Lionheart Holdings (CUB) Q1 2024 Earnings Report, Transcript and Summary

Ladies and gentlemen, good day, and welcome to City Union Bank Q1 FY '24 Earnings 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, Aman. Good evening, everyone. On behalf of AMBIT Capital, I welcome you all to first quarter earnings call of City Union Bank. From the management side, we have Dr. N. Kamakodi, MD and CEO; and Mr. J. Sadagopan, CFO. Without further ado, I'll hand over the call to Dr. Kamakodi for his opening remark, and post which we can open the floor for question and answer. Thank you, and over to you, sir.

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 first quarter ended 30th of June 2023. The Board approved the results today, and I assume all of you have received the copies of the results and the presentation. You might also have seen the announcement of our Annual General Body meeting to be held on 23rd August 2023, which will happen through virtual mode. On behalf of the Board and the bank, I invite all of you to participate in the AGM. During Q4 financial year '23 con call, we had detailed discussion about the headwinds in margin, base figures and growth. Despite those challenges, we had said that we should be closing financial year '24 with a decent PAT growth, substantial reduction in net NPA, improved coverage ratio and ROA close to our long-term average of 1.5. Our advance had grown by 4 percentage in Q1 '24 as compared to Q1 '23, that is 30th June 2023 to 30th June 2022, and stood at INR 42,405 crores. As we said in our earlier con call, the first quarter will be quieter in terms of the growth. As announced earlier, we are aiming for double-digit or at least 12 to 15 percentage whatever we had announced earlier, which would be skewed towards the year-end. No major changes expected in the composition of advances was what we told you. As said during our last con call, we had appointed Boston Consulting Group as our consultant to upgrade our existing digital lending processes. We expect that benefits to -- benefit our digitalized lending process, will get transferred into the growth in the second half of the financial year. Our deposits stood at INR 51,655 crores for Q1 '24 as compared to INR 48,772 crores for Q1 '23, registering a growth of 6 percentage. Our net interest income had grown by 15 percentage in Q1 '24, increased to INR 1,266 -- our interest income has grown by 15 percentage in Q1 '24 and that increased to INR 1,266 crores from INR 1,099 crores in the Q1 '23. Basically, we had a subdued growth, as we discussed during the last con call. We could see, let's say, the -- as I told, we have to -- when we compare our growth rate with almost all of our peer banks, the growth rate is lower, but particularly with the peer group banks. The growth rate in the retail, agriculture and the -- basically, these MSME together, particularly on the retail front, all our peer groups have shown substantial growth. And also the co-lending and [indiscernible]. We are also in the process of evaluating those prospects and those processes. Until last financial year, we used to consider recoveries made from the slippages and upgradation happened in the NPA accounts from the quarter ended to the date of approval of the accounts. Because of the regulatory observations in this quarter, we had not considered the recoveries and upgradations happened after the quarter ended. However, NPA accounts, which got closed between the quarter end and the date of accrual accounts have been considered. The recoveries from the slippages in the Q1 financial year '24 to the tune of INR 75 crores and upgradation to the tune of INR 23 crore in the live NPA account were not considered in the NPA collection happened from 1st of July to the date of audit, which we used to do it in the earlier times. Because of the above changes in accounting, the slippages for the current quarter is elevated at 3.6 percentage, annually is the basis, and our gross NPA is at INR 2,081 crores. Gross NPA stood at 4.91 percentage. And our net NPA stood at INR 1,039 crores and ratio to 2.51 percentage. Had we followed the old method, the slippage would have been less by 70 basis points, that is to about 2.9 percentage [ annually ]. And our gross and net NPA would have been lesser by 23 basis points. The spike in the slippage and the NPA will be one-off this quarter, and will get back to the normal levels, as I said above, based on the collections of about INR 98 crores will be included in the second quarter that has happened between balance sheet -- I mean quarter ended date and the audit date. With respect to the provision coverage ratio, we had stated that we will reach 70 percentage PCR with the technical written-off and 50 percentage PCR without technical written-off in the second half of the financial year. But we have achieved the target in this quarter by PCR, including the technical written-off. As on 30th of June 2023, stands at 70 percentage. And our PCR without technical written-off we set rupee percentage. Mainly, we use the extra provisions, whatever we had made for the Spicejet account which got closed. We will strive to maintain this in the -- this level in the future also. Overall, SMA 2 numbers to total advances now stands at 2.45 percentage. Our standard restructured assets got reduced to 2.69 percentage of the total advances as on 30th of June 2023, from the peak level of 5.91 percentage to the total advances in September 2021. On the yield front, we had past policy rates and also started to show our yield on advances increase and it currently stands at 9.53 percentage for the current quarter, showing a sequential increase compared to previous 2 quarters. Similarly, the [ policy-read ] transmission had its effect on the cost of deposit front also. Our cost of deposit stood at 5.36 percentage, showing a sequential increase. The net interest margin for the current quarter ended is 3.67 percentage, similar to what we had in the last quarter. Our other income for Q1 '24 is INR 191 crores, against INR 218 crores in the corresponding period the last 2 quarters. It was mainly because we had a few major recoveries in lumpy cases in the corresponding period last quarter, which is not available in the current quarter. The cost-to-income ratio for the first quarter is 41.98 percentage compared to 39.78 percentage in the corresponding period last quarter. In the -- our expectation for current financial year will be between 42 to 44 percentage, something like that, for the current financial year. In the absence of treasury profit like what we had in the last financial year. Despite increased provisioning and elevated slippage, the current quarter profit is at INR 227 crores as against INR 225 crores in the first quarter last year. Our ROA stood at 1.4 percentage for the current quarter, showing sequential growth from the last quarter. The Board had -- basically, the thing is that like last year, during the second quarter, we had declared a profit of INR 275 crores because of various favorable factors, so many factors may not be available this time. So for the second quarter, there will be, let's say, some amount of, let's say, dip in the profit, but it will be compensated in the H2 because of expected [indiscernible] slippage and the improved recovery for the year as a whole. Overall, on growth front, in fact, in the last 4, 5 quarters, even though we had about a sanctioned the limit of cash credit limit by about INR 2,000-odd crore, the utilization in the CC limit is showing about -- let's say, which normally used to be about 78 to 80 percentage, currently stands at about 70 to 72 percentage and things like that. And also like the lot of growth and all which is happening through, let's say, by our peer group banks with -- looking into the opportunities of co-lending and growing assets by retail and all, we are also now looking at opportunities to use that. Taking into consideration all these things and also the expected the -- for digital lending to come on track, we should be able to, let's say, get to the double digit and close to 12 to 14, 15 percentage as what we have promised during the second quarter. So all the actions are currently in place. We should be in a position to see that in the second half. Board had its meeting held today held in fact, formed a subcommittee for a smooth succession planning. As you all know, my current tenure gets completed on -- will get completed on 30th April 2026. The committee is assigned with the task of, let's say, finding a successor and ensure a smooth transfer of responsibility when the tenure ends in 2026, considering the fact that there has to be an overlapping period between the successor and myself and all, which will be a slow and steady process happening over a period of time. And also, the -- in this, let's say, tenure, my focus will also be on, let's say, 2 things. One, as I said, accelerate the proper implementation of the digital lending, the project initiated with the BCG, and ensure that the growth is accelerated. And also to strengthen the leadership team, which will make the organization future-ready with added expertise on digital, retail and other areas where we need to strengthen our skill sets, which will become the growth engine for the future. To sum up, we are taking measured and right steps towards the growth in advantage, enhancing the customer experience by a way of digitalized lending and better efficient underwriting methodology. This may take a few quarters to show the benefits in our -- both the top and bottom line. We are working hard to achieve the financial year '24 double-digit advance growth between 12 to 14 percentage, PAT growth, et cetera. As I told earlier, last year, during the second quarter, we had declared a profit of INR 275 crores because of so many variable factors, various favorable factors. So for this time, let's say, there could be, let's say -- sequentially, the trend will be followed, but it may not be, let's say, crossing INR 275 crores, whatever we had last year, unless and otherwise any one-off thing shows up, whatever it is. But all these dip will be compensated in the second half and overall the year. We are saving hard to achieve, let's say, a 4-digit profit figure for the current year, for which the main -- one of the important drivers will be reduce the slippage going forward and the improved recovery as we have shown between financial year '22 and '23. With this opening remarks, I leave the forum for the discussion. Over to you all.

