City Union Bank Limited (CUB) Earnings Call Transcript & Summary

Thank you. Hello, everyone. I welcome you all for 3Q FY '20 Earnings Call of City Union Bank. On this call, we have Dr. N. Kamakodi, MD and CEO of the bank; Mr. V. Ramesh, CFO. Thank you, sir, for the opportunity of hosting you on this call, and over to you now for your opening remarks. Over to you, sir.

Good afternoon to all. Dr. Kamakodi here. Hearty welcome to all of you for this conference call to discuss Q3 and the 9 months period ended 31st December 2019 financial results of City Union Bank. The Board of Directors adopted the unaudited results today at Chennai. As you may know, we had our 116th Foundation Day celebration on 23rd November 2019 at Chennai, in which honorable finance minister participated. The function went off well. In that function, we released our new app called CUB All-In-One, which has voice interaction features in 4 languages for the first time in the industry. The 4 languages are Tamil, Telugu, Hindi and English. You can download from Google Play store and try even if you don't have account now. Even the noncustomers can interact. The Apple version is getting ready. Coming to the numbers, the highlights of Q3 FY '20 and 9 months FY '20 is as follows. We have recorded a growth of 12 percentage in deposits. Advances grew by 10 percentage, which is slightly below our expectation of growing between 15% and 18%, what we shared during the beginning of the year. The business grew by 11 percentage and presently stands at INR 73,640 crore. The growth in operating profit for 9 months period was 12 percentage. And for Q3 FY '20, it is marginally almost flat growth by just 1 percentage. PAT recorded a growth of 13 percentage for 9 months period and 8 percentage for Q3 to Q3. When we started the current financial year, we shared our expectations for the current financial year '19-'20 as follows. We expected credit growth to be between 18% and 20 percentage for the whole year; the slippage ratio to closing advances to be between [ 1.75% ] and 2 percentage for the whole year; ROA should be at 1.5%, 4.6% level. Our net interest margins would have a downward pressure; and the cost-to-income ratio in the range of 42% to 44 percentage. And there would be -- there could be quarterly aberrations, but, overall, annual figures should be on the expected line. This is what we discussed during the beginning of the year. When we shared that expectation, it was based on the last year growth rate of 17 percentage for the industry. And the expectation of the current year credit growth for the banking system was at the 13% to 15 percentage. We had traditionally grown by about 3% to 5 percentage over and above the progress of the market. This is what we have been consistently doing. The banking sector growth rate, which was at 13 percentage during March 2019, started coming down to 12 percentage, 9 percentage and 7 percentage for Q1, Q2 and Q3, respectively. Banking sector growth rate currently stands at 1 percentage for credit when our credit growth is about 10 percentage. Asset only, we normally record a 3% to 5 percentage credit growth over and above the overall industry. About 3 to 4 banks have shown growth rate in the range of 13% to 20 percentage, where the growth mainly comes from the retail consumption. And a couple of them have shown good growth in the corporate segment. We are not in those segments of both the corporate and retail. We don't want to push growth in SME now. When the trade-off is between credit growth and the future asset quality, our vote is for quality. This reduction in the growth rate has given us a lot of headwinds to fight against. We are endlessly waiting for the better general economic environment like you all. Expecting better growth rate and lowering NPA. The downward pressure is not showing any relief. It is almost staying where it was during the last call, also showing some incremental software mobility. In fact, it is getting tougher compared to the situation that was in the previous quarter. But -- okay. We expected to close the financial year 2020 with about INR 40,000 crores of advances and budgeted about INR 800-plus slippages working out to about 2 percentage slippage ratio to closing advances. So though there is not much variation to quantum, lower closing advances will push both slippage ratio and the net NPA higher mathematically. The asset quality, by and large, is on the expected lines. The slippage ratio to closing advances for the 9 months FY '20 is 2.48 percentage and for Q3 is about 2.72 percentage. The spike in slippage ratio is mainly due to the sluggish advances growth, as we discussed above. During Q3, one bulky account, which we discussed in the earlier con call from a paper industry, is classified as NPA. The exposure to this paper account was about INR 71 crore. It is natural that if the general economic performance is not good, even good customers start facing trouble over a longer period of time. The NPA recovery during Q3 FY '20 was INR 150 crore. Live recovery was INR 128 crore, and technical return of account territory was INR 22 crore. And 9-months period, it was INR 342 crore, comprising of live recovery of INR 254 crore and technical return of recovery of INR 87 crore. We are putting a lot of effort on the NPA recovery. It is not happening at the pace we would like to have it. Fortunately, we had an upgradation of an educational institution NPA from the advance money received that they got for a sale deal. If the advance money had not come, NPA recovery would not have been so much. These educational institutions have a lot of delayed receivable from the government, particularly for the reimbursement of tuition fee and all the -- which the government rebates for [indiscernible] and [indiscernible] students. When delay of our payment happens even from the government, there is nothing much what we can do. The -- and