CSB Bank Limited (CSBBANK) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to CSB Bank Q2 FY '21 Earnings Conference Call hosted by Axis Capital Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Manish Karwa from Axis Capital. Thank you, and over to you, sir.

Thanks, Nirav. Good evening, everyone. On behalf of Axis Capital, I welcome all of you for the 2Q FY '21 results conference call of CSB Bank. Today, we have the management of the bank, represented by Mr. CVR Rajendran, Managing Director and CEO; Mr. Pralay Mondal, President, Retail, SME, operations and IT; Mr. B.K. Divakara, CFO; and Mr. Ganesan, who's the Head of Credit Monitoring and Recovery. I would now request Mr. Rajendran to start the conference by giving some opening remarks. And then as usual, we'll open up for question and answer. Over to you, Mr. Rajendran.

Thank you. Good evening, friends. Lot has changed in the world since we last met in mid-August 2020 after Q1 results. We are now in a more certain world with a definite signs of economic recovery around us and assured monetary policy stability from RBI side. It was yet another great quarter for us. By far, the best in the bank history. In the centenary year, we have crossed a century of PAT in 6 months' time as our PAT stands at INR 122.5 crores. We have been firing from all cylinders, not just the bottom line growth but also top line growth. Well, you would have gone through the investor presentation. I would like to emphasize the following key futures of our performance. Earnings growth, quarter-on-quarter, net interest income has grown by INR 44 crores from INR 185 crores to INR 229 crores, or by 24% powered by loan book growth up 11%; improvement in cost of deposits by 30 basis points; improvement in cost of borrowings by 49 basis points; improvement in yield on advances by 20 basis points. Quarter-on-quarter, noninterest income, that is treasury profit, has grown from INR 31 crores to INR 65 crores, or by 112%, powered by growth in processing fees by INR 9 crores and booking of PSLC fee of INR 9 crores through sale of excess PSL lending of INR 600 crores. Net interest margin improved to 4.49% from 4.06% quarter-on-quarter. That's an improvement of 43 basis points in the quarter. OpEx, staff cost has increased by INR 18 crores or by 21% quarter-on-quarter from INR 86 crores to INR 104 crores. Floating provisions increased by INR 18 crores, of which INR 15 crores was on account of pension costs. 32 employees had opted for VRS during the half year. And this, along with the increase in annuity rate, has caused the pension cost to increase. Normal retirement of pension optees during the half year was 71. Now only 673 employees, of which 295 officers and 328 clerks, are under defined pension benefit scheme, which constitutes just 18% of our total workforce. Head count has increased by 346 to 3,683. But this increase had no effect on the overall payroll as 159 employees were recruited in the last month of the quarter, and its effect will be visible only on the next quarter results. Other OpEx has also increased by INR 6 crores, that is 13%, to INR 50 crores, due mainly to increase in depreciation, rent, facility management and 2-wheeler service and dealer expenses. Overall, total OpEx has grown by 18% quarter-on-quarter, while revenue has grown by 26%. As far as operating profit is concerned, bank has recorded an operating profit of INR 302 crores in half year -- first half of financial year '21, whereas the operating profit for the last full year was at INR 281 crores. On a quarter-on-quarter basis also, operating profit has increased by 34% from INR 129 crores to INR 173 crores. Cost income ratio has improved from 50.26% as on 30/6/2020, to 47.13% as on 30/9/2020. That is it has come down by 50% -- below 50% mark during the quarter, which signifies crossing of yet another milestone for the bank. Net profit has improved from INR 54 crores in Q1 of financial year '21 to INR 69 crores in the Q2, recording 29% increase. Net profit for the half year stood at INR 122.5 crores as against INR 44.3 crores in the corresponding period of the last year. Return on assets improved from 1.03% in Q1 to 1.22% in Q2. Deposits have grown by 13% year-on-year, net advances by 11% year-on-year. CASA has grown by 17% year-on-year. Overall, balance sheet size has grown by 25% year-on-year. Gold loan growth -- gold loans have grown by INR 1,100 crores [Technical Difficulty]

Mr. Karwa, sir, can you hear us? Mr. Rajendran, sir, can you hear us?

I can hear you. I don't know Mr. Rajendran. I can't hear Mr. Rajendran anymore.

Participants, please stay connected. Ladies and gentlemen, thank you for your patience. We have the line for the management connected back to the call. Sir, you may go ahead.

