Highlights:

The bank has continued Improvement across the business both in terms of growth and asset quality.

The first half of the year is seasonally weak for vehicles and microfinance nonetheless bank has seen one of the best performances.

The corporate and retail businesses continued to grow at above 20% with no asset quality surprises.

The broad based loan growth is driven by all business units. The vehicles business recorded the highest ever disbursements of Rs 10660 crore. The microfinance too saw disbursements of Rs 9700 crore putting behind the blip from regulatory changes.

The bank has continued growth traction on deposit mobilization with 4% qoq and 15% yoy growth.

The fresh slippages of loans reduced by 30% qoq driven by reduction in both standard as well as restructured loan slippages by 25% and 37 respectively in Q2FY2023.

The restructured loan book has declined sharply by Rs 1277 crore from 2.1% to 1.5%. The net NPA also reduced to 0.61% from 0.7% with a PCR at 72%.

The total loan related provisions stood at 140% of gross NPAs.

The credit cost has reduced to 44 bps in Q2FY2023 from 50 bps in Q1FY2023.

Bank has continued to invest in physical and digital resources. It added 55 branches along with 2700 employees in the bank and an additional 3650 employees in the vehicles and microfinance distribution in H1FY23.

The bank is scaling up digital launches and is on track for the planned launch of the individual MSME offerings in the year.

The net interest margin improved to 4.24%. The client fee income grew by 24% driven by healthy retail fees of 71% of total fees.

The return on asset improved further from 1.73% to 1.8% and return on equity was at 14.5% for Q2FY2023.

The bank has also maintained a healthy capital adequacy ratio with CET 1 of 15.95% and overall CRAR at 18.01%.

Vehicle Finance

The business witnessed one of the best runs in last several years. The disbursals have been improving across all vehicle category making this a diversified growth trajectory.

The disbursements surged 6% qoq and 24% yoy to Rs 10664 crore in Q2FY2023.

The vehicle disbursements are typically weaker in H1 compared to H2 of previous year with seasonal factors such as monsoon, Festival etc.

The segment growth has moved in to double digit loan after three years.

Within vehicle categories, commercial vehicles, utility vehicles, car and three wheelers saw strong growth in disbursement.

The vehicle loan book asset quality remains steady. The gross slippages from standard customers improved from 0.8% to 0.6%.

The restructured book reduced by Rs 861 crore to Rs 2270 crore from Rs 3131 crore.

The bank is seeing restructured customers completing satisfactory performance and becoming eligible for upgrade to standard category.

Overall, the bank is expecting disbursement momentum to gain further traction with tested demand in quarter three and new purchases in quarter four.

Microfinance

The disbursements have increased 29% qoq to Rs 9740 crore making it the highest ever second quarter disbursements.

The new business lines of merchant stores and Bharat Superstore scaled up during the quarter.

The slippages from the microfinance book were lower resulting in growth at improved asset quality.

The microfinance book was at Rs 29670 crore, up 5% yoy and 1% qoq.

The RBI directions on MFI issued in March 2022 has been fully implemented and the disruption in business is behind.

The standard book net collection efficiency was strong at 99.1%. The collection efficiency for new client sourced in the last 12 months post October 2021 remains healthy at 98.9% which is closer to the pre-covet level.

30 to 90 dpd book was at 2.0% end September 2022 compared to 2.2% end June 2022.

The gross slippages reduced to Rs 435 crore as compared to Rs 560 crore during the previous quarter.

GNPA reduced to Rs 885 crore which is about 2.9% as compared to 3.4% end June 2022.

Bank expects to continue to see improvements in rural activity levels driven by another year of near normal monsoon, government support and upward revisions in agree prices etc.

The business model remains focused on growth and diversifying across geographies, new customer acquisition, low ticket sizes and scaling up new initiatives.

Diamond and jewelry business

The diamond business has achieved its highest ever loan outstanding as well as revenue contribution during the quarter.

The asset quality remains pristine at no NPA or SMA 1, SMA 2 customer or restructured customers.

The portfolio recorded healthy growth of 29% aided by strengthening of diamond prices and stable demand from the largest market.

The industry continues to work within the domestic and internal International trade norms absorbing the impact of geopolitical conflict.

Corporate banking

The corporate banking business has been delivering steady growth with no asset quality surprises for the last several quarters.

The loan growth is 23% with standard books slippages of just Rs 66 crore in Q2FY23.

