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 & INVESTMENT BANKING 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 Bank 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 India 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%. Page 2 of 19 IndusInd Bank Limited April 30, 2021 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: Page 3 of 19 IndusInd Bank Limited April 30, 2021 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.