Indian Bank (INDIANB) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Indian Bank's 3Q FY '21 Post Results Conference Call hosted by Batlivala & Karani Securities India Private Limited. [Operator Instructions] Please note that this conference is being recorded. Participation in this conference call is by invitation only. Indian Bank reserves the right to block access to any person to whom an invitation is not sent. Unauthorized dissemination of the contents or the proceedings of the call is strictly prohibited, and prior explicit permission and written approval of Indian Bank is imperative. Please note that this call is only for investors or analysts. Any guests from media are requested to disconnect the call now. I now hand the conference over to Mr. Bhavik Shah from Batlivala & Karani Securities India Private Limited. Thank you, and over to you, sir.

Thanks, operator. Good afternoon, everyone, and thanks for joining the call. On behalf of Batlivala & Karani Securities, we welcome you all to Indian Bank 3Q FY '21 Post Results Conference Call. We have with us today the management of Indian Bank represented by Ms. Padmaja madam, MD and CEO; Mr. V.V. Shenoy, Executive Director; Mr. K. Ramachandran, Executive Director; and other senior officials. I would now request MD and CEO ma'am to start the call with her opening remarks on 3Q FY '21 results, post which, we can start the Q&A session. Over to you, ma'am.

Yes. Thank you, Bhavik. Good evening, and welcome to this post Q3 results analyst meet. So going by the track record of Q1 and Q2, the third quarter after amalgamation and the third quarter of the current year has also been very successful and satisfactory quarter for the bank, given the circumstances under which this current year we were operating. If you have seen the figures, I think on every parameter there has been a consistent and stable growth and an improvement in all the significant metrics. So business has grown. I guess RAM has grown more than the corporate, and corporate also has picked up in the Q3. We expect a better traction in corporate in the Q4. There has been a good traction in earnings. Interest income has grown. Noninterest income has also grown in the right places. The asset quality, the collection efficiency has improved, resulting in limiting the slippages. And the notional NPAs are also under control and well provided for with a 21.5% coverage -- provision coverage on the notional NPAs of about INR 5,000 crores. The restructuring effort is on. And both in the corporate, retail as well as MSME, I think we are at about 1.62% of the standard advances that would be restructured. It is on track, especially in the corporate because of the consortium lending. There have been -- the resolution process has been invoked and it is under process. The gross NPA, net NPA have all shown -- expectedly, have shown a decrease -- a significant improvement. This yes -- taking into account general Supreme Court dispensation, yes, it looks very good. Even taking into account the notional NPAs that have -- would have slipped to NPA had this Supreme Court dispensation not been there. I think the gross NPA and net NPA are very much under control. We have all those figures in our slides, which you must have seen. The provision coverage ratio has improved. We have gone ahead and made provision cushion for even the accounts that are put at a standstill by NCLT or there is some restructuring in process. So I think we have built in the necessary resilience and the strength into the balance sheet to guard against any unexpected development post this lifting of the dispensation or even any other shock that may come our way. And the bank is well positioned to grow at a faster clip from here. And given the strength that we have in both in the assets -- arresting the slippages as well as recovery, the focus on asset quality, the focus on the earnings and the wider effort that has gone into making this amalgamation a success, doing it in a very well systematic and measured way, calibrating the entire exercise, centralizing the operations as far as possible so that the branches we can redeploy the staff to more customer-facing role. All this is now coming through. A lot of work has gone into physical merger of branches, current features, service branches, the staff training centers. So all those establishments, the brick-and-mortar establishments that were -- that we were paying rent and also incurring other expenditure on is all now being surrendered. And that cost savings is actually very visibly coming into the balance sheet and to the profit and loss. So all these efforts, I think, are -- it's an indication that the amalgamation has gone up smoothly. We are in the final stage of the IT integration. That also we expect to complete within a month. And with that, in this financial year, we would not only have crossed the challenges or faced challenges of COVID but also amalgamation and functioning in such a challenging environment. All said and done, I think it's to the credit of the team of Indian Bank that they have not lost the focus on business, on business growth, on earnings and on asset quality so that we today stand in a position where we can confidently say that we have a balance sheet that is quite strong to weather any future problems. The focus on the HR integration is also very much on, and we are investing a lot, both in IT and in HR, to get the 2 most important resources for the bank act in tandem. The years coming -- since it's now among the big banks in India. But with cushion and an appetite for business because -- but on the -- especially on the corporate front, we have a benefit of having a lot more space available to grow, to take exposures from the large corporates. That gives us a lot more space to quickly get the traction and manage the growth in a very controlled way. So from the capital figures, you would have seen that the capital adequacy ratio has improved to 14.06%. This not only because we have raised the INR 2,081 crores in 1 month but also because the risk weighted asset density is under control. It has, in fact, come down in this quarter. So the optimal use of capital is also showing up as a strength of the bank. I think we are -- on every parameter, there is a lot that has been achieved. But there's a lot more potential that is in the bank, and coming quarters should see us ramp up this benefits that we have accrued, especially on the cost of savings, on the amalgamation synergies, on the asset quality issues and also on the capital. So with that, I thank all of you for this attendance today, and we are open to questions. I have my EDs and my -- the top management team here with me. So we would be trying to answer all your queries.