this, we are able to see the receivable from the government aspect across multiple lengths. But we are not giving up. The pressure is not showing any release. The NPA recovery is going to be a major lever, determining how we are going to maintain our profitability and efficiency ratios like or ROA, ROE, cost-to-income ratio and net NPA ratios in the absence of our availability of lower growth and the not-so-favorable economic condition. The gross and net NPA stands at 3.5 percentage and 1.95 percentage, respectively, as against 3.41 percentage and 1.9 percentage last quarter, which means an increase of about a 9 basis points sequentially in gross and about a 5 basis point rise in the net NPS. Net interest income for 9 months period has improved to INR 1,256 crore as against INR 1,191 crore in 9 months FY '19, recording a growth rate of 5 percentage, which is achieved mainly through improvement in the CD ratio. The operating profit for 9 months in the current year is INR 1,006 crore as compared to INR 900 crore last year for the corresponding period, mainly on account of improvement in the other income, especially treasury -- especially trading by taking being advantage of favorable yield movements. For 9 months FY '20, the domestic treasury income was INR 109 crore against INR 21 crore during the corresponding period last year. The yield moving up is reducing the chances of profit booking through treasury operations. Expenses cannot be reduced beyond limit. Reduction in the tax rate is the only good news in the current time, which has helped us to show better numbers. Operating expenses increased as usual. And hence, cost-to-income ratios shows upside when compared to second quarter FY '20. The cost-to-income ratio stands at 42.7 percentage for the 9 months FY '20 and about 45.85% for Q3 for the current financial year. The 9-month period is almost in line with the numbers what we shared during the beginning of the year. We had about 45 percentage plus cost-to-income ratio for 2 quarters during financial year '13, '14, but it subsided subsequently. During the current quarter, we had about INR 21.63 crore profit from the treasury. Write-off recovery also plays a major role in determining the cost-to-income ratio. We are working hard to maintain cost-to-income ratio as per our track record. Net profit for the 9 months stands at INR 572 crore as compared to INR 508 crore for the corresponding period last year, showing a 13 percentage growth. It is achieved mainly due to the reduction in the tax provision. And the total benefit of INR 63 crore is expected on tax expenses in the current year due to the reduction in the tax rate. ROA for the 9 months stands at 1.61 percentage, and net interest margin is at 3.99 percentage, and cost-to-income ratio is 42.70%. Almost all these numbers are in tune with the projections, which we shared with you during the beginning of the year. The net interest to margin is stabilizing on account of increasing CD ratio, particularly average CD ratio sequentially. We still have a small headroom there. We are giving our best efforts to maintain the track record, whatever we have built over a period of time. As we have been discussing in our con calls, the top 4 accounts take care of about 90 percentage of the -- our total security receipts, SRs. We have received a sum of about INR 11.62 crore during the first quarter and INR 10.53 crore during the second quarter. And during third quarter, we have received about INR 17.93 crore. We have also received around INR 26.78 crore in the Q4 till date, which will be accounted in the next quarter. Since the repayment terms goes up to 2022, we expect that there will be cash flows continuously. The outstanding SR from 31st December 2019 stands at INR 285 crore compared to INR 325 crore in the March 2019. And the highest SR balance was at INR 375 crore during FY 2019. The continuous inflow is seen there. As told in the earlier quarters, we are recommending our SME customers to use RBI dispensation on restructuring. During third quarter FY 2016, standard accounts were restructured to the tune of INR 87 crore. As of 31st December 2019, total outstanding restructured account was 133 in numbers, amounting to INR 200 crore. RBI has also extended deadline to December 2020 based on the government request. We will be closely monitoring the requirement for the customers and all. It is in tune with our policy, what we have been shared with you in the past. And we have not sold any more assets to the ARC in the current quarter. To sum up, overall, the -- things are definitely -- though the headwinds are there, we are trying our best to maintain the consistency in our results. And we are at -- the guard has been kind to give -- support us in our endeavor. We are working harder to maintain our ROA, ROE and all the current band, whatever we have shared with you. And even if the growth rate is muted, the -- let's say, use for -- the deliveries like improving the written-off NPAs and dollar there, though they are not fully in our hand, we are making our best attempt to have those things, so that we'll be efficient to maintain consistently in that. By God's grace, we hope that things would be at different level. Despite headwinds from various factors, we are giving -- doing our best efforts to maintain our efficiency and profitability ratios and leaving the rest to the almighty. [Foreign Language] There is nothing more we could do apart from giving our best efforts to get all these factors to get the best results. So with these few words, I would like to give the mic to our CFO, Mr. Ramesh. After that, we will once again discuss the questions. So overall, situations are tougher. But the -- there are certain levers gargling. Things should be working in our favor. We are giving our best efforts, and I hope things will improve as you move forward. And let us hope for the best quarter. Ramesh, please.

