Central Bank of India (CENTRALBK) Earnings Call Transcript & Summary

Thank you, Faizan. Good evening, everyone. I welcome you all to Central Bank of India's 3Q FY '21 Earnings Call. Today, we have with us Mr. Pallav Mohapatra, MD and CEO; Mr. Alok Srivastava, ED; and Mr. Mukul Dandige, CFO. First of all, congratulations, Pallav, sir, on a good set of results and for navigating the bank through really tough times. Now without further any delay, I would hand over the call to you for your opening remarks, post which we can open the platform for Q&A. Over to you, sir.

Okay. Good evening to all of you, and welcome to Q3 earning result analyst con call. I will only give you the major highlights because we have already uploaded our PPT on our analyst page in our site. So you must have also gone through or you can go through it. The major highlights are the net profit during Q3 for this financial year was at INR 165 crores, showing a growth of 6.45% Y-o-Y. Net interest income in Q3 showed a net growth of 10.19%, with INR 2,228 crores. The total business of the bank also showed a growth of 6.29% at INR 504,728 crores as against INR 474,846 crores in Q3 for 2019, '20. Casa has also improved to 48.11% as against 45.82%. Provision coverage ratio also improved to 84.19% from 73.73%. If we take out the technical write-offs, still the PCR is about 75%. Gross NPA improved from 19.99% to 16.30%. Net NPA is below 6% at 4.73%, and it was also below 6% in Q2. So we are maintaining that particular tempo and we are expecting this to further go down. Cost of deposits improved to 4.28% from 5.08%. NIM has improved from 2.92% to 2.97%. Especially on the NIM and e-loan advances and the interest income, I will separately tell you the details of that. The capital adequacy was also at a comfortable level of 12.39% against the regulatory requirement of 10.875%. The bank's net worth stood at INR 19,211.77 crores. Net profit per employee, which is the productivity, also improved to INR 2.07 lakhs against INR 1.82 lakhs in the previous -- corresponding period last year. Business per employee also improved from INR 13.83 crores to INR 15.72 crores. Business by branch also improved from INR 101.85 crores to INR 109.32 crores. Total deposits increased by 5% Y-o-Y growth, touching INR 323,872 crores. Retail loans also increased by 11.18% Y-o-Y, reaching INR 49,111 crores. The RAM, which is retail, agricultural and MSMEs, also improved with a growth of 8.60% from INR 107,594 crores to INR 116,843 crores. Now this constitutes 64.61% of the total advances. We have 4,617 branches as on 31st December, 2021 (sic) [ 31st December, 2020 ], of which 64 branches are in the rural and semi-urban areas. The digital banking also showed improvement. Now as against 55.87% in December '19, it has improved to 75.25%. Mobile banker -- banking user base also increased to 30.78 lakhs from 24.89 lakhs. UPI transaction, which is the major component of our digital banking, has also improved from 10.10 lakhs per day to -- in March 2020 to 19.61 lakhs per day. Active debit card users also increased from 2.42 crores in March '20 to 2.59 crores. Under the financial inclusion, under the Pradhan Mantri Jan Dhan Yojana, the bank opened 3.60 lakhs accounts during this quarter, that is Q3. Outstanding balance has also gone up to INR 3,785 crores in Prime Minister Jan Dhan Yojana accounts. Total enrollment under Pradhan Mantri Suraksha Bima Yojana and Pradhan Mantri Jeevan Jyoti Bima Yojana, 2 social sector schemes, and also the Atal Pension Yojana, have -- they have increased to 48.68 lakhs, 16.15 lakhs and 11.63 lakhs, respectively. And amount of transactions through the BC, that is Business Correspondents, has also increased from INR 6,374 crores to INR 7,402 crores. This is, in short, about the financial performance for Q3. I will take a few minutes on some qualitative offsets which we did in taking some initiatives in Q3. Though, in this financial year, we have started on a big bang sort of thing on new initiatives, but I will focus only on the initiatives which we took during Q3. Under the project which was basically analytics-based business transformation program, we have rolled out this program in -- on a pilot project basis in only 7 regions. Now we have included another 7 regions. And within 2, 3 months, we are going to basically roll out this in pan-bank. This is the most -- this is the program under which the focus is basically on the retail, agriculture and MSME and how to basically do this particular business by using the data and data analytics. And so this is going to be a real game changer for Central Bank of India and with one of the lowest pricing which we have in these 3 business segments. And with this push-through, the technology-driven as well as analytics-driven as well as the new business models, there's going to be a massive change in the quality of the portfolio, size of the portfolio and the type of business we are doing. This single data repository, which is nothing but a data warehouse, there, we have bought the hardwares and the installation of the hardwares is in process. And we are hopeful that this will be fully onboard in a quarter or 4 months. And this will help the bank not only generating the dashboard as per the requirement of the MIS, by the management team or by the people who make decisions, but this also has features for doing the analytics. So this is also going to be a major game changer. Then on the technology, other technological initiatives we have taken is we are in the process of implementing a new loan originating software, which is called LENDSafe, which will be end to end in the credit area, that means starting from getting the application, inputting the application, processing the loan application and then giving the decision on the loan application and then uploading the -- that on to the CBS and then also doing the credit monitoring. So this is going to be end-to-end loan origination and credit monitoring system in the credit area. We have taken also, during this quarter, some of the initiatives forward under HR. The major are this performance management system. Now we have introduced a dashboard which will basically show the quarterly performance of each employee, and then they can basically see that in which direction they are moving. And we have, in this -- on -- I think in January, January or December, POs recruitment we did it in December?

January.

