CSB Bank Limited (CSBBANK) Earnings Call Transcript & Summary

Good evening, ladies and gentlemen -- I'm Momita, moderator for the conference call. Welcome to Q1 FY '22 Earnings Conference Call of CSB Bank hosted by Axis Capital Limited. [Operator Instructions] Please note that this conference is being recorded. I would now like to hand over the floor to Mr. Samir Besi. Thank you, and over to you, sir.

Thank you, Momita. Good evening, everyone, and thank you for joining us today for this call. From the management team of CSB Bank, we today have Mr. Rajendran, MD and CEO; Mr. Pralay Mondal, President, Retail SME, Technology and Operations; Mr. B.K Divakar, Chief Financial Officer; and Mr. Ganesan, who is head, credit monitoring and recovery. Without much ado, I would want to hand over the call to Rajendra, sir. Over to you, sir, who will give a brief on how we seeing the environment. Thank you.

Good evening, friends. The first quarter of financial year '22 has been on a close. It's the second wave of COVID creating havoc on lives and livelihoods affecting every box of economic activity. Given the situation, there are insurmountable challenges in growing the business volumes and in getting the dues collected from customers. This round, in our case, at least, the impact was more on the gold loan and retail borrowers then on SME and corporates. On gold loan, on gold loan front, it was double [indiscernible], which is a collection challenges compounded by the reverting back to 75% LTV regime from 90% enjoyed from August 2020 to March 2021. Despite all these constraints, I'm happy to note that, we could post a profit of INR 61 crores for the first quarter of financial year '22, which is higher than Q1 of financial year '21 and that of the last quarter of the previous year. Let me take you through the main highlights, revenue growth net interest income grows by 45% year-on-year. Q-on-Q, there has been a decrease of 3%, mainly because of interest reversal on gold loan NPAs totaling to INR 24 crores in Q1.

Ladies and gentlemen, please stay connected while we connect the management team back on the call. [Foreign Language] Ladies and gentlemen, thank you for your patience.

Okay. Sorry for that one. There is some problem in the 2018 may continue. Net Interest Income grown by 45% year-on-year. Q-on-Q, there has been a decrease of 3%, mainly because of interest reversal on board NPA, totaling to INR 24 crores in Q1 as gold NPAs dropped from INR & crores to INR 350 crores. Gross loan MTM loss is not significant and against a to recover the NDA, including interest in the [Technical Difficulty] , we are very cautious in the treasury operator.

I'm sorry to interrupt, sir. So if you could please bring the phone is a bit closer to you because the voice is not very clear.

Okay. On the expectation of yield taking not to at moment, we are very cautious in the treasury operations. And we have been unwinding the trading positions and parking the funds mainly in short-term securities. However, we are continuing with the trading operations very collectively and watchfully. The treasury profits are down by 45% on a year-on-year basis. On a quarter-on-quarter basis, there is improvement. Modified duration of our trading book is 0.55 years. Despite year-on-year decrease in treasury profit by 25%, we could post an increase of 3% in overall noninterest income year-on-year, supported by PSLC income, [Bandar] Commission, process increase, et cetera. Q-on-Q [indiscernible] profits have been -- have increased by other streams have reduced as many of the incomes take ATM and FCI maintenance charges or collateral only in last quarter. For many other like [Bandar] Commission, [LCBG] Commission, processing the et cetera have natural propensity to be high in the last quarter of [indiscernible]. NIM, the quarterly NIM that was at 4.06 as on 30/6/2020 increased 0.14 as on 30/6/21, though we were able to contain the cost of deposits to 4.48% during the quarter. Both the advanced and [indiscernible]yields decreased by 56 basis points and 26 basis points, respectively from Q1 of financial year '21. But for the interest reversal on account of gold loan NPAs amounting to approximately INR 24 crores. Interest yield on advances would have been almost at par with next Q4 core. With the opening up of the economy, we are optimistic in recovering and upgrading the gold loan NPAS, and this will hopefully resolve the need for previous price. Top cost increased by 13% year-on-year, as a number of crops increased from 3,335 to 4,000.08 or by 35%. Q-on-Q, there is a decrease of 46% at Q4 of dental 21 in other part TARP extraordinary as total provision. If you remember, INR 38 crore change is [indiscernible] impact and now INR 14 crores, we are awards impact. Also, no D.A. provision for Iteris has been found respire for Q1 financial year '22. Since the BA on June '21 is lessened at of March 31. In Q4 of financial year '21, we had debited profit and loss account by INR 33 crores towards BA for iteri against the bill for the first quarter of '22. Non staff OpEx increased year-on-year basis, mainly due to increase in depreciation, payouts to dealers and business correspondence centers due to opening up new branches, et cetera. Number of branches have increased from 413.0 to 514.0, and this is the main contributing factor for the increase Q-on-Q, there is a decrease of 17%, mainly because of depreciation where there was a onetime net of around INR 11 crores in Q4 through the reduction of useful life of [indiscernible]. Operating profit. [indiscernible] recorded an operating profit of 179.78 crore INR as on 30/6/2021, with an increase of about 39% on year-on-year and Q-on-Q basis. [indiscernible] Probably at least up the challenges posed by the SM environment. As compared to Q1 of financial year '20, the Q4 of financial year '21 is at 66.7% versus 14.23%. The cost/income ratio has improved to 47.72% for the first quarter of financial year '22. That's due to billing cost-income ratio below 50% and it is likely to remain there in the coming quarters as well. Net profit. Net profit for the first quarter stood at INR 61 crores vis-a-vis INR 54 crores in the corresponding period of previous year. For Q1 financial year '21 [indiscernible] [ INR 43 crores ]. This is after provisioning of providing for INR 92 crores towards provision for NPE on board. In Q1 of '22, we continue the estimated provisioning for SME, other than gold as well as NPE [indiscernible]. The additional provision is held to over double RBI regulation amount approximately INR 298 crores. Balance sheet growth, deposits and advances have grown by 14% and 23%, respectively, on a year-on-year basis. CASA deposits also grew by 29% year-on-year. CASA ratio has improved to 29.23% as on 30/6/2020 to 33.0% around, 30/6/2021 or above [indiscernible]. The profits have reduced by 3% Q-on-Q, mainly because buying often not to replace [ INR 5,660 crores ], which matured in June 2021. Advances have reduced by 4% Q-on-Q mainly because the fall in gold loan portfolio by 8% due to challenges posed by reverting back to [ 70% ] LTV regime, commoner by recovery and collections affected by lockdown. In segments like SME, MSME, assignment, MOIs, et cetera, these are very cautious on direct disbursements in our plan set business [indiscernible]. Two-wheeler dealerships were close to most of the days in the quarter in the key geographies that we operate, affecting the 2-wheeler finance segment. On gold loans, NPA has affected the result adversary, it may be noted that economic loss is expected to be not significant, as we hardly have any MTM losses on our portfolio. Also, average LTV for gold loan was at 83% in March has been brought down to 75% at [indiscernible]. Set quality and provisioning. Our gross NPA on 30/6/2020 was 4.88% and dropped 3.51% 30/6/2021 and 2.68% as on 2021. Net NPA as on 30/6/2021 is at 3.21% as against 1.17% at the previous quarter and 1.74% on 30/6/2021. Similarly, PCR decreased from 85% to 70%, considering the accelerated standard asset provision in excess of the RBA requirements amounting to [INR 14 crores] 77%. At Hostess to be overall bold-on will be able to that. [Technical Difficulty] Toll loan NPAs in the coming months, which will help to improve asset quality metrics and PCR. We were considerate and sympathetic towards the problems of the gold loan customers and extended the breathing time to them for repayment by taking a toll on our balance sheet. This gesture of goodwill from bank side is expected to earn the appreciation of the customers who were loyal to the bank all these years. As on 30/6/2021, resection advances as a percentage of total advances, only 0.48%. The amount outstanding in guaranteed emergency credit line scheme as on quarter end, that is about [ INR 185 crores ]. Overall, we are holding a standard as a provisioning of INR 164 crores, including the activated provisioning for standard assets and the provisions in excess of RB circulation amounts INR 104 crores. Collection versus demand for the month of June '21 stood at 93%, excluding gold loans. Capital adequacy. Our capital adequacy has improved to 21.3% for Q1 of '21 quarter end to 21.63% due to decrease in credit and market risk-weighted assets. Leverage ratio has improved to 8.37%. Expanding the network. We have opened 11 new branches in this financial year and merged 6 unviable branches, thus taking the total network to 517. We plan to open another 50 branches in the current quarter. Once the demand picks up, we will have enormous opportunities in our priority segments like Gold Loan, SME, MSME, Two-wheeler, MFI, et cetera. The challenges in the collection front have started to elevate and it will improve substantially in the coming months. The good thing for us is that the challenges brought by pandemic have not diverted us from our transformation journey, and we are optimistic that our clear focus and strategic initiatives will stay on track in the path for the sustainable growth and stakeholder satisfaction. We remain well capitalized and well leveraged to captivate the economic recovery tailwinds to build strong financial and operating results in the coming quarters. I'll stop on this and take the questions from you.