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

Sir, in the opening remarks, you mentioned that you will be looking at evaluating certain co-lending opportunities. So if you can just elaborate further on what kind of businesses and what kind of partnerships you're looking at?

See the -- basically, let's say, just now, we are starting and when we got into the first-level interactions and all, like we are able to discuss with a few of the NBFCs based out of the Tamil Nadu where the bulk of the lending is happening on the vehicle front and also gold loan for companies in the few companies. What we are basically looking forward is the co-lending opportunities in the secured front -- secured advances, which will be predominantly we are expecting them to be in either the gold loan front or the, let's say, vehicle front or the housing loan front and things like that.

Sure. And just when you're looking at gold loans, so we also do directly. So will the customer segment be different of these NBFCs?

Yes. Basically, these gold loan companies with whom we are discussing the opportunities, bulk of them, the majority of their business is coming from the non-Tamil Nadu where we are very strong in the gold loan. But the -- I think you will be in a question to get the names and other things, which I don't want to disclose now. Basically, their main areas of operation is predominantly non-Tamil Nadu.

Got it, sir. Sir, second is that in terms of the digital lending that we are evaluating at the consultant, so when do we intend to launch that? And what kind of customer profile will be target to that? What kind of businesses are we looking to do? And, yes, yes. So finally, do you want to answer that?

See, basically, as I discussed in the last quarter con call, the -- initially, we are starting with our existing, let's say, customer base and to make the part quicker and give better approval rates and things like that. So it will first start with the MSME lending, less than INR 5 crores. Parallelly, it will process the renewal and all, which will give a lot of free space in our processing capacity. So after that, it will be getting into, let's say, improving our presence. We have a small housing loan portfolio. The opportunities where we can improve our TAT is the fundamental requirement of these digital lending processes for which the policies have already been finalized and the preparation of the, let's say, the software and scoring model and all are underway. So they should be coming on track during the second half, where say the, normally, the -- it will -- our current level of even turnaround time, which is currently working between, let's say, 1 week to 15 days. This will improve that probably to 1 to 2 days for giving the soft approval, followed by other policy, the legal opinion and the other procedural aspect, which has to be taken into account. So we are -- this digital lending process, we are not starting with the unsecured lending and all, which I presume as our question. Slowly, it will be extended to, let's say, it will -- apart from -- I mean completing our existing, let's say, portfolio and focus areas like MSME, commercial trading and also the housing loan, whatever smaller portfolio we have, we may have probably -- we find a significant number of our existing customers also had used housing loans from other banks and all, which this particular action will improve our, let's say, penetration or improving the wallet share. After that, the other secured products like LAP and all can be introduced slowly, which the -- for which the digital lending process will improve the TAT and improve the digital-making process better.

Sure, sir. And sir, in your opening remarks you alluded to the fact that whatever election would have happened in July. Earlier, you were adjusting that as part of recoveries in the slippages part. So I just want to understand, earlier when that recovery was adjusted, was the account going back to 0 DPD or below 90 DPD for you to classify in that recovery?

0 DPD. So you can upgrade the account only when they become 0 DPD.

Okay. Okay. Okay. And then lastly, why was the tax rate lower this quarter?

