAD, GEMS & JEWELLERY MR. M. R. RAO – VICE CHAIRMAN, BHARAT FINANCIAL INCLUSION LTD. MR. SHALABH SAXENA – MD & CEO, BHARAT FINANCIAL INCLUSION LTD.

Page 1 of 19 IndusInd Limited April 30, 2021

Moderator: Ladies and gentlemen, good day and welcome to the IndusInd Bank Limited Q4 FY21 earnings conference call. As a reminder, all participant lines will be in the listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing ‘*’ then ‘0’ on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Sumant Kathpalia – Managing Director and CEO, IndusInd Bank. Thank you and over to you, Sir.

Sumant Kathpalia: Good evening, good morning to people in the US. Thank you for joining this call.

I will start with some macro commentary and then go into the Bank specific details.

At the macro level, as you all know is going through the second wave of Covid-19 currently. The economy was showing a healthy recovery to pre-COVID levels until the sharp surge of cases in April. All three key sectors of the economy - farm, manufacturing and services showed good traction in Q4. The second wave of Covid-19 is likely to impact the economic recovery in near term. However, considering the vaccination drive at large scale and strategy to focus on local and regional lockdowns and micro-containment zones as opposed to a nationwide lockdown, the impact on economic activity is believed to be limited and less severe compared to 2020. That has been the international experience too with second waves. In our assessment of current restrictions, we now see full year real GDP growth at 10.4% from 11% estimated earlier on the back of a slower Q1. Scaling up of the vaccination drive from Q1, would eventually help deal with pandemic. The measures announced by Government and continued accommodative policy by RBI will support the overall economic growth.

Now coming to bank specific commentary.

I completed my first year as CEO in March. We faced some internal and external challenges during the year. I can proudly say that the bank has come out stronger from these challenges. If we look at some parameters indicating health of a bank, they are at their best levels in the last several years if not in the decade. We closed the year with capital adequacy ratio of 17.38%, surplus liquidity of 40,000crs, Credit Deposit ratio below 85% with strong traction on retail deposits, PCR at 75% with significant buffer provisions outside PCR, operating profit margin at 6% of loans - all at their best levels in the last few years.

Coming to Q4 - during the quarter we focused on:

 Continued deposit mobilisation: Our deposits saw handsome growth of 7% QoQ and 27% YoY. This was led by strong growth in CASA of 11% QoQ. The growth was driven by retail segments resulting in our Retail as per LCR growth of 9,900 cr during the quarter – this was in spite of 50bps reduction in the headline rates. Our Cost of Deposits fell by 31bps during the quarter and year to date cumulatively by 102bps. We continued to maintain comfortable excess liquidity with overall LCR at 145%.

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 Asset growth: All three domains – vehicles, diamonds and microfinance – saw strong disbursements during the quarter. Vehicles disbursements grew 30% YoY & 8% QoQ driven by pick up in commercial vehicles. Diamonds demand globally saw good recovery resulting in working capital drawdowns from us as well. Microfinance too resumed growth journey with 15% QoQ growth. On the corporate book, we have been reducing exposures in line with our strategy of granularising the loan book. We have largely achieved our sell down objectives and the portfolio here-on should start showing growth. We remain cautious on unsecured loans. Overall loan growth for the quarter was 3% QoQ and YoY.  Asset Quality: Our collection efficiency improved to 98% from 97% during the quarter. Of this secured assets have higher collection efficiency and unsecured have lower collections than average. Our retail portfolios including unsecured saw reduction in slippages. Corporate saw technical slippages where restructuring was under implementation as of March and some of them are already upgraded. Corporate slippages adjusted for such technical cases were also down QoQ. We have followed conservative provisioning approach. We maintained our PCR at 75% despite technical NPAs in Corporate. We have conservatively taken 100% provisions on unsecured assets including microfinance even though we are already seeing recoveries. We also increased our surplus Covid provisions outside the PCR from 966 crores to 1,600 crores or 0.8% of loans during the quarter. Overall loan related provisions are 3.3% of the loan book. I will share further details later.  Strong profitability of the franchise: Our NII grew by 9% YoY and 4% QoQ. Our NIM was stable at 4.13%. Our fees reached pre-Covid levels in Q4 driven by strong retail fees. Retail fees crossed 1,000 crore per quarter for the first time ever. Our revenue was up 6% YoY while costs were up 2% YoY driving operating profit growth of 10% YoY. Our revenues have now settled comfortably above 5,000 crores per quarter. This has helped in improving our strong operating margin to 6% of loans despite lower corporate fees vs. the past.  Scaling up new growth areas: We continued scaling up our affluent, NRI and SME segments. Affluent AUM crossed 50,000 crores including deposits of 30,500 crores growing 5% QoQ and delivered 100 cr fees. NRI liabilities grew by 9% QoQ to 25,800cr. We also added 1,00,000 merchants by leveraging BFIL during the quarter. We have resumed our branch expansion adding 100 bank branches and 40 BFIL outlets during the quarter. We will continue to invest in existing as well as new businesses to drive our growth.  Capital Adequacy: During the quarter, our capital adequacy was augmented by the promoter warrants conversion of Rs 2,000 crores at 1,709 per share implying a significant premium to market price. This demonstrates promoter’s steadfast commitment to the bank and belief in the management team. The warrants subscription and lower risk intensity boosted our CRAR to 17.38%.