[Operator Instructions] The first question is from the line of Mahrukh Adajania from Elara Capital.

Congratulations. Ma'am, I just had a few questions. On the restructuring and, in general, on asset quality, why do you think it's turning out to be much better than earlier fears that everyone had? I mean not only for state-owned banks but even for some private banks. And also if you could quantify ECLGS that you have given under the ECLGS 2 scheme and the total given as of December?

Yes. So you are asking me, why we think we are -- I mean, why we are better than what was anticipated from the industry level?

Yes and for other banks also.

Yes. So I think our focus has always been on our portfolio and how we grow it one thing and how we monitor it secondly. So this focus -- continuous focus by actually putting the resources on the credit monitoring side, the recovery side. After the amalgamation also, we have a full team in Chennai and also a similar team in Calcutta. So the focus has been on monitoring the asset quality and arresting slippages. So the continuous relationship and continuous monitoring with customers helped. Also, the profile of the bank's book in -- if you see the corporate sector, many -- most of the exposures amalgamated with a prudent selection. And on the retail front, 70% of the loans are housing loans, and most of those are again for salaried employees. So while COVID did decelerate some of the growth part, on the asset quality, there has not been too much of a dent because job losses and all did not impact our borrowers so much. We don't have a big portfolio of unsecured loans. That -- I think that plus the continuous contact with the customer and restructuring, wherever possible, even the retail assets, about INR 400 crores has come up for restructuring, which we are in the process of doing. I mean we have done this INR 400 crores. So retail, MSME. Across the country, the figures are there to see. And that's -- I can say why Indian Bank is doing well. What has been anticipated for the banking sector has been, in general, following from the RBI's own FSR report and all. So we are only happy that we are better than the prognosis.

Ma'am, under ECLGS, if you would quantify? If you've given anything under ECLGS 2 and the total disburses of ECLGS 1 plus 2 till December?

Yes. Just hold on, I'll ask our ED to give you the figures. ECGLS (sic) [ ECLGS ].

Yes, ECGLS 2 (sic) [ ECLGS 2 ], we have done totally 17 applications were received. Actually, 24 accounts were eligible, of which we've received only 17 applications, aggregating INR 255 crores.

Sorry, sorry, sir. Could you repeat that?

Total 24 accounts were eligible for ECGLS 2 (sic) [ ECLGS 2 ] in the case of corporate, of which 17 accounts we have received the application, aggregating to INR 255 crores and in 6 applications aggregating INR 227 crores is already sanctioned and remaining 11 accounts are pending that we are disposing it on.

Okay, sir. Got it. And total of ECLGS 1 plus 2 disbursal as of December?

I think I will give the data madam, separately. I'll give the data. Just give me 5 minutes.

