CSB Bank Limited (CSBBANK) Earnings Call Transcript & Summary

[Operator Instructions] Please note this conference is being recorded. I now hand the conference over to Mr. Praveen Agarwal of Axis Capital Limited. Thank you, and over to you, sir.

Thank you, Vikram. Hello, everyone, and welcome to this earnings call. We have with us from the management team, Mr. C.V.R. Rajendran, MD and CEO; Mr. Pralay Mondal, President of Retail, SME, Technology and Operations; Mr. B.K. Divakara, he's the CFO; and Mr. Ganesan, V., the Head of Credit Monitoring and Recovery. Over to you, Mr. Rajendran to take us through the highlights of the results, post which we'll open the floor for Q&A. Over to you, sir.

Thank you. Good evening to you all. The rebound in economic activity gained traction during the second half of September quarter because of lower COVID infection, easing of lockdown restrictions and exemplary vaccination-wise. Hopefully, the momentum will continue hereafter supported by the increased demand during the upcoming festive season, sustained lower number of infections, equal to the effective vaccination reach, increased capital spend by government, robust agriculture prospects, et cetera. The inflation trajectory is expected to edge down during the current quarter. The GDP growth is projected at 9.5% for financial year '21, '22. RBI is continuing with their accommodative stance. We believe that the environment will be stable enough, but for the unexpected COVID-related challenges and the pickup in the economic activity will drive a decent credit growth. We look forward to cash in such opportunities in the best possible manner. Our concerted and continuous efforts on the portfolio stress management has yielded results, and we could post a net profit of INR 118.57 crores in Q2 of financial year '22 as against INR 61 crores for the first quarter of financial year '22 and INR 68.90 crores for Q2 financial year '21. As a matter of prudence, we continue to follow the accelerated provisioning policy for SME and NPA accounts. Let me take you through the main highlights. Net interest income grows by 21% year-on-year and 4% quarter-on-quarter. Quarter-on-quarter yield on advances have gone from 10.62% to 11.38% or by 76 basis points due mainly to the effect of interest suspense on gold loans. That is interest not collected on the gold loans, which are declared as NPA now being collected. In Q1, there was a reversal of interest on gold NPA totaling to INR 23 crores. While in Q2 financial year '22, the reversal is only INR 2.21 crores. The resulting gold loan yield has gone up from 11.46% in Q1 of financial year '22 to 13.08% in Q2 or by 162 basis points. Gold loan NPAs have decreased from INR 353 crores in Q1 to INR 287 crores in Q2. Quarter-on-quarter, cost of deposits came down from 4.48% to 4.30% or by 18 basis points due mainly to repricing of term deposits at lower rates. Year-on-year yield on advances increased by 44 basis points, while cost of deposits came down by 88 basis points. The improved yields and reduced costs have contributed the NIM to be at 5.22% in Q2 as against 5.04% in Q1 of '22 and 4.49% in Q2 of financial year '21. Treasury, due to global and internal factors, the G-sec yields are moving upward under strategic response. And as a strategic response, we are not holding any major trading positions. Consequently, the trading profit from treasury operations are low when compared to the previous H1. Other income due to SR depreciation, that is security receipts depreciation, of INR 19 crores netted from treasury profits as per new RBI format. There is a treasury loss of INR 10 crores in Q2. Non-treasury other income has gone up by INR 20 crores Q-on-Q and year-on-year due mainly to higher PSLC premium. Overall, net operating income could be maintained at Q1 '22 level despite treasury losses due to increase in net interest income and non-treasury other income. OpEx, the staff cost increased by 14% year-on-year as the number of staff increased from 3,343 to 4,879 or by 46%. Out of 4,879 employees, IBA category comes to 1,443, constituting 30%; and CTC 3,436, constituting 70%. Q-on-Q, there is an increase of INR 22 crores contributed mainly by increase in AS 15 provisions, that is INR 18 crores in Q1 to INR 38 crores in Q2, INR 15 crore of increase due mainly to purchase of DA for pensioners. Non-staff OpEx up by 38% year-on-year due to increase in rent, depreciation, repair and maintenance and other charges. Number of branches have increased from 421 to 541 year-on-year, and this is the main contributing factor for the increase. Q-on-Q, there is increase of 4% due to increase in repairs and maintenance and IT charges. Operating profit. Operating profit is up by 26% year-on-year, tracking growth in net operating income by 24%. Q-on-Q, there is an increase of 15% due to treasury loss, SR depreciation impact and operating profit of Q2, but for the regulatory changes is INR 181 crores as against INR 179.8 crores in Q1. Cost to income ratio stood at 55.83% in Q2 as against 56.41% in Q2 of '21 and 48.45% in Q1 of '22. But for the regulatory format changes, the cost to income ratio of our quarter 2 of financial year '22 would have been 51%. Net profit. Profit after tax is at an all-time record level of INR 119 crores and is up by 95% quarter-on-quarter and 72% year-on-year. Thanks mainly to recovery in gold loan NPAs, there is a reversal of INR 18 crores of NPA provision as against charge of INR 97 crores in Q1 financial year '22. This has contributed to bumper quarterly profits just by its reduction in Q-on-Q operating profit. Reduction in gold loan NPAs has thus a benign effect on interest income, on NPA provisions and enable the bank posting record PAT. ROA and ROE. Bank recorded a return on asset of 1.53% for the half year ended 30/9/'21 and 2.02% for the quarter ended 30/9/2021. The return on equity stood at 17.84% for the half year and 22.96% for this quarter. Asset quality. Quarter-to-quarter gross NPA reduced from INR 686 crores to INR 587 crores. Non-gold NPAs reduced from INR 333 crores to INR 300 crores. Gross NPA percentage reduced from 4.88% to 4.11%. Net NPA reduced by INR 74 crores from INR 444 crores to INR 370 crores, while as a percentage to net advances from 3.21% to 2.63%, thus, falling below 3% mark. Gross NPA and net NPA ratios, excluding gold, fell to 2.09% and 1.14% as on 30/9/'21. PCR improved to 73% from 70% Q-on-Q. Borrower-wise, SME, which was at INR 400 crores as on 30/6/'21 could be brought down with a reduction of INR 131 crores to INR 269 crores by 30/9, which constituted only 1.88% of gross advances. During the quarter ended 30/9/'21, bank restructured INR 56 crores of loan book. As on 30/9/'21, total restructured book stood at INR 113.45 crores, which is only 0.79% of our gross advances. The amount outstanding under GECL scheme is INR 141 crores as on 30/9 as against INR 136 crores as on 30/6. Collection efficiency continues to be above 90% and the same was 93% in September '21. Capital adequacy ratio stood at 20.12% as on 30/9/'21 as against 21.63% as on 30/6. Reduction is attributed to increase in non-gold advances, HTM non-SLR investments and deterioration in rating of a few corporate customers. CRAR on 30/9/'20 was 19.69%. Leverage ratio is at 8.03% on 30/9. Top line growth, year-on-year deposits grew by 9% and CASA by 21%. Advances grew by 12% while gold loans by 10%. Q-on-Q deposits and advances grew by 2%. Gold loans decreased by 3% Q-on-Q as the effect of lower LTV regime continued to weigh in on the portfolio. Also, our prime focus was on recovery of NPAs and containing slippages. As asset quality concerns in gold loans have ebbed now, going forward, we expect to see good traction supported by festive season. Liquidity. Liquidity position continues to be comfortable with an LCR of 170%. Total lendable surplus is close to INR 1,700 crores. We have opened 36 new branches in this financial year and merged 6 unviable branches, thus, taking the total network to 542. We plan to open another 50-plus branches in the current quarter. Conclusion. Once the demand picks up, we will have enormous opportunities in our priority segment, like gold loan, SME, MSME, 2-wheeler, MFI, et cetera. So there could be some stress in loan book. We would be in a position to manage it better as economic activity has revived to almost normalcy. We remain well capitalized and well leveraged to capitalize the economic recovery to drive strong financial and operating results in the coming quarters. Thank you. I'll leave at this, and I'll prefer to take few questions from you.