January. We have recruited 200-plus probationary officers and 600-plus clerical staff. And for the first time, they are being -- these probationary officers are being -- basically going through a process of induction, which is 2 years' induction, which includes both the institution training as well as on-the-job training. So this will basically groom them to take up the assignments in a much well-equipped stage. So this is another initiative which we have taken. We have also done the succession planning project for Scale V and Scale VI -- Scale VI and Scale VII officers, and also Scale V officers is under process. So we are creating the pipeline for these -- for those who have the competence and capability to move on to the next level. We have also completed this HR audit. That is basically to gauge the efficiency of the HR infrastructure which we have at different levels and how this HR infrastructure is helping in the business development and the business growth in the bank. So these are on the qualitative fronts. So now I leave it -- this is, in short, I have given the brief about the financial numbers and also the qualitative parameters. So I leave it open to the analysts, any questions they have.

[Operator Instructions] The first question is from the line of [ Akash Kotriwala ] from [ Cloud Advisors ].

I have just 2 basic questions. On the investment side, what is the unrecognized gains that the bank is sitting on in HTM books? And is there any partnership in NBFCs under co-lending that will possibly aid faster loan growth?

Sir, we had done one under the co-origination. I'm responding to the second part first. And in the co-lending, we got the policy approved in the recent past, and we are in touch with some of these NBFCs. And hopefully, very soon, we are going to onboard some of the NBFCs under co-lending. On the first part, sir, unrecognized benefit in the investment, as such, is not the -- I think, anyone discloses because it is only the depreciation which is disclosed, not the appreciation in the NDND treasury book. And then when you are talking about hold-to-maturity, so hold-to-maturities are the basic benefits that is not mark-to-market.

[Operator Instructions] The next question is from the line of Ashok Ajmera from Ajcon Global Services Limited.

And congratulations to you for yet again another quarter of profit. And of course...

Hello?

Qualitative parameter, which I think will yield good results in the future to come for the bank. Sir, having said that, I have got certain -- I mean, a couple of observations and some questions that our CASA has gone up 40% to 48.11%, but our NIM has come down from there compared to the last quarter to 2.97% from 3.35%. So what will be the main reason for this NIM coming down so drastically?

Okay. Shall I answer this question first? Or do you want to...

No, I have a couple of other questions. Answer whatever you want. I mean shall I...

No, no. I'm okay [indiscernible]. I can answer question by question. I can also -- you can ask all the questions, and I can answer all of them.

Okay. So my -- and then I have a couple of other questions also. Number one -- my second number question...

Yes, sir?

INR 683 crores in the NPA...

[indiscernible]

Sir, I think that we lost your voice in between. So in that second question, can you repeat it, please?

Yes. Yes. There is a regular write-off in the NPA movement of INR 683 crores as compared to INR 149 crores of last quarter. So what are the main items of this write-off? Like there are some major big accounts or are there a number of accounts which are there which led to such a big write-off by which the gross NPA has come down drastically?

Okay. [indiscernible] the answer to the first question regarding the NIM, on the deposit side, you must have seen that the cost of deposits have come down. Now on the interest side, you will see that the interest on advances -- interest on investments are almost flat. But interest on advances has come down both sequentially as well as Y-o-Y. The reason is -- I will tell you the reason. Sir, if you remember, RBI came out with this repo-linked benchmark, right?

Yes. Yes.

And so in December '19, the repo-linked benchmark portfolio, which we were carrying, was INR 9,476 crores. Now this has gone up to INR 35,816 crores. So this is on the portfolio. Now the question may be asked, that how this has basically impacted your interest income. That is also we have calculated. If I only see the 3 quarters' interest income which has been impacted, that is around INR 415 crores. If I add the INR 415 crores to December '20 9 months' interest income, that works out to INR 18,256 crores. So there is a positive, not only sequential growth but also Y-o-Y. And also, this has a positive impact on the NIM. And the NIM, this will be around 3.15 or 3.10, if my calculation is not wrong. So this is on the first part. The second part, you asked about the movement of the NPA, and so there...

Regular write-off.

We see the write-off. Now that there is this write-off, there are 2 types of write-offs. One is -- [indiscernible] numbers?

25.

25. One write-down is the -- called the technical write-off, where when we hold some provisions, we use the provision to write off, so that on both the liability side as well as asset side, the amount comes down. During the last -- including this quarter, that means 3 quarters, we have not used that. So the figure is 0. Now the normal write-down is what? I will give you one example in one particular account which was settled in NCLT. The total outstanding was around INR 400-odd crores. And there, as per the NCLT resolution, we got around INR 50 crores as our share in the resolution plan. What happens is, even if there is a provision against that, but when the entry is passed, INR 414 crores minus INR 50 crores will be the reduction in the principal outstanding, and whatever is the provision being held against that, that is basically written back to the profit and loss. So this is the accounting.

Okay, sir. Sir, one is on this income -- this tax provision. On INR 449 crores of this thing, the tax is INR 284 crores.

We just certainly got to lend more.

No. No, this is much higher, and so what is the component of the deferred tax treatment in that? And what is actually the income tax? Because this is much, much higher. It is almost about 58%, 55%, if you take the...

No, sir. For income tax, which we have basically added here, will be both -- INR 150 crores?

Ladies and gentlemen, the line for the management is disconnected. I request you all to please stay connected while we reconnect them. [Technical Difficulty]

Hello? Ajmera, Ashok? Hello?

Can you hear me, sir?

Yes, yes. This, regarding the taxes, what is the breakup of INR 284 crores, if you don't mind, we will send you separately.

Okay. Okay, sir. I will take it, sir.

