DCB Bank Limited (DCBBANK) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to DCB Bank Limited Q1 FY '22 Earnings Conference Call. Joining us on the call today are Mr. Murali M. Natrajan, MD and CEO, DCB Bank Limited; and Mr. Bharat Sampat, CFO, DCB Bank Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Murali M. Natrajan. Thank you, and over to you, Mr. Natrajan.

Thank you. Good evening, everyone. I hope you have received the press release and the investor presentation and you had the opportunity to go through those details. I'll just make a few observations and then I'll start with questions. So first of all, undoubtedly, it has been one of the difficult quarters. I just realized this morning that this is my 50th quarterly call with all of you in this job. And in the recent past, I have not come across a difficult quarter like this, where the whole country had to deal with a crazy kind of situation in terms of infection, issues on infrastructure and customers were dealing with their personal challenges, their business challenges, our staff, we had to protect. So this was all in all a pretty difficult quarter. I think we still managed to get a lot of positives out of this quarter. When I look at the quarter, I think our gold loan growth is still continuing to be quite decent. In this quarter -- difficult quarter, we were able to sign up on a co-lending initiative with a very reputed company and that started picking up speed. We managed to grow our savings accounts, as well as the overall customer deposits and -- the customer deposits. And we further reduced our interbank deposits. The top 20 deposits like I've mentioned in the past, is already below 7%, and we think that in about 1 year, 1.5 years, we should be at about 5% range, which should be the best in the industry. The opportunities for new loans were limited, and we were able to manage to keep the advances growth flat, and this has not been achieved by ECLGS. ECLGS more or less is flat in terms of what we have disbursed. Our capital adequacy continues to be strong. LCR was greater than 130%. One of the important thing is the core fee income, not the treasury gains, the core fee income, which did much better than the previous year first quarter, where it was also lockdown and other things, but probably we've learned our way through those challenges, and we are able to do a decent job on core fee income. We have done a very strong provision coverage, and we will talk about it more. But broadly, 2% of our standard asset now is covered with the overall provision that we have. And last quarter, it was -- that is last quarter means that ended March was at about 1.8%. So we have improved it. This year, we have had to give salary increases. That was not possible last year. So cost has gone up. At the same time, we are also adding headcount because we believe the opportunities for growth are evolving. When we look at the disbursals of first quarter versus what we have seen in July, we feel very encouraged by the momentum that we are seeing in July. So hopefully, if we don't have a major disruption of sorts on third wave, I think here on, we should start building momentum again for the business. So that is how it looks. All in all, we've been able to kind of -- despite the kind of challenges that have happened, we've been able to handle the quarter very well. What is very important for you to observe, think through is that unlike some of the other banks, we don't have a reliance on unsecured lending, MFI that kind of lending. What happens when you do those kind of lending, in good times it is fine, but what happens is that in the month of NPA, you have to provide 25% and after 12 months, you have to provide 75% giving hardly any scope for recovery. And moreover, there is no leverage with the customer. Whereas we always have been doing secured lending, and that is what is helping us to make sure that we have a leverage with the customer. If you look at our collection efficiencies, it is starting to again climb up. There is a clear uptick we can see in July on current bucket and overall. So recoveries and upgrades have been pretty decent in this quarter. Even excluding the Arcil sale, we have done pretty well on recoveries and upgrades. And looking at the initial numbers of July, it is pretty encouraging. So that is where we are. So I'm happy to take questions.

[Operator Instructions] The first question is from the line of Darpin Shah from Haitong Securities.

In the asset quality bit, we have seen that corporate NPAs have gone up on a sequential basis. So if you can throw some light there?

So these are secured NPAs. We have exclusive security. These couple of corporate have had downgrades done by the other banks. And one of the corporate also had some creditor in NCLT. So that is getting resolved. The customer has promised -- one customer has promised to resolve it by September end or October, so we should be quite all right. Frankly, I'm not too concerned about that because it looks fine to me. It's not a very difficult account.

So there were just 2 accounts, sir?

Yes, 2 accounts are there, yes. And our exposures usually are in the range of INR 15 crores, INR 25 crores, that type of exposure. So 2 accounts and 1 very small account exposure was there. And we believe that the kind of dialogue that is going on with the customer and with the other banks, we should be able to resolve it in the next 3 months.

Okay. We have seen some increase in restructured book as well. What is the pipeline for 2Q?