[Operator Instructions] We have a first question from the line of Harsh Shah from L&T Mutual Fund.

So sir, I just have a few questions, starting from the restructuring. So what is the total outstanding total 1+2 restructuring book as on date?

INR 113 crores.

And how much provisioning are we carrying on that?

25%?

Okay. And over and above this, how much of buffer provisioning we have as on date?

Buffer provisioning is INR 318 crores over and above the RBI requirement.

This is over and above the restructuring provisioning?

Overall. I think that we have given the segment-wise, how much extra provisioning we are carrying. Overall...

Yes. I guess that is on Slide 8.

Yes. Overall, we have INR 318 crores of excess provisioning over and above the regulatory requirement.

Okay. Okay. And sir, second question is, if we remove this new guidelines of setting off, set off of recovery, how much of provisioning means? Basically, can you just help me with the minus INR 9 crore of net provisioning that you have done. What would have been that amount if this regulation were not in place?

Divakara, can you explain that?

The total provision even otherwise for the quarter would have been INR 6.10 crores only. By adjusting this recovery in written off accounts, it has come down to minus INR 18.2 core. But otherwise also because of, all these NPAs have been arrested during the quarter, that is why there would not be much additional provisions to be made. Secondly, so we have also recovered most of already declared NPAs. So cumulatively, even otherwise also, it would have come down. This NPA provision would have come down. But for adjusting this bad debt recoveries, it is minus INR 18.2 core. Otherwise, it is minus INR 6.1 core.

So this is as against your Q1 figure of INR 93 crores, am I understanding this right?

Q1, larger scale slippages were there in gold loan. That is why for the half year, if it is written, the provision is INR 79 crores, net provision. Otherwise, it is INR 98.1 crores and INR 19 crores of bad debt recovery has been appropriated. Our net provision for the half year, we have made INR 79 crores. This is essentially from first quarter account.

Okay. And another question is, on the gold loans recovery, Mr. Rajendran will be able to tell me this in detail. So sir, how has been the recovery process and what kind of incremental stresses are we witnessing in this segment that we also had a decent chunky slippage from this book in this quarter as well?