Before I go into portfolio specific commentary, broadly on the slippages and restructured book:

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During the quarter, we had business as usual and also technical slippages as detailed in the investor presentation. Our business as usual slippages were of Rs 1,930 crores during the quarter which is lower than the Proforma slippages of Rs 2,508 crores in last quarter. The technical slippages were 1,899 crores. Out of this, 1,602 crores is already reflected in deductions as they have become standard and the balance is happening this quarter. The technical slippages occurred due to delay in closing the restructuring by consortium and also temporary operational issues which were rectified in the same quarter. Bulk of these technical slippages came from two groups highlighted in earlier calls – one in retail and other in construction industry where resolution is under judicial process. Further details are shared in the investor presentation and we can discuss this in Q&A. We also recognised Proforma slippages of 2,508 crores of Q3 as the NPA standstill was lifted by the hon’ble Supreme Court.

Our restructured book was at 3,737 crores and stayed stable at 1.8% of loan as of Mar-2021. However, the mix of this book has improved towards long vintage vehicle finance customers. During the quarter, we saw a few corporates opting out of restructuring. However, due to the Covid second wave, some additional vehicle customers out of caution opted for MSME restructuring which was available till 31st March. Segment wise contribution of this 1.8% would be – Vehicles 65%, Non Vehicle Retail 17%, and balance from Corporate Banking.

Now coming to individual businesses:

1. Vehicle Finance:  Q4 saw strong traction on disbursements across the vehicle categories. Overall disbursements grew by 30% YoY and 8% QoQ.  As expected, Commercial Vehicles bounced back nicely during the quarter. The disbursements grew by 54% YoY and 44% QoQ. This segment too now has crossed pre-Covid levels.  Other noticeable segments showing strong disbursements were cars (up 24% YoY), utility vehicles (up 29% YoY), tractors (up 44% YoY) and construction equipments (2x YoY). We remain cautious on three-wheelers due to low passenger freight and disbursements are much lower than historical runrates. This segment however forms small part of overall book.  The overall loan book grew by 7% YoY and 1% QoQ. We had low disbursements in the first half of the year. As the disbursements have now reached pre-Covid levels, this will start reflecting in the loan book growth from the next quarter onwards subject to how Covid plays out.  Collections in the vehicle portfolio are slightly lower than pre-Covid levels. The portfolio has consistently maintained its excellent track-record and market leadership in all the segments we operate in. In fact almost 25% of the GNPA customers are today at less than 60 DPD but they will remain in NPA till all dues are cleared.  We have seen higher flows in 2-wheelers and 3-wheelers where livelihoods are impacted by Covid. These are typical service providers like autos, newspaper delivery etc. who lost earnings. We allowed these customers to slip into NPA and recoveries should come as covid plays out.

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 Restructuring was invoked on 2,446 crs of the portfolio. This was may be ahead by 200 crores against our earlier expectations. The MSME restructuring was available till 31st March and due to onset of Covid second wave, we saw some more customers availing this facility out of caution. We have long vintage and strong collateral covers in this segment and eventual losses should be range bound.  While the lockdowns pose a risk to freight transport, this segment has demonstrated to be the first one to bounce back as the economy re-opens. Expectations of strong GDP growth this year and budget announcements on scrappage policy & infrastructure spends augur well for the vehicle industry. 2. Microfinance:  This is another area of domain expertise and has proved its mettle in yet another crisis.  Incremental slippages during the quarter were 298 crores or 1.2% of loans. Proforma slippages in the last quarter were 472 crores or 2% of loans. So overall slippages of around 3% are lower than what we expected at the start of the year. We have also seen recovery from the Proforma slippages of Q3 and this trend is continuing. Eventual credit losses thus should be lower than expectations.  We have conservatively fully provided for the NPAs.  We remain watchful for any impact of Covid second wave and restrictions in some parts of the country. Overall collection efficiency in April is lower by 1% compared to March. This should bounce back as the restrictions are relaxed. We had seen similar trend in September last year when a few states had re-imposed lockdowns.  Strong traction on collections also enabled our field staff to realign towards growth. We saw loan book growth of 9% YoY and 15% QoQ.  Loan book originated post initial lockdown now contributes 81% of the total book and has normal collection efficiency of over 99%. This is a key metric to watch as the old book running off and traction on fresh disbursements imply improvement in the overall quality of the book in the next few months.  We are now fast-tracking our synergy initiatives which took a back seat due to Covid onset. We are driving savings account and recurring deposit penetration into microfinance customer base.  We have crossed 51,000 Bharat Money Stores and will scale this up further during the year. These financial transaction points across India will add meaningfully to the financial inclusion agenda that we are pursuing through BFIL and ensuring easy access of financial products to rural India.  We are also leveraging BFIL presence in Tier 1 to 3 cities for merchant acquisition. We have onboarded 170,000 merchants through assisted digital route and are scaling this at 30,000 merchants per month. The products offered are seamless bank account, working capital and payment solutions.  Overall, we are much more comfortable on microfinance than we were 6-12 months back. While like any other segment, Covid remains a risk here as well. Another good year expected for monsoons, rural spends by government adds to our comfort levels.