So last time, I told you guys that we are expecting about 5% restructure. Now what we have observed in this current -- in this second wave is that a lot of customers who refused restructure or thought that they will be quite fine and so on, they were not allowed to restructure because of the new regulation that applied to them, right, which came from RBI. And what we found is customers this time around were more open to restructure because when they found that their monthly receipts or business is not enough to service the loan, they would rather take the restructure and then service the loan with a lower installment at least for a part of the time. That is how the restructure book has gone up. Most of the restructure is in mortgages, SME and CE. We don't have except for about INR 16 crores or INR 17 crores of PL, which is restructured, there is no issue in terms of unsecured loans or anything getting restructured in that. We have a very decent collateral coverage. I think the deadline for the restructure is September. We are evaluating the pipeline. There is some demand but not too much. And we have been very selective in terms of who we want to restructure because unless and until there is some underlying business and cash flow, we are just not allowing any restructure. And the collection efficiency numbers that I presented also includes the restructure, those numbers that I have put on the press release.

One last question, sir, on the provisioning bit. So the floating provision is part of PCR for us?

Yes.

Okay. So additional contingent provisions, which is outside PCR is INR 108 crores and another INR 189 crores towards the restructured book?

Yes. So Darpin, already there is a separate provision for restructure as well.

Yes. So that's what I said, so INR 189 crores and additional contingent provisions is INR 108 crores, which is not part of PCR.

Yes. So I'll tell you what we have done, just so that there is some more understanding of our provisions. We took our entire NPA, went product by product, looked at what is the historical loan -- loss given default, put some stretch on that default and said that what would be the provision that we should hold. So by looking at product by product provision, and like I said, we don't have any unsecured loan except the MFI unsecured and a little bit of personal loans, right? So we looked at the MFI loans and said, let us take the provision all the way up to 90% on that because we estimated not more than 10% to 15% as the possible recoveries given the couple of geographies in which these BCs were operating. So to that extent, product by product, we have looked at our provision coverage, and we feel comfortable given the loss given default of these that we are very well covered. Over and above that, we have another INR 112 crores of floating provision for NPA.

Sir, one last question, perhaps if you can just give the breakup of provisions for the quarter. That's it from me.

Yes, break up, what?

Provisions.

Provisions.

That is the P&L side?

Yes, for the quarter.

P&L side, we have provided for NPA INR 130 crores, sale to ARC resulted in INR 5 crore more credit loss that is given in Notes to Accounts. So that is INR 135 crores for NPA. Floating provision we've made INR 3 crores. And standard -- provision against standard assets, standard restructured, standard application, et cetera, nets of to INR 17 crores, which adds up to total INR 156 crores, which you see in P&L.

[Operator Instructions] The next question is from the line of Jai Mundhra from B&K Securities.

Just on the quantum of slippages. So while it may not be very comparable, but if I look at for the entire year FY '21, we had around slippages, which was, let us say, closer to 600 -- sorry, INR 680 crores. And in this quarter, we have done slippages, which is, let's say, 500 -- INR 500 crores plus. So while, of course, this is not comparable this quarter, but still, do you believe that -- and the slippages as I see from your gross NPA product-wise disclosure, they are in across all products, except maybe AIB. So how should one look at the slippages trajectory? If I look, your collection efficiency also even in the month of June and July, I believe they are still below pre-COVID levels. So how should one think of the slippages going ahead?

So first of all, don't multiply it by 4, don't do that, okay? That is not the way it is. I have looked at the slippages of retail across all the banks that have declared results so far and looked at what kind of range that they are there. It has been the slippage ratio on retail, and we are talking only retail because many of the banks have 50% of their book in wholesale or corporate lending, it appears to be anywhere from 1.32% for the quarter to 2.09%, 2.1%. So we are in the range is what I would like to state. So we don't believe that every quarter, we are going to have this kind of slippage. This was a very unusual quarter. Even if the customer wanted to pay, the accessibility was a major issue in most of India. In fact, it was lockdown very severely in most of India. So that is what is -- it's lot of business as well as logistics NPA is what is contained in the current NPA. Look at the recoveries that we have been able to do in this quarter in spite of the fact that there was lockdown. So we have worked pretty hard on getting our recoveries up. So I believe that probably some spillover might be there in this quarter. And then hopefully, if there is no severe third wave, we should be back to some normal levels is what I believe, from whatever we have looked at. July recoveries, July discussions with collections, the July performance of collections seems to indicate that we are far better than what it was in, say, April and May.

