City Union Bank Limited ($CUB)

Ladies and gentlemen, good day, and welcome to the City Union Bank Limited Q4 FY '26 Earnings Conference Call hosted by AMBIT Capital. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Jignesh Shial from AMBIT Capital. Thank you, and over to you, sir.

Yes. Thank you, Doman, and good evening, everyone. On behalf of AMBIT Capital, I would like to thank the management of City Union Bank for allowing us the opportunity to host Q4 FY '26 earnings call. We have along with us, Dr. N. Kamakodi, MD and CEO; Mr. R. Vijay Anandh, Executive Director; Mr. V. Ramesh, Executive Director; and Mr. J. Sadagopan, CFO. I will now hand over the call to Dr. N. Kamakodi, MD and CEO of City Union Bank for his opening remarks. Over to you, sir.

Dear all. Hearty welcome to all of you for this investor call to discuss the audited results of fourth quarter and the financial year ending 31st March 2026. I hope all of you have received the results and the presentation. As you all know, it has been 15 years since I was appointed as the MD and CEO of this prestigious institution with over 120 years of legacy. As you all know, as per the regulation in force, I'm completing the maximum permissible tenure of 15 years on 30th April 2026. And I have to hand over the responsibilities of this great organization to my successor. Hence, with this investor call, I'm signing off and passing on the rein to my successor, Shri R. Vijay Anandh, who will take charge with effect from 1st May 2026. This con call is my 60th call to the investor community, and I'm happy to see and interact with some of them since my first con call. My congratulations to -- my thanks to all of you and special thanks particularly to those with whom -- we have been traveling over 15 years. At this juncture, when I look back my long journey spanning over 1.5 decades, I could relish many moments which are kindling my joy and satisfaction. If I look back at the performance of the bank during my stint as the MD and CEO, I have done my best and feel satisfied with the level of progress the bank has achieved during this tenure. Of course, many more things could have been done, but whatever that has happened in the 15 years is really satisfying. And I would like to summarize a few, let's say, points before I get into the progress of financial year 2026. During this 15 years tenure, the bank has achieved many milestone. If you look into the paid-up capital between 2011 and 2026 increased from INR 41 crores to INR 74 crores, about -- just under 2x growth, which we have achieved without diluting the capital, like without burning the capital, without much increase in the overall paid-up capital, we have done that. And we have seen the deposit during the 15 years increasing by 6x, advances increasing by 7x, total business increasing by about 7x, net profit increasing by about 6x. The number of branches increasing by 4x. The total number of staff members increasing by 3x. Market capitalization increasing by INR 1,815 crores to INR 19,450 crores, which is about 11x our CAGR of 17 percentage in these 15 years. And the net worth of the bank increased from INR 1,007 crores to INR 10,459 crores, which is almost 10x increase with the CAGR of 17% during this period. I take this opportunity to offer my sincere thanks to various stakeholders, be it shareholders, customers, employees, regulators and everyone who supported the bank and stood with us in this journey, which has happened during these 15 years. I also request you to offer this unwavering support to my successor, Shri Vijay Anandh, whom I'm sure will take the bank to newer heights with your blessings and support, and I wish him good luck. During the last quarter, since I'm not going to get this opportunity again, I will go through the numbers, and I will hand over the mic to my successor for sharing the outlook for financial year '27 and beyond. And I will be discussing with you the progress which happened during the last year. During this fourth quarter, 2 of our independent directors of the Board, Shri. V.N. Shivashankar and Dr. Sridhar IAS retire has demitted their office on close of business as of 6th of February after completion of 8 years tenure. On the Board meeting held on 2nd February 2026, Board of Directors had approved the co-option of Shri K. Subramanian as Additional Director of the Board in the capacity of Independent Director, who is a Chartered Accountant and seasoned IT executive with expertise in various fields like information technology, including artificial intelligence, risk management and all. And shareholders have already given their approval for his appointment through the postal ballot. In the Board meeting held today, Board had inducted Shri R. Mohan as Additional Director. He is known face and he had served the Board as the Non-Executive Chairman earlier. They will be strengthening the Board to take it to the, let's say, greater heights. If we look into the earlier con calls, we had shared with you our expectations for the current financial year, that is financial year 2025, '26 as follows. Like we said, we will end up with the high-teen growth for the financial year 2026, which will be over and above the industry level growth. And the focus will continue to be in the areas of core MSME, gold loan and secured retail. And we said our growth of deposits will be aligned with the credit growth with the focus on CASA and granular term deposits. And we said the effect of CRR cut will have some positive bias in the fourth quarter along with, let's say, NIM levels holding up. We also said the ROA is expected to be, let's say, around the same level of 1.5 percentage, what we were having during the first 3 quarters. And our cost-to-income ratio will be in the range of about 48% to 50% and all. We also shared our slippage for the whole year will be about INR 700 crores to INR 750 crores compared to INR 800 crores, let's say, during the financial year 2025. By and large almost all the expectations, whatever we shared with you in the earlier con calls for the financial year 2026, where met the shared spirit whatever we had shared with you. During the fourth quarter and year ended 31st March 2026, we have registered the highest business growth of the -- like in the past decades with the growth level achieving about 24 percentage in the -- total business in the year-on-year after the financial -- and after the financial year 2013, this is the highest growth rate whatever we have done. In between, we had, let's say we moderated the growth in a steady