Thank you, MD, sir. I'm Ramesh, CFO. Good evening, everybody, and thank you for attending the City Union Bank's earnings call of Q3 FY 2020 for 9 months FY 2020. Now let us get into the details of the third quarter and 9 months period ended results. During the period, our Deposits have increased by INR 4,308 crore from INR 35,504 crore to INR 39,812 crore, registering a growth of 12% on a year-on-year basis. Similarly, Advances improved by INR 3,191 crore from INR 30,637 crore to INR 33,838 crore, translating into a 10% growth. Thus, the total business grew by 11% on a year-on-year basis and stands at INR 73,640 crore. CASA has recorded a growth of 10% in absolute terms by INR 825 crore from the INR 8,470 crore to INR 9,294 crore. The share of CASA to total deposits remains at 23% for Q3 FY 2020. CA and SA portion both increased to 10% on a year-on-year basis. The cost of deposits remained at 6.17% for both the Q3 FY 2020 and Q3 FY 2019. Cost of deposits for 9 months FY 2020 was 6.22% versus 6.13% in 9 months FY 2019. And the yield on advances for Q3 FY 2020 stands reduced to 10.73% as compared to 10.96% for Q3 FY 2019. The yield on advances was at 10.82% for 9 months FY 2020 versus 10.89% during corresponding period last year. The net interest income for Q3 FY 2020 has improved marginally from INR 418 crore in Q3 FY 2019 to INR 427 crore in Q3 FY 2020. Net interest income for 9 months FY 2020 improved by INR 65 crore from INR 1,191 crore to INR 1,256 crore. The net interest margin for Q3 FY 2020 has declined to 3.96% from 4.41% in Q3 FY 2019, which is in line with our expectation of contraction in our earlier con calls and also due to a reduction in CD ratio from 86% to 82%. Net interest margin for 9 months FY 2020 was at 3.99% as against to 4.32% for 9 months FY 2019. The noninterest income of the bank in Q3 FY 2020 has increased to INR 142 crore as compared to INR 120 crore in the corresponding quarter, mainly on account of increase in profit on trading of securities. The noninterest income for the 9 months period ended has improved by 36% from INR 368 crore in 9 months FY 2019 to INR 501 crore in 9 months FY 2020. The treasury profits comprising both the domestic and product segments increased by 100% from INR 21 crore in Q3 FY 2019 to INR 42 crore during Q3 FY 2020. For 9 months FY 2020, income from domestic and ForEx treasury improved from INR 61 crore in 9 months FY 2019 to INR 165 crore in 9 months FY 2020. Suit recoveries for 9 months FY 2020 has improved to INR 87 crore from INR 52 crore in 9 months FY 2019, registering a growth of 67%. Operating expenditure has increased by 13% in Q3 FY 2022, INR 261 crore from INR 231 crore incurred in the corresponding quarter last year. For 9 months FY 2020, the operating expenses increased to INR 750 crore from INR 656 crore in 9 months FY 2019. The employee cost increased from INR 93 crore to INR 113 crores on Q3 to Q3 basis, and it increased from INR 273 crore in 9 months FY 2019 to INR 327 crore in 9 months FY 2020. The other operating expenses increased from INR 138 crore in Q3 FY 2019 to INR 148 crore in Q3 FY 2020. For 9 months FY 2020, it was INR 423 crore versus INR 383 crore in 9 months FY 2019. The increase was on account of general increase in rents, advertisements, telephones, et cetera, et cetera. Thus, cost-to-income ratio increased to 45.85% for Q3 FY 2020 from 42.96% in Q3 FY 2019. For the 9-month period ended FY 2020, the ratio was 42.7% as against 42.11 % for 9 months FY 2019. The operating profit for Q3 FY 2020 increased marginally to INR 308 crore from INR 307 crore in Q3 FY 2019. For 9 months FY 2020, the same has increased -- improved by 12% to INR 1,006 crore from INR 902 crore in the corresponding period last year. For Q3 FY 2020, the total provision made was INR 116 crore, a decrease of 10% compared to INR 129 crore in Q3 FY 2019 on account of reduction in IT provision through the tax provision. The details of provision met during the Q3 FY 2020 is as follows: provision for NPA, INR 78.5 crore; provision for income tax, INR 35 crore; provision for standard assets, INR 6 crore; provision to turn back, INR 8 crore; provision towards others, restructuring, INR 4.5 crore. That's totaling INR 116 crore. For 9 months FY 2020, the same has increased to INR 435 crore from INR 394 crore in 9 months FY 2019 on account of increase in slippages as also movement among the NPA assets. The details of provision made for the 9 months period ended is as follows: provision for NPA, INR 320.50 crore; provision for income tax, INR 130 crore; provision for standard assets, INR 11.25 crore; provision for restructuring assets, INR 4.40 crore; provision towards depreciation to turn back, INR 32 crore; provision for other, INR 0.55 crore. Thus, totaling INR 434.70 crore. Thus, profit after tax for third quarter has increased by 8% from INR 178 crore in Q3 FY 2019 to INR 192 crore in Q3 FY 2020. For 9 months FY 2020, PAT registered a growth of 13% to INR 572 crore from INR 508 crore in 9 months fiscal year 2019. Return on assets stands at 1.57% for Q3 FY 2020 as against to 1.68% for the corresponding quarter last year, while the return on assets for 9 months FY 2020 stood at 1.61% versus 1.65% for the corresponding period last year. The return on equity stood at 14.58% for Q3 FY 2020 against 15.61% for Q3 FY 2019. Similarly, for 9 months FY 2020, return on equity stands at 14.96% versus 15.35% in last year corresponding period. The capital adequacy ratio stands at 15.41%, of which core CRAR at the 14.86% for 9 months FY 2020. For Q3 FY 2020, the gross addition to NPA was INR 229 crore as compared to INR 166 crore in Q3 FY 2019 and INR 200 crore in Q2 FY 2020. For 9 months FY 2020, the total slippages stands at INR 630 crore as against to INR 428 crore in corresponding period year 9 months FY 2019. Accordingly, gross NPA for Q3 FY 2020 stood at INR 1,185 crore versus INR 892 crore in Q3 FY 2019. And gross NPA ratio stands slightly increased to 3.50% from 2.91% last year. The net NPA stood at INR 649 crore, which is 1.93% of net advances, as against 1.74% for 9 months FY 2019. We have not sold any assets to asset reconstruction companies during this quarter. With this, I conclude, and over to you for questions.

