IDFC First Bank (NSE:IDFCFIRSTB) Q1 2027 Earnings Call

0:00 Ladies and gentlemen, good day, and welcome to IDFC First Bank's Q1 FY 'twenty seven Earnings Conference Call. As a reminder, all participant lines will be in a listen only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Please note that this conference is being recorded. I now hand the conference over to Mr. Saptarshi, Pappari, Head Investor Relations and ESG. Thank you, and over to you, Mr. Pappal. Thanks, Ranjoo. Thanks a lot. Hi, everyone. Good evening. Thanks for joining the call. We have with us Mr. V. Vedarathan, MD and CEO of Bank and Sudanshu Jain, our CFO.

0:46 So we'll start with a brief financial update with Sudanshu, and then we can have some words from Vedya, and then we can open the forum for Q and A. Okay? So I'll hand over to Huzanshu. Huzanshu? Yes. Thanks, Aptarishi. Good evening, everyone. First of all, thank you for participating on a Sunday evening. I will start with in terms of sequence, I'll start with maybe the business side and then eventually cover the profitability segment. I would say that the business momentum was quite strong during the quarter. In fact, our customer business, which is your deposits plus your funded assets, that has crossed INR 6 lakh crores during the quarter, and we saw Y o Y increase almost about 20%, both put together.

1:34 Individually, if I now talk about loan book, there also, we registered a strong growth of 20.6% on a Y o Y basis, and that book has now crossed INR 3 lakh crore to reach about INR 3.05 lakh crore. This incremental growth on the loan side was primarily driven by mortgage, vehicle, corporate loans and consumer loans. We have given a fairly detailed breakup on Slide 29 of the presentation. If I talk of the retail segment, retail agri and the MSME book, that was at INR 2.4 lakh crores and the wholesale book was at INR 64,000 crores at June quarter. The retail agri and MSME book grew by about 18% on a Y o Y basis. And in wholesale, we continue to power up and there the growth was even stronger at 30%.

2:22 Just another data point, the MFI book was at INR 6,700 crores at June 26 end. We saw marginal increase as against the previous quarter. Also another point, which I want to put out is that 93% of the book is now covered in MFI through the CCFIRSTB coverage. With respect to credit cards, the cards in force have now reached INR 4,800,000 during the quarter. The book grew by about 19% on a Y o Y basis and was about INR 9,600 crores. The spend on the credit card grew at a healthy pace of 22% on a Y o Y basis. Moving on to the wealth management business that where the AUM has now reached almost about INR 64,000 crores, and it grew at 24% on a Y o Y basis.

3:10 In the same breath, if I now talk of the asset quality, then again, on the asset quality, we saw an improving trajectory, both across GNPA, NNPA, SMA and some of those ratios. Just to put out some numbers, the gross NPA of the ratio of the bank further improved by 10 basis points from 1.61% reported in Q4 to 1.51%. Similarly, on net NPA, we saw an improvement of four basis points to 0.44% for the quarter. If I now give further details around the retail, rural and MSME segment, there also sequentially, the gross NPA improved by seven basis points to 1.4%. And similarly, net NPA improved by four basis points to 0.52%.

3:56 Moving on gross slippages, happy to report that here we saw a 2% reduction on a Q on Q basis. And on net slippages, we saw an improvement about 4%. Gross slippages, if we have to compare on a Y o Y basis, then it's almost down with 30% and net slippages was lower by about 44% on a Y o Y basis. We know that last year initial quarters, we also had higher slippages coming from MFI. But even if we exclude MFI slippage for both the corresponding quarters, the decline in gross and net slippage was 1428%, respectively. In terms of translation to the overall slippage ratio, that further improved to 2.49% in the current quarter as compared to 2.68%, which we saw in the previous quarter.

4:49 The collection efficiency of the bank continues to be quite stable. Now for many quarters, it was at 99.5% for the current quarter. Moving on to SMA one and two numbers. There, we saw continue to see an improving trend. The SMA was at 0.77% in Q1 FY 'twenty seven from 0.78%, which we saw in the previous quarter and 1.10% in Q1 of last year. We have given a fairly detailed breakup across segments in terms of how SMA and NPA numbers have fared for us. Similarly, in microfinance, I would say things have largely got restored on the asset quality front. Here, the SMA one and two normalized to now only 0.71.

5:39 If I now talk of deposits there, then happy to report again that customer deposits now is just shy of INR 3 lakh crores. It grew by about 16.6% on a Y o Y basis and 5.3% on a Q on Q basis. If I see a total deposit, which is customer deposits plus certificate of deposit, then the growth was about 17.7% on a Y o Y basis and 5.9% on a Q on Q basis. Within customer deposits, CASA deposits, I would say, grew the fastest. So CASA ratio for the quarter as a result improved by 1% to 50.8% and average CASA ratio was stood above the 50% mark at 50.1%. The CASA deposits have now touched INR 1.58 lakh crore. So I would say the another milestone across during the quarter was CASA going beyond INR 150,000 crore.

6:36 Moving on to now the profitability section. Happy to report that we have gross profit of INR 1,000 crores for the first time and the profit for the quarter stands at INR $10.75 crores, which is an improvement of about 132% on a Y o Y basis. During the quarter, all operating matrices continued to demonstrate an improving growth trajectory. For example, NI grew by 21.1% on a Y o Y basis. This, in fact, improved from 15.7%, which we saw as a Y o Y increase in the previous quarter. As a result, the net interest margin on an AUM improved by three basis points to 5.96% from 5.93 in the previous quarter.