Right. No, of course, no one...

If you see last year, last year also, step-by-step the collection efficiency has been improving. If you look at -- we have -- for example, if we look at the current bucket collection efficiency for home loans, it is already at 98.6, which was 98.1 in March, as an example, right? Customers who become delinquent pay 2 installments or 3 installments, at times struggle to normalize their this thing, especially if their business has been affected, even say, 10% or 15%. So it takes time to kind of move in that direction. But hoping no further disruption, we should be further improving our collection efficiency.

No, no. So just to continue on this, while I don't think anyone would be kind of annualizing the slippage number. And also you have had at least 50% of the slippages in numerical terms have already been upgraded/recovered. But if I look at your collection efficiency, it is -- for the month of July for overall portfolio, it is still lagging by, let's say, 500 basis points in business loans and maybe 200, 250 basis points in home loan and even a 1,500 basis point in CV loans. So -- and as you said, the new customers probably are doing well or the 0 bucket customers are doing well. But the people who are already delinquent, they are still finding it a bit difficult. So how should one look at the slippages? I mean can -- would you be comfortable in saying that the slippages at least from a quarterly perspective have peaked already and then you should have a reasonable reduction even in 2Q? Or you -- or this would be difficult to tell at this point of time?

So July -- if I look at July, what we are seeing so far, the preliminary numbers that have come and we are, of course, analyzing the performance of the various geographies, products and so on, seems to indicate that the major, major issues should be behind us. That's what it indicates. But we want to see one more month, see all the product performance and geography performance for August. And hopefully, if there is no disruption, then we can safely say that, yes, the -- probably the most difficult quarter is behind us. So at the moment, we feel very positive about the results that are coming through for July. And we want to look at August and perhaps September and then we'll be able to say that. But I can tell you that we are breathing a lot easier in July and August than we were in the middle of April and May.

Right. Understood, sir. And now -- sorry, in your press release, you said that the people who have not paid any installment since the beginning of the pandemic, you've given some numbers. Is it safe to assume that these are NPA number already, right? Because someone who has not paid any installment since the beginning of the pandemic would have already slipped.

Yes, of course.

Right. I mean -- so I mean, this number -- what does it indicate? I mean does it provide anything extra? I'm failing to understand. I mean these are...

It should give you comfort that despite the fact that customers are in some difficulty, we are able to extract payment from them -- continuing to extract payment from. Barring a small percentage, we're still getting payments from these customers. That should tell you that their business is okay, that they are willing to cooperate with the bank, that we are -- our collection team is able to reach out to these customers and so on. So that is the purpose of that message. You will not be able to say the same on, say, for example, an unsecured loan, that would be very difficult to -- because it would be lower in my view.

Understood. Understood. And sir, in terms of growth, so you -- I mean, the disbursement of course, were challenged because of mobility restrictions. And you have had a tie up which you had mentioned on the gold loan side. Any -- what would be, sir, internal budgeted growth for maybe full year FY '22? Because your -- I mean, target customers, even if they want to do -- even if they come for renewal or extra credit demand, I mean, you would have something in mind to calibrate that, right? So I mean so it would be a function of some supply as well as demand. So any -- what is your thought process on the growth, sir?

Our thought process is at the start of the year -- of course, we don't give you any guidance on a yearly basis. But our thought process on the start of the year was that we should be north of high teens, like maybe 15% is what we thought as a full year achievement for this year. However, one quarter has been more or less wiped out. We've been able to do only INR 1,500 crores of disbursal. First -- in the fourth quarter, that is quarter ended March, we actually did INR 2,700 crores. Of course, usually, fourth quarter is a strong quarter. But the momentum got drifted because of the lockdowns and so on in April. So we are rebuilding that momentum. I am confident that if there is no further major disruption, from here on, we should be able to build our balance sheet quite well. And hopefully, achieve at least north of 10%, 12% of growth this year.

The next question is from the line of Mahesh M.B. from Kotak Securities.

Sir, 2 questions from my side. A pretty strong upgrade this quarter. How should we read into it for -- in the near term as in -- as the situation is now to a point where it can be said this could be the normal run rate as well, or you can do better than that?