Basically, the -- your overall operating profit, let's say, the -- you have 2 things. One, the -- both in terms of write-off and in terms of the, what you call, your extra provisions. So what it comes to is that like gross profit for the first half is INR 414 crores. So NPA provision, INR 240 you have to reduce. So after which we were -- what is that, the [ 46 one ] and the calculation [indiscernible]?

[indiscernible].

So basically, the taxable income is INR 133 crores after taking into account the provision and the write-offs that have been made in this quarter, for which the total required NPA provision is INR 133 into 25.17 percentage is only INR 33.50 crores. So we have made about INR 40 crores.

The next question is from the line of [indiscernible], as an investor.

In terms of the bad debt, there seems to be a substantial increase in provisioning in comparison to the previous quarter. And also, there is a reversal of provision towards contingency. So is there any specific details which can be shared on this?

Yes. Basically, the -- we had that extra provision for the Spicejet. Since that account is closed, we had to reverse that. And we insight -- we were talking and a lot of discussion about improving the provision coverage ratio above 70 and 50 taking into account the technical written-off and free from technical written-off and all. So we use this opportunity of that reversal to, let's say, improve the provision coverage ratio, and that's how it has gone. If you had a chance to look into the NPA slippage for financial year '22 and '23, they were hovering about INR 1,200 crores to INR 1,300 crores. And this year, we expect the incremental slippage to come below INR 1,000, maybe between INR 850 to INR 1,000 is what is expected this year. Year as a whole, we -- and also, you might have seen the total live recovery plus technical written-off recovery also improved between 2022 to 2023, about INR 250-odd crores. We expect some improvement over there. Year as a whole, we expect our net NPA to come below 2 percentage, closer to whatever we had during the pre-COVID level of 1.75 percentage to 1.8, something like that.

No, that is comforting. And also, you were mentioning about digital lending, where you're saying that the focus will be more towards gold loan and also vehicle loan, am I right? That is what you are mentioning.

No. The question was on co-lending and the portfolio bio. That will be, let's say, secured, what you call area like your gold loan and vehicle lending.

[Operator Instructions] The next question is from the line of Jai Mundhra from ICICI Securities.

Sir, first question is on OpEx, right? So if I look at our staff -- number of staff or staff spend, Y-o-Y, it has increased from -- by around 20%, from around 5,000-odd -- 5,300 or 5,300 to 6,300 headcount. This is also a year of where at least while we are not attached to IBA, but still the IBA salary, banks have started making provision, anywhere between 10% to 15%. And we also have a 19%, 20% rise in the headcount. In that context, sir, what do you think would be your staff cost for FY '24 Y-o-Y? I mean what kind of staff cost growth can happen in '24?

See, basically, you might have seen Q1 last year to Q1 current year, there is not much growth in terms staff cost. It is basically because, let's say, you have -- when you make the staff cost, it is because of, let's say, one, your basic salary and other benefits you view plus the provisions you need to make for the leave encashment and other future benefits, which is a function of the interest rate for which you need your actuarial calculations and things like that. We did not -- let's say, there was no need for making additional provisions this quarter because of, let's say, the increase in the interest rate assumptions and things like that. Number two, let's say, we are not part of IBA. And we have already slowly and steadily getting ourselves into the, let's say, CTC concept of, let's say, salary -- I mean remuneration structure. For which -- and also we had never been a part of what you call the pension age, [ 50 ] and all is not, let's say, applicable to us, as our pension is what is called as defined contribution and not defined benefit. So overall, our expectation is that definitely in tune with the overall headcount. There will be some amount of increase. So around 10 percentage average incremental, maybe 10 to 12 percentage incremental salary will definitely happen.

Right. So sir, 10%, 12% is the wage revision. And we also have a 20% higher headcount also, right?

No. No pay revision, forget the pay revision. It will be because -- since you are into the CTC structure and all, this revision will -- this increase -- annual incremental thing will continue, and there is no concept of pay revision at all.

Right. Okay. But -- okay. And sir, is this -- the second question is related to growth, right? So while every first quarter, we see a [indiscernible] decline. But in this quarter, the absolute rupee decline from March level has been very high. It is even higher than first quarter when the COVID had hit us or hit the banking sector in first quarter of FY '21. So is that also a function of the bank moving to CTC? Is that -- I mean the growth -- the lower growth is also a function or somewhat related to CTC migration?

No. Actually, the -- let's say, we had about INR 835 crores negative, which is -- which was the earlier highest, as you said rightly, in the year '19-'20. This year, basically, we are seeing a pattern. As you know, typically, about 55, 60 percentage of our non-gold loan portfolio is from the cash credit and balance, 42 percentage, is from newer term loans. What is basically happening, what trend we are seeing is that the cash credit utilization, which normally used to hover about 80 percentage -- 78 to 80 percentage is -- let's say, getting moderated to about 70 to 72 percentage. That's the lowest we are seeing. And also the -- some amount of -- particularly on the, let's say, repayment in the agricultural gold loan, which happened. So for which, let's say, we need typically the acceleration of -- let's say, I need to disburse, let's say, about INR 1,000 crores to INR 1,200 crores every month to have, let's say, my average growth rate going forward. So I have to now compensate for my regular -- I have been, let's say, focusing purely on the MSME so far, and we have not gone into the sort of both retail lending and also on the services lending or NBFC lending and all in the past. So the -- now I think we have to, let's say, get into those segments and also to take it to the, let's say, a double-digit growth rate for the current year, for which we have started making our initiatives.

We'll move to the next question that is from the line of Amish Thakkar from Siguler Guff India Advisor.

Yes. I have 2 questions, sir. One is you just mentioned that banks will have to get into some newer segments to get to a 10 -- 12% to 14% sort of a growth rate or loan book this year. So is there a short-term challenge in terms of the core MSME segment, which has been the bread and butter and the core segment for the bank? And what will be long-term average and -- because some of the other things that you mentioned would be new to the bank. Is there a separate team or a separate vertical that is being assigned? So that's question number one. And question number 2 is on you've been maintaining that the gross slippages and the net slippages are improving, which we have seen over the past 2 years, but -- versus whatever you indicated for the whole year. This quarter has been slightly higher. If you could just maybe help us understand why this number is looking so high versus the annual guidance?