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3. Other Retail Assets:  This contributes 17% of the overall loan book and includes secured and unsecured retail assets.  In Q3, we had seen secured assets showing range bound slippages whereas credit cards slippages slightly worse than expectations.  In Q4, the secured assets have maintained the traction while collections improved in the unsecured assets.  In credit cards, the resolution rate and rollover rates are better than the pre-Covid levels. We also saw credit cards spends crossing 5% market share for the first time against our cards market share of 2.4%. Collectively these indicated good improvements in quality of spend on cards.  We are fortifying our retail asset origination teams. There is however strong competition for secured retail assets in the market and rates offered sometime may not justify the risk onboarded. As the interest rates are seen to be bottoming out, we expect pricing sanity to return. We have been selective in our underwriting both for pricing as well as Covid concerns.  We are meanwhile growing our new growth drivers. Affordable housing disbursement grew 10% QoQ and loan book grew to 1,800 crores – up 36% YoY and 8% QoQ. We have reactivated our gold loan business in 400 branches and this will be scaled up in coming months. The pilots on merchant loans through IBL as well BFIL distribution is also showing promising results.  Overall, we expect secured assets to resume growth whereas unsecured to remain capped at 5% of the loan book. The asset quality trends are now at pre-Covid levels.

4. Corporate Bank:  I had outlined my approach of fine-tuning the corporate underwriting towards granular, secured, annuity based exposure. We created an empowered intervention through independent portfolio management unit. The transition to achieve this has been smooth and non-disruptive.  In line with the strategy, we sold down exposures worth 3,500 crores during the quarter. Overall in the year we have reduced exposures of 9,000 crores beyond the scheduled repayments. These exposures didn’t meet the concentration criteria and there was no credit issue as such. We have broadly achieved our objectives and this exercise should complete in current quarter.  Another focus area was granularising the Corporate fees. We focused more on annuity fees rather one off transactional fees. Trade and FX fees now account for more than two thirds of the corporate fees. Investment banking fees were subdued due to weak markets as well as selective focus. Overall corporate fees adjustment too is complete and hereon they should broadly grow in proportion to their loan book contribution.  We have disclosed a few additional datapoints in the investor presentation showcasing improvement in the portfolio quality. This shows traction on aligning

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corporate book towards higher rated, short duration and granular portfolio. Average rating profile has improved during the year.  Our business as usual slippages were only 336 crores during the quarter. As explained earlier we also had accounts aggregating to around 1,900 crores which were under restructuring or had technical issues. Bulk of these accounts are already standard with completion of formalities.  Restructuring trends in Corporate book were quite positive. In Q3 call, we had highlighted restructuring of 2,200 crores which was invoked and under implementation. We saw significant part of these clients withdrawing from restructuring as the business momentum picked up comfortably in Q4. This resulted in restructured book falling significantly to around 654 crores as of March-21. This shows resilient portfolio performance even in the current stressed times. None of the restructured accounts are in the sub-investment grade.  Portfolios in the sensitive segments such as real estate, NBFCs etc. continue to behave well with no restructuring or SMA2 accounts.  As bulk of the realignment in corporate book is now complete, all the segments are geared to participate in the economic revival. Growth will of course follow the revised underwriting approach institutionalised by the bank.  We are extending our philosophy of building domains to corporate book as well. We have identified segments such as MNCs, Education, Healthcare, NBFCs where we will build specialisation. This should help us give better risk adjusted returns over long term. We are also tactically looking at co-lending opportunities with lenders in secured retail space.

5. Gems & Jewellery:  This segment is an example of specialisation in corporate banking. We continue to see no NPAs or even SMA2 customers here. There was no restructuring invoked.  Global diamond demand has bounced back to the pre-Covid levels. We expect the momentum to continue for a while. This has resulted in strong demand for Indian diamond manufacturers.  Our diamond loan book had shrunk in the first half as the working capital utilisation went down due to the weak global demand. We saw utilisation levels in Q4 improving in tandem with the global upcycle. The book grew 15% QoQ and should show decent growth in the coming quarters.

Overall on the asset side, we saw strong growth in disbursements in the areas of domain expertise – vehicles, microfinance and diamonds. These portfolios have better early delinquency profile versus the industry and we have disclosed product wise trends in investor presentation. We are positioned to participate in other retail assets provided we get good risk adjusted returns. Corporate book adjustments are now behind us and should start showing growth every quarter. We are watchful of the Covid second wave and its impact on the overall economy. We are however as of now comfortable with the PC-5 growth ambitions stated earlier.