7:25 However, let me point out that the last quarter had a benefit of day count convention of about eight basis points. And in this quarter, we had some benefit on account of interest on income tax refund, which contributed to six basis points. If I exclude these two line items from the individual quarters, then the NIM has shown an improvement of five basis points and adjusted numbers would look like 5.85% going up to 5.9%. This improvement was largely contributed by a reduction in cost of funds, which further came down from 6% to 5.96%. Moving on to the fee and other income. Here also, we saw strong growth, I would say, backed by disbursements, which almost increased by 25% plus on a Y o Y basis in Q1.

8:14 And as a result, the overall fee income increased by 22.9% on a Y o Y basis compared to 21.3% Y o Y, which we saw in Q4. The other streams of fee income, which is your trade and FX, which is your commercial banking and all these digit fees also continue to contribute strongly to the fee growth. As a result of the increase in the NII and the fee, the total income for Q1 on a Y o Y basis was 21.5% higher and versus about 17.1% what we had reported for the previous quarter. During the quarter, we had a good run on the treasury front.

8:59 Of course, that was helped by reduction softening of the G6 yields to some extent. And hence, we were able to get a treasury gain of about INR 181 crores in Q1. Moving on to OpEx. The OpEx for the quarter stood at INR 5,729 crores. This grew by 16.4% on a Y o Y basis. And the sequential increase in OpEx, if we exclude the impact of the one off fraud incident in Q4, then it was 2.3%. This increase of 22.3% on a sequential basis corresponds to an increase in core income by about 4.6% on a sequential basis. As a result, the cost of income cost to income ratio, excluding trading gains, improved by 166 basis points on a sequential basis to 70.7% and by three ten basis points on a Y o Y basis. We have also mentioned in the presentation that the job, which is operating job between the total income and OpEx for Q1 now almost stands at about 500 basis points, which to some extent has also translated into improvement in the cost to income ratio.

10:11 As a result of all of this, the operating profit of the quarter, excluding trading gains, has increased by 36% on a Y o Y basis. And even sequentially, again, here, I would exclude the impact of the fraud incident, the improvement was 10.9% on a sequential basis. So for last two quarters in a row now, we are getting an operating profit increase of upwards of 30%. Moving on to provisions. This reduced by 31.1% from INR $16.59 to INR $11.44 crore. On Q o Q basis, if you see, it has remained at the same level. Last quarter, the actual credit cost was about INR $11.43 crore.

10:57 During the quarter, we had received claim of INR 514.8 crores under the CGF scheme against MFI portfolio. Here, I would just want to put a data point that we believe that we applied in this quarter and we got it in this quarter, which was quite fast in that sense. Another point to call with respect to provisions is that we have created a contingency provision of INR $5.15 crores. This is purely, I would say, voluntary and on a prudent basis, considering the evolving macroeconomic and the geopolitical uncertainties and the monsoon related factor. I would again reiterate that the bank's current asset quality performance remains quite healthy across key retail, rural and SME portfolios with delinquency indicators largely stable or improving. And hence, this provision is purely, I would say, a forward looking and more prudent in that sense.

11:59 In terms of credit cost percentage for the quarter, that further improved from 1.63% to 1.53% during the quarter. Moving on to the last section, which is capital adequacy and liquidity. The capital adequacy ratio stood at 15.05% at June with CET1 ratio of 13.33%. We had an impact of about 30 basis points on account of ops risk RWA reset, which typically happens in Q1 on the CET1 ratio. On liquidity, I would say we continue to maintain LCR at stable levels. In fact, average LCR ratio for the quarter based on was about 116%.

12:44 And this broadly around our guided range, as we have indicated in the earlier calls. With this, I have tried to cover the key numbers. Maybe I'll hand over now to Vaidya for his opening remarks. Good evening, everybody. So Sudhanshu covered the numbers, so I'll keep the comments on that. The thing is that beyond the numbers, what the bank is really building is what we think is a really what we're trying to build is a really high quality customer first bank. And this goes core to the culture of the bank because when we say customer first bank, then it's just not a slogan, every policy of the bank, every product of the bank, every way of our employees interact with customers, how they give the customers benefit or doubt in the event of a complication or an error of opinion or difference of opinion, everything has to reflect that. For example, we hate to put Asterix in our advertisement because we know Asterix, people don't see that, and they just get jump into the advertisement and they start taking the product.

13:55 This happens. For example, even after four or five or seven years of talking about that, even now, sometimes when go to meet any of our employees, see some responses from our employees to some customers, I find it may not be customer first. And there'll be have just put in the customer for some small amounts and negotiated unnecessarily. So I do find such things, but it's a long process, but every product we put we try to bring that in. We try to see that we don't write fees and charges in such ways as complicated languages customers don't understand. We don't charge fees just because the customer doesn't notice, just because you don't notice, I can't bill you. So we do if somebody is if you're selling a mutual fund, we don't just pick a mutual fund that gives the highest commission and sell it to customer. We go and do a deep, deep analysis using AI and sell find mutual funds, which will give maximum return to the customer.

