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

Thank you. Hello, everyone. Hope everyone is keeping safe and healthy. I welcome you all for 4Q 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 this opportunity of hosting you on this call. And over to you now for your opening remarks. Over to you, sir.

Thanks, [ Renish. ] Good evening, everyone, Dr. Kamakodi here. Hearty welcome to all of you for this con call to discuss the audited financial results for the year and quarter ending March 31, 2021. Hope all of you and your family members are safe and following all COVID safety [ plans ] of masking, social distancing, et cetera. Board approved financial results for the year and quarter ended March 31, 2021 today. And I hope all of you have the copies of the results and presentation. You are aware that the bank is paying dividend on a continuous basis for over 115 years now -- even last year, we had paid an interim dividend of 50% paid before the restriction was announced by the RBI. Based on that option provided for banks to conserve dividend, Board has decided for an interim dividend of 30% per share for financial year 2021. The highlights for the performance for the quarter and the year ended financial year '21 compared to the March 31, 2020, as follows. Deposits recorded a growth of 9%. Credit grew by 7%. Just the total business grew by 8%. CASA recorded 27% growth, that is to INR 12,981 crore from INR 10,197 crore. And the CASA % to total deposits also improved to 29% in financial year 2021, against to 25% last year, which is about 4% improvement in the CASA % for the year-end. The growth in the operating profit was 11%. Net profit increased by 24% -- that is, they increased from INR 476 crore last year to INR 592 crore this year. Return on assets for the current financial year 2021 is 1.15% against 1% for financial year 2020, over and above which we have taken as the COVID provision like last year. During the earlier conference call, we shared our expectation with you all for the financial year 2021 as follows. We said that the credit growth will be at mid- to high single digits. The slippage ratio to closing advances would be about 3% to 3.5%. Restructured portfolio would be about 5% to 6%. Cost-to-income ratio will be about 42% to 44% level. And we would be getting back to 1.5% of ROA during the second half of financial year '22, '23. We believe that we had shown a decent performance, in tune with the expectations we had with you all. The credit growth for the financial year 2021 of 7%. And the slippage ratio to closing advances was at the 3.01%. Total restructured accounts -- the exposure at 4.99%, which is shared -- below the expectations we shared with you all. We had a close to the financial year 2020, that is, last financial year line with a COVID provision of INR 125 crores, which was related during financial -- fourth quarter of the financial year '20. We further had made a COVID provisions of INR 100 crore in first quarter, INR 115 crore in second quarter and INR 125 crores in the third quarter for financial year 2021. And overall COVID provisions stood at INR 465 crore as on December 31, 2020. Last year, we kept all profit over and above ROA of 1% of COVID provision. And this year, we have declared a net profit with ROA of 1.15%. And the balance over and above that, about the same has been retained as COVID provision, considering the second wave and the uncertainty associated with that. Thus the adhoc provision currently stands at INR 150 crores as on March 2021 as COVID provision. We hope the trajectory of ROA level of 1.5% will be achieved during the second half of financial year '22, '23, as shared with you all in the earlier call. I repeat, let's say, in fact, we have made about additional INR 25 crores for the COVID provision over and above whatever we had during the fourth quarter of last year. Our financial year 2021, the major credit growth came from jewel loans and expansion of facility to ECLGS scheme. Of the ECLGS scheme, under ECLGS 1, 2 and 3, we have disbursed an amount of INR 2,096 crores for an exposure of about [ INR 10,435 crores ], constituting about [ 3.63% ] of the advances. We expect further sanction of about INR 200 crores from ECLGS 3 scheme. The government guarantees ECLGS scheme 1, 2. 3, in fact, boosted the spirit of MSMEs. And also nonMSME sector. And the business have started generating surplus. This has also resulted in improving capital adequacy ratio as the disbursement through the ECLGS scheme attracts modest rate, and it is guaranteed by the government. We had discussed during the December 2019 con call in Q&A session that the SMA 2 numbers were around 6%. Earlier couple of years back, it used to be for the level of 12%. And after that, it placed around 6% when we discussed to this point in December 2019. Because of the standstill clause, we were discussing the monthly collection recovery [indiscernible] in our previous 3 quarterly calls. But after the standstill clause was removed by the Supreme Court, the NPA additions has now become current. That is a 90-day overview, and that's why we have directly now declared NPA [indiscernible]. We had disclosed slippage INR 1,134 crores in let's say third quarter financial year '21 pro forma NPA against which the actual slippage for financial year March 31, 2021, stands reduced at INR 1,110 crore. This is basically because after the Supreme Court judgment, the collections and all started showing improvement. The slippage ratio for financial year 2021 remains at a 3.01% against our expectation of 3% to 3.3%, almost in the lower bracket. Our SMA 2 position stands at, let's say, 1.99% at March 31, 2021, which is much below our earlier band of 5% to 6%, which we declared earlier. In fact, the -- you might have clearly seen the final slippage for the March was, in fact, lower than the pro forma slippage, which we discussed when we did the December results. The people have started, I mean, showing, let's say, repayment after the Supreme Court judgment and that. Some amount of the, what you call, reduction in the spirit, we could see after the second wave, which we have been discussing after the [indiscernible]. As said in our earlier February con call, sectors like Hotels, retail trade, and passenger transportation and that, which were opened in late December, managed to some extent, get positive cash flows and things are better than April 2021. Repayments started coming, and that's why the [indiscernible] also start reducing [indiscernible]. However, there are some amount of what we call a reduction in the spirit after the second wave because of the lockdown measures, since we started seeing some amount of deterioration in the subsequent collection. Impact due to second wave, particularly in terms of the number of infections and the death rates are maybe looking higher. But our gut feeling so far is that though the impact of secondary wave COVID is much higher in terms of infection and mortality, we believe that the impact on growth and slippages for our bank, in fact, will not be as bad as we saw in the past year, and it could be slightly better. I don't say that you'll be seeing milk and honey, but it looks like now I think things are not as bad almost at the same time last year, is what I wanted to show at this particular point of time. We witnessed better cash flow until April and the looking things are all right, but after the second wave, we have some impact on recovery, we are seeing. During the fourth quarter, we had restructured about 1,086 of ROAs to the tune of about INR 1,116 crores. The total restructured portfolio for MSME accounts on March 31, 2021, stands at INR 1,849 crores. And the overall % restructured accounts constitute about 4.99%. It is just a share lower than the figures which we shared with you during last year after the fourth quarter or even August quarter. The net interest margin for the financial year 2021 stands at 4%. The decline of the net interest margin for the fourth quarter 2021 stands at 3.72%, which is because of the reversal of total interest on the NPA accounts to the tune of INR 125 crore for the period of 13 months from the financial -- February 2020 to March 2021. Subsequent to the Supreme Court verdict on -- verdict for the -- under the resultant slippage of INR 1,110 crores. Considering the provision made towards interest reversal during Q2 and Q3 to the tune of INR 65 crores, the net reversal in the fourth quarter stands at INR 70 crores, and that's way the quarterly figures may not be comparable. So if we look at the -- on an annual basis, overall, the overall net interest margin is at [indiscernible] 4%-plus. Similarly, if you give the effect, it will be sort of onetime impact in the fourth quarter [indiscernible] will also be around 4% as we have recorded in the earlier quarter on that. We had made a good treasury profit up to financial -- third quarter of financial year '21 but because of, let's say, an [ arduous ] movement of [ lean ], we couldn't make much profit in the fourth quarter. We had utilized the yield movement. And had we not, let's say, [ in cash to the profit ] in the HTM portfolio, we could have