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6. Now coming to Liabilities:  We saw acceleration in deposit traction during the quarter. Deposits grew 7% QoQ driven by 11% QoQ growth in Current and Savings account.  Retail Deposits as per LCR also grew by 8% and achieved over 9,900 cr per quarter runrate. This was despite the 50bps cut in the headline deposit rates.  With strong deposit flows ahead of loan growth, our CD ratio further improved to 83% from 87% QoQ.  Our cost of deposits reduced further by 31bps during the quarter and 102bps cumulatively during the year. We will look for another round of rate cuts in coming months with comfortable acquisition momentum despite the last rate cut.  Our retail fees crossed the pre-Covid levels. This was in fact the best ever quarter for retail fees in our history. We saw good momentum in the distribution fees along with loan processing fees on the back of strong disbursements.  We have also resumed branch expansion opening 100 branches during the quarter. We aim to add another 250 branches during the year.  Our Affluent business continued strong performance. Our deposits from this segment grew 8% QoQ to 31,300 crores and AUM growth of 8% QoQ to 50,900 crores. The business also achieved a fee of 100 crores for quarter for the first time. Our NRI business grew to 25,706 crores up 9% QoQ or 32%. Our market share improved from 1.9% to 2.3% during the year. Market share was around 8% on incremental flows during the year. This was despite no NRI homecoming and also fall in remittances this year due to Covid.  Borrowings have been selective focused on longer tenor and attractive rates. An example of this would be recent funding from Proparco – a French development financial institution supporting our microfinance business. This is a seven year facility at very competitive pricing.  We have maintained our overall LCR at 145% and are running surplus cash balances and excess investments of over 40,000 crores.

Technology:

IT in IndusInd Bank continues to be the backbone supporting business growth ambitions. The Bank has made several significant steps in improving client experience including an “all in one store” in its mobile app, Video Branch, Video KYC, Whatsapp and Alexa based servicing supported by Natural Language Processing. IndusInd Bank deployed a large scale Work From Home setup for over 15,000 staff including email on cloud with video collaboration. Several other digital applications now run off the cloud. The Bank has adopted the highest standards for client data and transaction security – with a range of modern and sophisticated security tools. Bank has not faced security breaches as it has been careful about controls and data protection, supported by threat intelligence. Recently the bank has successfully implemented enhanced early warning signal which is an AI based set of algorithms which measures impact or risk to accounts assimilating various market data and internal Bank data.

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Digital Traction:

 Our registered user base on the mobile app increased by ~39% during the year we were ahead of industry in terms of transactions growth.  User base on emerging channels such as whatsapp banking increased ~3X to 2.3mn and is at par with larger peer private .  Bank is steadily moving up on its digitally active user base and showed an improvement by 10% during the year on its percentage of mobile active user base  The digital platforms of the Bank have started contributing to business and during the year, Bank acquired nearly 2 lac clients non assisted and completely digital via online journeys undertaken by clients who visited the platforms on the back of platform marketing; contributing 15% of the liability account acquisitions.  Bank is also soon launching a few new initiatives including an end-to-end digital personal and SME loans as also unified merchant solution app.

Overall on the liabilities side – we have maintained traction across the board along with reducing cost of deposits. We will continue to calibrate our rate cut strategy going forward. Share of Retail deposits as per LCR has improved to 38% from 31% during the year. Retailisation of deposits remains the cornerstone of our PC-5 strategy.

Now coming to the financial performance for the Quarter:

1. Q4 witnessed steady operating performance with NII up by 9% YoY and operating profits at 3,129 cr was up by 10% YoY. Our PPOP/Loans improved to 6%.

2. Net Interest Margin was stable at 4.13%. Our yield on assets fell by 19 bps and cost of funds fell by 20bps QoQ. We carried 10,000 crores of higher liquidity during the quarter which also had an impact on NIMs.

3. Other income grew by 8% QoQ and crossed pre-Covid levels due to momentum in core fees of 9% QoQ driven largely by retail fees. Retail fees at 1,015 crores grew 23% QoQ and crossed pre-Covid level by 10% YoY growth.

4. Operating costs were up by 2% YoY but inched up by 5% QoQ. Our Cost to Income ratio improved slightly to 41%.

5. Now coming to provisions.  Our provisions for the quarter were Rs. 1,866 crores. We continued to follow conservative provisioning approach.  We have fully provided for unsecured retail and microfinance loans conservatively while the recoveries are already visible.  Our GNPA have reduced to 2.67% from Proforma GNPAs of 2.93% last quarter and Net NPA was stable at 0.69%.

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 We have maintained our PCR at 75% despite some technical NPAs in Corporate. We have around 1,600 crores or 0.8% of loans as surplus Covid provisions not counted in the PCR.  We sold down some delinquent portfolios during the quarter. They were already very well provided and resulted in increase in net security receipts by 20bps QoQ.  Total loan related provisions are at 3.3% of loans or 122% of the GNPAs.  Our overall provisions for the full year FY21 were at 3.7% of loan book. Of this almost half were either one off or prudent in nature such as contingent buffer built up, PCR ramp up from 63% to 75% and corporate NPA recognitions in Q1. The remaining provisions of less than 200bps were for business as usual as well as Covid slippages and should normalise going forward. We will also see 25-40 bps recoveries as well from the prior slippages.  Our SMA2 book as of March 2021 was 31 bps vs. 39bps in December 2020.

6. Our PAT continues to show a strong upward momentum growing 12% QoQ even though we have made provisions conservatively. Profits for the quarter were at Rs 926 crores. Our CRAR improved to 17.38% due to promoter’s warrant conversion and lower risk intensity QoQ. RWA to assets ratio has fallen from 84% to 75% during the year.