14:51 Whether we get 0.7% or 0.8 or 0.9, 1% is all round off numbers. We don't really look try to maximize that front. So this is what I mean by saying that we're trying to really build that. And that's one big part of the bank is building. It will show in due course. To an extent it's showing, I think that's it's reflecting the number somewhere. But it will also show in due course. I can't tell I can't surely tell that every part of this is helping the bank in terms of P and L. It costs money to build a bank like this. But this is great long term franchise. Second thing, I'd say that there is governance. I can tell you that even during the most difficult times when we were starting the bank up six or seven years ago when they're posting loss of three or four quarters in a row for those bad loans, we did not have any PIPOP at all. In fact, our PPOP was like 0.5%, point 6%. Our credit cost used to be 1%. So really, that left us with no profit on the core.

15:44 Even then, we didn't find cute solutions around our situations. We went through that boldly and dealt straight. So governance, you'll not find us lacking. If something in that event happens, I don't know. But no one that I know of in our bank, in our Board, among our colleagues, among senior management, anyone would ever talk anything or even say there's something can go bad on governance. So you should rest assured that means seven years, and many of you who know me for twenty five, thirty years would know that we have lived that life like that, and we'll not go. And that should definitely, in good and bad days, should give you comfort that this bank will deal the deal straight and deal right. The third thing is then comes down to is technology.

16:31 I can tell you that tech is a big thing. And our bank now for many, many years have been making the right moves on technology. It's not really the cost. People think tech has cost money. It's not about costing money. It is about building the right architecture, having the right quality of people and building a stack in and out our customer data platforms, our KYC platforms, digital onboarding, payment infrastructure, communications and risk and decisioning engines, API, data streaming, machine learning, artificial intelligence, the whole stack and UIUX and everything. We really try to, let me say, even customer intelligence, customer data platforms, everything is like we really put an effort in building that. And customers are using the bank services now, whether using our app, using our call center, they would have I'm quite sure they would have seen the experience. In fact, when I often go to conferences, if I have to speak a panel, etcetera, I often ask people to put up their hand, so many of them have customers at the bank, you'll be surprised.

17:35 I do find quite a few people. So the point is that we are trying our best to stay in the cutting edge of technology and governance and customer service, I told you. The last thing is finally, this has to, of course, translate the numbers end of the day because from the market point of view, you track numbers and you should. But my sense is that whatever numbers we'll post, we believe it's coming strong from the core. And it comes strong from the core, it gets more sustainable. And on that front, let me just say that for the last many years, we've had we've been under the pump on this issue of cost in the ratio. I don't deny. In fact, in the first one, I got it wrong because we thought we will fix it in five years. It's been seven years since we're still dealing with it. But then I just realized that the issue was some amount of income got wiped out because we wrote off a lot of bad loans. And along with that, income also went away permanently. Some amount of cost issues also came from the fact that we were really building, while we may have got the cost income issue wrong, which I don't deny, I told you, I admit. But then there are so many things we got right also. Beyond the normal, for example, we sell will be INR 1 lakh crore of retail loans at the end of five years or five to six years, we are sitting at INR $1.71.0.8 lakh crore at that period. Today, we are INR 2.5 lakh crore. That's like INR 80,000 crore more than what we talked about. We talked of cost of 30%. Now we're talking

19:05 cost of 50%. It is not planned. So there are many things that NRI deposits. Now we're talking about INR 25,000 crores of NRI deposits in the bank. So we didn't factor for maybe for so many loans that came to us. Didn't. So if we didn't factor for certain bad loans, fine, it's our mistake, I don't deny. But the fact is that starting up a bank, there's just so many expenses on compliance, on setting up the ticketing systems, the CRM systems. It's just an expensive proposition. And I must thank you that while in the phase of building the bank, we let me say that the market has given us capital. We have again, our book value per share has gone up from some 31 or 32 to maybe 56 or 57 now, Sudanshu.

19:58 56 now. And I agree that all of it does not come from raising internal profits. A lot of it has come by raising capital at a premium. And but even though our return on equity used to be relatively low those days, 5% or 6% on average, the investors have all of you have given us capital at about 1.5 price to book or 1.6 price to book, which has helped us build the network. So I don't deny these things. They've all but they've all come helped us in good measure because the but end of the day net worth is net worth capital is capital and the book value per share is book value per share. We have it now. Now our job is to grow return on equity. I mean we strengthened the bank for capital raise, I agree. But now it's our job to now that we got adequate scale, we believe that the costincome ratio will get fixed definitely.

20:48 Actually, if you see our costincome ratio over the last two or three years, it initially it came down from 95.1% because of Q2 FY 'nineteen, it came down to 85% upon merger because Capital First came at 48%, and it came down to Blend Blend came to 85%. From 85%, it moved down to 72%, right up to 72.8%. But in 'twenty five in 'twenty six, two years in a row, it got stuck at 72.5% or 73.5%. So many people started worrying that, look, maybe they're stuck and maybe there's no scope of improvement anymore. I think that is not right. It got stuck because even during those days, 'twenty five and 'twenty six productivity gains were coming.

21:34 But the income was coming down because the microfinance book, we shrunk it and income went away. After all, what is cost to income? It's cost divided by income. So income got stuck. I mean, it got stuck when it got reduced because the microfinance book, we reduced it. So but that is a let me say that is a mathematical thing. But there were productivity gains coming at that time, which kind of got obscured. But now that the microfinance issue is a bit of the base case, now we will start seeing improvement in cost income ratio quarter on quarter. Sorry, let me say year on year, quarter on quarter, I can't say for sure, sometimes moving parts happen year over year. But let me say year on year, we should expect to you should expect to see in that phase that for two or three years, we got stuck, we believe it will start materially moving down year on year now because it's all in the base case now.