But conceptually, I can give you the concepts. See, what happens is, based on the calculation, which is based on the past trend, the -- suppose the provision is in our bank, it works out to INR 700 crores. If, in a quarter, we are making less than INR 700 crores of the provision, we do not get the benefit of that as a tax deductible, number one. Number two is whenever we do a technical write-off, that means we use the provision for a technical write-off, then we -- basically, we are not impacted by the DTA. In this 3 quarters, we have not basically used the provision for the write-off. So these are the 2, 3 factors on account of which the tax just appears to be on a higher side against the corporate taxes. So...

Yes, sir. I will take it off-line, sir. No problem.

Yes, sir. Okay.

There is one another small observation on the penalty by RBI of INR 50.46 lakhs. Is it a common feature or -- for all the banks? Or is it something special for the housing loan irregularities and something to do...

No, no. Sir, just what happened was this was basically a case which was filed by some gentleman in the Supreme Court against RBI and Central Bank of India, that Central Bank of India has given the full amount of the loan without basically sticking to the construction-wide disbursements. So in that case, RBI basically inquired into it because RBI was also one of the defendants. And when they went through it, they found that out of maybe 150 accounts, there were only 11 accounts where the full payment was made. Out of these 11 accounts, only 4 or 5 accounts were NPA. Rest of the accounts, they were paying the installments regularly. There was a personal hearing which was given to me, the opportunity which was given to me. I explained everything that there was no violation of RBI guidelines because when RBI came out with the circular, that there cannot be, one instance, a disbursement of the full amount, it should be linked to the construction, we had immediately issued the instructions, but one branch in Delhi did not comply with that instruction. So that has nothing to do with the policy. That is -- that has nothing to do with the decision taken at the bank level. But somehow, RBI did not agree to that, and they imposed a penalty, so we have paid it.

[Operator Instructions] The next question is from the line of Anirvan Sarkar from Principal India. We'll move to the next question. The next question is from the line of Mahrukh Adajania from Elara Capital.

Sir, you have made an immense contribution to the sector, so congratulations for that. Hope you have a good time after this also. So sir, I just wanted to have a -- have any color on the pro forma slippage. So...

Yes, I have given -- we have given -- and because this is also a part of the disclosure, we have given it. It is INR 3,414 crores, something like that.

Yes. Yes. So is there any breakdown that you can give?

Like?

Like how much is retail?

Okay. That breakdown right now, I don't have. I can separately give it to you. But one figure I have, that out of this INR 3,414-odd crores, INR 145 crores, we have already upgraded. And I'm quite hopeful that by the end of this financial year, we will be able to upgrade more out of that, though we have made a provision of 15% on that, but we will be able to upgrade more of that. That breakup, we will send to you separately, but that is how much is retail, how much agriculture, how much MSME and how much corporate.

Sure. Sure. Sir, would you have -- I know that this is something related to -- it's the government's decision. It's not yours. But would you have any comments on privatization of state-owned banks?

Ma'am, state-owned, what -- I, as an individual, strongly believe that in case of the bank, financial sector, more and more financial sector units should be in the private hands. And the action taken by the government, first for merging and then privatization, let me say, reducing the number of public sector banks to 5-6 is, in my opinion, a good move. And when some of these banks are privatized, so they will be -- from the S.S.N.P. point of view, definitely, it will improve a lot. This is my personal assessment of that.

[Operator Instructions] The next question is from the line of Amit Mishra from Indus Equity Advisors.

Sir, my question is on retail loan growth. Sir, we have done 12 -- 11% of retail loan growth this year. Sir, how are you planning to grow it further from here? And also, can you talk about the asset quality in retail segments?

Asset quality in retail sector is definitely better than the corporate sector. It will be around 3%, 3.25%. And regarding the guidance for the current financial year, that means fourth quarter, I feel that we will be able to close this financial year with a growth of 10% to 11%.

10% to 11% in retail or overall growth?

No, no, overall will be 5% to 6%.

Sir, in the retail segment also only, and sir, in education loans, the portfolio is reduced...

Education loans are -- this year, there is a degrowth in the education loans. And the main reason for that is, first of all, very few people came forward for education loans for the overseas studies. But really, I will say, no one came forward for overseas education loans. Even in -- for the domestic also, the demand was very, very less this year. So there was a degrowth in education loans if I look at it Y-o-Y. From INR 3,892 crores, it has come down to INR 3,662 crores, if you look at Slide #17.

Yes. Sir, what about asset quality in education?

Education loan, the asset quality, especially below INR 4 lakhs, is very bad, and below 7.5 lakhs is also bad, but anything above INR 7.5 lakhs, the asset quality is good. And the stress in the asset quality is more or less concentrated in 2 states. One is in Bihar and the second is in Tamil Nadu.

Okay. Bihar and Tamil Nadu. Okay, sir. Sir, another question is on ECLGS scheme. Sir, what is our total sanctioned and disbursed amount so far?

Right away, I don't have that figure. We will give you separately.

[indiscernible] we had 2,000 -- against 2,800...

I mean our ED has that figure. So go ahead...

Against the sanctioned of INR 2,800 crores, roughly, we have disbursed around INR 2,600 crores, and they are yet to be disbursed. But in the latest one, ECLGS 2, the cases are still coming. And in fact, such proposals, we are doing it at our central office level, in both the ED-headed committee as well as the MD-headed committee and the MC, all 3.

Okay. Sir, my last question is, sir, on -- sir, you talked about so many reforms on the technical front. So how much incremental cost are you expecting on the same?

Sir, incremental cost, we are -- whatever is the cost we have here, we keep on accruing in our balance sheet. And on the revenue side, the total expenditure will be around INR 10 crores to INR 15 crores -- INR 15 crores to INR 20 crores. On the CapEx side, it will be much more.

[Operator Instructions] The next question is from the line of Sushil Choksey from Indus Equity Advisors.

Sir, I have a couple of questions, which may be repetitive from the previous quarter a lot. So what are we indicating on asset quality and CASA of the bank for the near term, maybe 2 quarters or a year ahead?