Gold loans have grown by INR 1,100 crores or by 30% quarter-on-quarter, capitalizing on the tailwinds provided by RBI's relaxation on LTV norms. It may be noted that we still have an average LTV of 71%. Risk ratable value of the portfolio is only INR 184 crores. It is a portion above 78% LTV worked out individually. Above 78% LTV, there is only INR 184 crores of outstanding. Our yield on gold loans have improved from 12.22% in the last quarter to 12.53% during the current quarter. So moratorium and asset quality and provisioning; moratorium book as on 30/9/2020, is around INR 2,000 crores, which counties 14% of the total loan book. We are holding COVID provisions of INR 60 crores. We expect INR 60 crores to INR 65 crores of [ the provisions ] to be restructured. As on date, we have not received any restructuring proposal, but this is the expectation after discussion with the clients. Gross NPA has reduced from 3.51% in the last quarter to 3.04% during the current quarter. Net NPA has come down to 1.30% from 1.74% in the last quarter. PCR has improved to 84.24% from 81.73% as on 30/6/2020. If we consider INR 60 crores of additional COVID provision also, PCR has reached 90%. Especially, we have booked a treasury profit of INR 32 crores during this quarter from mid-August with the release of [ MPC minutes ] combined with global factors like increase in crude prices and increase in [ U.S. deals ], bond market deals are [ ordered ] by about 35 basis points in India. As on 30/9/2020, we have booked a mark-to-market depreciation of INR 38 crores. Subsequently, the yields have improved following RBI governor's statement and the MTM losses are less than INR 10 crores as of now. As far as the capital adequacy is concerned, our capital adequacy has improved from 18.93% to 19.69% due to reduction in the market risk-weighted assets between 30/6/2020 and 30/9/2020, while credit risk-weighted assets increased as loan book growth has bulk of the growth is in gold loans. In line with RBI guidelines, we have not refund the net profit for the quarter or half year as part of the capital fund. Leverage ratio has come down to 7.52% from 8.17% since we have increased our balance sheet size by INR 1,616 crores or 8% quarter-on-quarter. We're comfortable above that -- we are comfortably above the RBI minimum stipulation of 3.5%. Bank has continued to maintain liquidity coverage ratio of about 200%, while the excess SLR is around 6% of the NDTL. I'll stop at this level. Now we will open it up for questions.

We will now begin the question-and-answer session. [Operator Instructions] First question is from the Aditya Kondawar from JST Investments.

Congrats on a good set of numbers. So I just wanted some flavor on the moratorium book, if you can.

So our moratorium is only 15% as on date, INR 2,000 crores is the book size. In fact, we have released the data for August. The September data will take some more time. For the DA transactions, we have to get the data from NBFC, then only we will be in a position to release it. So August date, when we -- August data when we collected, 18% was the provision -- 18% was the moratorium book, out of which 47% collection has been made. Subsequently, collection has improved over a period. Only 1.5% of my customers have not paid even a single installment as on the date. It's a very low number. Even those customers have started paying. Subsequently, this number has come down. So this INR 2,000 crores book also, substantial amount has been recovered. And after the moratorium is lifted, we are seeing the tendency that most of the customers have started paying now. So it's not much of worry on the moratorium side.

Next question is from the line of Nalin Shah from NVS Brokerage Private Limited.

At the outset, sir, let me have -- offer my heartiest congratulations on the Q2 and the H1 performance of the bank. It's a really, really very, very credible performance. I must congratulate the whole team led by Mr. Rajendran. I have some few observations, sir, that your cost-to-income ratio has come down to 47% or so. Going forward, what is the kind of target we are planning to do? Secondly, our retail banking has shown, I think, excellent performance when I see from the segment results. So do -- can we expect that this kind of a retail banking performance will continue to grow in the times to come? That is one. On the other hand, on corporate book, there is some minus 15.82 as per the segment results. So can we see that also turning into the positive in the times to come? That is my another question. Same applies to NIMs are at 4.5%, we have achieved. So can we expect that there is going to be further improvement on this side? So this is what I wanted to know.