We want to do better than this run rate. That is our internal intention. See the way upgrades and recoveries work is that you are working with the customer for x number of days, sometimes 3 months, 6 months, 9 months and get [indiscernible] over a period of time because you have given him some solution, he's probably selling some other property and giving you the money or he's expecting some money and then he's giving it, all that kind of stuff. Some of the customers in restructure have come and closed the loan, okay? Some of the customers that come, they took restructure before and then come and paid off the entire money and closed the loan. And they have said that they want to take a loan later, but right now, they just kind of closed the loan. What we believe is the kind of effort that we are putting in collections, we have also increased the capacity in collections. There is no choice because if your delinquency has gone up and your NPAs have gone up, you have to spend money on collections. Ours is a fully internal collection. We don't use any collection agency at all. That was also a bit of advantage for us during the lockdown because collection agencies are, I don't think, allowed to work, but we were able to work as a bank unless of course we were prevented from reaching a particular location or something like that. So we believe that we should do well on recovery. I'll be able to give you some more trajectory on that, provided we get similar or better results in this particular quarter. But looking at July, we seem to think that it looks positive, at least the recoveries front.

Just one more question. We've asked this question many times in the past, but I'm just kind of giving the question again, in the context of the numbers that you are seeing. In the past, you've kind of indicated that you have a choice between exercising the collateral, given that the LTV ratios are quite favorable as compared to handholding the customer in this period. So which -- have we reached a point where you think you may want to revisit that assumption and start exercising the collateral to an auction? [indiscernible]

No see, we always threaten the customers to exercise the collateral. That option we never leave off the table. But the fact is that the customer wants to cooperate and gives us a proper time frame in terms of helping us to achieve the, I mean, like upgrade or recovery and all, we want to give that a chance. Otherwise, what happens is that you go to the market with -- if bank goes to the market with too much collateral, we don't want to damage the valuation. We always tell the customers use, sell and bring. In fact, most of the customers who settle with us are selling the property themselves and giving us money. In this recovery and upgrade, we have had some recovery and upgrade by selling of the property, by the customer. It's not that it's all recovery just this thing. Of course, upgrades usually, our money is collected. There are customers who have promised saying that all 3, 6, 9 installments, we will make it good because this business is picking up. We just want a little bit of more time. In those kind of situations, I don't think so. I don't think there's any magic formula or one strategy for any this thing we can do. There are situations where the government is not allowing auction of property or even gold for that matter was not allowed for a while, right? So I think we give some discretion to the collections, and we review it centrally at our head office. And if -- the last thing we want to do is to go there and do some wholesale panic selling and things like that, which actually might not serve the customer or the bank's purpose when other opportunities are there to fix it.

This is very useful. And just one clarification. When these customers are selling their assets, these prices at which you see the valuation was done, it's still holding up? Or you've seen instances where customers have had to break down prices quite aggressively to clear the underlying loan out there?

It depends on the desperation of the customer. Many customers when they have another property and they can shift to their property and so on, they have -- they take their time and get the right price. Fortunately for us, I mentioned in NPA, our average LTV is 40%, in restructure, our average LTV is 52%. We never let go of the principal amount. Principal amount, what you call as, principal amount waiver is handled at a very high level. So it's not possible for collections to do principal waiver at all. So in smaller properties that we are dealing with like INR 50 lakh, INR 60 lakh and all, I don't see any issue on this thing. We have had some challenges in property value in some, say, INR 2.5 crores, INR 3 crores that type of loans, but those are very limited loans for us.

[Operator Instructions] The next question is from the line of Prakhar Agarwal from Edelweiss Financial Service.

A couple of questions. To start with, when I look at your write-off numbers, even if I exclude the assets that we have sold to ARC, then also for the last couple of quarters, that number seems to be running on a higher side. Given the nature of the book that we have, what is the thought process regarding writing off those assets?

Usually, we write off loans that are -- like, for example, could be an MFI loan could be some unsecured portion of, say, tractors or could be loans that we have collected and some balance is left on those loans that we don't want to pursue because the collection cost of the loan versus that could be issue. So -- and of course, the last thing we want to do is to write off in any one particular quarter a huge number. So that's the way it is, and only 100% provided books are usually written off. I mean, that is how we work.

And we -- wherever possible, we'll continue to...

Collection continues. Those -- there is nothing like collection not continuing on, even if it is written off because the collection team doesn't know that we have written off or made a full provision, they don't know all that.

Okay. Sir second is on the margins, if I look at the yield [indiscernible] because of interest income reversal or there is [indiscernible] see it settling down. What is the number that [indiscernible] that you are building in terms of margin?

