CSB Bank Limited (CSBBANK.NS) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to CSB Bank's Q3 FY '26 Earnings Conference Call hosted by YES Securities. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Shivaji Thapliyal from YES Securities. Thank you, and over to you, Mr. Shivaji.

Thank you, Ikra. Good evening, and a warm welcome to all those who have joined the call. The CSB Bank management is represented by Mr. Pralay Mondal, Managing Director and CEO; Mr. B.K. Divakara, Executive Director; and Mr. Satish Gundewar, Chief Financial Officer. We specifically thank the management of CSB Bank for giving YES Securities the opportunity to host their results call. The management will first be making some opening remarks, after which, we will throw the floor open for questions. I now invite the management to make their opening remarks. Pralay, over to you.

Thank you, Shivaji. And good evening to everybody who's on the call. Thank you for joining this CSB Q3 call, analyst call. Let me start with a little bit of a background of the global scenario because, obviously, there are lots happening there. And then we'll come to CSB specifics quickly. So on the global trade scenario, by and large, it remained the same. And in fact, the trade negotiations have deteriorated since last quarter on the U.S. side. But of course, we had some good news coming from the EU front. And hopefully, that will neutralize some of the impacts, which is happening. It has created volatility in the financial markets impacting currency and equity flows into many countries and the issues related to the Fed Chairmanship, control over Greenland and unrest in Iran have all added to the uncertainties and heightened the global risk. And this has resulted in unilateral appreciation of commodities in the last quarter as well. Indian growth forecast has been revised upwards by economists and multilateral agencies like IMFL as well has the similar kind of an opinion. The inflation is expected to remain below the lower threshold of RBI, which is below 4%. And despite the expectations of it moving up a little bit now from its current level. The deposit growth continues to reflect credit growth quarter after quarter. The CD ratio of banking system is above 80% now, stressing the deposit rate. The continuous lag in deposit growth has impacted the banking sector NIM significantly. The banking system is likely to continue to face deposit stress, which will keep the deposit rates higher and prevent NIMs from improving immediately. Coming to CSB specifics and more relevant to us. On the profitability side, we ended the quarter at INR 153 crores, kind of a flat compared to last year's same quarter. Operating profit of the bank grew by 32% on a Y-o-Y basis for Q3 and stood at INR 292 crores. NII grew 21% Y-o-Y and stood at INR 453 crores. Other income grew by 26% Y-o-Y, constituting 19% of total income for Q3 FY '26. Cost-to-income ratio was around 60% and lower both on sequential as well as Y-o-Y indices. NIM for the quarter was highest for the current fiscal and stood at 3.86 percentage, supported by marginal reduction in funding costs. ROA for the quarter ended at 1.22 percentage. Contingency provision are held intact and bank is continuing with accelerated provision policy, which will enable the bank to move quickly towards the ECL as and when it is implemented. On the liability front, the funding base continues to improve. The deposit registered a robust growth of 21% Y-o-Y, much faster than the industry level. CASA grew by 3% Y-o-Y and CASA ratio was around 20.5%. Sufficient liquidity buffers are being maintained. On the liquidity front, we had a reasonably good efficient liquidator risk management while CD ratio stood at 92%, average LCR for the quarter was 114% and NSFR ratio was 118%. On the asset