Got it, sir. And ma'am just one more question in terms of corporate restructuring, which sectors have seen restructuring or have received applications for restructuring?

Yes. We have the retail sector. We have a big group in retail, of course. Anyway, coming for restructuring, so that is a major part of it. And then we have 1 or 2 hospitality smaller hotels. I think these are the main accounts -- sectors that have come for restructuring. Some of these accounts -- consortium accounts which are at the other consortium banks that RP has been invoked and it is under process.

Got it. And do you see any tail risk involved in ECLGS loans because there is 1 year moratorium. Not only you but other banks have given large amounts of -- there are some private banks who have given large amounts of ECLGS. So do you see any tail risk after 1 year? Is there a possibility of these loans slipping? I mean what will be the factors to monitor for the health of these loans?

I think these loans have been given under extraordinary circumstances, more as a liquidity backstop for the -- for those units. And this has been -- actually, these are also -- the incremental portion is anyway guaranteed by the government. But given that there is the main loan portion, I think it is -- the COVID impacted units only got this help. It was otherwise a running unit, it was otherwise a growing concern. So the tail risk what you are mentioning would come in only if the cash flows that we anticipate coming out of the economy reviving if that doesn't happen to the extent that we expect. But I think it's not really something that we need to be too much bothered about what needs to be done is that the economy really picks up steam. And the receivables, some of these units, especially MSME and all have receivables that are stuck up at some stage or the other. Once the wheels start moving and the lubrication of flows happen, I guess that this is not too much of a risk building up in the system. But continuous monitoring of these accounts and having an eye on their cash flows, cash is the main key. The monitoring of the cash is where the bank's efficiency lies.

Okay. One sec, Mahrukh. As regards the ECGLS 1 (sic) [ ECLGS 1 ], total amount was INR 6,034 crores, which is eligible amount, but sanctioned is INR 5,897 crores and disbursed is INR 5,203 crores, ECGLS 1 (sic) [ ECLGS 1 ] .

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

So my question was again on the restructured book. So essentially, if I look at the retail, agri and SME portfolio, the restructuring at less than 1% of those portfolios seems much lower than even your guidance previously. So any color why this turned out to be much lower than expected?

Yes. Yes, the guidance that we gave a few months back was expecting a bigger proportion of people to approach for restructuring. We also reached out to our borrowers to see if they would need. But given the collection efficiency improvement, and actually, the funds are coming in, the repayments are coming in, so it appears like, I mentioned earlier, that our borrowers are able to actually tied over this problem, and the repayments are coming. So wherever the repayments are not coming, we are keeping an eye and also approaching them to see if they need restructuring. Given that we had earlier only INR 100 crores of restructuring, today that figure is INR 351 crores is a good development for the bank. In agriculture, of course, there is 0. MSME is about INR 500 crores. But MSME has been receiving this doses of restructuring for the last 2 years. And this particular tranche is what was not covered by the earlier restructuring dispensation. So I think MSME is also -- this is what we are now at about INR 500 crores, and there is still time for MSME. There is still time up to March. So that might improve to maybe from 0.14% to maybe 0.25% or so. But beyond that, I think, it is okay. It is a balance between slippages and restructuring or between repayment also. So in these 3 legs, as long as we have control over what is the best way of handling the account, either they repay or we restructure or if it is not viable, it slips. So we should be prepared for all the 3 legs. So we are. I think that's the way we are looking at it.

Sure. And your press release also mentions of MSME restructuring of about INR 3,600 crores in the notes to account. So I assume this is not included in the data you've shared in the presentation?

No, that is not RBI recent dispensation. What I'm talking of INR 496 crores is this RBI, the recent restructuring. That restructuring figure includes the -- what we are talking of INR 496 crores is COVID related. So earlier figure is of earlier dispensation.

Right. Got it. So if I have to look at the total restructured book of the bank, I would include the INR 5,600 crores given with the presentation as well as the INR 3,600 crores, right, because that's not part of this, if I have to look at the total restructured portfolio of the bank?

Yes, yes.

So that plus this. Yes.