See, on the first 2 questions, in terms of going for the newer opportunities and all, let's say, the -- my -- our expectation is that when I say we want to grow by about, let's say, a double-digit growth of 12 to 14 percentage and all, year as a whole, my, let's say, existing core thing, after the arrival of let's say, digital lending process, which will improve my task going forward, our expectation is that it will just get us to, let's say, close to the double-digit growth. But we will be requiring another few more percentage of, let's say, taking into the what you call into the double digit to have it between 12 to 14 percentage. For which, let's say, basically, the -- we have, let's say, existing team for -- to take care for the -- going with the, let's say, dealing with the other NBFCs, portfolio buyout, co-lending and these sort of making, let's say, tie-ups with the NBFCs and all, already we have started. But for the improving the retail loans like our housing loan and other -- when we want to do -- build our own portfolio on the sort of retail and all, we need to go for the verticalization and all, for which we have started the action. But to have them in place and have a meaningful incremental and all, it will take a few quarters, if not a few years. So the initial growth rate has to both come from the -- our existing -- our core bread winner, so far, the MSME commercial trading and all, plus where, as I told you, now only we have started seeing what you call requests for capital investment and expansion and all. Like as you rightly said, the first 2 quarter is, let's say, as usual, it is slightly more, and we have to take care of these things. And the second on the co-lending and corporate relationship, we have our existing mechanism and people for which, let's say, some amount of internal, let's say -- the capacity is already there. But for other retail things and all, we have to take a few quarters to build them, and it will be the future growth engine, as I started at the beginning. And coming to your slippages front, on the second question, the -- as I explained the -- basically, like every -- so far, we had always taken, if the account is closed or if the account is upgraded with a total repayment and all, we used to take benefits. Of course, we also, let's say, used to add a few things which got slipped into the -- during the beginning of the quarters and all, as I explained in the last con call and all. So basically, the -- we hope this year, our total slippages for the whole year, let's say, should be less than INR 1,000 crores. We should be getting about not less than INR 200 crores, INR 300 crores benefit in the, let's say, slippages. And also improvement in this category for which we are having some visibility. So whatever, about INR 90 crores to INR 98 crores or something, the benefit which we did not take in the first quarter right away, which is available for my second quarter and which we'll get to average it out as they move forward.

Okay. Understood. And sir, as a follow-up to your first explanation. If I were to look at or we want to look at a 3- to 5-year glide path for the bank, how much -- what would be your aspiration and achievable goal in terms of a 5-year loan book growth rate? And at the end of that 5 years, what would be the contribution of these newer verticals, which are housing loans or some of the other things that you would want to set up with self-sourcing engine. What would be the contribution of that loan book? What would be the aspirations?

See the -- yes. We should be getting to, let's say, my 5-year average growth rate for the bank, going forward, my expectation is that it should be between -- once again, close to 15 percentage is what we are expecting. In that -- this newer portfolio of, let's say, the corporate lending, the -- I mean, in the sense, coverage lending, I mean, this co-lending. I mean when we use the capacity created by the NBFCs and other fronts and all, plus, let's say, this should come close to about 7 to 10 percentage of my overall loan book maybe 5 years down the line. Under the retail, let's say -- my regular, like what you call your MSME, commercial trading, gold loan and my regular portfolio can have a growth rate of about 10% to 11% percentage and all or incrementally about 25 percentage of the growth rate will be -- 25 to 30 percentage of the growth rate will be constituted by these new lines of activities, which will stand somewhere about maybe about 15 percentage all retail and the, what you call, your portfolio buyouts and other, what -- co-lending and all. Together, they should be constituting about 12 to 15 percentage in my overall book in a 4- to 5-year timeframe.

So is it -- if I'm hearing it right, sir, 70%, 75% loan book from the core segment, which the bank is operating in currently? And then another 12%, 15%...

Can you repeat the question, please?

Sir, I'm just trying to clarify. So 10%, 12% of loan book would be co-lending and portfolio buyouts. Another 10-odd percent will be self-source retail loans for which you are setting up the verticalized -- verticals? And the balance, 75% to 80%, would be the core book that we have today, the MSME loans, the agri loans and the agri gold loans and gold loans. Is that...

No. No, no. The 85 percentage will be from my existing portfolio combination, 15 percentage will be from the new areas. In that 15 percentage, about -- around 8 to 10 percentage will be from the co-lending and well, let's say, other areas. And about 5 to 7 percentage will be from the increased retail and other area where -- for which we are building our internal strength.

The next question is from the line of Rakesh Kumar from B&K Securities.

Yes. Sir, just firstly, slightly going in the background, we have had quite a strong rise in the funding cost, term deposit costs going up by around 90 bps or so. In the previous quarter also, we had quite significant rise in the term deposit cost. And so overall funding cost has been rising. So what is the reason that we reduced our MCLR by around 25 bps in previous quarter. So what is that causing us to take that decision?

See, it was mainly because of regulatory observation. In the regulatory observation, let's say, you have various components of the MCLR, let's say, your basic funding costs with your other margin and all. In that, we had a markup within our model for which, let's say, the -- there are a lot of discussions. And based on the regulatory observation, we had to take that margin up and that's why it is there. But anyway, while it is getting into the customers like from that -- from the MCLR, it will get -- in overall cost, the bulk of it will get added into our individual customer and other -- our strategic margins and things like that. It's basically the formula where we had to take, let's say, a markup, which we had marked earlier, added in the MCLR that had to be taken out and that's the reason.