side, the growth of advances registered the Y-o-Y of 29%, again, almost double the system. And yields on advances in Q3 stood around 10.82%. In terms of asset quality matrices, there was a slight deterioration. GNPA and NNPA ratios, although within guidance because our guidance has always been below 2% and 1%, respectively. They were slightly elevated, though for the quarter at 1.96% and 0.67%, respectively. PCR now stands at 66.32%. Bank is holding a provisioning buffer of around INR 193 crores over and above the regulatory requirements. On the capital side, we continue to have a robust capital with 19.41% Tier 1 ratio. And as on -- sorry, the overall capital was 19.41%, Tier 1 ratio as on 31/12 stood at 17.66 percentage. Proportion of risk-weighted assets continued to be lower compared to the industry. Shareholder value creation side. Book value per share was at 269. EPS for the quarter is INR 34.91 and ROE for the quarter is 13.38%. On the distribution side, we have a network of 846 branches, 818 ATMs as of 31/12/25. In conclusion, we continue to outperform the industry growth trends in respect of both deposits and advances. We could grow our deposit portfolio by 21% and advances by 29% as against average industry level, which is almost half at this level. Both our gold loan and wholesale banking verticals contributed significantly to our advances growth, registering a growth of more than 40 percentage. We continue to be cautious in terms of unsecured book and have reduced our exposure there. In view of systematic uncertainties, we are exercising vigil while growing the BLG portfolio, which is the SME portfolio, where quality and pricing are of utmost importance. In line with the regulatory prescriptions, we have allowed the loan against security, which is primarily gold to degrow, which is the [indiscernible] business and negatively impacting the overall growth in the retail portfolio. Our operating profit is robust with 32% growth on Q3 and over Q3 FY '25 and 5% sequentially quarter on quarter. The strong operating performance can be attributed to NII growth of 21%, other income 26% and disciplined cost management. More than 95% of the income is constituted by core fee income because this time, non-core like PSLC and treasury income were almost next to nothing. Our net profit for the current quarter is almost flat compared to Q3. We have conducted a detailed analysis of the underlying causes of a slightly higher provision requirement, including certain technical factors, which we can take during the call when there are questions. Corrective actions have been identified and we are pretty confident that we are on track on the both GNPA and NNPA as well and credit cost side eventually over the next 1 or 2 quarters. For CIR improved, as I said before, and all regulatory ratios are maintained at comfortable levels. As we enter the scale phase, the strategic focus is clearly to building a diversified franchise, take-driven expansion, granular customer franchise and right execution. Before I end my opening remarks, I want to say that we are a fantastic experience on the migration of the core banking with 52 surround systems and many other systems on the transaction banking side, all of that is getting in place. So we are getting ready technologically to launch the bank effective FY '27 on the scale phase and we are fully geared up to that. On an overall basis, I think almost on all parameters, except for the slippages and NPA ratios, which we'll explain over the call as and when questions come, almost every parameter we've improved significantly over the last 2 quarters. And as we are talking, we are confident that Q4 and Q1 will also -- will see significant upgrades and betterment on the NPA ratio as well. So with that, I hand it over to you for the questions.

