Lionheart Holdings (CUB) Q2 2023 Earnings Report, Transcript and Summary

Ladies and gentlemen, good day, and welcome to the City Union Bank Q2 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. Prabal Gandhi from AMBIT Capital. Thank you, and over to you, sir.

Thank you. Good evening, everyone, and welcome you again on Ambit Capital for City Union Bank's Second Quarter Earnings Call. We have with us is N. Kamakodi sir, MD and CEO of City Union Bank, and his team with us. I will now hand over the call to Kamakodi, sir, for his opening remarks, post which we can open the floor for question and answer. Thank you, and over to you, sir.

Thank you, and good evening, everyone. Hearty welcome to all of you for this conference call to discuss the unaudited financial results of City Union Bank for the second quarter and half year ended 30th September 2022. The Board approved the results today, and I hope all of you have received the copies of the results and the presentation. Our bank celebrated its 119th Foundation Day on 31st October 2022, which is about 3, 4 days back. We are thankful to the -- let's say, the [ immense ] service done by the founders, our past to present employees or past to present members of the Board and all our customers who are with us for multiple generations. We also have an update on the, let's say, change in the management, particularly on the Board constitution. Srimati Abarna Bhaskar, our Independent Director, has retired from the Board of the Bank on 24th October 2022. She was inducted to the Board during October 2014 and had served in almost all the committees of the Board. I take this opportunity to thank Madam Abarna Bhaskar on behalf of all of us for her valuable contribution. Today, we have inducted Srimati Lalitha Rameswaran in our Board with effect from today. She is a practicing-chartered accountant and also a qualified information Systems Auditor from Institute of Chartered Accountants of India. She has specialization in the fields of direct and indirect taxation, banking consultancy and also experience in appearing before the adjudicating authorities, appeal commissioners, tax tribunals and all, representing various financial institutions, including banks and other corporates also. She is currently serving the Board of IDBI Capital Markets and also had earlier served in the subsidiaries of Canbank and things like that. On performance front, second quarter ended well and on key parameters like growth, recovery of NPA, improvement of return on assets and also the control of slippages and all almost have gone in the way, we shared with you as our expectations in the earlier quarters. As stated in our earlier quarterly con call, going forward, the environment is expected to get better and better and we had started pushing for growth towards achieving 15 percentage plus growth towards the year-end. This is what I said, and we have started all our actions on that. So it will be backloaded as we had indicated earlier. We shared with you all following expectations for financial year '23 during our earlier con calls, we had said that we would be pushing our growth pedal, and we'll be achieving 15% to 18% credit growth for financial year '23. The expected overall slippages to be in the range of 2 to 2.5 percentage. Slippages should come down and recovery should improve from the, let's say, and -- resulting in gross and net NPA significantly reducing by the year-end. Net interest margin to stay around 3.85% to 4%. Working towards ROA level to reach 1.5 percentage, and cost-to-income ratio may hover between 42 to 45 percentage in the absence of treasury income. The highlights of the performance for second quarter and first half of financial year '23 are as follows: almost on all parameters, progress is as per expectation shared. Deposits recorded a growth of 8 percentage from INR 46,316 crores to INR 49,878 crores year-on-year. Advances grew by 12 percentage from INR 38,012 crores to INR 42,701 crores year-on-year. Business grew by 10 percentage and stood at INR 92,579 crores as on 30th September 2022. CASA recorded a growth of 16 percentage that is more than the overall deposit growth to INR 15,609 crores from INR 13,411 crores and CASA percentage to deposits improved to 31% in Q2 financial year '23 against 29% in Q2 financial year '22. Net profit increased by 52% from INR 182 crores to INR 276 crores between second quarter last year to second quarter financial year '23. Return on assets stands improved to 1.72% in Q2 financial year '23 against 1.32% in second quarter last year corresponding period. For half year ended, let's say, 30th September 2022, the ROA stands at 1.59%. Net interest margin is at 4.02% for the half year and 4.09% for second quarter financial year '23. Gross NPA is at 4.36% and net NPA at 2.69% on 30/09/2022. Both sequentially got reduced from 4.65% and 2.89%, respectively, from 30th June 2022. As per our expectation, the credit growth is getting back on track. We had grown by 12% like last quarter, in second quarter. As we stated in the last quarterly call, we have slowly started pushing to accelerate the growth to 15% to 18% for financial year '23. And growth will be back-ended as usual. And bulk of it will be coming from the growth -- from the fourth quarter. We have already started taking things in that direction. The results will be seen by the fourth quarter. As done in our earlier con calls, we wish to provide some updates on latest developments about the status of SpiceJet. The management of SpiceJet has started to settle their views in phased manner as per agreed time schedule. They have been servicing their interest and dues regularly, and interest has been paid up to October 2022. So far, they have repaid INR 17.5 crores dues, and the current outstanding limit is INR 82 crore -- INR 82.5 crores. And the last installment is scheduled during June 2023, and there will be monthly repayments and an agreed schedule is already given. And the amount varies -- I mean the -- between the months depending upon their expectations on the surplus cash flows and things like that. The slippage during second quarter financial year '23 is INR 261 crores as against INR 270 crores in first quarter financial year '23. The annualized slippage ratio for second quarter is 2.44% compared to 3.10% for financial year 