22:25 So just moving on from the tech thing. And from there, I talked about economics. On the economic front, the last thing people often say is that, listen, even well meaning investors, long term people who think long, they often say that, look, we like your model, everything is good. But still, end of the day, until you're posting 1% ROA, really, we can't look at you. That's the base case. Let me just tell you that when we do our math, we drop a spreadsheet. We know the income we're making. We know our cost of funds. We know the margin. And we stretch this spreadsheet into the future. Let me just tell you that this is not going to stop at 1% ROA. Even this time, ROA 1% that we mentioned, there has got some kind of one let me say, some amount of income tax, some interest income into it. Is it a treasury gain? Treasury gain. Treasury gain. Yes, treasury gain is also there and some benefit here and there. But if you adjust for it, maybe it'll come down to about 90 basis points, not 106 as it is looking.

23:28 But still 90s, 90s like touch and go. I remember in a couple of interviews, even with CNBC during the death of the crisis, I took an interview just to assure people that things are well. And that is an interview with Latam Venkatesh, and I was telling that we'll be increasing distance of 1% by end of the year. I'm just happy to share with you that we are not taking end of the year. We're already assessing distance. We're touching 0.9%. It's real, real. And we think that it will move up from here, definitely stabilize from here, probably go up from here. And at least by this year, in fact, not just by the year ending, but hopefully, for the year itself, we should be able to post 1% is our belief as far as our eyes can see. So that's a bit of an upgrade, and that's coming in our mind because credit cost is better than expected.

24:19 So all I can say is that all of you have been very supportive for us. We are very sincerely thankful to you. We want to thank all our employees who have worked very, very hard in bringing up this bank from the beginning. And every one of the shareholders who supported us with capital, I can assure you that things are looking up. And for those who have not yet who think that probably this is a one quarter thing, I'm pretty sure you wait for one more quarter, one more quarter, you'll get a confidence back. So thank you for that. Hi, Vaidya. Ranju, we can open the forum for the Q and A session now. Yes sir, thank you. We will now begin the question and answer session. Participants are requested to use handset while asking a question.

25:18 Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question comes from the line of Akshay Jain with Autonomous LLP. Congratulations on a good quarter. So my first question is on margins. So like if I look at cost of funds, that is still improving with additional tailwind from tariff cuts if and when it comes.

26:10 So that means with asset mix shift. So is asset mix shift expected to be so severe that your clean margins of 5.9% this quarter will turn into 5.75% for full year? So that's my first question. Yes. Thanks, Akshay, the question. Yes. Maybe should I respond to this? Or should we you want to continue with all your other set of questions? Anything is fine, sir. Like maybe you can So respond to question on yes, I do agree in the previous earnings call, we had guided for a 5.75% margin. And we have come at 5.9% if you adjust for income tax refund. But now for the year, our expectation is that we could hit margin closer to 5.8%.

27:00 So in that sense, we now feel that margin could improve from 5.75% to 5.8%. If we see for this quarter, as I said, the margin was 5.9%. We still got some benefits because we ran a lower investment book. So from here on into the year, we see the margins could still slightly get impacted because of the asset mix change, which we've articulated in the previous one as well because we have been growing some segments of business, which could be NIM dilutive, but still makes sense from a ROA sense, but still it could be a margin impacting factor. Second, we feel the cost of funds could stabilize, could stay very range one around the 6% mark. So that's the second factor. And some normalization of the investment book, which may happen during the course of the year.

27:48 So we feel that margins could broadly stay around the 5.8% handle now for the full year. Okay, sir. And any sensitivity have you done for how your margins will move in case of rate hikes? Any numbers you have done? So I have not factored in any rate hike when we are giving these projections. We'll see as it comes by. Okay. The second question is on credit cost. So again, for 1Q, your credit cost has been around 153 basis points. And 1Q is typically the weakest quarter for the year. And if you are beating your guidance of 180 basis points, 190 basis points in 1Q itself. So is there any scope for bringing down the credit cost guidance?

28:38 And number two is on the prudential provisions. So are you seeing any signs, early warning indicators turning negative because of the Middle East war or weaker monsoon? So on credit cost, yes, to a surprise, Q1 has fared quite well. In fact, we spoke in the previous quarter, Q4 typically ends to be the much better quarter. Collection momentum is quite strong there. But from an asset quality front, we have seen all of this sort of flowing into Q1 as well. Even and hence and we have said that all the asset indicators, which we have put on the presentation, SMA, GNPA, NNPA, all sort of product wise is trending well. We have, of course, created a contingency provision, which I would say is more on a prudent basis. We all know the uncertainties which we are currently dealing with in terms of the geopolitical factors, which could play out.

29:33 Monsoon, of course, rains have been improving, but still we felt that it would be prudent on our part to take into account some of these risks, which could emerge over the later part of the year. So I would say it's purely a prudent provision. Taking all of this account into account, I would say, of course, as I said, there could be still some bit of uncertainty here and there. But on the credit cost guidance also, while we said 170 to 180 basis points in the previous earnings call, we feel now we could land up more with 150 to 160 basis points on credit cost. So we and that is coming on the back of a much improved Q1 and how we see at least the current quarter and some of these things would play out. Thank you, sir. And on ECL, any numbers on onetime transition and steady state credit cost?