fashion, which helped us to, let's say, cross through so many currents which were in the banking industry in the last 15 years like by not participating in the corporate advances, unsecured retail and all. In fact, one of the reasons, let's say, when we feel let's say, satisfied with the way of progress in the last 15 years is not because I did something great or I did something innovative or I did something new. It is more because we had successfully avoided many pitfalls be it the -- let's say, corporate consortiums or infrastructure lending or unsecured retail and all, which had, in fact, dented the asset quality of the entire banking system and most of the banks got affected and we were -- very few banks which stayed clear of those risky sectors and not getting affected because of the many, let's say, cyclones, which are happening in the industry, and we were fortunate to go through that. And the growth is also continuing in the same, let's say, areas in the composition like be it gold loan, particularly focusing on the agricultural gold loan and also through the secured retail or secured MSME and all. We have not yet, let's say, as [indiscernible] data, we have not ventured into, let's say, risky areas with a lot of fluctuations and all. So we were able to achieve this 24 percentage growth, whatever we had achieved last year purely through just focusing on the, let's say, areas which we had done in the past, let's say, staying clear of, let's say, any pitfall. That's one satisfying thing which has come. In fact, the secured retail of -- let's say, secured MSME or secured retail like housing loan, loan against properties and all the verticals which we have created and all, in fact, increased the capacity, helping helped by the Newgen and other LOS software with the process are set and perhaps giving the feeling that the best of CUB is yet to come and probably we'll be having many more milestones in the years to come under the leadership of my successor. So we had registered about 26 percentage advanced growth for the Q4 financial year '26 and it increased to INR 66,698 crore from the INR 53,666 crores compared to the same period last year. As explained earlier, this is the highest credit growth for our bank. We achieved this 25 percentage plus growth rate after almost 13 years. As we said in our last few con calls, the growth is consistent starting from the Q1 and we had achieved double digit, in fact, in Q1 financial year '25, and we had achieved a double-digit growth over the last 8 quarters up to the Q4 financial year '26. In Q1 alone, our advances have grown by over INR 5,800 crores. For the full year, the incremental credit growth is INR 13,600 crores. As given earlier, our focus will be on core MSME, gold loan and secured retail and we will continue with the targeted growth of mid-teens to high teens with about 2 to 3 percentage over and above the systemic growth rate as we had been consistently communicating to all of you. On deposit front, also deposit growth matched with that of the credit growth. Our deposits have grown by 23 percentage and stood at INR 78,308 crore for Q4 financial year '26 as compared to INR 63,526 crores in Q4 financial year at the end of the Q4 -- in the financial year '25. The -- in fact, if you had observed, the growth had been granular under through, like say, both the CASA and the retail term deposit. We had, in fact, retired some of the -- like certificate of deposits in the fourth quarters getting substuted by the, let's say, retail term deposits. Our average CD ratio for the financial year '26 stood at 85%. The CASA percentage at the total deposits stood at 28 percentage and it is -- the CASA growth is also matching with that of the growth. And in fact, in -- the average CASA growth is also very much favorable let's say, giving us the confidence that, let's say, we can increase the growth by a few percentage points more than what we had initiated during the earlier period. On asset quality front, also supported us, which actually helped us to, let's say, with the confidence, maybe go for some incremental let's say, higher growth rate compared to whatever we had communicated to you all in the earlier con calls. On asset quality front, the recovery is more than the slippage in the current quarter as well, which is the trend that we have been seeing for the last several quarters. For fourth quarter financial year '26, the total slippage is INR 199 crore. And while the total recoveries is INR 231 crores, consisting of INR 153 crores from live NPA accounts and INR 78 crores from the technically written off accounts, resulting in reduced NPA figures. Our gross NPA percentage had reduced to 1.91 percentage from 2.17 percentage in the Q3 financial year '26. The gross NPA has come below 2 percentage mark after 11 years. It was 1.86 percentage for the financial year 2015 and it has come to 1.91 percentage in the financial year '26. Growth -- both gross NPA and net NPA, both in percentage terms and absolute terms is reducing every quarter for the last 3 years on a continuous basis. When compared to the Q4 financial year '25, the gross NPA has reduced from 3.09 percentage, which is about a 118 basis point reduction. Similarly, net NPA percentage decreased to 0.68 percentage or 68 basis points in Q4 financial year '26 compared to 1.25 percentage or 125 basis point reduction resulting in 57 basis points on a year-on-year basis. Our last con call, we had stated that our overall SMA, including SMA 0, 1 and 2 put together are in decreasing trend for the past few quarters and total SMA numbers for the Q4 financial year '26 stood at 2.47 percentage compared to 3.68 percentage in Q3 financial year '26 and 5.60 percentage in Q2 financial year '26, showing a sequential improvement and that improvement is also quite substantial. And overall SMA-2 percentage to total advances are stood at 0.72 percentage for our Q3 financial '26 compared to 0.95 percentage in the Q3 financial year '26, 1.34% in Q2 financial year '26 and 1.59 percentage in Q1. In other words, in Q1, it was 1.59 percentage. In Q2, it was 1.34 percentage. In Q3, it was 0.95 percentage. And currently, it is like you are seeing it at 0.72 percentage and the -- showing a sequential increase for the last, let's say, 4 quarters. So we are seeing this, let's say, improved asset quality cycle. And perhaps I can even say this is perhaps the best asset quality point in terms of both SMA portion also in my last 22 years of stint in the bank. We are yet to see any impact of U.S. Iran conflict and things like