Choksey, so on the CASA, now our strategy is to focus more on the CA of the CASA side. And since our presence is more in semi -- RUSU areas, so we have already floated the RFP for 3-in-1, which will improve the stickiness in the savings bank depositors, and we will be able to get more of these depositors. The third is, we are introducing new salary-saving packages for different categories of employers, where we will have something, a free insurance premium, depending on the number of salary accounts where -- which we will get. So this will improve the SA side, and by doing more of merchant-acquiring business, we will be improving our CA side in the CASA. On the asset quality, sir, in the fourth quarter, because we are not getting very good positive signals for resolution in the NCLT, so our -- now dependence is more on sale to ARP, OTS and nondiscretionary and nondiscriminatory onetime settlement schemes. We are expecting a reduction in the NPA in the fourth quarter through these 3 to the extent of around INR 3,300 crores to INR 3,500 crores. This is -- I'm talking about the reduction in NPA. Normally, the ratio is 2:1. That is if 2/3 is the recovery, then 1 will be the reduction in the NPA. So from that point of view, we -- I am hoping that we will -- and without technical write-off, the gross NPA level of something around INR 25,000 crores or INR 24,000 crores.

Sir, the next question, based on the same, is what is the CASA number which you think, irrespective of what decision and what change of policy we do, 46% to 48% or 47% to 48%, would be a stable CASA for the bank? And what would be the cost?

Yes. Yes, yes. This will be stable. I think it will get stabilized at something around 49% to 50%.

Okay. And where do we see our cost-to-income going forward where the bank is concerned?

Sir, cost-to-income, definitely, our efforts, this time this has gone up mainly because we made additional provision for the wages. We had made a provision of INR 885 crores up to September. And at that time, the wage revision was being negotiated with the union, circa 12% wage hike, without any reason for the leave encashment and other things. But when finally this was settled and signed, it went up to 15.2%, with 2% as the loading. So this quarter, we have made additional provision of around more than INR 200 crores. And so when we have paid the arrear and when we have worked out the leave encashment, my sense is that in March quarter, there will be a write-back of around INR 25 crores to INR 30 crores in this wage revision provision, which we have made because the payment and the provision required will be much less than whatever we have provided up to December. This is the reason that, in December, this cost-to-income has gone up to 50%, which was, I think, 54% in September. And hopefully, by the end of March, we will be able to bring it down to the same level of 54% by March end and in the next financial year to bring it below the 50%.

Sir, maybe if I just ask you a same question on a repetitive basis, that wage bill which we have incurred in 9 months is INR 3,243 crores. On a quarterly basis, should I assume INR 1,000 crores or INR 1,100 crores is the run rate?

No, you are -- you said INR 3,244 crores. Here only, you look at the provision for wage settlement. This is the provision which we were making since November 2017.

No, that I understood, sir. What I'm asking is that is the past, what -- as per the wage revision...

So that -- this provision for wage settlement, you take it out and not entire INR 405 crores because now the wage has gone up. So if you take something around INR 15 crores to INR 20 crores you reduced from this, so this will become INR 380 crores. So INR 3,244 crores minus INR 380 crores will be for the 9 months. So that you divide by 9, that will be the per-month entire wage bill, including all sort of benefits.

Okay. Sir, based on our CASA, where do you see our rural and retail reach over a period of 1 or 2 years based on the transformation journey which we are starting, whether it is housing loans or with the lowest MCLR rather than LPI?

It will stabilize at 49% to 50% because taking it beyond that is very tough.

No, no, no. I'm asking what would be your retail reach linked to CASA? Because CASA is enabler for a lot of retail cross-sell to reach...

I think that last time also, we gave you the figure. The retail portion of the CASA is 35%, 40%.

Sir, 91% is coming from below INR 1 crore account.

No, no, no. His question is, how much is being contributed by retail and how much is being contributed by non-retail in the CASA? Am I right, Sushil sahib?

No, no, sir. It's a well-accepted fact. Central Bank has the lowest MCLR. You have the highest CASA among the peer of competitive banks when you are compared to larger banks. Now this is a strength of the bank, how are we utilizing to grow our retail book? And how do you see that growth? Because I hear from the industry that Central Bank is able to run a lot of retail loans, specifically housing loans. How are we shaping up that journey going forward in terms of reach and increasing our -- you may call it RAM, but I'm looking more from other products other than housing loans?

No, no. So the focus definitely is on the RAM. And in the RAM, the focus is more on the housing loan and the housing loan both organic as well as inorganic. And we want to take this RAM as a percentage to total advances to at least 75% in the years to come. And this will be mainly through our -- the branches in the semi-urban branches because the requirement for the housing loan in the rural may not be that high, but it is quite encouraging in the semi-urban.

So is it possible to foresee INR 10,000 crores, INR 12,000 crores of yearly disbursement fresh loans and housing loans?

Yes, sir. Yes, sir.

Okay. Any other product where you see that kind of a growth trajectory coming in?

I think the major growth trajectory will come from there. The other growth trajectory will come from the corporate, especially if -- up to the cap which we have, sectoral cap which we have for different sectors. So another growth will come from the NBFC because we see a lot of demand. The third sector from which the growth will come will be from the HAM projects in the road sector. The fourth opportunities which will come to us is now the manufacturing sector is opening up. I feel that pharma, fertilizer and steel, these 3 sectors are going to give us, I think, a reasonably good prospects.

Earlier question was asked on your HTM book. My question is not on what is the unbooked profit, but I would ask how -- at still what rate is bank insulated where mark-to-market loss cannot happen?