[Operator Instructions] The first question is from the line of Parag Jariwala from White Oak Capital.

So Pralay, I have 2 questions. One with respect to -- if you look at your disbursement on the Slide #17, retail and BLG has been down considerably. Plus if you look at even during the quarter, the ex of -- ex of gold the loan growth -- so we've been talking about scaling up the non [indiscernible] business. What has -- I mean, was it a corroborated decision because gold was growing very fast during the quarter. So we decided to slightly keep the segment under check or what exactly was the thought process here. So that is number one. Secondly, on the slippage of around INR 200 crores. Can you give us some more granular detail with respect to how many accounts are there? What led to this technical slippage? And you also said in your opening remarks that you expect upgrades and recoveries in the following quarters. So what gives you that confidence that you will be able to normalize these accounts in the coming quarters?

Thanks, Parag, for your questions. So I will respond to the first question first, which is business mix and growth in gold. So if you look at it, now 2 businesses are growing very well for us. One is wholesale side of the business and in wholesale also previously used to do primarily NBFC and financial markets. But now we are doing all the businesses. In fact, financial markets is a mix. We are keeping it lower. And hence, we are not going that much on the financial markets because we already had a large portfolio. Still around 35% to 40% of the portfolio is financial markets. But corporate banking and mid-market, which is the commercial banking, both these businesses have started doing extremely well for us. And in terms of quality, in terms of pedigree of these businesses, it's very good quality, and we are expanding the teams across the country, Northwest, Southwest everywhere. And we have built up in a very quick time, very good wholesale banking team. And with the kind of pedigree we have not only in the management team, but also in the Board and also our Chairman for MCB Credit Committee, Deepak Maheshwari, who anything about INR 50 crores goes through his and the committee's supervision. So we are pretty confident that business is growing pretty well. Coming to the gold, of course, we can always say that price is going up for the gold. At the same time, our LTV is constantly coming down. While the quarter end LTV was, I think, around 63%, 64%, now it has become -- gone well below 60% right now, overall LTV. So we are not taking the price risk on the gold side. Even tonnage has grown slightly marginally compared to last year. So to that extent, that's -- and also the other thing which has happened in gold is a new segment, which we are focusing on, which is helping us because what has happened this year is that [indiscernible] business, which is to be classifying under retail is to having gold as a collateral. That business based on regulatory guidance effective 1st of April, we cannot do that business anymore. So what we did is we -- since we can't do it anymore, we have started running down, and it's almost come to a title of around INR 700-odd crores there. It used to be INR 2,400 crores or INR 2,300 crores around that. And that is what has brought down the retail. Retail as such has not degrown except for we have degrown 2-wheeler, unsecured and MFI because of obvious reasons because there are stress in the portfolio and we saw it prior. So we didn't expand that portfolio. And hence, we actually got saved in that portfolio. Whatever slippages are happening there right now is on a very small base and the tail is only left for that. But otherwise, I think retail, everything else has done the way it was happening. But the real part of retail will happen only when the liability franchise starts picking up. We are waiting for the core system migration to happen. Now we are launching the product and retail assets will happen in parallel to retail liability because it's 2 sides of the same coin. That's how we will build the granular retail franchise over a period of time. Meanwhile, we are doing okay on CV/CE, health care, LAP all these businesses on the retail side. On your second question on slippage. Yes, around INR 197 crores is the slippage. Out of that, a large part is on the SME side. Our retail is starting to come and now it has become flat in terms of slippage or NCL and it is starting -- going to come down next quarter because the portfolio itself is kind of eroding. So we are not adding and hence, on the unsecured side, which is somewhere around 2.3%, 2.4% of our overall portfolio. So the denominator itself is reducing. So even if delinquency percentages are high, eventually, it will not be that material in another quarter or two. So to that extent, retail we are getting into a safe zone just because the portfolio size is not that much. And some of the other business on retail is doing well in terms of quality of the portfolio as well. In fact, 1 account we slipped in CV and 1 account on SCF, both of them we have sort of corrected. So we are doing okay there. We had a challenge on SME because of 2 reasons. One is I think the segments which we are operating in SME and certain locations because of the kind of uncertainties, global uncertainties, et cetera. I think there is some uncertainty on the business which is happening. But the good news is that most of these are not very old vintage legacy customers. So to that extent, most of the collateral valuation, et cetera, is pretty good and well managed. So -- and these are all well collateralized. So to that extent, slippages because of business challenges which they are facing, the intent is not wrong. So we are confident that we are able to do -- we'll be able to upgrade most of these accounts. As we are talking actually 4, 5 accounts, we are planning to upgrade in the last quarter. But for some reason, here and there, it got moved into this quarter. But we are confident these 4, 5 accounts will definitely get upgraded this quarter. As we're talking till yesterday, we have already upgraded INR 30 crores of this SME business. And we don't see fresh SME because we don't even have a SME account -- SMA-2 account in any business at this point of time other than gold and all that, which does not lead to final losses. So we think that we will have a positive surprise in terms of what we do in terms of slippages this quarter, leading to NPA. And that will also help us in getting our PCR, provision coverage ratio better. So other than slippages, if you look at line by line, all the components up to PPOP level, the bank has done very well, much better than what we did last quarter or last quarter. So in Q2, you remember that we had NIM of 3.51%. And the expectation was that it will constantly slide down like that. I had said that, no, we will go up and a lot of people doubted that commentary. But we have eventually shown in 2 quarters from 3.51% we went to 3.81% and now up to 3.86% in a scenario where NIM is under pressure in the ecosystem, which means that we are in control, and we know what we're talking. Having said that, I think NIM sort of will not move beyond this. So we will be somewhere between 3.7% to 3.9% in that range. I don't see it crossing 4% right now, given where we are today. I mean, given the overall ecosystem, deposit challenges and liquidity challenges, which are there in the market. But similarly, I'm saying that on the slippages side, on the NPA side, we are pretty confident that between Q4 and Q1, we'll sort of be back to where we used to be before in 2, 3 quarters back. So that's broadly what my response to your -- response to your questions.