Sure. Got it. And retail, your restructuring of INR 350 crores, if you could just give some color where it is coming from, is it home? Is it auto? Or...

Our exposure itself is 70% on home. So it is spread over home and auto mostly. Mortgage loans to some extent. I can give you the breakup, but mostly it is -- it would be at least 70% home loan.

Okay. Got it. And if you could also give some light on the spike in the SMA book -- SMA 2 book that you shared on Slide 32.

Just hold on. Yes. So what would you like to know?

So if I look at the SMA 2 portfolio, especially the corporate portfolio, it has increased from INR 1,300 crore or INR 2,000 crore on average over the last couple of quarters to INR 6,000 crore now. So anything to read into it? Or where is it coming from?

No. Actually, after the moratorium only this SMA 1 and 2 started moving, right? So whatever was frozen during the moratorium time, naturally, it will show up in the SMA 1, 2 now. So to that extent, this INR 6,002 crores of SMA 2 is partly also the notional NPAs that have -- just hold on. SMA 2 is INR 2,316 crores. Then in December '20 here, we have put INR 6,002 crores in the -- so the actual SMA 2 is INR 2,316 crores, but including the notional NPAs it is INR 6,000 crores. And notional NPAs of about INR 5,200 crores have not been flagged this quarter, of which about INR 1,300 crores is under restructuring. So once that restructuring happens, that would come back.

Okay. Okay. Okay. So the INR 5,000 crore of notional NPAs also include INR 1,300 crore of restructuring, which will move to standard assets?

Yes.

Okay. And this INR 10,000 crore of SMA 2 is overlapped completely with the INR 5,000 crore of notional NPA?

Yes.

Okay. And lastly, if you could share the notional slippages for Q2 as well as Q3 for yourself?

Yes.

See, this is including all. Whatever we have given in the month of December, that includes Q1, Q2, Q3, all put together, it's cumulative.

Right. But if I could just get between Q2 and Q3 how much would be the amount it would just help. My back of the envelope calculation shows around INR 1,000 crore for Q2 and another INR 4,500 crore for this quarter, but if you could just confirm the number?

You are talking of SMA 2 alone?

No, I'm talking of the notional slippages that would have happened if the standstill was not in place -- the Supreme Court standstill.

Yes. So in June, it was INR 2,913 crores; in September INR 2,016 crores; and cumulatively, in December, it is INR 5,191 crores. So actually, the June figure of INR 2,913 crores reduced to INR 2,000 crores in September. Now with the additional untracked NPAs, it is now at INR 5,191 crores, and in that, as I mentioned that...

Got it. So it's INR 2,000 crores for Q2 and another INR 3,000 crores for Q3?

Yes. The recovery keeps happening in the earlier accounts also. So that plus the fresh slippage. This is how the INR 5,191 crores has come. And that includes, as I said, that INR 1,300 crores of accounts under restructuring. So once they are restructured, it will come back.

Sure. Sure. Got it. And lastly, if I look at the collection numbers between September and December, for segments like Retail, it has actually come off for you as well as Corporate. So anything to read into it?

The collection efficiency has improved. If you see the month-by-month also, I think we have given it in one of the -- Slide # 32, you see the month-by-month improvement in the demand collection figures. So that's the reason why the slippage has been contained.

Sure. So do the collection numbers include arrears as well, maybe that's the reason...

Sure it will include. This is actually on a month-by-month basis, and we have the cumulative figure also. So overall collection efficiency in -- up to December has been 85%.

Okay. No, what I'm trying to understand -- okay, so this is the cumulative number, not for the month of December?

What you have in Slide 32 is month-by-month, right? So the demand of that month compared to the collection of that month. And cumulatively also, we are able to recover -- even including the arrears of the previous months, we are able to recover 85% of the demand.

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

Madam, in continuation to the previous question, of this INR 10,358 crores or INR 6,000 crores in the corporate loan, what is the slippage that you have included in the corporate side in the INR 6,000 crores?

Notional, you mean?