lost the opportunities in making the profit [ of that. ] That's also we adjusted to maximum expense, and that's why the sales from the HTM portfolio was over 5%. And we had to -- the overall depreciation in the mark-to-market [ slot ] is hardly about INR 1 crore on March 31, 2021, for the HTM portfolio also. So we had, in fact, played that card when selling the portfolio, reducing the -- I mean, managing the -- what we call the duration and things like that. The operating profit for the current financial year also improved by 11% to INR 1,484 crore from INR 1,341 crore last year. Profit after tax improved by 24% to INR 592 crore against INR 476 crores. And once again, I have to stress that we have kept, let's say, the additional COVID provision also for, let's say, about, I mean, INR 150 crore or so, which is kept for the second wave. Let's say, we made a provision during the, what we call, fourth quarter last year. And we have made additional positions currently, and we are keeping about the [ INR 25 ] crore additionally compared to last year [indiscernible] So the -- that is [ 1 more percent increase ] we have kept for the future [ of these things. ] We shared with you all in the earlier con call on the cost-to-income ratio of 42% to 44% for financial year 2021, and we ended up the year with about 41.45%. Cost to income ratio for the fourth quarter is 51% because of that one-time reversal of -- to the tune of INR 125 crores of, let's say, I mean, interest reversal on further slippages. And also the -- in fourth quarter, we did not have the opportunity for the treasury profit. So overall, we could very well complete the year with [ about ] our range [indiscernible] in fact, a share better than what we shared with you all. The recovery of NPA accounts also marginally increased to INR 110 crores -- that is, INR 76 crore in live and INR 34 crores in technical write-off during the fourth quarter, from INR 106 crore with a live recovery of INR 73 crores and technical write-off recovery of INR 33 crore in third quarter financial year 2021. The total recovery for the whole year was INR 324 crore with a live recovery of INR 221 crore and technical write off recovery of INR 103 crore. Against the INR 409 crore of comprising of live recovery of INR 300 crore and INR 109 crore technical write off recovery in financial year 2021, predominantly during the pre-COVID period. Based on the recent RBI guidelines, we have transferred a sum of INR 18.65 crore from the floating provision, what was there as a floating provision, it has now -- that shifted to the specific provision [ to that effect ]. Though we could see some improvement in the recovery during the last quarter, because of the present second COVID, we expect there could be still some slowdown in the progress of recovery as Debt Recovery Tribunal [indiscernible] are not working fully. And also because of the COVID lockdown, registrar offices, particularly in Tamil Nadu and [indiscernible] are not functioning. So hampering the recovery efforts and also the sale of assets by the -- sale of noncore assets by the borrower and [ all. ] The gross and net NPA stands at 5.11% and 2.97%, respectively, against the 4.09% and 2.29% for the last year. Our net NPA to net advances stands reduced to 2.97% as on March 31, 2021, which was 40 basis points less than our pro forma NPA level on 3.37% on December 31, 2020. It has to be mainly attributed to the psychology we are -- increasing trend in the recovery after the Supreme Court's judgment. Those who were holding back repaying because of the Supreme Court judgment, we started getting something better. And that's why it will optically, it will look as it was 0 NPA for the fourth quarter per se. The -- as directed by under the Supreme Court, we have committed a sum of INR 14.5 crore (sic) [ INR 14.84 crore ] towards ex-gratia payments on "interest on interest" for borrowers for the entire moratorium period of 6 months for the specific credit facility [indiscernible] in December of 2020. The entire sum was [ received by ] us during April 2021. Further, we have made a provision of INR 21.5 crore towards ex-gratia payment for "interest on interest" for credit facilities, [ above ] INR 2 crore in fourth quarter 2021, awaiting final guidelines from RBI. The capital adequacy ratio, we closed the year with 19.52%. Of which Tier 1, it still stands at 18.45%. It is mainly because the, let's say, the improvement of financial year '20, we had 16.76%, which increased to 19.52%, mainly because the -- bulk of the incremental loan growth came from the ECLGS scheme and by incremental gold loan, which attracts 0% risk rate. Since we are currently adequately capitalized and as we discussed and split multiple times in the past, it looks like we do not foresee any, let's say, capital infusion in the current year. Yet, we will be, let's say, evaluating the options of having the enabled resolution, enabling resolution passed by the -- let's say, getting the shareholders' approval during our AGM through [indiscernible], it is needed for various reasons, including any potential change in the regulatory environment and whatever it is. To sum up, the financial year 2020, '21, we were able to deliver almost on dot on all the parameters, which we shared with you all. The net interest margin stands at about 4%. The gross and net NPA and all also [indiscernible] and all also exactly at the places and points where we, let's say, shared with our expectation. Also, the percentage is also improved, showed a decent improvement overall. And coming to the expectations on financial year 2021. So the second wave, in fact, makes us believe that the credit growth for the current year will also be mid to high single digits if the economic environment and the COVID second waves start behaving like last year and all. So a lot of, let's say, jubilation and positivity, which we are seeing somewhere in February have done, let's say, it got to some extent dampened because of the COVID. But the major difference is the availability of vaccine, let's say, it is giving some amount of comfort to COVID. So the expected overall slippage to the closing advances, we expect that it will be slightly below the financial year 2021 for the current year. In fact, we always -- we, let's say [indiscernible] we used to take as much as, in fact, upfront so that let's say we will be having -- the future will be, let's say, smoother as we move forward. So we -- that's why we could clearly see the total slippage of financial year '20 and financial year '21 are, by and large, almost same. And we expect on [indiscernible] for the current year, it should be -- even for financial year 2021 -- '21, '22, it should be slightly better than 2021. At the same time, since we have total lockdown in many states, particularly the state of Tamil Nadu, where we have our bulk of our operations [indiscernible]. The collection efforts are dampened and some amount of, let's say, impact on the, let's say, collections and all are there. So we expect even though for year as a whole, the slippage may be slighter lower than whatever we saw in the financial year 2021. The slippages could be front loaded, maybe in the first 1 or 2 quarters. And we will be seeing things getting eased once the lockdown is removed, the registrar officers and DRP and all start up functioning and start supporting the recovery efforts of us. Because of the lockdown, once again, the property sale transactions are standstill and government registration departments are closed because of that. And that's why we'll be seeing -- we expect to see some spikes and all. But overall slippages will be even slightly better than whatever we saw in the financial year 2021. Similarly, as an extension, though we expect our gross and net NPA for the year-end financial year 2022 will be lower than whatever we have seen in the financial year 2021, that could be quarterly spike and, let's say, courts, even they are not functional, now even if they are functional, there, we could see they are more sympathetic towards defaulting borrowers than the banks and us. So we have to wait for things to settle for some more time. We still believe that we should be able to touch the ROA of 1.5% towards the second half of next financial year as discussed in the earlier quarters. We hope the adverse impact of second wave on the growth and slippages, it will definitely be there, but it may be not as bad as the past year, both on [site] and also on actual impact because we had total lockdown across the country, but here, they are in more staggered fashion and the arrival of -- I mean, some amounts of experience has gone for the -- I mean the businessmen and there, we could see some improvement in the confidence level in managing these sort of adversaries. So with this overall, let's say, the -- to sum up the financial year 2021, almost [ tenders ] like what we thought during the beginning of the year. And we hope for the financial year '21, '22 will be -- let's say, will not be as bad as 2021, it should be slightly better. With this opening remark, I would like to open the questions to, I mean, for the questions. Over to you, all.