Sir, this specific regulatory observation, what you are saying that has happened to us actually to the bank...

Yes. It was an observation based on the, what you call -- observation when they look into the components of the MCLR. This is what -- this observation came that, let's say, will we make our thing, one extra 15, 20 basis points. So whatever the markup, what we had in the MCLR, we had to not take out from the MCLR and then take it to the -- out of the MCLR.

So this is the occurrence of this quarter or it happened in the previous quarter, sir?

No. It was based on the observation last year. The -- after so many discussions and things like that, the implementation happened later.

So implementation has started taking place from Q4 or Q1, sir?

No, it started from the Q4 '23.

Q4, okay. Okay. And sir, like why was -- so that was the one thing. So -- and second thing that kind of as it goes that we are doing it...

Finally -- yes. Finally, you will see the yield, overall yield in the first quarter is more than the Q4. So it is -- basically, even though it has -- the MCLR has reduced, other transmission and all, the individual calculation change and overall impact, it has tracked the overall improvement in the cost of funds. And that's why the overall yield of the portfolio has sequentially increased. For example, in Q4, your yield on advances was 9.31, which increased to 9.53 in the first quarter. So I mean I just want to stress this point because you will make one point that, let's say, you have reduced the MCLR, it's not that like -- it's a technical thing. It's not -- but in the overall yield, between Q1 and Q4, there is actually a sequential increase. Kindly note that point.

Got it, sir. So actually, I was correlating the kind of reduction that we have seen, and this was kind of outlier in the entire banking sector that we have seen in this last quarter. And second thing also that the credit volume growth was also kind of quite tepid. So is it the case that just to remain competitive, are we catering to a completely different segment of customers? Is that the case also?

No. Basically, it is the same customer, same business what we are doing. The difference between us and our other peers who are showing other volume is that, over and above the regular businesses from the MSME lending and all, the contribution of the retail products like housing loan and co-lending and all are giving them substantial tailwind in terms of growth. So far, we had restricted and kept ourselves out of that particular segment. Where we are -- and it looks -- the changes in the environment is coming to a point that we also need to get into the bandwagon to take things forward. And one good thing is that, let's say, at -- or let's say in terms of the granular, there is not much changes. And that's why earlier, we focused more on the, let's say, other business lending, but the market has now repeatedly showing that the risk-adjusted returns should not be as bad as we were thinking originally, which is making us to really look into our focus and also get into this bandwagon.

The next question is from the line of Punit Bahlani from Macquarie.

Just on the slippages bit, you had mentioned that 70 bps is -- the slippages must have been lower by 70 bps because you didn't recover close to like INR 98 crores. Or you didn't account for that? Could you elaborate on that because I missed the opening comments.

Yes. See, basically, what happened, all along, whenever, let's say, we closely book, after the quarter end, before the audit, if the account is fully closed or if the account has come back to 0 days past due by totally making the payment, we used to give credit in the, let's say, NPAs. And also, whenever, let's say, for a few additions, which were not added on the quarter end, but will be used to add. But based on the regulatory observations, what we have now done is that we have not -- if the account is not fully closed, we have not given any credit for that. And that's why we have not given credit for, let's say, the -- for where there is 100 percentage overview is paid and all, that amount only, I said, which will be available, that INR 98 crores, which we have not considered in the fourth quarter, we will be having that in the, let's say, second -- I mean in the -- which we have not calculated in the first quarter, we will be having it in the second quarter is what we meant.

Okay. So INR 98 crores, those accounts are only partly paid, like you have not completely...

No, no. INR 75 crores -- where total overdue is paid. And the INR 23 crores each were, once again, it is in the opening balance. In normal course, we have all along been using them and that is the way that's been practiced. And this time, we have changed that, which will be available for -- I mean it's a time difference, which will be observed in the second quarter.

The next question is from the line of Prakhar Agarwal from Elara.

Just a follow-up to previous question. So you possibly also didn't account for the additional slippage that happened between the balance sheet closing and the audit date. So what would that number be?

See, this is -- yes. No. Normally, this will once again be, let's say, about INR 30 crores, INR 40 crores will be the normal thing, which we will be considering into the field, yes.

Got it. Second, then in terms of, sir, you said that in terms of growth, you possibly saw lower credit as your utilization levels are lower. There had been repayment in agri gold. What do you anticipate the reason how to be for these 2 statements that you made?

Pardon? Repeat the question. Last line again.

So you said there were some repayments on agri gold loans and the utilization levels has dropped to historically low level. What do you anticipate the reasons are for these 2 statements?

See, we discussed at length in the, let's say, last couple of calls. It was on the, let's say, agricultural gold loan on which a few observations by the regulators on the, let's say, interest to [ suspension ] and hence, we had to withdraw the particular product. Now we have made another product different from whatever that was given. Now things have started coming back on track. So gold loan, we have -- and also, we have started seeing positive growth in the non-agri front, wherever people need more money and things like that. So we don't have any issue. Coming to the lower utilization of the cash credit, after many, maybe not just quarters, years, now only we have started actually seeing, let's say, request from the customers on the capacity expansion, investment in the power generation and like solar or windmill and things like that. Maybe after, let's say, 2019, almost after 4 years, now only we have started seeing that those discussions and all, which is giving me some hope that those things should be back on track.

Got it. Sir, in terms of overall, when I look at growth versus margins and given where your cost of deposits are moving and the yields that you probably highlighted, first is where do you anticipate to close your full year margins for this FY '24? And in case that growth doesn't pick up, are we willing to sacrifice this for growth? What is our thought process?