that. We are keeping the fingers crossed and closely monitoring the situation. So far, it has started reflecting in the -- on the asset quality front in our portfolio. And in fact, it is showing let's say, continuous improvement even after the onset of the conflict is giving us confidence. Anyway, we are keeping the fingers crossed and monitoring the situation closely. For the Q4 financial year '26, provision coverage ratio with technical write-off stood at 84 percentage, which improved from 78 percentage during the corresponding period last year. As we said in our last con call, we are improving our provision coverage ratio without the technical write-off every quarter, starting with Q1 financial year '25 to bring closer to the industry level. For the current quarter, PCR without technical write-off improved to 65 percentage compared to 60 percentage during the corresponding period last financial year, that is financial year '25. Our interest income had also grown by 21 percentage in Q4 financial year '26 and improved to INR 1,856 crores from INR 1,533 crores in Q4 financial year '25. For the full year ended the financial year '26, our interest income improved to INR 6,870 crores, as compared to INR 5,834 crores, that is 18 percentage growth for the corresponding figure last year. On yield different front, our yield on advances stood at 9.8 percentage in Q4 financial year '26 as compared to 9.73 percentage in Q3 financial year '26, showing a marginal improvement by 7 basis point. For financial year '26, the same was 9.75 percentage against 9.79 percentage in the financial year '25. On the cost side, the cost of deposits stood at 5.6 percentage for the current year compared to 5.57 percentage for the Q3. As a result, our net interest margin stood at 3.87 percentage in Q4 compared to 3.89 percentage in Q3, which is almost, let's say, hardly about 2 basis point plus or minus and within the narrow band, which we said last year -- during the earlier con call. For the year ended 31st March 2026, the net interest margin is 3.74 percentage, which is 14 basis points more than the 3.6 percentage whatever we reported in the financial year 2025. We expect the stable net interest margin for the current financial year '27 with almost, let's say, in the same narrow band of maybe 5 to 10 basis points this way or that way, but we hope to maintain that. And what we have to now understand is that because of the changes in the calculations of the LCR, there are, let's say, the -- we are getting a lot of elbow room, let's say, even having, let's say, even slightly increased credit deposit ratio, which will be having some, let's say, positive contribution to the overall margin. Vis-a-vis whatever potential, let's say, increase in the cost or reduction in the yield, which may result because of the changes in economic condition because of the U.S. Iran conflict or whatever it is, some amount of elbow room is available there in managing that. The total other income for the financial year '26 increased by 16 percentage to INR 1,039 crores from INR 898 crores in the financial year '25, with the limited opportunities in the treasury profit. It has happened because of the compensating contribution through the other means like the insurance commission, processing charges and other fee income. So our operating profit has grown by about 20 percentage in financial year '26 and increased to INR 2,014 crores compared to INR 1,679 crores in financial year '25, which is aligned with the business growth. The PAT growth in the current quarter is INR 360 crores, with the 25 percentage growth compared to INR 288 crores in the fourth quarter last financial year. Our current quarter PAT is highest in -- so far in the single quarter. If you look back a decade ago in financial year '14, our PAT was, let's say, the annual PAT was INR 347 crores. And the current PAT is more than that, let's say, that has happened over a period of time. For the year ended, the financial year '26 we had INR 1,326 crores against INR 1,124 crores last year, showing an 18 percentage improvement in the profit after tax on a year-on-year basis. Our cost-to-income ratio for the fourth quarter improved to 46.15 percentage compared to 48.56 percentage in the Q3 and 49.16 percentage in the Q2 last year, showing, let's say about a couple of basis point decrease. For the year ended financial year '26, the cost-to-income ratio is 47.93 percentage, it is in line with our guidance of, let's say, a 48 to 50 percentage for the year as a whole. Our return on assets for the Q4 financial year '26 for the full year is '26 -- financial year '26, is at 1.56 percentage, which is at par with your long-term average growth over the 15-year tenure. If you had a chance to look into the consistency number over the last 15 years, except during the 3 years of COVID for financial year '20, '21 and '22. We had always been, let's say, about 1.45 plus almost in all quarters at least 10 quarters or so, it is above 1.5 percentage is what we had demonstrated over the period of time. For your reference, the summary numbers are given -- to just to give you a look, so overall, the 15 years had been rewarding and to a greater extent, satisfying. So though there were things could have been better and -- but the -- the challenge has been to ensure that we don't get into any pitfalls. And let's say, we had to a greater extent, navigated through multiple cycles, be it, let's say, even during the 2008 global financial crisis, I was the Executive Director, I was part of the system. Then we had our -- the AQR gold price crash of 2014, demonetization and the introduction of the GST. So these things were affecting the core sector of MSME, which we were supporting, but we could manage that. But the COVID was something, which unexpected. So in those periods, we had to do that. The digital transformation and all, which had happened has started giving results. So, so far, so good. So we have -- to thank you all in-person, in fact, I'm coming to Bombay, and we have arranged for Thanksgiving dinner tomorrow appreciated by the analyst meet when I will be meeting all of you in-person. I extend my hearty invitation to all of you to join in-person tomorrow for the con call by 5:30 at Grand Hyatt BKC. It will be followed by get together and dinner. Looking forward to meet you all. Before we get into the question-and-answer session, I request our ED and MD and CEO designate R. Vijay Anandh to share his expectations for the financial year '26, '27. After that we'll get into question-and-answer.