The growth is broadly driven by large corporate segments like strategic client group and financial services and mid and small corporates like SME, Healthcare etc. The sector driving growth are NBFCs, real estate, steel, power generation etc.

The bank has continued to reprice the loan book. The yield in corporate book improved by 40 bps in Q2FY2023 in addition to 7 bps in previous quarter.

The proportion of A above rated customers remain healthy at 72%.

The slippages of standard book were at Rs 66 crore from a stressed retail group. The entire exposure from the retail group has become NPA and is fully provided for.

The corporate restructured book has reduced from Rs 560 crore to Rs 470 crore.

The bank sees corporate book to maintain a steady growth driven by mid and small corporate.

Other retail assets

The non-vehicle - non-microfinance book continued growth momentum by accelerating with 5% qoq and 21% yoy growth.

The growth was driven by both secured as well as unsecured assets.

In secured assets, both business banking and loan against property grew by 3% qoq continuing the momentum.

The credit card spends continued to remain strong. A new acquisition continues to remain robust with 81000 acquisitions in September 2022.

The bank has started the pilot of a home loan product during the quarter in select cities. Home Loans will strengthen a universal product offerings for retail customers and bank aims to build a sizable home loan book in the next two to three years.

Liabilities

Deposits grew by 4% qoq and 15% yoy driven by granular customers and retail customers. CASA deposits grew by 15% yoy.

The contribution of Certificate of Deposits remains low at 3.2% of deposits.

The current accounts saw healthy growth of Rs 8900 crore, of which almost half was due to the spike towards quarter ends from the dividend mandates.

New initiatives with affluent and NRI banking or group accelerated during the quarter. Affluent segments deposit grew by 7% qoq from to Rs 38700 crore. The segment also contributed the highest ever quarterly fee income of Rs 101 crore

Pioneer the flagship affluent brand continues to gain prominence in the marketplace. The bank currently has 10 Pioneer branches and lobbies in six major cities and plans to launch five new branches in current financial year.

After remaining stable for last few quarters, the bank saw pickup in the NR segment deposit aided by easing guidelines by the RBI.

Bank has garnered about Rs 2000 crore of NRI fund so far through the RBI dispensation window.

The bank has continued to expand distribution with opening of 34 branches taking the total branch count to 2320 branches.

Financial performance

Net interest margin improves from 4.21% to 4.24% supported by synchronized repricing of assets as well as liabilities. The yield on overall assets improved further due to lower drag of from excess liquidity.

The cost of deposit increased by 31 bps and the cost of fund increased by 27 bps during the quarter.

The core fees remains strong going up by 24% yoy.

The operating expenses increased 5% qoq due to annual increment as well as fresh hiring.

Asset quality and provisioning

The provisioning for the quarter has further reduced to Rs 1141 crore with credit cost down to 44 bps.

The net security receipts have reduced from 72 bps to 67 bps.

The loan related provisions are at 3% of loans or 140% of the gross NPAs.

SMA 1 book was at 15 bps and SMA 2 at 43 bps.

Outlook

The bank expects to maintain the growth trajectory as vehicle and microfinance disbursement are seasonally stronger in H2.

The corporate and consumer businesses are scaling up every quarter along with the new initiatives such as home loans and merchant acquiring

The bank remains focused on a strategy of retailization of deposits. The bank is investing in distribution and new initiatives. The digital 2.0 launches would further booster retailization agenda.

The bank expects stress book to continue to fall. Bank will continue to maintain conservative contingency provisions.

The operating profit margins are expected to be stable factoring in the near-term pressures from treasury and investment compensated by revenue building up from retail disbursements and retail fees.

The RoA and RoE should continue to expand as a earning scale up with annualized EPS now in 90s.

Bank is aiming to reach 2500 branches by end March 2023 and around 3500 branches over the next three years.

The bank expects CASA deposits ratio to remain range bound between 41% and 43%.

NIMs are expected to remain in range of 4.15-4.25%

The credit cost will be around Rs 4000 crore to Rs 4200 crore at 120 to 150 bps.

The affordable housing finance business is in 23 cities already with book of Rs 1600 -1900 crore and bank aims to grow this book to about Rs 5000 crore in next two years.

The loan mix ratio is range ground with 55 to 58% retail and 42 to 45% will be corporate.

The bank is targeting loan growth of 20% for FY2023.