First thing is on the cost to income. Constantly it is going down. Our target is to keep it below 50%, which we've achieved during the current quarter. Our [ mission ] is to take it below 40%, which in the industry many people have achieved it. But anyway, a year afterwards, the fall will be -- will not be at the same level. There are limitations to cost cutting. But anyway, income has to improve consistently to bring it to 40%. So that's my part to do that. As far as retail is concerned, retail is driven mainly by the gold loan growth. 47% has grown only in the gold loan. But another bank, which is much, much larger in size, has grown by 42%, okay? So there is much scope for improvement in the gold loan itself going forward, which we will continue to do. So gold loan is safer, and we are tightening our systems underwriting standards, inspection, everything to ensure there is -- the losses are kept to the minimum. Even otherwise, as we told you earlier, our losses is less than 0.10% when compared to the industry of 0.36%. Anyway, further tightening is happening on the check and control measures. The gold loan will continue to grow. Mr. Pralay Mondal is on the line, and he has joined -- and his team is joining one by one. So Neeraj Dhawan has joined from Yes Bank. And there are a few more recruits at the leadership level who are likely to join by November end. They are improving the product. They are investing the product and planning for a re-launch of the products with the new processes. Probably, this should happen from January onwards. They'll be in the field. The recruitment of the marketing heads is completed and the marketing offices are being recruited. I think the full team will be in the field by January beginning. On the retail growth, on other retail loans other than gold will happen in the last quarter. So once that also happens, that is one portfolio which has not grown, which is an insignificant portfolio at this point of time, life experience and track record. I'm sure that we will be building a much stronger retail portfolio going forward. So the world will continue to grow. But as a proportion, it should grow small in size because of the growth happening in the other retail portfolio. SME is one segment, which we have consciously kept away for some time because there is not much of clarity in the SME performance. Wherever there is a clarity in a particular industry, we have started doing, for example, textiles, we have come out of the problems; textiles, garments and poultry. These are all the areas, dairy. These are all the areas where we are started lending again. Once clarity comes in a particular segment, we started lending. Otherwise, we are holding back lending in newer SMEs. MSME is one business, which we've started only in year or less, which is doing really well. Volumes are -- volumes will take time to pick up because it's small ticket lending, but numbers are increasing. Two-wheelers, we were doing about 1,000 vehicles per month before COVID. After COVID when we opened up that the demand has gone up, players have come down. As a result, we are doing 2,000 vehicles per month, mostly in Kerala and Tamil Nadu. Now we are expanding to Andhra, Telangana, Maharashtra, Gujarat and Karnataka. So you will see more growth in the 2-wheeler also. But these are all small ticket loans, where it will take time to ramp up. So all these things are happening. On the corporate portfolio, it is basically a -- more than 50% is to NBFCs, which are rated very high. We really have high-rated accounts. So we have repricing option every 6 months and the repricing option comes and now they are raising the commercial papers at less than table rate today. So naturally, repricing happens at a very low rate. Any of these cases, we don't write so low. As a result, corporate portfolio, there is a degrowth to a certain extent, and the yields are also coming down a bit. That is the nature. The quality is AA, AA, you don't make much money in that portfolio. That corporate portfolio will continue to be there, but it is only a parking of funds for us until the SME and other things pick up. Once the SME and other things picks up, we will come out of the corporate portfolio and redeploy it in the high-yielding assets. As far as the NIM is concerned, as I explained, our cost of deposits, cost of funds, both have come down drastically during the last quarter. On the other side, yield on advances have improved. You might have seen yield on advances improving every quarter. We'll be in a position to subscribe, that's what we believe. Net interest margin of 4.5% is a dream target. We will try hard to retain it. If at all it goes down, that is to be compensated by the volume growth. I hope I answered all your queries.

Yes. And my last question is that COVID-19 has, I think, rattled many companies, including revenue banks and NBFCs, et cetera. And at the same time, for large and, I mean, strong players, it has opened up a good opportunity for inorganic growth. Can you throw any light on -- if any -- if you are considering any inorganic growth or opportunities on this sector now?

No, nothing is in the pipeline as of now. No thinking in the direction at this point of time.

[Operator Instructions] Next question is from the line of Arun Malhotra from CapGrow Capital Advisors.

I just wanted to congratulate the management on an excellent set of numbers. I had few questions. You have shown tremendous growth and improvement across all parameters. Are these sustainable going forward? And you have shown it, especially in difficult circumstances. So how sustainable these numbers are, especially the NIM, the cost to income, this kind of ROE?

It should be sustained. That is our desire. See, only thing is the volume growth, as I was explaining, the volume growth, maybe net interest margin maintaining at this level may be a challenge, that if you grow the housing loans, for example, where we are not growing housing loans now. Housing loan is a very competitive market where the interest rates are low, but cross-selling opportunities are more. So housing loans if you grow, if you grow the SME book, if you grow the corporate book, you may get affected to a certain extent because of the excess liquidity condition in the market. But we should be in a portion to compensate by way of volume growth. So we are a very small team at this point of time, okay? So a large number of new leaders are joining from the new private sector banks, who have a track record of growing the balance sheet much faster on a healthier terms. Once their strength is added to our strength today, definitely, we'll be in a position to grow the balance sheet and maybe some 1 or 2 ratios may get affected and the balance sheet size grows, but that should be compensated by the volume growth. That is what we see.

Sure. In terms of cost to income, we have already reached 47%. How much further cost or excesses are there in the system for us to further squeeze and reach somewhere around 40%, which you mentioned?

No, but many banks have achieved 40%. If you look at my productivity, my productivity is still low. In our investor presentation, we have given the productivity numbers. If you look at the per branch business and per employee business, we are almost at half the level for the industry as a whole, which means I can double the business in my branches without increasing the fixed expenses on it, okay? So if the existing units are able to double their business, certainly, cost to income ratio will go down further. Volume growth has to happen in these branches. Now it is basically only the CASA and the gold is what is happening in the branches. Other things are happening in the verticals. When the retail portfolio is expanding in size, certainly, branches will acquire the size which is equivalent to the average business -- branch business of the industry that will reduce our per crore business, what expenses we are incurring, cost to income ratio will go down further. Possible -- there is a possibility of going down below 40%. We have to try hard for it.

And in terms of -- can you highlight the fee income for this quarter? How much is the fee income?