Thank you, sir. Am I audible, sir? Thank you.

Yes, sir. Perfect.

So in terms of Vision for '26, '27, with respect to advances, we should be 2%, 3% over and above the credit growth of the industry. However, our focus on MSME will remain same. Gold loans and secured retail will be an additional enhancer. MSME proportion will continue to dominate with 55%, 60%, followed by JL with 30% to 35%, and remaining, we are planning to do this through secured retail. We will focus more on branch-led business now that we have 1,000 distribution branch channels. Our business through third party on a overall back book, we envisage to be only between 1% to 2%. Hence, our focus on secured products will continue for the year. Our endeavor around CDR continues to be 85% to 87% based on the credit growth. We are launching segment-specific products for women and senior citizens, and we are also enhancing the product proposition in savings and current account. With respect to fee income to other income, we will be in the range of 55% to 60% as like last year, contribution of fee income to other income. The only thing what we see here is normally, we open the branches only on the third and fourth quarter of every year. Now in the first month, we have opened 70 branches in the first month itself. We expect elevated operating expenses for the current year in the range of 15% to 18% over the last year. This is about what we have planned for the year, sir.

Yes. I forgot to add this point of opening our 1,000th branch. I'm happy to announce that today morning, we completed the opening of the 1,000th branch near our headquarter Kumbakonam. So we wanted to achieve -- achieve this milestone before I lay down my office. So what we have done is that every year, we open about 75 branches and last year also, we opened 75, we close the year with about 950. So for the 75 branches, the first branches -- about 50 branches we opened in the first month itself in the April itself. So the remaining 25 will get opened towards the year-end. So the point is that like the same pace of 75 branches is what we expected to grow. And as Vijay Anandh said that normally like we will have branches getting opened in the fourth quarter, and they used to -- majority of them, let's say, coming close to, let's say, breakeven in the first year and some of them slipping into the second year. So there will be some changes in that thing. But overall level at -- on a macro level, they are going to add for our increased distribution capacity, which I forgot to tell you. So with this, probably we can get into Q&A. Like for futuristic questions, Vijay Anandh will answer. And for the present and the past, I would like to answer to that extent as possible. And if I'm not able to do justice, Vijay Anandh will chip in.

[Operator Instructions] Our first question is from the line of Jai Mundhra from ICICI Securities.

Yes. Many congratulations for the meaningful career at City Union Bank and driving the bank to a very impressive height and creating shareholders value. Sir, my first question is regarding gold loan, right? So far, the gold loans have grown at a much faster pace than overall loans, and I believe this is not an asset quality issue at all. But I just wanted to understand the risk practices here in the sense that, let's say, in January, Feb from the peak of gold loan prices, gold prices have come down by 10%, 15%. So how do we manage the risk management for those portfolio which have been originated at, let us say, INR 165 gram of 10 gram gold loan. So if the gold loan was originated at INR 165 whereas it has come down by 10%, 15%. So how do you -- while at the portfolio level, the LTV is very respectable, very manageable, but how do you manage the risk in those portfolios?

See, thankfully, we had the, let's say, experience of 2014 when you had a similar gold price crash, which gave us some -- what is that sleepless nights and -- but ultimately, we ended up not missing much, but about -- had to book a loss of about INR 5 crores or something like that only, but we had to go through a painful process of auctioning and things like that. So keeping all those things into account, when the, let's say, gold price crossed beyond, say, INR 12,000 and things like that, we did not increase the per gram rate beyond that. So when it went to the INR 15,000, INR 16,000 and all, we had continue to give the range of about around INR 10,000 per gram or not, we had never crossed INR 10,300 or something like that. So we have sufficient, let's say, cushion built into that, let's say, gold loans which were issued when the share price was at that level as we had higher, let's say, margin when we gave that loan. So that is not giving us, let's say, any concern at this point of time. And even if another, let's say, 10, 15 percentage gross this unlikely, let's say, we will still be having -- let's say, this is in addition to the RBI given, let's say, LTV margins and all, we have sufficient cushion at this point of time. So that is not a concern at this point of time.