[Operator Instructions] The first question is from the line of Darpin Shah from HDFC Securities.

So first question is, if you can help us understand how your SMA 1 and 2 has moved over the last quarter. And do you see any stress similar to this quarter, which we have seen now in large accounts, which has slipped? So any other account which we see under stress?

The -- in fact, we had discussed about the SMA 2 number during the last quarter, September con call. The -- currently, the SMA 2 numbers are almost, like, say, around -- staying around 6 percentage and it is staying at that particular level for quite some time. Earlier, about a couple of years back, it even went up to 12 percentage. And they have in the front, they have double digits, they have come under, they are stabilizing at around 6 percentage. As we used to say in the past, don't look too much into those splitting and all. Finally, we will give you what is finally going to happen. So in that way, basically, the -- there is no incremental or alarming level of increase in the SMA 2 numbers at all at this point of time. So be it. But the issue is as the -- what you call general stress in the digital economy, if it stays at the same level, costs going down. The propensity of the, let's say, accounts, particularly which are running at the weak margin or less margins and all, they will have increased the propensity to get into the run side of our line. That is -- while in fact, the -- during the beginning of the year, our expectations was that things will be stabilizing after the second quarter and third quarter and fourth quarter, and our numbers will be much better and all. Unfortunately, we are not able to see things improving as you move forward. And that's why the incremental pressure and stress fee's there. And we are also, like everyone, praying for the economy to get better. And until then, we are not in a position to assure you that things will improve and all. I don't want to give any such a futuristic comment and all. But what we can definitely say is that things are staying, let's say, likewise they were in the previous quarter. But things are not getting better, and the propensity for things to get into the headwinds are still tight. This is what I want to give.

And any stress account, which you're seeing this large stress account, if you have anything?

See the -- even if I don't have anything, which, I will say for example, I was expecting about the sharing about this paper account for almost 3, 4 quarters.

Correct, sir.

So it died only after 3 quarters of our initial, what do you call upper hand. That's why I don't want to write -- I mean, what do you call guess before things happen. What I can say is that like I -- the -- in terms of percentage, whatever stress level and are staying as they were in the previous quarter. The machine, let's say, for some of these things are able to hold on for a few more quarters than we had anticipated. I don't want to, let's say, like give you a number or anything like that. Overall, slippage numbers, I still feel it will be around the same number for what we have been trading over a period of time.

Okay. And then the second point is that you are correct that you have received around, say, INR 18 crore, INR 19 crores of SR recoveries in this quarter, and in 3Q and around INR 26 crores until now for the fourth quarter?

Yes, I think I said that.

Okay. And does it mean that has led to a write-back in investment provisions this quarter of INR 8 crore?

Precisely, precisely.

The next question is from the line of Kashyap Jhaveri from Emkay Investment.

A couple of questions. First, on the cost side, if I look at the employee strength over the last about 4 quarters, they've gone up from roughly about 5,400-odd employees to about 5,800 employees. But our quarterly employee cost has gone up from about -- sorry, about INR 90-odd crores to almost about INR 115-odd crores. So it seems like that average cost per employee, there is a significant high double-digit increase. So is there anything -- any other provision in this number of INR 113 crores? Or the general salary increase has been in...

Yes, it has some provision for the, what do you call, the encashment and all, which will be given towards the year-end. And some incremental provisions for the leave encashment and other things which are related to the actuarial valuations. Since in the earlier quarters, you had some amount of softening. Incremental provisions had been asked by the actuarials for the, I mean, future benefits -- future employee benefits.

INR 113-odd crores per quarter, what would be that number in first 9 months?

Pardon?