[Operator Instructions] So our first question from Mona Khetan from Dolat Capital.

So firstly, on the gold book. Sir, you mentioned that MTM losses based on current prices would be minimal in this portfolio. Is that a fair understanding?

That's right. There is no mark-to-market loss on the portfolio level.

Okay. And with respect to the auction, are there any challenges that you're facing in the state of Kerala?

Every state, there is a challenge, okay? The politicians come in the way. The government also interfere. They don't want us to go with the auction. And on our own also, if there is public sentiment against it, we are not pursuing the auction. The better given auction are cases on larger scale. Normal times it is auction, 20% of the people come back and redeem it only 10% will go for auction. This time there was not the response, even though we are seeing recoveries after giving the auction notice. It's quite a bit of portion remains for auctioning. But so far, what your auction is only INR 43 crores of gold loans out of our book of about INR [ 2,000 ] crores. So action is not main way of recovery during this period. But we will continue to give notice with an intention to get the money back. And wherever it is feasible, we have gone ahead with auction also.

And compared to this viewed as percentage of overall delinquencies, are auctions a lot higher this time around?

Yes. When compared to the previous quarter, auction are higher this time. Normally, we don't resort to auction at all, very, very rare in our history, right? So this time, we have to resort to auction because of 2 things, one is people are not coming forward for taking the jewelry back as there is no social function or any compulsion for them to redeem the jewelry. They don't have the income to pay the money and the rollover there. Normally, rollover happens in these flows. But when they come for rollover, now they have to pay the difference in the loan-posted value also, because loan-posted value has come down from 90 to 75. So they have to pay the interest and the difference, which is a larger amount for them to pay when they are not having the regular income. So naturally the redemption process as well as rollover process gone up during this quarter. Fortunately, the gold prices are remaining at the same level. So there is interest in the people to redeem the jewelry. I hope that we'll be in a position to come out of this problem in the next 2 quarters.

Sure. And what would be the reason behind the sequential decline in gold tonnage from 17 tonnes or thereabouts to about 16 this quarter?

It is mainly because we have not done much of disbursements and mostly focus is on recovery during this period. [indiscernible]

Okay. And some part of the loans have been matured onto that.

About INR 600 crores of loans are paid back. Okay.

Got it. And on the non-gold part as well, INR 100 crores or thereabouts of [ PBT ] would result in a leverage ratio of 4.6%. So some color there in terms of where the delinquencies have come from. You did highlight, it's from retail, but within retail, where is it that you are seeing that stress?

The slippage is mainly on the gold loan to the extent of INR 337 crores. And DA portfolio, that is mainly from the MFI whatever assignments we have taken [ with slippage ] of INR 11 crores. All other retail loans and SMEs have contributed [ for INR 86 crores ].

Okay. And how much would it be from the 2-wheelers if anything you have readily available?

2-wheeler number. 2-wheeler is around INR 56 crores.

INR 56 crores.

Sorry. 5,600 accounts, is it? Okay. Okay. I'm sorry, I'll give you the 2-wheeler number. Sorry. Sorry about that. NPA in 2-wheeler is only INR 4.29 crores. INR 4.29 crores.