[Operator Instructions] The first question is from the line of Suresh Ganapathy from Macquarie.

Yes. Thanks, Dr. Kamakodi for the detailed outlook. Is it possible to give guidance on a couple of things? And I know it is very uncertain the COVID second wave, but having said that, you ended FY '21 with the credit cost, if I were to look at all the COVID provisions made and everything, for 1.92%. So R&D slippage was 3.5% and restructuring was 5%. So can you tell what could be all these numbers in FY '22? Any rough guidance that we have to track going forward?

Suresh, thanks for the question. Let's say, the -- I mean, as you rightly said, it is really [indiscernible]. But at the same time, I have given the [ generous ] broader expectations. We don't use the word guidance. We have given the broader expectations of all these slippages and let's say, what we expect and all. So you will be, let's say, in a position to make your calculation taken before this. I have also, let's say, clearly given that we feel pretty much that condition is based on [indiscernible] are happening. The financial year, as we have taken bulk of the, let's say, [indiscernible], let's say, to some extent in financial year '20 itself and financial '21. And some amount of impact will definitely be there and it will be [ same product ]. But overall, and to, let's say, these numbers will be shared. Yes, slightly better than whatever we have seen currently is our expectation at this point of time. And I think [ Vish ] will answer your question there directly.

Quick question on SME outlook in general because last time, we had ECLGS funding, this time -- and plus the government had also come out with a lot of schemes. This time, as of now, there is no such thing. So how confident you are that the SME portfolio that you have got can withstand the second wave reasonably well? Because you're saying '22 will be better than '21, which means that you're telling these SMEs can handle all this stress even without any kind of support. Can you give any qualitative comment as to why your SME portfolio is holding off well?

See the -- finally, what it infers, let's say, as I discussed with you all during the last year on first and second quarter, we had the multiple stages last year, let's say, for example, let's say, your period when there was purely what we call [indiscernible] and no cash flow. Then you had some level of cash flow, but not sufficient to take care of the regular expenditure and all. Then third stage when the cash flow was sufficient to take care of these things, but not for the bank repayment and all, like that I discussed what overall these stages we were seeing at that particular point of time. Overall, in this particular item, currently, unlike the, let's say, lockdown of your, let's say, COVID 1, the cash flow are not becoming 0. The activities are there and the -- it is not -- all the doors are not closed. This is 1 major point #1. On #2, lots of vulnerable people, let's say, the people who got affected because of that COVID, many of them had arrears or issues even before 29th February, 2020. And #2, the -- let's say, the SME units whose capital got eroded because of the [indiscernible] expenditure, and that's why who could not make it. Let's say even if we see your ECLGS 1 and 2 and all were given on that. That is one thing. Another item what you have to look into is the majority of the businesses, the amount of activities that happened in the last 2, 3 months, majority of them had almost, let's say, the equal, let's say, turnover compared to this -- I mean, in financial year '21, compared to the financial year '20. Bulk of it happened, let's say, in towards [ the end ]. So going forward, those who could not withstand how by and large are gone. The current level thing is that like people have also learnt it. I don't say that I think all this is not going to be weakened [indiscernible] but the qualitative impact because of this in the second wave, we expect will be -- like unless [indiscernible] their health got affected earlier, we are not going to see many, what we call, incremental cases now. And this judgment is on [indiscernible] condition.