2021, showing a sequential decrease. In Q2 financial year '23, we recorded a total recovery and upgrades of INR 228 crores, comprising of INR 189 crores from live accounts and INR 39 crores from technically written-off accounts compared to INR 189 crores in total, comprising of INR 128 crores from live accounts and INR 61 crores from technically written-off accounts in the second quarter financial year '22. The gap between the slippage and the recovery is about INR 33 crores only currently. The current SMA 2 number stands at 2.26%, which includes accounts from, let's say, restructured accounts from accounts, which received ECLGS and all regular accounts together. The cost-to-income ratio for second quarter '23 and H1 '23 was at 38.43% and 39.10%, respectively, as against 40.51% and 40.56% for the corresponding period last year. As stated in the earlier con call, the cost-to-income ratio may be slightly elevated because of nonavailability of profit-making opportunities from the treasury, maybe around 42%, 43% or 42% to 45% as we have discussed in the earlier con calls. The capital adequacy ratio of the bank currently stood at 20.08% in second quarter financial year '23 that is current quarter vis-a-vis 19.24% for the corresponding period last year. We have not diluted any capital in the last 8 years. And last time, we had raised the funds was during July 2014 through QIP route to the tune of INR 350 crores. Even during the COVID period, we were one of the few banks who could pass through the crisis without going for augmentation of fresh infusion of capital. The capital adequacy ratio has slightly reduced compared to Q1 financial year '23, mainly because of increased contribution from non-gold loan portfolio. And also, in the first quarter, you don't have -- you can't take the profit you made in the, let's say, first half for the capital adequacy ratio because it is not audited. It is only -- as per the regulatory guidelines. Our return on equities also it has crossed 15%. Like we had not opened any new branches in the second quarter financial year '23. But as stated in our last call, we are planning to open another 50 to 75 branches across different states in the, let's say -- let's say, most of them will be opened in the fourth quarter. The operating profit for the second quarter was INR 456 crores against INR 405 crores, registering a growth of 13%. Operating profit for first half stood at INR 904 crores compared to INR 786 crores for the corresponding period last year, showing a growth of 15%. Total provision made during the second quarter and first half was INR 180 crores and INR 402 crores, respectively, against INR 223 crores and INR 431 crores for the corresponding period last year. The net profit for second quarter was at INR [ 275 ] (sic) [ 276 ] crores, perhaps the highest profit we had made so far, as against INR 182 crores during the second quarter financial year '22 with a growth of 52%. For the half-year ended financial year '23, the net profit was INR 502 crores against INR 355 crores in the corresponding period last year. This is for the first time the bank's profit after tax is crossing INR 500 crores in one-half. This quarter's profit is highest in the history, and we had crossed INR 200-plus crores of PAT for the past 3 quarters on a continuous basis. Also, the half-yearly profit, let's say, as I told you, this is INR 500-plus crores for the first time in the history. Net interest margin stood at 4.09% in second quarter compared to 4.03% in the corresponding period last year. Net interest margin for the first half stood at 4.02% against 3.95% for the corresponding period last year. The RBI had taken steps to restore the repo rate to pre-COVID level and also we are seeing rate hikes. As a result, we are also passing on the rate of interest increase to the borrower. That's why you are seeing some minor increment in the yield on advances. It could be -- further, you may be seeing some more increase in the future quarters also. We expect the NIMs to stay around the current level plus or minus 10, 20 basis points. Normally, in an increasing interest rate scenario, since the bulk of our advanced portfolio is floating rate, the increase in the yield happens faster than the increase in the cost. So you will be, for an intermittent period, seeing some margin expansion, which you have already started seeing. In our earlier con calls, we had shared our expectation that contribution from improved recovery management, coupled with reduced slippage, we are hoping to achieve ROA of 1.5% by the second half of the financial year. In fact, this was one of the, let's say, expectations, which we shared in the middle of calendar year 2020, towards the end of the first lockdown, but we were able to achieve it faster than whatever we expected. We exceeded that in the first half itself instead of second half, as we had shared with you all. Another major item is that we have been repeatedly -- even after this result was out, we got -- we received calls from a few of the analysts and investors, particularly to talk about the growth and also the -- let's say, how we are -- let's say, how good is our technology and things like that. I have to clearly say that as I told you in the last, let's say, quarter, we are in the, let's say, already started pushing towards growth of 15% to 18% for the current year. And you will be seeing it firmly in the fourth quarter for which we have already started taking steps. We hope the only negative risk on that will be from the performance of the general economy if the war extends and the oil price stays high for an extended period of time, and inflation and -- which creates the issues in the macroeconomic stability and particularly from the issues you see in the -- let's say, issues in the economy of the developed countries. But as of now, our expectation is that there should not be much of issue going forward. And still, we feel towards the year-end, we should be closing the financial year 2023 with about, let's say, 15% to 18% growth god willing. And once again, we are repeatedly being asked about our preparedness for digital. And we could see and feel some wrong perceptions in the minds of some investors, analysts and all, particularly about the traditional private sector banks like us in terms of the digital capability. In