Of the INR 6,000 crores, you've indicated that it includes the slippages as well, right?

Notional NPA.

Yes. How much would that be of? And from which sectors are these?

The notional in the corporate is about INR 2,000 crores -- INR 2,025 crores, and the segment there is mainly the retail in December. The retail is the major segment, 1 or 2 accounts.

And this -- you also indicated in the restructuring book that you have a very large retail account which is getting restructured, right, on the corporate side?

Yes.

And this -- also, there is an overlap between the 2 here?

Pardon?

Is there an overlap between the 2? Is it the same growth that we're talking about?

Yes. There's only 1 big retail group that we are talking of.

And that RP is implemented and it's completed also by March.

Perfect. Perfect. And the second one is, ma'am, the rise in slippages in the agri book in the SMA 2 book, is that any cause of worry here?

Are you referring to any particular slide or...

The same slide. This is Slide 32, INR 745 crores going to INR 1,985 crores.

This was again -- after the moratorium, again, whatever the KCC slippages that happened that we have taken account in December. So that is where the agriculture. But this is not a -- it is not like a trend for the future. Yes, the next tranche of KCC loans, especially this we have -- they are in the Allahabad Bank areas. So KCC renewals are happening, KCC OTS is happening. So we see these loans getting due either in July or in January, that was the way the loans were done. So this July thing has come now in December. The January also where there is a small tranche of loans that we are already addressing. We expect that would be -- that also would add in January, but not a big figure. We anticipate something like INR 600 crores to INR 700 crores slippage in January on account of KCC. With that, I think we would get the entire portfolio under control. Anyway, this, we have -- we are aware of and we are working on it, and we have provided -- I mean, we have taken it into account for our projections for March also.

Ma'am one clarification. Let's assume that the Supreme Court allows you to declare an account as NPA. Do you declare all the accounts which has gone above 90 days during the last 19 months as slippages and then also record it as recovery? Or do you record the recovery of NPAs on the day the Supreme Court allows you to do so? That only those accounts which has crossed 90 will be declared as NPA. How does the accounting work?

Yes. Only those accounts that are crossing 90 days would be declared NPA if the -- when the Supreme Court actually suspends that dispensation. I didn't get your other part of the question.

See, for example, if the account went above 90 days, let's say, in the month of October and in January, you had recovered that particular account and you brought it down to below 90 days, is that account an NPA or not?

No, if it is only declared NPA -- it is flagged as an NPA and taken into the books of accounts as NPA, then the recovery from that is seen as recovery. Otherwise, it is only reduction in the slippage. We cannot take a notional NPA recovery as recovery. So notional NPAs are tracked. They are recovered as on-the-go. So until they become real NPAs, we are free to keep on recovering in those accounts. And that is how the numbers have been coming down because the period for recovery has been extended by this entire moratorium and dispensation.

So essentially, there is a DPD plea at 89 days, is it? So it just kind of moves into SMA 2 and just stays there?

There is a...

Is there a -- so, for example, the account goes to 89 days, if I'm classifying as 90 days and above, or is it kind of keeps going on and on. And just one clarification, could you also give us the SMA...

It is on NPA, and we are free to keep on recurring.

Okay. And could you also give us the trend on SMA 0 and what -- how has that been?

Actually, we did a study and what we find is that the SMA 0 figure is now almost the same trend as it was pre-COVID days. So we are back to the pre-COVID in terms of the performance under slippages. So I think that's a good development, and we want to further reduce it. So SMA 0 is, as you mentioned, that is the real tracking. And that has come back to pre-COVID. So we have the figures. We can share it with you.

And also SMA 1, ma'am.

So if you see 29th February figure, if SMA 0 was at some INR 60,000 crore, now today, it is at -- on 15th January, it is at INR 56,000 crore and on 31st December, it was at INR 60,000 crore. Usually, on the month end, the figure is high. And within the first 10, 15 days, the figure, normally, people pay with 3, 4 days, 5 days delay. So that comes down by almost 40%, 50%. So we find that both SMA 0 and SMA 1, which was about INR 17,800 crores on 29th February, as on 31st December it is around the same INR 18,125 crore. And everywhere, SMA 0, 1, 2, the figures are almost at pre-COVID level. So our collection efficiency, I think, is back to the normal trend, and we want to continue it or improve upon it now.

