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

Ladies and gentlemen, good day, and welcome to Q3 FY '24 Earnings Conference Call of Central Bank of India, hosted by Antique Stock Broking Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Raju Barnawal from Antique Stock Broking Limited. Thank you, and over to you.

Thank you, Yashashree. Good afternoon, everyone, and thank you for joining Central Bank of India call. From the management side today, we have with us Mr. Shri. M.V. Rao, MD and CEO; Shri. Vivek Wahi, Executive Director; Shri. M.V. Murali Krishna, Executive Director; Shri. Mahendra Dohare, Executive Director; and Shri. Mukul Dandige, Chief Financial Officer. Now without any further delay, I hand over the call to the MD sir, for his opening remarks, post which we will open the floor for the question-and-answer session. Thank you, and over to you, sir.

Thank you. Very good afternoon to all of you. And especially for the participants who are investing time in our con call, I thank you once again. And just a quick recap. Just I would like to take you back to our con call of 20th October, when we have declared our September quarter results, wherein we have given the guidance. Just let me take you through the guidance for the December '23 and whatever the achievements we did, just I will go through. Business growth guidance we have given 10% to 12% for the December quarter; we are at 11.49% this time. Deposit growth, we have given 8% to 10%; we are at 9.53%. Advances growth we have given 14% to 15%; we are at 14.71%. CASA, we have given 50% with plus or minus 1%; we are at 49%, exactly is 48.98%. RAM corporate credit ratio, that is the trade book balance, 65:35, plus or minus 5%; we are at 67:33, 67% is the RAM and 33% is the corporate. NIM, we have given a range of 3.25% to 3.50%; we are at 3.28%. And gross NPA, we have given below 4.5%; we are at 4.5%. And net NPA we have given below 1.50%; we're at 1.27%. PCR, we have given a range of 93% to 95%; we are at 93.73%. Slippage ratio, we have given less than 1% on a quarter-to-quarter basis; we are at 0.34%. And credit costs, less than 1%; we are at 1.26%. Our CFO will give you the full details. Entire 1.26% is the proactive provisions what we made to strengthen the balance sheet. And return on assets, we have given 0.70%; we are at 0.69%. Cost-to-income ratio, 55% to 58%; we are at 56.91%. This is what we have achieved against the guidance what we have given for the December '23. Having said this, let me share our happy movements because this is 11th straight quarter where we have recorded our net profit. And for this quarter, our net profit stands at INR 718 crores. And for the entire whole previous financial year, we have recorded net profit of INR 1,582 crores. In these 9 months, we have recorded INR 1,741 crores. So this is the track record of our net profit. And coming to the credit book, INR 2.39 lakh crores because we are always trading with the higher rated accounts. So our credit risk rate stands at 63.26%. And CD ratio stands at 63.60%, that's why our LCR is 231%. And ROA is at 0.69%. NIM is at 3.25% and slippages, what I explained, 0.34%. Gross NPA is at 4.5%. Net NPA, 1.27%. Our CRAR, that is capital ratio, stands at 14.74%. So having given the broad highlights of our financial performance, now I would request my CFO to give the nitty-gritties of the numbers so that we can open our session for question and answer. Yes, Mukul, please?