fact, last year, during one quarterly call, I explained in detail about this, I want to reemphasize now, we are almost at par with any new gen bank in terms of the technology implementation and all. Our customers have access to almost all technological services like any other new generation bank. As you all know, we were pioneers in using robotics and usage of wearables like keychain debit cards and all, where even your keychain can authorize a transaction when you take it near the PoS and all like that, but there are -- we have been pioneers in many of these, let's say, things. We have also [Audio Gap] to give you an idea about the select tie-ups, which we have done with FinTech companies and all. So we are continuously, let's say, evaluating and also evolving in terms of our digital capabilities. And let's say, we -- let's say, we want to ensure that we -- our customers are not at a disadvantageous position and we are also at par with any developed new generation bank for that matter. Now we have soft launched voice-based biometric authorization for our mobile banking app. Once again as a pioneer, we are working with a company called Zuci Systems, in the area of artificial intelligence, machine learning, to do predictive analysis for our businesses in multiple areas like cross-selling, campaign management, prediction of probability of default in various loan products and things like that. Using API technology, we are working with, let's say, a FinTech called Vanghee, which provides a connected banking solution and integrating net banking solution and accounting software of the customers like Tally, SAP and all. Through this integration, the reconciliation of the transactions are getting simplified without manual feed. After integration, directly from the accounting software of the customers, the customers can do fund transfers and they can also generate MIS report, let's say, without any -- I mean sort of hassle-free where they will be in a position to get those services. As a part of our digital automation, we have tied up with companies like digio, emudhra, Odyssey, et cetera, for stamping of digital documents and to get digital certificates and things like that. We have tie-ups with various FinTechs to provide technology for payment systems like Ezswype, PineLabs, ATOS and all, which provide end-to-end solution for PoS machines, QR code deployment and all, particularly where, let's say, the authorization has to happen, at let's say, business entities like shops and all. We use a Namaste Credit platform for artificial intelligence, machine learning based, digital lending solutions. Newgen is another company with which we have signed to upgrade the digital lending solutions and all. We are one of the first banks to introduce video KYC, in a sense, starting from the customer onboarding to end-to-end of, let's say, a credit disbursement. We have developed, let's say, digital capabilities and all, but as I have been repeatedly saying, let's say, when the bank is focusing on, let's say, the SME-based lending and all, we use these [indiscernible] FinTech relationships and all to improve the efficiency of the credit decision-making processes and all. But the disbursement and all being a secured credit has to happen and some amount of manual intervention will be there, but wherever it is possible, we are using the best use of technological solutions that are available. And moreover, we think these things are becoming hygiene factors. And all banks have in one form or the other. When -- hence, we don't make any big noise about it. But since I got repeated questions whether we are also in that journey, similarly for your -- let's say, the incorporation of the blockchain or taking things to the cloud. So all these things, both in terms of the broader infrastructure solutions and also on the, let's say, making the customer to get access to, all sort of, let's say, easy solutions for their let's say, doing their digital transactions and all, we are almost at par with any new generation bank. In the presentation also, we have added a few slides where, on Corporate Banking, what and all we have given; for retail banking, what and all, we have given. Just to give you a flavor and give you confidence that, let's say, on technological front, we are not lagging behind. We are also at par with, let's say, best in the industry and all. And also, this is something which I want to use this opportunity to record and, let's say, just to give you comfort that, let's say, we are taking all the steps which are needed to be, let's say, keeping us at par with the best. So to sum up, for the financial year '22, '23, the -- we hope the -- let's say, the growth is getting back, as I told in the last quarter. So we hope we should be closing the year with 15% to 18% as assured. Let's say, we are in the process of -- and it will be towards the end of the current year. We have already started taking actions at the grassroot level for which the results will be seen only in the -- results will be seen at the back end. The expected overall slippages to closing advances are almost back to the pre-COVID level of 2% to 2.5%, which we have already shared. So both the slippages and recovery, they should be balancing themselves to a greater extent. Slippages have come down and recoveries are improving. So going forward, it should result in significant reduction in the gross NPA and net NPA over the quarters. And the numbers will be very significantly reduced towards the end of the current year that is on the last quarter. Net interest margin, as I told you, should be staying around the same, maybe with a plus or minus 10, 20 basis points and more with an upward bias because of we are into the increasing interest rate scenario. ROA level almost, as you have seen, things are around 1.6%, 10 basis points higher than what our expectations we shared with you all. So things should be looking healthy. The cost-to-income ratio may have -- we have been expecting some increase because of nonavailability of income from the treasury and all. So across all fronts, things are looking okay. The -- let's say, the overall P&L numbers are also looking, let's say, healthy for the remaining part of the current financial year. With these few words, I'll leave the forum for discussion. Over to you, all.

