Indusind Bank Q1 FY27 Earnings Conference Call | Concall.in

Thank you. Good evening to everyone and thank you for joining us. I'm also joined here by our two EDs designate Chag Mani and Ganesh Sanka as also our CFO Viral Damna. I will begin with a broader operating environment and then share how the bank is progressing on its strategic priorities.

Despite an uncertain global backdrop, India's economic momentum has remained resilient supported by strong macro fundamentals and a stable financial system. For the banking sector, this continues to provide a constructive backdrop even as funding discipline, risk selection and execution quality remain important differentiators. Against this backdrop, Q1 marked a clear inflection point for the bank. Having substantially completed the balance sheet and earnings calibration undertaken over the past year, we have now entered the next phase of our journey, focused on accelerating sustainable risk-adjusted growth from a significantly stronger operating foundation. The progress made across deposits, asset quality, profitability and capital position gives us confidence that the bank is well positioned to deliver stronger growth, improving profitability and better returns in the coming quarters.

We will now move to key highlights of Q1 and then cover business-specific progress and financial performance. The balance sheet pivoting towards growth. Our end of period deposits and advances grew 3.7% and 3.3% QoQ respectively, reversing the moderation witnessed through much of the last financial year. Deposit franchise continues to strengthen with average retail deposits growing 4% QoQ and share of retail deposits as per LCR further improving to 49.5% from 47.9% QoQ. On the asset side, we resumed growth in the wholesale book under our revised risk-return framework. While theme and retail portfolios were broadly stable, within retail we saw steady disbursements across segments. However, Q1 seasonality kept the outstanding portfolios flat QoQ.

Improving asset quality trajectory. Importantly, growth momentum was achieved without compromising portfolio quality and provides an early indication of the underlying traction now emerging across the franchise. Annualized net slippage improved further to 1.5% versus 2.43% YoY and 1.7% QoQ, with microfinance asset quality improving materially and moving steadily towards more normalized operating levels. We undertook write-offs of 1,435 crores during the quarter. As a result, both gross NPA and net NPA improved to 3.25% and 0.95% respectively with stable PCR QoQ. The improvement is now visible across portfolios and early stress indicators reinforce our confidence that the corrective actions and underwriting changes implemented over the last several quarters are translating into structurally strong credit outcomes.

Building an AI-powered bank. We believe AI will be a key competitive differentiator for the bank. Our focus is on embedding AI deeply into customer engagement, credit decisioning, risk management, and employee productivity, enabling superior customer outcomes, faster decision making, and improved operating efficiency at scale. We continue to scale AI adoption across the bank with over 12,000 employees already receiving training on AI. Our AI-powered knowledge management platform, Indus Compass, serves 15,000 plus monthly active users and delivers over 55,000 responses every month. While our enterprise AI chat platform has 12,200 monthly active users, generating around 875,000 interactions each month. AI and machine learning are increasingly embedded across our customer credit and risk management journeys. Multiple ML models enable personalized customer engagement while our suite of 50 plus ML models evaluates nearly half a million loan applications every month, helping underwriters make faster and more consistent credit decisions. AI is also a key enabler for our risk management framework. Our ML models monitor transactions for around 40 million customers on an hourly basis, strengthening fraud detection, financial crime prevention, and overall operational resilience.

Financial outcome for Q1. Pre-provisioning operating profits (PPOP) stood at 2,773 crores, growing 8% YoY and 21% QoQ. Even adjusted for a one-off income tax interest recovery, the PPOP growth was robust at 8% QoQ supported by balance sheet growth and ongoing optimization of operating expenses. Provisions declined further to 1,384 crores with continued improvement in asset quality outcomes. As a result, profit after tax improved sharply to 1,037 crores from 594 crores in the previous quarter, reflecting the meaningful improvement achieved across growth, asset quality and improving operating performance. Excluding the one-off gains, ROA improved to 63 bps and we remain firmly focused on progressing towards our immediate target of an ROA of 1%, supported by improving business momentum, lower credit costs and continued operating leverage. Our capital adequacy is healthy with a CET1 ratio of 16.1% and CRAR of 17.15%, providing ample capacity to support future growth.