In first 9 months, where the average cost has gone up to about INR 110 crores-plus per quarter, what would be that number of extra actuarial provisions that we would have done? Will it be at about INR 10 crore, INR 15 crores?

Yes. Something like that, something like that, something like that.

Okay, okay. The second question is on your gold loan. There is a 57% growth in retail gold loan. If you could, one, give breakup between volume and value. And two, I mean, we can't see similar kind of growth in agricultural gold loan also despite the fact that there has been a significant increase in, one, the gold price as well as the fact that monsoon has also been really good.

See the one major item, which were also affecting us adversely, was that interest to subvention and given by the public sector banks for gold loan. The -- for example, people had -- let's say, for example, they had multiple gold loans at multiple banks getting the benefit of the interest of that. Our debt to the interest to subvention, basically, we need incremental all the time. When the -- yes. The -- when that benefit stopped, we started a campaign in the what do you call, gold loan, particularly in the rural and the semi-urban areas, which are funded from the -- we started somewhere about late October, early November, about INR 200 crore incremental goal loan had happened.

So what I'm saying is that the same, let's say, if -- I mean, year-on-year, particularly gold prices being up itself, should have driven agricultural gold loan also slightly upwards, but there is actually a decline over there?

In this particular item, it has, let's say, more things came in the nonagricultural gold loan also.

Okay. So it's basically a bit to do with classification as to what kind of growth in agriculture...

Not exactly. You can give gold loan on a self-declaration basis up to 1 lakh. When the requirement across is 1 lakh plus, you have to, let's say, you require the document -- to be classified as agriculture, you need documents and all for making that happen. So that's why there are multiple checks and balances and both on regulations and also on the government, I think they are sending repeated signal to ensure that whatever gold loans is given, whether it is given as an agricultural loan, the end user has to be properly monitored. So in that basis, there are a certain amount of -- it is not as free as it used to be in the past.

Okay. Okay. And last question is on your housing loan, including the commercial real estate. If I look at commercial real estate now is the same size as our retail home loan at about INR 2,490 crore rupees. Now this number has grown at like 60% over last year, but retail home loans have grown at just about 11-odd percent. So one, if you could explain this slight disconnect in the number? And two, I mean, we have heard conference call of one of the large housing company, which is focused on Tamil Nadu? And what they say that the real estate market in Tamil Nadu is sort of very weak over the last about almost 2 years now. So one, is commercial real estate growing at like 61%? And two, in light of that, retail home loans growing at just about 11%.

In fact, we had discussed about this in one of the earlier con calls. The major contribution of the discrepancy is from the reclassification of lots of business loans, which were given as other secured overdrafts on the properties. So it's -- they are actual business loans since the, let's say, where we -- for the ease of doing that activity instead of, when the even size are too small instead of going it into the -- too much of other formalities, we have given them as, let's say, secured overdrafts, which have been reclassified as our commercial real estate, which we were discussing on our earlier con calls.

So the borrowers here are the developers, or they're necessarily where load has been given against...

No, no. There is absolutely not to the developer -- it's a -- they are basically an original commercial loan, which needs to be reclassified.

Okay, okay. And just one general comment on housing market in Tamil Nadu?

It's a -- I mean, the same as what it was, say, 3 or 6 months back.

So it sort of continues to be sort of weak versus, let's say, India average?

The -- particularly, it's location-specific. Particularly, in the outskirts of Chennai and all, you have a lot of unsold inventories and the people are -- and it is also specific to the individual builders. People who are having lower number of units and reasonable, let's say, what I call reputation and all are able to sell there in their behalf. But it will take the seeing things in a better way. It's not, let's say, anywhere in the near future.

The next question is from the line of Bunty Chawla from IDBI Capital.

In the starting con call, sir has mentioned that the NIMs pressure, downward pressure, will continue going forward also. If I see Q-on-Q basis, there has been slightly improvement in the margins also after this [indiscernible] of CRRs, specifically on MSME lending. Are we still seeing that there should be downward pressure on the margins? Or as you -- or you can share your guidance on that? And the impact of the CRR on our books for the next 6 months?

See the -- I mean, I'll divide the question into 2 parts. Firstly, to answer your question on the NIM. This improvement in the NIM is, to a greater extent, because of your improvement in the CD ratio. And we have some minor improvement on, let's say, minor headroom available on the CD ratio on the positive side. On the negative side, since you have every bank sitting on the surplus liquidity, the yield pressure is here for real, for at least some more time. So we cannot totally -- I mean what I'm trying to say is that you are not going to see the same net interest margin as what you have seen in like [indiscernible] what you saw a couple of 3, 4 quarters earlier. So we are doing our best to manage, let's say, on both this age. But the headwinds are there. There is nothing to support our tailwinds to see the net interest margin going up. This is our net interest margin side. So we are trying our best to get the expected divestment interest margins. We are making our own efforts. Coming to your question on the CRR, it is going to be on the incremental MSME lending, what we are going to make. And it's available for the next 2 to 5 years. Let's say, it once again, it depends, let's say, I don't have any back up calculation now. Here, for example, if I make it maybe over a period of next 6 months, benefit is about, let's say, INR 100 crore whatever, which could add about INR 4 crore to the bottom line. Let us wait patiently to see how things firm up and how they are going to help us.