Okay. So I mean, even irrespective of gold loan prices, you would have kept per gram gold lending at what you said INR 1,000, INR 1,100, right?

Yes. Not only us, almost the entire banking industry, it had the discipline and there was no undue competition or in particularly rates when you have -- I mean, the -- what goes up has to come down, that's something which we always, let's say, keep in mind. So when the increase in the price was too sharp, we all had a wait and watch policy. And I don't think any bank ever gave any, let's say, per gram rate beyond INR 11,000 and all. Even INR 10,500 or something which was maximum even at the peak level of INR 15,000, INR 16,000 whatever that happened.

Okay. Great. Great to know, sir. Secondly, on cost of deposit and yield on advances, right, for this quarter, now cost of deposits have -- reported cost of deposit has increased by 3 basis points. Does this mean that if there is no change in the rates in the deposit rate card rate, the cost of deposits should start rising or there is something which was unique to this quarter and next quarter, we should still see cost of deposits moderating? Or how to look at cost of deposits inventory? Have they bottomed now things will move up?

See, the -- let's say, there were, let's say, some amount of fine-tuning. When we saw the -- what is that advance growth rate increasing at a much faster rate, some amount of 10, 15, 20, 25 basis points that we had to fine-tune the rates to ensure that we get retail term deposits as usual with the flow so that we are not stopping the credit growth for not having the deposits per se. But what I have to say is that it gave us a sufficient cushion so that we could even retire the high cost, let's say, what you call certificate of deposits and things like that. See, the one thing what you have to keep in mind is that the 3 basis points, 5 basis point difference and all could happen even because of the variations in the average CASA rates and all. These are all 2, let's say, finer things you can monitor and control. You have to just report whatever that comes into. But what I can say is that there was no significant changes that happened in between to saw that. And in fact, that's why we could almost have incremental CD ratio of 100 percentage, we can in fact, let's say, for the -- still maintaining liquidity coverage ratio, we can go for another INR 3,000 crores of advances without increasing the deposits at all to that much elbow room is also available. These sort of tactical decisions we take depending upon the day-to-day ALM and the regulations which are prevailing and don't read too much into 3 basis point thing. But what is available to you, you can -- it is very much on the table is that on one side, you had seen the rates getting reduced by the Central Bank. At the same time, you saw the 10-year bond yields increasing. There were [indiscernible] response with the, let's say, liquidity, market rate, bank rate and I mean, the rates given by the central banks and all, they are not, let's say, going in tandem, which they normally used to do during the normal, let's say, industrial -- I mean, normal business environment because of so many changes due to the, let's say, Iran war when you saw a lot of fluctuations in the freight of capital from one place to other, like there are so many factors which were happening. But we had -- even though, let's say, we had terrifying, let's say, fluctuations and signals in the, let's say, TV panels, the operating level there was absolutely smooth and we did not have any issue. And -- but how long this calm will continue, whether it will continue like this or whether it is a calm before storm, all these things depend upon how long the conflict goes there, whether you will have, let's say, higher inflation because of the oil prices and things like that. Some other factors are there. But up to this, don't read too much into this 3, 4 basis points and all.

Right, sir. And sir, similarly on yield on advances, there was a 25 basis point rate cut. Even for the last 6 or maybe 12 months, the yield on advances are only -- even on a Y-o-Y basis is only down by 13 basis points. And the mix, we had higher proportion of gold. So that is what may be helping. But have you passed on -- I mean, I'm sure you have passed on the 25 basis points. And the MCLR book is also -- has that also been repriced. So assuming no change in the RBI policy rate, how should one look at the yield on advances incrementally, sir?

See, you may remember, I think in the last con call, we said the passing of the rates was completed somewhere in the month of December. If I remember correct, we specifically gave that. And that part is true. The incremental book, let's say, for example, it's a new contract and the -- incrementally, the weighted average yield is, let's say, is holding up. And that's why we are able to have -- as you rightly said, 30% of our book is in gold loan, which is in the fixed rate and non-agri gold loans are having even double-digit yields. So even though you have only that -- mathematically speaking, only that whatever yield it will be only to that, let's say, 65 percentage of the portfolio [indiscernible] and incrementally, the yields are holding up, and that's why we are able to see the margins holding to a greater extent.

So you did pass on the rates, but you may have tweaked the spreads, right? Is that also helped, sir?

Pardon, repeat the question?

I'm saying, sir, you would have passed on the rates, but the spreads you would have managed better, right? So that is why the yields did not drop as much apart from the gold loan and mix change.