Let me now take you through individual businesses. On vehicle finance, our book now stands at 99,718 crores, growing 3% YoY while remaining stable QoQ. Overall vehicle disbursements for the quarter were 10,832 crores. Our disbursements excluding two-wheelers also grew 3% YoY in line with the loan book. As mentioned in earlier calls, we continue to calibrate our two-wheeler distribution and underwriting. This along with the impact of GST change in Q2 last year contributed to overall disbursements falling 4% YoY. The annualized net slippage for the quarter was down at 2.01% versus 2.29% YoY supported by tighter underwriting in two-wheelers and tractors and maintaining diligence in the other segments. The slippages were higher QoQ due to seasonality. Our overall book remains rangebound and we expect asset quality trends to improve in H2 as seen in earlier years. We continue to advance our digital transformation agenda through deeper Salesforce adoption across key product segments. We also rolled out process and compliance automation initiatives, expanded digital sourcing capabilities, and progressed our straight-through processing agenda. Looking ahead, our focus will be on strengthening market leadership through digital and AI-led customer journeys, expanding our presence in underpenetrated geographies and deepening our customer engagement through cross-sell of liabilities and retail banking products. We continue to see opportunities to gain share across key vehicle segments while improving productivity and turnaround times.

Rural banking. Let me now turn to our rural banking portfolio where we have seen encouraging progress during the quarter particularly in microloans. Asset quality trends in the microloan portfolio further improved meaningfully with key indicators such as fresh slippage, collection efficiency and overdue levels moving closer to normalized levels. Gross slippage moderated to 191 crores versus 884 crores YoY and 504 crores QoQ. While the 31 to 90 DPD book declined to 6% versus 2.2% YoY and 0.9% QoQ. Disbursements were at 5,200 crores broadly in line with the previous quarter despite a seasonally weaker Q1. The overall micro loan book stood at 16,35 crores, declined 3% QoQ. Around 74% of the portfolio is now covered under the CGFMU credit guarantee including Q1 disbursements which are currently under process of being covered. Beyond microfinance, we continue to make good progress in diversifying our rural franchise. Our merchant finance portfolio grew 11% YoY to 8,95 crores serving over 575,000 borrowers while the affordable housing portfolio grew 21% YoY to 2,889 crores. Kisan credit card and other rural products stood at 4,128 crores. With microfinance stress now moderating meaningfully and portfolio quality improving steadily, we believe the business has reached an important turning point creating the opportunity to gradually pivot from repair towards growth while maintaining underwriting discipline and diversification initiatives.

Consumer banking assets. We continue to reshape our consumer banking franchise with a greater emphasis on secured loans while maintaining a disciplined approach towards unsecured products and portfolio quality. We have strengthened our leadership team with experienced talent that has successfully built large-scale retail asset franchises. We have also invested in enhancing our distribution, analytic and technology infrastructure across customer journeys to support sustainable scale. Overall consumer banking assets at 31,617 crores grew 2% QoQ. The actions taken over the recent quarters are beginning to gain traction reflecting in consumer asset disbursements growing 16% QoQ. We expect the resulting momentum to increasingly translate into stronger portfolio growth over the coming quarters. Secured lending has been a primary growth driver during the quarter. Our home loan portfolio grew 38% YoY and 6% QoQ to 6,889 crores while the gold loan franchise continues to scale up with the book crossing 1,200 crores. In unsecured lending, we have maintained a selective approach prioritizing portfolio quality while investing in customer retention, analytics, sourcing and cross-sell opportunities. Personal loan book at 9,930 crores de-grew 4% QoQ and credit card loan book at 9,418 crores de-grew 3% QoQ. Asset quality improved with annualized net slippage at 4.19% versus 5.76% YoY and 4.22% QoQ. Over the medium-term, our strategy remains focused on scaling secured lending businesses such as mortgages, gold loans, and other asset-backed products while continuing to grow unsecured portfolios through analytics-driven customer acquisition, deeper customer engagement and cross-sell. We believe this approach will drive sustainable granular risk-adjusted growth across the franchise.