[Operator Instructions] The next question is from the line of Deepak Poddar from Sapphire Capital.

I just wanted to understand, any kind of comment that you want to make on the credit cost outlook for this quarter going into fourth quarter as well as in FY '22? So anything on that would be helpful.

Because there's no real slippages, the credit cost looks very good. But even taking into account the -- as it is as of 31st December, it is 1.59%. And even taking into account notional NPAs, it should be below 2%. I think we will maintain it below 2% even in -- even by March.

Okay. And next year?

Next year, it should be even further down. I hope I can give a prediction. I hope it will be around 1.5% to 1.7%, yes. We cannot avoid slippages altogether or NPAs altogether. The business is growing. So as a percentage, also, these things will be better.

[Operator Instructions] The next question is from the line of [ Venkat Datla ], individual investor.

Congratulations for good set of numbers. My question is, I think, even we are reporting very good numbers, I think valuations, market capital of the bank is very, very less. So I mean, just to compare with the peers, I think valuation is same as Bank of Maharashtra and IOB is also trading at very high compared to Bank of India. So do you think is it a good time to raise QIP? Do we really want to sell at a cheap valuation for the new investors? That's my question, yes. I think because of this merger and whatever happened last 1 year, the value sheet of the bank has gone down significantly without any issues with the Indian Bank. I mean from INR 400-plus crores, I think it has gone down to a very less price. I mean do you think it's a good idea to raise at this point in time, equity using QIP?

Definitely. I think you should put a lot more money into Indian Bank. Whatever has depressed the price has been this -- first of all, there was this fear of whether this bank will be merged with another big bank or what will happen. Like Vijaya Bank, will it go as a sweetener in another amalgamation. That was over. And then the fear was what will happen when Allahabad Bank merges with Indian Bank, how will the balance sheet be managed? How will it take the merger? So that also -- now 3 quarters, I think Indian Bank has proven that the -- I mean the amalgamation is done and dusted. The figures are all audited for 3 quarters consecutively. So I think the figures are there for all to see, and the valuation should improve. I think when you mentioned Bank of Maharashtra and IOB, there might be a reason that there is stock of privatization of some of the banks. Maybe I really did not compare those 2 banks, but that could be a reason. There is no such, I think, unless we hear the budget proposals, we don't know what is in the mind of our policymakers. But I think Indian Bank on a stand-alone basis is now a pan-India bank. It has invested quite a bit on IT, on digital, emerging as one of the new-age banks with strong financials. I think if you compare -- if you see quarter-on-quarter last so many years, I don't even say 2 years or 3 years, for so many years, the performance has always been consistent. And the culture, the management consecutively has been quite focused on the asset quality, on earnings, on building the bank in a very stable way. I think that will continue and that's why I feel it's a good investment. I myself have invested in the bank, and I think all our staff have. So we have a lot of confidence in the bank. And I expect that the price also will move up once our results and the amalgamation is over. I think that was the main concern and now that is through. That should -- the synergies are now flowing in. We have cost synergies. We have also earnings synergies. We have cost of funds coming down, CASA improving. So all the metrics that we had anticipated out of the amalgamation are happening. And whatever pain was expected also we have taken on and it is over. So I think now it is a clean slate, and what you see is what you get. So I expect that the price will go up and we'll have better valuation, if investors show that confidence in the bank.

We'll take the next question from the line of Rahul Nair from SBI Mutual Fund.

So I just had 1 question. Your corporate loan book has grown by only 2% year-on-year. Is it because we are cautious about lending to corporate in this environment or is there any other separate reason like lack of demand from them or something?