[Operator Instructions] Our first question is from the line of Suresh Ganapathy from Macquarie.

I had two questions, Dr. Kamakodi. One is on the ROA itself, right. So you have ended 2Q with 1.72% kind of an ROA now. Historically, you've always said that sustainable ROA should be 1.5%. Do we assume because [indiscernible] are going through a fantastic credit cycle. This cycle, you can push up the envelope and move to a 1.7% kind of an ROA level sustainably. So that's the first question. The second question is the deposit growth overall has been weak at 8% Y-o-Y. Now -- I mean if -- while your [ LDR ] has already touched 85%. Now if you want to push your loan growth to 15% to 18%, you have to get your deposit growth up by 8% is not sufficient at all. So what are you trying to do on the deposit spend and is that not a worry? Over to you, sir.

So I will answer the second question first. The -- as I have been mentioning, I have sufficient surplus funds even now to take care of the -- to achieve that 15% to 18% growth for the remaining part of the year. That's why, let's say, we were very slow in increasing our term deposit rates, and that's why I don't want to, let's say -- I'm not, let's say, in a -- I need to push it beyond that. And I'm adequately having sufficient liquidity to take care of my year-end figures, so that is one thing. This answer is, once again, connected with your, let's say, first question on the ROA. So the -- if I push it -- push more, let's say, once again, I will be ending up with more, what do you call, surplus funds. Once again, I have to invest in the government securities and once again in the increasing interest rate scenario that will be your, what you call, yield or some negative carry and things like that. That's why we are handling all these things together. So I have sufficient money with me to take care of -- even though you look the, what you call, your credit deposit ratio, I've got room for another 3%, 4% to increase without pushing too much on the liquidity front. That is one thing. Just to answer your question, like say, the -- whether we will be in a position to push, grow -- let's say, ROA beyond 1.6%, 1.7% sustainably, whether we will be doing that. See, the -- obviously, the priority for, let's say, every bank's top management to -- try to, let's say, push the ROA to that extent as maximum as possible. And whether it is a sustainable and all -- definitely, there are chances. And basically, it is going to be, once again, determined by, let's say, for example, as I told you earlier, the slippages are decreasing and the recoveries are increasing and some amount of, let's say, the positive contribution from the -- our credit cost will definitely have capacity to do that. How sustainably, we will do -- I don't want to, let's say, promise everything and -- if tomorrow, there are always uncertainties about the macros and all. Let us take each and everything step by step and let us move things, let's say, in a stable and sustained manner. As you all know, let's say, as I just told you, we just celebrated our 119th Foundation Day. So we -- the consistency is one thing which is always under our first priority. We are looking into those aspects. And definitely, we will make our honest attempt. But we will announce it once, let's say, about the sustainability, once we get total control about that.

And what is your LCR this quarter? And what was it earlier quarter? Can you just add that number?

You mean liquidity coverage ratio?

Yes, sir. Yes.

Yes, it is 200 percentage plus.

200?

Yes.

Okay. Your competitors are at 120%. So okay, fine, yes.

[Operator Instructions] The next question is from the line of Renish Hareshbhai Bhuva from ICICI Securities.

Congrats on a great set of numbers, just 2 questions, one on the PCR...

Sir, can you come closer to the mic, please? I'm not able to hear you clearly.

Sir, could you please switch to a handset?

Why are we using this strong operating performance to [ below power ] PCR because, of course, I understand that our entire book is secured book, but when we look at the peers who are also into the same kind of secured book business. Those guys are maintaining PCR anywhere about 50% to 60%. So why not we also maintain that kind of a PCR when we have a strong operating performance?

See, as we have been repeatedly saying, as per the regulatory guidelines, we monitor the provision coverage ratio, taking into consideration the technically written-off portion also. So we -- right from the beginning, when we provide fully to a book, we, let's say, go for a technical written-off thing. And our provision coverage ratio is about 65% -- 60%, 65%. It is in the mid-60% like almost all our peers. And let's say, we feel, even let's say, it is, to some extent, it is our confidence looking into the whatever visibility we are getting on, let's say, for a few more quarters, it looks like we should be able to achieve significant improvement in these numbers going forward. And you might have probably observed, we had about 1.5% to 1.75% net NPA during the pre-COVID period, which we had stabilized over a period of time, which we normally keep it as our standard thing. The -- looks like even with this operating metrics with reasonable estimation, we feel that we should be able to move towards that number in maybe next 3, 4 quarters or so even without compromising the overall operating metrics.

Got it. And sir, last question is bit on the strategy side. So of course, sir, we have a very strong relationship with our [ SAP ] customers. So sir, when do we expect our bank to become a primary sort of bank for their entire family banking kind of a model? Maybe as of now, we might be catering to the business owners. But how can we [ take ] the entire household and City Bank can become a primary bank, which will eventually lead to the fee income pool, which is sort of a little subdued now, sir. Any commentary on that?

