Lionheart Holdings (CUB) Q1 2023 Earnings Report, Transcript and Summary

Ladies and gentlemen, good day, and welcome to City Union Bank 1Q FY '23 Post Results Analyst Conference Call hosted by AMBIT Capital. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Pratik Matkar from AMBIT Capital. Thank you, and over to you, sir.

Good evening, everyone, and welcome to 1Q FY '23 Earnings Call of City Union Bank. On this call, we have Dr. N. Kamakodi, MD and CEO; and Mr. V. Ramesh, CFO of the bank. Thank you, sir, for giving us opportunity to host this call. I will now request Dr. N. Kamakodi, sir, to take us through the opening remarks, and then we will open the floor for question and answer. Over to you, sir.

Hello? Can you hear me?

Yes, sir. Please proceed.

Okay. So sorry about that. Good evening, everyone. Hearty welcome to all of you for this conference call to discuss audited financial results of City Union Bank for the first quarter ended 30th of June 2022. So unaudited year. So basically, unaudited limited revenue financial results for the City Union Bank for the first quarter ended 30th June 2022. The Board approved the results today, and I assume you all have received the copies of the results and presentation. I hope all of you have received our AGM notices as well as annual report for financial year 2022 through e-mail. I take this opportunity to invite you all for participating in the Annual General Meeting to be held on 18th of August 2022 through virtual mode. On the management side, we have a new director on our Board. Shri Gurumoorthy Mahalingam was co-opted as additional director on the Board of our bank, which effect from 6th of July 2022. He is a career regulator in the financial sector, having worked for 34 years in RBI, holding the position of Executive Director at the time of retirement, and 5 years in SEBI as whole time Board member. He holds a Master's degree in Statistics and Operations from IIT Kanpur and an MBA in International Banking from U.K. He has extensive experience in banking regulation and supervision as well as in market regulation and operations. In fact, he was handling the Reserve Bank of India's treasury when he was Executive Director. His appointment in the Board would be beneficial to the bank, particularly in governance, regulatory matters, finance, ForEx, treasury, et cetera. Coming to the performance, the first quarter ended well in almost all parameters, be it growth, NPA, both on slippage and recovery. In every parameter, the performance is satisfactory. Even in treasury, the depreciation is well within our control. Going forward, the environment looks getting better and better, and confidence for pushing the growth is increasing. We are starting to push the growth pedal towards achieving 15 to 18 percentage for the year end. That is mid-to, let's say, high single digit -- I mean, double-digit compared to low to middle single -- double digit, what we discussed during the earlier con calls. Growth should be slowly accelerating, and growth will be back-ended. We shared with you all during the, let's say, earlier conference calls all the expectations for financial year '23 as follows: we had said that we would be pushing our growth pedal and will be achieving low to middle double-digit credit growth for financial year '23. We said that we expected that overall slippages will be in the range of 2 to 2.5 percentage on an annualized basis. The slippage should come down and recoveries should improve from financial year '22 year resulting in gross and net NPA significantly reducing by the year-end of financial year '22/'23. Net interest margin to stay around the 3.85 to 4 percentage. Working towards ROA level to reach 1.5 percentage. In fact, even in the -- during the middle of the financial year '20, we said we should be getting our ROA back to 1.8 percentage levels towards the second half of financial year '22/'23. We are almost already there. Cost-to-income ratio may hover between 42 to 45 percentage in the absence of treasury income. So this is what we shared with you all regarding our expectations for the financial year '22/'23 in the earlier con calls. If you look into the highlights of the financial performance for the first quarter 2023, they are as follows. Almost on all parameters, progress is as per the expectations we shared. Deposits recorded a growth of 9 percentage from INR 44,606 crores to INR 48,772 crores year-on-year. Credit grew by 12 percentage from INR 36,395 crores to INR 40,934 crores year-on-year. Business grew by 11 percentage and stood at INR 89,706 crores as on 30th June 2022. CASA recorded a growth of 25 percentage to INR 15,387 from INR 12,299 crores year-on-year. And CASA percentage to deposits improved to 32 percentage on 30th of June 2023 vis-à-vis 28 percentage on 30th June 2021 (sic) [ 2022 ]. Net profit improved by 30 percentage from INR 173 crores to INR 225 crores between 30th of June 2021 and 30th June 2022. ROA stands improved to 1.46 percentage for the quarter ended 30th of June 2023 against 1.29 percentage for the corresponding period last year. Net interest margin for the first quarter is 3.95 percentage on a daily average basis. Gross NPA is at 4.65 percentage and net NPA at 2.89 percentage on 30th June 2022. Both sequentially got reduced from even 31st March. As we stated in our last few con calls, the credit growth is back on track. And we had grown by 12 percentage in -- for the first quarter compared to the corresponding period last year. Now the environment looks okay for pushing the growth pedal. We are looking forward to take the growth rate to 15 to 18 percentage, that is mid- to high double-digit for financial year '23. And the growth will be more in the second half as usual. While the fear of Ukraine war is, by and large, subdued and subsided, let us hope for the best in the Taiwan-China conflict as well. During our last few con calls, we had been providing you updates about the status of our exposure to airline company SpiceJet. We wish to provide the latest developments on the same as follows: the management of SpiceJet has come forward to settle their dues in phased manner. They have been servicing their interest dues regularly, and interest has been paid up to July 2022. They have requested us to renew their existing facility, and terms and conditions for such a renewal is mutually agreed upon. As per the agreed terms and conditions, SpiceJet had immediately paid INR 3 crores dues in July 2022 and the pledged INR 2 crore shares with us as collateral owned by the promoter of SpiceJet. The market value is more than -- almost around INR 90 crores [ plus ] currently. Further, they have agreed to pay additional INR 12 crores before the end of August 2022 and agreed to settle the balance dues in phased manner before June 2023. The account is renewed with a limit of INR 97 crores since the renewal plan is agreed upon. The account is now moved out of the SMA status. Until third quarter financial year '22, we had made a provision of INR 85 crores. And further, we made a contingent provision of INR 12 crore in first quarter 2023, so thereby making a provision of INR 97 crores against the current outstanding of -- I mean, we have made a contingency provision of INR 97 crores against the total outstanding of INR 97 crores here. Slippage during the first quarter financial year '23 -- first quarter is INR 270 crores against INR 482 crores in the corresponding period last year. The annualized slippage ratio for the first quarter is 