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

Compliments for the sort of numbers. Sir, a couple of questions. One is on the asset quality side. So if you can tell us the recovery breakup. So how much it was driven by the -- any particular account?

See about INR 50 crore to INR 60 crore came from the upgradation of one educational loan.

Okay. INR 50 crore to INR 60 crore.

Okay, [ 50-60 ] NPA in the first quarter. Then the other, let's say, the other recovery plus technical rate up, we crushed INR 100-odd crore during the second quarter. I mean, second quarter. But leading this account apart, it once again, came down to about INR 82 crore or INR 83 crore. [indiscernible]. So this major upgradation came in handy. But what I'm trying to say is that we have identified accounts. We are trying to attack from the [ oil front ], but the legal system is not fully supporting us because of the first reaction and all, you need to get the physical possession for which the approval from the district collectors and district magistrates are necessary. There are gaps at multiple places, which are beyond our capacity to handle, but we are making our best attempt to get everything together so that whatever we are seeing on the other side because of muted growth, we would like to compensate -- I mean, basically, this lever our balancing can be done for, say, next 3, 4 quarters, so that before which you -- the expectation is that you will start feeling the improvement in the economy. So it is basically a type of working across various directions.

All right, sir. And sir, slippages, again, it is given by that particular paper in this year account of [ INR 17 crore ]?

Yes.

Okay. Okay. And the second question is on the deposit side. So I remember in last quarter, you highlighted that we have cut deposit rates, kind of slowed down the deposit growth, and that actually played out in current quarter, which is helping us to improve this ratio as well. So I just wanted to know, in the last 6, 8 months, how much deposit rate cut we have taken?

Yes, both -- 50 to 60 basis points is the cut that has happened in the, let's say, maximum rates we were giving, about 50 to 60 basis points. So the issue is we measure, let's say, I can give loans up to another INR 3,000 crore to INR 3,500 crore loan without increasing in deposits even by INR 1. Keeping that figure in our mind, looking into the options on growth. And now we are playing all the levers to get the maximum profit out of it.

Got it, sir. Okay. Got it. Got it. So again, so just to follow-up on that. So let's say, as in when you see a range on the credit gold side. We might see a deposit rate increasing further because from that period, you will need a deposit growth to start the club to make [ significant ] growth?

Yes, that -- my point maybe could be another 2 to 3 quarters away, maybe 1 or 2 quarters away, at least. Under the net interest income or profit, you make out of the disbursement, we'll be giving you enough room to play with your deposit rate [indiscernible] 28 to 30 basis points.

So sir, I mean, just the last part of it, is that -- so they basically, this benefit should flow to our margins over the next 2 quarters?

If advances starts, let's say, we are able to get quality advances without worrying about the future problem, obviously, the net interest income has to grow.

The next question is from the line of [ Bhavesh Shah ] from BNK Securities.

Sir, first thing, sir I want to understand there wasn't a common upgrade, so educational bond, which goes upgraded this time. Apart from that, upgrades were not that much this quarter. So the [indiscernible] recovery and upgrades going forward. So any ballpark run rate that you have in mind?

See the -- obviously, the expectation for any bank CEO will be to have a recovery, which is equal in the U.S. slippage, if not more. So for which -- when we have, let's say, about INR 1,500 crore to INR 2,500 crore stock in NP, and technically written off upon. We are making our best effort to hit them from all directions, through negotiations, through surfaces, through, let's say, whatever way possible, we are trying to build the best. The -- some of the headwinds here are basically like from the quicker decisions from our DRTs and the approvals to come from business collectors and business magistrates. We are, let's say, it is not happening as fast as we want them to happen. We are not giving up. We will make our best effort to, let's say, do these things. I mean, finally, we have -- when we have pressures from all states, there is only area where -- which are some amount of headroom available. We fully understand it is not fully in our hand to get conversion. We are giving our best effort. This is -- I am not in a position to give you any number, but we are trying to put our best effort so that we are able to maintain the efficiency and profitability ratios. Let us see how things pan out to be.

Okay. And sir, in the last policy meet, external benchmarking was expanded to medium enterprises as well. So roughly, what portion of our book would be eligible to shift to external benchmarking? And how much your impact would it have on it?

See, currently, not less than 25 to 30 percentage of our loan book will have eligibility, but it will come only when they come for the renewal or they are -- let's say, a change to the external benchmark immediately. Let's say, for the amount of thing which is getting at the end of the whole segment, about 25 to 30 basis points -- 25 to 30 percentage points of our total loan book will be eligible for the external benchmark rating, which will also be putting some pressure on the yield during the decreasing interest rate cycle.

Okay. And sir, lastly, sir, our MCLR trajectory, we haven't reduced our MCLR margin given the reported cuts, is there any view there?