This quarter, the slippage is INR 4.29 crores?

Yes. Total outstanding NPA for the portfolio is only INR 6 crores.

Okay. And the slippage this quarter would be?

INR 4.26 crores.

Got it. And when it comes to the gold delinquency, you continue to provide 25% even for the delinquencies this quarter?

Yes, all the NPAs 25%. Other than gold, provided 25% for all the SMEs also.

Right. And your SME book would be in the same range of 2.8% as last quarter?

SME book has come down, right? SME book has increased by INR 100 crores, so over and above the March end quarter.

INR 460 crores or thereabouts?

INR 460 crores, right.

Okay. Got it. And lastly, for the second quantitative quarter, we are seeing good growth in the corporate book for you as well. So if you could give some color around big sectors and the nature of these loans?

We have seen good demand from the corporate segment as well as SME segment. Gold loan, we had not grown. We are focused efforts to recovery during the last quarter. Probably during this quarter, gold also start growing positively. Otherwise, the 2-wheeler and all when the dealerships are not opened yet. Most of the dealership are kept closed and people are not moving. So 2-wheeler and all will take time. Financial [ inclusion and agri ] will see demand now because there's a good monsoon. The cultivation will start, and then we will see good amount of demand coming for gold loans as well as agri loans also during this quarter. And MSME also once shops are opened or stocking, they will come back for the MSME loans. So overall, the demand will come back once the complete opening happens.

Okay. So sir, I was particularly referring to the corporate book, it has continued to grow. So within the corporate, where is the growth coming from? I did notice that infra share has increased, construction share has increased. So what are the opportunities? If you could just throw some light there.

Conceptually, it's a conscious call, which you have taken. So the large amount of contracts are being given by every state government; it is a turnaround strategy for the economy as a whole. So construction contractors are having good demand for credit as well as non-fund based limit, which we are catering to it. That's a focus segment for us. The infra we are selective on the [ HAM ] projects for the road, both NSA as well as selective state government. We have funded some of the [ HAM ] projects. So that is one demand. And demand is coming from the solar energy and particularly the textile mills employ it, and some of the industries are going for captured solar energy. As we have these accounts already and the cash flows are known to us, we are supporting the solar expansion also, not on a stand-alone basis. Most of them are putting for captured consumption by the existing industries with us. that is an area where we are supported. For infra, we continue to have demand. Construction will continue to have this demand. And the other area where we have grown is on the food processing, mainly on the dairy, we have done quite a bit of work and other processing areas also. We have taken a few options which are doing reasonably well.

The next question from Mr. Anand Dama from Emkay Global.

Sir, gold loan book that we have, we have a fair share even in the state of Tamil Nadu apart from Kerala. So how is the situation in Tamil Nadu whether you have blocks, particularly in terms of auctions even in state of Tamil Nadu? Or is it largely restricted to Kerala? And bulk of the entry that we have seen in the golden book are largely from Kerala in the current quarter? Or is there a fair share even from Tamil Nadu?

No, it is from all states, not particular state, but Kerala situation is better. That growth has happened only outside Tamil Nadu during the last 1 year. So naturally, the NPAs are also more only from sales outside Kerala. And auction is not a problem in Tamil Nadu to a large extent. There are selective pockets where there are commissions were not gone ahead. This INR 47 crores are what we are talking about might have happened only outside Kerala to a large extent. And Kerala auctions have not taken place at all.

Okay. So situation in Kerala is still remains the same?

Yes. But Kerala's NPAs are very low. They are able to recover in Kerala.

Okay. Okay. Because I think the -- there was basically state chief minister saying that you are not supposed to do collections and so on. So we were under the impression that basically Kerala situation typically should be bad, right?

No, no. Not that bad compared to other states. But of course, we are not able to proceed with a collection action, right? We cannot go to the court, we cannot sell the properties. We cannot sell the gold. But persuasion is there always. We can pursue the customer to pay and get the money, that is how we are working.

Okay. Sure. And sir, how are the recovery rates particularly in the month of July now? I think you have given data for June, but what in July?

May, June, all the 3 months, our recovery is 93% for the gold -- for the other and gold portfolio. Gold portfolio, it was only 20% in [ EFL ], 42% in the month of May -- 46% in May and 62% in June. And this month seems to be good, of course, when we close the number. July has seen a bit -- a little bit of opening has happened in many parts of the country.

Okay. So it should touch about 70%, 75%?

Yes, yes, it should.

Okay. And sir, is it possible for you to share the [ 30 billion DPD power book ], particularly in the gold book portfolio?

Yes, we will provide it, we'll provide it. I'm not really having it, but we will probably give investor presentation itself.

Another question was about this, you already have now you are again getting back into the corporate loan segment. And so you talked about the road project are, basically, there's a lot of demand particularly coming from Telangana and some of these pockets and Southern India mainly. So what is the need for -- basically, for us, the size of the bank that we have basically to get into these kind of road projects where there could be inevitable delays at some point of time and being stuck again. And secondly, what is the ticket size of the loans that we would have done already?

We have learned a lot in the parts of the first SMAs. The [ road ] projects, our loan sanctions are coming with a condition at least 2 or 3 milestone payments they should have received from the state government before we go for a disbursement. The entire contribution from the promoter should also come upfront. So the band disbursement happens only at the last collection. In many cases, by the time we disburse the loan, they have completed 80% of the road projects [indiscernible]. And out of these loans, which are sanctioned, most of them have already started the annuity payment also now. They're all completed the projects. So nothing is at risk. And it's only annuity project. And we have collateral securities also. Unlike other banks, the interest on collateral securities for these HAM projects also. So we have enough collateral as a fallback.

Okay. What is the ticket size of these loans?

It's a small loans. For the state government, HAMs are somewhere between INR 30 crores to INR 60 crores maximum, this is for extension of the existing roads normally. It is not a new one. So the acquisition of land and other problems are not coming up in this. It is only [ 60 ], if I remember correct.

Okay. Okay, sir. And sir, what is basically now the average tenor of this portfolio that we would have or basically the portfolio is still not really big enough for us to track the tenor and stuff?