Fee income has grown very substantially. We had shown in separate slides. So one thing, our processing fees have increased by more than INR 9 crores. And apart from that, we have sold a priority sector advances, PSLC certificate we sold for another INR 9 crores. And the recovery of the return of accounts is around INR 24 crores, and treasury has also contributed INR 32 crores by way of profit. Of course, there is an equivalent amount of depreciation on the other side, but that is accounted elsewhere. So the bank guarantees and the LCs are also increased in volume. So that has also contributed. So it is a well distributed income, if you look at it. So this will continue to grow.

We have tied up both bank insurance…

Now it has come to more than 14%. Our effort is to take it to 20%. Noninterest income should go to 20%. For this quarter, we have come to 17.2%, is a proportion of noninterest income to quarterly income.

Sure. And have you started distributing investment and insurance products because you have tied up with…

We are doing really well. On the wealth management, we don't have other products as of now. We don't distribute even mutual funds at this point. Wealth management is one division which is yet to be formed. Probably the next financial year, we will be in a position to make some headway.

Sure. And lastly, on the HR front, we are hiring key talent from the private sector. How are the performance incentives aligned?

Today, we have only about 1,600 people from the gold setup, that is IB staff are less than 1,600 people. More than 2,000 people are coming from the market only, right? Either they are direct recruits or they are taken lateral recruits. They're all well settled. Culturally, we have become a new private sector bank to a large extent, except a few pockets where we are not striving hard to bring in. Most of the branches function like a new private sector bank branch. So it's well accepted. Alignment is very good. These leaders are settling down easily into this culture. I don't find any problem, okay? They will be in a position to start functioning from January onwards. They will start contributing, no problem in that. And they have proved their skill sets in not one bank, they all worked in 2, 3 banks before coming here. So I don't find any problem.

What I meant was that are there any ESOPs for such new hires?

Of course, the top management is entitled to ESOP. We have ESOP team, which we have ESOP trust we have created, and we have allotted to the trust. And one down reporting to the MD are entitled to ESOP.

Next question is from the line of Haresh Kapoor from IIFL Asset Management.

Sir, just a couple of you first spoke a little bit about the morat book, it has kind of come down at 1.5% of borrowers not really paying. Could you just kind of give some color on this in terms of the quantum? I think you have also provided in those 2 accounts where you have -- some of the accounts which were overdue and which are at around INR 127 crores or so, that's around 1% of your book, you've kind of provided 10% there. But if you could just merge both of those and kind of give the quantum out for 1.5%, not gain? And also what is expected in fact going ahead on this, please?

See, how we have made a provision is that whatever be the SMA on 31/3/2020, we have made 10% provision, okay, which is 31/3/2020, SMA, which is continuing as an SMA. On 30/6/2020, SMA, which continues to be SMA on 30/9/2020, is only INR 110 crores. Again, we have made 10% provision on that also. SMA accounts which have become SMA only in 30/9/2020, is around INR 309 crores, so -- INR 190 crores -- sorry, INR 198 crores, out of which INR 10 crores is -- 10% is provided there also.

Sir, what was the last number as on 30, August, INR 138 crores?

INR 198 crores.

INR 198 crores. You've provided 10%.

10% on that. So moratorium availed account as on 30/9/2020, is about INR 2,006 crores, okay? Minus INR 336 crores, which we have provided earlier. So remaining amount, we have provided 1.5%. So on INR 336 crores, we already provided 10%. On the remaining amount of INR 1,664 crores, we've provided at 1.5%. These are moratorium availed accounts. And we are also provided 25% on the assets which might have been classified as the NPA, but for the Supreme Court decision of not declaring NPA. So that is only a small amount. It's less than INR 9 crores, about INR 2.2 crores is provided on that. So as on date, INR 60 crores of provision is made for the COVID-related accounts.

Okay, sir. And you expect any of these behaviors in terms of repayment, any other -- your risk team, et cetera, this pool could increase, what are those indicators for your portfolio?

So we have talked to almost all major clients directly. Even though there are no requests for rephasement at this point of time, INR 67 crores worth of accounts may come for rephasement at this point of time. Even if there are unknown accounts which are coming into it, it can go up to INR 75 crores. That is what our estimate. And similarly, the SMA 1 and 2 together is only around INR 95 crores is there, okay? SMA 1 and 2 as on 30/9. Some of the accounts may slip on this, okay? This is what our expectation. But for both together, we have enough of provision, INR 60 crores will be much more than enough.

So INR 95 crores, maybe could -- some part of this could slip and around INR 75 crores, if I got it right, you're kind of talking about could restructure, is it right?

INR 95 crores is only SMA 1 and 2.

[indiscernible] and slippage.

So not INR 95 crores will slip. INR 95 crores, some of the accounts may slip, that is what our anticipation is.

Yes. Sure, sir. Sir, second, if you can talk about margins, last call, again, you were around 4%. And you had indicated some of the steps that you're taking and spoke about maintaining it at that level, but there has been a pretty sharp improvement in the margins. You alluded to trying to maintain it, but what is your sense on this? How sustainable this is? And what is your expectation going ahead from a margin standpoint?