2.64 percentage compared to 3.1 percentage for the financial year 2021/'22, showing a sequential decrease. In Q1 financial year '23, we recorded a total recovery upgrades of INR 252 crores, comprising of INR 160 crores from live accounts and INR 92 crores from the technically written-off accounts compared to INR 100 crores, comprising of INR 82 crores from the live accounts and INR 80 crores from technically written-off accounts during the first quarter in the last financial year. In other words, the gap between the slippage and recovery has narrowed down to INR 20 crores in the current quarter. The current quarter recovery is closer to our last quarter, that is fourth quarter financial year '22, recovery, which was highest in our history. We expect that this trend will continue in the coming quarters also. The overall outstanding balance of the borrowers who availed ECLGS loans as on 30th of June 2022 is INR 13,687 crores, and ECLGS balance is INR 2,500 crores, and the allied accounts balance is about INR 11,186 crores. The SMA 1 and the SMA 2 portion from the ECLGS portfolio as on 30th of June 2022 was at INR 499.88 crores and INR 222.73 crores, respectively. As at 30th of June 2022, about INR 2,963 crores accounts accounting to INR 2,033.7 crores remain as restructured category, out of which an amount of INR 1,175 crores outstanding 58 percentage of restructured books where the repayment has already started. And for remaining INR 858 crores, repayment is yet to start. But of those accounts where the repayment has not started, still in moratorium period, about 62 percentage of the exposure have already paid their monthly installments for more than 3 months even before the start of the repayment. And the 24 percentage of the exposure have already paid their monthly installments for 1 or 2 months before the start of the repayment, leaving only 14 percentage of the exposure amounting to INR 120 crores are yet to start the repayment and are availing the moratorium. The outstanding exposure under SMA 2 here is INR 197 crores out of said restructured advances of INR 2,033 crores. Repeatedly, whenever I met investors, I got repeated call saying -- expressing concern over the restructured portfolio and all. In fact, i.e., as compared to our own experience of restructured advances way back in 2008 after the Lehman crisis scandal. So overall, the things have been -- the conditions have been, I mean, let's say, encouraging. No undue concern [ and all ]. Currently, SMA 2 number stands at INR 820 crores, which includes accounts from the ECLGS restructure and regular advances, which amounts to only 2 percentage of the total advances. Once again, I repeat, this 2 percentage is comprising of contribution from all accounts, which are ECLGS -- which are restructured or even normal account, which is very low compared to our [Technical Difficulty]. In our last con call, we stated that we do not foresee any significant contribution from the domestic treasury profit front due to the unfavorable yield movements. For Q4 financial year '22, we had a trading profit of only INR 11 lakhs. And in the current quarter, it was only INR 51 lakhs. The recent changes in the monetary policy had restored the policy rates back to pre-COVID levels, and it is leading the yield movements upwards, and we may not have favorable income stream from the domestic treasury operations during this financial year as stated in our earlier con calls. The lack of treasury profit will be compensated to some extent by the improved recoveries as we continue to say. At the same time, by proper management of duration, we expect minimum mark-to-market provision for AFS/HFT going forward. The MTM provision made for our Q1 financial year '23 with respect to government securities stood at INR 30.41 crores, against which already we held a provision of INR 5.61 crores in the financial year 2022. During Q1 financial year '23, we have made additional provision requirement of INR 42.50 crores, which includes INR 25 crores towards the G-secs, INR 14 crores towards the residual provisioning for the security receipts SR and INR 3.5 crores towards shifting of securities from AFS to HTM in April. Out of INR 30.41 crores MTM loss, an amount of INR 4 crores will be released by fourth quarter financial year '23 and another sum of INR 14 crores will be released to financial year '23/'24 because of the maturity of corresponding short-dated securities, resulting in the receipt of face value and the MTM provisions are notional losses booked between book value and the market value. In other words, these securities were held at a discount at our books compared to the face value. And also, that's why when the maturity time comes, we'll be able to recover the face value. Also, we wish to mention a point here that even though the MTM losses as on June '22 stood at INR 30 crores, the requirements came down to INR 24 crores as of 5th August mainly because of the dip in 10-year YTM and the 7.30 percentage from 7.45 during June 2022. The cost-to-income ratio for first quarter '23 was at 39.78% for the first quarter as against 40.60 percentage for the corresponding period last year. Because of the expected poor profit from the treasury, cost-to-income ratio for the current year is expected to be slightly elevated and may touch 42 to 45 percentage as we had said in the earlier quarters. Capital adequacy of the bank stood at 20.48 percentage for the 30th of June compared to 19.58% for the corresponding period last year. We have not diluted any capital or issued any pressure because of the QIP or whatever in the last 8 years. And the last time we have raised the funds was during July 2014 through QIP route to the tune of INR 350 crores. After which, we have not gone for any capital raising through QIP as well. Anyway, we are asking for the shareholders' permission in every AGM. We are asking for that permission in this year's AGM also, but we have not used it for the past 8 years. Higher capital adequacy is mainly because of the growth from gold loans, which carry 0 risk weight. As our ROE is comfortable, our retained earnings have taken care of the growth. For first quarter 2023, we have earned an insurance income of INR 2 crores against INR 1 crore in the corresponding period last year. As you might have seen in various print media as well as social media, we had joined hands with 6 partners for doing bancassurance business, including Tata AIA and the Bajaj Allianz for life insurance. We already have an alliance with LIC of India, Shriram General Insurance and Royal General Insurance for general insurance business and the Care Health and the Aditya Birla Health for the health insurance business. After the tie-up, we could see an increased contribution from the insurance income going forward. We had not opened any new branches in the first quarter financial year '23. But as stated in our earlier con call, we are planning to open another 50 to 75 branches across different states in India for the current financial year towards the year-end. It will be towards maybe the end of third quarter and fourth quarter. The operating profit for the Q1 '23 was at INR 447 crores compared to INR 381 crores for the corresponding period last year, showing a growth of 17 percentage. Total provision made during Q1 '23 was at INR 222 crores against INR 208 crores in Q1 '22. The net profit for the financial year first quarter 2023 was at INR 225 crores against INR 173 crores for the corresponding period last year. During