It's not clear enough at this point, but I can give you the duration could be around 7 to 10 years. In some cases, we have stipulated the NTI collections should come to us. Loan collections then only to absorb the remaining amount. In some accounts we have given 7 to 10 years repayment period.

And how many banks typically would be there in this project apart from us?

Most of them, it is a solo for us, okay? 1 or 2 cases at a share. Otherwise, it is solo. Normally, we don't get into consortium kind of arrangement.

The next question from Mr. Suraj Das from B&K Securities.

This is Jai here. So a couple of questions there. One is on the gold loan side, I mean, I think you have mentioned that some of the -- part of the slippage is because of the LTV management. Sir, can you elaborate, sir, I could not understand as to how LTV change would lead to some spike in MP?

So when the LTV even at 83%, 90% when they take it, effectively, we have lended 83%. And the gold prices have gone down, we might have called for additional margin gain. The additional margin is not great and we take the [ NPA ]. There is 1 cost for NPAs coming up. And normally on new dates, people come and pay the interest and roll it over. That is a practice in the gold book. Now when they come for a rollover, you will not get the 83%, but you will get only 68% today. So they have to pay the difference in [ 25% ] also to roll over the loan apart from paying the [ ascribed ] interest. This becomes a major burden for the state government. So they are not able to roll over. If they don't roll over, naturally, it becomes NPA for us. So what we have -- and now you said the people are willing to pay the interest, we allowed them to continue that cost without going for auction because there is an intention to redeem. So there are 2 things which are recorded for loan recovery on its intention to pay and [ reversibility ] to pay. Not the ability to pay because there is no income but there is an intention to pay, which is revealed by the paying the interest amount or the portion of the interest when the amount is due. So whenever people have come forward to pay a partial amount, we allowed them to continue according to their pay date and it won't resort into any further recovery process. And once the loan is over, probably they will come back naturally. So we don't want to pull them to the corner and end our contract. We are seeing more demand at the end during this period.

Right. And part of this LTV change was because of the regulatory mandate, right?

[indiscernible] was hitting a higher LTV from August [ 8 ] to March 31 [indiscernible].

So that is coming from this quarter onwards that was already settled, including...

We have reduced it from January onwards when the gold prices have gone down, we are not lend at a higher level. So this problem could continue only after December.

Sir, what is the typical [ some for ] gold [indiscernible] 12 months or would it be lower than this?

So we have all maturity. There are 3 months loans. There are 6 months loan, aggregate loan means [indiscernible] [ upon the crop with a given ] where we might have given about 4 months or 6 months. And normal gold only is for about, for consumption purpose, it is 1 year. For SME and others normally it is 1-year loan.

Understood, sir. And secondly, sir, on such amount that we mentioned, is it inclusive of the proposal that you [ move ] or is this for only which have already been affected? And what could be the quantum by [ September ] in respect to this?

We don't have any funding proposals who are restructuring as funded. Whatever has done so far, we already approved it. This includes all the numbers where we are an approval, but that's very negligible. It is only INR 4 crores or in this area, right?

So sir, the person who is taking that gold loan, he did not get an option to restructure that instead of getting into NPA. He should have -- because any way you can see this kind of a certain you could have asked for restructuring or no?

It is only an accounting mix. Okay. Anyway, when the gold prices are went down, it's ending the period as it makes sense, right? Further erosion of the margin will take place. So having given us 63%, probably we could have talked about replacement option also. Now people are coming up to [ 89%, 99% ] of their gold loan value. So restructuring and extending the period might not be the right strategy. So we have not thought about it. So there is [indiscernible] [ records ] also from anyone.

And asking on NPA, are you already used to daily NPA value on all products because I think [ gold price ] was supposed to say by June, but anyway, you were following that or part of the [ gold ] price is because of [ the agreements ] that you would [ enter into back ]?

We are having a system which is regulated on a daily basis. For the past 3 years it is that. We have automated our NPA processes 3 years back. So every day, once we complete any days, automatically, that declared for an NPA on the 91st day, and we also make provision.

Across all products, including our [ liabilities ]?

Across all products on an ongoing basis.

The last question is on [ equity ] book. It looks like that the portfolio has not moved much in the last 3 quarters at around INR 2,000 crores, INR 2,200 crores. So what is that thought process here and what is your usual ticket size within the range, which would be a kind of a sweet spot? And why is the growth of that portfolio not growing?

Now the ticket size, which used to be [ 60 ] have grown to lakh of rupees of this loan tested value has gone up. It has gone beyond [ INR 1.3 lakh ] during the last quarter. It will remain at that level. So the gold loan company was INR 35,000 probably they may have moved to INR 50,000 now. And ours is always about a lakh of rupees. I should remind around [ 0.2, 1.30 ] averages in time.

Sir, the question was on SME loans?

SME. SME, it will always price will be around INR 2 crores.

And the average is okay then sometimes it could be [ detected ], but what could be a proper range of loan origination?

In SME?

Yes, sir.

I mean the proper size is between INR 5 crores to INR 10 crores. It is a focus area. So that the concentration risk could be less. There are many SMEs which have grown with us over a period of 30, 40 years. Payments have gone beyond [ INR 36 crores ] also now.

And why -- what is the thought process on the growth of this book because it looks like the portfolio has flat on, I mean it's not growing absolute amount also?

The portfolio on outstanding basically is a flat for quite a long time. Our disbursements are high, but we continue to lose accounts to the competition. The competition offers at a much, much lower rate, which we cannot even imagine filling. We don't think that is the right pricing policy. They're silly pricing SME loans. The BBB rated at 7.5%, 8% is not the right thing for us. We would like to price risk properly. So for the reason, we made a loss on SME loans [ of cost ]. But still we don't change the pricing policy. Price goes with the loans. So the disbursement at present which is remaining high. The outstanding balance remains almost fragment for quite some time. I hope the market will understand and reprice the loan shortly when the liquidity's withdrawn -- the excess liquidity's withdrawn. Loans will be priced properly but we will avoid the lower exclusion of accounts from our side.

The next question from Mr. Susmit Patodia from Motilal Oswal AMC.