Just 1 or 2 questions. I mean, these are how many accounts you said that maybe 4 to 7 accounts will be able to upgrade, but total slippages is around how many accounts? And is it fair to say that large part of these accounts are mainly to do with tariffs or there, they must be in textile, footwear or such kind of a industry. Is that a fair understanding.

So Parag, I mean, number of accounts sometimes will be irrelevant because sometimes these are very small amounts also. But relevant number will be around 10, 11 accounts, okay in SME side. Retail, I'm not talking about. Retail is a portfolio level, but I'm talking about SME. And wholesale, we don't have slippages. We have only [ INR 1.4 ] crore something on the wholesale side. So -- which is also going to get regularized this quarter. So I think around 11, 12 accounts on the SME side, out of that, we are confident that around 40%, 50% of this we will do it this quarter. Some will move to next quarter and not that everything will get reversed and not everything will get upgraded but a fair bit will get upgraded because some of these are technically moved into this quarter, unfortunately, which we also didn't expect, but it happened. And proof of that is that we already have upgraded 2 accounts amounting to INR 30 crores.

Sure. Just 1 thing, if I can squeeze in. There was a 1 or 2 delinquent account in first quarter of FY '26 as well. I mean, is that account now upgraded or still we are...

Yes. So that was not -- that was not in SME. That was a legacy wholesale account if I -- one-on-one we discussed this. And it is in the process. So we are expecting results in Q1 of FY '27 because now it is coming to a level where -- more or less, we are sanguine that we'll get something out of it in Q1 FY '27. Because this went to the entire legal DRT and all of this road. So hopefully, we'll be able to get it in Q1. The full thing cannot be recovered but some -- fair bit of recovery will happen in Q1 '27.

The next question is from the line of Natraj Shankar from DSP Mutual Fund.

Just a contextual question in this journey before we scale from '27 onwards that we talk about. How do we manage these bumps? How do we -- are the systems robust enough to weather this entire journey? At this stage, we are having bumps. So just wanted to contextually understand the risk processes first. And second, you talked about SMEs and stuff like that. Could you just take 2 parts of the question. One, the overall context of the SMEs, what you're observing in general, which pockets in general you're seeing some bit of stress coming out? And secondly, within your cohorts, how are you pleased within that?

So just to contextualize, when you're talking about bumps, we have 2 bumps. One is NIM going to 3.51% and one is sorry, this gross NPA, GNPA going to 1.97% okay? Now, both of these are well within the range, which especially that GNPA we always said will be below 2%. So in spite of the bump, we are below the range where we had guided in terms of this thing. But that's not where we want to be. So there is no major kind of roadblocks for us for our SBS 2030 journey what I wanted to say. And FY '27 onwards, we'll see the scale phase. So from that perspective -- and NIM we have already said that we have gone back to where we wanted to be, closer to 4%. So really, if you look at most of our ratios, there are not too many bumps and those bumps are also within the range which we have guided to a great extent. Coming to the SME. And rest, I think I explained enough to Parag in his question in terms of the slippage and the NPA question. So there's no point repeating that. On the question of -- on the question of SME, yes, one of the things we will see that we have grown SME year-on-year 20%. Last year, we grew almost by 30%. One of the reasons we are going slower because we acknowledge in the beginning itself. At least one good thing we have done is, whether it was unsecured retail, whether it is MFI, whether it is an SME now whenever we have seen and read the scenario, we had slowed down the business. So we don't keep accelerating the business and increasing the denominator. So this year and -- by the end of this year, when we close, we will grow even slower than 20% on a year-on-year basis in SME. And that is a deliberate kind of a strategy which we have worked out. Having said that, SME is our growth engine. And once a little bit of these issues get sorted out, we will look back to growth-oriented SME business from FY '27 onwards as quickly as Q1 FY '27. So -- and of course, SME, we all know that there are certain segments, which has been a little stressed because of -- not stressed, but they had some issues because of the exports, because of the global challenges, et cetera, which hopefully with the EU deal coming in, things will look better, but that will take some time to settle down. It's only a conversation right now or sign-off after that, this will happen. But sentiment is very important. Sentiment starts getting positive once people say hope because SME business is a lot about hope. And given that perspective, but what I can tell you is that most of our SME customers, a, very highly collateralized. And more importantly, intent is very good. So there is nothing wrong intent. None of these guys are putting their business back and diversifying our kind of siphoning of the money here and there, that also happened in some SME businesses. These 2 primary problems happens in my learning apps in SME, one is quickly moving out of the business or collateralized, which is not properly collateralized. On both discounts, we are doing okay. So we will see, I think, earliest by Q1 next year and latest by Q2 next year, I think we should be back in the growth orientation on the SME business as well. Meanwhile, asset growth is not a problem for us because growing by 25% plus growth in asset is not a problem. Of course, how do we fund that in terms of deposit is something you have to figure it out. So we know how to grow at 20%. But beyond that, how do you grow, we have to see on the deposit side.