See, the -- our overall expectation is that our -- as you might have always seen, the whenever -- let's say, if you had -- like probably, this is my 49th quarter I'm discussing. Out of the 49 quarter, if you see about the 40 quarters-or-so, our overall net interest margin, I mean, up to -- I mean just around the COVID and things like that, maybe about 35 quarters, it used to be between 3.4 and 3.7. It used to expand when the, let's say, interest rate cycle is on the northward trend, and it used to contract when the interest rate cycle is coming back, getting to the thing. In the last cycle, because since the, let's say you did not have -- you had many public sector banks and all in PCA and a lot of things, the margins have stabilized around 4 percentage of our few years at least. So -- and also we current -- in fact, I explained, there are 2, 3 reasons, like our average CD ratio we had to get it to 82 percentage from 85, 86 percentage where we used to operate. If we try to -- we used to manage that way. So our expectations for the current year is that our current level with maybe plus 10 -- plus or minus 10 basis points, we should be able to move forward. And of course, if we see, let's say, good traction for the growth, which will be translating into net interest income growth, compromising for a few basis points for the net interest margin. It always happens when you get into the, let's say, decreasing interest rate cycle in the past. And the -- maybe like once the -- now we are -- it is almost, let's say, people say like, since the inflation and all are also because of the food and other things, the expectations on the rate hikes is diminishing. And maybe at the beginning of the next year and all, decreasing interest rate cycle may start. Before that point, both the cost of deposits will stabilize. Net interest income will, let's say -- margin will also stabilize. And when the decreasing interest rate cycle starts, you will get into this dilemma and probably every cycle it happens in this way only.

Sir, just 2 more questions. What happened to the tax rate? I missed the comment. So what happened to tax rate this quarter? And the numbers seems to -- the rate seems to be reasonably lower.

See, overall, the gross profit for the June is INR 414 crores. And the -- you have 2 things, income tax -- I mean the NPA provision of about INR 240 crores is getting directed from that and also the write-up. So total taxable income is only, let's say, INR 133 crores. I mean INR 133 crores less compared to the last quarter of this year. So after you consider both the, I mean, the NPA provision and the write-off, on the [ 23.17 ] percentage per tax rate, the net tax incurred for the current quarter is INR 33.50 crores, for which we have provided INR 35 crores.

Got it. Sir, just one last question. In terms of your succession planning, what is the logic of having this plan starting so early? So you have tenure until '26, and you just got a term for 3 years. What is the thought process of starting the succession planning so early?

See, the point is like you need -- I mean it's always very difficult to find somebody exactly on time. So we -- what -- our planning is that, let's say, the successor will -- you will need not less than 6 months to 1 year to identify a successor. And he needs to be, let's say, with us for not less than 1 year for a smoother transition. After that, you have -- you have to apply to RBI and you have to get the approval and all. It is a long-standing process. Probably, you will need some time to discuss what type of successor you want and things like that. So it is going to be, let's say, a process -- time-consuming process. So it has to be, let's say, done in stages, have multiple choices, evaluations and all. And it's something which happens over a period of time. I mean if you -- I mean in all other cases where the successor just comes on the last day or even 1 or 2 days after the incumbent left, that process, it will take not less than a year.

[Operator Instructions] The next question is from the line of Gaurav Jani from Prabhudas Lilladher.

Sorry, sir, I missed your comment on the expected loan growth for '24. So did you mention 12% to 15%?

No. We said 12 to 14 percentage in the last con call. We are still working towards achieving that towards the end of the current year.

So sir, just an extension of that, right, 12 to 14 is what you're targeting or probably at least that is what you're starting to achieve. So tying that up with around the comment you made on BCG, right? So could you highlight as to what were the findings of this consultation with BCG? And what gives you the confidence that in the next 3 quarters, you'll actually achieve this sort of a loan growth?

Yes. See, the -- I mean as I explained earlier, BCG is only helping us to digitize the process, improve the TAT and make the underwriting process better. In that, what is going to basically happen is that the digitization, along with the introduction of the scorecards and things like that, the TAT which we take currently about not less than 1 week to 15 days. For fast approval, it could be reduced to even 24 hours to 22 hours. So that is the major requirement which we have given it to the BCG on which all the, let's say, the requirements are being worked out, which will enhance both our approval rate and also our conversion rate is our expectation. I also clearly explained, our current, let's say, existing business mix of MSME, trading, agriculture and gold alone and all put together, they will be taking us to -- for the year, to about, let's say, around, just closer to the double-digit growth. So we -- when we compare our performance with most of our peers, the -- apart from the growth from the core sector, whatever that has been done earlier, significant growth is coming from the NBFC lending, co-lending, portfolio buyouts and these sort of things which we had resisted in the past. Now the overall developments in the market and also the practices and all, since those loans -- most of those loans are granular, so probably, we may also have to -- we are in the -- let's say, we have to get into that practice also. Along with that, another major factor, which is giving them all incremental growth prospects are from the retail lending from the housing loan, loan against the properties and all such things for which we have to build the capacity. So all these things put together, let's say, our hope is that it should be getting us to what our growth rate that is coming into. And also, as I told, there was a significant reduction in the CC utilization and things like that. And after many years, now only we have started seeing the requirements of our capacity expansion and the capital investment in the MSME sector, almost after 4 -- 3.5, 4 years, we are seeing the trend. So all put together, this should be our core growth comprising of our MSME, commercial trading, gold loan and things like that should get us close to the double digit. And the balance, 4, 5 percentage, should be coming from the areas of whatever I explained now.

Just one subpart to this question. Why I ask this to you is because, well, generally whenever you hire a contractor, it just takes time to actually sort of reflect that on the balance sheet, that's number one. I mean the kind of segments you're targeting, typically, those would have lower ticket sizes, right? So it will mostly be focused on volume. So what's...

Yes, yes, yes. See, basically, they are not making any bigger changes in the -- I mean in the sense that they are not questioning the way -- overall business mix and things like that. Their support is purely for streamlining the processes which they have successfully done for a few of our peer banks, which is now getting replicated.

The next question is from the line of [indiscernible] as an individual investor.