Sir, if you can tell us -- 2 questions. One is on this INR 43 crores of gold loan auction that you have done. What would have been the realization? Was there any hit that you would have taken?

We have taken a hit up for roughly about INR 1 crore. This will be treated as an unsecured loan in our book and provided completely 100% provision immediately done. But the recurring costs will continue. We will be in a position to record a substantial portion of it.

Okay. Got it. Got it. Got it. So INR 1 crore loss on INR 43 crores of auction.

Yes.

Okay. And sir, second question is if you can give us some details on progress of [indiscernible] [ in the teens ], where are we now and what is happening?

Pralay, would you like to take the question?

One moment, sir.

Find out whether he is there or I will take that question.

And can I get the question again? Sorry, I just missed it.

I just wanted to know where are we in terms of product launches, what is -- if you can give us some color on the progress?

Yes. So let's divide into 2 parts. One is what we have already launched, products like 2-wheelers, micro MSME and things like that. So they're doing well. And obviously, as the market opens up and the economy opens up, we will aggressively grow those businesses because we are launching some of the credit store cards and sold templated designs to scale those businesses out. So that's 1 part. In addition, what we're doing is we plan to launch ACF, relaunch education loans, selectively do personal loans for our internal customers and also look at some entry-level commercial vehicles once the economy starts opening up and commercial equipment. So these are a few products which we have -- in fact, we have just hired some of this business. They have not yet joined. They will join in another 3 months' time after the notice period. So once they join. Meanwhile, the credit team is working on some of this, policies and products of this. Some of these products are there before so we are relaunching them, some of them are new. Also on the payment side, we are going to enhance our capability on the micro ATMs. And on the [ app ] inside, we are looking at how to scale these businesses a little bit more. And on the prepaid and trends cost side, we're also looking at it at this point of time. On the SME side, we are going to focus on -- I mean, while we'll do everywhere because that's a main step of our business, but we need to focus on 60 branches in 10 locations. And as kind of pacing with branches where they will be looking at various products and services by which we can give special attention to these customers to being focused there in those branches. And on the home loan side, while we have our own product, but that's more on the affordable side or slightly higher [ IR ] products. But for the -- this thing we are planning to tie up with 1 of the leading players for, not to retain our premium customers who should be taking those products from us, and that's why we are tieing up with somebody. So we will -- with all this, we'll have a reasonable suite of products to come and already what we are strong on like gold loans and agri. On the agri side, we are planning to launch 2, 3 products on the [ level ] refinance and some [ products should be ] launch because we have a fair amount of distribution on the typical geography, and we are saying that while we have done well on KCC and MFI, but now we need to leverage those distribution to some of the commodities and some of the other products we shipped and including farm mechanization and small MSME kind of products, et cetera. So those are the kind of things that we're looking at. So a fairly large plan, but this will all be on the back of technology platforms, which will create -- our new CTO has joined us. So he will be joining us in India by August -- middle of August. So once he comes in, we will create a full digital vision for the bank and work on it. Those things take 12 to 18 months, but we will start working on the digital vision of the bank. Beyond the [ brilliant ] digital like net banking, UPI, mobile banking, all those things are doing well, but we will look at a slightly different phase of digital banking, which we will update you as and when the time comes. So I hope I could answer the question.

Rajendran sir, 1 more question. Is this LTV adjustment to 75% has it happened across the book or only for the customers who do more due in the last 3, 4 months?

On due date, it will happen, okay? If they have the margin, and we don't ask them to pay. So as and when the loans are falling due, they have to pay the money. Now as a prudential measure, we have more thought getting the additional margin to the extent possible where the loan-tested value is about 75%. But normally, they have only at the time of the due date if it is 6 months loan at the end of 6 months, if it's only a loan at the end of 1 year.

So we'll move on with the next question. It comes from Mr. Amaan Elahi from Investec.

So firstly, for gold loans, I just wanted to understand what your outlook is. So obviously, this quarter, rather than 8% impact because of the LTV reset. And our current disclosures against shown that we are at 77%. This still a tad higher than the minimum 75% at that RBI has sort of indicated. So what is the outlook for gold loan for the full year FY '22?

On the normal restored the demand for gold loan will go up again. But this is the only loan which the people can get without much formality. Any other loan today because most of the banks and NBFCs are going slow on the unsecured loans and business loans. So most of the business people will come back for gold loan because that is the only option available to them. And once the lockdowns are withdrawn, I'm saying a huge surge in demand for gold loan, and we will definitely have our market share of it.

All right. And sir, another change which I noticed was during the time of filing our [ RHC ], we indicated that our average ticket price was in the range of INR 60,000, INR 70,000. So currently, that is now upwards of like around INR 1 lakh, INR 1.1 lakh, INR 1.2 lakh. So is that a conscious change that we have done? Or is that more an outcome of what the demand environment is?

And mainly this because of the increase in the value of the gold. Okay. So when the value of the gold goes up, our ticket price goes up for all of us, all the money, all the lenders, we are seeing an uptick in the size along with the gold value going up. One thing. And the segment which you are attacking. We are in the middle money segment, right? The middle class, middle segment we are there. The lower segment goes to the private financials under the NBFC. So initially, the ticket price was around a lakh of rupees for quite some time now. And it is likely to go up further because those who are not borrowed on the gold loan earlier are coming to the gold loan market now. These are all in the middle class paper. Naturally, ticket price is likely to move up further.

And sir, on the restructuring part, I just wanted to understand, have we restructured gold loan accounts? You tried to answer your question, but I think I missed that part.

So we have not done restructuring in the gold loan. We never thought about it also as gold loan is linked to the value of the gold and the cash flows are not assessed at the time of giving the gold load. And repayment schedules are not fixed. It's only a bullet payment. So normally, they have to come. Only they have prepayment is and they can come on roll over, then it is a kind of replacement of paying the interest, they can go lower, which normally happens. The same is not happening because of the difference in the loan asset value. Replacement is not offered either we have offered nor anybody in the market has offered the replacement option to the gold loans.

