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

Good evening, everyone. Welcome to 2Q FY '21 earnings call of City Union Bank. On this call, we have Dr. N. Kamakodi, MD and CEO of the Bank; and Mr. V. Ramesh, the 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 evening, everyone. Dr. Kamakodi here. I have Mr. Ramesh, the CFO; and Mr. Mohan, Senior General Manager, Credit; Mr. Jayaraman, Chief Risk Officer; and Mr. Ganesan, AGM, Risk Management, all of us are here. Hearty welcome to all of you for this conference call to discuss the reviewed financial results for quarter half year ended 30th September 2020. The Board approved the results today, and hope you all have the copies of the results and the presentations also. Recently on 31st October 2020, that is day before yesterday, we celebrated our 117th Foundation Day. On this occasion, we thank all our customers and stakeholders for their continued support and patronage. We also thank you for the confidence you put on us. On management side, Shri S. Bernard, Director and Chartered Accountant, retired on 19th August 2020, on completion of 70 years. We place our sincere gratitude to Mr. S. Bernard for his valuable guidance during this tenure. Two of our senior executives, Mr. R. Venkatasubramanian, Chief General Manager; and Mr. KP Sridhar, Senior General Manager, retired during June 2020. Based on the exercise of succession planning, 3 of our General Managers got elevated to Senior General Manager position; Shri V. Ramesh, CFO; Mr. S. Mohan, Incharge of Credit; and Mr. K. Maharajan, Incharge of Audit and Inspection. Further, seven of our executives in DGM cadre have been elevated to General Manager cadre with effect from 1st September 2020. Highlights of the financial performance for Q2 FY '21 and H1 FY 2021 are as follows. The deposits increased by 2% to INR 41,421 crores from INR 40,451 crores year-on-year. Advances increased by 6% from INR 33,279 crores to INR 35,437 crores. Operating profit of INR 385 crores and INR 741 crores for second quarter financial year '21 and first half financial year '21, registering a growth of 11% and 6%, respectively. The net profit stands at INR 158 crores and INR 312 crores for Q2 and H1, respectively. Gross NPA and the net NPA stood at 3.44% and 1.81% for Q2 and H1 financial year '21. The return on assets for the quarter stands at 1.23%. Net interest margin improved to 4.12% for Q2 compared to 4.05% for -- and currently 4.05% for H2. Cost-to-income ratio at 40.36% for first half. We have been getting repeated questions from multiple quarters, which can be summarized as follows: how is the activity level? We are hearing SME sector is deeply affected, what is your experience? What about repayment after the end of moratorium? What about restructuring? What about growth? What about asset quality concerns and slippage? How are you going to handle net interest margin pressure? What is your ROA outlook? When will it reach the pre-COVID level? Like that, these are all the repeated questions I am getting from various quarters. I will try to answer them as much as possible. As explained during Q4 and Q1 con calls, though things looked very scary during the beginning of the lockdown, we could see lot of improvements in the activity levels. The activity levels reflected by transactions in our bank has crossed pre-COVID levels in both the number of transactions and value. It is also getting substantiated by other data like GST collections and all. The government guaranteed ECLGS scheme has boosted the spirit of MSME sector and businesses have started generating surpluses. Some sectors like hotels, retail trade, passenger transportation and all opened up late and expected to have longer gestation period. They are all mostly at suboptimal operating levels, but improving steadily. As you all know, we have given moratorium to all eligible customers during the period from 1st March 2020 to 31st August 2020. But we saw during the quarterly results of June quarter that accounts covering 88.20% of CC accounts exposure and 46.17% of term loan exposures on total accounts covering 70.07% of the total exposure received payment for 4 months as if there was no moratorium. That number even improved with accounts covering 90.65% of the CC account exposures and 46.01% of the term loan exposure, on total accounts covering 70.40% of the total exposure received payments for 6 months during the moratorium period as if there was no moratorium. The details are given in detail in the presentation also. Post the end of moratorium on 31st August 2020, accounts covering exposure of 94.53% of the CC accounts and 85.70% of the term loan accounts, on total 90.52% of the exposure received payments for September demand. During the June quarter call, we shared with you that accounts covering an exposure of 1.76% of CC and 26.54% of the term loan, on total 12.45% of the exposure did not receive even a single repayment utilizing moratorium fully. That number currently stands at 0.65% of the CC exposure, 99.12% of the term loan exposure and 9.03% of the total exposure where not even a single payment received during the moratorium period fully utilizing the moratorium. Out of them, 0.1% of the cash credit exposure, 10.76% of the term loan exposure and overall, 4.94% of the total exposure have paid demand portion of 1 monthly installment in the month of September after fully utilizing the moratorium. Of the balance 4.09% of exposure have not paid anything till now, we expect many of them would opt for restructuring since the time available is up to 3st December 2020. Most of these accounts are viable accounts, having no issues up to 29th February 2020 and affected by COVID. Many accounts in this category belongs to the sectors like hotel, retail trade, which got opened up later, currently working at maybe less than 50% of the capacity and will take maybe 1 or 2 more quarters to come back to the normalcy. We have restructured accounts to the tune of INR 478 crores till September 2020, of which INR 455 crores amounting to MSME restructuring and about INR 23 crores under non-MSME restructuring. Further, accounts amounting to INR 430 crores under MSME and about INR 729 crores in non-MSME category are under process. Total restructuring will be 5% to 6%, as shared during the earlier conference calls. As shared in the earlier conference calls, we expect the slippage ratio for the current financial year at 3% to 3.5%. Most of them will be accounts which had issues even before COVID. Between 30th September 2019 and September 2020, banks saw a credit growth of 6%. Even during the Q2 financial year '20, that is last year second quarter conference call, we said we are taking our leg off the growth pedal as economy was not doing well. Our current growth is coming from disposal of ECLGS loans and gold loans. We will review in Q4 to take a decision how to go about the growth. Till then, our focus will be on ECLGS, gold loans and restructuring of the existing facilities. So overall, for the current financial year, the growth rate may be in the higher single digits as we have been discussing in the earlier con calls. The increase in disbursement of ECLGS and gold loans during the financial year H1 FY '21 resulted in improvement of capital adequacy ratio to 17.36% in the second quarter financial '21 from 16.209% in the March 2020 on account of the 0% risk weight prescription. The outstanding balance in the SME accounts saw a big reduction from INR 628 crores on 31st July 2020 as disclosed in the Q1 results to INR 412 crores as on 30th September 2020. In other words, there is about INR 216 crores reduction in that portfolio. And first set of casualties to NPA, when the -- a lifting of standstill class happens, maybe for the quarter -- December quarter 2020 could be from this set of accounts. The interest income accounted in these accounts arrived at INR 33.57 crores for 7 months from March '20 to September '20, of which INR 25 crores had been reversed in Q2 financial year '21 from the interest on loans as a prudent measure. The reduction by about INR 200 crores shows a positive indication about the improvement in the activity level. And hence, we should not take that -- the entire balance in that SMA will become bad and all. We are seeing a continuous reduction in that also. But how much exactly will happen will depend upon the incremental activity level and also the availability of the restructuring options, we have to wait