Actually, both. We are not ready to -- I mean, we are not risk averse or anything. In fact, as I mentioned, we have exposure of limits available on many large corporates, which may not be the case with many other banks. The only thing is the demand. It has been coming only from government, NBFC or infrastructure HAM projects. But where is the demand from the private sector, where is the new investment happening in the private sector space, we don't see much. So you cannot keep on giving to the same sector. Secondly, the corporate loan book has grown by 2%, yes. But if you see the investment side of it, which TLTRO, LTRO all the advances that would have gone as loans, all the money that would have gone as loans have gone partly as investments also. So if we factor in that figure, the growth is more than 6% to 7%. So corporate loan book, I think, we need to be aggressive in the right place but also careful because these are big ticket loans, and we are looking at the risk-reward when we go into corporate. Too much long term, too much sacrifice of interest or yield in a falling interest rate scenario till now. We were a bit careful about picking the loans. And I think that has proved quite useful. The book is very strong and well cushioned. The other part was about, how much INR 5,000 crores? About INR 5,000 crores technical write-offs happened in the last 2 quarters. This quarter, of course, we did not have. So that also has gone from the corporate book. The growth was there in corporate. In fact, there's a lot of activity happening in corporate; a lot of loans get sanctioned; a lot of disbursements keep happening; a lot of repayments keep coming, which is a good thing. But also that these kind of things are not showing up in the figures. The income is coming and the cross-selling is happening. So we are getting into more of working capital loans, which, I believe, are -- our bank's policy is that we need to be in every consortium where we have a term loan and, of course, the rest of the business that flows from the corporate. So we have -- we'll be there, yes.

The next question is from the line of Anand Dama from Emkay Global.

Ma'am, one question was about the lumpy corporate exposure based out of Eastern India, where we have an exposure as well as the Allahabad Bank exposure. Any update on that account, whether that will be restructured or what's happening over there?

Yes, I -- yes, that account is being monitored from the consortium level itself. We are also attending all those meetings. And I think, there is a ASM appointed. There is a control taken almost on a day-to-day basis monitoring happening from the bank's side. We have proactively also provided about 20% of that exposure this time as we made a provision. But let us see how it pans out. Either way, with the RBI also doing its own inquiry or whatever, their report is not yet there. So we believe that part of the exposure is quite strong, especially given the security, given the way the company was functioning. Part of it might be a bit weak, but I don't see too much of a panic or concern there. Either way, learning from past experience, we have started making provision so that the bank is not taken by surprise whatever happens. But we are keeping our eye on it. But that should not depress the perception about the bank because, I think, today Indian Bank is -- has a much bigger balance sheet and also better provided so that any such incident does not hijack the profit.

Sure. And ma'am, apart from that, any resolutions that you see in next 6 months happening? DHFL is certainly on the cards. IL&FS is also there. Any of the power account or a large lumpy account where you believe there could be a resolution happening in the next 2 to 3 months.

See in the case of one power which was -- it has already -- we had initiated the RP and, I think, we have converted a part of the debt into equity also. And hopefully, that all the 4 units are working now. Besides that, even one more IL&FS group power account, that also some activities have been going on. Some approvals are -- it has come for the approval. Besides that, we also got that 2 accounts where we see should be sorted out. One is that Bhushan Steel and Power and the third -- second is what you just referred now, DHFL. In addition to that, some other accounts are there which we feel will get resolved by March and June quarter. But again, all depends upon how -- if any other further issues crop up, we cannot say at the moment, we have been expecting that it should have happened by now. But okay, just by March or June quarter, we expect these 3, 4 bigger accounts.

Yes. And any other thermal power accounts where we have exposure and that is getting resolved?

See, one account which we have kept standard as a matter of court order, that has got resolved now. Secondly, one IL&FS group account, that is also getting resolved now, though it is functioning. Other, I think, we don't have any much issue in other power accounts. Mainly just towards the state government and central government accounts. We don't have any much of an issue there.

And in case of IL&FS...

But there are no...