See, one part of the contribution has come from the borrowings, okay? We have borrowed more than INR 3,000 crores during this period. The underlying securities were giving more than 6% yield to us. We borrowed at an average of around 3.4% or so. So again, we have deployed some of the portions in the credit, some portion in the TLTRO investment where the yield is high. So naturally the treasury operation to the extent of INR 3,000 crores of borrowing and redeploying has increased apart from the positive carry on the underlying securities. So you cannot continue with the same portfolio forever because the depreciation risk is high. In fact, we faced the depreciation risk in the last quarter. Now the things have improved after the credit policy. The depreciation has come down to less than INR 10 crores. So we may not maintain the same kind of investments going forward. We will unwind. We have started unwinding already. So that portion of contribution from the treasury by way of additional interest income and positive carry may not be available in the future. But when the underlying assets are sold and redeployed in that credit, naturally, margins will be better. To a certain extent, it will be protected. There could be some impact on the interest income going forward, but there won't be any depreciation in future. So that should compensate each other. And we may be in a portion to maintain the same kind of spread.

Sir, some other additional TLTRO line, which is available, you believe that could also be helpful and for a quarter or 2, we could still get some better trends just because of that?

TLTRO is available, but securities are not available on deals that we bought. Bond yields have gone down very substantially today. It doesn't make sense to enter into the bonds at this point of time. The liquidity is excess, so naturally the price is driven down already. This is a onetime opportunity available at that time, which we captured.

Sure sir. And lastly, sir, if you can -- from a deposit side, if you could just talk about NRE deposit as a percentage of deposit pool. And what traction you're kind of seeing there and how that is shifting now?

NRE deposits are growing well. We have grown by more than 34% during the current quarter, which is comparatively percentage-wise, it is much, much better than the competition. But our size is very small. When compared to the competition, our NRE deposit in absolute terms is very, very small. So I don't claim it is a great achievement. But considering the potentiality of Kerala, what we have captured is very less. This is the only area where we would like to have better growth in this. Our NRE deposit growth for the current quarter is 3.77%, whereas combination has grown around 2.54% and 2.13%. So our growth rate is better, but nothing to claim great about it because our base is very small. So there is tremendous scope for improvement in the NRE deposit. This is the only area which will receive our attention going forward.

Sir, what is the percentage of the deposit? NRE as a percentage of your total deposits?

About 23% is our NRE deposit -- 23%, 24% will be the NRE deposits.

Sir, just to request going ahead, if you can just put this data on your PPT will be helpful.

Yes. We will put it in the slides.

[Operator Instructions] Next participant is Pranav Gupta from Birla Sun Life.

Just a couple of questions. Sir, first a clarification in your PPT, when you say that moratorium as on 30th of September is about 13% of -- about 13% of loans -- 15% of loans, sorry. I mean is this customers who have not paid in September or is this customers who you are still seeking to get repayments from? I did want some clarifications because moratorium were in August, right? So what does the 15% number signify?

See, the INR 2,000 crores is the total loans where there is an availment of moratorium to some extent. So even if you have not paid one installment also, it is that moratorium availed account, okay? The last time up to August, we have released the data. September data, it is not available immediately because there is DA portfolio for which you have to collect the data from the NBFCs and then we have to make it available. So September data is not immediately available. According to the August data, 47% of the installments fallen due up to the date we have collected it, even in the moratorium, which means if there is INR 2,000 crores of moratorium size, in which whatever installments are fallen due, out of which 47% is collected up to August. That number has further improved in September. So it should be a better number now. So moratorium availed accounts, what is the exposure to these accounts, this is what's indicated by the INR 2,000 crores.

Okay. So even 47% -- even in August, 47% of these INR 2,000 crores worth of borrowers have paid installments in August as well, is that the right understanding?

Some might have paid 1 installment, some might have paid 2, some might have paid 3, some might have paid 4, some might have paid 5 also, right? Overall average is 47% installments are collected.

Okay. So they might not have paid in August itself, but they might have paid something during the moratorium period?

47%, almost half the amount is paid.

Okay, okay. Sir, and some more color on the SME segment, specifically in terms of moratorium, if you can give as on August, whether more customers have paid fewer installments or what's the trend there in the SME portfolio specifically?

SME portfolio, there are people who are not serviced the interest, which we have converted into the funded interest term loan. That is around INR 63 crores -- INR 35 crores, sorry. INR 35 crores, which they have the option to pay during the next 6 months. They will be in a position to pay. And similarly, we also provided this government-guaranteed COVID loan as well as our COVID loan -- our own scheme, which comes to roughly about INR 100 crores of additional loans have been given to the people to meet the working capital requirements during this period. These are the only 2 provisions which are made. Rephasement, there is no request at this point of time. If rephasement request comes, we'll look into it.

FITL conversion is INR 35 crores?

INR 35 crores is FITL, yes.