See, as I have been repeatedly saying in the past con calls, the gap between the -- particularly the fee income on the third-party distribution and all, the -- we're -- the gap between the best and the, let's say, lower part of that entire value chain, it is not as old as it is being perceived. But on the -- so we feel, let's say, that's on side. Second, on one side, to once again, look into a [ way. ] There are only a couple of -- few products which are missing which we have not concentrated in the past, for example, like a credit card or for example, like a housing loan and car loan type of thing. So now, looks like -- I mean I'm not very, let's say, 100% support you sort of. There are some difference between your view and our view. That apart, so we are in the process of, let's say, how to -- let's say, how those products and all, particularly when our CASA ratio also has improved from say, lower 20s to, let's say, lower 30s. It is giving us enough elbowroom to have a few other products also without compromising on the ROA front. And those things will eventually happen maybe in the next 4 to 6 quarters or so.

Got it. Sir, this is very helpful, so which essentially means we are also focusing on that front.

And I repeat, don't extrapolate too much and pull your [indiscernible].

No, no, sir. This is more of a positive comment sir.

[Operator Instructions] Our next question is from the line of Darpin Shah from Haitong India.

Sir, if you can provide some color on the restructured book? Last quarter, you've mentioned around 58% of the book has started building and another we have seen some bank repayments, either 1 or 2 EMIs being paid. So if you can provide more color on the restructured book?

Yes. Basically, the -- let's say -- see, basically, out of INR 1,963 crores in the, let's say, restructured category, about 62% of the book, which works about INR 1,228 crores, have already started repayment. And INR 736 crores, though technically, they have not yet started -- their due has not started. Bulk of them have started making the repayment, in the sense that, overall, 87% have paid -- have started paying, let's say, EMIs and all, even though only 62% the due has actually started. So another 23% -- 25% repayment has come even advance repayment even before the actual due has not yet started. Only INR 96 crores is where the repayment is yet to start. So -- and when I gave that 2.26 percentage of SMA 2 number also, it includes, let's say, overdue portion in this particular pool.

Second was on ECLGS. If you can provide some data there, sir? How much is outstanding now? How much is slippages received? And lastly, on the operating expenses, the other expenses have dipped significantly on a sequential basis. Sir, if you can provide some like [indiscernible]

See, basically, the -- like -- to just to give you an ECLGS portion on a broader single measure, if you look into, the overall SMA 2 portion from that situation is only INR 324 crores. And overall contribution to the SMA 1 and SMA 2 from that portion is only 1.5 percentage. This is something which I want to tell you. On your -- second question was on...

Operating expenses.

Operation expenses. Because of that increase in your yield, some amount of reduction in the establishment expenditure on -- because of that, actuarial valuation on the leave encashment and other such products. There is some, let's say, small INR 10 crore benefit, which is -- which looks it better.

Our next question is from the line of Gaurav Jani from Prabhudas Lilladher.

Congrats on the quarter.

I'm sorry to interrupt, please use your handset while you're asking a question, sir.

Yes, is it better?

Yes, it is.

Yes. Congrats on a good quarter, sir. Firstly, in terms of -- if you could elaborate on the competitive landscape, especially in Tamil Nadu. So during COVID times, you had suggested earlier that competition was pretty significant. So has it been reducing? And how should we look at it?

Competition is something, which is there. As I told you, the Banking as a Product is basically a commodity. And competition is there for, let's say, since the liberalization, it is always there, and it will always be there. So all of us, we have to, let's say, work our way to manage during this competition and all, but each -- when I said -- when I gave my expectations on the growth and all, I have taken all these things into account, which never ever, you are going to have, let's say, a period when you say that there is no competition. It is not just in banking, any business per se, competition is the part and parcel of the thing, which every business has to encounter.

No, that's how the intensity had gone up, right? So I was just trying to...

It's as intense as it had been there over a decade.

Got it sir. Just an extension to that. So you have sounded pretty confident on the 15% to 18% growth number. So sir, if you could elaborate as to what has related to this confidence as to -- how are SME cash flows shaping up? And how do you think would the demand sustained for SMEs?