our last quarter call, we had stated that we had crossed INR 200 crores PAT in a quarter for the first time in our history. We had bettered that in this quarter. Net interest margin stood at 3.95 percentage in the first quarter financial year 2023, that is current quarter, compared to 3.86% for the corresponding period last year. The NIM for the financial year '23 should stay around the current level, plus or minus 10 to 15 basis points, as we have been sharing with you all in the earlier quarters. In our previous calls, we had shared our expectation that contribution from improved recovery management coupled with the reduced the slippage, we are hoping for achieving our ROA of 1.5 percentage plus, which is the pre-COVID level. By second half of this financial year, we are almost there with 1.46 percentage ROA in the current quarter itself. On the SR front, the total outstanding as at 30th June 2022 is INR 82 crores, of which SR to the tune of INR 78 crores will be crossing 8-year time limit towards the end of financial year '22/'23. As on 31st of March 2022, we held a provision of INR 64 crores. As a prudent measure, we have made additional provisions to the tune of INR 14 crore in first quarter financial year '23 itself, that is in the current quarter itself, thereby making full provision of INR 78 crores for those accounts which had crossed 8 years -- which will cross 8-year time line for the current year. We are one of the oldest private sector banks in India, which is leading to the general perception among the investor community and market at large that we are not making enough efforts in the technological and the digital front. We have been providing updates regularly on our con calls about the digital initiatives, but still, there is a perception about our bank, how it needs to be changed. So the -- we have already added some, let's say, 3, 4 slides in our presentation. We are almost at par with the best of the banks in terms of digital initiatives. Customers of our bank have access to all -- almost all technology -- digital services, what our other bank customers are getting from the banks. So our digital banking is almost at par with the best in the industry. Yes, this is not happening just like that. We have been maintaining that right from the beginning. We are one of the first old private sector banks to go for core banking solutions almost 2 decades back. We had also started offering Internet banking as well as mobile banking services to our customers much ahead of almost all of our peers. We are the first bank in India to launch a robot for our customer service and also to offer multilingual interactive voice chatbot facility to our customers. We are the first to roll out interoperable cashless -- cardless cash withdrawal, ICCW, in our ATMs and UPI 123 Pay, UPI facility for all our basic phone users. We are one of the first few banks to introduce video-based KYC account opening for individuals as well as corporates. Almost -- over 90 percentage of our new accounts are getting opened through this video-based KYC facility that is through digital banking. In the last couple of quarters, we had introduced debit card-embedded wearables like the smart watch and key chain for contactless payment, again, the first bank in India to do that. To reiterate, we are not lagging behind any of the top class banks in the country in terms of digital initiatives, and we never shy away from adopting latest technological developments in banking industry. Almost all banking services right from onboarding of new customers are digitally enabled in our bank. Connected banking, digital signature to the corporates in soft token to do their online transactions securely, WhatsApp banking, wealth management through net/mobile banking, digi mall through net/mobile banking are some of the digital initiatives offered to our customers. Around 90 percentage of our transactions are happening through nonbranch channels, including digital channels. Once again, to repeat, we are almost on par with the best in class in terms of the digital initiatives. We have also discussed in detail about our, let's say, tie-ups with the fintech companies and all in our presentation. The illustrative list is there in the presentation. For the -- just once again, to tell on all digital initiatives, let's say, we have been continuously making investments, and we are almost on par with the best in class on that. So I just want all of you to take note of that. During the last con call, we had discussed in detail about tie-ups with 42CS to manage our credit card business. We have rolled out our own credit card, [ CUB Dhi ] Visa credit card to our customers with technology assistance from [ that is ] 42CS. This new credit card will have all the features available in the industry. As discussed earlier, we don't expect to be aggressive in this line of activity, and there is no change in our risk appetite, but this will fill up one gap that was available in our product plan, which is now covered. We have introduced the facility of pay to contacts in our CUB UPI available in our All-In-One mobile banking app. This feature allows the customer to make the payment directly to the mobile bank through UPI instead of account number or VPA or QR or whatever. It is like sending amount to mobile number. There will be an icon in the home page of UPI called pay to contact. By clicking the same, the beneficiary name will be displayed. Customers can check the name of the beneficiary displayed and pay -- initiate the payment. So like that is just an example. So just to sum up, for the financial year '22/'23, let's say, as we told in the last quarter itself, COVID is behind us. Over and above that, the growth is coming back, and credit growth for the current year will be mid- to high double-digit and loaded towards year-end. So we hope we should be able to achieve, let's say, aim to upgrade our 12 to 15 percentage of whatever we shared with you all to maybe 15 to 18 percentage for the year as a whole, but the growth will be in the second half as usual. The expected overall slippages to closing advances, we expect that to be in the range of 2% to 2.5%, which is also equal to the pre-COVID level. The slippages should come down and recoveries will improve, thereby resulting in the gross and net NPA significantly reducing by year-end; the net interest margin to stay around 3.85 to 4 percentage; ROA level to reach 1.5 percentage for the year as a whole, and we are already almost there. The cost-to-income ratio may hover between 42 to 45 percentage as -- in the absence of the treasury income. So everything is looking positive now, much even positive compared to whatever we saw during the last con call. We hope the, let's say, other international factors like war in Ukraine or the conflict between the China and Taiwan result in, let's say -- the effect in the logistics, particularly the oil price or inflation and all, looks like they are -- though they are there, their negative impact will be significantly under control. And we should be able to -- let's say, we are working harder to achieve whatever we said we'd do as our expectations. So overall, things are positive, let's say, in almost all fronts as we discussed. And as you might have seen, we performed reasonably well in the treasury front also because of our sustained risk management practices. With these opening remarks, I open the floor to questions. So we will go for one-to-one answering of the questions. Over to you all.