The next question is from the line of [indiscernible] from DSP.

I had 3 questions. First is, I missed your comments on the slippages, because if I remember right, as of 9 months, our slippage was INR 1,150 crores. So if you could just explain, if you apply the current number, it becomes negative for the fourth quarter. So it seems that there is some netting off. So if you could explain that? The second question was relating to credit growth. Last time, you mentioned that we should see double-digit -- low double-digit credit growth driven by ECLGS disbursement, dual loan and gradual pickup in utilization. What would be the revised comment here on credit growth? And the last question is on credit cost normalization. So again, I think our expectation was that from second half of this FY '22, we should go back to the normalized credit cost and return ratio should return to the 1.5% kind of quarterly level from the second half. Do we still hold to that level of expectation?

Well, your first 2 question on the slippages on the third quarter and the fourth quarter. This is basically because, let's say, after the Supreme Court judgment came, the collection, let's say, the propensity for repayment increased. And some of the people who were having sufficient cash flow to repay, but did not, I mean, who chose not to repay the banks because of expecting some favorable judgment from the Supreme Court that they paid. That's why, let's say, the fourth quarter overall, the figure is, by and large, the -- let's say, I mean, I don't have the exact proportion, let's say, who improved and who went undone, by and large this can be at least to that extent, it stopped any further incremental slippages in the fourth quarter. This is on that particular front. On let's say, credit card [indiscernible], I don't talk about the credit cost per se because credit cost is a function of your gross slippage, NPA recovery and overall balance sheet targets. So I always start with saying what is -- what are all going to the slippages? And I leave the analyst community to make your own [ basis ] and that's where we come is that [indiscernible]. If I give whatever everything I have, I mean, then I will be stealing the job of the analyst community per se. So basically, what I'm trying to say is that the current year, we expect that the slippage level impact the -- compared to, let's say, the slippage level in financial year 2021 is almost there or even a shade better than whatever you saw in the financial year '20. For financial year '21, '22, we expect things will be -- let's say, the overall slippage ratio will be better, but they could be front loaded, as, let's say, we are having currently the lockdown and all under the courts, let's say, I mean, basically, the recovery, all these things, normally, they have impact on that. So we expect this to be front loaded, but overall, the annual slippage ratio will be slightly better. This is on that. What was your third question?

Yes. Sir, the third question was related to credit growth.

Yes. That will be different all. So we expect, once again, to some extent, from the gold loan and then from the normal credit growth rate, we still believe we should be in mid to higher single digits as we did in the financial year 2021.

Okay. And sir, just 1 follow-up on slippage. You said that it would be front loaded. Just your expectation on the restructured book, how much do you expect slippage from the restructured book? Any guesstimate you have there?

See when I share the final number, it includes, let's say, everything.

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

I think the numbers are commendable in times like this, so congratulations for the same. So my 2 questions are as follows. One, with respect to our provision coverage ratio, in your opening remarks, you mentioned that we have retained ROA at about 1.15%. And anything which is residual, we have transferred to provisions either on NPL or COVID-related. My question is in 2 parts. One, if you had kept this number actually flattish versus last year, that would have released another about INR 80 crores of provision. So we could have checked up our provision coverage by another about 300 basis points. And what goes -- what thought process was behind carrying forward INR 150 crores of COVID provision by providing more in this quarter, rather than straightforward doing provisions on the NPL side, and we could have jacked it up actually up to about 55%, 57-odd percent? So 2 parts. One, why that 1.15% ROA sort of target there, why not slightly lower? Point #2, why not do a straight provision on NPL and carry forward as COVID-19 provision? Second question is that if I were to add back that INR 125 crores of COVID related -- sorry, interest income reversal, our pre-provision profit as a percentage of total FX is now back to our historical sort of highs. In light of that, when you are saying that we will reach our normalized ROAs only in FY '23, is this like a sort of worst-case scenario that in worst case, we would be probably in FY '23? However, there is a lot of scope for positive surprises over there. So these are my 2 questions.

See the -- see when the questions become longer, when you complete the second question, I forget the first question. What was your first one?

Do you want me to repeat the first one?

No, no. Just give you the hint I can look at that.

Okay. So my question is in 2 parts. One, if we had not targeted that 1.15% ROA and remainders [indiscernible] for the previous year. That would have released round about INR 80 crores of provision for that.

Yes. I will come to this [indiscernible]. See, if I go for the provision coverage ratio, let's say, I have to go for more account-specific provision. If you had seen in the past and our track record, if you remove the, let's say, time taken for recovery, by and large, we recover about, let's say, not less than, let's say, 65% to 70% of the slippages in the past. So far as any provision coverage ratio about 30% to 40%, this is something which is over and above, which is actually required. So that's why we don't give too much importance to the provision coverage ratio per se because all our exposures are, let's say, fully collateralized, and we are able to recover significant. In fact, if you had gone through our...

Just over here, if I could sort of interject, while I would agree to your point that our recovery rates are about 60%, 65-odd percent. However, if I look at last about 4, 5 years, that's not actually been the case. Our recovery rates have been falling for last about 3, 4 years. I mean, historically, they were probably as at about 65% to 80%. However, that has actually changed in the last 4, 5 years.

No, no, no. See that I told you, this is because of the, let's say, extra delay which is happening because of the lockdown, closed about courts -- Supreme Court's judgments and things like that. And we don't have any, let's say, doubt about coming back to that, let's say, recovering the 10%, 65%, 70% like what we have done in the past. So that could be even after, let's say, some amount of delay because of the court procedures and things like that. So we don't have much botheration about that particular point. So that's why we, let's say, take -- we make all these decisions, let's say, based on our, let's say, rough estimate of what we see in the future. So depending upon the requirement there, last year, these things were very bleak. So we decided to keep everything at 1% and more and above that. We reversed despite making a loss in the fourth quarter and thus. But this until -- because last year, it was almost, I mean, under it, let's say, things were totally black and nobody had any clarity on what was happening. But now, even though the impact of COVID 2 is higher, the visibility, what we are able to see is better than what we could see during the last year. So that is the purpose with which we decided. And we don't give too much importance to the coverage ratio per se as a factor, which I have explained multiple times in the past. What was your next question?