And just 1 last quick follow-up on the deposit angle. You talked about system stabilization and stuff like that, glad that is going well. When would you actually start seeing that? What would it take for that to actually fall through in place the deposit growth that you're talking about?

Yes. So we are looking at 3 levers on deposit growth, okay? One is a long haul, which is creating retail products, creating CASA, creating retail -- customer acquisition at every branch level, granular for which you need the right products in the systems and the customer service modules, okay? So far in the Marvell system, we could never do that. But now we have the best and the latest system. So we are quickly going to build products. This will take anything between 12 to 18 months. Having said that, obviously, this is a journey. It's not that it will wait for 18 months. This will continue -- we'll continue to see some improvements over every quarter. More importantly, what we have done is we are making both -- all the businesses accountable for self-funding. So whether it is wholesale business, and that much I can tell you that last year so far, wholesale, SME, retail, all of them contributed towards liability growth. In terms of quantum, of course, SME was lower, wholesale was also a little lower side, retail was larger. But in terms of percentage, all of them are growing equally well. And we have kind of mandated the teams that you have to do so much percentage of your business to self-funding on this thing through OPDT and other routes, et cetera, I mean all promoters, SME owners are on the corporate side. So different kind of funding, but we'll get those fundings as well task. So we have created a separate vertical for task, which is the trust associations and all that. So given that we are using various modes. But beyond deposits also and beyond CASA and the customer acquisition, we are also doing okay on the FCY borrowings and refinance that also has grown for us last 1 year. And we are looking at all sources of funding to fund our growth. So LCR, we are pretty confident. Last quarter, we ended at 114%. And we should be able to do this year -- in this year with above 110%.

The next question is from the line of Akshat Agrawal from Smith Institutional Research.

In terms of OpEx, other OpEx declined 22% Q-o-Q. Is it because of technology investment coming out of the base? And was there any headcount reduction? And CPI is at 60% now. So do we think we can maintain this level going forward?

Yes. Do you have any other questions or I will answer this?

I have other questions sir. So I can ask now or I can just come back after your response?