Thank you, sir. Thank you so much, sir. So as MD sir has told, I would like to start with the key highlights. The total business growth on a Y-o-Y basis has been at 11.48% and the business has reached a level of INR 617,358 crores, out of which, the deposits have grown at 9.53% and reached a level of INR 377,722 crores. CASA growth has been at 4.81%, and total CASA deposits of the bank are at INR 184,542 crores. The advances grew at 14.71% to INR 239,646 crores. RAM growth was at 15.34%, and RAM advances reached a level of INR 160,445 crores. The noninterest income improved by 44.72% and reached a level of INR 1,330 crores, mainly contributed by the recovery in write-off accounts. The operating profit also registered a growth of 6.86% and reached a level of INR 1,931 crores. The net profit reached INR 718 crores, showing an improvement of 56.77% on Y-o-Y basis. And gross NPA was at 4.5%. Net NPA at 1.27%, which was down by 82 bps over same period last year. The ROA reached a level of 0.69% and the ROE was at 2.67%. As MD sir has already told, during this 9-month period, we earned net profit of INR 1,741 crores as against INR 1,011 crores that we registered during the last year's 9 months corresponding period. If we see the headline numbers, there is sustained improvement in all the numbers. The yield on advances has improved by 99 bps and stands at 8.94%. The yield on investments has improved by 4 bps to 6.40%. The cost of deposits and cost of funds has gone up by 83 and 89 bps and stands at 4.72% and 4.83%. The NIM is at 3.28%. So if we see, there is a drop of 57 bps. However, if we remove one-off item that was there in December '22, in that case, the NIM is lower by only 31 bps. The ROE has shown an improvement of 81 bps and is at 2.67%. The book value of share reached INR 31.37. Credit cost is 1.26%. However, it is all because of the additional proactive provisioning that we have done. Per se, there is no requirement of any additional provision to be done. The cost-to-income ratio has come down to 56.91%, an improvement of 11 bps. The liquidity coverage ratio is at 231.92%. And the net stable funding ratio is at 155%. The earnings per share is at INR 2.01. And the ROA stands at 0.69%. The total interest income showed a Y-o-Y growth of 16.26% and Q-o-Q growth of 6.23% and reached a level of INR 7,809 crores. The interest -- total interest expenses was higher at 35.69% on a Y-o-Y basis and 7.73% on a Q-o-Q basis to INR 4,657 crores. The net interest income, as I told, was down by 4.05% on Y-o-Y, but there was an improvement of 4.10% on Q-o-Q basis. If we remove the one-off item, in that case, it was positive on a Y-o-Y basis and also on Q-on-Q basis. The total income registered an improvement of 19.68% on Y-o-Y basis and 8.64% on Q-o-Q basis, and the total income registered INR 9,139 crores. The total expenses reached a level of INR 7,208 crores, which was 23.66% higher on Y-o-Y basis and 4.74% higher on a Q-o-Q basis. The operating profit registered an improvement of 6.86% on Y-o-Y basis and 26.21% on Q-o-Q basis and reached a level of INR 1,931 crores. The provisions and contingencies were at INR 1,213 crores, which was down by 10.08% on Y-o-Y basis. However, it was higher by 31.14% on Q-o-Q basis. The net profit registered a growth of 56.77% on Y-o-Y basis and 18.68% on Q-o-Q basis. The fee-based income was more or less same at 486%. However, the total noninterest income registered a growth of 44.72% on Y-o-Y basis and 25.35% on Q-on-Q basis, and the total noninterest income reached a level of INR 1,330 crores in December '23. Out of the total expenses, the interest expenses registered 35.69% growth on Y-o-Y basis and 7.73% growth on Q-o-Q basis. The operating expenses registered a growth of 6.42% on Y-o-Y basis, and they came down by 0.31% on a Q-o-Q basis. The total operating expenses were at INR 2,551 crores, out of which the staff cost was INR 1,664 crores. It was higher by 2.78% on Y-o-Y basis and 15.80% on a Q-o-Q basis, mainly because of the impact of the wage revision that has been signed, we have taken the full 17% costing and we have made the provision. The other operating expenses were at INR 887 crores for December '23, which was 14.01% higher on Y-o-Y basis. However, they were 20.94% down on a Q-o-Q basis. The provisions and contingencies, the NPA provision was at INR 727 crores, which was lesser by 14.37% on Y-o-Y basis and 62.31% on Q-o-Q basis. The provision on standard assets was at INR 69 crores this quarter compared to INR 179 crores in December '22. Other significant provision was on income tax at INR 391 crores as compared to INR 353 crores in December '22. Thus, the total provision was 10.08% less than December '22. However, it was higher by 31.14% compared to September '23. The gross NPA came down from 8.85% in December '22 to 4.5%. If you see sequentially, it came down from 4.62% to 4.50%. And net NPA came down from 2.09% in December '22 to 1.27%. Sequentially also, it came down from 1.64% to 1.27%. The sector-wise net NPA if we see, the total net NPA is 1.27%. Retail net NPA is 0.44%. Agriculture and allied activities it is 3.75%. MSME is 2.04%. And corporate and others is at 0.15%. The provision coverage ratio is 93.73%, and the slippage ratio is only at 0.34%. The capital ratios, as MD sir, has already told, our CRAR is at 14.74% with CET1 at 12.17% and leverage ratio at 4.91%. Business, I already told that the total business grew at 11.48% and advances grew at total 14.71%, out of which RAM growth was at 15.31%. If you see our credit risk-weighted assets are only at 63.26%, which is lesser by 3 bps compared to December '22. The bank has got a very well-diversified loan book in retail and other advances. The rated standard advances continued to be our focus area and our AAA, AA and A-rated advances are almost 78% of the total rated advances. The co-lending book, where we have -- we enjoy the first-mover advantage, it's -- the outstanding in co-lending book was at INR 9,575.95 crores in December '23. The investment book was at INR 153,102 crores as far as December '23 is concerned. And we were able to contain the modified duration and also the P.V.0.1. to 1.94% and 6.52%, and the treasury book was very well protected despite the fluctuations in the market. So this was all about the financial highlights of the bank for the quarter ended December '23. Now sir, if you permit, we can start with the question and answers.