and watch. This quarter, our net interest margin stands at 4.12%, that is 14 basis points more than first quarter. This is after reversing INR 25 crores from the interest income as disclosed above. If the reversal was not done, the net interest margin would be at 4.33%. There is a pressure on yield, no doubt. But cost reduction is more than the yield reduction. And hence, we are able to see net interest margin holding up. We used to have our deposit growth in tune with our growth in advances. We have not pushed for growth because of COVID and to protect the margin, along with the optimum level of credit deposit ratio, the deposit position was not aggressively grown and kept muted in first half financial year '21. In fact, much of the growth happened only because of the CASA growth with less growth in the term deposit growth. However, we will push for growth if situation warrants by way of surging advances in the second half, if at all it happens. The bulk deposits, which was about INR 11.33 crores of the total deposits since Q2 FY '20 was reduced by a repayment and currently remain at about 9.15% in Q2 FY '21. The ratio of CASA to total deposits also improved to 26%. Accordingly, the deposits have been maintained at an optimum level as a prudent measure to maximize the profit. Because of standstill class by Supreme Court, we cannot classify any new NPS, hence NPA numbers have dropped sequentially. Whatever quantum of NPA we expected for financial year 2021 have to be classified as NPA in just 2 quarters. The Supreme Court permits in third and fourth quarter. Anyway, overall, slippage, we expect to be in the range of 3% to 3.5% to closing advances, as discussed in the earlier conference calls. We have already started discussions and identified accounts to convince customers to start repayment by the way of selling noncore assets even before the account becomes NPA, particularly with the stressed assets, and are seeing some limited success. To that extent, the slippage may also reduce. Till Q3 last year, we had a return on assets of 1.3%. We closed FY 2020 with an ROI of 1%. We had ROI of 1.23% for Q1 and Q2. Depending upon the slippage and recovery for the full year 2020, we may have ROA between 1% and 1.25%. Call will be taken on annual account closing, looking into the overall environment. During the last quarter, we said we will reach pre-COVID level ROA by the second half of financial year '22, '23. If recovery gets better, the achievement of pre-COVID level may get preponed by few quarters or so, and it all depends upon the grace of almighty and the speed with which the overall economy comes back to the normalcy. The return on equity for H1 financial year '21 stood at 11.54. Of course, for -- we assume overall recovery will get better. This is major, like say, assumptions which we are keeping in mind whenever we make forward-looking statements. There won't be any second lockdown or second wave because of COVID, and there won't be a Chinese war or the consumption led demand will stabilize and improve for Diwali. At least we should have at least -- 80% to 85% of the Diwali celebrations and resulting consumption this year compared to last year. As informed earlier, we are focusing on gold loans and ECLGS disbursements. Up to 30th September 2020, we have sanctioned about INR 1,807 crores under ECLGS scheme. Today, the -- looks like the government has extended the, like say, sanction of ECLGS by another 1 month and all. We will see how it will be helping us and all. We have a capital adequacy ratio of about 17.36%, of which Tier 1 itself is about 16.29% for H1 financial year '21. The capital adequacy position has improved from 16.76% in the March to 17.36% in the September '20, mainly because of the sanction of ECLGS scheme and increase in the gold loan during first half of financial year '21, which attracts 0% risk weight. Our current internal stress test do not show need for immediate capital augmentation now as we discussed with you during the earlier conference calls. But we want to keep all the options open because of the environment. We have necessary approvals in place for raising capital. If at all we require anything for augmentation, the process will -- should be smooth. But hopefully, I think we should be able to tide over this crisis without going for capital raising. We had a domestic treasury Audio Gap] financial year '21. Still, we have appreciation of over INR 200 crores in our HTM portfolio, which could be booked in future based on the circumstances. The cost-to-income ratio for Q2 and H1 financial year '21 stands at 40.31% and 40.36%, respectively, as against 42.87% and 41.19% in the previous period. The reduction was on account of the elevated treasury income. We -- however, we still stand by our general guidance of 42% to 44% level. There had been impact on the other income, particularly on the fee-based income, the commission exchange, brokerage and fees, processing fees and things like that. And also, in the first quarter, because of the restrictions and all, we could not charge many fees and all in the operating accounts, which has adversely affected our other income and also having some amount of negative pressure on the cost-to-income ratio. And that's why we are keeping that numbers at -- like say, 42% to 44% expectation. The operating profit for Q2 and H1 FY 2021 was at INR 385 crores and INR 741 crores, and PAT stood at INR 158 crores and INR 312 crores for Q2 and H1 financial year '21. We made a provision of INR 115 crores in Q2 also. For Q1, we made about INR 100 crores for future COVID-related provision requirements, which are not used for net NPA calculations or coverage ratio. Totally, we have made an ad hoc COVID provision of INR 317 crores, INR 102 crores in the fourth quarter last year, INR 100 crores in the first quarter and INR 115 crores in the second quarter to meet any future contingency hearing out of COVID pandemic, apart from INR 23 crores provided in Q4 towards specific requirements. Though the recoveries have shown some improvement, the same was not witnessed during pre-COVID stage. The recovery during Q2 financial year '21 improved to INR 84.39 crores, of which technical return of recovery at INR 31.88 crores and live recovery at INR 52.51 crores, against INR 24.27 crores recovery in the first quarter financial year '21. Technical rate of recovery of 4.29% and live recovery of 99.98%. The total recovery for first half financial year '21 improved and stands at INR 109 crores. The technical return of recovery was INR 36 crores and INR 72 crores recovery from the live accounts against INR 191 crores for first half financial year '20, that is last year first half. Hope you all remember the cyber attack on our ATM network during December '18, where we lost about INR 31 crores and in the -- we had made full provision in the earlier year. And in the month of October '20, we have received an insurance claim of INR 15 crores against the loss which will be accounted in the third quarter. You all remember that we have sold an amount of INR 374 crores of NPA to ARC on SR basis during the year -- financial year 2014 and financial year 2015, of which 4 accounts constitute more than 90% of the total SRs. The resolution started in 4 accounts and repayment terms go up to financial year 2020. The -- on financial year, the current status and all are given in the presentation. The outstanding currently stands at about INR 242.69 crores, which is about INR 130 crores reduced from the peak level position. We expect some major recoveries in that front. And hopefully, by the third quarter end, that outstanding SRs should be getting below INR 200 crores mark. To sum up, the focus during the current financial year 2021 will be on -- to handhold the borrowers and to ensure the slippage at minimum by providing proper support through government-guaranteed ECLGS scheme, our -- and restructuring. The focus will be to strengthen the balance sheet rather than expanding P&L during the current financial year 2020. We feel we should be able to come out of the crisis with minimum impact. Overall impact is much stable compared to the earlier quarters. We are putting our best efforts to achieve better results against this fired expectations of the slippage. Of course, let us pray, there won't be any second wave of COVID or Chinese war or pray for a better Diwali. So with these opening remarks, I would like to leave the forum to question and answer.