Theme banking represents one of the most significant medium-term growth opportunities for the bank and will be a key contributor to our growth strategy going forward. During the quarter, our focus was on strengthening the franchise operating model and execution capabilities under the new leadership team to create a stronger foundation for future growth. We launched several initiatives to deepen our presence among SMEs and emerging businesses with a greater focus on transaction banking, trade finance, supply chain solutions and ecosystem-led client acquisition. The underlying business momentum in theme remains encouraging net of migrations to wholesale banking. Our LAB portfolio grew 8% QoQ and business loans grew 4% QoQ. The actions taken during the quarter position us well to accelerate growth, deepen client relationships, and improve cross-sell opportunities in the periods ahead. Our focus remains on becoming the preferred banking partner for entrepreneurs and emerging businesses through ecosystem acquisition, transaction banking, supply chain finance, and sector-focused solutions.

Moving to the wholesale bank, we successfully re-accelerated growth in our wholesale bank franchise during the quarter following the completion of portfolio optimization and operating model enhancements undertaken over the last one year. Our average wholesale bank loan book grew 7% QoQ marking an inflection point following the portfolio optimization and recalibration undertaken over the last year. Growth was broad-based with all three subcategories - mid-market, large corporate and institutional banking groups - showing healthy QoQ traction. The proportion of A and above rated customers of wholesale banking portfolio was steady at 82%. With business momentum picking up, our corporate and theme fee grew 28% QoQ. Our focus continues on building sustainable fee income streams with transaction banking fee contributing 55% of the overall wholesale and theme fee incomes. Asset quality in the wholesale portfolio continues to be robust with annualized gross and net slippage improving to 0.17% and 0.09% respectively. Overall, our focus remains on building high-quality relationships across corporate, institutional and government segments while selectively participating in sectors aligned to India's structural growth opportunities. We believe a combination of disciplined lending, deeper transaction banking engagement and a higher fee penetration will drive sustainable growth and profitability for the franchise.

Now coming to liabilities. Building a granular, stable and cost-efficient deposit franchise remains one of the bank's highest strategic priorities and we made further meaningful progress during the quarter. Average retail assets as defined by LCR now stand at 1,90,166 crores growing 4% QoQ. The share of retail deposits now stands at the highest ever level of 49.5% versus 46.2% YoY and 47.9% QoQ. The share of CDs in total deposits and borrowings in total liabilities were steady at 5.9% and 7.9% respectively. Liquidity position improved during the quarter with average LCR at 127% versus 118% QoQ. Cost of deposits improved by 12 basis points QoQ to 5.95% reflecting the benefits of the improving deposit mix and optimization initiatives undertaken over the past few quarters. The improvement was driven both by SA and TD pricing downwards. We have a strong NRI deposit franchise with a market share of approximately 3.6% much ahead of our natural market share in overall deposits. This positions us well to participate in the ongoing FCNR(B) mobilization efforts. Our affluent banking along with NRI franchise now contributes 85,000 crores of deposits for the bank which grew 2% QoQ. Our efforts on streamlining and strengthening the product offering continues this quarter as well especially on the senior citizens proposition, mobile app enhancements etc. These along with other customer engagement initiatives has resulted in robust new-to-bank acquisition run rates for the quarter. Overall our strategy remains focused on deepening primary banking relationships across retail, affluent, NRI and entrepreneur segments. We continue to leverage our distribution network and digital capabilities to drive granular deposit growth, improving funding quality and further strengthen the liability franchise. The continued increase in the retail deposit share reflects the strength of our franchise and provides a significantly stronger foundation to support future balance sheet growth. Let me now hand over to Viral to take you through the financial performance.