We will now begin the question-and-answer session. [Operator Instructions] We have our first question from the line of Sushil Choksey from Indus Equity Advisors.

Congratulations on sustainable and a very brilliant performance on quarter to team Central Bank of India. I'm looking for a little guidance on Q4 and next 1 year, specifically from ROA and ROE advance. You may not speak much on advance, but direction towards retail book, specifically your home loan book, which is growing on a quarter-on-quarter basis. But based on your CASA, the traction can be much higher. Any view on that?

Sir, as far as the next year guidance is concerned, let us reach the March quarter, then definitely, we will be giving you the next year guidance also, the way we have given earlier. And then you also appreciate that whatever the guidance we gave, that is on dot, we are reaching to the target numbers. Having said that, regarding CASA and then improving the retail book, that is on our cards. And then the way we have projected our March '24 balance sheet, we are on the right track. We will be reaching the figures what we have envisaged. And then we also agree there is a scope for further improvement. And then our digital platform, which is now coming up, that is going to help us in a larger way. But what I told earlier in our quarter, that in this January, February, some of the products we will be rolling out, that will be much more helpful in accelerating our business on the retail front.

The digital which you mentioned, can you elaborate a bit what you mean by digital at our bank?

Digital, what -- the Cent Neo new project what we have taken up, already almost 12 to 13 months work has gone under. And then now products, we will be releasing one by one on the retail side, that is the end-to-end STP journeys and a lot of algorithms that were built up in the back office, where we can extend the loan seamlessly on the digital front for the customer, that is the larger picture I'm giving on that.

So it's like an arm within our bank which we do all the digital products for the bank itself, right?

Yes, yes, yes.

What kind of CapEx are we doing this, sir, for this?

CapEx, we have allocated almost INR 860 crores for our digital projects.

And what kind of recruitment would you have done specifically for this vertical, sir?

Almost, we have taken 110 or 112 IT guys, and we are placing them in a separate building rather than in our IT headquarters. There is a separate building we have taken for this transformation project. And they're all working in garages, and then a lot of products we have planned, and then one by one that we will be rolling out now.

Does this mean that the digital initiative is purely for retail business or it is for wholesale bank also?

No, no. It is for the entire wholesale bank. Our concept -- long back we've explained, our concept is to bring the Digi bank within the bank, that is the Cent Neo. And we will be catering to the needs of the digital native, not only on the retail front or liabilities, on the asset side, retail and also for the corporate. That we will be evolving in phases now.

Sir, what would be our undisbursed credit from a corporate perspective currently against the outstanding?

In corporate, we have sanctioned in line of almost INR 18,000 crores, but we are spacing it out because our guidance to the market is we will be maintaining 65-35, balance with plus or minus. So I know very well what type of corporate assets that is coming back and what type of assets have to pick up based on the risk weights what I would like to pick up. So although I have larger unutilized limits, but we are very selective in releasing the limits.

