NIM came at 3.57%, 6 bps higher sequentially. While improving spread led to 6 bps of positive delta qoq, impact of higher slippages (~7 bps) was offset by margin benefit from capital raise (~7 bps).
Gross NPAs for the quarter came in at 5.0% (3 bps QoQ), net NPA 2.09% (up 10 bps QoQ) as overall provision coverage marginally declined to 78%. Overall slippage in the quarter was elevated at 5.2% (as % of 12m lagged loans). Of Rs 6,200 crore of slippages, ~Rs 3,900 crore relates to corporate book.
We estimate the gross vulnerable pool (non-NPL stress) at Rs 12,200 crore (2.0% of gross customer assets), against which a contingent provision of Rs 2,600 crore has been created, resulting in a net vulnerable pool of Rs 9,610 crore (1.7% of net customer assets). The gross pool consists of BB & below loans, corporate bonds, non-funded exposures to NPLs/BB & below.
NIM came at 3.57%, 6 bps higher sequentially. While improving spread led to 6 bps of positive delta qoq, impact of higher slippages (~7 bps) was offset by margin benefit from capital raise (~7 bps). The management has stated its FY20 NIMs guidance to be higher than FY19 and has maintained medium-term margin guidance at ~3.5-3.8%.
Net loans grew at 15.8% y-o-y, bank’s approach being to grow cautiously in SME (-0.8% yoy) and corporate (+9.1% yoy). Retail loans grew 25.5% yoy. Personal & card loans (+33.3% yoy) and auto loans (+48.3% yoy) were strongest segments in the bank’s retail loan book. For auto loans, the management said they have a relatively lower market share to start with, as a result of which growth in the segment is optically high.
The liability profile remains strong, with CASA and retail term deposits comprising ~81% of total deposits. The CASA ratio was 40% (avg. balance). Management specifically highlighted the focus on ramping up the retail term deposit & CASA market share.
While we have cut our margin estimates slightly due, we cut some fee income growth and increased our cost ratios marginally. Overall, we build ~2% lower core PPOP for FY20/21.