Sir, so you mentioned about the BCG hiring. One of the reason was to better the underwriting process. So can you explain what was the usual process? And what changes they are going to bring?

The major change will be in the TAT. So like I said, this improvement in the process through digitization and all has -- can reduce the, let's say, soft approval rate from the current level of about, let's say, 1 week to 2 weeks, it can reduce the soft approval time to -- basically, this, let's say -- making the tie-ups with the fintech wherever these data can be automated, wherever the processing can be automated. So those things, they are helping us to do, which is they have successfully done in a few of our peer banks. That process is getting now, let's say, getting replicated in our bank.

Sir, two questions on the data front. Can you give an advances mix? You're working on INR 5 crores ticket size for FY '23 and FY '22?

Let's say, the exact numbers, I don't have it with me. The -- there is one e-mail called Mr. -- I mean of Mr. Jayaraman in the presentation, kindly send a mail, we will get back to you on that. And it will also be available in the Pillar 3 disclosure document. It's in the public domain, which will be uploaded after the -- maybe in 1 or 2 days. The exact number, I don't have. I don't want to give an assigned number with you. Let's just check. I think that number is now getting to -- see, the -- overall in terms of the gross advances, above INR 5 crores -- just a minute. 10 plus 6, 16, 19 -- 21 percentage.

This is for FY '23?

About 80 percentage, it's less than INR 5 crores.

This is for FY '23, right?

It is for the June 2023.

Okay. Historically, has there been any segment that we had entered into and then we closed it out later after understanding perhaps that was not our -- from an underwriting or any reasons perspective?

See, normally, we don't enter any segment in a hurry. We make our own judgment overall. That is the reason why, let's say, in the previous bad asset cycles, be it in a consortium lending or be it in the infrastructure lending or be it in the, let's say, unsecured lending and all, in the past 25 years we track results, we don't do anything in a hurry. And whenever we have gone inside, let's say, we had not got into any major accidents or anything like that. Things have been steady always.

So sir, basically, we have never exited any segment that we have entered into, historically?

We have, say, for example, in the sense that even gold lending, if you see, we started with the single digit. We increased it to, let's say, 15, 16 percentage. We got back to 8, 9 percentage. Then we, once again, now currently at 25 percentage and all. This entry and the exit will depend upon the profitability and the opportunities available at that point of time. And we have not exited any segment because it has given us lots of losses or whatever. It's not that -- I mean we do it on a practical basis, depending upon the alternate opportunities available to us.

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

So just a couple of questions. One, on the slippages, can you again give a clarity as to what explains the composition of the slippages for the quarter, sir?

Pardon? Repeat the question, please.

What would explain the composition of the slippages? If you were to look at the INR 380 crores and allocate it to MSME or agri or probably on the retail side, how would that slip look like?

It's almost proportional to our overall exposures only. It's nothing enough, because by and large, your gold loan is not going to have a bigger thing. So everything is going to come back from the, what you call, your balance -- MSME, commercial and agriculture lending only is going to take you the bigger thing. So the -- as usual, like I mean the -- out of that INR 382 crores, INR 227 is from the MSME.

In your assessment, when you look at this segment of the customers, they still haven't recovered some COVID as of date. What explains the persistence of the slippage?

See, the issue is I can put it this way. Let's say, the -- if you take some of our peers, they had huge issues with, let's say, the corporate lending or the consortiums. All these things had -- maybe after the QR and the bulk of their problems got cleared, then at the point itself. So our problems started late and our problems also is expected to get completed late. So we see we are almost in the -- still in the last 10, 15 percentage of the issues. So that's why when I say that -- like we typically used to have about, let's say, 2 to 2.5 percentage slippages for, say, 5 years before the COVID, which increased to about 3 to 3.5 percentage. This year, our expectation is that we should be getting back to that 2.5 to 3 percentage, and we are almost in the last leg of that particular issue. So the visibility we are getting now. As I told in the last con call, we used to have about a 6 to 6.5 percentage SMA 2 numbers. That number is currently about 2 to 2.5 percentage, which is giving us sufficient confidence that we are entering into the final segment. I mean almost everybody, either who had problems pre-COVID, are those whose capital got cleared, or who doesn't have a proper business model to make profit in a [ formalized ] environment. All of them are, by and large, either already dead or almost in the last stages. Those who survived this period, they will be thriving and growing forward.

Okay. Sir, my second question is also linked to this. Roughly about INR 1,400 crores of technical written-off pool is still available. But yet, recoveries in that book has been a bit slow. Given the nature of the collateral that sits there, what explains a slow recovery in that segment?

See, basically, in -- the main impediment which is happening currently is your legal system. Whenever you need to take the position of the -- I mean there are 2 things. The recovery one happens through the -- I mean basically 3 things. One, negotiated settlement; number two, DRP; number three is the SARFAESI. We go for, like say, both legal routes in terms of DRP and also through the SARFAESI, which makes some pressure for the borrower to come for the negotiation table. But now only, let's say, last year, you had almost half of the DRPs did not have a presiding officer. Amendments were made in the SARFAESI Act and particularly during the COVID period, 2 years, the legal system was -- particularly on the recovery front, was not basically working. So our expectation is that, let's say, the -- out of this, let's say, INR 1,400 crores or whatever, maybe 40, 50 percentage should be recoverable. And normally 3 to 4 years should be the level for which now the things have started slightly moving faster than what they were earlier. So that's the -- and also now to take the physical position through SARFAESI Act, that power is now given exclusively to the Chief Judicial Magistrate. There are also some amount of delay and all are happening. But overall, the 70 percentage, whatever we are recurring in the past, we are able to see that happening on an ongoing basis.

The next question is from the line of Ashish Agarwal from BNP Paribas.