Exactly. That's why I said the -- since 30 percentage plus is on the fixed rate, maybe about remaining 70%, you can perhaps take apart from the other loans and all, I would say, 2/3 would have had that, let's say, passing on. And that's why -- and the incremental whatever the INR 5,000-odd crores we booked in the second half since we were able to, let's say, book at the -- with the enhanced incremental yield, overall, we are able to maintain the margin.

Right. And sir, second last question on ROA, right? So we have delivered very stable 1.5%, 1.55% kind of an ROA and maybe 1.56% this quarter. When do we achieve the next level, sir? I mean the growth has now come back very strongly. Margins, hopefully, as you said, should be more or less stable. So when do we go to the next level, let's say, 1.7%, 1.8% ROA. I mean, what would be your sense for the next year ROA full year?

Technically speaking, it is a futuristic question for which Vijay Anandh this will answer. Before handing over the mic, maybe I can say one thing. The -- like you have started seeing in your DuPont analysis, the operating profit margin has started holding up. And we had to go for extra provision for NPA because we had -- I mean, honestly speaking, somewhere around, say, 2013, '14, we decided to have our net NPA always above 1 percentage because keeping it less than 1 percentage was not giving us elbow room to maneuver things and it was giving us extra mental pressure to, let's say, manage and that was reasonably good compared to the, let's say, peers in the sector because the time when the AQR and all started and the things were much worse for the industry as a whole. And we wanted to use that phase to have higher thing. So now since the industry environment has changed when -- stage by stage when we had to -- as you know, during the COVID period, there was slippage ratio increased by about 1 percentage more than normally we used to have 2, which has come down substantially that 2 in fact, increased to 3 percentage during the COVID period. The data is already there with you. And the recoveries were also not happening because of the courts were not functioning. So because of that, last 2, 3 years, we had to make a substantial provision to continuously reduce the gross NPA and net NPA percentage. And thankfully, because of the, let's say, recoveries more than the slippages and also making more provisions, we are able to have the coverage ratio also improved. So since it has reduced, maybe after it reaches further down, maybe we will get some extra elbow room even after making provisions for your ECL provisions and all, there will be some cushion which can improve ROA, but it is not fair on my part to explain further. Over to, Vijay Anandh, please.

Absolutely, sir, I think we should exit this year with at least 10 bps more in ROA. So we should be there between 1.65% to 1.67%. That's the number. Probably we will plan basis the retail income deliverable and a little bit of cost to income coming down. That's the endeavor to get there.

Okay. Great, sir. And last question, sir, on your association...

1 minute Abhishek, as we are talking, it looks like the ECL provision has come -- a circular has come looks like it has now asked the banks to adjust in the opening balance itself in the reserve so that no impact on the P&L. And since we have 20 percentage plus tariff and equity, let's say, I don't think -- let's say, the ECL provisioning requirement may not be there in the future, which is also a good news which we just we are receiving. Go ahead, Abhishek.

Great, sir. Sir, the last question is, sir, on your association, of course, after relinquishing the executive role, I mean, sorry, what is the plan ahead? Do you intend to be there as a nonexecutive director or that is not confirmed as yet? Or how do we see that transition, sir, at all?

See, I mean, let's say, honored by this question. And let's say, in fact, Board also, let's say, expressed it asked me to, let's say, ask for my comfort to join the Board in the nonexecutive capacity, which I have -- let's say, I said, I mean, I'm honored for that offer. So it depends upon the regulatory comfort -- looking into the comfort of the regulator at appropriate time, the call will be taken in future, whatever time frame on getting the acceptance you have on the comfort of the regulator, we will be taking a call on this front. At the same time, Board has asked me to be the, let's say, I post -- relinquishing the post they have offered me honorary position as the Chairman of the City Union Bank Foundation, which is the -- what is that CSR arm of the bank to oversee the implementation of the CSR projects and all in recognizing the position. And the same was offered to my predecessor also, and he continued for -- my predecessor and Guru Shri. Balasubramanian. So he continued as MD and CEO. When I took over in 2011 as MD and CEO, he was the nonexecutive chairman of to Board, as he had to retire after completing his 8 tenure or whatever the regulatory thing, the 75 years or whatever. So after -- 70 years or 75, regulatory whatever 70 years or whatever -- 70 years at that point of time. So after that Board offered him the position of City Union Bank Foundation and he had let's say, relinquished that position to me, so post my let's say, the laying down the office as MD and CEO of the bank, I will be, let's say, I'm honored to take the position of Chairman, City Union Bank Foundation. And any nonexecutive in the bank or the Board and all, it depends upon the regulatory comfort getting -- once we get a positive feedback, we'll take a call on that. Board will take a call on that.

Very clear, sir. And all the very best, sir.