Let me respond to this first. So what has happened this quarter is, of course, as a bank, when deposit costs are going up and yields are falling, one has to be conscious of cost management. So we put special cost management practices in the bank. Having said that, none of that shows up so quickly. And it's not the technology reason because technology costs have gone up, it has not come down because technology is CapEx going to OpEx and then AMC and all of that starts kicking in. So as a percentage, technology costs have always said we'll be between 8% to 9% of OpEx. So that will not come down. What's basically happened this quarter is -- in fact, we did a detailed analysis of the PSLC income because the PSLC income is a part of our fees. And after doing an analysis of last 2, 3 years' trend, we saw the best time to -- what is the best time to book income and what is the best time to buy PSLC what we need. For example, we need MSF, so we bought it at the right time, which was last quarter. And this quarter, we didn't buy anything. And when you buy MS -- SMF, it goes into your cost line, okay? Similarly, last quarter, we had a good PSLC income. Again, in Q4, we'll have a good PSLC income because as per our analytical tools, which has told us is which time to book and which time to sell PSL or which tend to buy PSL, okay? So based on that last quarter, we bought a lot of PSLC on the MSF side, which hit our cost line and this year it was 0. Similarly, on the income side also, we have PSLC was effectively 0 this quarter. Last time we had a good income. So these are one-offs, and these are not really franchise business. This is a very tactical play. And what it means is while next quarter, again, we'll have a good PSLC income on the fee side. But on the cost side, again PSLC will may go up a little bit leading to cost to income going slightly above 60%. We may not go back to where we were, but it will probably go up quarter-on-quarter a little bit more. So this is a one-off tactical kind of this thing. And overall, had we sold PSLC and bought PSLC also, we would have shown better profits. But we said, no, we'll keep it for next quarter because we know that next quarter, it will be a better income. Lastly, we -- well that's not your question, but on the fees, we obviously, like everybody else, we didn't have treasury income this quarter, because, obviously, the bond deals where it is. So -- and we are not even factoring enough treasury -- sorry, treasury income in fourth quarter. If it happens, it's a bonus. Right now, we have not factored that in.

Right sir. So the benefit of scale for -- as far as costs are concerned, are we going to see it something like on the second half next year? Or is it like maybe from FY '28 onwards? Okay, so...

FY '28.

So this technology stack cost, which would have started coming off at some point, right, because for last 2 or 3 years, it was elevated because we were doing a lot of technology investments. Aside from the BAU tech cost, right, like 8% to 9% or 10% odd for every bank, which they do, right? So is it not coming off now that incremental costs because the tech stacking -- tech cost for the whole investments for the technology. I mean, shouldn't it come up at some point in next 1 or 2 quarters?

No, it doesn't -- the accounting doesn't work like that, unfortunately. So tech cost eventually will probably be slightly lesser than what it is today. Right now, it is slightly limited because at one go, we had to make full transformation. But because it is a CapEx OpEx game, finally, it will flow through, along with AMC. On the AMC also the OpEx starts going up. So to that extent, I think the better I'm looking at it is that 8% to 10% of our overall OpEx will be technology. Maybe it will go from -- go down by 1 odd percentage. That will not be material in terms of overall P&L. But what -- the reason -- and even if it goes down, the real cost that we'll now incur in terms of customer acquisition because one of the reasons why our CASA or our granular deposits has not been great so far is because we didn't have the products and the systems to get those customers in. Now that the system is there, products will be there and then the cross-sell of retail assets also will happen to those customers. All this will play out in the next 2 years or so, 2, 3 years. So given that, I've always said that our cost to income will start. The glide path will be FY '28 onwards. It is not the first time I'm saying. And once it starts gliding down, it will be pretty fast in terms of cost to income. I think we should be able to go to 50% by FY '30.

Right, sir. Sir, my next question is NIM. So yield on advances declined this quarter. So it is coming from higher wholesale mix at lower yield, MCL revision and some repo rate impact. And wouldn't higher gold proportion with incremental higher yield at 11.83% versus 11.77% kind of offset most impact on yield on advances?

So I mean, you are answering most of the questions rightly. So if you look at it, because of the repo rate decrease, almost 125 basis happens in the last 1 -- a little more than a year. So all of that has flown through the SME business, right? And some of the other businesses, which are in the retail side also, which is linked to BPLR. The MCLR, of course, is linked to wholesale business and that is gradually going down. So you're right, in terms of mix and our almost 60% and above is fixed rate loans, including gold loans. So to that extent, that's exactly what I said that when the point was 3.51% and we will keep going down on NIM, et cetera. So it will not happen like that. But yes, instantly, SME went down. And then we have to work on repricing on the new businesses, et cetera. And also, we didn't grow that much in the SME new business because we were a little circumspect of the segments we are in that point of time, given the global challenges, et cetera. But now I think things are settling down. And hopefully, we should be able to settle down the NIM at a similar level where we are right now.