[Operator Instructions] The first question is from the line of Haresh Kapoor from IIFL AMC.

Sir, just couple of questions. One is, you spoke about your restructuring expectation that you have. Now obviously, this can be done for 2 years. And you had initially focused on talking about handholding your customers through this time and being lenient. But just in terms of timeline of restructuring, because the thought is that maybe these customers might really just need 6 months to 1 year kind of handholding. So if you can talk through in terms of your initial assessment, what kind of time period they would need in terms of restructuring, which will kind of help us understand what kind of normalization could come through and even the pain for some of these assets. Second, if you can talk about -- you spoke about restructuring, you spoke about slippages. But if you can just talk about credit cost guidance, if you have anything for this year, and how should that shape us? So though we are kind of -- maybe if there is any thought around Q3 even increasing the provision coverage, how we should kind of think about that? And what is the expectation as you have the assessment right now? And third, you kind of spoke about margins, which has kind of improved Q-on-Q, and you had some interest about it too. But if you can talk through how you're kind of thinking about the margins for the year and even quarters going ahead?

Just give -- first one is on restructuring. Second question is on?

First is restructuring timelines, what time period. Second is credit cost guidance. Third is margin trajectory.

Margin trajectory. So when multiple questions are answered, it gets jammed. See, the...

I can repeat it. You can take one by one. I can repeat it.