Sir, we anticipated this going to happen around 3, 4 months back. And then we started tightening our -- the investment book in the sense not to take exposure in our long tenure investments. So we fixed our -- though we got the approval of the Board for having a modified duration of 3%, but we, ourselves, have given a target to ourselves as 2% to 2.5%. Though you will see that in the December quarter, it was a little bit higher at 2.57%. But our efforts are that how much we can basically invest in less than 5 years of the paper.

Sir, based on this outlook of what you've guided for or indicated for, how do you see the bank in coming quarters from a perspective for long-term investors?

I think the bank made -- what I feel is the initiatives which we have taken, though we may be a little bit late in those initiatives, but once these initiatives start giving us the results, so that would be great for the investors to come in now. Because the price at which the bank shares are as of now, this is a very good price with all type of initiatives being taken, the change of focus which have been made and the change in the policies which have been made, I strongly believe that unless some extraordinary thing happens, this bank is not going to look back. So this is the right moment for the investors to come in. Maybe later on the value may go up.

The second thing is, this is a little hypothetical question, and you may answer or you may not answer. We are one of the candidates who have not much, despite -- except PCA tag which is more or less not effective, but it's being tagged and that's the reason we've not been chosen for the 2 candidates as being spoken about in the press. But as per your own individual statement which you mentioned to Mahrukh and few others in the past, that 5, 6 banks is a good thinking. Do you think Central Bank is a good candidate from a perspective which government is looking on privatization?

Sushil sahib, till I retire, don't ask me this question.

The next question is from the line of Anirvan Sarkar from Principal India.

Sir, one question, we have seen a sharp increase in our SMA-1 and SMA-2 books. Just to understand a bit better there.

Okay. I'll -- if you hear me out and have a little bit of patience, then I will give you the breakup. Now see, what happens is that we try to prioritize which is the segment in the SMA we should hit first. So the first segment in the SMA which we hit first is the SMA-2 because the NPA risk is higher in SMA-2. Out of INR 11,595 crores whatever figure you are seeing, right, in the slide, in January itself, this figure of INR 11,595 crores has come down to INR 7,700 crores, okay? Then out of -- we have basically done a provisioning on INR 3,414 crores. Out of this INR 3,414 crores where we have done a provisioning because treating it as a pro forma NPA, we have already upgraded to the extent of INR 145 crores, right? So that leaves INR 3,269 crores. Now INR 7,700 crores minus INR 3,269 crores works out to INR 4,431 crores. Okay, sir? Out of which, INR 2,756 crores we have already done onetime restructuring. And in case of the onetime restructuring, as per RBI regulation, this will not be downgraded. So you reduced 4,000 -- INR 2,756 crores from INR 4,431 crores, that leaves INR 1,675 crores. So this is almost in line with September. And with a little bit of more effort, we will be able to bring it down to June '20 level. You got my point, sir?

Yes, sir. Yes, sir. That's very helpful. And just one more question on the SMA-1 book, we have seen some increase in the MSME and retail portion. So any comments there?

Pardon, sir?

In the SMA-1 book, I am saying we have seen a sharp increase in the MSME and retail books.

Yes, yes.

So any comments you have to offer there?

Sir, right now, as I said that my immediate attention was on SMA-2, so that I can reduce. Right now, I don't have this much of breakup what I gave for SMA-2. But on the field and the departments are also following up on the SMA-1. And in case of the MSME, this SMA-1, major portion of the SMA-1 what you see is INR 2,667 crores. These were eligible for restructuring as per August 2020 circular of RBI. That is additional provisioning of 5% without downgrading of the RI classification. So this -- also, this restructuring is going on. By the end of the March, we will be either able to maintain the status or get this upgraded.

Great, sir. And my last question is, are we seeing an increase in our BB and below book?

That I will give you, sir, BB and below. First of all, sir, below investment grade, and this question I have been asking to many rating agencies that '19/'20 was a very, very unusual year for the entire economy. And if the rating agencies follow the same model which was being used by them pre-pandemic in the pandemic area, then definitely all the ratings will be downgraded. In few cases, I myself for my clients, I had a long discussion with the rating agency. One example I can give you that future growth rating was downgraded from A to BB because of whatever you must be reading in the newspaper. So it is not that we have invested more in BB. It is because of the downgrading of the rating during the pandemic period, and majority of this downgrading is not on account of the fault of the unit. It was mainly on account of the environmental issues. You got my point?

Yes, sir, very clear. Yes, if I understood that the downgrades are mostly due to the unavoidable circumstances. So the broader question is whether we -- from here on, should we expect to see those downgrading checks? Should we expect to...

Now because -- in my interaction with the rating agencies, they are also understanding this point. Some of the rating agencies, they have already made some changes in their rating models. And most probably, they will do some sort of a discounting on the cash flow during the pandemic period. I don't think that we will see most of these downgrading. But it is a fact, there is a stress in the economy. There is no doubt in it.

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

Sir, I just wanted to ask something on the Bhushan Power. The case has been pending in Supreme Court. But if I remember in March last year 2020, Supreme Court had said that JSW can still pay and bankers can take the money. That time, what happened was bankers said that we want the money, but the JSW didn't give it maybe because of the crisis which was happening in the world over. But in November 2020, what was there in the media was that JSW has offered to pay but the bankers are not willing to take it. Is it right? And how do we see this going ahead? Because...

So [ Mr. Mahesh ], I am a person you will find that he is one of the few bankers who believes in net present value or the time value of money. So in the case of Bhushan Power and Steel, so the resolution plan is $0.42 a dollar, right? And there, the -- because in the NCLT cases, after the claims have been admitted, there is no accrual of interest unlike in the DRT, right? So this case is, I think, of 2018 or something. I sold this asset to ARC at $0.39 a dollar in March '19. Now if we think of, on the NPV, how much money I have made on this.