30:27 So on this, again, I think we have discussed this question also quite a number of times in the previous calls, but the position continues to be the same. Of course, the final guidelines have come in. We are fine tuning some of the numbers. But our preliminary sense is that from a capital point of view on transition, there will be two impacts. Of course, we will be required to keep more capital aside for ECL, but there would be also benefits which would come from a reduced RWA application, both on credit risk and operational risk. So in a combination of both, we feel that the impact on capital could be quite neutral at the time of transition. So that is our current sense as far as ECL is concerned. Understood. And the last question, if I may, on FCNRB.

31:16 So if you can share some targets or what is the current mobilization? And how are FCNR costs compared to normal GD costs? So FC and R also, we see we also see this as a good very good opportunity, and we want to capitalize to the extent possible. Like if you would have noted, we have given our NRI deposit book, right, which is about INR 25,000 crores. If you go and check, the system is about 650,000,000,000, which means that our share is about 1.7% currently in the NRI deposit market. Of course, this is a book which we have started growing more so in the last two to three years and growing in a much healthy space. With respect to FC and R, we feel that through a combination of leverage and the SBLC structure, we are trying to we are hopeful of garnering a share of about 2.5% or so. So that is how we are looking at it. You would have noted that on FC and I deposits, we have announced a rate of 6.75%, which is quite competitive.

32:21 And we feel that is a very good opportunity, which we want to capitalize. Understood, sir. Those are my questions. Thank you. The next question comes from the line of Param Subramaniam with Investec. Please go ahead. Congrats on the quarter. Clearly a strong bounce back from the issues we had in February, and it's happened so quickly. So congrats on that. The first question is on the OpEx. So our guidance is 13% to 14% for the full year. I understand business is coming back strongly. So are we still sticking to that sort of guidance, 13% to 14% OpEx growth through the year?

33:10 Param, thanks for the question. So I would want to state here that the business momentum continues to be very strong as we see now. Of course, we are cautious of the macro factors, which would play out. And we would our endeavor would be to maintain that OpEx leverage, right, which is that 500 bps delta, which we were able to achieve in Q1. So it all depends on the business momentum, what we see from here, but we are quite hopeful of maintaining this jaw even into the rest of the quarters. That's how we are seeing it. So there could be, I would say, a change in both the income side as well as the OpEx side, but we would want to still maintain this 500 bps at the minimum.

33:57 Okay. Fair enough, Suraj. Okay. So the main drivers of our, say, ROA improved guidance is the 20 basis point upgrade you gave on credit cost guidance and on NIM, you said five basis points higher. So those are the main positive Yes, things that broadly. You're talking Okay. Going into FY 'twenty eight, I know it's very early days, but and as I mentioned, 1% is not where we stop. So how to think about, say, how the ROACE three progresses going into next year? It should increase naturally, no? Should decrease naturally because next it will be more see this thing what Sudanshu pointed out. See, if you remember, we had talked about 13% to 14% increase in OpEx.

34:45 We say 18% to 18.5% increase in income, right, Param? Yes. That's if you see a transcript of the last call, you'll see that. So now if this 18.5 is not 18.5%, it's 20% or 20.5%, correspondingly, it could have some mix increase in OpEx also because, see, the market opportunities are growing, and we don't want to be missing out on them and just stick to one line item. But definitely, we feel like VEX, as Sudhanshu said, that were also dimensionless. If you pull the story but anyway, that's not the point. Point is that it is this four fifty to 500 basis point difference jaw opening. If you cut paste it into next year also, which we believe it will happen, next year, meaning 28% also, then straight away, it is a cost income reduction of about three fifty basis points straight, just from these numbers.

35:43 So and that, when you do the math of it, you'll find it quite meaningful to the P and L. Yes, absolutely. So I get that. Yes, yes. Okay. Sir, one last question, if I may. The fraud incident, are we beginning to see any recoveries from that? And if so, going ahead, where will we be booking that in the P and L? Param, there continues to be, I would say, progress on this front. If you go by the public news and so on, few more have been made, IDF has been actively looking into the case, they filed a charge sheet and so on, indicated some amount, which could be a potential recovery. But all of this takes a long time, right? So I'm saying there is a proper process, which needs to be followed in terms of going like, for example, going to the PMLA court, filing our claim, then these claims will be assessed for it whether it's due to us in the right sense and so on. I'm saying there are a lot of work will have to be done. We this is totally, I would say, a legal process, court process, difficult to sort of put out a time line for this. But at least we are seeing movement on the ground, right? So it will be difficult for us to sort of commit to a time line in terms of what recovery could finally emerge from here, but we continue to be quite engaged on this front.

37:06 Fair enough, Sudansu. Yes, very clear. Is there anything at all in the P and L in this quarter as a recovery of entry? No, nothing as of now. Okay. Perfectly clear. Thank you so much and congrats once again on the quarter to the entire team. Thanks. The next question comes from the line of Akhid Biani with Nomura. Please go ahead. Yeah. Hi. Good evening, everyone, and congrats on the quarter. So most of my questions have been answered. So I have a question on our tech investment priorities over the next two to three years. So basically, how is the bank leveraging AI and Gen AI capabilities across functions? And how do you see technology investments increasing from here? If we look at IT expense as a percent of overall OpEx, it has come down a bit from 11% or to 9% odd now.