No problem. No problem. See, the first 2 question on restructuring. The -- our approach normally used to be, like say, to use the regulatory permission to the maximum extent. At the same time, there will be a covenant, if at all the, like say, cash flow improves to the normalcy, the repayment tenure has to be improved. This is the agreement -- this will be the normal agreement and understanding between the customer and the bank to go ahead with that. So our expectations is that, like say, as I told you already, all the accounts, now I'm talking, like say, by and large, they were all perfect account without any default up to 29th February. They all had viable business model, and they had things absolutely normal without any issue. And the problems on the, like say, repayment came purely because of the COVID. So obviously, the repayment schedule will get normalized only after their cash flow improves. So by and large, as I already told you, except that 2, 3, what you call, sectors, all other sectors are almost now come back to, like say, 70, 80, are improved thing and all, they will be coming back to the normalcy maybe in 6 months at the maximum for many of them. Some of them may require, like say, for example, hotels and all, even, like say, to get a full, like say, pre-COVID level occupancy, they may take at the maximum even INR 1 crores -- 1 year. So looking into all these things, we, like say, try to give the maximum timeframe -- timeline permitted by the regulators. At the same time, through our monitoring, if the cash flow improves and all, the repayment will be accelerated so that it is beneficial both for the customer and also for the bank, for that matter. So we -- I mean, the sum and substance is that, we don't want to be more loyal than the king, try to push him for, like say, you give ECLGS scheme and try to recover past 2 months due and all, it will finally only kill the business. So we don't want to do that. And we would like to give the, what you call, as much leniency as required, at the same time, not so much whenever he has extra cash flow, he will be diverting to somewhere else and all. It will be managed through the proper monitoring of that account. This is for your first question. Answering your credit cost, the...

Sir, sorry, just follow up on this one, if I can just. Sorry. So sir, as I understood on this one, you are saying maybe 6 months to 1 year maximum cash flow requirement is there. But initially, you could structure it for 2 years, but if the business is normalizing, then you will see recoveries maybe 6 months, 1 year out, and they will become standard?

Absolutely, absolutely, absolutely.

Okay, great.

On credit cost front, please focus on the slippage. The credit cost is finally, like say, what is the actual loss on credit -- like say, the NPA and when you are going to provide. These are all derived matters. So as we have been repeatedly saying, like say, even in the last con call it came, we typically used to recover about, say, 70%, 75% or like say, even 80% is the -- normal 70% to 80% is the normal portfolio level collection on the slippage because of the availability of COVID. Because of the -- I mean, COVID, the -- we said, we don't expect any major disturbance in the, like say, recovery rate, whatever we have seen in the past, maybe 5% at the maximum. And there would be delay because of, like say, court procedure and all, is what we all shared with you. We still stand by that statement whatever we made. So I won't be in a position to make exact how much provision I will be making before the year-end and all at this point, which we will be in a position to give only during the fourth quarter. So overall, you can be, like say, the -- our expectation of the slippage is one number, which will be helping you to make. Otherwise, it is only the time when you are going to make your provision. So the actual number is that slippage is -- like say, we expect at this point of time, to our -- best of our judgment, it is going to be 3% to 3.5%. And we should be able to -- like say, our past track record says that we have recovered about 70% to 80% of the slippage during the earlier, I mean, years in the past. This is what I would stop at this point of time. What is the exact thing and all, it will be like probably predicting the balance sheet and P&L today itself, which may not -- like say, we'll not be in a position to give the exact number. But at this point of time, these numbers look, like say, to us, I mean, whatever we -- to our -- best of our judgment at this point of time. Margin is like -- what is your question on margin?

Sir, we have seen improvement in Q2. And even if considering the interest reversal that we have done in Q2, the margins would have seen a sharp uptick. But how do we see the trajectory ahead considering slippages will kind of come through even in the next few quarters and growth maybe in a higher-yielding product is what you tagging gold and so on and so forth? So how should we look at the margin trajectory for the year and for the coming quarters?

See, the yield pressure is definitely there. But the margin is getting maintained because of the, like say, the reduction in the cost and also some improvement on the credit deposit ratio, like say, the -- so the yield pressure will continue to be there. I mean, I won't say that it will not be there. And the cost advantage, you cannot extend it beyond the region. Actually speaking, even about 2, 3 quarters -- even almost around the same time last year and all, even during pre-COVID times, we were expecting margin to come down, but they did not come down as much it was expected. So the -- like say, the 3.9 to maybe 4.25 or maybe 3.8 to 4.2 should be the range in which we should be expecting maybe for the next 4, 5 quarters going forward.

Okay. Sir, and lastly, if I can just squeeze in. If I got your comments right, you kind of mentioned about maybe ROA target for this year, maybe 1 to 1.25. And maybe if you come back to normal, then the recovery that you were kind of expecting in H2 next year, that could be in Q1 itself. Is that understanding right, sir?

Yes. This information has been shared even during the earlier quarters. Only in that I had said in the -- I think, last quarter, I had said that the pre-COVID level ROA will come back only during the second half of the year -- the year after next, that is financial year '22, '23. That could get preponed if the both economic recovery and NPA recovery gets better.

The next question is from the line of Darpin Shah from HDFC Securities.

Yes. Sir, just wanted to say if you were supposed to recognize NPAs this quarter, what would have been the slippages?