Right from May onwards, we are seeing incremental slippages are coming down month-on-month. March, April was the highest slippages which had happened. May, June, July, if you look at month-on-month, the incremental slippages are coming down. So overall, NPA remains at around INR 300 crores even today. So it's mainly because of our policy of not pursuing the auction as the first solution. So many companies have gone for aggressive auction, but we give all possible chances to the borrower to redeem the jewelry. Auction is a loss result for us. So we also have done some auctions. Okay. After the auctioning, the loss recognized for this quarter is only INR 88 lakhs. The first quarter, it was INR 1 crore. There's an auction shortage, we call it, after auctioning and adjusting. Shortage that we record from the customer is INR 1 crore. Now it is INR 88 lakhs. So totally, so far, after auction amount to be recovered is INR 1.88 lakhs, which is fully proved for. Of course, the recovery will happen over a period. And the remaining amount of INR 300 crores also, we are confident that we'll be in a position to recover a substantial portion during the third quarter. And by fourth quarter, we should be completely out of this problem because this excess LTV lending as compared in by December itself. From January onwards, we have reduced our loan to asset value. So up to December, whatever we have given, we'll be in a position to recover by December. And January onwards, it should taper down. And we are confident of getting back to the March position of INR 44 crores NPA. Around that level, we'll be in a position to reduce the NPA.

So by March end, how much on our total book level, where do you see your GNPA as a percentage to reach by March?

Our target always is GNPA of 2% and net NPA of 1%. Even today, if you exclude the gold, it is almost at that level only. Excluding gold, it is 2.08%, 2.09% and 1.14% as on date. Our desire is to reduce it to below 2% for GNPA and below 1% for net NPA. If one more round of COVID is not coming, I think we will be in a portion to achieve these targets.

And sir, assuming there is no third wave, et cetera, as you rightly said, do you think we will achieve this number this March itself, this March '22?

We've already done it. If you exclude the gold, it is already 2.09% and 1.14%. And we don't have any major accounts which are showing signs of stress. So as such, the other than gold NPA slippages will be much lesser than recovery. And gold, we will be in a position to bring it down substantially. So it is possible. I'm not promising that, but it is possible.

Right. Just one last question from my side is, we've seen a very high substantial growth in your agri and MFI book. It was not even 1% of your gross book. Now it is almost 5%. And also, I guess, that is also correlating with the fact that our risk-weighted assets to total assets have gone from 40% to 45%. So can you just help us explain what is the rationale behind growing this book, what kind of growth opportunities you are seeing from this book?

So we never had a pure agriculture portfolio in the past. That's a very small portfolio. Most of our agriculture performance is based on the agri gold loan. Consciously, we wanted to develop a pure agri portfolio without gold in the balance sheet, so direct lending to agriculture. We brought in a person from another private sector bank and formed a separate vertical. And this is an effort going on for the past 3 years. So after 3 years, we are reaching these numbers. Okay. Now the traction is increasing because we were operating only in 3 markets earlier, Kerala, Tamil Nadu and Maharashtra was the focus. Now we have expanded to Andhra, Telangana, Karnataka also and selectively in other parts. Naturally, there will be much more traction in the agriculture growth. And considering the monsoon and our model, the slippages are very, very low. In the BC model of lending also, our slippages are low. Only wherever we have bought the MFI portfolio, there are some challenges. That is where the NPAs have come in. That we are trying to address. So direct lending through BC model and direct lending to agriculture has a very good track record and NPAs are minimal. And we would like to go with this strategy for other states also.

[Operator Instructions] We have the next question from the line of Mona Khetan from Dolat Capital.

So I noted that LTV on your gold loan book has actually increased sequentially from 77% to 79%. So one, why would that be the case because you are de-growing the book? And anyways, as per regulatory requirements, I believe it's higher than that, so yes. And plus, the gold prices have not increased, so yes.

There are 2 reasons. You might have seen my tonnage has increased in spite of the loan portfolio coming down. Okay. So then velocity has increased in spite of the portfolio coming down. On the other side, gold prices have also come down substantially. So that has increased the loan to asset value on one side. And our agriculture portfolio has increased by INR 600 crores. So agriculture portfolio has a higher loan to asset value. You can use up to 85% in the agriculture loan to asset value. So that is one portfolio which has resulted in loan to asset value increasing to this side. But this has been practiced earlier and record track record is good in agriculture so nothing to worry about it.

So agri and MFI portfolio also includes some gold-backed loans?

Within gold, there is an agri and MFI also. And the previous question was asking about the exclusive agriculture without gold as collateral.

Okay. So the growth in agri and MFI that we've seen in this quarter is mostly the direct agri loans, not backed by gold?

That we have shown separately. Direct loan only, we are showing separately. Gold is included in the gold book portfolio.

Right. But if I look at this number sequentially, which is from Q1 to Q2, your tonnage has actually declined as well as the LTV has declined, not from a year-on-year perspective. And sequentially, even the gold prices, if I'm correct, have remained stable. So what is the reason behind this rise in LTV?

Which portfolio are you saying that's gone down? The agri portfolio has come down?

No. My first question itself, which referred to the gold LTV from 77% to 79%.

Within the gold, the agri composition has increased. Agri has a higher loan to asset value, up to 85%. That is one reason. Second reason is gold prices have come down, so loan to asset value has gone up.

Okay. And so from a medium-term perspective, where could we see this LTV stabilizing? Would it be closer to an 80% level?

No. It should go to 70% level if the gold prices improve. And the incremental lending in the non-agriculture is happening only at 68%. So when the non-agri portfolio grows, this will move towards 70%.

Got it. And on the OpEx part. So your OpEx has increased. You cited some reasons around new branch additions and employee additions. So could we incrementally expect a similar sort of run rate on the OpEx side?