37:59 Even the large banks are operating at these levels. Could you please elaborate on this? It's not frankly, like I said before, it's not about how much you invest, it's about where you invest in. So I agree we are like 9%. Thing is that we have built a really good architecture. So and a good stack and modern stack and cloud and API first integration and cloud native principles and event driven platforms and microservices architecture. And we are hollowing out the core as much as possible. We have real time data streaming. It's all being built. I can only tell you that, for example, what people can't see, I think, generally speaking, is that they can't people can see ROE, ROE, but they can measure us today, but they don't know the quality that has been built.

38:54 What your eyes can't see that's below the ground. On that front, I'm giving you I'm making my comment to you that it's truly, really fantastic modern architecture is coming about in the bank. Now what is our approach to that? So in terms of this is a big enabler of many of our businesses that we are doing, many of the services are providing to our customers. And naturally, there's a payback in terms of revenue and robustness at which the bank will be able to grow, which means that I don't think this bank will stop even, say, three years or four years from now, even with INR 6 lakh crores, sort of, say, deposits, 5 lakh crores in loans, we can continue to grow on this platform. This platform is strong. The foundation is strong. We can grow 20%, 20% more. Who knows? I mean, of course, we'll put out the numbers at that point of time. But as far as I can see, the platform strong means the bank can grow for a long, long time.

39:53 Okay. Sure. And just on the SG and A front, did we highlight we'll be able to capture we'll potentially capture 2.5% of the overall market share, right? That was the Yes. No, on the FCNR, I know there are different numbers which are sort of floating around. But assuming, say, dollars 60,000,000,000, 70,000,000,000 coming, we are hopeful of getting about 2.5% of that pool. Okay. Until now, if you would like to give out any number, how much we have mobilized? It has just started. I'm gaining steam. So maybe we can give an update next time. The next question comes from the line of Jaya Mundra with ICIC Securities.

40:46 Please go ahead. Yes. Hi. Good evening and congratulations on a strong quarter, sir. Thank you, So first question on MFI slippages, right? So I believe, I mean, we have not given separately, but if you can quantify how much was the MFI slippages and how much was the MFI disbursement in this quarter? So MFI slippages was quite low in this quarter. And same was actually the case in the previous quarter as well. And hence, as said that all the SMA and all these numbers are indicating sort of back to normalcy when collection efficiency continues to be around that 99.5%, which we are seeing in the overall portfolio as well. So that's on MFI. Sorry, there, what was the second question?

41:33 The disbursement, MFI disbursement. Yes. Disbursement, if you see if I sort of see the numbers from last year Q1, then we have seen almost doubling of disbursements as far as MFI is concerned. So we are hopeful, while the book has not grown that very much in last one or two quarters, at least the decline has been elusive. But through the course of the year, we feel that now since disbursements are picking up and we're hopeful of a quarter on quarter increase here, we feel that we could end up on a target of booking fees of 15% on a Y o Y basis. Okay. That's helpful. Secondly, Sudanshu, I see that fifteen six basis point of IT refund, this would translate to roughly around INR 60 crores. Where do you book it? Because does it go to income interest on advances?

42:24 Or does it come on interest on balance with RBI and others? Sorry. It would be the other line item. Certainly, it doesn't come in advances, but it and it would be the NII line item. Okay. Okay. So because the other is only INR 76 crore or something, right, within which there is INR 60 crores of IDF fund? Yes. Number is slightly lower than, but it's round about that number. Okay. Sure. Sure. Secondly, on customer deposit or Tata, right? So if I can get the number separately for car and separately for Saad, the reason I'm trying to I mean, overall deposits has bounced back and within which Tata has also rebounded by, like, 78% Q o Q. But if you can qualify, if you can sort of give more color as to, you know, how we have got the traction in SA, especially maybe granular and maybe the high ticket post that incident. So just wanted to try to understand, we have done reasonably well ahead of your guidance of 5% Q o Q deposit growth, but within which if you can sort of highlight the granularity and maybe the high ticket business?

43:42 No. So both have been growing quite well. Like if you see the average car deposits, that has grown by about 30% on a Y o Y basis, and SAAR has grown about 25% or so. Of course, SAAR is a major component in the CASA, right? And the CASA deposits itself has grown about 8% on a sequential basis. So you can assume that bulk of the growth has come in SAAR, which has given this kind of a lift. Correct. And safe to say that it would have been broadly similar to granular and maybe high ticket, right? The entire episode is now clearly, clearly past this. And you have had increase in balance in both these buckets. Yes. Our deposits on the SARFnet also quite granular in that sense. So it's granular deposits, which have sort of come in even during the current quarter.

44:32 Right. Sure. And last question, sir, just on this ROE. So just to reconfirm, we are now saying that what we were earlier saying, we have now accelerated that full year, we should be able to achieve around 1% ROA, That is correct, if I hear it correctly. Yes, that's what we are running for. Right. Right. And the reason why it is higher because of a, experiencing credit cost, which is much lower And ideally, it should stay that way. And then the NIM should incrementally be also be stable, right? These are and the OpEx thing anyway continues. So this is the right understanding, right? That's right. That's right. Mainly the credit cost because on the NII front, I know all of you as analysts track that like closely by the basis points.