Lastly, obviously, on the liability side, our deposit rates are among the lowest within the regional bank. And our LCR that has also come down from 230%, 240% levels around 170%, still higher versus the minimum regulatory requirement. But an ongoing basis, our current NIMs are much higher than what we would like to maintain on an ongoing basis. So what is the steady state LCR that we would want to maintain on our book?

No, the sale rate is above 4.5% always. And when the market is favorable naturally money is available at much cheaper rate today. And our balance sheet is not a growing balance sheet for quite some time. We have seen only last we have grown a bit on the liability side. So we always had excess liability, which we are deploying in the market. So -- and we were very serious in accepting the term deposits also. Our rates are always maintained at a very low level when compared to the competition. So this has helped us to keep the cost of deposit at the lowest level. And going forward, the balance sheet is growing at a desired level of 20%, 25%. Probably the cost of deposit will also go up. We may have to give a little more attractive rates to attract the retail deposits.

The next question from Mr. Pankaj Murarka from Renaissance Investments.

Yes. Sir, a couple of questions. One, your gold loan book is already 35% of your book. So how do you see that evolving as a percentage of your overall loan book?

So there is no target amount for proportion for the gold loan per se. It all depends on the opportunity. I don't mind bringing the gold book if there is an opportunity in the bank. At the same time, there are opportunities coming up in other segments also, there is a good demand coming from corporate segment and the SME segment. If that book is growing probably as a proportion gold loan will come down. But as a policy, we will not slow down on the gold loan. There is no worry on the gold loan side. If you look at the yield, if we look at the credit cost, there is nothing like gold loan to contribute to that mill. So we'll continue to grow our gold loan book as and when opportunities as well.

So over the next 2, 3 years, how would it be? Would it be around similar levels?

In a growing balance sheet, it may come down proportionately because the other retail businesses will also pick up. But I was talking about various new products getting introduced in the retail. Similarly, SME had also many opportunities coming, and we are seeing CapEx demand is coming from the corporates also. So the proportion of gold loan may go down, but growth rates will remain high for the gold loan for the next 2, 3 years.

And yield on gold loan is about 11.5%, I think that's what you said in the presentation.

That 11.5% is the [ quarterly ] yield because of the NPAs naturally about INR 24 crores of interest is not recognized. So when we recover the money along with the interest, the yield will go up. Last quarter, it was 12.81%. The same it has come down mainly because of the NPA industry being recognized.

But the gold loan NBFCs, there it is much higher. So where is the gap?

I'm not getting the questions? Gold loan?

NBFC is on gold loan side, their yield on the -- their book is much higher. It runs into high teens and in some cases, even higher than 20% also.

As a band, I cannot go up to that level. I think maybe another 0.5%, 1% increase is possible, not beyond that level. Our customer segments are different. The ticket size is very small, and the sourcing methodologies different. And for the cost of operations also will be the low ticket size. So this is optimum size and optimum yield. Maybe another 0.5%, 1% increase is possible but not beyond that.

And finally, for the bank as a whole, namely on the construct you are trying to build, what should be a normalized credit cost on annualized basis?

Target is below 1% always.

Below 1%, you said is it?

Yes.

The next question from Mr. V.P. Rajesh from Banyan Capital Advisors.

Sir, just trying to understand, you said there was a loss of INR 1 crore on the gold loan auctions, and you're trying to recover that. So I was just wondering given the size of these loans? Is it worth pursuing the delinquent customers. How does that work?

On the sales force, which is bringing these proposals, they will be in charge of recovery also. Okay we have 600 people working for the sales in gold loan. They will be recovering this money. Even before the -- so last time 2013, '14, we had about INR 1.5 crores as a gold loan deficit in the auctions on a small portfolio of about INR 3,000 crores, out of which more than [ 80 lakh ] is recovered over a period and all these cases are reported to SIB as a default, okay? When they go to the next [ in solution ] for borrowing -- any borrowing, they have to declare about then only they will get the credit. It also helps us even without your effort also this money will be paid back to get clearance. So it's not a major challenge. Not much of efforts and money spent on this collection, basically [ you have that ].

I see. My second question is you were talking about the other guys giving loans to your SME customers at a very cheap rate. So isn't there a concern that they will pick off your best customers by giving them lower loans and therefore, the quality of our book incremental will go down? What are you doing to protect against that?

Not necessarily. So in the SME always [ it is our ] side. If you look at the SME book of anyone, [ 26% ] NPA is quite common there. Ultimate loss may be less because most of them are collaterally secured. But NPAs is risky and SME [indiscernible]. You cannot price it at such fine prices. So you will not protect your margins. So maybe in the process some customers may be lost. We have seen many customers have come back also. They were with us for 30, 35 years, and left for somebody offering half [ the price ]. But when they go to the bank, they understand there are other ways of making money, okay nontransferred vehicles start in the customers. So they come back. The comfort level with this bank will be much more. Some of the customers might have been lost. It's okay. But if you start reducing it, then it becomes a rat rate and you will lose your margins.

I see. And my last question is what's your sense on the growth of our loan book over the next, next 3 to 5 years?

Sir, minimum growth is at 25% for loan on an ongoing basis. In the current year, that could be challenging.

So you're seeing --

Between 20% to 25% [indiscernible].

Okay. And all the best.

The size of the balance sheet is very small, it should not be a big challenge.

The next question from [ Neshi Shah ] from [ Echo General Insurance ].

I think I must have joined the call late or something. But my first question would be, would you be able to help me out with the breakup of the NPAs in the book?

Gold [ INR 337 crores ]. The direct assignment is INR 11 crores and others are [ INR 86 crores ]. These are the first 3 pages.

All right. Okay, sir. And the OTR would be largely which segment of the loan book?

Come again?

So I know that you all haven't restructured any gold loans. So apart from that, the OTR constitutes mainly of the retail book or which part of the loan book that you'll have?

Hopefully, it is SMA book, restructuring for [indiscernible].

All right. And in the MSME book, you'll have a new MSME book. So what does that include? What's the difference?

There was a legacy book, which we still run, okay, which is done in the conventional way of [indiscernible] accounts, things like that. Now the new MSME is only term loans, right, 3-year loan, 2-year loan. They're all permanent price and schemes are there. And that is managed separately, and we are trying to get out of the legacy book and convert it into a different model.