See, the -- like say, you'll not be in a position to tell that exact number because, like, you have to derive -- say, for example, if Supreme Court had not intervened and they had just stopped with that, what you call moratorium will end on 31st August, from there, the clock will flip, whatever we have disclosed in the SMA 2, which is about INR 110 crores, should have been the slippage. In our original expectation, I think it is in the page number, say [Technical Difficulty]

Sorry, Page #42?

Sir, there is some audio loss from your line. Please repeat the last sentence.

Yes, Mr. Darpin Shah, can you repeat the question? Have I answered your question?

We couldn't hear you when you said slide number.

Slide #42. If the Supreme Court had not intervened and the moratorium had stopped on 31 August 2020, the slippage to NPA in the second quarter would have been INR 109 crores, that is disclosed as SME 2 in the Page #42.

Correct. And sir, we have seen our collection efficiency improving. The number of borrowers who have not paid has fallen. Still we are maintaining our guidance on restructuring and slippages. So how should we read about it? Any thoughts there?

See, the -- yes, you have seen, even on the SMA numbers, who had issues even on -- like say, before February 29 about INR 200 crores reduction has happened. We were also seeing not less than, like say, accounts to the exposure of 90% of the exposure has received payments, but don't underestimate the impact of COVID. So the -- as -- so the -- and this is a major pandemic and these sorts of facilities are needed to take of the, like say, existing, like say, customers. And as I told you, the restructuring numbers, I don't see, like say, any reduction by and large this number will state. The slippage ratio, like say, as I even shared with you during this thing, we have already started discussing with the customers who are facing extreme stress and all, asking them to reduce their outstanding by selling noncore assets and all, and we are seeing limited success there also. If we see more success, because we have got another 5 months in hand, depending upon how many customers, some good sense prevail and they go for selling of property and repayment, if at all it happens, to that extent it could reduce the incremental slippage.

Okay. Okay, fine. And sir, one last question. You must have been continuously interacting with your borrowers. So how things have changed for them compared to June, July and now?

See, by and large, like say, people are back to normal, except, like say -- almost now, not many says their operating level is, say, 85% below the pre-COVID level and all. Except the sectors like your, what you call, hotels and all where the bookings and all are still at sub-50% and things like that, they may take few more months. Overall, I think you would have seen even few messages which are circulating in the Whatsapp and all, how people were buying the sarees in few retail shops and how corporation is locking down the shops and all. Even you are seeing crazy crowds in the Diwali purchases and all, even the area, people say, Chennai, it is slightly lower, but at areas and let's say, even the COVID virus is getting crushed in the crowd, which you are seeing in the Diwali and things like that. Like say, the -- one more thing, this is basically, like say, monsoon season for Southwest monsoon. Till Diwali, the monsoon should not work as a spoilsports. You had heavy rain at Chennai last week, but there was no rain in many parts of -- including Kumbakonam and other parts of TN. If for next couple of weeks all these factors favor in, I think it is -- people are almost mentally, like say, they have come out of depression.

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

Sir, just one clarification on the collection efficiency plus the nonpaying customer pool. Since our collection, I'd say aggregate portfolio stands at 90%. And we are saying the -- around 4.9% customers have not paid anything. So sir, where does this balance 5% sits in?

See, the -- we have clearly given that. Say, for example, the -- even in the -- so even in the Page #44, say, for example, the -- in that you also have people who have asked for restructuring but might have paid for the few installments. So overall of the -- like say, for balance 90% you can use something like this, say, 5% to 6% of, like say, restructuring as what you said. Others will be making some delayed payment that you have not factored in yet. Don't think that they are not paid for September installment for 30 days means they will immediately die and become NPL.

Got it, got it. So essentially, that 5% pool will be under 1 plus DPD as of now.

Yes.

Okay. Got it, sir. Yes. Sir, second sort of repeating question. So sir, on the one hand, we are seeing the improvement across sector, across our portfolio in terms of the transaction reaching to pre-COVID. So then, sir, what is stopping us to, let's say, lower our guidance on slippage or maybe preponing the ROE improvement?

See, it all depends upon, like say, I have told you 3% to 3.5% slippage.

Right, sir. So that stance you are maintaining, I think, since the COVID onset.

Yes. Yes, I have already started discussions with those set of customers. Limited set of people have agreed for, like say, closing the dues by selling their noncore assets or whatever it is. To whatever extent, like say, I see success there, I could see the reduction. Similarly, the risk of like you are seeing the second wave has come and lockdown has come in France and U.K. and all, people say that the schools and colleges are getting opened in TN from 15th and all, that risk on going opposite side, which cannot be quantified at this point of time. So whatever we say now is reasonable estimate at this point of time with available information.

Okay. No, sir, I'm just trying to get a sense. So let's say, in the last 6 months we have seen improvement, but in the same time we see the same stress what we have been expecting or maybe estimating earlier. So that is actually I want to get.

See, what I can say is that I'm seeing improvement to some extent, and some other statements are basically from the positive view taken from the, like say, feedbacks you get, the operations you see in the account and all, I will give you, like say, everything is -- all clear signal only after I see the payment into the account and see everything, like say, my -- as we said my day past 1 month due is 0.

Got it, sir.

It's -- what I can say is that we are much more positive than whatever we shared with you in the past. All the anecdotal evidences and the data points which we see point towards that. But still I should see some more repayment in the accounts happen.