45:27 But roughly will be in zone. The next question comes from the line of Jayant Karate with Axis Capital. Thank you for the opportunity and congrats on a great results. First question, sir, is on I don't maybe I missed this, so sorry about this. Have you quantified the impact of steady state credit cost after the ECL transition? So thanks, Ran, for the question. So of course, in the to the previous participant, we did talk about the impact which could come on transition as far as ECL impact is concerned, where we said we would require to maintain more amount for ECL.

46:17 But at the same time, we may get some RWA benefits through the operational risk, RWA reduction and credit risk. And hence, in combination of both of this, the impact on capital on transition could be broadly neutral. With respect to the run rate impact, there would definitely be some more requirement for provision. But at the same time, we could get benefit because of the EIR implementation because both the sourcing OpEx as the processing fees will be amortized when the ECL is implemented. So we feel net of these two, which is slightly higher provision requirement minus the EIR benefits, which would come in, the impact would be quite manageable. Since the guidance has come in, we are just we are still fine tuning the numbers.

47:04 I don't want to put out a specific number here currently, but this is a broad sense. So you don't think the ROA expansion journey should be sort of prolonged because of this one? Yes, not as such. Great. And actually, sorry to hop on the margin question again. Given that our corporate book is growing very healthy and again at this size, makes sense, it's also bringing a lot of discipline to the credit cost band. But then again, looking out next two, three years, how does this play into our NIMs and our ROA ambitions? Actually, the NIM of the corporate banking is a little bit lower than retail.

47:53 So the more we book corporate, it will have its share of impact on the overall NIM. That's why Sudanshu said that as a bank, we are going it will have some impact. But really, we should see it in totality because the quality of the franchise and interest credit costs should come down over the years when you wake up in 'twenty eight or 'twenty nine or 'thirty or 'thirty one. Don't frankly, we don't think of it like a guidance, but we don't think of a bank as wanting to be running at 1.5 credit cost at that point of time. That's not our vision statement. Because becoming a larger and larger bank, we cannot be sitting at 2% credit cost, even if it's very attractive and NIM attractive and all that.

48:39 So by that so we are planning to move in the direction where the bank's ROA, again, don't take it like a guidance like for a specific date or something, but we think that our bank is structurally built for a ROA of more like 1.7%, 1.8% as being built out. So that kind of a number can be achieved even at lower credit cost, even with more of corporate loans. But I can tell you, seven years now, it's been seven years. There has been no mishap in the corporate loans. Seven years is a long time to prove out our governance and our underwriting capabilities and the amount of diligence we do on corporate loans and our ability to get the business, get the kind of proposals, six, we have to wait quite happy with that, the way it's coming.

49:33 Great, sir. That's very reassuring. And again, congrats for a great, great set of quarter. Thanks. Thank you. Thank you very much. Thanks. Welcome, Yan. The next question comes from the line of Anand Dhama with Moama. Congratulations for getting some of One, the is it possible for you to share like how has that institutional deposits moved past the episode that we had? Were there any more withdrawals from any other government or basically it is holding up well and it is growing? That's what we need to know about that because in that we give a better comfort. Yes. Depots coming very, very strong. Just I mean, frankly, the way deposits came back into the bank, not just came back, I'd say, frankly, we didn't lose deposits in the first place in any material way. I mean, frankly, we had a flat quarter. We didn't lose money. And the rates come back, it's come back very strong. So let me just directly at my level, let me assure you, there's absolutely no problem on deposits. In fact, we are flying actually.

50:41 Yes. And institutional deposits are also quite stable. That's very comforting. Secondly, we had one... Though our intent, frankly, due course, is to continue through more of the retail deposits than the institutional deposits. I mean that's been a strategy anyway. It's not a new strategy. As you know, it's been like seven years of practice in strategy. So I mean, in the sense, that will be our intent. And we will get there. And I can tell you, everyone here in this call that money is coming quick and fast in IDFC is coming very strong and the relationships are strong and the way customers responded to us for so much of bad news all over Twitter and YouTube and all over the place. Even then, money just stayed. It's like very we're happy about the way customers believed us during the crisis.

51:31 Of course, we came out of the open. We took our interviews. We spoke publicly about it. And public thankfully supported us on that. Sure. Secondly, I think during the call, you said the margin is around 5.8% or 5.9%. I couldn't hear that clearly. Because this quarter, if you look at our core margin, it's somewhere about 5.9% if you take out the interest on IDF fund. So it should remain stable around these levels? Or like where should it settle maybe by over the next two, three quarters? Yes. So in margin, as you rightly said, if you strip out that interest and income, it was more around 5.9%. I also alluded to that we also continue to get some benefit from a lower investment book during the current quarter. Some of it could normalize as we sort of move into the ensuing quarters.

52:20 And we feel that margins, which we had earlier guided for 5.75% for the full year now could more look like 5.8%. So the change, I would say, from, say, 5.9% adjusted for the investment book, the asset mix changes, which continue to happen, we need to see how this FCFIRSTB plays out as far as the margin is concerned. So all of this in combination, we feel the margins could still be around 5.8% for the year. Okay. Which means that on a quarter on quarter basis, there could be some contraction that we should see from 5.9%? Yes. Yes. Okay. And then I think you talked about the operating job opening up. So what kind of cost income ratio should we look at in FY twenty seven given that, you know, this quarter we have got some benefit on the other OpEx front, but I think that was sequentially primarily because of the IPL expenses being not there, right, in this quarter. This expenses are not in So quarter on quarter, if you look at the other OpEx actually has come down. Is it more to do with the business seasonality?