Okay. So you don't have any exposure. I thought you have some big exposure.

We had exposure, but I sold it in 2019, where many of the critics were saying that Mr. Mohapatra, $0.03 a dollar, you are losing. I said that I want to see when this money will come, who will be getting $0.42 a dollar. Now even sitting in February, how many bankers have got $0.42 a dollar?

Interesting. Okay. So sorry, I missed that, I thought you are still there. But any idea of what is happening? Are the bankers still willing to take the money or no idea?

I have a lot from my plate, sir. Why I will bother for if I've got the...

Sure, sure. I can understand. Sorry, I missed that part.

The next question is from the line of Ashok Ajmera from Ajcon Global Services.

I will take this opportunity, sir, first to compliment you for whatever work you have done in the Central Bank of India, especially in the system, the automation and digital and a lot of qualitative changes, the result of which will be seen in the future. But having come from the State Bank of India, Central Bank is not even 10% of State Bank, but you have done a lot of good things here, and we will all witness the results. So congratulations for that, and we wish you all the very best even after your superannuation. Having said that, sir, I would like to just -- like in case of credit monitoring and other things you said that you've got a very robust system in place now where the performance management system, when the applications are received, they are put and they are processed, is being monitored. But sir, the interim period between the receipt and putting in the system, who is monitoring that? Because the experience in many of the banks is that it goes on lingering the day you apply because people do not put in the system.

Sir, for that, when this particular system will be made open to the customer, and the customers are basically educated. So these are the 2 things. One is, this will be linked to the website, and the customers can basically put the application there, and they can do the tracking of their application there. But the major question is the customers should be also educated that this is a system which is available. Now if what I presume is that we should basically advertise more and the customers could basically track their own application on the system. And when they are seeing that there is a delay in the decision-making, they should do the escalation. And I don't disagree that this is happening that the application is submitted maybe in physical form, and branches may be not sending it across to the right department or whatever it is. But this particular system which I'm talking about, the new loans origination system, this will be linked to the website where the customers themselves can put the application and track it.

Great. I mean, that will help a lot because for months together, it is just lying in the branches and they are having only informal discussions with their higher officials without even processing the applications.

My strong belief in banking is that as less as possible the manual intervention should be, as more as the system interventions should be there. So that -- because our -- the ultimate goal or aim of a bank is what? To give the service to the customer, and this can be achieved when the control is in the hand of the customer not in the hand of the branch manager.

Now sir, my one question is on the recent budget announcement of the finally coming the bad bank, going to come in the reality, the special asset recovery, reconstruction company. And I'm sure that the government or the Reserve Bank of India must have consulted the banks like yours. So what are your views on this? I mean, how this NPA will be transferred to the bad banks, whether it will be at the net NPA price level or there will be negotiation case to case for transfer, or the bankers will get benefit of the NPV difference between the net NPA and NPV, some difference later on when the assets are finally sold or disposed of? What are your views on that, sir, whether the bank will be really benefited by this?

Ajmera sahib, you are asking so much of detail, mostly probably that have not been thought over. But I will give you in -- whatever the things have come in the public domain. I will only make the comment on that. First is, there will be a national ARC. And the -- because secondary, DFS has said that the ARC will be buying the assets at -- on the model of 15-85, 15% cash, 85% SR. Now I have read somewhere also, someone has said this will be net of the provision amount. Now if suppose the -- there will be a negotiation or discussion between the national ARC and the bank on these reserved price on this, this will be basically bought over by them, then the basic purpose of national ARC is defeated. There has to be a standardized model. There has to be a formula-driven model which will be applicable to all the banks, so that there is a uniformity in it. Otherwise, it will be just like a sale to some ARC. Number one. Number two is, if it is going to be on the model of 15-85 because what I strongly believe is 100% of these assets cannot be resolved. And 100% of the assets cannot be resolved, what is going to happen those SRs which will never be redeemed.

Yes. Because...

So these are unanswered questions. Let us see, but time will give us the answers.

And sir, my last question is, sir, on that -- with this new -- I mean, after the budget, the whole euphoria has been built up. And not only euphoria, I mean, the fact is also there that huge CapEx and investment is going to take place and...

That is the right decision which has been taken. And this is a very bold decision which has been taken without basically focusing on the deficit percentage. The government has taken the right decision. See, what happens is we take care of deficit. We don't spend on the capital expenditure, but there will be a revenue expenditure. This revenue expenditure is neither going to create GDP, nor going to create the employment. This will only go down as consumption. When this capital expenditure is done by the government, there are so many entrepreneurs who are sitting on the fence and are waiting for the government to take the first step. And the moment the government takes the first step, they will also be jumping into the fray. And when this CapEx takes place, this is not going to help in that particular sector where the CapEx is going to be invested, but this is also going to help other ancillary sectors which will also gain. And this will not only gain from the GDP point of view, this will also gain from the employment point of view. This will also gain from giving the higher, what you will call paying power to the consumers. So this will, again, refuel the economy.

And it will take the bank credit to again double digits a year?

Yes, sir. Yes, sir. Yes, it will because once the cash flow improves, definitely, the bank credit quality will improve.

The next question is from the line of Mahrukh Adajania from Elara Capital.

Sir, I just wanted to discuss on the recovery. So sir, you already have sold Bhushan Power to an ARC, and people are also talking about DHFL, which is pretty much in the press as well. But apart from these 2, are there any major corporates that are in the recovery pipeline, either in power or in any other sectors?