Somehow I'm not able to hear your question well. It is not clear. Do you want to repeat it?

[indiscernible]

Prakhar, sorry to interrupt you, but your voice is breaking terribly. May I request you to -- sir the line for the participant dropped. We move on to the next participant. Next question is from the line of Prabal Gandhi from Antique Stockbroking.

Sir, am I audible?

Yes.

Sir, so in the high upgrades during the quarter...

Just be a little louder, please.

Sure, sure. So in the high upgrades during the quarter, how much would be on account of OTR restructuring?

Very minimal on account of restructuring.

Sir, and also on the...

Even when we do restructure -- let me put it this way, even when we do restructure, some very high level of approval will be required if we are restructuring a customer who has not paid the installment. Because normally, we tell the customer, please get the restructure -- please get the installment done, then we do the restructure.

Also sir, on the high recovery side, we had pretty strong recovery. Which are these the segments which are contributing to these strong recoveries, which are fixed that are bringing this...

Whatever is our underlying business is what is contributing. Mortgage, CV, SME. They are the ones who are contributing. That is what is in NPA, that is what is contributing.

But any specific segment, for example, CV or mortgage business is better than the others or before others?

Nothing like that. Mortgage would always be the biggest contributor and CV probably would be next. Gold will be another one that would contribute. SME also contributes. That is how it is. There is no -- I mean, it's like maybe in 1 month, something might do better, but generally, that is a trend.

Okay. Because the reason I'm asking this is -- because in segments, for example, CV we have 15% of GNPA and other segments also. So I just wanted to understand how quickly can we recover and how quickly things can normalize from this?

CV loans, what we have seen is as soon as the customer starts to use his assets, you start getting payments and recoveries. So it's a very direct function of -- the NPA is also direct function of the nonfunctioning of the asset and the recoveries and upgrade is also non-functioning, unless and until the truck has met with an accident or something like that. You see higher NPAs because the book is on a decline because of new loans have been very limited on CV. That is also one reason. So we are already seeing continuous improvement in CV. And July recoveries were better than June. And if God forbid, there is no serious third wave, I think we should be doing fine.

And sir, in terms of gold, are we able to auction now?

Yes. We do e-auction. We do very successful auction. And touchwood, we didn't go haywire on giving 90% LTV and all. So therefore, we didn't have any problem. I know some of the companies have had problems because they went a little overboard on 90%. We restricted ourselves on those loans. The competition was very tough, but we still restricted ourselves. So therefore, we don't see too much of issue in gold.

And the auction run rate has picked up to the level that was earlier?

Yes, our auctions are usually successful. There is no issue.

Sir, just last one question. Can we get interest reversal during the quarter?

Which reversal?

Interest reversal.

We don't present those numbers. Suffice to say that if you have higher NPA, then you have higher interest reversal that kind of hurts the NIM. And that is a major reason for us. Plus, of course, we are maintaining higher liquidity because given the current situation, it is better to maintain higher liquidity.

The next question is from the line of Sri Karthik from Investec.

A few data point questions. The 97% collection efficiency that you reported, including restructuring. If we exclude restructuring, is it materially better?

It would be better, but it will depend on month-to-month because sometimes the restructured accounts may not pay that particular month and pay 2 months. But in this, we have said whatever has been built in that particular month is denominator and whatever has been received from the customer is the numerator. There are customers who are in bucket 0 in restructure. They are included in this.

Yes. Okay. And the gold loan...

See, this is not -- this restructuring -- while it is a restructuring, restructuring is not unsecured loan restructuring. I just want to tell you that. This is not unsecured loan restructuring. This is all secured loan, only INR 16 crores I put. We have not restructured some MFI loans and things like that, right? So if the customer's business is not there and he comes for restructuring, there is a process to check, what is the reason why he's asking for restructure, is his business running? Can he service the loan? If he says give me 12-month moratorium, we say, why can't you take 3 months. There are customers who have asked for 12-month moratorium. And when we tell him what is the installment he has to pay after 12 months, they got scared and said only give me 3 months moratorium and started paying also, because they think that 12-month moratorium means the installment will be the same as what you were paying. That is not the way it is, right? So restructured loans are loans where we have examined each of those customers, looked at their collection and come back with the feedback as to what the customer can do, not do. There is an approval process. Collections cannot restructure anybody they want just to prevent the NPA. It gets through the credit underwriting process. Credit underwriting decides based on the data presented, whether it is okay or not. There is a policy given on restructured over and above what our policy has been given by Reserve Bank of India. That's how disciplined we are doing this restructure. That is why we have a lot of confidence in restructure.