And second question was that if I look at your pre-provision return on assets, you just said for that INR 125 crores of interest income reversal, at about 3.1% plus, we are already back to historical highs in terms of at least pre-provision return on that. So why you would do [ 6% ] ROA in FY '23? Is that like a worst-case scenario and there is significant positive surprise probably expected in next Q, not a few quarters, but let's say end of FY '22?

Hypothetically, assume that, what you call, by September 19, let's say, 30th, all the vaccination gets completed. I mean COVID level come back to what we had in the February type numbers, everything will be setting up on the courts and all, certain functioning back on the previous track record and all, which I wish, probably things can happen much ahead. Let's say, basically, after things normalize, we will be requiring about, let's say, for example, at least 4 quarters for completing the legal process for recovering the, let's say, health assets and recovering the NPL. So that is going to better than what happened. And I'm having that in my daily prayers and I request you also to have this in your daily prayers, so that things start happening much faster. Whatever the future, I mean, my expectations I may share, is based on the reasonable estimate of what we think that could happen in the foreseeable future.

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

Congrats on a great set of numbers. Sir, just...

I'm sorry to interrupt you, Mr. Bhuva. May I request you to speak a bit louder. Your audio is very soft.

Is it better now?

Yes.

Yes. Sir, just 2 questions. So one is on the other OpEx fees. So other expenses have actually gone up by almost INR 40 crore incrementally. So if you can just throw some light on it. I mean what is driving this incremental INR 40 crore on the other OpEx side?

See, basically, the -- let's say, the 8 percentage growth on the business and the 8 percentage -- I mean slightly equal, let's say, growth is something which is quite natural. But if you look on the year-to-year basis, between financial year 2020 and financial year 2021, other operating expenses have shown a growth rate of 4 percentage, which is lower than the growth rate of business. So that could be, let's say, quarterly operations, which like -- like, for example, how much you provide for your lease encashment, how much you provide -- I mean there are a lot of assets which you do only at the last quarter, which depends on where other interest rates and other -- so many other factors. But overall, if you look at the entire other expenses for financial year '20 to financial year '21, the overall growth rate is 4%.

Got it. So there is -- I just wanted to reconfirm that there is no one-off in other OpEx line item for this quarter.

Ramesh, am I missing anything?

No, no, no, sir. Nothing is there. What you're telling is perfectly correct.

Okay. Okay. And sir, so second question is, again, on this -- the entire stressed asset formation. Okay. So if I heard you correctly that you were saying that until April, the cash flows of these SMEs were intact, and maybe the kind of cash flow loss which they have to see would be limited to May and probably some part of June, and that is what is giving you confidence that this year slippages might be lower than last year. Is that the correct assumption, sir?

Yes. So greater extent, see, what I'm trying to say is that last year, you had, let's say, the impact of COVID. The first set of causalities were those businesses, which had some amount of cash flow issues and which had overdue even on 29th February 2020. They were the first set of casualties. The second set of causalities are those, let's say, whose network completely got eroded because of, let's say, expenditure -- they couldn't take care of the expenditure. And going forward, you had a lot of viable businesses like hotels, let's say, the retail trade and all I've been talking, particularly the hotels and these sort of things, where they had a proper model that's up to, let's say, 2020 but who are not making -- let's say it looked as if the cash flows and all were starting to come, and suddenly, they are -- I mean there is a segment which is not -- which could not recoup their, let's say, loss of cash flows during the, what you call, first COVID wave, which happened. The recuperation happened towards the fourth quarter. Those segments which could not recoup and once again got affected because of the COVID second wave, they will be the casualty, which I am foreseeing at this point of time.

Got it. Got it. And sir, just last question on this. So maybe -- so this year, so in terms of helping the borrowers where we don't see there is a business trend and there was a sort of cyclical impact on their cash flows. So this year, we have restructured almost 5% of the book and maybe another 5% in terms of ECLGS. So roughly 10% set of borrowers, we have helped them either via restructuring or either via ECLGS. So this year, I mean how are we going to help them?

See, that's why I said...

That is the impact.

To greater extent, the cash flow, what they could see except for those business lines where, let's say, the capacity utilization by and large did not happen. So by and large, these cash flow issues and all are solved. That's what I'm trying to say.

Got it.

So only those businesses which could not see their, let's say, impact getting, let's say, to a greater extent, normalized during the fourth quarter and their cash flow problems are continuing over a period of time, they are the people who are going to get affected now.

Got it. And sir, just last question from my side. So on this SMA 2 number, which we highlighted that as of March '20, we are at 2% versus a 6% historical run rate, so is there any structural thing which is driving this lower SMA pool? Or it is just because of the accelerated recognition in Q4 has led to this lower SMA 2 pool?

See, basically, you can clearly see in, let's say, a pattern where the fourth quarter, particularly after the, let's say, December, once the things were opened up, things started moving as if, let's say, there is -- to greater extent, they were almost to come to -- let's say, if not crossing the financial year '20 turnover and profitability, almost 90 percentage, they were able to recoup to financial year '20 levels in the financial year '21. That's the reason.

Okay. Okay. But there is no structural scheme which we are driving which is leading to this SMA 2...

No, no, no. It's the same borrower, same business. So when everything is totally locked and you are asked to repay, they were not able to do. Once they were opened, they started doing their businesses and started seeing good amount of cash flow also. So things looked suddenly good. But suddenly, second wave came, there is a reversal, which once again is creating some amount of problem. So we have to, let's say, understand this and go with the wave.

The next question is from the line of Amit Premchandani from UTI.

I had a question on...

Sorry to interrupt you, Amit. may I request you to come on the handset mode. Your audio is not clear.