Got it, sir. Okay, sir. So is it fair to assume that the sort of improvement what we have seen over the last 6 months is basically as per our expectation and not exceeding our expectation?

It is definitely much, much, much exceeding our expectation. Say in the month of May or June, I would have expected wherever we are now only in February or so.

Sorry, sir. I didn't get that.

See, the current level of activity and the current level of normalization of activity level. I would have expected the current level only in the month of February. If you are -- see, we make certain assumptions in the...

So that got preponed you are saying?

Yes, almost not less than 4, 5 months of preponement.

The next question is from the line of Abhishek Murarka from IIFL Securities.

So the question, sir, is about this ECLGS scheme. And I just wanted to check -- anyway the end -- last date of the scheme was 31. And you could have reached out to mostly all of your customers already. And a lot of them would have taken it, some of -- most of them would have declined it. But would it be fair to say that most of your customers have already been approached? And therefore, this extension that is provided for 1 month, at least for you or for the system also, it would not lead to significantly more disbursement.

See, like say, assume that, say, 25% of your customers earlier had said that they don't want, they have got 1 more month to revisit their decision.

Okay.

And it is a government-guaranteed scheme, 0 risk weight. The borrower is also getting benefited. Banks are also getting benefited. If the customer revisits and changes his decision, it is always possible.

But sir, the indication that a customer earlier said or thought he didn't need the scheme and now he thinks he needs the scheme, means that liquidity for that customer has reduced or...

Yes. No, don't think too much, Abhishek. Actually, he maybe -- like say, he may get the 25 basis points or even 50 basis point reduction in the field because this facility is given at 9.25%.

Right.

It makes commercial sense for him to use this.

Okay. Fair. So basically, this current INR 2,00,000 crores that has been disbursed or sanctioned under the scheme rather, there is a possibility that some people might think there is use of the scheme and incrementally maybe some more amount can get sanctioned under this?

The borrower may feel it is below his dignity to use that scheme. But as a banker, we feel we are better off if he uses that scheme. So it will be we bankers who will be trying to convince the borrowers.

Okay.

Yes, we may even ask them, okay, you close this loan by this loan, you get a longer repayment tenure, you get a lower thing and all, like say, we also feel that our coverage ratio is better.

Right. And sir, the second quarter -- sir, second question is regarding growth. Now your commentary incrementally is positive and some questions have been asked on why provisioning and all that. But given the positive commentary, why just base the growth on gold loans and ECLGS, why not -- do you not see merit in starting disbursements in some of the other sectors outside of gold or ECLGS?

See, the economy has just come out of the pandemic. We are -- like say, the -- you cannot, like say, fully assume that anybody who has come out is, like say, he has not got any hit because of the COVID or -- there will definitely be certain unknown risk because of this pandemic, which we suspect, and we don't want to jump in. Let -- the time can wait. There is no point in trying to play as if there is no tomorrow and all. Let us take our own time. No problem.

The next question is from the line of Bhavik Shah from B&K Securities.

Sorry, this is [ Jayanth ] from B&K. Sir, just to recap. I mean, I joined a bit late. Just to recap, so what you said is 90% -- we have seen the collection efficiency for the month of September is 90%. Of the initial 12% people who did not pay, that number has now come down to 4%, right, and some of them may get restructured.

Yes.

But sir, if you can share anything on October. If you have shared I missed that. So anything -- does this change anything seeing the October month collection efficiency?

See, the -- we were busy in working out the September number and probably another couple of days we'll be having clarity on that. Don't worry, things are on improving side only. It's okay.

Right, right. And just to understand, sir. I mean, someone also asked. So let us say 90% of them are paying, 4%, 5% have not paid and -- but the overdue portion is only 1%, right?

See, the overdue position is for 29th February. So as per the regulatory guidelines and Supreme Court guideline in place, nothing comes overdue after 1st of March. It is the regulatory position. If we say somebody overdue and all, we are susceptible for contempt of court.

Right, right. Understood. Understood. So -- okay. So that is only pertaining to February starting pool, but at the bank level, if you were to keep counting DPDs, then probably that number would be 5%, 6%, which is similar to your pre-COVID levels, right? Similar.

Absolutely. Absolutely. Even, in fact, less than pre-COVID level.

The next question is from the line of Aviral Jain from SG India.

Sir, my question was around slippages and restructuring. So how do the bank and the borrowers decide whether to go for restructuring? I mean common sensibly everybody would opt for restructuring rather than getting them classified as NPA. So you mentioned that your slippage ratio this year could be 3%, 3.5% and another 5-odd percent would be restructured book. My question is very simplistic, why not everybody opt for restructuring? I mean, how do you decide between the 2, or the borrower?

See, the first thing is that whenever I say restructuring, these guys -- I mean, this time, the regulatory prescription is very clear that it excludes, by and large, those who had issues even during the pre-COVID level. The non-MSME borrowers who are even, like say, SME 1 are not eligible for restructuring. And similarly, the MSME borrowers who are SME 2 are not eligible for restructuring. So the restructuring facility is, by and large, given to only those customers, who had a viable operating business model and whose conduct of the business was perfect up to 29th February. So be very clear about that, like say, all the SME borrowers -- I mean all the borrowers who are opting for restructuring at the current juncture are viable business model with perfect payment track record up to, say, 29th February, and their disturbance in the repayment schedule terms is only because of the COVID. And hence, we have to give them repayment schedule in such a way that their businesses come back to the normalcy. I mean their, like say, future expected cash flow schedule should be aligned with the future expected cash flow, normalization of the future expected cash flow. So it is not like the earlier thing and all. Even, like say, in our own case, if you compare with what happened in 2008, we had highest restructured proportion at that point of time, but we -- of about 10% at that point of time, but only 2% or so became NPA in the subsequent 3 years.