See the -- basically, the demand and the supply with which we are trying to work out. So it works at this point of time. Whenever the decrease is needed, we'll definitely go for that. We generally know, even if the reduction happens, you don't see beyond 3 basis points, 8 basis points or something, this sort of the reduction. Basically, about, I think, 75 basis point reduction in the policy rate, which happened over a period of last [ 54 ] quarters, has resulted in about 15, 20 basis [indiscernible]. At the maximum, about 25 percentage -- 25 basis points.

The next question is from the line of Saikiran from High Town Securities.

Sir, I just want to -- I do understand that there were challenging environment. Would you like to explain, is it geography specific or industry specific? Or what has changed in the last few months to what I can say, get down on your hopes? That will be really helpful.

Yes. Be clear, there is not much lesson in my hopes. Be clear about that. See, at any point of time during the course, you will be having headwinds from different direction. And you will be having alternate headwinds and the tailwinds, which you managed to move forward. But at this point of time, more than anything, the -- fortunately, the geography of Tamil Nadu, as I discussed it during the last con call during September, is much better compared to most of the other geographies within the country. That's why we are able to -- despite all issues, we are able to hold on to a greater extent. What -- the issue, which you have to be clear, is that when you see the growth rate of the industry together is -- has come down to 1 percentage from 13 percentage in 3 quarters. There is -- it is telling something which is not in the healthy interest of the overall industry, which basically has a bad opinion in the sake of the, particularly, businessman and industrialist who delayed our decision-making in terms of the incremental capacity building, our investments or whatever it is. So this is one item, which we have to keep in our mind. So what I'm trying to say is that we are aware of both -- of the headwinds that we discussed. One major tailwind is where -- let's say, a reduction in the taxation rate. Similarly, the headway, which are available as one in the incremental CD ratio. And also in terms of your, what you call -- let's say, the NPL recovery, let's say, [ recurring ] NPL recovery, has got the potential to outweigh the -- what you call the negativism, which are basically coming because of your headwinds. So let us not be overoptimistic. The -- at the same time, I'm not, let's say, trying today or -- communicating to you, feeling that the things are not right or all such a thing. What I'm trying to specifically convey is that, yes, there are challenges, which is getting reflected in the results of almost 80, 90 percentage of the bank. So in that consideration, it is the time to be cautious, maybe bordering some cautious optimism, but some amount of headwinds are there, which we have to be clear about. And we have to be very clear about our expectations. This is what I want to specifically tell. Don't think that like means so much negative has come in or something, that is not that way. What I'm trying to say is that the -- at least, things are tougher than what we anticipated during the year beginning. We were expecting that by second quarter, things will be much better. But it is getting delayed and -- I mean delayed, to some extent, indefinitely. That is increasing some amount of, what do you call -- I mean, what do you call, some amount of things which are not happening in the way that we expected, et cetera.

We will be able to take one last question? We'll take the last question from the line of...

Yes, I don't mind, even if 2, 3 extra questions comes beyond the time. I don't have any problem. So let us not -- just to shed on the time frame, like even a couple of more questions come, don't bother, please.

We take the next question from the line of Gaurav Jani from Centrum Broking.

So firstly, in terms of -- I would like to ask you, any particular sector that you would like to highlight that are facing stress? And when do you see sort of a recovery, especially in the segments that you cater to?

See, the -- let's say -- you had, let's say, the [ island's ] still going through a very tough phase. And then in between, you had a few months where things look slightly better. After the issues with the automobile sector, that 2x, 3x, 4x level, those sort of -- particularly, I mean you're, what you call, forging and molding industry, and dollar also going through some amount of stress. Yes, at this point of time, it is not something which is specific to one particular sector. You are seeing from various sectors. And those promoters are businessmen who have strong balance sheet and lower leverage, they are able to handle this stress for a longer period of time. And those businessmen who are running at a thin margin and highly leveraged businesses and all, they are getting into the problems sooner. So it is almost uniform across the sectors, like housing, real estate and dollar, probably at this status for almost half a decade now. So it's almost uniform across all sectors. And if you ask me which are all the sectors, which are really doing well...

We seem to have lost the line from the management. Participants, please stay connected while we reconnect the management line. One moment. [Technical Difficulty]

So I was just asking, so when do you see -- I mean although probably early days, but when would you probably see some bit of green shoots in the segments that you cater to?

In fact, we saw some green shoots almost for 2, 3x in the last 3 years, but they did not firm up on the start showing good results. I am also impatiently waiting like you all with the fingers crossed.

Sure. Secondly, sir, on the CASA, I mean, you've always maintained to not look at CASA unless you reach a 30% level. But I'm sort of compelled to ask you because CASA has sort of dropped. So any sort of thoughts on that? I mean -- and what is the strategy moving forward?

There was growth in the average CASA, but there was a drop in the -- even the CASA. So the same answer as I had given in the past, don't look too much into it.