See, when we discussed probably the, let's say, our results for the fourth quarter and also, let's say, fourth quarter last financial year, and even the third quarter last year and all, particularly during the fourth quarter, the expectations of the macroshock because of the, let's say, higher oil price because of that Ukraine war, that impact on the, let's say, overall expectations on the performance of the businesses and all, there were increased uncertainties. But when we got into the first quarter, we could clearly see things were not as bad as we all expected. Okay, still that uncertainty is there. Okay, how many more quarters the war is going to continue and oil price -- Okay, it is now -- it has come below 100 , whether it will go below. Some sort of uncertainties are already there. But taking into consideration all these things, it is -- it gives reasonable confidence that things were better than whatever we expected with third and fourth quarter, in the second half last year. And even whatever we shared -- that gave us enough confidence that the things are improving. So when this general confidence level is increasing, we are in the process of changing our overall things. Let's say, it's not that, today I want to grow, tomorrow you get credit growth and all. So we had to change certain operating level policies and things like that and some level of internal changes and all, which we have already started doing that. So -- and we are -- we also had our, let's say, half-yearly review with the branch managers getting our ears close to the, let's say, field and all. The Diwali also, I mean, it was good, better than whatever we expected. So things are getting back to normalcy slowly and steadily, which is giving us enough confidence there. We should be seeing these whatever numbers I shared with you, let's say, towards the end of the current year. So the -- when I said -- let's say, the things have started in that direction. The year-end should be reasonably good. Okay. Of course, with this uncertainty, which we feel -- if things don't deteriorate from whatever they are currently, we are reasonably comfortable that we should be able to achieve the figures whatever we discussed with you all.

Just to touch upon some internal changes. Anything you particularly want to highlight?

Yes. In fact, let's say, the first and foremost thing is that for 2 years -- 2.5 years, I had told my field staff to keep quiet, don't increase the risk and things like that. Now, I had to -- I have already started changing the language and let's say, the [ raised ] priorities are getting into the system.

Got that sir. Last 2 questions, sir, extension to this, if you can just touch upon how our cash flows shaping up for SMEs?

It's okay. And that is also visible from your other numbers and all, things are okay.

Okay. Last question, sir, how much is the excess SLR or excess investments on the balance sheet? I mean if you could give an absolute amount?

So as I told you, another -- let's say, for -- another increase in our loan book by, say, another INR 3,000 crores to INR 3,500 crores. Existing surplus liquidity itself will take care for us.

Sorry, how much did you mention?

INR 3,000 to 3,500 crores.

Our next question is from the line of M.B. Mahesh from Kotak Securities.

Sorry, I too have the same question. Just trying to understand in terms of recovery and upgrades, what is the situation on the ground? And whether there is some kind of conversations around the slowdown that you're seeing on the export sector like textiles?

See, the -- our reliance on export is very minimum, as I have shared with you all during the, let's say, many quarters in the past. So our focus is more on the domestic market and our export supporting that is hardly about less than 2% of our total exposure of [indiscernible] And even in those companies, there are capacity utilization, particularly where the produced products are now local demand, things are pretty okay. And the things are now, let's say, as I'm repeatedly saying, if the war continues for, let's say, another more than 4 quarters, which makes the oil price above 100 for, say, another 1.5 years. Probably that will create impact on the, let's say, once again, interest rate, overall issues at the grassroot level and all. Hopefully, if everything, let's say, stops and come back to the normal field by say, earlier part of the calendar year 2023, I think we should not be having much problem.

Just two questions on the yield and cost of deposits. This quarter, you have seen approximately about a 35 basis points increase in the lending yields. Till how far does it go looking at the current price changes that you have done on the portfolio?

Let's say, as usual, I will give you direction, but not the actual amount.

Yes, sure.

Normally [Audio Gap] about let's say, 3 quarters to reach about 75%, 80% of the repricing on the liability level, so you can safely assume when you are seeing the increasing interest rate scenario. Typically, the term deposits get repriced in one year, so you will have about, let's say, minimum 3, 3-1/2 quarters, you will be able to see the benefit.

This is on the cost of deposit, sir?

Definitely, yes, yes, yield, you will be seeing. Yes, yes.

Lending side -- on the loan side?

It depends upon, let's say, how quick, let's say, the rates are hiked and things like that for about total 1% up and hiked by [indiscernible]

150 is where we have increased?

Across -- from the beginning to end?

Yes, now the gap, the -- let's say, from the gap between what RBI has increased and what we have increased in the average is about 30, 40 basis points. We are catching that gap. So maybe, let's say, the passing on this should not be a -- let's say, this will happen, maybe for another 50 to 75 basis points without any question.

So this 9.5%, goes closer to 10%?

If another, let's say, 50 to 75 basis point hike by the regulator happens over the next 6 months.

Okay.

Yes, we have 10 percentage yield just before the COVID.

Yes, yes, that's true. That is true. That is -- No, no, we are just trying to understand the direction and the pace at which this yield moves and when the cost of -- cost of deposits starts to catch up on the other side?

Yes. Typically, it will be just under 4 quarters. 3 to 3-1/2 quarters is when the deposit repricing takes a shape.

[Operator Instructions] Our next question is from Gaurav Jani from Prabhudas Lilladher.

Just two questions, sir. Firstly, what could -- if you can quantify...

Sorry, sir, requesting you to please use your handset while asking your question.

Yes. Just 2 questions, sir. One is if you can share the exposure towards EBLR, MCLR, et cetera?

The -- what do you call about -- just a minute, wait for the -- 68% with EBLR and 25% with MCLR.

Okay. And most of the...