Now we have slowed down a bit on the branch expansion. Only another 40 to 50 branches will come into existence during the current year. Employee expansion will not take place now because this is the employees which are taken for the entire branch opening plan. So further additions may not happen during the current year as far as the employee count is concerned.

Okay. So the run rate may remain in the INR 1,200 crore range for employee expenses and INR 700 crores for other OpEx?

Most of the employees joined only during the last quarter. The full impact might not have been felt in the last quarter. The full impact will be felt from the current quarter onwards.

Okay. Got it. So we may expect, say, INR 1,300 core, INR 1,400 core kind of employee expense rounded for you?

It will be slightly higher than the current quarter.

Okay. And on the growth front, what is your outlook for this fiscal? And any color on the noncore retail in terms of product launches and rolling out of digital product tools will be pretty useful.

We have launched. We have already launched on MSME products. And today, we got the approval from the Board for another 3 products in the retail segment. All these products will be launched shortly. So this will, but the traction will take some time because these are all small value loans. Volume-wise, it may not grow substantially to the growth. But these products will start contributing to the growth from Day 1. The volume growth will happen only from the SME segment, wholesale segment and the gold loan segment. So it depend on the economic activity revival. Our desire is 25% in the beginning of the year. That seems to be difficult at this point of time because we have not grown even 2%. Probably 10% to 15% could be the growth which we can anticipate for the current year.

Sure. And just lastly, MSME, you've highlighted earlier as well that, that remains your focus area. And that's what you want to portray yourself from a long-term perspective. And yet if I look at the growth in this segment, it's been pretty muted, including the MSME as well as the SME book. So what is holding you back? Because for some of the larger banks, it's been one of the key driver for their growth.

What happened, the pricing has become very unrealistic in the market. We are seeing a B rated account in the SME segment is taken over at 7.5% or 8% in the market. We charge around 10% for the BB or B account. So the risk is not priced because of the excess liquidity available in the system. We don't get into a price war in the market. We have our own pricing methodology which we adopt. Of course, we do consider some concessions when a competitor puts us in, but not always. So instead of lending incrementally, the attrition is also high on this portfolio because other banks coming aggressively and taking our existing accounts. That is one reason we are not able to grow. I hope that a better sense will prevail over a longer period. And once the liquidity fire is put out, naturally, pricing will come to the realistic level, then this attrition can be arrested.

Sure. Just a final one on the assignment loan, you've seen a very sharp growth on a sequential basis. So what exactly is this portfolio? And I mean, what's the outlook here?

We have not done much of assignments during the current half year, last half year. The only assignment done was in the gold loan, about INR 400 crores of loan we have done at the end of the quarter. So that resulted in a short increase. And it's a gold-based, so naturally there is nothing to worry. The previous assignments which are done, the outstanding amounts are showing signs of some weakness. There are NBFCs that have come up which we have provided for. So for the time being, we are not keen on doing other DA on a large scale.

Okay. So these are bought portfolios from... Okay. Okay.

We have next question from the line of Abhishek Murarka from HSBC.

So a couple of questions from me. One, in your opening remarks, you mentioned that one of the reasons for the increase in market risk was a deterioration in the rating of a few corporate customers. Now when I look at the rating profile that you have disclosed, by and large, their ratings are migrating upwards only. So this deterioration is within that A and above bracket bucket?

A and above bracket from AAA to AA, AA to A that might have happened. So naturally, the risk weight increases from 20% to 50%, 50% to 100%.

Sure. And which segments would this exposure be in?

Divakara, could you explain that?

One is the EPC contractor, sir. But otherwise, not many of this one. And one is in a priority sector that is quite infinitesimal. In this category, only 2 to 3 reports only have been seen, sir, not many.

Okay. One is in edible oil. One is in the infra sector, construction.

Okay. And this deterioration, it is more due to company-specific factors or just in those industries you have seen...

Most are market-related ones where they never get to sell, margins coming down.

Okay. Sir, the second question is in SME, you just mentioned that there is a lot of attrition and we know that pricing pressure is there. Risk is not getting priced correctly. So in this segment, despite your size and your reach in different areas, you're still not finding good pockets of growth. So does it mean that larger banks have penetrated to quite an extent or is it that you're just letting go of business because of the pricing?

Some cases, it's a conscious decision to let go because of the pricing. Some cases, it's because of some segments where we are not comfortable taking additional exposure also. Okay. So we don't take additional exposure and leave it to the competition to take the additional exposure. That could be the reason. And the markets where we are strong, we are getting a lot of new accounts. Of course, you will see that last fortnight of the quarter, we have seen good growth, and we have a large amount of pipeline pending now. Probably second quarter or third quarter, we will see good growth in SME as well as wholesale segment.

Okay. Because the last couple of quarters, the volumes have not built up here. So I was just wondering, despite the size.

Also very doubtful about the recovery process, so we have not been aggressive during the last 2 quarters.

Sure. And sir, just this agri and MFI, how much is direct agri and how much would be MFI out of the INR 680 crores?

Most of it is direct agri. MFI portfolio is much smaller. Direct agri also, we have a lot of rubber suppliers to the tire companies. We do discount the bills of these suppliers on these tire companies and give them the credit, for example. It is a post-harvest lending. So our exposure gets shifted to these tire manufacturers, which is the case for us. So that is one reason why it has started growing in a big way.