Right, sir. So on the cost of borrowing, the cost of funds came down, but cost of deposits like were just down 2 bps. So is incremental borrowing cost versus the book borrowing cost? Is it still -- you're seeing benefit there going forward? Or is it already in most of it?

See, borrowing cost, it is linked to SOFR, SOFR has not really come down that much, unfortunately. Hopefully, it will come down over a period of time. But definitely, borrowing cost has come down marginally compared to where we had taken. In between, also what happened is this hedging costs went up. So incremental borrowings, the net landed cost was slightly higher than what we had first estimated because the hedging cost went up, it went close to 3% actually for a 1 year hedging and things like that. So it's a combination of all of this. But yes, borrowing costs didn't come down that much, but it came down marginally. All of this helped us in managing the cost of funds, I think it was a few basis points lower than last quarter, and that has helped us in maintaining the NIM.

Right, sir. And sir, just on the asset quality, is this incremental flow from any new accounts? I mean is it all in this quarter and we are just expecting recoveries? Or is there -- we can expect some more accounts to slip on the SME? And what kind of coverage do you have? You did say that it was well collateralized but if we can get some color on the overall coverage including collateral on the SME accounts.

So if you're talking about SME, we are very well collateralized -- around almost 80% and above is collateralized. But obviously, if you look at corporate banking, it will not be well collateralized. But we don't even have an SME account in corporate banking, for example, okay? And we don't expect it to have. So as I said before, I'm repeating probably the same thing, and it's worth repeating because this quarter, only 1 question is slippages, why it is high. Everything else is looking positive, right, for the bank. So the point is that, yes, it happened, a, because certain challenges were there in the ecosystem with the customers, okay? None of them has left their businesses and gone. They are all working on it. They are paying us a little bit. In spite of the fact they're in NPA, they are paying us. And some of them are getting upgraded this quarter. One, I said already upgraded 2 accounts upgraded to INR 30 crores. And I think we'll positively surprise the way we show our upgrades and recoveries this quarter and Q1 as well. Yes, many of them are not early mortality, but these are not like 10 years old accounts. These are all last 3, 4 years' accounts. So we know those customers. We cannot disown them also because we acquired those customers. And hence, the responsibility is squarely on the relationship managers and the businesses to get the money back where we have. But so far, we have not seen people running away with the money. They are trying very hard to get their business back on track. I'm happy to report that things are looking a lot better. Unfortunately, 3, 4 accounts, we wanted to upgrade last quarter. For some technical reasons didn't happen in the last week, otherwise I was expecting. I was not even expecting to have these discussions on this call, frankly. But I think we are pretty much confident that we should be able to upgrade them this quarter itself.

Right, sir. And just...

Sorry to interrupt Akshat, please rejoin the queue for more questions.

So Akshat, in short, I'm telling you it's business as usual for us. We are not so worried on this slippage, frankly, internally in the bank.

The next question is from the line of Parth Gupta from 360 One Capital.

Sir, when I look at your Slide 17, the mix between bulk deposits and retail deposits, a large part of the growth within the quarter has come from bulk deposits. Now with bulk deposits or CD rates going up at least by 10 to 20 bps in December end and January, should we expect the cost of funds to be sort of flattish from here on? That's my question one. And second is some of the peers have raised the term deposit rates -- that the retail term deposit rates. So are we also considering anything like that? Yes, those were my 2 questions.