Yes. Basically, when you pass on the interest, this sort of, let's say, [ hair splitting ] actually doesn't work that way.

Sure. And sir, majority of the book would be [ sourcing, ] right?

Yes.

Okay. Got that. Just a [indiscernible] question, sir, what seems to have happened this quarter? Is that an investment you seem to have shot up? So any color on that?

See, what trend -- basically, the -- if you look on the absolute number individually, it's not a big thing, almost only 3, 4 basis points per se. And it is in tune with where -- I mean the data with me is -- the yield on investment on the, let's say, last quarter was 5.82% and currently, it is 5.86%. Maybe you may ask this question from the interest income because let's say, we had -- let's say, in the treasury operations, let's say, some of the surplus funds which we had parked in the overseas investment and all as deposits and all had come back to your, what you call your investment and that's why some thing is there but on an average yield basis, the increase is not more than 4 basis points sequentially.

[Operator Instructions] Our next question is from the line of Jai Mundhra from B&K Securities. I'm sorry, we're not able to hear you very clearly.

I have a couple of questions. So first, sir, if you can highlight, specify that till what level the branch managers would have an authority to sanction a loan in MSME and trader segment? And I mean the MSME branch. And then after what level does it go to the central office kind of a thing?

Branch managers have zero power. This centralization happened about maybe close to 10 years back. They can, let's say, sanction gold loan, that too only up to INR 10 lakhs. And some loan against deposits, they can handle. Apart from that, every credit decision is centralized for almost a decade.

Right. So by centralization, even if the MSME specialized branch would only source this and the credit underwriting and approval would only be done by the head office?

Exactly.

Or there could be regional offices as well?

No, all the sanction actually happens at the centralization level. You have regional processing centers who put up the proposals and who makes a recommendations and all. The sanctioning authority is centralized. It is not distributor.

Right, okay. And sir, if I look at the growth, right loan growth, while it is improving every quarter and now it has come to 12% but if you can highlight, clearly, even in core MSME/trader segment, it looks like that the bank is losing a bit of a market share and so just wanted to check if you can comment if this is across India or maybe outside Tamil Nadu or this is more or less broadly similar. So any comment there would be helpful, sir.

See, we have been very clear that, let's say, like the market share something like, say, it comes only in the second or third priority. For us, the -- let's say, there were almost just before the beginning of the COVID, you may remember, somewhere from the November of 2019, we said we are not growing. And subsequently, we focused on gold loan. We compensated for the growth from the other core advances. And COVID came, all those things are crossed. And now only we are getting back to the, let's say, looking into the -- grow the our core advances and all. And we feel going forward, they should be coming back to track.

Right. Understood. And sir, just to clarify, this non-staff cost decline quarter-on-quarter. This would not have any impact of the yield, right? So what could have led to this reasonable drop in the non-staff OpEx this quarter?

See, the -- basically -- I mean you don't have any specific reason. They come, let's say, basically, like I think you are talking about one of the major [Audio Gap] there is repairs and maintenance, particularly on the AMCs and things like that, they may not be happening, let's say, on with a quarterly thing and all, whenever they are booked, they are taken into let's say, P&L. So maybe this quarter, nothing much came.

Right, sir. And just to get it correct, that you said that as of now, RBI has raised the rate by 190 basis points and you are -- on yield side, you are 30, 40 basis points behind only, right? So you have passed on at least 150, 160 basis points roughly?

No. At an average, it has come to about, let's say, 70, 80 basis point pass on has already happened. And the direction is...

I mean the card rate would have increased by, let's say, 150, 160 basis points, right? The...

Some of them would have gone to that and some of them would have got reduced return. Average, it is about 70, 80 basis points.

And sir, what is your reset period for EBLR loans? Does it reprices immediately or with some lag?

No, it's -- basically like this repricing happens every quarter. Reset happens every quarter.

90 days, let's say, right? I mean every 90 days, from the contracted date, this will come up for renewal?

Yes.

Our next question is from the line of [ Fergie Philippe from Mirae Asset ] Capital Markets.

Congrats on good set of number.

Thank you, mam. Mam, can you come -- use your hand phone, please. I'm not able to hear clearly your voice.

Yes, is it better now?

Much better.

Congrats on a good set of numbers. So just a question on the gold loan portfolio. So our gold loan proportion is improving [indiscernible] so what share are we comfortable with since in our earlier quarters, we had said that we are trying to defocus on the gold loan now. So what could be the -- share coming down? Or will it be sustained at these levels?

See, the incremental share of gold loan will start declining once the growth from the core advances starts growing. If you had a chance to look into probably across the cycles over the period of say last 15 years or so. The -- let's say, it started with about 18%. It came to single digits to about 8%. Then it once again went up to, let's say, 17%, 18%, and came down. Now, it is at 20% plus -- so it is basically determined by the opportunities available in, let's say, other core advances, which we are -- we will start seeing that in the next year.