Okay. And sir, finally, just one question on the GL. You said there's an agri component and a non-agri component. In the non-agri component, what is the outlook now in terms of pricing, in terms of tonnage increase or customer acquisition? How is it going incrementally? And where do you see that in the next, let's say, 6 months?

Pricing is not an issue in the non-agri segment or in the agri segment also. It is only the per gram rate which decides growth. When the loan to asset value increase, naturally, a lot of traction happened during the last year. They said, we are very conservative on the loan to asset value. So the other companies, particularly the gold loan companies have become aggressive. And other banks have also taken indirect route to give more loan on the gold, which we are not very comfortable. Financially, the competition is much more aggressive and taken a larger market share when compared to us. Some of them have gone through this direct marketing agencies, which are delivering the gold loan at home and that is getting traction. The ticket size is also big in those cases. So they have tie-ups and some banks have grown mainly because of those tie-ups. We don't have any such tie-ups. Even though we have signed up, there's not much traction because they wanted exclusivity which we are not willing to give. Those kind of are creative channels and the gold we are not having at this point of time. We are trying to develop a BC model in gold. Probably if that works in our favor, the growth could be much higher.

Okay. So this is a sort of work in progress. So by when do you think maybe whatever you're trying right now in terms of BC model, when does that?

In the second part of this quarter itself, this product will be ready for launching and that should get some traction. Even right as the busy season comes, we are seeing naturally there is a demand for gold loan going up.

We have next question from the line of Amaan Elahi from Investec India.

So last quarter, you were...

Sir, I'm sorry to interrupt. Your voice is not very clearly audible. Sir, could you please use the handset. Sorry, we lost the line of Mr. Amaan Elahi. We take the next question from the line of Saurabh Dhole from Trivantage Capital.

A couple of questions from my end. I just saw the yield chart that you've given on your presentation. Is it possible to give us the yield of the gold versus the non-gold book separately?

Yes. Gold is 13.08%.

The gold yield is 13.08%?

Yes. The remaining, you can calculate further down.

Yes. Okay. And sir, when you look at the next 2, 3 years, I know you've been trying to diversify out of gold, but what kind of mix do you foresee? Because right now, we are about 1/3 of the book is gold. So how do you see this mix going forward in the next 2, 3 years?

There is no intention to slow down on gold. We would like to be as aggressive as possible in gold. But the SME and the wholesale segment, under new retail product growth, the proportion of gold will go down. So until there is a pickup in the other segments, gold will continue to be a predominant portion of the loan portfolio.

So you think the mix will not change materially in the next 2, 3 years?

Not in the immediate future.

Okay. And any outlook on the PCR? Because I think last year, you were closer to around 60%, and this has come down substantially to less than 40% now.

That's mainly because of the gold. So we are having 25% provision on the gold. Gold NPA is almost INR 300 crores. INR 75 crores is only on that. When the gold NPAs are recovered, it's only the provision reversal will take place. So there's nothing to worry on that account.

We have next question from the line of Digant Haria from GreenEdge Wealth.

Sir, 2 questions, primarily on gold. Sir, first is what was the total quantity of auctions that we did in Q1 and Q2 of this year? That's first question. And second, sir, you said that a lot of banks are taking the agent route for gold loans and they're demanding exclusivity. If you can just give a little more color, like in terms of, are the economics of us doing it on our own much better than what these other agents?

There are companies who are doing on our gold, but volume cannot be built so easily. One bank has built more than INR 3,000 cores through one of these companies I am told. They are branding themselves. They are coming out with a lot of this gold delivery and their home loan is becoming a popular product with this company. And the single company has contributed for INR 3,000 crores of growth in competitors book I am told. So they charge somewhere around 18% to the customer and the bank may charge around 10.5% to 11%. I don't know exact arrangement. So far, this is what I understand from the market. So the yield will be less. And of course, your operational expenses will also be less. Not a bad proposition, but whether you are willing to give so much margin to them and be exclusively to them.

Sir, and then exclusivity, would it mean that you cannot or your branches cannot do own marketing in those areas where that agency...

Total marketing, we cannot tie up with one more company providing a similar service.

Okay. Got it. Got it. Sir, just the auction number for Q1 and Q2?

Auction, the first quarter was about INR 43 crores. Second quarter, I don't remember. I'll furnish to you. But the auction losses after the auction, what amount could not be recovered was about INR 1 crore in the first quarter and INR 88 lakhs in the second quarter. This will be fully provided for and this will be recovered over a period.

Yes, sir. Absolutely, sir. Sir, if later in the call, you can just give the Q2 number, that would be good.

I'll find out. Yes.

We have next question from the line of Himanshu Taluja from Motilal Oswal Financial Services.

Sir, just one question. What is the total recovery that you have made in the gold loan portfolio during the quarter?

About INR 131 crores.

INR 131 crores. Okay. Recoveries that you have made during the quarter.

Yes.

We have next question from the line of Nalin Shah from NVS Brokerage.

This is Thakur from NVS Brokerage. So just wanted to get some idea on your cost to income, which is basically right now gone up a bit to almost 56%. What do you perceive going forward? And if you can throw some light for the second half of the year as far as the top line and the profitability is concerned?

