Highlights:

The economic activity showing pick up in momentum, while headwinds to growth have also increased.

Bank credit offtake too picked up over the quarter in line with an improvement in the underlying economic activity.

Rising inflation levels led to monetary policy tightening by major global central banks including in India which is likely to continue in the near term.

Relatively strong economic growth prospects, a deleveraged corporate sector, much improved health of the banking sector along and measures taken by the government and the RBI to curb inflation, would help India negotiate these headwinds.

Global supply chain pressures have begun to ease and non-energy commodity prices are now easing.

The bank has maintained healthy loan growth of 4% qoq driven by strong disbursements in vehicle, corporate and other retail assets. The loan book growth accelerated to 18% from 12% previous quarter.

Microfinance disbursements too returned to normalcy after a brief hiatus to adopt to the new regulatory guidelines.

The deposit momentum continued with 3% qoq growth in spite of the liquidity tightening and increased competitive intensity. CASA ratio improved from 42.7% to 43.1%.

The bank has also achieved highest new customer acquisition of 4.25 lakh in Q1FY2023 through consumer bank.

The standard book slippages have reduced to 0.57% from 0.75% qoq. Restructured book has reduced by Rs 1013 crore from 2.6% to 2.1% qoq.

NNPA is at 0.67% with provision coverage ratio at 72%.

The bank is holding contingent provisions are at Rs 3003 crore with total loan related provisions at 141% of GNPAs.

The credit cost has reduced to 50 bps from 61 bps qoq.

Net Interest Margin was healthy at 4.21% with both loan and deposits witnessing repricing during the quarter.

Client fee income grew by 9% qoq driven by continued retail momentum.

Trading income too was positive during the quarter.

Return on Assets improved to 1.73% and Return on Equity was at 13.4% for Q1FY2023.

Capital Adequacy Ratio improved with CET1 rising from 15.96% to 16.05% with overall CRAR at 18.14%.

Vehicle finance

The vehicle finance loan growth accelerated from 1% to 8% over the quarter. The disbursements at Rs 10078 crore in Q1FY23 were higher than March quarter and highest in a quarter. The segments showing strong disbursements were commercial vehicles, utility vehicles, cars and tractors. Disbursements were muted in three wheeler and two wheeler segments.

The collection efficiency of standard customers remains stable at pre-Covid levels. The slippages from standard book were stable at Rs 450 crore qoq.

The restructured book in vehicle finance reduced from Rs 3298 crore to Rs 3131 crore qoq.

The yield on the vehicle portfolio improved and expects the trend to continue in coming quarters.

The industry volumes are yet to reach their peak levels. Thus there is further scope of disbursement growth in the year for participating in the overall industry growth.

Microfinance

The bank has achieved disbursements of Rs 7531 crore during Q1FY23.

MFI book increased 11% to Rs 29403 crore end June 2022.

MFI standard book collection efficiency for Q1FY23 was at 99.1%, same as Q4 FY22.

30-90 DPD book including restructured customers declined to 2.2% end June 2022 from 2.6% end March 2022.

Through focused efforts, the bank has recovered Rs 57 crore of written-off loans/loans sold to ARC in Q1FY23 and expect to realize higher recoveries in the following quarters.

The gross slippages moderated to Rs 560 crore as compared to Rs 815 crore during the previous quarter.

The slippages from standard customers reduced considerably to 278 crore from Rs 779 crore qoq.

The outstanding restructured book has also reduced to 644 crore from 995 crore qoq.

The restructured book saw slippages of Rs 283 crore and bank utilised the contingent provisions created last year towards these customers.

Global Diamond & Jewellery Business

The global diamond trade slowed down during the quarter due to Russia-Ukraine conflict and lockdowns in China, Hong Kong.

Banks diamond book grew by 1% qoq and 28% YoY and forms 4.2% of the overall loan book.

The disruption however did not have any impact on asset quality with no clients getting into SMA category.

The bank remain comfortable on the diamond portfolio and expect further growth to continue as the supply chains normalise and markets in PRC open up.

Corporate Bank

The corporate loan book maintained healthy growth trajectory of 4% qoq growth with growth across segments led by large corporate growing by 3%, mid corporates by 5% and small corporates by 11% qoq.

Majority of the corporate loan book is floating rate in nature. The yield in corporate book improved by 7 bps qoq reversing the past trend of falling yield.

The proportion of A and above rated customers has improved from 70.6% to 73.5% YoY with weighted average rating improving from 2.68 to 2.63 YoY.

The Net Slippages in corporate book were Rs 410 crore for the quarter. Some group companies of a retail corporate amounting to Rs 250 crore turned NPA during the quarter.

The corporate restructured book reduced from Rs 960 crore to Rs 560 crore qoq.

Exposure to stressed telco was at Rs 1850 crore including fund based exposure of Rs 1000 crore and balance non fund based exposure.

The bank sees interest in capex plans particularly in segments which have deferred capex due to Covid such as auto-components, steel, renewable etc. Capex is also seen under PLI schemes in electronics, mobiles, distilleries for capacities being put up.

There are however segments witnessing tailwinds e.g. export oriented units, infra, textiles etc which provide opportunities for growth.

Other Retail Assets

Other retail loan book expanded 7% qoq and 23% YoY. Acquisition runrates continue to accelerate.

The bank saw highest ever card acquisitions of 75,700 in June with total credit card base crossing 2 million mark.

Bank expects growth momentum in retail business to continue in FY2023.

Digital Traction

Digital Sourcing % across products continued to increase. The bank has started building and scaling up digital unassisted models with focus on scale with profitability.

Financial performance

Net Interest Margin improved sequentially from 4.20% to 4.21% qoq supported by repricing on the asset side as well as active management of the liabilities.

Consumer as well as Corporate loan book saw yield improving during the quarter with overall yield on loans improving by 10 bps.

The cost of deposit increased by 19 bps, while the cost of funds increased by only 6bps due to reduction in borrowing expenses.

Share of retail fees improved to 70% from 64% of total fees.

There is no sale to ARC during the quarter. The Net Security Receipts have reduced from 83 bps to 72 bps.

SMA1 and SMA2 book was at 10 bps and 39 bps respectively.

Guidance

Bank continues to invest in new initiatives like affluent, NRI, tractors, merchant acquiring and plan to launch home loan this quarter. It will also launch remaining two of the planned digital initiatives during the year.

Bank is aiming to take the branch distribution to 2,500 branches by March 2023.

The bank expects 70% of restructured book to run down by December 2022.

The bank is maintaining loan growth guidance of 15-18%. Segment wise, the bank is targeting loan growth of 16-18% growth in vehicle finance and 25-30% in microfinance segment.

The credit cost is expected at 120-150 bps for FY2023.