Yes. So, sir, my question was you expect 5% to 6% of your outstanding loan book will get restructured and 3%, 3.5% is where it will not move the eligibility criteria for restructuring?

In our, like say, power lens, they may not be -- we may feel that they are not having viability for the future or they had problem during the pre-COVID days. And it is better to admit them as NPA and move forward.

Okay. And sole difference it would make is you'll have to provide higher provisioning and then continue your recovery efforts either through repayment or through closure of loan accounts or write-offs on the NPA side?

Yes, repeat the statement?

So from the bank's perspective, for the NPA account, there'll be higher provisioning and more recovery efforts rather than stabilization efforts for the account side?

Exactly. See, these fellows who are getting restructured are serious and decent businessmen, who have a variable business who did not have any, what you call, default up to 29th February. And their -- all their default is purely because of the lockdown, because of the COVID. So these customers, they need support, and there is no point in killing them just because they are not meeting the original repayment tenure.

Sir finally, so there is a large element of subjectivity and bankers' assessment in that because there would be a lot of cases which sort of can qualify. As your SMA position already given out as of 29th Feb, and that does not give a very large number, right?

See, the original -- like, even if they had paid subsequently, if their status had been in SMA on that date, they will not qualify for the restructuring.

Correct. Yes.

So all the -- I mean, see, for example, if there is no subjectivity, then why the hell we bankers actually exist. It is for taking those subjective calls only.

No, no. Only in terms of classifying eligibility for restructuring or directly classified as an NP. Obviously, the risk assessment and the initial [ vital role.

Yes, you have multiple data points and also lot of, like say, the so-called respect for the bankers is for taking that subjective call only.

Okay. Yes, fair enough, sir.

That is where we are -- that is the purpose for which we do exist.

The next question is from the line of Gaurav Jani from Centrum Broking.

Yes. Just 2 questions from my end. One is the portfolio that has just paid 1 EMI that is I think 4.91%. Is it...

Sorry to interrupt you, sir. The audio is not coming clear from your line. Please use the handset.

Yes, just a second. Am I audible now?

Yes, sir.

Absolutely, absolutely. Yes. Go head.

Yes, yes. Sir, I had just 2 questions from my end. One is the portfolio that has paid 1 EMI for September that you mentioned 5-odd percent. Is it safe to assume they would have also played up in October?

Yes.

So what I was coming to is, there is...

I mean, actually, yesterday only the month end due got debited. They will have 1 week to pay. So either they should have paid or they should be repaying in the next few days.

Sure. No, what I was only alluding to, sir, is a healthy trajectory in recoveries or repayments, so.

Yes. We also hope like you.

Sure. Sir, last just question is on the tax rate for FY '21. For the first half, we've already done about 23-odd percent. How should I look at the entire year because we were earlier at about 18%, 19%, so.

Yes. It should be between -- like say, it should -- it will be 20-plus.

20-plus?

Yes.

That next question is from the line of Rakesh Kumar from Systematix Shares.

Hello. Hello.

Mr. Kumar, the line for the management has got disconnected. Please wait. Ladies and gentlemen, the line for the management has got disconnected. Please hold the line. Ladies and gentlemen, thank you for patiently waiting. The line for the management is reconnected. Thank you, and over to you, sir.

Yes, Rakesh, please.

Sir, firstly, question on security receipts. Sir, we have around INR 240 crores outstanding there. So how much recovery we are expecting in the next -- say, in the second half or maybe in 3, 4 quarters?

See, the, like say, one settlement is underway. In that when we calculated, like say, if that -- the accounting part is still happening. So our -- so far, based on the recoveries, what we see, our recovery rate is about 65% to 70% of the outstanding is what we have recovered so far. It is almost similar to the general NPA or maybe since they are all bigger ones, maybe 5%, 10% percentage lower than our normal NPA.

Got it, sir. Secondly, sir, the disbursement -- sanctioning number, total sanction number for ECLGS we have around INR 2,000 crores. So incrementally, how much we can add to this number?

No idea. Like say, basically depends up on -- about 200-odd crore people have rejected. So they may ask for -- maybe, like say, if all of them ask far, it could be about INR 200 crores to INR 300 crores at the best.

Okay. Thirdly, sir, this restructured standard number, which we already have 1.35%. So this was for -- according to the old scheme what the RBI had given. So this total restructured forecast or the guidance you have given of around 6%, does that number include it or it does not include it?

It is included. The existing number is also included.

Included. Okay.

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

Just 1 question. On the Slide #43 where we have given repayment status of accounts, there is this last column for the month of September '20. Does that -- that does not corroborate with the commentary which is on the next page, which is that out of this residual about 9.6% of the additional term loan exposure and 4.9% of the total exposure. So this last call up of this for month of September '20 is actually what number?