Cost to income ratio has gone up mainly because of the changes in the accounting practice as suggested by the RBI. Some of the income is not recognized as income. Some of the provisions have moved from the provision to affect the operating profit. So the income itself got affected because of the accounting. Otherwise, cost to income ratio might have been 51% had we gone by the old method of accounting. The new method of accounting has resulted in certain increase in the cost, on operating costs. It should come down. As we repeatedly say, it should be below 50% is our target. Desire is to bring down to 40% over a period.

Okay. And can you help us out with anything for the second half of the year?

Come again. I'm not hearing.

So for the second half of the year, any ballpark or a benchmark figure you can give for the revenue or the profitability?

No guidance as such. All depends upon the conditions in the market. We would like to do much better going forward.

[Operator Instructions] We have next question from the line of Amaan Elahi from Investec India.

So in the previous quarter, you had given a breakup of your gold loan portfolio in terms of what proportion had greater than 100% LTV and what proportion had greater than 90% LTV. If you could share a similar number this quarter?

That's on the product deck. Probably in whatever we uploaded, we will add this slide also.

Okay. And sir, just some more color on the provisioning that we have done this quarter. So again, you highlighted that around 40% of the employees are under the IBA package.

30% employee IBA package.

30%. So what could be the impact? So there was an article highlighting that the IBA wage settlement, that's also sort of due. So what kind of hit can we expect because of that wage settlement?

There is no agreement which is due. Agreement is due only when I sign an agreement. I have not signed any agreement with any claimants, right? Actually, unions are fighting that other banks have signed an agreement with an IBA. So that agreement is to be implemented in our bank. That is what they are demanding. We have not given a mandate to anyone to negotiate on our behalf, neither we are a party to the agreement. There is no obligation on our part to implement anything. We have called them for a negotiation, and we have placed our demands. These are all the things you have to achieve if you want a resolution. Unions have not agreed on that. They have gone back and gone to the sleep fighting. As far as this bank is concerned, last 5 years, they were fighting right from Day 1 they have entered, they were always on an agitation mode. Occasionally, they will go on a strike. So that's the culture there. So it has had no impact on the business. I mean the first round of strike, all the 535 branches were open except a very few branches. The second round, of course, political elements have also come in and 2 more branches got closed on Kerala. Otherwise, there is no impact on business per se. And we have no idea of implementing the industry level wage agreement in our bank unless the productivity improves.

Got it. And sir, some color on how many of these IBA employees are expected to retire over the next 2 to 3 years. I think they've given some numbers in our VRSP. If you can just give us an update.

That number might have undergone change. Many of them might have opted for VRS and gone. Every year, we are seeing about 100, 200 people are moving out either with other opportunities. Even now there are another 20, 30 people are likely to move because the competition has recruited some of the people from our IBA also. And some of the people are opting for VRS. So it's not the regular retirement. Regular retirement could be about 30, 40 in a year for the next few years because most of them are retired. But apart from the regular numbers, it could be the VRS which the people are opting. It could be about 100 to 150 on a yearly basis you can expect.

Got it. And sir, just last question. So any impact we're expecting of the recent flood in the region? And the restructuring window is now shut. So how do we expect to manage any impact that's going to come?

We are not assessed anything. None of our branches were affected by that. Naturally, some customers could have affected, not major customers. The retail customers who might have lost their properties or their things, which will be known over a period, but will not have any significant impact on our portfolio.

We have next question from the line of Susmit Patodia from Motilal Oswal Asset Management.

Sir, just...

Sir, I'm sorry to interrupt you. Please use the handset. We're not able to hear you very clearly.

Yes. I'm able to hear you. Go ahead.

So this lending to rubber in Kerala, is it politically sensitive sector?

This is, see, for example, Apollo has a factory there. Goodyear has a factory there. So they plant the rubber on an ongoing basis. Okay. The rubber supplier supply the rubber to them. Only after the rubber reaches them, they sign the invoice and give it to us, which we have an agreement with the company. So we discount the invoice and give the money to the farmer immediately and we collect the money after 90 days from the tire manufacturers. So there is no risk involved.

Okay. So we are not lending to stand-alone plantations outside of this tire company?

No. This is a tripartite agreement, right?

And sir, second question is on gold loan, where do you think this bottoms out? In the Q3, as you were suggesting, most of the NPLs will get filled up. Will that also be the bottom of the loan?

Yes. I'm here for the past 5 years. We never discuss the gold loan NPA in any one of our meetings earlier.

No. No. Not the specific NPA, I'm discussing loan book.

Gold loan NPA has become a reality mainly because of this higher loan to asset value, which has fragmented during the last year, which is a mistake. But of course, from the government point of view, that is what the government wanted. That is one of the only asset people are having which they can plug and take it. So the RBI might have taken a call to increase the loan to asset value. Of course, it has given good traction and good business for us during the last year. And people are struggling, okay? And gold price have not gone up. Gold prices have come down substantially. Had the gold price have gone up, this problem might not be there. People might have sold or redeemed it. And the gold prices is also stagnant or coming down. And when the incomes are not sustained, there is a challenge. But what we are seeing is, month after month, the NPA, incremental NPAs are coming down. It will slow down after December, almost it should be nothing. So whatever happens after December, we must recover. So now about INR 200-odd crores is NPA. I expect the NPA to come down to less than INR 100 crores, INR 150 crores by December. In March, we should be completely out of it.

And when will the book start growing again?

Book is growing. Book has started growing during the current quarter.