Overall, I think we have navigated well in an otherwise turbulent year and came out stronger than before. Couple of rating agencies too upgraded their outlook ahead of scheduled review. We have given an update on the progress on all key initiatives of PC-5 in our investor presentation and can get into details in Q&A. We are now geared towards achieving our PC-5 ambitions while keeping an eye on the pandemic situation. Some of the focus areas for FY22 are as follows:

1. Continued focus on collections – Our domains have outperformed the industry and Corporate slippages have been small post clean-up. We however remain focused on ensuring healthy collections in the wake of second wave. 2. Broad basing loan growth – We have seen strong traction on disbursements in our areas of strength. We are gaining market share in our domains and these account for 45% of the loan book. Growth will be now broad-based into Corporate where realignment is almost over and secured retail products. 3. Maintaining traction on liabilities – Deposits should lead the asset growth and will be driven by granular flows. We are investing in both physical and digital infrastructure. We already have created 500 virtual RMs and will expand this further. We will add 200 branches during the year. New boosters like affluent, NRI and merchant acquisition are on track to scale up as per PC-5 plan. Overall cost of deposits has been falling every quarter and we will do further rate cuts in a calibrated manner. 4. Improving profitability of the franchise – Our operating profit margins have been strong even in the tough last year. The provisions were elevated due to the prudent approach and

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almost half of those were non-recurring in nature. As the provisions normalise going forward, it should start reflecting in the earnings and RoE.

These focus areas of course will be subject to how Covid play out. We have seen collections only marginally lower in April so far. The disbursements too got impacted due to lockdowns in a few states. However, the spread of second wave and policy response has been different compared to the first wave. The economy is operating at a higher level compared to the first lockdown even in the most affected areas. Inter-state freight movement is also allowed. Vaccination drive is accelerating every month and will get further boost from higher participation by private sector. These factors coupled with strengthened balance sheet give us comfort on executing our strategy of scaling up sustainably. While we have lost a few weeks of this financial year due to Covid second wave, we remain committed to the PC-5 growth ambitions.

We can now open this floor for questions and answers.

Moderator: Ladies and gentlemen, we will now begin the question-and-answer session. The first question is from the line of Abhishek Murarka from IIFL Capital.

Abhishek Murarka: Just a few questions. The first one is regarding retail growth outlook. Of course, you have said that because of the second wave a few weeks have been lost but the outlook still remains pretty strong. But just in the backdrop of relatively higher NPA, higher delinquencies and higher credit cost in retail, do you think it is prudent to grow in this year? How are you approaching it? And specifically, if you can comment on the disbursement outlook in MFI whether that will continue or that has been reigned-in for now because of the second wave? That is the first question.

Sumant Kathpalia: We remain committed to our domain specialization. We have said that and if you look at our business in Microfinance, I think, we have outperformed the industry and our gross NPA slippages are around 3% of the book. We have just given that data. I think, 100 districts are affected because of the state level lockdowns as of now. And during these months I think the accessibility is key for microfinance business. So, I think we will have to wait. Having said that, I think we have reduced our ticket sizes. We will see when the lockdown gets opened and we are able to access these villages, but there are other districts where we are able to do business right now and we will continue to do that business. And it is happening as we talk. Yeah, the growth maybe a shade lower but I think that is something which we are willing to live with. Having said that you also must remember that the rural economy is doing well because of the good crop season, the summer as well as the winter crop season. As well as there are good monsoons which are expected. This is also demonstrated by the tractor growth which is happening in the country. We will not be able to do disbursements in districts where there is a lockdown, and we have no accessibility because the center meetings cannot happen. But in other areas, we continue to do the business because we are comfortable that this lockdown is not as severe as what the first lockdown down was and I said that in previous comments.

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On the vehicle finance business, I think if you look at our book, only 35% to 40% of our vehicle finance book is now commercial vehicle and the rest are Scooter loans, Car loans, Tractors etc. I think the dealer showrooms are closed as of now. And during these lockdowns it is difficult to access new clients because the dealer showrooms are closed. So, April month maybe a very slow disbursement month, but I think slowly and steadily during the quarter we’ll have to wait and watch as it comes back.

In unsecured, we have made our intentions very clear. The book has de-grown, and we continue to say that unsecured book, while we will grow, we will be very cautious, and this will remain less than 5% of the overall book and it has remained less than 5% of our overall book.

Abhishek Murarka: A quick question on unsecured. In credit cards can you share the proportion of corporate cards that you would have?

Sumant Kathpalia: The commercial card is a very tiny business. I think it's very small business for us because we have not pushed that business so much. In fact, we have 2.4% market share on personal cards and our spends are the greater than 5% of the overall spends and that is on the RBI site. The commercials cards is a small business for us.

Abhishek Murarka: The second question is basically on fees. If we see the growth in retail fees, would that be roughly in-line with the disbursement growth? So, if retail fees have grown X, we can surmise that disbursement growth would also be X.

Sumant Kathpalia: No, not at all. That is the beauty about the retail fees. Of course, you can link that in the Commercial Vehicle segment or in the Microfinance segment, but you can’t link it in the Consumer Bank segment. In the consumer Bank you will see Trade, FX, you will see General Banking fees, you will see Distribution fee Income. They are not linked to asset growth of the business.

Abhishek Murarka: And in terms of yields, now the sequential increase in yields is it just an outcome of asset mix change or is there something else over there which has led to the yields going up, both in corporate and retail?