Clear, sir. Clear. These gold loan NPAs in our overall gross NPA book?

Gold loan NPA?

In the total gross NPA book?

It's I think some INR 60-odd crores, right? Gold -- INR 65 crores, something like that is the gold loan NPA.

[Operator Instructions] The next question is from the line of Rahul Maheshwary from Ambit Asset Management.

I have 2 questions. First, sir, can you highlight, from the customers' point of view, that how the business cycles are working or the payment cycle, which was halt in April and May month of many SME customers or the retail customers which are there? Please, can you give some brief on the product wise on the customers' business point of view?

So the 2 geographies as per our information that took the longest time to come back to some level of normalcy was Karnataka and Tamil Nadu. They probably started the lockdown later, and they also went on for some time. Kerala continues to be a problem, but we don't have much business in Kerala. So that's not a worry for us. North seems to be doing quite all right. And the -- I asked very simple question to our portfolio managers as well as sales team and more importantly, the collections team, as to what exactly is the customer paying. Is he paying, what device he is paying, what is -- why is he paying? If he's not paying, why is he not paying and things like that. So the dialogue, which was quite difficult in April and May started getting better and better towards the end of June and was -- as far as July, except for the fact that you have to deal with a higher stock of NPAs, the July discussions were far more easier because the customer responses were far better and so on. So we are also continuously looking at what is the stock of customers who are continuously paying us at least 1 installment even though they are NPA. We are looking at that and asking the customer, why can't you take some temporary loan somewhere and upgrade yourself so that in future, in maybe 6 months, 12 months down the line, you could have a better credit profile. So all those are happening. The important thing is that if you don't get distracted and hit by a severe third wave, I think customers have also figured out how to work through these issues. Of course, if a customer has died or his business is completely shut down, then his relatives are looking to just simply square up the loan and move on. That's how it is working. I think as we speak, even Karnataka and Tamil Nadu are also getting better in our collection reviews.

That's helpful mainly. But just your trend line, which I want to see is that if the third wave doesn't get very severe as compared to what we witnessed in second wave, can we say that the worst is over and that the growth which you mentioned about the mid-teen would -- that can take -- if we split the growth of mid-teen takes place, which would be the major segment that -- which you are looking for the growth that would be in excess as compared to what would -- we are seeing in gold loans portfolio?

See, Rahul, I know the problem is always caused by 5% to 10% of the customer. In our portfolio -- don't look at CV. CV is a very sensitive portfolio from an economy point of view, like it's just -- like if the truck doesn't run, then you can't pay money type of thing. And it's only about 5% of our portfolio and probably declining as well. So let's just look at home loans and business loans. Home loan opportunities are there. We have grown home loans. It's now 22% of our book. I think maybe in a year, 2 years' time, it may even be 30% of our book. And it's a good ROE book in the sense that we don't book loans unless and until it gives us 14% ROE in that book. In customers who have been able to manage both first wave and second wave, those types of customers are very, very valuable for us and similar customers, whether it could be a trader -- we do a lot of traders and wholesale traders, shopkeepers who are doing some level of packaging. I mean, you name the profession, we do it, except for a beautician or some spa or some restaurants, most of these guys come back pretty quickly unless and until they have borrowed like hell across the market and they're not able to maintain their record. So in -- we feel very positive about this aspect of it while dealing with these challenges that have shown in our first quarter. And we are also adding headcount. We are going to also expand branches because we feel that some of these opportunities are pretty intact and it may take time, but it is pretty intact.

No, that's quite helpful. And I completely agree with the challenging quarter.

The next question is from the line of Mona Khetan from Dolat Capital.

Sir, what is LTV on your gold book?

LTV on our gold book? Except for a very short time for a select customers, we gave instead of 90%, somewhere around 85%. And how we do it is we actually reduce the rate, the gold rate. So actually, we end up only giving 85%. Other than that, most of our book is 75% and below. And that is the reason why, touchwood, we haven't had any major challenges in managing our gold loan book, and we are growing that also.

Okay. So as in March as well, it was around 75% or thereabout for the overall book?

It would be lower than 75%.

Okay.

Because 75% is a maximum. Not all customers are using the entire and then there's some repayments as well, right? So -- and why do you ask that question? Because gold loan is the least of my problem at this moment.

