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Result Highlights (See “Our View” below for elaboration and insight)

* Asset quality: Gross slippages amounted to Rs 14.65bn (annualized slippage ratio of 1.9%) and recoveries and upgrades amounted to Rs 7.07bn

* Margin picture: NIM at 4.29% was flat QoQ, as lower borrowing cost and asset side management helped maintain margin

* Asset growth: Advances grew 4.7%/21.3% QoQ/YoY driven sequentially by Small corporates and select retail segments

* Opex control: Total opex rose 7.1%/24.5% QoQ/YoY, employee expenses rose 10.9%/30.2% QoQ/YoY and other expenses rose 5.7%/22.5% QoQ/YoY

* Fee income: Core fee income was flat QoQ but up 13.2% YoY, where Cards and distribution fees saw healthy sequential growth

view – Outcomes do not compel flagging as a top pick

Quarterly slippage was higher than the run rate guided for on account a chunky corporate account that slipped from SMA book: The base case for slippages is Rs 12- 13bn per quarter. There was a largish corporate account worth Rs 1.68bn that slipped during the quarter from the SMA book. Provisions were Rs 9.74bn, down by -1.8% QoQ and -14.7% YoY, translating to annualised credit cost of 123bps. The all-inclusive provision coverage is 118% of GNPA.

Management has maintained its loan growth guidance, while calling for an improved second half: The management maintains it loan growth guidance of 18-23% range. The retail loan growth was 25% YoY and 6% QoQ. The corporate loan growth was 18% YoY and 3% QoQ. Corporate loan growth was driven by small corporates, which grew 8% QoQ. Microfinance loans have grown 16% YoY and 7% QoQ. Vehicle finance loans have grown 22% YoY and 5% QoQ. CV, cars, UVs, 3W saw sequential growth of 5% and above. Tractors, 2W and CE saw slower growth

Net interest margin has displayed a stable trajectory for now and management has guided for further stability: Cost of deposits was up 23 bps QoQ to 6.35% but lower borrowing cost and asset side management helped maintain margin. Currently, the excess cash on the balance sheet amounts to Rs 370bn. Management is comfortable bringing this down further to Rs 200bn. Cost of deposits can rise further by 10-20 bps over the next 2 quarters. The ambition is to maintain margin between 4.2-4.3%.

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