Sanjay Mallik: Last quarter we had this reversal of 185 crores as you recollect. So, that’s the main driver.

Moderator: The next question is from the line of Jai Mundhra from B&K Securities.

Jai Mundhra: On the retail slippages, if I were to look at this quarter and the previous quarter that is effectively most of the full year, so it shows 16 billion and around 21 billion, so roughly around 35-36 billion is the retail slippages. If you can break that up into various products.

Sumant Kathpalia: Let me give you the segment-wise slippages and I think it is very important. I think on the vehicle finance business we had a proforma slippages of Rs.502 crores and we have

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incremental slippages of 687 crores during the quarter. And I must give this clarification, I think what has happened, the Honorable Supreme Court lifted its stay on the classification of NPA accounts on March 24th. Some of these clients did feel that they would get classified as NPA or the DPD counter will start post the standstill is lifted. We actually followed the IRAC norms, and we classified them as an NPA and as a consequence they moved into NPA. 25% of this portfolio is in less than 60 DPD today and I think that is the reason.

The second thing which we did is, on the personal vehicle side, which is Scooter Loans, Car Loans, we did not offer any restructuring. We were convinced that the restructuring is not required in this segment and we rather take a hit. However, we will go through the recovery process and that is the way we wanted to do that. And that is one of the reasons why the flows are a little high.

On the Secured Retail side, I think there was incremental slippages in Quarter 4 of Rs.226 crores. This came from Business Banking as well as the LAP portfolio. And Unsecured Retail slippages was Rs.383 crores, which came from Cards, PL, Business Loans and MFI slippages were Rs.298 crores in Quarter 4.

Jai Mundhra: And the second question is, of these portfolios you had said that the things are improving, and the situation is mainly impacted in some 100 districts. But out of these 4-5 key drivers of slippages where would you be more confident in terms of the slippages having peaked and where you would be slightly more watchful?

Sumant Kathpalia: I think we have to be watchful, because we don't know how COVID 2 will play out. So, I don't have a crystal ball to say how COVID 2 will play out and how it will affect the business. Having said that, I continue to remain very confident about the domain specialization businesses. Whether it's Diamond Finance, whether it's Vehicle Finance or whether it is Microfinance. I am also very comfortable on my large corporate business, because I think we see the actual slippage on the corporate side incremental for the quarter is only Rs.336 crores. You would have seen the gross NPA data, you will see the whole explanation, and it is only 336 crores. And our corporate book has started performing very-very well.

Jai Mundhra: On slide 14, we have this chart which shows the rating breakup. But it would have been even more useful if you can tell the absolute amount in whichever form, because it is very difficult to compute the number that how much is BB and below or maybe BBB, how much is sitting, we have qualified that, now we are cutting down on BBB, but what is the number as of now? If you have that, maybe a ballpark number will also help.

Sumant Kathpalia: I can only tell you that our A-rated book and above has improved by 500 basis points during last year. That's the number which I can tell you that we are focusing on, and our business disbursements are moving towards that direction which we said. Of course, we will do BBB rated book because we continues to do our Diamond business on BBB rated book. So, I think on the BB rated book I can tell you that either we have improved or remained stable.

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Sanjay Mallik: BB and below rated book has slightly come down from 6% to 5.8%. And if you look at the more chunky exposures, we have given a disclosure in the investor presentation wherein the BBB exposures have come down by 13%, it's an index number. Our top 20 exposures funded and non-funded put together has come down by 16% and the duration of the book greater than three years has come down by 24%. And the composition of the fees, I think we mentioned it in the opening remarks as well, is largely composed of trade and FX and the proportion of investment banking and the episodic type of fees has substantially come down. So, all the vectors are moving in the right direction. I am sure we will continue that momentum. And just to give you a sense of the disbursements, in the large corporate book in the full year the A and above rated clients we had 81% of disbursements were A and above. And in the last quarter 95% were A and above.

Jai Mundhra: Just a clarification. This 5.8% is a percentage of corporate loan or this is a percentage of exposure, meaning fund, non-fund everything put together.

Sanjay Mallik: This 5.8% is of the corporate exposure funded non-funded, therefore it would be a much smaller part of the Bank. And I think as you are well aware, of that 5.8% there would be approximately a little over one-third which is accounted for by one telecom account. And I think when we see some progress, this number is going to dramatically come down.

Jai Mundhra: The last question from my side is a clarification. I think on the restructuring book in the opening remarks sir had mentioned that 60% is vehicle and 17% is non-vehicle retail. Just to confirm, how does that tie-up with the slippages and the consequent restructuring and upgrade? So, this 1600 must be sitting in the restructuring as well, right?

Ramaswamy Meyyappan: You are right. Part of the one which slipped is also got upgraded in restructuring, in one corporate large account of 650 crores. It was in the downgrade, then it got upgraded also because it was in OTR. Because it was a technical provision in the quarter till the OTR repayment.

Jai Mundhra: What is the corporate restructured number then?

Sumant Kathpalia: We just told you, the corporate restructured number is about 654 crores.

Jai Mundhra: So, that is a confusion. Ideally this number should be around 1000-1100.

Sumant Kathpalia: There is another number of 300 crore which is awaiting the OTR resolution because it is going through the process and I think the OTR approval has already come, and it will get upgraded this quarter from the NPA.