Sir, I can sense that the bank has done a good job on AAA and AA accounts, and 86% of your book comprises of the topnotch customers. I am sure you're doing sustainable and a very good business from a 5-year, 10-year outlook. Sir, similar way, in -- if I have to achieve that in detail, how far are we from current quarter? Will it take 2 quarters, 5 quarters to Central Bank to be visible on that business front?

Actually, only now we have to accelerate on visibility part, not to build up our book, that is on right track. And the targets what we have, we're achieving. The percentage of growth, that is also we are doing the way we have planned. But for the larger public, we have to accelerate on the publicity, that's all.

Sir, any guidance for FY '24, the current quarter, on ROE and ROA?

Already, we have given. For ROA is 0.75% we have given. And then ROE, I'm not having here in this.

Sir, in current round -- I'll ask my last question to Mr. Wahi. He has been quite accurate in guiding about treasury business. And what's his outlook based on all the noises which is being made in global market and domestic and various speeches of RBI governor?

See, in line with our expectations, the 10-year yield faced some resistance at 7.12%. So it has bounced back twice from 7.12%. Now it is 7.19% sort of numbers. And on the higher side, it has touched around 7.35%. So our guidance continues to be that it should strengthen in -- if not in Q4 of this year, but Q1 of next year, it should really break away the existence of 7.12%. So of course, noise is there. The governor said that in Davos that rate cut is not at all on the table. So we are also of the view that at least up to September, we are not seeing any rate cut, but the yield should soften after June. So that is expected. And we are prepared for that. And actually, this is a time to build some duration also. So this is...

Sir, then I'll just repeat the question, sorry about that. How do you see cost of funds despite our CASA at 49%, which is very sustainable and which is non-Metro as I see it over a number of years? So we have done a much better job than 99% of our banks in India of sustaining CASA and that also not from Metro Tier 1, Tier 2. So how do you see our cost of funds before we see what RBI enables in the system? And how do we see our pricing pattern on MCLR over a period of next 1 year?

Cost of fund right now is only 4.83%, sir. And we don't expect that it will shoot up now. [Foreign Language] CASA remains very, very robust. So now volatility in the rates also is not there. So more or less, Choksey ji, we don't foresee any further substantial increase in the cost of funds. And CASA percentages, we are able to maintain -- almost maintain our share at 49%. This particular quarter, we have already launched the CASA campaign. So we intend that we should go back to our CASA share of around 50%. In that case, the cost of fund will remain the same. MCLR also won't change much because it is also dependent upon the deposit rates. So only 5 bps here and there maybe there.

[Operator Instructions] We'll take our next question from the line of Rushil Dedhia from Antique Stock Broking.

So, sir, my question is on the yield. Coming to the first question, yield on investment declined sharply by 15 bps quarter-on-quarter. So what will be the reason for that?

See, if you -- yield on investment for our quarter ending September '23 was 6.55%. And if you include the yield on investment including our profit, it was 6.73%. So now it is 6.75%. So it has not gone down. In fact, it has marginally increased, yield on investment.

And sir, yield on advances. So that was quite strong quarter-on-quarter, 32 bps. So can you throw some color on that? And what percentage of the loan book is still due for repricing?

No, per se, see, let me give you the figures. Almost 51.06% of our loan book at INR 114,356 crores is on RBLR. So there, what happens, the 100% rate transmission would take place. The 31.90% of my loan book at INR 71,429 crores is on MCLR. Where -- as and when the rates -- I mean, the reset becomes due, then the rate of interest gets changed. However, since there is no increase in the repo rate in the last 2, I mean, monetary policies, so there will not be any substantial increase or anything. In the normal course, whatever, I mean, loans come for reset, there the rate will increase because MCLR has increased by 5 bps...

Ladies and gentlemen, we have lost the management connection. I request you to stay connected while we rejoin them. Ladies and gentlemen, we have the management team back on the call. Sir, please go ahead. We have Mr. Rushil Dedhia on the call.