Okay, okay, okay. Sir, and just one last question from my end before I join the queue. You said that you have started lending again in the SME space in particular sectors and you mentioned textile. What are the trends you're seeing in that sector, sir, in terms of whether the sales for them are returning to normalcy or whether this is just a blip because of the credit guarantee scheme money that they have -- that this sector has received? Are underlying business fundamentals improving or is this just because there has been more liquidity, which has been made available to them?

Spinning mills are saying that they are getting huge orders. So the stock which are piled up because the Bhiwandi market and the Ichalkaranji market is not opened up, it started depleting because other markets are absorbing. I'm told that now Ichalkaranji and Bhiwandi has also opened up. So spinning mills, which is a major exposure for us are doing well. The government segment, particularly from Tiruppur, Erode, Salem and other areas, they are also getting a lot of orders today, large amount of orders they are able to get. So I think that segment is also doing well. So only that cotton we have received after that crop is available to us. Cotton prices have gone down. But now what is a sown area and how much is the yield, we have to wait to look at what is the cotton price. If cotton price remains at the present level or goes down further, spinning mill's profitability will increase substantially because sown area is very high. The only thing is whitefly and other attacks should not happen to reduce the yield on cotton. If the yield also maintained, price will be comparatively much less if exports are not permitted. So then the textile mill profitability will increase. As of now, demand has come back and the price is reasonable at this point, both raw material price as well as the yarn price is reasonable. So most of them are happy and most of them have started servicing as per the revised terms. Only 1 or 2 have come for an additional loans, right? Many people have not availed even the COVID loans.

[Operator Instructions] Next participant is Abhijith Vara from Sundaram Mutual Fund.

Congratulations on the very good set of numbers. So first question is, you have shared your provisioning loans on the -- in the PPT, but I also wanted to check if there is any target for PCR you have in mind that the Board has in mind which you want to achieve? PCR is constantly going up. What is the ideal level, considering the LTV of portfolio or comfort levels of the management. Can you share something on this?

As for an ideal level, it is 100%. [ 64% ] we have achieved. And we have an accelerated provisioning policy. So we continued with the same policy so far. If you take into consideration the general provision which we have made, which is almost 6% now, so our provision coverage ratio in the real term is 90% today. So we will continue to provide more and if possible, we'll try to attain 100% over a period.

Right. Right. So how do we see the credit cost in the near term, sir? It is well appreciated that your [ PPD ] for restructured book will be quite limited. But how do we understand credit cost impact in the near term, let us say, next 2, 3 quarters? Will you continue to have higher provision -- provisioning, as you said, you want to take the PCR much higher so you continue to have much higher credit cost or it will be part of -- you want to achieve it over a period of time, let us say, 2 years, 3 years?

Credit cards, at this point, I'm not expecting any negative surprises on that side. Most of the things are cool. I'm not seeing any bigger accounts slipping. The credit card should be maintained below 1% is our target always. I think we'll be in a position to maintain it.

Sure, sir. And second question is the fee income growth. You did mention that other income -- the noninterest income, you want to take it up higher. What is driving the fee income growth? Some drivers if you can share. Also, what are the plans to take it up from 17% at 20% you are sharing? Any concrete…

If you look at it, every segment of fee income has increased. Processing fees has increased. Bank guarantee commission has increased. LC commissions have increased, except the forward premium which -- forward exchange, which we used to do, that has come down because exports have come down. All other areas including the safe deposit locker charges have increased. The transaction fees has increased. Bancassurance commission has increased. So every segment has increased. Every segment will continue to grow going forward. So in fact, RBI has put a lot of restriction on collection of the transaction fees during this period -- COVID period. We cannot collect the ATM charges, even though we are incurring for a customer using other bank ATM. We are not permitted to collect it from the customer. Once these restrictions are going and even the fee income will also increase. So we are firing on all cylinders. And there are new revenues will also come in, like wealth management many will start. It is other area which should come in. And loan growth when it is happening, naturally, the PF will also increase. 20% should not be a problem. If you look at our track record, we started at 6% one year back. Now it has come to 17%. Of course, the write-off recoveries can increase, treasury income can also increase. But these are all windfall gains. On a sustainable basis, the fee income should reach 20% is our target. At this point, we believe that it is possible.

Sure. Sure. Also, sir, you did mention on the SME portion, right? We are looking at collectively growing the loan book. Any other segments also you're looking to grow apart from gold. Gold has almost got 47% now. I think target is 40%, right? So what other areas are opening up for you, 2-wheelers you also mentioned. But what could drive the sheet barring the loan growth?