So this is, that was my question. And sir, the next question is on this metric of business per employee, which you added like 50%, 60% to your employee base. But what is the target from a medium to long-term perspective? Where do you want to take the INR 7 crore number to?

So originally, our intention is to grow minimum 25% in any year. But the current year was not very conducive, and this gold NPAs have also spoiled the party to a large extent. Now we are seeing the growth coming back. And if there is no further problem coming from COVID side, I think growth will stabilize. 10% to 15% growth should be there for the current year. Next year onwards, we will be on track for 25% growth.

And sir, lastly, on the rollout of retail products, where are we in that journey?

So we already launched the one product in the MSME, which is getting good reception. And today, Board has approved another 3 products in the MSME and retail. This will also be launched over a period of next 1 or 2 months. But these products will be available and sold aggressively, but may not contribute substantially to the credit growth because these are all small value products. It will take time to get the quantum, volume growth. So this will be a product line which is added which will help us to grow. Slowly, it will be going up over a period. The real growth is only from SME, wholesale banking and gold.

We have next question from the line of Ravi Singh from Motilal Oswal AMC.

So sir, my question is on the home loan book. So cost of funding, cost of deposits is down to 4.3% or so. I think that is one product you should be having aspiration to scale up much rapidly because that can offset some of the volatilities we tend to see in MSME and gold and those sort of businesses. And one can build scale also over the longer term. And this book is declining.

Total deposits going down is a temporary affair. It's because of the excess liquidity which is floating around. Now considering the inflation, there is a negative return for the depositors, which cannot be sustained for a longer period. Deposit rates will go up. And at that time, if you start raising the home loan rates, there will be, defaults will also increase. So this is not the right time to launch a home loan. So we have a home loan product. Our interest rates are slightly on the higher side. So traction is less. On the other hand, we have signed up with HDFC for selling their home loans. So we have started selling HDFC home loans for the time being. That will help us to streamline our processes and train our people and work along with HDFC and gain enough experience. Maybe in a future date when we think that we are ready and we feel that our cost of deposit has come down substantially because of the proportion of CASA increases in the overall deposits, we'll be in a position to sell home loans aggressively, our own home loan aggressively, not at this point. Stand-alone, home loan is profitable only when your cross-selling is very effective. We don't have the entire range of products for cross-selling. Once we increase the number of products offered to the retail segment and we are good at cross-selling, then only will we think of launching home loan on our own.

Okay. So what is the interest rate for your own home loan other than HDFC Limited?

It varies between 8% to 9% now.

Okay. And what level of CASA ratio will you be comfortable when things...

It is around 32% to 33%, but this is on a non-growing book. Growth is not that much. So maintaining this 33% on a growing book itself is a challenge. I'll be comfortable when I reach around 38% to 40% CASA.

We have next question from the line of Nirmal Bari from Sameeksha Capital.

My first question is on the gross NPA outside of gold loans. So if you can provide a breakup of what is contributing to those numbers. And on the same lines, our coverage ratio of gross NPAs...

Gross NPA without gold is 2.09% and net NPA other than gold is 1.14%. This is constituted mainly by 2 segments. One is from the SME segment where there is little large -- comparatively large NPAs are there. And other is on the retail portfolio constituted mainly by LAP and home loans. And we were having our home loan product. We have given to our NRI customers home loans who lost his job and came back to Kerala. And they don't have the resource to repay and they are struggling, okay? So because of the closure of the kolu doll he could not take the separate action. So naturally, the home loan NPAs have gone up. Retail NPAs also gone up. The DA that, I mean, direct assignment portfolio also, we have seen good amount of NPAs. 2-wheelers have increased. Look at the numbers, our NPA has increased from 2,500 accounts to more than 9,000 accounts during the current year. But the amount of NPAs have come down. That shows the large NPAs have moved out and it is replaced by a large number of small accounts. So this 9,000 accounts mainly from the retail account is the NPA composition today. That only gives you hope that recovery possibilities are much higher, and we'll be in a position to reduce these numbers over the period of next 2 quarters.

And what would be the quantum of secured versus unsecured in this?

We don't have unsecured portfolio at all. The entire thing is secured.

Okay. At present, our coverage ratio in this is about 45-odd percent, if I back into using...

They're reducing the write-offs. The right way is, because there is no differentiation between provision and write-off. We have a policy for a partial write-off. So that gives us some tax advantages. So if you provide for it, we treat it as it will be converted to NPL, the prudential write-off to that extent. So with that, it has come to 73%. Our declared policy is that we would like to have a provision coverage of more than 80%. We are striving hard to take this provision coverage ratio, including write-offs, to 80% for the, by the end of the year.

Okay. So in the next 2 quarters, should we expect additional provisions on this front or we would be using the provision buffer that we have?

If you look at my provisions. I have INR 318 crores additional provision over and above the RBI requirement. So there is no funding increasing the provisions further. We have an accelerated provisioning policy. It is only because of seasoning of the loans that our provision requirement will go up and we'll provide and the recovery of the recent slippages will also help us to contain it.

Okay. And secondly, on the branch expansion, you said that you will be going slow for the current year and you would be adding like 40, 50 branches in the next second half.