Yes, sir. My question was regarding the expansion of yield on the advances front. So you were just giving the idea for the repricing of the loan book.

Yes. So as I told you, 51.06% of our loan book is on RBLR, where the rate transmission would happen as and when the repo rate increases, right? So that has already happened. 31.90% of our book is on MCLR. So where periodically, if it is a 1-year MCLR, so then the -- after a period of 1 year, the accounts will come for reset of interest. So the recent changes in MCLR is only by 5 bps. So not much of impact on account of reset. It is a regular phenomenon. The MCLR-based accounts would come for reset at the time of their review or reset.

Okay. So sir, my next question is on the co-lending side. There has been a drop in the loan sanction in the retail segment. So can you throw some light what would be the reason for this? And have you tightened some filters in the retail segment?

There is no such a specific reason. We will go into the details because our target what we have given to the department is INR 10,000 crores for December. Probably for -- since they have reached INR 9,575 crores, that maybe the reason of something. We will go into that. As such, on co-lending side, we have no major issues.

[Operator Instructions] We have our next question from the line of Sarvesh Mutha from Antique Stock Broking.

Sir, my question is on the special mentioned accounts. So over there, we are still -- if we add up SMA-0, 1, and 2 books, we are still above [ 6%]. So there is some gradual improvement on quarter-on-quarter, year-on-year basis, but still, we are running a very high level of SMA book as compared to peers. So your thoughts on this, sir.

See, in our disclosure, we will give entire SMA book. We are not restricting only above INR 5 crores, that is number one. And we are including below INR 5 crores, that is all the accounts that is SMA-0, 1, and 2, that is the figure what we are giving. If you want to gauge the actual quality, you can go to the slippages part. That gives the actual grip what is there on the collection side. So SMA-0, that is a normal phenomenon. A lot of amounts will come and move back, roll back to the standard category. And then, SMA-1 and 2, that we have some restructured book numbers also we have given in the earlier one. These are all the things in a normal way we are handling. It is not having much concern or much stress in this. There is only some temporary cash flow mismatches do happen here.

Okay. Okay. And sir, on provision coverage ratio, we are at 93.7%. Do you think we have reached a peak PCR ratio? Or you still intend to make further provisions?

See, basically, despite the 93.53%, we are still -- the net NPA ratio is still at 1.27%. So we intend to bring it below 1% possibly in the next quarter. So for that, we need to continue doing additional provisions. So in that case, the PCR will further improve, and it will reach the level of around 94%, 95%.

Okay. Okay. And sir, a question on shareholding. So promoter shareholding is more than 90%. Any thoughts on that? Like you're seeing other PSU banks reducing their promoter shareholding. What's your view on that?

From our side, we have submitted our proposal for OFS. We are just waiting from the government their response. Once that happens, then -- let us see how their response will be. But we are pursuing for the OFS.

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

Sir, my first question is on our standard restructured book. So if I see it, it has increased in last quarter, specifically in MSME segment and retail segment. So can you talk about that?

These are all the accounts pertaining to Manipur state, where there was a disruption and because of which the branches were closed, the overall activity suffered. And so these accounts were permitted to be restructured. So those accounts have been restructured. Other than that, there is no much addition in any other restructured accounts.

Okay. So we have taken all full amount in this quarter or we have deferred it?

Existing accounts only that have been restructured [indiscernible].

It is existing accounts, full amount.

Okay. Okay. So whole impact is because of Manipur?

You're right.

Sir, next question is on fee-based income. So if I see, we have done really good on that front on fee-based income. But if I see your LC, BG commissions, fees is drastically low as compared to historically, so any specific reason why that was very low? On rest of the parameters, we have done really great.

LC, BG commissions, basically [Foreign Language] INR 63 crores, INR 65 crores, INR 40 crores, INR 45 crores, like that, it is hovering. December, it has come down to INR 15 crores. What we have done is we want to improve this, I mean, LC, BG commissions. And for that, what we are doing now is that we have centralized the ForEx operations. Because -- and we have centralized the operations at head office level. From there, we will be monitoring the issuance of BGs and LCs and other things. Because many a times what happens, these -- I mean, customers, if they go to branches, they may not know the intricacy. So with the centralization of ForEx operations, we expect that we'll be substantially able to improve the commission.