Right. Because a couple of banks had raised their overall LTVs till last quarter. So just from that perspective.

Yes. I mean I mentioned to you that we are very careful in raising and the short window given by Reserve Bank of India to keep it at 90%. And there's always a temptation to grow your book at 90%, and then customers don't pay then you suffer. So we have been very careful about that.

Right. And on the recoveries aspect, so is it fair to say -- if I can recollect from your previous conversations during this call, so is it fair to say that recoveries will pick up very sharply in the coming quarters? Or will it take a couple of quarters for these accounts once things normalize to come back to pace and pay back their missed installment?

Our deepest wish is that the recovery should pick up sharply, right? However, we have to go in a very systematic manner and see. July seemed to indicate that recoveries are better, okay? Collections team is feeling confident based on -- we have something called PTP, Promise to Pay. The Promise to Pay percentages and promises kept percentages are looking good. So therefore -- and customers are also keen to get out of this NPA and so on. Because these are customers who are squeaky clean way back in March 2020 and squeaky clean in March 2021. So therefore, they don't want to also spoil their record, and they've gone through some real struggle. So I believe that our recoveries should be good, upgrades should be good. But I want to see one more quarter before making it. Of course, we are changing our strategy. We are making sure that adequate collection capacity is there. We are making some small changes in the organization so that more focus is there, some segmentation, analytics. Everything is being done on that. But we have -- and it's all in-house. We don't have any collection agencies at all. The problem with collection agency, and we have a lot of experience on it in the past many years ago is that they will only collect from easy, low-hanging fruits, right? They don't go up. But here, the scorecard is designed such that they have to deal with each and every customer and show us a result. Therefore, it is, according to me, better to do in-house. So yes, we are quite hopeful of our better recovery and upgrade in this quarter, but then we'll see.

Sure. And on the AIB book, I see that your GNPA levels are -- have not moved much sequentially. So is it fair to say that you've written off a lot of your MFI slippages, if any, this quarter or how does one rate it?

MFI? No, no, we have not written off our MFI slippages. In AIB, we have no challenges that I can see of other than normal challenges on tractor, KCC. Because of some lockdown, we have some challenges, but I think we are quite okay. It's a manageable kind of thing. MFI across the market, as you know, it's a very small book. We are talking about some INR 500-odd crores. MFI caused some problems for the entire market. And as mentioned in our press release, we have provided 90% of it. Whatever has slipped up to 2020 June, we have provided 90% of it.

The next question is from the line of Bunty Chawla from IDBI Capital Markets.

Two questions from my side. First, on the PCR per se, as the slide suggests that from FY '15 to FY '20, we have managed well the PCR above 70%. Now it has moved to 59.4%. How one should see the PCR ending at FY '22 level? And when should we expect this to reach 70%, 75% level? And secondly, on the margins also, we have seen there has been -- from last 4 years from 4%, it has moved down to 3%. And we believe that almost yields something like...

Where do you see 3%?

3.3%. 3.3%, sir.

Sorry, yes. Yes. So margin is a very easy answer because if you have higher NPAs, then you have to reverse the interest that you have earned. And that is what has caused the margin dip. We expect cost of funds to further reduce. We have reduced our deposit rates further, which will come into effect on August 15 or August 16. We have reduced our rates further. We are -- in most of the segments, we are able to hold on to our yield except for some really highly competitive segment. Other than that, we are able to hold on to our yield. Barring any major issues on slippages, I think we should see some improvement in NIM is what my belief is, as I look at the financials. Now regarding PCR, like I mentioned, I don't know if you are there in my call right at the beginning, first of all, all NPAs up to March 2020 are extremely well provided, okay? So up to that whatever -- and then the new slippages we have provided quite a lot, and we have looked at all the loss given default of each and every product. We felt that we need more provisions in MFI segment. Therefore, we added to the provision about -- almost up to 90% we have provided on the slippages as on June 2020. We never shy away from making provisions, but please understand that we are not dealing with the unsecured product, we are dealing with secured business. And over time, we are confident that we will continue to improve our provision coverage.

The next question is from the line of Amit Premchandani from UTI Mutual Fund.

I had a question on the treasury profits. The yields have been range bound over the last one quarter. And despite that, you managed to have INR 500 crore plus of treasury profit. So just want to understand what is driving this? How will it finally reflect in lower margins because you are selling high-yielding treasuries, which are kind of [indiscernible] kind of collected in the market and you're generating a profit? Or is it because of the RBI buyback programs which is creating a window of opportunities as you go forward?