[Operator Instructions] The first question is from the line of Rohan Mandora from Equirus Securities.

Just wanted to understand, when we are increasing the [Technical Difficulty] and in this quarter, [Technical Difficulty]. So what gives us the confidence in being able to increase the guidance?

Your voice is not clear. Can you come closer to the mic and speak?

Sir, is this better?

Okay. Better.

Yes. So sir, I was saying on your loan growth guidance, we have increased the guidance to 15% to 18% from 12% to 15%. And in this quarter, overall growth on the loans was slightly soft on a sequential basis. So sir, what gives you the confidence in being able to increase the guidance on loan growth? What has changed in this 1 quarter, if you could highlight things around that?

See, it is basically that, as we had been talking with you all during the earlier quarters, we had not pressed the growth pedal at all as we felt there were a lot of uncertainties. Even though the, let's say, growth from the -- I mean, the impact of the COVID was over and there were also uncertainties because of the oil price and inflation and all, we were taking a guarded approach. After looking into the performance of the -- our book and also on discussion with the customers and all, it is giving us sufficient comfort that we can now go for slightly accelerated growth. That's why we have given the acceleration from 12% to 15% to 15% to 18%. If -- next couple of quarters, if things look -- get view of better comfort, then we will definitely -- we will not miss the opportunity, if at all, we want to press the growth pedal and see. But as of now, it looks as if we, let's say, go with the pressing the growth pedal towards the third and fourth quarter, we should be able to achieve the, let's say, mid- to high double-digit, that is within 15 to 18 percentage growth for the year as a whole. This is based on our comfort on both environment and with the conviction that we will start pushing for the growth.

And sir, we have seen good trends in the treasury where we have not booked any losses for the current quarter as well. So sir, at what level of yields are we protected and from when there could be a possibility of MTM ahead?

See, basically, as I explained during the, I think, what you call [ about the ] treasury, our duration is very low in our AFS book and all the short-dated securities, whatever we are keeping that are basically maturing in the next 18 to 24 months. So actually speaking, let's say, this is basically the -- we are holding the security at a discount compared to the face value though, there is a difference between the market value and our book value for which we are taking the notional provisioning. When the, let's say, maturity of these securities happens, that is going to be the reversal of these books. Honestly speaking, the overall impact because of this, let's say, movement of treasury yield, even though there could be the sort of smaller provisioning making here and there, we are, to a greater extent, protected because of the yield movement. And we learned our hard lesson to a couple of decades back during 2004 because of the yield movement, and that has been properly embedded into our treasury policy, and that's why with this comfort and confidence I am telling you this.

Sure, sir. And sir, lastly, just 2 questions on recovery part. One, the recovery from return of assets this quarter, is there any large accounts? Or is it more granular? And second, the provision reversals that will happen with SpiceJet, will it be used to increase the PCR? Or will it be consumed against normal NPA incrementally?

Yes. Basically, let's say, the -- what was your first question?

Recovery from return of assets.

Yes, yes, yes. We had one recovery from a reasonably big account of about INR 40 crores to INR 45 crores out of this INR 90-odd crores recovery we had made. But we have -- we feel overall number, let's say, the live plus technical written-off, together, that number will be staying around, let's say, around the same region as we move forward. Coming to answer your question on the SpiceJet, we feel we will take a call towards the end of the current year, depending upon the recovery and the things like that. See, actually speaking, we have taken this provision as the contingency provision, keeping in mind about this particular account. So we will take a call how to deal with that maybe towards the end of the current year when substantial recovery should have come from this account.

The next question is from the line of Madanagopal Ramu from Sundaram Mutual.

Sir, my first question is on, you gave certain numbers on the restructured book. Broadly from what you said, if I understood rightly, except for 15% of the book, mostly others have started to pay, and there are no concerns. Is the understanding right? That's what...

Yes.

Okay. And what is the sense on this 15% book, sir? Is there a chance of slipping here? And what is it -- how do we see recovery here?