In the last quarter, there is no major except for one that is Matix Fertilizers, which we are quite hopeful because all the banks have basically given their approval for the OTS. I don't think in the last quarter, there will be any other major recovery happening. But next year, I hope that recovery may be there in Coastal Energen, recovery may be there in -- the money will come in DHFL. DHFL, I'm not very sure that the money will come in the last quarter. But 50% of the 40% resolution plan which has been done, which has to come in the hard cash. So I am hoping this will come in the first quarter of the next financial year. Then there may be some -- of course, I don't want to name some, but there will be 4, 5 other accounts which are quite in the newspapers today, which may have the resolution plan, where the resolution plan has been approved but because of some other complications, maybe litigations, suit filed, so this is not going forward. But I'm quite sure that those will be finally settled in the coming financial year. And...

But that's through NCLT, sir?

Yes, I'm talking about NCLT. Matix is not under NCLT. That is outside NCLT.

Got it. Got it. Got it. And there'll be recovery in all of this. Would all this be fully provided for? Or...

Most of them are fully provided for. So it will be either the write-back of the provision or if there is a technical write-off, then it will go straight into profit and loss.

The next question is from the line of [ Leela] from [ Fintax ].

Sir, so you made a comment telling you're looking to -- looking forward to increasing the productivity per employee because Central Bank's productivity per employee was very less compared to other public sector banks and private banks. So where -- can you just throw a light and give some numbers?

The number has started going up, right? That is number one part. But that incremental part is not very, very significant. But what we are trying to do is, we have reorganized the entire setup by the branch to be a delivery point, branch manager to be basically doing the marketing and other areas. We have created a separate marketing team, so it will be doing the marketing for the noncustomers. Branch managers will be doing the marketing for their own customers through up-sell and cross-sell. For the noncustomers, it will be done by the marketing team. We are basically tracking the lead conversion of these -- the leads given by the marketing team. We have taken out the processing in the RAM, that is retail, agriculture and MSME, all from the processing. And we have created these cells, the cell processing center for retail, processing center for agriculture, processing center for MSME. And so the entire processing will move there. And the project which we are -- and this loan origination system, which will be end to end, where there will be minimal manual intervention. So that will also reduce the involvement of the human beings. We are going through this project Disha, which is a transformation initiative. And the results which they have [ thrown ] through the pilot projects which they have done in the 14 regions that per branch, there is a saving of 222 hours of the branch manager by moving out these things to the processing center. So this will definitely give a fillip to the improvement in the productivity and all the other technological products which we are focusing on and also trying to improve our digital banking penetration. So it is for sure that productivity of the Central Bank, which was one of the, I would say, the lowest in the market is going to go up. We are not recruiting that many people for the sake of having the manpower. We reduced our manpower from around 36,000 when the PCA started to around 32,000 odd which we have now, though we recruited some 600 clerical and 200-odd officers. This, we are thinking of the future because we do not want to face a situation when there is a boom in the business and we do not have the manpower to basically support that. So for that, the minimal requirement and to take the productivity up, all these initiatives have been taken.

The next question is from the line of Ashok Ajmera from Ajcon Global Services.

I'm getting a lot of opportunity. Sir, in your just last reply, you said some of the companies' names you have given that recovery prospect, when I think Mahrukh asked that question, and you referred one name of Coastal Energen also. So I believe that is for OTS and not for NCLT, isn't it? Have you approved the OTS?

No, no. That is not in the NCLT. That is OTS, yes.

So have you approved that OTS?

Yes, yes, we have given our approval a long time back.

Okay. Okay. So there, how much of percentage of the overall that INR 6,000 cores, INR 7,000 crores of outstanding?

I think it is around 40% or 39%.

Okay. That will be a big good recovery, I think, in the times to come.

I have just done one analysis of recovery, whatever we are getting in the NCLT, the recovery percentage there is also 56%, and this 56% is mainly because of Essar Steel. Without Essar Steel, the recovery percentage will be something around 44%, 45%. So if we are able to get something in the OTS of something 40%, 42%, to clean up the books, that is, in my opinion, a good recovery percentage.

Good, sir. So it will increase our operating profit also, which this quarter has come down to -- from INR 1,459 crores to INR 1,193 crores. A little bit come -- it came down from the last quarter, so it will again go back to almost about INR 1,800 crores [indiscernible]...

Operating profit, I told you, I give you the figure. That was mainly on account of the major portfolio moving to the repo-linked benchmark, which was as per the regulation. So that was there, the -- on account of this movement, the loss and the interest during the 3 quarters was around INR 415 crores. If I add back that to my 9 months' income, so my operating profit is more than the operating profit of 2019. And also, if I add back INR 105 crores, which was 1 quarter loss in the interest, that is also more than the September '20 interest income.

Good, sir. So on recovery front, also, we'll go back to INR 1,000 crores, INR 1,200 crores figures.

Yes, sir.

As there are no further questions from the participants, I would now like to hand the conference over to Mr. Sohail Halai for closing comments.

Yes. Thank you, Faizan. Sir, before we end, I have a couple of questions, if I may ask.

Yes, yes, sure. Why not?

So one, in terms of basically your CASA and cost of funds, so CASA has been very robust and the cost of funds is now significantly lower. So in that context, if you could just explain in terms of the margins for future. One, basically, we have seen some decline in the margin. I believe some part or the large part of it could be because of interest income reversals as well. So if you could just guide in terms of what is the kind of pressure on the lending yields that we are witnessing and basically the outlook for margins?

Sir, the outlook for -- when you are talking about the margin, I think you are talking about the NIM, right?

Yes, sir. Yes, sir.