And added to that, another main reason was we were only asking our corporates to use their fund-based facilities rather than non-funds because many of these high, good rated accounts, their commissions are at the rock bottom. So instead of making them to avail LC, BG, we are asking them to use the fund base by converting them and then offering the lower rate of interest. That's how some of the accounts we have traded off.

Okay, sir. Got it, sir. Got it. And sir, if you can give me a number, expected number of PSLC for next quarter, like approx. ballpark number?

PSLC, we don't intend -- because we sold -- we did the PSLC sale in the first quarter only. And the income is coming as amortization. Out of that, PSLC and other income, majority is out of recovery in written-off accounts.

Okay. Okay, written-off accounts. Okay.

PSLC, we don't intend to really have any number in this quarter.

Okay. Sir, my last question, you mentioned your new digital team. So what is the total cost you are expecting on this whole new department?

There are a lot of projects that are running under this transformation project, per se, whether it is on the digital lending platform, our integrated customer care, on the collection management systems, or our mobile banking, omnichannel and then Internet banking revamping. So a lot of supply chain financing, wealth management modules. There are so many things that are running in this megaproject. So overall, INR 860 crores is the envisaged budget. That is for 5 years' time.

[Operator Instructions] We have a question from the line of Sushil Choksey from Indus Equity Advisors.

Sir, you just replied to the previous speaker. Based on all the technology initiatives which you had mentioned to me as well as the previous participant, can our cost of income and cross-selling lead to the current number towards 50% in a year's time or will it take 2 years' time?

CASA number or cost-to-income [Foreign Language]

Cost-to-income. I'm sure that you'll make a lot of income out of cross-sell as well as digital initiatives. But will our cost-to-income show a sign towards 50%?

Definitely, sir, it will. Because, see, the investment has happened. The expenses are being booked as we put to use some of these assets. However, the business will start coming in the times to come, so thereby reducing the cost-to-income ratio definitely.

Okay. Sir, you highlighted about OFS and you have sought the permission. So I understand that based on the current performance, the profit which we are retaining and expected profit in the next 12 months, on the current borrowing program and CD ratio, you don't need any further dilution or equity to raise, which may happen in the market, but you're asking government to reduce. That's a brilliant move. So can you speak a little further. I'm not getting from an angle of OFS, whether granted or not granted, your thoughts on the process.

Yes. We are a little bit confident on this issue regarding the OFS. Otherwise, there is no point in diluting further where actually, my capital position is very strong and then my liquidity -- adequate liquidity, we are maintaining. And the credit growth, what we are envisaging for the next year, and the capital positions will be adequate for me without going into the market, whether through the rights of QIP. Instead of diluting the equity, first, we would like to see that float in the market has to improve. For that, this is one way what we are exploring so that there won't be any dilution on the EPS. And at the same time, we would like to see that float in the market to move on. This is how we are working.

Okay. And secondly, sir, I saw a piece in today's business paper about some interest, which you have shown in COC, on insurance vertical business and which you have commented that you have participated. Can you speak anything about it?

Right at this moment, I can tell you that we have submitted our EOI, expression of interest.

Okay. It would be a brilliant move, sir, if you are lucky about it because I think with CASA at 49 and cross-sell, bank can do wonders.

[Operator Instructions] I would now like to hand the conference over to Mr. Raju Barnawal for the closing comments. Over to you.

Thank you, sir, for giving us this opportunity to host the call. I'll hand it over to you for your closing remarks.

Thank you. Thank you very much for all the participants for investing their time. And then let me assure you from our side that we will continue to achieve the numbers what we have given to the market. And going forward, the way bank is moving and then the opportunities that may be -- that will be emerging, that bank will do well. And then whatever the issues that were there, that is the past for the bank, and we are on the growth path. Thank you.

On behalf of Antique Stock Broking Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.