Moderator: The next question is from the line of Kunal Shah from ICICI Securities. Please go ahead. Kunal Shah from ICICI Securities please unmute your line from your side. As there is no response, we take the next question from the line of Nishant Shah from Macquarie.

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Nishant Shah: Just on this credit cards business, if I look the RBI data, the transaction size for each of the spends, that works out to something like Rs. 7000 to 8000 versus the industry average being somewhere between Rs. 2000 to 3000. So, what explains this slightly higher kind of spend per transaction. I would have assumed this would have been a function of the corporate cards business in a larger sense.

Sumant Kathpalia: Corporate cards contribution to spends is not more than Rs.150 crores to Rs.200 crores. So, you can back that out if you want to. I think the real value for us is, we have fee paying cards, we don't have any free cards. Not more than 3% of the book is free cards. That is number one. Number two, if you look at our portfolio towards premium cards, I think it will be higher than the industry on the premium card. And that is the reason why we are different from the industry. And the third reason is, 75% to 78% of our portfolio is self-employed business. And that is a differentiation. Of course, there are risks associated with it, but it's also a differentiator because our spends are higher, our revolved rates are around 54% to 56% now and I think our ROA on this business in spite of these losses last year was about 3% to 3.5% and I think in good times it can even give 6% to 7% ROA.

Nishant Shah: What would be the proportion of travel within the total spends?

Sumant Kathpalia: I don’t have that data right now, I can put you to my card expert. I do not have category-wise spends data right now, but I can put you to my card expert and he can help you because I don’t have that data right now. If I give you something it will be a guess estimate.

Nishant Shah: Just one last related question, would you be open to any inorganic opportunity in the cards business?

Sumant Kathpalia: I have always said that we have always acquired businesses which are complementary to our businesses and ROA accretive. We are very keen to evaluate opportunities which add value and are accretive to our businesses. As we said, unsecured business is less than 5% of our business. But if we get salaried customers and category A class customers, as a consequence we will be open to an acquisition, provided it meets all the criteria which we have laid out. Which are accretive to our ROA, accretive to our customer base and that's where we will evaluate the options. And of course, the right pricing.

Moderator: The next question is from the line of Anand Bhavnani from White Oak.

Anand Bhavnani: My question pertains to the microfinance book. I just wanted to double check. You said the slippages in the microfinance book for the full year was 3%. Did I hear you correct?

Sumant Kathpalia: Yes. Absolutely right.

Anand Bhavnani: So, 3% as of the denominator would be FY20 closing book, right?

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Sumant Kathpalia: It is about 25,000 crores and its available in the investor presentation. Our overall flows were Rs.473crores + 298 crores. Quarter 4 it is 298 and Quarter 3 when the proforma was 473 crores.

Anand Bhavnani: You also mentioned that 81% of our microfinance book is post the lockdown. So, we have run down a significant part of the book and a lot of fresh loans have been issued.

Sumant Kathpalia: Correct. And that happens in every microfinance business. The tenors are short. So, what happens is we have already run that 12 months. So, what had to come has come. Of course, there will be something which will keep on coming, I can’t say that, but it runs down in 12 months. Every microfinance book actually runs off, so the runoff factor is very high in microfinance.

Anand Bhavnani: What percentage of our microfinance customers would have opted for a top up or net off loan?

Sumant Kathpalia: We have a program for top up, but I think it's a very selective and we don't do it. We first make sure that the client has repaid our book and there is a gap before we do any fresh disbursement. We follow that as a process. Because it can be evergreening of the book. We are very careful about evergreening. And that is why Bharat Financial stands out against the others. We do not go and start giving top ups. We want a client to fully pay the loans and then wait for our cooling period before we start with fresh disbursements. This has been our strategy. This has been the philosophy of Bharat Finance.

Anand Bhavnani: Do you have a figure handy as to what percentage of clients would have been given this top up or net off loan option?

Sumant Kathpalia: I don’t think it will be too much. Maybe Rs.600 crores of book is there or Rs.500 crores. There is nothing else. And that too it has been given to clients who have an ability to pay, that's the book which we have. Not much, 1% or 2% of the book. But it's not evergreening. That's all I want to tell you.

Anand Bhavnani: That's really helpful. 1%-2% kind of figure is very encouraging. It shows great discipline in your part. Thank you, Sir.

Moderator: The next question is from the line of Mahesh MB from Kotak Securities.

Mahesh MB: Just a couple of questions from my side. One is, given the situation of a loan book from an asset quality perspective, how are you now positioning for next year in terms of growth? That's number one. Second one is, how have you now progressed on the deposit rates and how do you see the convergence happening with the frontline Banks out there?

Sumant Kathpalia: Mahesh, can you repeat the second question? I just missed it. Sorry.

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Mahesh MB: On the deposit rates that you have right now, you can see a pretty good flow both coming on current accounts, savings accounts as well as term deposits. Do you think you can take a slightly more aggressive stance on cutting deposit rates further?