Yes. Am I audible now?

I think you are on speaker, sir. May I respect you to come on the handset where it would be clearer?

Last year, you had guided for around 3% to 5% restructuring. Any guidance for FY '22 on the restructuring front?

So far, I don't have, let's say, anything on hand. So I will get a better clarity because, let's say, you don't have -- let's say you have to now see, I mean, a better window or changes to the older thing. It depends upon, let's say, any future regulatory forbearance will be given by the regulator. And I will be able to give you a better clarity on this particular point probably along with my first quarter results. At this point of time, I don't have any -- I mean except those I disclosed, not much pending thing in my hand.

Okay. And sir, in terms of -- and the activity level in the geography that you operate in, what is the impact, say, in wave 2 as compared to wave 1 in terms of percentage of activity levels?

See, the -- during the wave 1 lockdown, perhaps from the, let's say, March, April, May and all, almost the activity level became 0. And that's why the ECLGS and all were required to make the ball rolling, and we did a good job in getting things back on track. Now let's say the -- not all -- except those where things are -- let's say many of the activities are not 0 at this particular point of time. So some amount of activity is going in -- even under the lockdown in terms of, let's say, units and things like that. We are -- I mean some amount of, what you call, some activities are fully stopped. Some activities are 100 percentage on. But overall, at least you have 50 to 60 percentage of overall activities happening even at this particular point of time compared to 0 percentage what you had during the same time last year.

The next question is from the line of Jai Mundhra from B&K Securities.

Sir, first question is on gold loan, right? So you have done a very strong growth in gold loans. So just wanted to understand, is it mainly -- is it something to do with the pandemic, and hence, there is a more demand? I mean from bank side, it always makes sense to do gold loan, but is it more demand-driven? B, is it because of RBI, higher LTV dispensation or something that you have done internally? Have you launched any new product? Or have you activated the network to do gold loan? And how should it pan out in '22?

See, it is basically the combination of everything, which you mentioned, and probably one additional thing. I mean I used to face a question like, let's say, what -- I mean earlier and all, why are you not doing gold loan or sort of things? I have clearly given I used to do gold loans at those branches wherever I don't have anything else to do. So you see, I normally use this as a, let's say, business when I have surplus capacity in my branch network. So that's why -- and also as a substitute for the agricultural gold loan, which seems to happen in the rural and the semi-urban places. This time, almost throughout the year, since, let's say, the movement of the persons and all were restricted because of the COVID restrictions and other safety precautions. So the surplus capacity, we were not able to do anything much. And we gave sufficient time and resources for -- to focus on the gold loan, which has helped us to see this much amount of growth.

Right. Okay. Sure. And second thing is around ECLGS. So now how do you see -- because these loans are clearly not the -- I mean these customers clearly need some handholding. And if I were to ask you that even pre-COVID at system level, at least there was a reasonable stress in SME. And how should one -- I mean, a, what is your best guess of strength in ECLGS not in maybe -- not in FY '22 but beyond? And if you can quantify the associated principal, which is there because we have sanctioned INR 2,200 crores, the disbursement under this facility -- sorry, the outstanding is only, let's say, INR 1,960 crores. But what would be the associated principal because people may have taken ECLGS and they have repaid their loan. So any color there, if that makes sense.

See, the point is -- what you have to understand is that, let's say, the ECLGS scheme was not available to the SMEs who went under deep stress on 29th February 2020. For example, if they were in SMA 2, they were not eligible. Similarly, for non-MSME also, even if they were in SME 1, they were not eligible. So what has happened is that, that has literally eliminated first SMEs from getting the ECLGS to a greater extent. And another thing, how it will go is that like -- I mean you have to put it this way. The -- when we go for, let's say, the -- let's say the ECLGS has government guarantee, and it has got its own repayment tenure up to 4 years or moratorium or whatever it is. So we will use it when we now, let's say, go for the additional funding, which needs to be given for incremental growth, which normally happens, enhancements, which you give normally. We will, let's say, look into the outstanding of ECLGS. And to that extent, the incremental, let's say, enhancements will not be given. So they will get average route in 1.5 to 2 years in their normal course of time.

Understood. Understood, sir. Okay. And the last question, sir. I mean you have mentioned a new fraud account, and there was INR 1 crore fine by RBI. If you can provide some more details there.

Yes, absolutely. See, the -- basically, we had an account called, let's say, the Government Telecom Employees Cooperative Society. This was run by, let's say, the employees of telecom department employees. It was a cooperative society for which we had in the past given INR 25 crore loans in 2, 3 occasions and they had repaid. So in 2018, once again -- I mean basically, this relationship first started somewhere in 2010. The first [ loss ], they closed in 2017. And let's say after that, we somewhere in -- and it used to be on, let's say, EMI basis and things like that. And they once again had in 2011, which they closed in 2018. And in 2018, they asked for another INR 25 crores. Since we had a track record of 2 times, we had given. And they have repaid and about INR 13 crores, INR 14 crores is pending. And they had some deposits also after adjusting that, about INR 11 crores, INR 12 crores of -- I mean INR 14 crores, INR 15 crores of outstanding is there. Their repayment and their whatever we had so far, we did not have any issue at all. But the -- there are other bankers. There were some issues with the other bankers which was reflected on the [ release ], and now because of the current regulations, we also had to declare it as a fraud. So they have declared. We did not have any issues so far. But balance, since it has cropped up, I think that's what we have disclosed, and you may be seeing that. And it will have a net impact of about INR 3 crores to INR 4 crores per quarter for the next 2, 3 quarters or so. Your next question was on RBI penalty. So we got the RBI's show cause notice. Normally, what happens is that after that, our annual financial inspection, the enforcement department will pick up whatever all our grave mistakes which we have done. And based on that, the show cause notice will be given and for which, we have to answer and inquiry will happen. Based on that, they will be taking a call. So we were -- based on the, let's say, the inspection report of -- for the dated 31st March 2019, so RBI gave us a show cause notice with 3 charges on us. The first charge was non-obtention of credit information reported from the transferer bank. The bank, before taking over borrower accounts of 238 customers during 2014 to 2019, that is in 5 years, failed to obtain necessary credit information from the transferer bank. They are talking about 238 accounts in 5 years. And we gave sufficient, let's say, arguments and documents from our side, and RBI dropped this charge. The second charge RBI gave was that acceptance of collateral security for MSME loans. The bank did not adhere to RBI directions, when it had happened, collateral securities from 563 MSME borrowers who have extended loan up to INR 10 lakhs during the financial year '18-'19. So they talked about, let's say, acceptance of collateral from 563 MSME borrowers who had taken loan less than INR 10 lakhs. Similarly, the third charge was that the acceptance of collateral security for educational loans. Bank did not adhere to RBI direction when it had obtained collateral securities while extending 106 educational loans up to INR 4 lakh during the period 2005 to 2019. That is in 14-year period, we had extended 106 educational loans up to INR 4 lakhs and obtained collateral securities. This was the -- basically the charges. So these 2 charges and another was that obtention of security for agricultural loans. Bank did not waive margin/security requirements while extending 187 agricultural loans up to less than INR 1 lakh to individual borrowers during 2016 to 2019. That is in 3 years, 187 cases with loans less than INR 1 lakh where, let's say, margin requirement and all were given. These are all basically the 3 charges. In these 3 charges, basically, everything is boiling down to getting collateral security and all. We gave, let's say, explanation from our side and all. There were some slips in our side also, which have been this, what you call -- this, what you call, 106 educational loans in 14 years. These sort of things basically were too small and they escaped our attention and for which the RBI has imposed a penalty of INR 1 crore.