Sure. And sir, lastly, on the tax front, if I may squeeze in one. You just mentioned some tax benefit. Can you repeat it, please? And how do we look at the tax rate blended going forward for the next quarter in '21 and '22, please?

At the current level, the expected benefit is about INR 60-odd crore...

INR 60 crores because the change in the rate.

Because the changes in the rate.

So you mean the INR 60 crore would be the benefit for FY '20 versus your previous record?

I would rather put it this way. If this change in the policy by the government has not come, at the current year, I would have paid the 63 -- or 60-odd -- INR 60-plus crores [ 6 months time ]

Okay. And, sir, any thoughts on the tax rate for '21, '22, I mean on a blended basis?

It once again depends on your, what you call, how much write-offs are made and all such things. So it's -- whatever the -- we had about 22 to 23 percentage as our original tax rate. And that currently is [ calculated ] to about 60 to 80 percentage. 80 percentage will be the level at which it will be stabilizing depending upon the other benefits and other things we get.

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

Just a few questions, again, just clarifying on the earlier question on tax rate. How do we compute? Because 9 months tax rate was also at around 19-odd percent. How did you -- from where are you getting these benefits coming through, especially in the current...

The -- there are -- let's say, you have multiple sections like the [ provisions ], the rate [ house ], the rural advances for which there are certain benefits. Like that, there are remote for multiple sections, which talk specifically about the banks, which we have been using over a period of time.

But that could be -- on a like-to-like basis, that has not changed, right? It only changes on the decline...

That's why the 4 percentage or 5 percentage reduction would have happened.

Okay. Second question is, again, just a clarification on the earlier comments that you've made. You've started seeing the deposits now declining for you. And how do we see this over the next few quarters?

On as-is, where-is condition, I don't expect too much reduction in the term deposits rates because we are almost at the renewal rate.

So you've already reached that rate? But the decline in cost of deposits from the peak level doesn't seem to be that high.

Yes, we -- you'll get this benefit only in the incremental deposit or the deposits that are getting renewed. It's not that, today, reduce my deposit rate by 50 basis points. Next 2 quarters, you'll be seeing only 1/5, 1/6 of that.

So -- see, if I look on your website, the 1-year deposit rates is around, let's say, around 6.5%, as we speak today. On a blended basis, your cost of funds should be on the lower side than 6.5%, including your CASA ratio. So that means...

Yes, whatever we had earlier when we gave, let's say, 7 percentage [indiscernible] the previous quarters, the -- it will take 1 full year for the entire repricing benefit to come.

No, I'm just saying, it look -- when I look at last year, the deposit rates would have mobilized at an even higher rate than 7%, right? So...

Not much, not much.

Even in [indiscernible] percentage.

Yes. We had one scheme last year, which was first [indiscernible] for [ 1,000 days ].

[indiscernible]

That will take [ 1,000 days ] to reprice fully.

Okay. And so -- and these MSMEs restructuring which they have given -- sorry, the MSME benefit that you've given out here for the CRR calculation. If there is a working capital utilization, how do you account for it?

It will be on sanctioned limit.

On the IndAS and it's on the...

If I do enhancement, that will get into -- this is what our interpretation is.

But is it possible that you actually cancel the working cap available and your term loan and just take the benefit of CRR?

It is not a good time. Too smart and they tend to be unsafe.

Perfect. Understandable. Now just trying to see, is that a lever for you from a margin perspective for the next couple of quarters, given that the numbers have slowed down quite dramatically?

Yes. We have 1 -- another 3, 4 percentage increase in the CD ratio has got capacity to give us some headway. And another one is that this repricing benefit will be having a continuous benefit for us at the time being.

The next question is from the line of Kashyap Jhaveri from Emkay Investment. There seems to be no response from the line of Kashyap Jhaveri. That was actually the last question in queue. I would now like to hand the conference back to the management team for closing comments.

Thank you all for attending the conference. As we discussed, the headwinds are definitely there. But at the same time, we are putting extra effort to ensure that we are able to maintain our efficiency and the profitability ratios as we move forward. The -- unless another -- the general economic turnaround happens as quick as possible, it is going to be difficult. But like you all, we also hope things will be getting better. What we can assure from the CUB side is that we are giving our best effort to have all the levers in place so that we'll be able to pass through this time. At the same time, I also want to clearly say that it is not something, as somebody asked, you are feeling bad or whatever it is. What I'm trying to say is that, I mean, things have not deteriorated much from the Q2, but at the same time, we have to be cautious. The -- maybe we are a few quarters away from the automation. At the same time, we are fortunately in the geography of Tamil Nadu, where overall performance of digital economy is slightly better compared to the other geographies. The -- we hope we will be in a position to take things forward and delivering our best results. And if you have any more questions on data points or anything, you can always get in touch with Mr. Ramesh or Mr. Jayaraman, whose contact details are available in the investor presentation in our website. Thank you all for your patient hearing. And let us hope the coming quarters will be getting better and better, and which we should be able to see things getting better profitability and reduce the stress for the system as a whole, not just for CUB. Thank you all.

Thank you very much.