Some geographies have not given the traction which we expected. Whatever branches we have opened in southern parts, particularly in Tamil Nadu, Andhra, Telangana and Karnataka. Karnataka is 2. The other 3 geographies have progressed very well. Karnataka is slowly picking up, whereas Maharashtra are not. Wherever we have opened branches, north and west, wherever we have opened branches, it is not progressing as expected. So in those geographies, we are not going ahead with the further branch opening. Now the branch opening is confined only to Tamil Nadu, Andhra, Telangana at this point of time, where there is good traction probably because our brand reaches in these places. So those zones are permitted to go, which is expansion as planned, but the north and west is put on hold until the existing branches breakeven.

Okay. So that would be true going forward for next year actually, right?

True. Test the market only if you are able to reach the breakeven level within 18 months, we'll be in a portion to open further branches, otherwise we'll slowdown.

We have next question from the line of Himanshu Taluja from Motilal Oswal Financial Services.

Just one question. As we are seeing basically the higher recoveries in the gold loan portfolio and because of the recent RBI accounting change, we have seen a negative -- we have seen the provisioning reversal basically of INR 18.2 crores in this quarter. As we are going to see the recovery in the gold loan portfolio to be remain higher over the next few quarters as well, can we see the similar negative range in the provisions over the next 2 quarters?

Naturally. The provision, we could have returned back another INR 20 crores of provision, which we have made in the earliest period for COVID. The COVID provisioning also, we made 25% on all SME accounts, including on their default. That said, SME portfolio has come down, we could have returned back another INR 20 crores. But as a cautious measure, we kept it as it is. So if the third wave is not there and the COVID areas are remote, all the COVID provision will get reversed automatically, which is in the standard asset provisioning. So naturally, it is not included in your provision coverage ratio. That is why provision coverage ratio looks a little lower, but the provisions we've built are much more. So accelerated provisioning policy will continue on the NPAs, whereas COVID provisioning which are made on the SME will be slowly unwound if the COVID fear is remote.

We have next question from the line of Arvind Datta, an investor.

And my question relates to Mr. Pralay Mondal, basically on the retail product that you've launched in the last 3 to 4 months. One, obviously, is the home loans by HDFC that you've been selling. Could you update on what's been the progress on the 2-wheeler loans, the amount of business you've done with HDFC? And is there an arrangement that you will buy back these loans after a certain period of time?

Yes. So first on the 2-wheeler loans, we have started that business a little more than a year back, and it is progressing well. Of course, it was not only us, but the entire industry went through a little bit of a challenge because of the COVID and other related issues. But the good part is that process has fallen in place and our, whether it's the match mandate processes, the technology, all of that is smoothly working and we are showing improvement on the portfolio. And we expect, now we are planning to launch in other locations as well. So this should gradually grow. But as you know that 2-wheeler is not really a scaled business, it will be one of the products. On your question on home loans, yes, we have tied up with HDFC Limited. Right now, we are trying to, the whole objective of this first is not to necessarily build a portfolio, but to our branches to get acquainted with the product because as and when we launch the higher-end product for our preferred customers, et cetera, better quality customers, we should be in a state of readiness to sell that product. So we are activating our branches. Also, this is to ensure that our customers do not go to HDFC or ICICI or somebody else to take their loans because that you lose your EMI because of that. And hence, you lose your savings balance also. And we have limited set of high-end customers. If we lose them, then we lose the quality franchise. So it is also potentially a defensive mechanism. The other thing is, yes, we can buy back some of the portfolio which we originate for them. There are 2 arrangements with them. One is giving them a lead and second is to originate the loan for them. In these 2 arrangements, the first one, we don't have an option to buy back. In that second, we have an option to buy back. But I'm not thinking of that because buying back at that price may or may not work for us at this point of time. So we have actually done this to create our franchise. But yes, eventually, that will be the second stage. And there are many other products which we are launching on the -- because we have to put the alert system in place. And after that, we will launch other products like personal loan, et cetera. We have been doing a lot of retail products and pass through the branches, continue those processes to a great extent. We do small businesses there, different customer needs on offline basis. But now we will launch most of the products on both technology platform as a process platform. So that's the way we are looking at it as Mr. Rajendran was talking about it today in the call that we have taken approval for 3 more products, primarily on the MSME and SME and straight-through process loans and things like that. So those are the initial ones, LAP. So those are the kind of businesses which we are starting to scale up. We'll be scaling them in the next 1 year. In parallel, we'll look at products like education loans, CV and some others as the economy starts picking up on that front? So that's the overall plan. But first, we have to create the infrastructure for that and about technology, digital as well as the branch CPA, all of that infrastructure. So we're working on that.

Thank you. Ladies and gentlemen, that was the last question. I would now like to hand the conference back to the management for closing comments. Over to you, sir.

Thank you. We are back on track as far as the profitability is concerned. And unless some untoward incidents happen because of the COVID, we should be in a position to sustain it and able to reach the projections which we have for the current year. Even though the volume growth has not been very substantial, profitability is maintained as per our original projection by efficient operations and increase in the yield and reduction in the cost of deposit. Cost of deposit reduction may not be sustained. It has to be substituted by the volume growth to sustain this profitability. We are fully aware of it. That is what we are working on. We are working for volume growth in gold loans, retail loans, SME and wholesale banking. I'm confident that, that again will be led by volume growth and reduction in the NPA number substantially. Thank you all for your participation.

Thank you very much, sir. Ladies and gentlemen, on behalf of Axis Capital Limited, that concludes this conference call. Thank you for joining with us, and you may now disconnect your lines.