Particularly on retail segment, all nondiscretionary spending areas are potential areas we could really improve, which is a COVID growth we have seen. So those businesses which survive during this COVID period are the right businesses to lend. That is the call which we have taken, which we are doing it. Of course, many of the lenders have gone down on that. They also tightened the underwriting norms. So that gives an opportunity in the market, we will be in a position to penetrate this market. That's the main area. Of course, the SME, as I said, in the larger accounts, we go by industry-wise, which are all the industries reviving. For example, poultry has come back with a vengeance now. Egg prices are INR 6 per day, right? Even in the inflation, you look at it, it is only the protein inflation. The current inflation, which is increasing in the CPA is only protein inflation, which [ Sudhir Kulkarni ] used to discuss when he was [indiscernible], right? So naturally, poultry seems to be a good area. Dairy suffered a lot because of the migrant population moving out and their stocks are piling up. Now the dairy has come back. So dairy, poultry, all -- agri processing, all are doing really well. I think it will be a good area to go. And construction is also coming back, not the real estate but the contractors who are giving -- the government funding is the best thing which has to happen to revive the economy, which the government is doing; smart city projects, prefunded projects. And these are all the areas where we have started supporting the contractors in a big way. These are all the areas which you've seen in the recent past. Anyway, we keep analyzing all the industries. Wherever there's an opportunity, we will take it up.

Will you also get into unsecured loans, sir? Let us say business loans or retail loans, any idea there?

Yes, yes, we are getting into it, but still, they are all in the lab stage only. Product evaluation and other things are going on. Once we settle down with it -- already, we have some unsecured loan portfolio, but that is only confined to selected corporates and their employees. So now we will introduce a general product. Pralay is working on it. Pralay, would you like to elaborate on that?

Yes, sir. I think -- see, the way we are looking at it is we already have a very strong franchise on the gold loan side, and we will continue to strengthen that franchise. At the same time, to scale up the balance sheet, we have to do various other things. And the first thing starts with how we build a customer franchise and customer franchise means how do we get more customers? Through whichever route they come doesn't matter, whether it is liability or assets or gold loans or whichever products. But at the end of the day, how do we get the full relationship value of the customer is something we'll focus on. The second thing is you can only create a strong franchise when you have full suite of products. Now truth is that given the kind of rates which are there in the markets in some of the products like home loans and some of the other businesses, we may or may not scale those businesses up very quickly. But we need to have these products on our product suite with a proper processing, et cetera, because to create a larger customer franchise, we need to be one-stop shop banking at the end of the day. And hence, whether it is well product, whether it is retail assets products, whether it will be some of the other products like whether through alliances or through directly some of the other products, which we will build, including prepaid ForEx credit, we'll figure that out. But at the end of the day, we have to have a full suite of products with customers. The third part is we -- to create -- unless we have 2 or 3 products with our customer, we cannot build a profitable -- large profitable customer franchise and scale the business. And last part I would like to talk about it, we have to leverage our branches a lot more. And that can only happen when we have a very strong customer acquisition strategy with our full products suite and proper customer segmentation. And hence, what portion of the customers we get where we can get full value of the customers, primary banking and a higher share of wallet is something which we'll focus on. Most important, of course, is as we do all this, how do we manage and retain our cost management because revenue has to grow along with cost. How do we leverage our branches? The good thing is that we have already invested into the branches. And hence, if we can leverage them well, we can get -- we can continue to invest with -- and at the same time, generate revenue. And the last thing I'll say that some of these businesses need very strong policy, risk management, underwriting and controls. And me and Neeraj, we are working on that because unless we put those processes and controls in place, suddenly scaling up is not a good idea. And the good part is we will be launching these products or -- it's not launching, relaunching because some of these products are already there in the bank. We're putting the right policies and control mechanisms. We will, in a way, moderate them and relaunch them. And the good product will catch the right cycle because we'll take another, whatever, 3, 6, 9 months, depending on which products we're talking about. And as we gain scale in these businesses, what will happen is that that's the time we will know exactly impact of the COVID in the next 3, 6, 9 months. And then we will catch the cycle when we know the story behind us, good, bad, ugly, however it is, not about us but about the overall ecosystem. And hence, the businesses which we'll build will catch the right cycle. So that's the thought process overall. Under Mr. Rajendran's guidance, we'll ensure that we take the right steps with culturally the way the bank has been because it's not a question of doing what other banks are doing right, we have to do what is right for our bank and our customers. And as we grow, we have to ensure that how we create the higher customer penetration into the franchise and grow customer acquisition. So that's broadly the retail strategy at this stage. Too early for me to comment on anything more. But maybe in the next analyst call, I'll be able to give you more details and color on the whole thing. Thank you, sir.

Thank you. Appreciate your response. Sir, 2 more questions, sir. On agri and MFI loans, INR 234 crores, even that has grown quite strong. Can you please elaborate what's happening there? How does it look in the near term?