Sumant Kathpalia: So, watch this space, Mahesh. That’s all I can tell you. I committed last quarter that we will drop the rates, we dropped it. Now watch this space. I concur with you right now, that I think we can look at easing of deposit rates in certain segments because I think we have already dropped 50 basis points. I think the time for transaction account dropping specifically in the savings accounts side has come up. And I think you will see some dropping in rates. And I have always said Mahesh one thing that we will be about 50 to 75 basis points higher than the best-in-class in the industry. That much have in your mind, because we are still going retail. So, that’s going to happen. On the loan book growth for FY-22, Mahesh, as of now I am not going to change my PC5 ambition because I feel that the country will come out of this fear psychosis or to think that everything is going wrong, I don’t agree. I think yes, we have issues and I think the country will get out of it. And in my opinion what we did when the COVID 1.0 was out, I think yes, there are learnings, but we came out of it very fast and there was a pent-up demand we saw the movement in the book. In my view, I think we have to wait and watch. I don't have a crystal ball to give you the right figure. But I think there is an opportunity in this market, specifically in our domain specialization, specifically in the large corporate books and in the SME side and I think we will capitalize on the opportunities and we will not let go of our market share in the domain specialization and we will not let go of our strategy on the large corporate towards working capital and A-rated paper. We will not lose these at any cost. Of course, the investment banking business will suffer, and you have seen the results that we have slowed down that business and I think that's bound to happen during these times.

Mahesh MB: Just one clarification. In this adjustment that you are doing on the corporate side, you think there is further room for the reduction in your loan book yields on the corporate side.

Sumant Kathpalia: See, the only thing I can say Mahesh, when you get into working capital and that we have grown also, and, when you see the book, you are seeing it net of sell-off which we have done of around Rs.9000 crores. It's not that we have not grown. So, that is part of run rate. And the working capital loans were going at a very competitive pricing and it will continue to go at competitive pricing. You have to see the corporates in a different way because the fee business of the corporates and the trade, FX as well as the transaction banking fees has suddenly started showing up on the corporate banking. And I think our ability to structure it well has led to the same. Also I believe the way we are playing the game, I don't think we will see the way which we have seen earlier. These are granular disbursements. They are not bulky disbursements. We are not giving it for higher tenor. Like Sanjay said our tenor has reduced dramatically and I think you will continue to see that book, of course, we may lose a bit of yield and that’s driven out of what’s the pricing in the market, but I can tell you, our cost of deposits will also fall. Secondly, even if the movement is happening and I have said always, we are already at 55% to 57% retail. And I think we have very good interest yielding business and we will continue to be at a NIM of 4.15% to 4.25%. If I just grow my yield on the consumer, we can be 4.5%- 4.75%. The corporate Bank is where I want to balance the book and get the franchise. Having

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said that, I must also say that I am evaluating mortgage business because I think I want to balance my secured book more and more on the retail side. So, we will evaluate our mortgage business also by 2nd or 3rd quarter of this year.

Moderator: Ladies and gentlemen, we will take the last question from the line of Anand Bhavnani from White Oak Capital.

Anand Bhavnani: With respect to microfinance, what would be the top three states for us and what would be the percentage of book coming from those states?

Shalabh Saxena: The top three states are Bihar, Orrisa, and West Bengal. All put together the three states I think that was the question, right?

Anand Bhavnani: Yeah. What will be the individual percentage exposure out of that 26,000 crores book in each of these states?

Sumant Kathpalia: We don’t give such granular data on the book. I think we have told you the states. We don’t give data on each of these states as of now.

Shalabh Saxena: At a very broad level, we have a state-wise caps, district-wise caps, even branch-wise caps on the amount that we can lend.

Anand Bhavnani: Can you give me the top three states together as a whole, how much do they contribute?

Shalabh Saxena: About 32%-33%.

Anand Bhavnani: And when we speak about our product, our key product would be a two-year product. Is that right understanding in the microfinance space?

Shalabh Saxena: It is a one-year product. Most of the people prefer one year product and we have weekly instalments so it’s 50-week instalments. We do have 18 months product and 24 months product, that we offer to people who are taking higher loan amounts greater than 30,000 and stuff like that. But anybody who is taking a loan within 30,000 is given a one-year loan.

Anand Bhavnani: So, what percentage of our book would be one year, 18 months and 24 months, approximate split.

Sumant Kathpalia: I don't think we can give that number. We have just told you that about 81% of our book has got churned during this year and we have a collection percentage of about 99% in that churned book. You can compute that.

Moderator: Ladies and gentlemen, that was the last question. I now hand the conference over to Mr. Kathpalia for closing comments.

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Sumant Kathpalia: First of all, my apologies again to have kept you waiting. This was not deliberate. This was a technical issue at our end, and it took time to resolve it.

Having said that, I think we have become more resilient, much more stronger in our business and I think that's the message which I wanted to give. I think if the COVID 2 plays out, we are committed towards pivoting towards growth. We still are committed towards our PC-5 strategy and growth plans and we believe that India will come out of this sooner or later.

Having said that, if you have any further questions, whether you need more details on microfinance, I think we can do a one-on-one and get into details to each of these questions. And Sanjay, me or Indrajit are available at any point of time to answer any of your issues. Thank you so much for your time.

Moderator: Thank you very much. Ladies and gentlemen, on behalf of IndusInd Bank Limited, we hereby conclude this conference. Thank you for joining us and you may now disconnect your lines.

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