Thank you, Viral. Overall, Q1 marks an important milestone in our journey. We delivered a return to balance sheet growth, further strengthened our liability franchise, continued to improve asset quality and achieved a meaningful recovery in profitability. More importantly, the strategic actions undertaken over the past year have materially strengthened the quality of our balance sheet, earnings profile, and operating platform. As a result, we are entering FY27 from a position of greater resilience with stronger fundamentals and improving business momentum. Looking ahead, our priorities remain clear. Accelerating profitable growth across retail, theme, rural and wholesale banking. Deepening our deposit franchise, scaling transaction banking capabilities, and leveraging our digital and AI investments to enhance customer experience, productivity, and risk management. With strong capital, ample liquidity, improving asset quality, and a strengthened operating platform, we are well positioned to deliver sustainable growth, steadily improve profitability and returns, and create long-term value for all stakeholders. With this, we can now open for Q&A. Thank you to all of you and over to you.

So I think the growth that we are seeing on the corporate side is a function of the strength that we have built in that business over the last 6 to 9 months. Yes, there are ample opportunities that are available in the marketplace at this point across mid-corporate, large corporate and strategic corporate. But we will pick and choose those transactions that make sense for us from a risk and return perspective. What is also important to us is reciprocity, meaning that we will do transactions where the probability of getting reciprocal transactions, meaning transaction banking, current account floats, payment of GST, salary accounts etc., the probability of that is higher than the others. And so therefore we think of this not as individual transactions but rather as relationship building and like many other banks we use a RAROC format to be able to assess the profitability on the wholesale side. Given where we are, I think there is ample opportunity for us to grow on the wholesale side but having said that, the other engines of growth on theme, the more traditional retail asset businesses and core trends which have been vehicle and microfinance are also showing a strong trajectory to be able to grow. And so therefore we will obviously want to optimize growth such that we meet our ROA aspirations.

See, if you look at the disclosure that we have made, 82% of the portfolio is A minus and above. And so therefore even within that framework we have found ample opportunities for us to be able to grow profitably while containing or managing risk.

Kunal, I think there is still a lot of work that we need to do on the deposit side both on quantity and quality. I think what we are beginning to see is really the beginning of that journey. I'm not saying that this will happen every quarter but I think the work on improving both quality and quantity has begun. I mean, if you look at the cost of funds gap between us and our closest peer, it's about 150 basis points or so. Our aim is to continue to close that gap in the medium term.

I think both microfinance and commercial vehicle Q1 typically is seasonally weak. And even in that situation, if you look at disbursals on the microfinance side have actually been flat on a QoQ basis. And so therefore you should see meaningful acceleration on the microfinance business really from Q2 onwards. And similarly, you've seen that disbursals on the vehicle finance business ex two-wheelers continues to accelerate. Our medium-term ambition there, we've lost some market share over the last few years, our ambition there is to get that back. Similarly, if you look at the more traditional retail asset businesses, those were actually de-growing over the last 12 to 18 months. What you see, the disclosure, disbursements there are actually up 18% QoQ and that's really the beginning. And the overall portfolio itself is quite small and so therefore in some of these other businesses it's either been that these are seasonally weak and therefore are showing up as you rightly described, or they are the building blocks are now getting in place. The disbursals are beginning to accelerate. So I think you should see over the next three quarters many of these beginning to kick in.

So some of that answer lies also in what you've seen in Q1, right? The delta has really come from credit costs, low credit cost and lower expenses. And therefore PPOP to credit costs has been 60/40 really in that first quarter journey and I think that will pretty much continue for the rest of the year as well. That's really how I'm seeing it right now. PPOP 60 and 40 from lower credit costs coming into that 1% journey. Now the building blocks within that PPOP may change by quarter and trying, you've seen the NIM lower in this quarter but as the other businesses start growing we'll see some of that come back on NIM but then some of the expenses start growing as I said, so there'll be some movement in terms of lines but I think easy way to think of it is 60/40, 60 on PPOP, 40 on credit costs, but again we'll firm up as we go through the quarters.

So like I mentioned in my commentary, both CET1 and overall capital position continues to be strong. So therefore this is just an enabling resolution. I mean we will decide at some point in time whether we require capital or not but at this moment it's only an enabling resolution.

Can I get Jagdeep to answer that for you?