We have brought a team from outside, okay, who are used to this agri lending in a different way, apart from the conventional KCC, okay? That team has started working well. We are operating -- we have recruited a lot of fresh graduates from agriculture colleges and trained them. In Tamil Nadu, Kerala and Maharashtra, we have the team now. They are doing really well. Ticket sizes are small, but still volumes have grown to INR 249 crores so far, which is very impressive. And the quality of the portfolio is also good. They're identifying many new areas now. So these 3 markets are providing enough opportunities, but we will also get into the other markets. Now Karnataka, Andhra, Telangana is also in the pipeline. New branches are getting opened. As we explained last time, 100 branches we are permitted to open, subsequently a few more branches we are permitted, out of which almost 35 branches are opened and another 30 branches are in the pipeline. The furnishing and other work is going on, but we are confident in the centenary year, we will be in a position to open 100 branches. And the 10 branches which we have opened during the last year, they were able to break even during the first year of operation itself. That gives us a lot of encouragement that this model will work. So the new branches normally focus only on CASA, gold, MSME and agri because their location selected is mostly like that. 70% of the branches are in semi-urban and rural area. These branches focus only on this business and the right kind of products and strategy is working well. And agriculture is doing extremely well. The monsoon is good. And the ancillary sectors like poultry, food processing and the dairy, they are also doing well. So together, agriculture is -- no, this agriculture what you're talking about only the direct agriculture. But even the food processing and all which get into the SME segment, they are also doing really well.

What will be the total exposure to agri, sir, including MSME food processing, et cetera, you mentioned? What is the total exposure as a percentage?

It is the third largest exposure. I remember it should be around 2.5% or so.

Okay. And the yields here are comparable to the reported yields, sir?

Yes. Yes.

Okay. They're not too much lower?

No. No. We don't compromise much on the yield.

Right. One last question, sir, I'll get back to queue after this. The cost of TD, right? Do you see the cost of TD coming down further? Or do you think you'll have to maintain this level to attract more deposits?

Not required. We don't go by a pricing strategy always, right? So we don't offer a higher rate at any point of time. Deposits are flowing in. So much of liquidity in the market. Getting deposits is not a problem. Recently, we have entered the CD also. We have raised the CD today, so after getting our rating. We were able to raise at the market-related rate. So it will also become one more strategy for raising resources. We are unable to attract deposits at the card rates. And in fact, the wholesale deposits, we have put embargo on it. Every branch has to seek a prior permission before taking deposits. That is our plan. So we never allowed a liability to grow in our system because we were not able to deploy. For the first we have reached almost 80% CD ratio today. That is why we have permitted the liabilities to grow. Liabilities are growing. We are always strong in liabilities. That's what we were telling all along. Liabilities have never been a challenge. It is only deployment, which was a challenge for us, which we are able to address to a large extent. We don't find any problem in raising liabilities.

Next question is from the line of Jehan Bhadha from Nirmal Bang.

Sir, for the month of September, what was the collection efficiency, either the moratorium figure is actually not really -- not giving a very clear picture. So if you can…

Sir, your voice is not coming so clear, coming very muffled.

I am able to get it. He is asking about the collection efficiency.

Yes. So among that was due for September month, how much have you collected from the due amount?

See, as I said, for the DA portfolio, I'm not able to get the data yet. It will take time. For my own portfolio, it was noted to be somewhere around 80% to 85% of the demand for September month.

Okay. Okay. So it is indirectly the same -- the 15% moratorium, so it comes to the same. So collection efficiency should be above 85%?

True. True.

Okay, okay. Right. And so -- and on the advances side, if we take a 3, 4-year view what kind of advances growth that we should look at?

We're growing almost at 24% for the last 3 years, except 1 year in between where we were growing at 18%. We are growing at 24%. Also, we are targeting at least 25% growth on the advances side, which should be possible [Technical Difficulty] March number. So 25% should be possible.

Okay. Okay. And sir, last question on now our gold loans have touched 12.5%, is there further scope to increase this marginally?

Sorry, I'm not getting your question.

Our gold loans have now touched 12.5%. So can it increase further?

No, our lending rate is 13.5%. And the old loans are getting closed and when they are repriced, probably the yield can improve further, but of course, scope is limited. [Technical Difficulty] at a lesser rate. Lender yield can -- we are on this level, a little improvement can be there over deposits unless we raise the pricing, which we are not proposing at this point of time.

Okay. So at the time of IPO, we were talking about increasing gold yield. So that most of [ that ] has been achieved. So from these levels, there is limited scope, right?

There will be some improvement, as I said. When the repricing happens, there will be some improvement. We may move towards 13%.

Ladies and gentlemen, we'll take the last question from the line of Aditya Kondawar from JST Investment Consulting (sic) [ JST Investments ].

Sorry, I had to disconnect briefly in between. So obviously, excuse me, if this is a repeat question, but I just wanted to know the Loss given default and how many -- how much slippage do you expect from it?

I'm not having the LGD number readily. You have to go only with the provision numbers. Let me try in the next presentation whether we can include it, we will try. For IFRS, we are doing it for a different purpose, but that's not readily available. That IFRS happens after the audit is over. So whether we can include it in the next presentation, let me try.

Thank you very much. Ladies and gentlemen, that was the last question for today. I will now hand the conference over to Mr. Manish Karwa for closing remarks.

Yes. Thank you all for participating in this call. I must also thank the management for giving us a chance to host this call. Thank you all.

Thank you.

Thank you very much. On behalf of Axis Capital Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.