If any opportunities are provided by RBI on treasury, and we are eligible to use that opportunity, the investment team and the treasury team looks at the opportunity and decides whether we need to participate or not. We want to make sure that our yield is as intact as possible in treasury. So that is a very important consideration for us because we like the regular income as opposed to one-off income. However, when we look at the opportunity and see that we will not dilute the yields too much, then we actually take that opportunity. There are many times we actually give a miss to the opportunity that comes because we feel that, that is not something that we want to target. Now what is the yield that you're looking at that you have a question? If you can tell me that, then I can answer it specifically.

Normally, what we see is that when the decent yields go down, banks book lot of treasury profits. But what we have seen over the last 3 months -- actually even 6 months, yields have been flat and there have been hardly any directional movement in yields. But treasury profit seems to be quite consistent and significantly above the trend line. So just trying to understand what is driving it?

No, no. There are some specific securities that RBI presents to say that we can -- for example, in an OMO operations or something. So there we are able to look at our security, what we have because if that matches with that -- so some security may have been at 7.5%, some security may have been at 8% whatever, and these have been historic securities. And if it is being offered by RBI in that auction, then we evaluate whether we want to participate or not, that is one. Second, every year, you are able -- you are allowed to transfer a portion of your HTM to AFS in the first quarter, and that is what we have done. So there is nothing special driving all this. It's very regular. Last year also, we have done similar operations.

What was the transfer from HTM to AFS this [indiscernible] quarter?

We don't discuss all that. That's not presented by us in our call. We have already included what we shared, so that's all.

[Operator Instructions] The next question is from the line of Rajiv Agrawal from Sterling Capital Management.

First, I would like to congratulate for this blockchain award.

Yes, blockchain, yes. Thank you. Yes.

So what is the specific initiative we are doing in blockchain? Can you just highlight it?

Okay, Praveen, you can answer that? Yes. My colleague here, Praveen will respond to that.

On blockchain, what we're doing is there are -- on the third-party distribution piece, we have automated the process whereby insurance which are issued can be -- the entire flow has been done on blockchain. Secondly, on trade business, we are -- we have done blockchain for issuance of guarantees. The third one which we got was for the -- our ATM chain, where the entire reconciliation bit of cash withdrawals is at the back end done through the ledgers, which will ensure that reconciliation is instantaneous and customer disputes are resolved at the earliest.

Okay. And my second question is that just to understand, this INR 90 crore recovery we have shown, is that -- where we show it in the P&L? Is this reflected in the INR 120 crore other income?

Which recovery you are talking about?

INR 90 crore recovery you have shown this quarter. So where does it get reflected? I mean this is -- is this shown in...

Yes, yes. If we recover from gross NPA, the gross NPA comes down and the related income that was not recognized before will go into income. But if we do recoveries from say, written off account, that is not shown on this particular slide. That will go -- directly shown in income. So this is not income. This is recovery and any related unrecognized income from these recoveries would have automatically been recognized by the system into the income.

Okay. So it has a double effect?

If you do recurring and upgrade, always the income improves. No question about that. And if we choose to, we will reverse the provision as well.

[Operator Instructions] The next question is from the line of Darpin Shah from Haitong Securities.

Just one question from my end. Any thoughts when we will start using this contingent provisions of INR 108 crores?

INR 110 crores -- sorry.

INR 107 crores.

INR 107 crores.

INR 108 crores, he's right.

Darpin, the current thought is like this, okay. Go hell for leather in reducing the NPA and make sure that the restructured customers stick to their commitment. That is our basic. And the way we have looked at it is that we will try to ensure adequate -- I know we are dealing with the secured portfolio, but we try to ensure adequate provision. So we don't have any plan right now to say when -- how we will reverse this or utilize it. For the matter, we don't have a plan to utilize the floating provision as well. We have never utilized it, as you know, in the past. So let's wait for 1 or 2 quarters. We'll see that things are getting better and our recovery efforts are yielding results, we'll take the call.

[Operator Instructions] As there are no further questions, I will now hand the conference over to the management for closing comments.

Thank you very much for dialing into this call. I know it is Saturday, late I'm sorry to keep you all so late. Please have a good weekend and look forward to talking to you again. Thank you.

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