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

It's been an amazing 15 years that you have given us trying to understand the bank and the sector in detail. Just 2 questions from my side. One is, internally, at the Board level, do you have an upper limit on how much of gold loans can the bank take? And has there been any change recently? Number one. And the second question, when you look at the demand for SME loans that you're seeing on the ground, if you could just kind of give some color as to is this just simply working capital utilization that is going up, taking advantage of raw material prices, cash flow mismatches? What is the nature of the demand that you're seeing on the ground? Or are you doing much higher balance transfers as compared to what you did earlier? These are my 2 questions.

Sure, in -- yes. Yes, thank you, Mahesh. When you said you're trying to understand the bank, maybe I think in 15 years, it's a long time to understand. I think I hope you have -- let's say, that part is true because you have been interacting for quite some time and thanks for all the support and interaction whatever we had. See, on gold loan, basically like then 30, 31, 32 itself is let's say we are almost at the upper bands let's say even if it is what is that sweet kheel you will not be able to take beyond a couple of cups or so, like you need limit for everything. Maybe there could be that 1 or 2 percentage here and there, let's say, increase, let's say it's not that -- don't ask you said you have upper limit at 30, why are you at 31, 32 and all. So that 1 or 2 percentage fluctuations could be there. But when it crosses 30 at least we have to take it with a pinch of salt is the approach which we keep for the gold loan, and this is something which we have to, let's say, accept. On the MSME front, it's -- the growth is because of the combination of all the factors which you mentioned. In fact, you may recall when the RBI policy statement was given out, it in fact, talks about the capacity utilization of the economy has, in fact, increased. I mean, which went to about 70 percentage post-COVID, you will normally see capacity expansions happening in the, let's say, when it crosses, let's say, 84, 85 percentage and all you are able to see things reaching there. And we could see, let's say, many of these units are, let's say, reaching their near capacity level. They are going for expansion, the utilization of the CC limit and also transfer of balance transfer. All these things are happening. And in fact, when you compare that with the lowest SMA level which you are seeing, particularly in this geography where we are having a significant portion of our exposure, it's a combination of all the factors which you mentioned.

Just one clarification. When will you start tightening the filters on underwriting? And what will it take for you to decide saying that things on the ground is starting to get a little bit more riskier than before. Given that we know where the fuel prices are and we know that there will be some impact on demand, what will it take for you to tighten the belt on that front?

See, one numerical number will be your SMA numbers, first part. Second thing will be the anecdotal feedbacks which you get from the customers. See, day in and day out, let's say, when we are at or even when I'm at the central office, at least every day, let's say, we will be having not less than, let's say, 4, 5 customer interactions when people who meet us will be reasonably maybe not a very small one, there will be medium level thing and all. So we will be -- even though we say whether we sit in our office or we go visit the branches and all and during the reviews, the anecdotal the combination of feedback from the -- feedback from the anecdotes which we get from our branch managers from the customers we meet day in and day out, coupled with the SMA numbers, what we are seeing we will get a feel, that's how over the last 15 years to greater extent, whatever I had felt during this interaction, I have shared with you all during the con call. So the common sense says that you have to enter into the tougher period because of let's say your inflation or global prices or things like that. And we are closely monitoring the situation, keeping our eyes and ears on the ground to get the feedback. So basically, like -- but one thing which you have to see very clear is particularly the business loans, whatever we are giving let's say for example, there could be finer let's say changes in the filters and all. Whenever the filters, which what we are trying to fit is like every borrower, we give -- at least we should be convinced that they have sufficient, let's say, resilience to run over through multiple business cycles. Maybe like the incremental slippage of maybe 1 or 2 percentage extra may come because of this economic cycles and all. The filters, what we keep is basically the -- let's say, they are -- what is the business cycle [indiscernible] because we need when we give loan, maybe it looks the figures are rosy, maybe 6 months down the line if the economic cycle downturn, if at all it happens, it is going to affect all the existing customers also. So the filter, whatever we are -- we keep will not -- okay, we go with some extra caution. That is one thing. But at the same time, we have to be very clear that unless and otherwise [indiscernible] that happens done in other business cycles and all the underwriting and all like we normally look into multiple business cycles and not just for like 1 or 2 downturns through which you are passing through.

Sir, one last question. What proportion of the loans would now be covered under the CGTMSE scheme or any other scheme of the government?

It's very miniscule. Jayaraman, do you have the data with you? I don't think it is going to be more than 3%, 4% each.

And you think it's not useful to take a cover today?

No. See, there are -- multiple things. One, let's say, when you ask for the -- most of the customers when you deal with, they are happy with giving extra collateral and taking loans with the lesser rate rather than paying the CGTMSE premium.

Okay. Sorry, Jayaraman, sir was saying a number, I just wanted to just take a note of that, sir.

Mostly around the 2 to 3 percentage that's all.

2% to 3%. Perfect, sir.

Our next question comes from the line of Soubir Samadder from Axis Capital.

Am I audible?

Your audible, sir.

So a few minutes ago, you said that with the new ECL regulations coming in, the banks would have to adjust through the opening balance itself and not through reserves. And hence, not much incremental provisions will be required on the ECL front. However, the floor rates have been unchanged. So I was wondering if at this point, you would be more comfortable sharing your view on what would be the impact on the steady-state credit costs? Yes, that's all.