So NIM, what I feel is anything, say, 3% or shade about 3%, I am very comfortable with, right? Number two is, there will be a pressure on the yield on advances, which we are now basically seeing in the market. Even a AAA-rated borrower, their request for any loan is not even 1 month MCLR or overnight MCLR. It is much below the MCLR as such. They're asking for a 3 months loan or a 6 months loan at something around 3.75%, 3.80%. So there will be a pressure on that. The question here is -- what I have basically strategize is, if we move more towards AA because in case of AAA, the risk weight is 20%; in case of AA, the risk weight is 30%. There is only a difference of 10 percentage point on the risk weight. And if we are able to get a good -- I would say that better pricing on a AA that will compensate more on that loss of 10 percentage point of loss on the risk weight. So with the 3% or 3.05% of the NIM, I think we will be quite comfortable in achieving whatever we have set the target for ourselves.

Okay. Okay. That is helpful, sir. Sir, other thing, if you could just help with basically the overall restructuring, including what has been invoked.

Sir, the restructuring is mostly in MSME. And whatever has been invoked in the corporate sector is what? INR 2,700 crores is the amount which has been invoked in the corporate sector. But major restructuring is happening in the MSME sector. In the corporate sector, what most of the eligible borrowers, what they have done is, instead of going for the restructuring, they have preferred ECLGS 2, and they get 20% of their outstanding as on 29th of February. And if they are not more than 30 days overdue in February 2020, they are eligible, and they are taking more interest in this ECLGS 2. And I think in our bank, we must have given ECLGS 2 to the corporate something around 20 customers. And more and more requests will be -- now of course, that the time is over right for the corporate -- sorry, the time is up to 31st March. Yes, so till the corporates of that 3 lakhs crore, which is -- which the government has put, so a lot of interest is being taken. And until now, I think the corporates has been used to the extent of 2 lakhs 50,000 crores.

Okay. Okay. Sir, if I may actually just try to check one thing, as you mentioned, obviously, in terms of the RBI guidelines, restructuring was allowed only for the corporates who had 30 days or less overdue as of Feb?

Yes.

Right. So there would be corporates who are sitting in SMA-1 and 2. And probably we have not seen for the system as well as for us a large quantity of slippages. So can we expect that corporate performance can be slightly volatile going ahead?

No, no. When you are saying that eligibility of SMA-0 for the ECLGS 2, that is in February 2020. Today, they are sitting in SMA-1 or SMA-2, but they were SMA-0 in February 2020. They are eligible for ECLGS 2. So what we have done is, we first took out the dump of February 2020 and [ saw that ] how many cases are eligible. And we approved those corporates even if suppose they had become SMA-1 or something like that now. And they showed the interest instead of doing the restructuring, they said that we will go for the ECLGS 2, where they are getting 20% additional. And for the bank also, it is safe in the sense that 20% is 0 risk. 20% is guaranteed by the government. So the bank also preferred to go with this route.

Yes. Sir, so I was just asking that on Feb 29, there would be borrowers who are sitting in SMA-1 and SMA-2?

They are not eligible.

Yes, they are not eligible for restructuring as well, right?

Yes.

So what happens to those borrowers? Because we have seen...

That also we are monitoring. And when I gave the figures, so some of these borrowers, they have become NPA as on 31st March. And then RBI gave a dispensation that if you have upgraded the net provision of 5% plus 5%. So INR 3,414 crores includes that also. These -- the borrowers which remained in SMA-2, that also we have taken. And suppose they have not paid the installment from September to December, so technically, they are NPA. There also, we have taken them in the pro forma SMA, NPAs. There may be cases where they have paid. And as per IRAC norms, they are not NPAs, and they are still SMA-2. So we are following up with them. And whatever is possible which we can do, we will do it. Like for instance, in case of the future growth. So in case of the future growth, if there is going to be a management case, and I think the possibility is quite bright because now high court has also allowed them. So if there is a change in management, so there will be no hit to the bank.

Sure. And sir, so that's -- I will ask my last question basically in terms of -- before that, I'll just thank you for a detailed insight and wish you all the best for the future. And it was really nice of you to give us the opportunity to host the call. So in my final -- before handing over you to the closing remarks, basically, last years, we have put in a lot of efforts, and we have done a lot of consolidation in our balance sheet as well. And probably the cost of fund is one of the lowest in the system now. Just in terms of your final closing remarks at this, it could include where do you see the sustainable ROAs in, not immediate quarters but probably in 1 to 3 years kind of a time, that would be very helpful, sir. And once again, wish you all the best for the future.

Sohail sahib, this question is so tough to answer because when you are basically involved in the consolidation of the bank, so 3 years down the road, if you look at now what will be the position, it is very difficult to answer right now. Because there are some -- many other things which are moving in the bank. So I got basically involved in those things. And I wanted to push those reforms in the bank, giving clear -- real focus to the compliance angle, then on the IT side. So I may not be able to give you a guidance what will be the ROA in 3 years' time. But somehow, it will remain at something around 0.5% to 0.75%.

Sure. Sir, that is very helpful. Basically, you have laid the foundation, and now it is on the next person who have joined us to build on to that foundation and that we have seen in the past as well in probably many other examples, not only in banking but overall in general life as well. Sir, thank you a lot for basically in terms of giving us this opportunity to host the call. If you want to add any other closing remarks.

I have nothing, and I want to thank all of you because being patient with this bank and also guiding us and also pinpointing the bank of wherever the bank was losing the track of. And I give a lot of importance to the analysts because they are not only analyzing the figures of one bank, they are analyzing the figure of the entire financial sector. Their in-depth and incisive idea about the financial sector is much more than even the MD of a bank. So I'm really thankful for all the guidance you people have given to me. I am thankful that you have been very, very patient with our bank. What -- regarding Central Bank of India, the only thing I can say is this bank is now on the move forward. This is the right time when the investors should look at this bank, that this bank is the right organization to put the money. They can test by doing small investments, but -- and test the water. I'm not saying that don't test the water. But as a banker with 37 years of experience, I can say that it has moved out of a mess. Thank you.

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