See, it is that after moratorium, that payment.

Sorry?

See, that -- since it is the point and other, there will be like rounding off difference. Apart from that, it will be, by and large, telling you. Like say, the 9 and 10 -- that less than 1% margin of error because of this will be there.

So when you look at these, the OD accounts, where 1 monthly installment is 99% in the first column. For the month of September, that number actually drops to 94%. So does that mean that 5% of the people didn't pay for the September installment yet? They haven't paid for the September installment yet?

I can't understand your question. Please repeat.

What I'm asking is that, if you look at the first column 1 monthly installment during the moratorium.

No. This is -- the first 6 months are separate, the last month of September is separate.

That point I got, what I'm asking is that...

You will be having few persons who might not have paid for the, like say, 6 months, but might have paid for your September.

Right. And would there be people who would have paid at least 1 installment during morat, but would have still skipped September installment because that company might be...

Yes, they may pay tomorrow or, like say, they could be in that 30 days bucket. That is also possible.

Okay, okay, okay. Yes, yes, yes.

This is separate, this is separate.

Ladies and gentlemen, that was the last question.

No, I mean, before closing if somebody else have, please allow them. No problem. Any more questions?

Sir, we have 1 question in the queue from the line of Avinash Tanawade, individual investor.

I just want to know what percentage of our portfolio is gold loan? And how much it can go up because in -- few years back, it was -- gone up to 22%. So is there a chance that this go up 20% or something like that?

No. I don't think, like say, getting to 21%, 22% and all are, I mean, distant possibility even at this point of time. The exact gold loan currently stands at [Foreign Language] It is available in the presentation itself. I'll just share with you that slide number now. INR 2,400 crores. That exact number is there in your current total gold loan outstanding is INR 4,537.1 crores, which is in the Slide #33.

The next question is from the line of Amit Jain from Axis Capital.

Sir, I have a question on this ECGL scheme. Sir, incrementally, what has been the use of this ECLGS scheme? So is it for existing debt? Or are you seeing some improvement in demand where this facility is being utilized? What is your assessment on this, sir?

See, the first -- when it was given, at the first instance, in fact, it was responsible to start the activity level per se because everyone's outstanding was spurred. There was no -- absolutely no movement or nothing available. It gave a lot of headroom for kickstarting the activity. Once that kickstarting actually happened, this quantum is getting used as the surplus working capital available and people are able to, like say, use it as a surplus, I mean, working capital. In few cases, they have used it to repay the old debt so that their overall cost will come down.

Okay, sir. And sir, secondly, sir, in terms of demand, sir, is there a scenario that you have been receiving demand from certain sectors, but because of your cautious approach, you have been declining them. In future, you intend to increase those disbursement. Is that the scenario currently?

Yes, I won't say, like say, I'm seeing a lot of demand for fresh, what you call, capital investment cycle and all. Lots of requests are basically for the customers trying to move from one bank to the other and things like that. But we are -- right from the last year, for the last 1 year, at least, we have been very cautious only particularly in growth.

Okay, sir. And sir, just last question, sir, in terms of this restructuring, the 3% to 5% number which you have mentioned. So is it safe to assume that it will be majorly from the sector such as the hotels and all those stuff that you have mentioned?

Yes. Yes, we have said the 5% to 6% of which these sectors will be, like say, important accounts. They will form reasonable portion there.

And sir, what would be our exposure to -- as a combined to these stressed sectors, sir? Close to, say, 7%, 8% or near about that?

We said it will be about 8% to 10%. We discussed about that in one of the earlier con calls. It will be out 8% to 10%.

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

So, sir, just a small clarification on the loan breakup. So is there any reclassification happening between agri and personal gold loan this quarter?

No. What has happened is for personal gold loan, the LTV had been reduced by the -- I mean, increased -- loan to value, I mean, what you call, it is 90% -- it has been increased to 90% from 75% for the consumption loans. And hence, people prefer to take personal gold loan than agri gold loan. So hence, the new gold loans, most of them are getting classified as personal gold loan and hence non-agri gold loan portion is increasing.

Okay, okay. And that is the primary reason for agri gold loan falling sharply this quarter?

Exactly. So the repayment of the agri gold loan is happening, but new loans that people are taking at non-agri loans.

Sir, what will be the average tenure of gold loans for us?

Typically 1 year.

Okay. Okay. Even in agri side, right?

Yes, yes.

As there are no further questions, I would now like to hand the conference over to the management for closing comments.

Thank you all for joining this conference call. Like say, as I said, things are improving much better compared to whatever we saw in the past. So it is giving the confidence through which we are able to corroborate with multiple data points. At the same time, the risk from, like say, the second wave of COVID or Chinese war and all such things are, like say -- and particularly, the Diwali has to be good. There should not be rain up to Diwali, particularly, because of the monsoon in this part. But together, the confidence level of the customers and businessmen and SME players also, we are able to see things better. So we pray that things should improve from where we are. And hopefully, we should be able to see things getting better and better. And we are also, I mean, giving our best to achieve or even making the numbers whatever we have, like say, shared with you to get -- to work out -- to get better results and all. So hopefully, we pray for better tomorrow. [Foreign Language] So once again, thank you all. Stay safe, particularly when you hear about the second round of COVID. Thank you, all.