See, the due date for this book has not yet started. They have -- maybe some of them have another 2, 3 months to go and all. They want to utilize this particular [ write-off ]. So that's why I told -- so our expected slippage percentage to the closing advances for the current year should be around the 2 to 2.5 percentage, almost similar to whatever we had during the pre-COVID period, which will include the ECLGS, which will include restructured advances and which will include other normal regular advances also. So there is -- with this broader number in -- at the side, there is no need to go for the half-splitting of the individual components.

Okay. Great. Nice to hear that. Second, you mentioned on the digital initiatives, really good to see. And there are 2 things that people -- banks are trying to achieve there. One is customer service, which we are already doing, and we can see that. The second is ability to cross-sell and bring in new customers, create a funnel to bring in new customers to bring higher growth in the future using digital initiative. What is happening on the [indiscernible]? With all the digital initiatives that you are taking, you think a reasonable amount of contribution on cross-selling and new products can add to our loans in the future?

See, basically, it's how we look at this, let's say, starting from the even customer onboarding to all the transaction, as you said, that the customers that we have partly taken care of. We have been making, let's say, continuous initiatives in terms of, let's say, your, what is that, data analytics part and all. Those initiatives are also parallelly happening. And they are already, let's say, doing some contribution in terms of cross-selling and all. That's why, let's say, the initiatives on the analytics and all are also parallelly happening.

Okay. But at this point, it's too early to, say, consider any big contribution in terms of loan growth or any other big fee income growth coming in from the cross-selling opportunities?

Definitely, it will be there. Let's say, the one thing which I want to clearly say is, particularly on the growth front, using analytics, the -- let's say, the contribution on growth for the SMEs by analytics is going to be lower than the contribution analytics can happen in a personal loan. So since our concentration is on what you call SMA loans and all, yes, they're definitely held for making their, for example, let's say, the cross-selling opportunity for our existing customers. They also help us to have better risk management in terms of credit sanctioning and all, which are also parallelly happening. It is -- the contribution is going to not just on the growth, it is going to be across all parameters, including growth, risk management, fraud prevention, cross-sell, everything.

The next question is from the line of Mona Khetan from Dolat Capital.

So my first question is on the OpEx side. So if I look at your cost-to-asset ratio, pre-COVID, it averaged at around 2.1% or so. And last fiscal, it was 1.9%, in FY '22. So you've highlighted that per branch, employee requirement has come down. But at the same time, there will be employee additions during this year to support growth. So given this backdrop, what sort of cost to assets could we expect from a steady-state perspective for this fiscal as well as going forward?

See, these sort of things, let's say, we don't have a target and all. So these employee costs and all are depending upon, let's say -- we already told you we'll be opening about 50 to 75 basis points -- I mean, 50 to 75 new branches and all. So depending upon the start of, let's say, extra branches opened and growth opportunities and all, these sort of things come. And honestly speaking, you have to make your own intelligent assumptions on that. So there is a long-term average on those front around the number which you are telling. So we don't get into like too much of half-splitting into this number. So we only like -- overall ROA numbers we track and overall other parameters we track, and we don't take any decision or implement any -- execute any decision having these things on mind.

Okay. Sure. Got it. But broadly trying to understand whether cost to assets could decline because of the benefit of lower requirement per branch. Or could it, say, come back to pre-COVID levels over time as things normalize?

It will be somewhere in between.

Okay. Okay. Got it. Secondly, if I look at the restructured book, so it has come down from INR 2,200 crores to about INR 2,000 crores, a decline of INR 200 crores over time. So just wanted to understand how much of this could have slipped and how much of this could have been probably repaid, et cetera.

See, the -- in Q1, NPA slippage from the restructured book is about INR 57 crores.

Okay. And cumulatively, how much would it be including, say, last quarter? Or would this be broadly the number?

See, the same number during the fourth quarter was INR 44 crores.

Okay, sir. Got it. Got it. So about INR 100 crores or so has slipped so far. Got it. Sure.

The next question is from the line of Renish Hareshbhai Bhuva from ICICI Securities.

Congrats on a great set of numbers. So sir, my first question is on the employee count. So from last 3, 4 quarters, we are seeing the total employee base declining quarter-by-quarter. And if I have to look at last 1 year trend, we have almost sort of sliced that number by 500 people. And since now we are targeting for a relatively higher growth in FY '23, I mean, do you feel we need to ramp up the employee base in next 2 quarters? Or do you feel the existing infrastructure is good enough to sort of give us the kind of growth which we are expecting right now?

Definitely, there is going to be an increase in the headcount, considering both the new sort of 8 branches, which need to be opened -- 50 to 75 branches, and also, this incremental growth opportunity, which we anticipate.

Okay. Okay. So sir, I mean, the last 1-year rationalization was more of a, let's say, attrition and we are not hiring back? Or how one should look at it basically?

Exactly. That's how -- about 8 to 10 percentage attrition, whatever that is coming, we did not, let's say, ramp up.

Got it, sir. Got it. And sir, last question on the ECLGS book, okay? So if I remember correctly, last quarter, we had added, right, SMA 1 and 2 in this portfolio was 1.5% in SMA 1 and 0.5% SMA 2. So if you can just tell us the corresponding number for this quarter?

See, the total -- see the -- basically, the SMA 2 number for retail portion currently is INR 222 crores.

INR 222 crores?

Yes.

Okay. Okay. And we have disbursed almost INR 26.5 billion, right?

Overall. And here, when we say INR 222 crores, this will be the total exposure of the borrowers, including the other loans also. Be clear about that.

Okay. I see. This is the total exposure. So which is then...