Yes. Sir, in the last call, you highlighted that your approval rates have gone down primarily due to tightening of your credit standards. Now coming to -- I mean how do you see -- I mean do you -- are you kind of facing again -- do you see stress kind of set in the MSME segment? And how do we see disbursements from here? Because I know you kind of mentioned that your loan growth came out due to repayments of agri gold loans and utilization of lower credit limits. So -- but do you -- are you seeing any stress in the MSME segment, which could impact your disbursements from here?

Definitely, we have started seeing improvement in the approval rate. The -- and the -- one of the reasons, particularly that like the digitization process, like the one reason why we accelerated the, let's say, the BCG project is that the measurement of the risk is now getting better because of that, for which the -- it will improve things further. Already, we have started seeing things improving. And we should be seeing that approval rate improving from where they were. And I have to admit, let's say, some amount of rejections, let's say, in fact, our -- we were too stringent more than what it was required. And now we are getting back to our, let's say, our normal, let's say, pre-COVID level of approval rate, whatever we want to, by properly, let's say, trying to have some extra points to measure and all. Things are definitely improving on the positive side.

I guess, sir, just a follow-up on that. So what is the approval rate for the quarter, if you can just mention that.

Yes, yes. See, we used to have about 50 to 60 percentage approval rate during pre-COVID. The -- after COVID and last year and all, when we discussed and all, it came down as low as 25 to 30 percentage. We will -- we are -- the -- our expectation is that we should be getting back to that 50 percentage plus when that, let's say, digitization gets completed. Until that point of time, we will be seeing, let's say, a step-by-step improvement from 30 to 35, 35 to 40 and things like that.

The next question is from the line of Chintan Shah from ICICI Securities.

So just expanding on the previous question on the BCG. So sir, any timelines on when we will be starting with this digital lending or the co-lending arrangement? Firstly on that, yes.

It will start from the, let's say, third quarter.

Okay. Okay. So sir, considering that we have guided for a loan growth of 12 to 14 percentage. So any ballpark numbers of what could be the growth from H1 to H2? Since considering that we already had a degrowth in the first quarter, 12% to 14% looks kind of on the very much optimistic end.

Yes. See, normally, we used to have about 1/3 of our growth in the first half and 2/3 of the growth in the second half. This time, since we are also looking into some amount of the co-lending and all, you're concern is rightly placed. But we are taking all our steps to get into that point. So the -- one of the things which is giving me some amount of extra confidence is that, after almost 3, 3.5 years, some sort of investment cycle in the MSME cycle, we have started seeing and all. As I told, even if the, let's say -- when the CC utilization improves, that itself should be giving me some amount of incremental, let's say -- extra utilization and all. So let's hope for that, and we are putting our best effort to achieve those numbers, what we are discussing.

Sure, sir. And sir, lastly, on the OpEx front. So given that we have done the tie-up with the BCG and many digital initiatives are in place, so this is likely to keep the OpEx elevated, as you mentioned. So then what should be the key ROA drivers in this FY '24 apart from treasury? Anything on -- anything more on the operating front? Margins are probably likely to be stable. So anything else I'm missing?

Yes. Bulk of our expectation is that like we should have about -- compared to last year, about INR 300 crores, close to INR 250 crores to INR 300 crores reduction in the slippage. And almost equal number of incremental, what you call, recovery. So that should give me some amount of a breather. In fact, last year, we had -- I mean some substance of this is that -- some of -- the [ maximum amount ] of that lever has to come from the credit cost. So we should be getting back to our pre-COVID level net NPA position during the year-end with reduced credit cost, which would be giving us the lever for that.

The next question is from the line of Aravind R from Sundaram Alternatives.

You were talking about this new co-lending business. Like when we talk about like vehicle loans, is it like commercial vehicle or personal vehicle? That is one of my questions. And in terms of our growth in the first quarter, like I could see like MSME being very weak, and that is one thing. And where do you think the growth will come back from, again, in terms of sector or something like that? And just one more thing, like the yields have improved, but also I could see like a lower yielding segment like agri in terms of proportion of the loans are just coming down. That is one of the lower yielding product. So I was trying to understand like how much of the mix change actually contributed to the yield? Or is it just from the repricing effect?

Yes. Your question on the vehicle loan, it will be a mix of commercial vehicle and personal vehicle, but bulk of it will be for the commercial vehicles. So the -- in terms of co-lending. The last 2 question, on the yield front, it is mainly because of -- not because of any major change in the product mix, it is because of the interest rate, let's say, passed on because of your, what you call monetary policy. And the second question, what was it?

Yes. I was talking about like MSME growth being [indiscernible]. Where do you see the growth coming back from like -- which sector or which segment would be the driver for it?

Yes. I mean two things I'm basically expecting. One, the -- after many years, some sort of proposal for the capital investment has just started coming, which I hope should accelerate in the second half. And number two, the digitization and the digital lending is available during my second half for the MSME. It should reduce my TAT and improve my capacity utilization. And also, the cash credit utilization also should -- we expect that to see some improvement. All put together, it should be helping me to get back to, let's say, close to the double-digit front.

Okay. Just one more question, if I can, like what could be the guidance for NIM for this year?

Current level, plus or minus 10 basis points.

Ladies and gentlemen, that would be our last question for today. I now hand the conference back to the management for their closing remarks. Thank you, and over to you.

Thank you all for attending this conference, and we are taking, let's say, all efforts to improve the growth, as we said, and all the, let's say, the initiatives we are taking should be helping us to get it to the next leg. So our focus now will be to, let's say, get that -- streamline the existing processes, augment, let's say, the skill sets and the capacity needed for the new areas, be it retail lending or like the -- our other co-lending and things like that, and ensure that the organization is future ready by, let's say, going for -- augmenting -- building the bench strength as we move forward in the next couple of years to take things to the next level orbit. So if at all, you have any specific data points or other things, the contact details of our General Manager, Mr. Jayaraman, is there in the presentation, which you can connect as such. And thank you all for attending this con call. Thank you very much.

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