The next question from Mr. Harsh Shah from Edelweiss.

This is Harsh Shah from L&T Mutual Fund. Sir, basically, my question is regarding first, what is the percentage of your book -- gold loan book? This currently has 85%-plus LTV.

Roughly, it should be [ 15% ]. About [ 18% ]...

The repricing -- Yes -- when the repricing will happen, this will again come down, right?

Yes, the book size will come down.

Okay. And sir, if you can just talk about a little bit on the operational side of it. So bank as a entity was still allowed to operate in most of the countries, whereas [ our sites ], which are your NBFC peers were not allowed to operate. So optically speaking, they must be having a bit more stress than what you have been having. So for CSB Bank as an entity, what kind of operational challenges did we face in Q1?

Mainly getting the people to the office, right, because of the lockdown customers are not able to come to the office. And initial phases, even the staff movement are very restricted and staff are reluctant to come to office. Staff are reluctant to go to the field for recovery. When they go also, they are not able to meet the customer. Customers are liking to think that a who's good for recovery. We never had a [ record ] team for gold loan to be tracked. So it was automatic, right? There is no effort for recovery in the gold loan especially. It's very, very rare. So this time, we have set up a call center wherein we call these customers and the potential NPA customers and talk to them. And until then, if we are having money, we will come and collect it. Our people go and collect the money, either as a partial payment, interest payment on the full closure also. So we have extended some customized resolutions for this problem. Then only this kind of recovery is possible. So when compared to the [ report ], we were giving the number earlier. The month of April, the recovery was only 20%. And in the month of May, it has been close to 44% to 46%. And in the month of June, it has gone to 61%. But the current month, it could be much better. It is improving. More or less since this will definitely improve a lot.

Right, sir. So you also mentioned that there is willingness of customers to pay back. So without giving any absolute figure, where do you see this GNPA figure coming down, maybe in a quarter or 2? So even if you miss 1 quarter because of extended lockdown, that's fine. But towards the end of FY '22, where do you see this figure heading now?

There is some indication, say, last March, some SMA 01 and 2 and gold is [ INR 94 crores ]. For the June end, the SMA number is only [ INR 300-odd crores ]. So the likely slippages for the September will be much less than come back to what happened in the last quarter. And if we go down further during the third quarter. In the fourth quarter, it will come to the normal situation. Bring it down substantially.

Next quarter slippages will be lower, that was a given, but that will also be supported by higher recoveries, right?

Naturally, yes.

Okay. So these elements, you are expecting this current GNPA number to go down quite a bit by the end of FY '22.

Yes. Just to see the result for the September quarter, for September we had not announced the NPAs at all. The provisional NPA is at what it was and it has come down in November. December gold NPAs are [ INR 124 crores ]. And the opening happened to NPA come down to [ INR 44 crores ] in March. So that will happen during the current phase also. Once the third phase is also over, I think it should come down to the normal level.

The next question from Mr. Jehan Bhadha from Nirmal Bang.

How is the on-ground situation in terms of disbursements across gold and non-gold book? And if we were to compare the Q4 run rate of divestments, how behind are we from the Q4 levels?

Only 30%, I can say across the board. Only 30% is the disbursement happening when compared to the Q4 of last year.

Okay. Okay. So probably for full recovery to happen, it will take us -- it might happen in Q3 once things normalize?

It all depends upon the next wave and the extent of it.

Right, okay. Sir, second question is on credit cost. I could not hear you properly. So our earlier guidance in the earlier calls was that steady state, it should be around 1%. But in current year, so can we expect that by the exit of current year in Q4, we will reach that level?

Hopefully, yes. By end March we must be in a position to raise the floor we believe.

Yes. So probably next -- so every subsequent quarter, there should be a decline?

There should be an improvement, yes.

The next question from [ Ronit Shah ] from [ Hexagon Etch Fund ].

Yes. So my question is like you have said that book will increase by 25%. So it's like this year if they grow by 25%. The FY '22, do we expect it to grow by 22% in the year [indiscernible] '22 year.

So the target -- the target was 25% growth. We have to temper down a bit. Probably 20%, 25% is what we are expecting at this point before that economy will recover, and there will be huge demand for loans in the end of it.

Yes. And so what we are expecting about our NIM, net interest margin, like from the Q4 to Q1 level...

I'd not like to give a forward-looking statement like that, but our internal targets are around 20%.

Okay. That's all from my side.

The next question from Nirmal Bari from Sameeksha Capital.

Yes, sir. My first question is on the gold NPA that we have recognized. So is it possible to give what would be the LTV in those portfolios?

Less than 73% is INR 32 crores, 75% to 90% is INR 147 crores. 90% to 100% is INR 173 crores. Above 100% is about INR 27 crores.

Okay. And when we say above 100%, this includes the [ interest ] component as well or just the principal?

Operating investment income also.

Okay. And my second question is on the growth that you said the internal target for the current year is about 20%. So last year, the growth was largely driven by gold loans. So in the current year, since there is an LTV reduction from 90% to 75%, what segments are we looking at to achieve this 20% kind of growth?

It should be also growth for the current year because the percent we are seeing enough demand coming from corporate segment as well as the SME segment also. And SME segment has done well last year and current year also monsoon is good in the areas where we are operating. So the demand from [indiscernible] should be good. And NBFCs have totally shied away from the bank credit for quite some time now. Our NBF portfolio has come down by 50%. Probably when the demand comes back, NBFCs will also start borrowing. So that will also help us to grow the credit. And we are very low on DA at this point of time just when the [indiscernible] side away from this DA portfolio. For DA [indiscernible] we have not done much. So if the recovery rates improve, probably we will look at the assignment portfolios and [ PTC ] portfolio is also a day. It is 1 of the areas of growth which can happen. Gold loan will come back. Gold loan demand will also come back. And we are opening a large number of branches. Last year, we have opened 100 branches. They're all active in the market now. And there are another 200 branches likely to be opened during the current year. And at least 70, 80 branches will come up in the first quarter [indiscernible] year. So they will also contribute to the growth.