Even though the ECLGS balance is INR 2,500 crores, the other balances, put together, these borrowers together, they have a total exposure of INR 13,687 crores, of which, SMA 2 portion is only INR 222 crores.

Got it, sir. Got it, sir. And sir, you did mention about the SMA 2 number for the entire book at 2%. And I think the same number was 1.4% in last quarter. So is there any seasonal...

Those numbers will fluctuate and as year-end, that means you will be having definitely increased effort, and that fluctuation is nothing material.

Got it. So one should not look too much into this number?

Don't too much, [ absolutely. ]

The next question is from the line of Jai Mundhra from B&K Securities.

Sir, 2 things. One on yield, right? So I think if you can share the proportion of EBLR and MCLR book as of this quarter.

Yes. About 65 percentage of our loan book is in EBLR and the 25 percentage is in MCLR. And the balance, fixed and NPA and other things.

Sorry, how much was in EBLR? I missed that.

65 percentage is on EBLR.

Right. So even last quarter, it was similar number. And then, sir, EBLR would have moved up. And you would have also passed or at least starting to see...

No. It is not that the entire increase in rate has been passed on. So with some amount of cushion on other parameter, about, let's say, half of that might have got transferred.

Right. Sir, I mean, some amount would be transferred, right? But if I look at yield on advances, on quarter, it seems they have declined by 2 basis points.

Basically, you will see that impact in the second quarter.

Correct. So there could be some lead/lag, which I have said, but more -- I mean, I just wanted to understand the fact that you would not have reduced the MCLR, right, or you would not have reduced the EBLR.

Yes. No, no. It was not because of the MCLR. It was basically because of, let's say, the increased, let's say, reduction which we had considered for some portfolio and all for which we have not given reduction in the past. So those sort of considerations had to be given.

Right. Or is there any other loan book...

Yes. And also the gold loan part, which is about [ 1/5 ] of our portfolio, the average yield is lower than the -- yield of gold loan is lower than our average yield.

Understood. Understood. And sir, out of the 65% EBLR, what could be the split of repo and [indiscernible]?

Almost everything is repo only.

Okay. Understood. And then, sir, is it safe to assume that at least the initial 90 basis point increase, that would have been effective mostly, let's say, beginning August?

No. Overall, out of that 90 basis points, at the maximum, about 40 basis points would have got, let's say, transmitted.

Okay. Understood. Second question is, sir, on your treasury. So in your comments, you had mentioned that the domestic treasury contribution is some INR 51 lakhs, but we have done fairly well on the treasury gains. So in the earlier calls, you had mentioned that this is integrated treasury. So if you can elaborate more, sir, that what is the profit generation, which is outside of domestic treasury and which is yielding phenomenal results.

See, basically, what has happened is that ForEx, let's say, the exchange profit what we call, we have made about INR 63 crores for the first quarter. The same thing was about INR 53 crores in first quarter last year and about INR 59 crores in the fourth quarter. Even on the, what you call, interest front, let's say, one of the things why interest was not going for the [indiscernible] if you did not make mark-to-market. We went for the far better security is the, let's say, advantaged in the interest income basically. So if we consider as I said -- so that's why I said to you that like even though I have provided about -- I had mark-to-market depreciation of INR 30 crores, about 60, 70 percentage of that will be coming back to me in 18 to 24 months. It's mainly because of this residual maturity and things that. So if you consider all the parameters fully from the treasury, be it interest income or be it the -- your, what you call, depreciation because of the abnormal movement of your -- adverse movement of your bond deal, overall, things have been, let's say, managed in the decent way, and yields -- income had been maximized.

Sir, this ForEx gain, is this proprietary trading or this is done on behalf of the client and the bank earned fee? Is this the [ naturally ] or this is like trading income?

Yes. It is a small portion, but majority of that is the parts of what you call your integrated treasury operation where you buy dollar and invest there and also cover it by the forward. Whenever you have, let's say, arbitrage compared to the yield, what you can get in the domestic market vis-à-vis what you can get in the overseas market, under that, the forward premium will become the foreign currency profit.

Okay. Understood. And just a small data point, sir, on SMA, you mentioned INR 820 crores is SMA 2 only, right? This is SMA 1 plus 2 put together.

No, no, no. See, the overall SMA 2 is 2%.

Right. Okay. Any number for SMA 1, sir? I think earlier we used to have 5%, 6% roughly.

No. It's about 2.41 percentage in SMA 1, which sequentially reduced from 2.79 percentage in the 31st March 2022. And comparatively during the last year, around the same period, it was 3.74 percentage in SMA 1 and 3.34% in SMA 2.

Right. The last question is around deposit. So when you're looking to increase credit growth from, let's say, 9% right now to 15%, 18%, on deposit side, you are also running, as of now, running at 7%, 8%, 9% Y-o-Y. How are you seeing the competition in the retail deposit side on both SAAR and [ ED ] because, of course, system-level deposits growth is slightly sluggish. And when you have 15%, 18% credit growth, what is the sense that you are getting on the retail deposit side. And any increase in the competitiveness recently because of the [ large corporate ] banks' individual [ sales? ]

As you might have seen, the CASA growth for the system is 25 percentage for us. See, CASA has grown between 30th of June 2021 to 30th June 2022 at about 25 percentage. We had only -- we manage the rates of retail term deposits at such a rate that -- so that it doesn't grow so much and where surplus we have to invest in the government securities and once again going for the depreciation and things like that. So we manage the ALM pretty well. And even today, I can grow my loan book by about INR 2,000 crores to INR 2,500 crores without increasing INR 1 crore of deposits from the surplus liquidity position what we have. So we have -- we will have sufficient time to manage the credit growth and take appropriate actions to increase our deposits accordingly.