Understood, sir. And just a remark, can you...

Sorry to interrupt you, Mr. Mundhra. [Operator Instructions]

No, let him complete. Let him complete. No problem, but I'm not able to clear that. Let him complete that one.

Sure, sir.

Of this practice because of RBI fine of getting more collateral or you will continue? Because it looks like a prudent banking, but of course, RBI is not happy. So I just wanted to take, have you changed the mindset or you will continue to do the way you have been doing?

See, we cannot do something which is not liked by RBI. And this is -- basically, what has happened is that these were all, let's say, too micro things which we -- escaped our attention. And overall impact, our exposure for that as you see, let's say, from -- it's not even 0.5 percentage of the -- it will not affect even 05 percentage of the overall loan book or whatever it is. So as a banker, we cannot afford to, let's say, not follow RBI guidelines.

[Operator Instructions] The next question is from the line of M.B. Mahesh from Kotak Securities.

Just a couple of questions. On the Exhibit 29, and if I were to just look at what have you disbursed or restructured, these was to ECLGS or restructuring. How would you split that up, sir?

Too technical. Page #29.

Page #29. Loan book sectoral deployment.

Okay.

Should we just add most of ECLGS disbursement, restructuring and the slippages coming in from wholesale traders, retail traders and MSME? Or do you see any other segments of the business which have taken a higher impact as well?

See, by and large, let's say, since these take care of our, let's say, maximum amount of loan book, the contribution to that will, by and large, get themselves limited today.

And for you, the slippages have been there from gold loans or that book is absolutely clear?

See, the -- you will always have slippages from the gold loan. But the last will be 0 because we will be auctioning that and they're getting out.

Okay. So this understanding is right, right? But if I add most of the slippages for wholesale traders, retail traders and MSME, I should be able to triangulate most of the stress which is sitting there for restructuring, ECLGS and...

Yes. They constitute -- yes. Since they constitute about 70 to 80 percentage of my total loan book, this also proportionally will be there.

Okay. So that's first one. And just one clarification. You declared slippages on daily basis or you do it on a month-end basis?

We identify the accounts on a daily basis. The reversal -- I mean other, let's say, related thing will happen on a weekly basis.

Sorry, if you can say once more.

See, you have to -- let's say interest reversal and all the closings and other things.

No, the reason I'm asking -- the reason I'm asking is...

Yes.

The reason I'm asking is, if the Supreme Court judgment came on, I think, March 27, if I remember it correctly..

23rd.

23rd, sorry.

Yes.

You declared the slippages from 23rd or you kind of went ahead from month end to declare the slippages? Because the customers paid...

No. No. No.

That's what you said.

No. No. No. Let's say the [indiscernible] will tell us what is happening. Hello?

Yes. Yes. I'm there, sir.

You understand what I tried to say? Like I cannot say to the customer that you have become NPA. But I know whether he's NPA or not.

Okay. From a recognition standpoint, how does that impact?

The recognition can happen only after the Supreme Court [ determines ] on book. But the collection and the other efforts will happen at the back end using the overall data.

Okay. I'll just get back to you. I'm sorry, I might have missed that -- what are you trying to explain. I'll just clarify this.

No. No. No. I will get -- no, don't worry. Don't worry. See, the issue is, say, for example, somebody is there. He becomes NPA on -- say, if the Supreme Court sanction clause have not been there, he becomes NPA on, say, 5th January 2021. So our fellows will be in touch with him probably when we became the SMA 2, probably from the 5th December onwards. He will say the Supreme Court is not giving. But the engagement will be there continuously with him. So when the Supreme Court judgment has not been -- it will not, let's say -- our entire branch network will be in touch with those fellows who are involved.

Sure, sir. That's understandable. Sorry, one clarification. There is one more option available for banks, which is the working capital adjustments that you can do on the borrower, which RBI has allowed. Does that regulation help you?

First, can you explain that?

RBI has said that as a onetime measure, you can reassess the working capital requirements for the borrower.

Yes. You see it happen because, let's say, it was open, and we did it even at the beginning of this, what do you call -- I think they had said it holds good up to 31st March, and they have now extended it, I suppose. So the -- it is -- we did it at the beginning.

The next question is from the line of Nilanjan Karfa from Nomura.