Okay. And sir, on the yield front, has any -- the pressure on yields is not so visible now, do you feel that it is a sustainable number at this point? Or we could see some pressure going in it?

See, you can't -- let's say, as you said, it is okay now -- it was not okay, let's say, even 3 months back. So these things are fluid things depending upon the surplus liquidity available in the market. We can't extrapolate for, say, next few quarters and all. Currently, now, let's say, the market is absorbing because there is a general acceptance that the interest rate is going northward and things like that, both from the borrower's side and also what other competitors also do. So it's -- currently, it is that -- you can't extrapolate it for the multiple quarters or for the future in a medium to long term.

[Operator Instructions] In the meanwhile, we have a question from Mr. Prabal Gandhi from AMBIT Capital.

Yes. Sir, can you update us on how is the transition to CTC first to company's structure happening?

Yes. As I told you, let's say, it basically starts from, let's say, 1st July 2023. The agreement with the association and union and all were entered towards the December 2020. All new appointments after 1st January 2021, almost for the last couple of years, 1.5 years have already started happening on the, let's say, CTC basis. So the integration or the reorientation will happen from the next year, July.

And would you attribute some slowdown in growth because of the transition phase that we have?

No. I don't see any direct linkage between the 2.

Okay, okay. So, sir, question on the employee count. So from March, the employee count is almost stable. In fact, it has dipped slightly, whereas if we see the employee cost, it has jumped 25% from the March level. So what would you comment on this?

Comparing the -- on the year-on-year will be better because, let's say, the -- you be typically have a monthly thing. Apart from that, we have what is called as 2x the single payment and performance related things are being made. So the -- and also, we need to now start -- as I told you, we'll be opening branches from the, let's say, second half -- so we have to now -- the increase in the headcount will also start. But overall, let's say, this migration to CTC basis will give enough control on the cost probably from the next year following 2023.

And sir, on the loan transfer, we are seeing growth broadly in 3 segments, the textile, metals and gold whereas no other players or competitors here are witnessing a broad-based growth. So what could you comment on this?

I think you have to ask them.

No, but...

Basically, whatever we are seeing and whenever we meet -- and as I told you, we have not yet fully -- we have only started, let's say, putting things in place and in the process of starting to restart the growth and all as I told you during the last quarter. So a clarity will emerge probably maybe around let's say, along with the fourth quarter con call exactly on what is happening.

Sir, last question. What would be the status of balance transfer this quarter with respect to maybe previous quarters now?

What balance transfer? I'm not able to get it. Can you repeat.

Meaning our peers may be taking away the customers off, we are taking away customers from the PSU banks?

Once the rate of interest hike cycle started happening, there is a sudden drop in that transfer, I mean, what we could see.

We have our last question from the line of Bunty Chawla from IDBI.

Sorry if I'm repetitive, as you have shared at Q2, the ROA has crossed 1.7% kind of a thing. And historically, we have been comfortable with 1.5% ROA. Now should we believe 1.5% is easily achievable? And we should cross 1.5% ROA for this year and could sustain for the next year?

Yes. The -- let's say, by the god's grace and looking into the overall thing, I think that 1.5% barrier, whatever we have seen, we have crossed, and we are at 1.6% for the first half, 2 quarters put together. So the half yearly number is something let's say, 1.5% to 1.6% should be the -- something which clearly looks visible at this point of time for the second half of the current year also.

Okay. So can we say that now 1.6% should be sustained for this year as well as for next year?

Pray for it.

That was our last question. I now hand it over to Mr. Prabal Gandhi for closing comments.

Thank you. Kamakodi sir, would you like to have some closing remarks?

Yes. I thank you all for participating in this con call. As usual, I think the numbers are already with you. You may be having contact details of Mr. Jayaraman who will be in a position to help you for any specific details or any specific numbers. Overall, in continuation of whatever we discussed during the last con call results, things are, let's say, slowly and steadily, we are seeing things turning to positive. Let's say, towards the end of the current year, as I shared with you all whatever growth numbers and ROA numbers, whatever we discussed, I think they looks possible. Only minor, let's say, I mean, uncertainty there is the global macros because of your war, oil price, inflation and particularly, the actions taken by the bigger companies which are disturbing the world start-up. But these things don't deteriorate further from wherever we are and they come back to the normalcy, maybe in the next 6 months or so, I think things should be positive going forward. So till then there could be the -- minor pinpricks could be there, but this looks very much under control. So once again, I wish things should be taking a better shape, and you can -- our -- Mr. Jayaraman from our office is always available for your details and all. So let's hope for the best and whatever tension we had 3, 4 quarters back and all, those things are pretty much out of these things. And the -- overall, whatever problems and all -- I mean the usual issues like pre-COVID level things and all, virtually, I mean, to a greater extent are out. So we hope things should be stable and moving up as we move forward. So I once again, thank all of you. And once again, thank AMBIT team for arranging this con call. Thank you, all.

Thank you, sir. Thanks, everyone. Have a nice weekend. Bye.

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