Okay. The third question is on assignments. The segment loan that we do, is there some credit improvement or some kind of credit improvement that is provided on those loans? Or we do it for our PSLC purpose and there's no credit improvement involved?

There is no need for PSLC for us. We are sellers in the PSLC quarter-after-quarter, but we see we make a good amount of money on the PSLC. For this quarter alone we make INR 10 crores, INR 12 crores by selling PSLC. We have achieved all the PSLC target, maybe 1 or 2 segments, subsegments, then we need, we want sold something and bought micro loans, we were running short-based model, which we might have bought a certain extent because we have not done the [ transaction ]. Normally, the micro comes from the microfinance summary. NPA is not the option. Another option is to go buy the PSLC certificates. That seems to be the right option during the last quarter, considering the recovery rates of the MFI study. So it was the right strategies and the recovery rates improve, we'll go back to that for DC and DA transactions.

Okay. And my last question is on the retail loans that we have given in the advances mix of INR 1,162 crores. Sir, If you can give a further breakup of how much of it would be like housing and how much of it would be unsecured and others. That would be...

About INR 400 crores is from the LAP and INR 300 crores is housing loans. About INR 200 crores would be deposit loans, loans against the project, and the costs would be the staff numbers. And unsecured is a negligible.

Okay. We can do personal loans and other unsecured?

Some personal loans are there for some corporate arrangement but that is not significant.

The next question from Ms. Mona Khetan from Dolat Capital.

I just have 2 additions to verification. So what would be the incremental yield in the corporate book from the solar and the road investments that you're making?

Road, how much we have? Breakup is available. So entire infra is only 1.8% of our book, which includes gold and which includes the road and solar also.

Sir, are we referring to the [ news ], the lending means incrementally from the portfolio?

Solar is comparatively less and road is better. The corporate book should be around 9.5%.

That is the for the entire portfolio?

Entire portfolio.

But what could it be, say, incrementally for -- could you give a roughly, would it be to less than 8% or?

Rates are coming down in the market. So naturally, incremental lending may happen between 8.5% to 9%.

Okay. Got it. And secondly, on the gold book, the INR 5,600 crores or so is it all organic? Or do we have to purchase portfolio as well?

And we have purchased portfolio, but it is all accounted in the gold loan. That is accounted in the DA. We have maybe about INR 500 crores of Direct Assignment portfolio in gold. But that is accounted as an assignment portfolio, not as a gold loan portfolio.

Okay. So INR 5,600 crores is all organic?

Yes.

The next question from Mr. Sanjay Kumar from [ IoT ] BMS.

One question on the gold book. You said the main reason for NPA and gold book is because of LTV management. But fundamentally, I want to understand customers, why are they choosing to roll over because they're not able to pay the principal money? Or you say -- or do you think it's just they're not able to pay the margin money of the difference?

Gold is a business area for the past 100 years, okay. We have never lost in the gold portfolio. And the industry used to have a loss of over [ 0.36% ] when our losses from all recent NPA gold loan share option shortage gross and subpar all these [indiscernible]. There is no other business where credit loss can be contained to less than [ 0.1% ]. So this seasonal fluctuation will be there. This is a one-off event. And when we are talking about gold loan shortage, there's this, I mean, mark-to-market losses, there's not really a loss from the customer point of view. What is valued at INR 100 for me, the replacement cost would be INR 115 a minimum for the customer if it goes for repurchasing the jewelry. And there are a lot of sentiment attached with the jewelry in any family. These are all the nuclear families. They may have got it from their mother and on location of their marriage. So normally, they would not like to leave this jewelry. So literally, they'll come back and reimagine our experience. And we know these customers for quite a long time. So we have told our managers don't force the sales. And if you are confident of recovering, maybe a portion of the amount paid now to further intention either [ airports ] or the interest. Most of them are paid are fully interested in a part of the principle also. So that is how the system works. You will see after 2, 3 quarters, when you see the number, you will also understand how it works.

Okay. No, my point was about the rollover because we also have some loss in tonnages from [indiscernible] 16 points, but not much option also, right? It's just around INR 50 crores. So the tonnage loss, does it go to other banks, NBFCs or has it gone out of the system?

Do not go to other NBFCs because it is -- but nobody is giving that set-up value. Sometimes it goes to the private money lender. Private money lenders may give you 130% and 120% of the value of the jewelry because they will be recurring on a daily basis, on a monthly basis, something like that. So sometimes it goes through a private money lenders where the loan asset value could be much higher. Otherwise, under the present sector shifting to another bank or another NBFC may not happen.

Okay. Okay. So banks still do have an upper hand over NBFC in the gold. So we're seeing [indiscernible].

I always say, if we are able to deliver like NBFC, NBFC will become history.

Okay. Okay. Just 1 other question. You did give out the SMA numbers and was the previous question, if you could give that in the presentation and maybe the NPA breakup also that will be great, sir.

Yes, I'll make it availability when I'm posting this in the website. We will include this number also -- when we are posting we will include it.

[Operator Instructions] So there are no further questions. Now I hand over the floor to Mr. Rajendran for closing comments. Please go ahead, sir.

Thank you, [indiscernible]. We may want on a day like this where entire Bombay is having events and problems at moment and for staying late and sitting up [indiscernible]. And we are very confident whatever problems we are facing in the gold loan or any other area for that matter is only temporary. And the conversation with the client indicate that there should not be much challenges in the recovery of the loans on a lockdown for [ remote ]. And we are also confident about the recovery and the demand for loans will also be very substantial once recovery starts. And the bank will have a much better time going forward. It is for the best and try for the best. Thank you.

Thank you, sir. Now I hand over the floor to Mr. Sameer Bhise for closing comments.

Yes. Thank you, everyone, for joining us today this evening. Thank you to the management of CSB Bank Limited for giving us this opportunity to host the call. That's it for now. Thank you, and all the best. Thank you, sir.

Thank you very much. Thank you, Sameer. Thank you, everybody.

Thank you, sir. Ladies and gentlemen, with this, we conclude our conference call for today. Thank you for your participation and for using [ Dusaba's ] conference call service. You may all disconnect your lines now. Thank you, and have a good evening, everyone.