See at least give -- fortunately, this -- what we call this difficult question. I have pass and Vijay Anandh has to take. What I have to say is that the -- if you had a chance to look into that 15 years figure, what we have given in our presentation. You can say, in fact, it is there in terms of, let's say, credit cost post-provisioning, what is that, the credit cost is there post -- after accounting for the recoveries from the return of assets. The net provision in 2010, '11, it was 0.41, 0.15, 0.25, 0.5, 0.4, 0.5 it was 0.09 in '24, '25 and 0.04 in 0.25, 0.26 and all, like it is at the -- the average works out to about 0.6 or so over the period of last 15 years. Now with the -- let's say improved underwriting based on the AI and the improved, let's say, LOS and all. My expectation is that at least there has to be 50 percentage reduction in this number in the next -- average of the next 15 years or so. But individual years, that could be operations as you move forward.

Our next question comes from the line of Suresh Ganapathy from Macquarie Capital.

Congratulations, Dr. Kamakodi, for a very eventful in set at City Union Bank for the past 15 years and best wishes for all your future endeavors, sir. It's been a pleasure knowing you and interacting with you. My question is to Mr. Vijay Anandh, the new CEO. Sir, what made you take this decision to join this bank? I mean you've been with RBL for about -- for a long period of time. You have worked in ICICI and other institutions. How do you see City Union Bank's culture here? How is it different from other organizations because you are, of course, stepping into big shoes now. So we just wanted to know your perspective and your take having spent now almost a couple of years with the bank.

It's been wonderful, sir. I've completed 2 years and it's almost 25 months. I think, first of all, I hail from this town and I come with 28 years of experience and the last 15 years, I think I was in Bombay. Bombay, I have move to Kumbakonam. The major reason why I took up is when I was interacting with Dr. Kamakodi and the Board, convinced I fully got convinced why should I be here. I think my wavelength, my passion of what I wanted to do was absolutely matching with where doctor wants to take this bank to the next level, how he want to take to the bank to the next level. And I felt that getting into this 120-year-old legacy institute, which is a impeccable track record and with the beautiful Board, I didn't even think twice for sure. Culturally, I know that I will fit because I hail from this part of the town. And my mother tongue is, of course, same what I speak here, while -- so combination of factors, I think, made me to move here pretty well.

Yes. Suresh, just adding to what thing, I think this question you should have reserved for the get together tomorrow.

It's a busy results season, sir, so I'm not sure whether I can make it. But yes, for whatever it is, I mean, we just thought it would be great to take his perspective. And yes, I mean his family and everybody is relocated to Kumbakonam, how is he handle those dynamics because these things are also at times important from fitting to the organization perspective, right, moving from Mumbai to Kumbakonam.

Yes. Yes. My parent stays in this part of the town. So...

Okay. Cool. Okay. That's very clear.

Thank you. We have no further questions, ladies and gentlemen. I would now like to hand the conference over to Dr. N. Kamakodi for closing comments. Over to you, sir.

Yes. Thank you all for attending this call and special thanks to Suresh, Mahesh and all because Suresh and all perhaps we have been in touch more than 15 years. I think even I remember the, let's say, interaction we had in one of my, let's say, travel to, let's say, airport in the car itself. You all had been, I think, almost, I think Abhishek, everyone you had been supportive of us over the period of time. And because of you all, let's say, I had a satisfying, let's say, experience with the bank. And I thank you all for all the support you have given and I'm sure you'll be continuing with the same support to, let's say, Mr. Vijay Anandh. I look forward to meet you all tomorrow in-person where we can discuss some more numbers and more than that get together time when we meet and exchange the good memories, whatever we had over a period of time. I thank AMBIT for, let's say organizing this for many years now. And I once again looking forward to meet you all tomorrow in Grand Hyatt, Mumbai by 5:30. Anybody, let's say, who had not received the invitation or, let's say, given RSVP, kindly get in touch with Mr. Jayaraman, whose number is given in the presentation or with Ragu whose number is given in the presentation. And so that to confirm your presence, which will help us to organize things better. And with this, I think I have completed my big responsibility and it had been -- let's say the monkey is off my back. It's a moment of relief and because like over the period of time handling let's say things -- I mean, I was, in fact, let's say, telling like had I known it is going to be having so much weight, probably I would have thought multiple times before taking charge, but at that point of time, I was not aware that it is going to be so challenging and all, but your support and the Board had given assured extraordinary blessing so that all the efforts, whatever we took we were able to see the results. Now and then a few times we had, let's say, minor accidents and bruises, but there was no fracture or bigger injury. It has been a very satisfying tenure. And with that satisfaction, I once again thank you all and looking forward to meet you all tomorrow. Thank you.

Thank you. On behalf of AMBIT Capital, that concludes this conference. Thank you all for joining us. You may now disconnect your lines.