Right. [Technical Difficulty]

Sir, your voice is breaking up in between, Jai Mundhra.

Yes. So as I was saying, sir, how are you seeing the listed deposit rate [Technical Difficulty] basis point [Technical Difficulty] how much would be the total deposit base based on broader yield movement?

See, the RBI rates have definitely given a clarity on the direction of the both yield movement and also deposit rate CASA movement. But there will definitely be a lag factor on that. And we expect, let's say, the -- I mean, the growth in deposit rates is following with some amount of large with the -- that of the yield movement. And towards the end of the, let's say, financial year, we expect for the incremental deposits, which you have to be very careful in [ accounting ] that, we'll have at least not less than maybe around 40 to 50 basis points from the current level for the system as a whole.

The next question is from the line of Prashant Kumar from Sunidhi Securities & Finance Limited. Prashant Kumar;Sunidhi Securities & Finance Limited;Research Analyst: My question is on -- again, on the liquidity side. As your CD ratio reached already until around 84%, so as per, sir, your, old guidance, accelerated credit growth would be around -- 15% to 18%, and so the credit growth will outpace deposit growth with wide margin. So are you going to finance that credit growth by redemption of investment? If you could give some color on the balance sheet movement like deposit advance and investment mix for FY '23. And at what level of CD ratio would be comfortable?

See, I have answered all your, let's say, almost all your questions earlier, but I will once again reiterate. I can go for another INR 3,000 crores of loan book increase around, let's say, INR 2,500 at least without increasing my deposits even by a single rupee. How it is going to come? I have surplus government securities and also overseas deposits, which will be maturing. And by using these government surplus securities, I can borrow by pledging that from the RBI. That is the -- I would say, I can go for the thing. Similarly, I have almost -- most of my refinance window also is opening. So I will always ensure that my credit growth doesn't get hampered by the nonavailability of the deposits. So I can even go up to the CD ratio of about 90 percentage, which we have done in the 89, 90 and all had happened in the past during the pre-COVID [ scene ]. And we have -- and already, since we have the surplus, let's say, of capital funds also, that supports us in this sort of thing. So we can -- all the surplus government securities, whatever we have, we can always borrow from RBI by bridging that, which will be the source of my liquidity, if at all I needed that. But looking into the overall trend and all, I will have sufficient time to, let's say, manage my liability side, particularly my retail term deposits.

The next question is from the line of [ Abhilash Hiran ] , individual investor.

Hello? Am I audible?

Yes. Absolutely. Go ahead.

Sir, can you tell what is the percentage of our business that is coming from [ DSC ] and what are -- and what is coming direct from customers?

We don't have any [ DSC ] as a concept. The entire business is direct from the customers to the bank. No intermediary in between.

Okay. Okay. Sir, so can you explain, sir, what is the cost of setting up a branch in Tamil Nadu and outside Tamil Nadu?

Basically, it will be about, let's say, 23 lakhs per branch or so. And it will be, by and large, the same anywhere in the country.

Okay. So irrespective of...

Yes. There could be changes because of, I mean, type of location, for example, whether it is urban or metro, that sort of difference will be there.

Right. And sir, what is the...

That's also on rent and not much on the setting up costs.

Right. And sir, what is the general breakeven period that we take after setting up a branch?

Basically, the Tamil Nadu branches will break even between about 1.5 years or so. And for other set of branches, typically, it used to take about 2.5 to 3 years. Average, you can keep up to 2 years.

Okay. Right. So sir, you had mentioned in the past that we generally have a much stronger role in the rural, like the Tier 2 and Tier 3 geographies vis-à-vis the metro and the city parts. So what reason for that rate -- what are the reasons for our dominance in the Tier 2 and the Tier 3 geography?

See, you don't say rural. You said rightly, the Tier 2 and the Tier 3. The -- our target market, particularly the -- I mean, if you can clearly see, the MSME, commercial trading and agriculture together constitute, say, about 70, 75 percentage of our loan book, which is our core breadwinner. And the presence of this segment is more in the semi-urban and Tier 2 and the Tier 3 towns more than the metros.

[Operator Instructions] The next question is from the line of [ Neil Mehta ] from Investec.

Am I audible?

Can you come a little bit closer? It is not clear.

Am I audible now?

It is better.

Yes. Sir, my question was on the slippages. So quarter-on-quarter, we witnessed an increase in our gross slippages. If you could explain the reason for this increase?

Sorry, repeat your question, please?

So my question is on the gross slippages. So quarter-on-quarter, we have witnessed an increase in our slippages. If you could describe the reasons for the same?

See, don't read too much into the quarterly numbers and all. You had a much higher number, say, for example, even in the second and third quarter. Even first to second and third quarter had been very high in the last year, and which reduced substantially towards the end of the -- in the fourth quarter. So we have shared our expectations that year as a whole, we should be having between 2 and 2.5 percentage to the closing advances. There will always be quarterly aberrations.

Sir, can we say this is on account of some sort of seasonality in our business?

Partly because of that and partly, let's say, that [ it tends to happen, ] that's all. It is very difficult to have, what you call, a straight line or having something which is very predictable rates and all. There will always be some amount of thing and all. But what I can say is that it is not part of a trend. Still, whatever information available to me and the comfort whatever I'm getting is that here, as a whole, the year total slippages should be much less than whatever we had here as a whole in financial year '22 and almost similar to the pre-COVID period.

Got it, sir. And sir, are there any trends [ in key figures ] that we observed in general, like some products contributing to slippages more than the others?

Please repeat. The voice is not clear.