53:25 Or were there some lumpy expenses in fourth quarter, which were not there in this No. In fourth quarter, we had this incident on fraud, right, where we have taken it to the OpEx line item, right? If you take out that, then the OpEx increased about 2.3% sequentially. In terms of cost to income translation, even on a sequential basis, C2I has improved by about 166 basis points. And on a Y o Y, that's more around three ten basis points. So we feel that Q1 cost income, which has come at 70.7%, our endeavor would be to take into below 70% during the course of the year. So that is what it could look like. Okay. Okay. And then what kind of ROA that we're looking at for the full year in FY 'twenty seven? Should we get closer to 1%?

54:12 That's what we sort of answered on the previous call that we are gunning for reaching an ROA of about 1% for the year. Looks like it for now. Last time, of course, like I said, we used to say fourth quarter we used be getting the sense, but looks like whole year will get there. That's great to hear. And any more CGFMA recovery should we expect during the year? Any more claims that we have put out or this is for that? This is for online? No, procedurally, it comes only once in a year. So for the year, it's done actually. We could get some similarly into the next year. Next year, will get it. That's very helpful. Thanks a lot. But not of this amount. Yes, not of this amount. The amounts would be much smaller.

54:59 Sure, sure. The next question comes from the line of Pritesh with DAM Capital Advisors. Please go ahead. Hi, sir. Good evening and good set of numbers. Just two questions. One is on channel sourcing. You give the breakup of OpEx. We've seen it going down. So what is the thought on that in the sense, are we insourcing more, the outsourcing is slightly lower than what it was? And that is also one of the elements of OpEx being getting down, right? So anything on that? Channel sourcing expense is about 20 odd percent, and it has been quite range bound if you see the few quarters. Of course, it also depends on, I would say, the seasonality aspect of it. Q4, typically, we see is a much stronger quarter in terms of disbursements and so on. However, Q1 has also remained quite strong. To your question on capability, yes, we continue to work on these capabilities of insourcing and product by product, wherever it's applicable.

56:09 So we feel that, that benefit also bit by bit is translating somewhere into these ratios. So but to a great extent, you can assume this would generally grow in line with the volume growth. Sir, just to follow-up on that, I think some years back or a few quarters back, we were mentioning that to generate a lot of loans. We also incurred a lot of expenses in and around the customer. So with AI, do you see that the expenses which were required for the customer origination and then of course a lot of customer rejection also happened. Has that changed for us in terms of OpEx? See, there are two AIs, okay? So people just to clarify. One is the AI that was the classical AI, which was happening even before the arrival of generative AI.

57:05 And that is a big one, for example, all of our consumer durables and two wheelers and small ticket loans and frankly, loans that we give to and chemists and salons, and we have developed scorecards for all of that, and these are all machine learning models. And that is also AI. So that has been going on for like maybe seven or eight years from now. We started this journey of using scorecards like fifteen years ago, and it's been evolving a newer and newer technology since then, but we've been using AI in that sense. So that way, of course, it's been it will continue to grow. In terms of how much the generative AI is going to use, everybody knows that every part of the bank, every part of every organization will get affected.

57:55 So we are also putting our efforts in that front. At the end of the day, from your point of view as investors, the reason why it's not stood out prominently in any of the notes, etcetera, is from an investor's point of view, whatever we say in terms of the it has to show in the numbers. So we are focusing more on outcomes in that sense. But at the bank level, we're putting our efforts to that. Right, right, right. So last question from my side is on PSLC. I know you put this note out, but we'll have... What will have be done in terms of the every PSL PSL norms and how much PSLCs we will have gotten for last Yes. Year and this We bought and we lost the money in the sense that it's still a negative drag for us. We're still not a bank which is originating its entire PSL on its own organically.

58:52 As you know, we started from IDFI and we've not yet fully caught up with the requirements. So because we started from like zero based on building a PSL franchise. So we are still buying PSL, we are short. And there is a negative like last year was $2.50 odd crores assumption? Yes. So I'm saying even the rates have shot up in the market and... But overall last year, we lost almost two Yes, about two fifty odd, two sixty odd. Last year, we lost about two fifty Probably, I mean, we're not it depends on how the rates will be for this year. We'll take the numbers as it comes. But we're going to be short, we're going to buy. But our attempt is to start build more and more of this organically. But we made good headway. I mean, imagine we have INR 1 lakh crores of PSL in the bank today, probably more than about yes, close to INR 1 crore, 1.2 lakh crore of PSL, okay, didn't exist a few years ago. So we're making good headway, but we're still short.

59:50 Netted, we're losing money on PSL purchase. Ladies and gentlemen, that was the last question for today. I now hand the conference over to Mr. Vaidyanathan for closing comments. Yes. Thank you. Thank you very much. Thanks, Silanshu and Sabta, everybody, and to everybody who took this call. We look forward to continuing our work like this. And certainly, after two or three quarters, even those of you who are in the sense of trends will get confidence in us. Thank you. Thank you, everyone, for joining. Thanks, everyone, for joining. Have a nice weekend. Thanks. Thank you. On behalf of IDFC First Bank, that concludes this conference.

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