Maybe my questions are a little bit [indiscernible]. Part of it is answered. But just going back to the whole -- entire restructuring and that we obviously have last 12, 13 years of great history of getting recoveries out, but if you look at one of the key MSME restructuring is no longer available, right? That was not extended by RBI post March, which is where the large part of our MSME restructuring is there. Secondly, I think, let's say, in Q2 last year, we had already probably disbursed around INR 300 crore under ECLGS loans. Moratorium -- and yet moratorium will be getting over sometime in Q1, Q2. So in aggregate, while I understand you have already given a guidance of slippage, but any additional color how those ECLGS account is performing? And sort of tagging to Mahesh's question, we have already done 1/3 of restructuring. I mean given the situation that you'll never be able to go and collect for another quarter or so, how much of additional re-restructuring do you think is needed in your case?

See, it depends on to what extent or how long this lockdown and all are going to exist or going to happen and also what is going to be the regulatory, let's say, baseline if at all it comes in the future. I don't have a direct answer for your question at this particular point of time.

If there was to be nothing, let's say, for example, which I probably don't think is going to be the case, but if there is nothing, how do you see...

Yes. Yes. Honestly speaking, I, let's say, go with an expectation that, let's say, this full lockdown will get -- will be getting released from, let's say, in another couple of weeks. And I don't expect any further, what you call, regulatory forbearance and all coming here. Suppose, for example, if things get -- I mean these are all the fundamental assumptions which I have made. I have given you my expectation. First, for example, once again, let's say, the -- another 3 months of lockdown is extended and which is pulling down the overall things and all. Of course, nobody will be in a position to say anything about how things will pan out if this regulatory forbearance don't come. See, general logic is that when you have lockdown per se, it will have a proportional forbearance. You need something.

Right. Right. Okay. And just maybe an additional question. Which sector -- actually barring hotels and tourism, which is clearly understandable, which other sector in our portfolio is most impacted?

It is in proportion to the overall exposure as I told slightly earlier.

If you have to look at ...

Say now -- yes, these sectors include retail sales and all are -- which are now getting more impacted because of the lockdown. All other things and all, let's say, you will be having section because of their own inherent weakness or other financial issues, they will have a problem.

Right. And our SMA 2 is INR 5 crores plus or the entire book?

All. All. Entire. Entire. Entire.

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

Yes, you can even give 1 or 2 questions. If at all, anybody is there, let them complete. No problem.

No one is there, sir, in the queue.

Anybody available? Nobody is there?

No one is there in the queue, sir.

Okay. Okay. Okay. Yes. I think you can close there. Then I will give my comments.

Sir, just now we've got 2 questions. So would you like to take that?

Yes, sure.

The next question is from the line of Rahul Maheshwari from AMBIT Asset Management.

Sir, just can you give -- a data question. Data on RWA numbers on -- for FY '21, how that stand? Because last 4, 5 years, which we see the trend, your RWA on assets was increasing in terms of the risk. So how the trajectory is for this year.

Yes. As bulk of the -- almost the entire incremental advances for the current year came from the gold loan and the ECLGS scheme, which is guaranteed by the government, both have 0 risk weight. And hence, you don't have incremental weighted assets per se.

Sir, this time the -- if it is possible, can we get the number, if it is ready?

It's there. It's there in the presentation. You can check it.

The next question is from the line of [ Raj Kumar ], an individual investor.

Sir, am I audible?

Yes, slightly. Come closer to the mic, please.

Yes. You're audible, but you're not very clear, [ Raj Kumar ]. Can you please come closer to the phone?

Yes. Is it clear now?

Yes. You can go ahead.

Slightly better.

Yes. Yes.

Sir, first of all, I would like to thank you for all your detailed explanation. It's not only that we get to know about City Union Bank, but we also get firsthand information about the overall banking industry. I want to thank you for all your detailed explanation. Sir, my question is -- I have only one question. I want to know, what is your effective tax rate? Because last year, the tax rate is almost 19%. And now if you see, it's 14%. And this quarter, we have reverse tax. So just wanted to know, what is driving this rate? Because again, there are nominal tax rate, so why is your tax rate very low?

Yes. We have moved to the new tax regime already. And we have taken the deferred tax benefit from 3 items basically: standard asset provision, nonrural write-off and also for the COVID provision. And of course, if we reverse this provision, we have to, let's say, offer this for the tax at a future date. So since these are all the provisions we have already made, we have taken the benefit for that and made that extra provision.

Okay. And what is your guidance for the '21-'22 year? What tax rate you will be forecasting?

We are in the new tax regime already. So how much deduction and all, we'll be using our other things, which we will get to know only at the time of year.

Okay. So is it fair to take a 26% tax rate, which is the normal tax rate as per the new regime?

Yes. I mean definitely, for the PBT -- tax as a percentage of PBT, that number will come closer to whatever you say. But how the adjustment happens between the operating profit to the PBT and what are all the deductions that we use, that will depend upon that particular item or like what are all the developments that have happened during the course of the year.

Sir, we don't have anyone in the question queue. Would you like to add any closing comments?

Thank you all for joining this conference. I think to a greater extent, whatever that is possible, we have answered from our side. Any other specific data point or anything you want, you can always get in touch with Mr. Jayaraman, whose contact details are already given in the presentation. See, let's say, stay safe. We are also trying our level best to, let's say, be safe. In fact, I also had, let's say, tested COVID positive. But since I have completed my vaccination, the impact of that was much less, and I will be completing my -- I'm completing the entire quarantine today and tomorrow. So today is my 14th day, basically. So I request all of you [Audio Gap] protocol. And as I told this year, let's say, the -- our comfort at this point of time is definitely much better than what comfort we had during the same time last year. I'm not totally saying that we are seeing, let's say, milk and honey is flowing. Definitely, there will be impact. But the final impact will definitely be, let's say, a shade lower than whatever we saw in the last year and all. And the impact that we expect because the lockdown and all are happening during the first half of the year, the impact could be slightly higher during the first half than the second half. So with this, we have shared many of our expectations. These expectations are shared with, what you call, whatever we think are true at this particular point of time with available information on that. We pray, Almighty, things to improve so that we should be able to achieve these figures in a much easier fashion. Once again, thank you all for joining this thing, and thank you all.