Sir, what I'm saying, is there any trend that...

[Operator Instructions]

Yes. Is this better now?

Not very much, but anyway, let us try it.

Yes, sir. So what I was trying to ask was, and this is my last question. In [ general, ] if there were any trends observed in slippages, as in whether some particular products are contributing more to slippages than the other ones.

No. It is spread across different areas.

The next question is from the line of Darpin Shah from Haitong India.

Sir, you mentioned that you now intend to grow the book on loans by 15% to 18%. And you also mentioned that there has been some positive feedback on why is it you're getting from the specific borrowers. The question is what is that thing which is giving you the confidence? And second is, aren't the borrowers concerned about the rising rates, which have happened over the last, say, [indiscernible]?

See, one of the important reason for that is like, I get a feel that the investment cycle will start towards the fourth quarter, which will be giving that extra percentage growth, which I am expecting. So earlier, people were only thinking. Now I'm probably getting a sense that the people are now, let's say, maybe one -- led closer to the investment cycle, and that is one which is making me -- and also some amount of uncertainty, which was there in the -- I mean, definitely, I won't say the uncertainty has come to be 0. But definitely, the uncertainty level has come down now compared to whatever we had 3 months back. So all these things put together has given me that expectation.

Okay. And sir, anything on the rising interest rates? Aren't the borrowers concerned about that?

Actually speaking, the interest rate currently is only equal to the pre-COVID level. They all know that, let's say, whatever they got during the -- reduction during the COVID period is because of the special dispensation and all. So pre-COVID level, people were, let's say, comfortable with the rate of interest, which they are getting back to that level. We have to look that in that way.

We'll take the next question as the last question from the line of Gaurav Jani from Prabhudas Lilladher.

Congrats on a good quarter. Two questions. One is structurally in FY '23 versus FY '22, could you see better margins?

See, the -- definitely on increasing interest rate scenario, there has to be a, let's say, better margin, then don't interpret that it is going to be 1 percentage more than last year at whatever it is. Let us go step-by-step to don't interpret -- extrapolate it too much, but directionally, there has to be a stable, if not expansionary margin.

So to put it another way, could you assume that NII growth would actually be more than loan growth?

Hopefully, we are hoping for that only.

Got it. Sir, the second and the last question is slightly more structural. We are looking at a total stress of about close to 8%, that is 5% of restructured and about 3-odd percent of the ECLGS. So I mean, from a '24 standpoint, where do we see this stress actually going to? And how soon could it reduce? And any sort of number do we have it mind?

See, regulatorily, I mean to me, I have given me what is my stress. The SMA numbers are against you, and I have told our expected slippage for current year is going to be 2 to 2.5 percentage, similar to closing advances, similar to whatever we had during the pre-COVID period. And this is going to be sum of all regular ECLGS, restructured and everything. So whenever the RBI, let's say, after only a completion of the repayment, the restructured, that will go. It's a regulatory gain. So those sorts of number changes will be based on the regulatory grade line, whatever that is given, number one. Number two, like the -- when I covered the overall expected slippage numbers, whatever that is given, it gives me sufficient comfort that this is the holistic slippage I'm expecting from every different segment of the portfolio.

Sir -- got that, sir. If you can, sorry, I probably would have missed this number, but how much of the restructured book will be due this year and next year?

Almost -- I have told all 65 percentage of them have made this thing. Almost 50, 60 percentage of them would be completing their 1-year repayment by the calendar year-end. And once they complete 1-year repayment, they will lose that [indiscernible]. [Operator Instructions]

Yes. So we'll have -- we have one question from [ Abhilash Hiran, ] individual investor.

Sir, can you explain, sir, what are our breakup of our book, what percentage would be above INR 100 crores and so on, like some ticket size?

So we have very little -- I mean, I don't think over INR 100 crore book for us -- [indiscernible]. Just a minute. Around 4 percentage of our book.

Okay. And sir, under INR 5 crores?

See, these sorts of data points, normally, we don't keep in hand. So you can contact the phone number, which is given in the presentation.

Okay. Okay, sir. And sir, about this INR 100 crores, what generally would be the interest service coverage ratios for these loans?

Each -- normally 1.33, these are all [indiscernible].

Okay, 1.3. Okay. Okay, sir.

Where you see the segment -- some segments will be 1.33, some will be 1.5. Some will be 2, depending upon the segment, they will be there.

Sir, generally, what percentage of our employees work in the recovery collections or the recovery segment?

We don't have what you call any recollection, let's say, agency sort of and all. This is typically the job of branch. The branch will be responsible for both giving the loans and follow-up. Apart from that, we have about 2 to 3 people who are exclusively taking [indiscernible] follow up and all. But normally, we don't have a separate vertical approach in terms of this activity.

Okay. Okay. Sir, like in the past, like around in a decade or -- how many branches have the company closed and are the reasons for the same?

We have not closed even a single branch in the past [ 7 ] years. Have we covered everybody?

Yes, sir. So have covered everyone. You may go ahead with the closing comments.

So thank you all for attending the con call, and thanks for your wishes. Really gone well, even better than what we were expecting along with fourth quarter call. We hope the -- even for the financial year '22/'23, it's going to be much better on all parameters, growth, NPA numbers, on asset quality. On every factor, it looks like things are getting much better and better. And I hope I will be able to update you with the progress in the subsequent con call. If you have any specific query or any data point, you can always get in touch with Mr. Jayaraman, whose number is there on the presentation, which is posted in the website, Investor Presentation part. Thank you all for attending this call once again. Thank you.

Thank you very much on behalf AMBIT Capital, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.