Sure. So on your deposit, this thing mix, as you rightly said, that our bulk deposit percentage is slightly higher than the ecosystem from the market. If I remember the number correctly, we are around 46%, 47% of the overall deposits. And that's high, right? So -- but -- only thing is the overall balance sheet size is so small that there the retail journey starts taking off. This will drastically change in a very quick period of time. That's number one. Number two, on your specific question, whether this is going to impact our cost of funds or it will remain stable. The answer is that we didn't lock in long-term deposits anywhere. Every bulk deposit is 1 year or below. What it means is in a falling interest rate as and when the liquidity situation becomes a little better in the ecosystem, and we have more certainty on that, we will probably see bulk deposit rates falling faster than the retail deposit rates, okay? And hence, in the short run, it will help us. In the long run, obviously, nothing to it in good quality retail franchise. So we are on that building block. If you had that option, we would have used that option more. But right now, we are building. That's why we don't have that option. And if we continue to grow at much faster phase than the industry, almost at twice the pace, then we don't have a choice but to fund this through these various routes. So we have very tactically handled it with a lesser tenor so that we are not locked into this. And thirdly, your question was on the -- what is the other question?

Cost of funds.

No, no, you said -- cost of funds, I think we should be going down by a few bps here and there. But as you rightly said, the third question was about retail deposit cost going up and the market rates going up, not only retail even -- even bulk deposit rates, which is coming down is not coming down anymore because primarily because of liquidity issues, which are there in the market right now. So that can change. And if it changes, bulk deposit rates will come down faster than retail. And because retail you lock in for a slightly longer period. In the short term, that will help us, but I think if the liquidity situation don't change, I don't see how cost of funds will change drastically from here. It all depends on liquidity in the market.

The next question is from the line of Ishmohit from SOIC Research.

Sir, my question was related to our return on equity. I think in the past, you've always talked about that 15% is the Lakshman Rekha. I think the quarter 4 is always our quarter where ROEs bumped up. But this time in first 9 months, our ROE is close to 13%. So are we confident of maintaining those 15% guidelines?

Yes, we'll try to touch the Lakshman Rekha, but let's see. But we'll definitely be better than where we are right now.

Right. And sir, second question was related to the credit costs. I think in the past, we have also spoken about like credit cost being close to 50 bps. And I think this quarter has been a multi-quarter high in credit cost because of one-off reason that we had. So we see the credit cost also falling down as you go into Q4 and Q1? Are we expecting the credit cost normalize from there?

Our endeavor is to do that. I think we should do a lot better than where we are today. I cannot make a forward-looking statement on a call like this. But I'm pretty confident of our overall GNPA, NNPA and credit cost going ahead from where we are.

But will it be like fair to understand that this quarter marks the peak of the credit costs like not getting...

Yes, yes. Absolutely. Like I said, [ 3.51% ] was tough and NIM this is peak in credit cost.

The next question is from the line of Anusha Raheja from Dalal & Broacha.

Yes. Sir, one thing on the slippage side, given the fact that your macro -- global macro is still uncertain, how are we confident that the Q3 slippages will not continue in Q4 and going forward? And secondly, what is the broader call in terms of advances growth that you're anticipating in FY '27? And any internal target for ROA, ROE for FY '27?

So on the growth -- we -- as I said before already, we will be growing asset book somewhere 25% and above, okay? And whatever it takes to fund that growth, we'll do it through the funding route part of that will be deposit. And hence, deposit has to grow by 20% and above. Coming to the slippage and the quality of portfolio question. See, we know exactly where our customers stand and we know every case in details. And because we slowed down our businesses this year, we don't even -- in fact, we are monitoring our SMA portfolio also very well for -- especially for SME. So we know exactly what can happen, right? And because our disbursements has been significantly lower this year compared to last year on the SME side, we have full control of that. The good thing about our bank is we take proactive actions and don't keep doing things when we see there is a challenge in the market. Having said that, this is not like a micro finance or an unsecured loan where the challenge continues for a while. I think things will start getting better. So hopefully, only once we are confident that things are comfortable, we will start growing this portfolio because we have the entire machinery to grow this portfolio. It is a very, very strategy call not to grow this given the overall market scenario in our markets. And hence, in short to tell that we are not only confident of the slippage and NPA, we are also confident of the SMA book, which we have at this point of time.

Okay sir. And any ROA, ROE targets for FY '27?

Yes, yes, I mean targets are always there. I have always said that we want to be somewhere around 1.5% and ROE somewhere around 15%, that will be our endeavor to cross that. This year, we should be coming close to that. And next year, we should cross that.