Srinivasan Vaidyanathan: We are with you, Suresh, on that. Yes, we do expect normally — while we don’t give a forward-looking outlook, but on the cost to income, we have always said that we want to take it down to the mid-30s. And that we will progressively take it down on not just towards the back end, but there should be an expectation that the cost to income should be improving. And it is a function of certain efficiencies through better digital offering, that’s one. Several things that are in the pipeline on technology rationalization is one that is a good tailwind that should account for it. And the second thing is that as we work on some of these margins, which is both the asset mix, the CASA mix and the borrowings mix moving towards deposit, as we work towards that, the numerator is also an important contributor to get to that.
Operator: Next question is from the line of Rahul Jain from Goldman Sachs.
Rahul Jain: Two, three questions. Number one, the whole debate between LDR and LCR. For you as a management team, what is it that you’re focusing on? I know you’ve put out a certain trajectory for LDR, but right now, the LCR has kind of come off to 110% as the previous participant pointed out, 110%, clearly, there’s not really much room for it to go down. So what really is a key number to focus on for you all?
Srinivasan Vaidyanathan: Okay. Listen, both are important. It’s like you need to walk and chew gum, right? You need to do both, which means LCR, as we have said before that we’d like to operate between 110% to 120%. We were at several quarters, 113%, 114%, 115% thereabouts. Then for a quarter, we went up, and then we have consumed — as we see in this quarter, we have consumed, right? So it is important around that level to keep that level of cushion to some extent, right? That’s one on the LCR. LDR is important, right? We do want to ensure that the mix of funding moves more towards deposits. So LDR is important from that sense. And if you see, currently 110%. Then if you look at where can this go. Where can this LDR go? You look at our LDR prior to merger, it’s very important, right, a recent discussion that is developing.
Prior to merger, our LDR was at 85%, right? Then now it’s at 110%. And if you remove the merger effect of the assets and the deposits on this, the LDR is more like a 89%. And if you look at our historical range of what the bank has operated LDR over a long period of time, around that 85%, 87% that’s kind of a range that’s where we operated, historically, if you think about our LDR, that’s where we operated. So the — and today, if you strip out the merger effect, it’s about 89%. So essentially, the LDR is a function of what has happened on the merger. It’s about 2 quarters run on the merger, which we have run through 2 quarters, and we do have a kind of a path where we do want to replace borrowings with deposits and grow further loans with the deposits.
That’s the kind of a thought process. And so you should expect the LDR to go down progressively over several quarters to come.
Rahul Jain: Yes. The reason why I asked this question also, Srini, is because we’ve bottomed out on LCR and we can’t really go down any further. LDR is clearly elevated. So clearly, loan growth outlook and the visibility there on is looking a little difficult given the environment that we are in. So what do we prioritize, growth or margins? Regardless, growth and clearly, the loan growth has to come off for us to start bringing these ratios to a more acceptable range. Or if you have to grow, then margins [indiscernible] off because you’ll have to offer the increase in deposit rates further. So how are you trying to balance the 2?
Srinivasan Vaidyanathan: Okay. So I do want to mention one thing, right? We are not caught up, and we are not into one level of rate of growth as such, right? If you look at our rate of growth, there are sometimes we are slower, sometimes we are faster. But all we have done is that over a period of time, we have always doubled in every 4 to 5 years. That’s what we have done, right? Quarter or even a year can be different. But over a period of time, that is what we have done. So growth is not something that we are [indiscernible] this is the rate of growth that we want. Over a period of time, we want to because that’s the investment we have done, we need to harvest returns on those. So we are focused on returns. So that takes you to the margin, right, would you focus on margin or growth.
We certainly do not want growth for the sake of growth. If you look at our wholesale growth, we had 1.9% in the quarter. Enough demand was there. There were several banks undercutting and taking, and we’ll let that move on, right? We don’t need to be participating if it does not give returns, we don’t want to be there. And so that’s something that we are focused on. We want to do the products that are going to give us the returns. Now on the margin, very important that you talked about the margin. Margin is important, but the first passing is about the returns. What does it give from an overall ROA point of view. That’s first part. Then it comes because when you do a product pricing or a product charge to do to a customer, you’re looking at returns more than the margins as such.
Margins to the extent that the mix appropriately gets calibrated, the margins — for us, we have never had this margin conversation because our mix has been predominantly retail and the retail rate of growth over a decade, if you see, has always outstripped the wholesale. So there was not a necessity. There was no conversation about any margin because it comes with a hefty margin. And it comes with a credit cost also. And our credit cost is at a very benign state of sub-50 basis points right now. And if you look at our credit cost, adjusted for the mortgages, you’ll see that the mortgages because of the denominator in the lower loss rates, the — when credit cost, what does the mean on the credit cost, call it 70, 80 basis points that’s the mean and pre-mortgage merger 100, 110 basis points.
So what we — what — due to the mix change that has impacted the margin that has come through in the credit cost line. So certainly, we are focused on profitable growth. But I hope that answers you in some manner that you are trying to seek.
Rahul Jain: Just 2 small questions. The branches, you said this year maybe 1,000. So is this a new trajectory that we’re looking at? Or you’ll go back to 1,500 or thereabouts in the following years?
Srinivasan Vaidyanathan: See, again, I’ll tell you one other constraint that we are also working through on the branches with this URC. This URC is something that is required, right? The mix between the unbanked rural center and so on. Selecting that availability. What is that URC that is available so that we are able to get that mix appropriately. So there is a targeted percentage with a regulatory target on URC that is more internally we would do, but we need to have a mix between the URC and the non-URC so that we can grow progressively across in a balanced manner within the regulatory approval. So that is what it is. So if you look at whether we go back to 1,500, I think Sashi has alluded to that over a period of time, we do want to get to the 13,000, 14,000 type of branches, not just for the sake of branches.
It is the geographical presence that we can have so we can tap into the pockets of both the deposits and lending opportunity in that area. So it’s not just deposit, deposits and also the lending opportunity in the area. So we would be there, but there is no hard kind of — we’re not going to push ahead with only one number. But currently, this is what we are seeing.
Rahul Jain: I will be very generous with your time. Just a small question on the infra bonds. So you raised some money in the last quarter, I think INR 7,000 crores, INR 7,500 crores. Do you have eligible assets even sitting on the balance sheet against which you can keep raising this infra bonds? And how much would that be?
Srinivasan Vaidyanathan: We have eligible assets close to INR 1 trillion, as I mentioned. So that’s part of — which is — it can have a qualification in the sense that you may have PSL benefits because we will take it off the top line to the extent that you’re able to tack the bond and the affordable housing. And you will get the other benefits that I mentioned that the cost on the PSLC or the deposit insurance, those things are obviated. But still, any day, we need CASA. But to the extent that there are time deposits, the economics is better than even — slightly better than the term deposits due to these. Yes, there are enough asset room, if that’s the question, do we have enough assets on the asset side to face off against these infra bonds, yes.