Sure. And in case of IL&FS, if the subsidiaries or the project get resolved, still, you don't get the money till the time the holdco or the distribution of money with the holdco is resolved, right, because, I think, in case of IL&FS Chenani-Nashri Tunnel Project, the money is already lying with SBI, but still it is not distributed.

Yes again, so all these accounts are classified as per the IRAC norms. Whenever we get -- it resolved, I think it's a very good boost to the bank's profitability. There will not be any issue, it will only be a plus point for the bank as and when it gets resolved.

Sir, what I'm asking basically that the holdco -- the distribution of money back to the holdco is also to be resolved first so that all this money which is coming in primarily from the subs gets distributed, right?

Yes, yes. See one more account is there in the case of IL&FS transposition network, there also some resolution, we have given the voting. See, ultimately, I do agree, it all depends upon how fast the IL&FS management works out it and shares the money. So we don't have control, I do agree.

The next question is from the line of Sonaal Kohli from Bowhead Investment Advisors.

Congratulations on great set of numbers. I have 2, 3 questions. NBFC, where you have a large exposure, is it currently part of your SMA 1, SMA 2 numbers which you have disclosed?

Yes. No, you are talking of the which...

East India based NBFC.

East India based?

Yes, NBFC. Is it already part of SMA 1, SMA 2 or still not part of SMA 1, SMA 2?

As far as that NCLT order is there, not to classify it as NPA. But for that matter, we already made a provision as already stated 20%.

But not part of SMA 1 or SMA 2?

No, no. Not part of that.

So it's making its payment on time, as of now. Great.

No, no. Not making payment. Because it's coming in the collection account, it's yet to be shared. But as far IRAC norms, see, ultimately, what has happened is NCLT has given an order not to classify it as NPA. So it is not classified as NPA. And however, we have made the provision now.

No, I'm asking, sir, about SMA 1 and SMA 2, I'm not talking about NPA.

The NBFC...

The numbers that you have given to us of SMA 1, SMA 2, do they include the outstanding from the NBFC or is it making your payment?

No, no. See that East, West NBFC which is stopped just now, that is not included in SMA 1 and SMA 2.

Okay. And sir, what is the status of harmonization of accounts of Allahabad Bank with Indian Bank? So let's say, there's a common exposure which both the banks have, could there be any accounts which are because of the past conservative nature of Indian Bank which are being already accounted as NPA but could -- would not be accounted as NPA in Allahabad Bank? So to what level of size of accounts have you been able to harmonize? And when will be the complete harmonization of accounts with Allahabad Bank be over?

Actually, the harmonization happened even before the amalgamation before 1st April because the -- when we did the due diligence on the accounts, the NPA classification or not making -- or Board provision was made by each bank was taken into account in respect of all large exposures and harmonized as of 1st April. So whatever additional provision, either Indian Bank had to make, we made it as of 31st March. So that provision thing is now harmonized totally. There is no gap there. On the harmonization of accounts, there the accounts were with different branches because of different banks, now those group accounts and all also have been shifted to the large corporate branches. Whichever branch is handling it either in Indian Bank or Allahabad Bank, the accounts have been almost all shifted to have a single control and single ownership. So -- and also, we have put in place this vertical large corporate in Indian Bank last year itself. So that is controlled directly from corporate center. And we have carved out a separate mid-corporate vertical. So the really large exposures are focused -- getting focused attention out of the large corporate vertical and the mid-corporate vertical is being used to grow that book. With all these things, I don't see any more gap in the large exposure norms or anything. I mean even the Board is very particular about this large exposure. So there is no real misalignment anywhere on the large exposure book. It's all 1 book now. And IRAC norms, everything is followed as per the RBI.

Ma'am, I understand, on the large book, you've done a fabulous job. What I was trying to understand was like what is the cutoff beyond? So what is the definition of mid-corporate part or below mid-corporate part which is currently not harmonized? Is it like INR 100 crores, is it like a INR 20 crore number? And when would even those accounts be completely harmonized with Indian Bank?

Even those -- even a INR 5 crore account, if both the banks have that has been harmonized. There is no -- not much of an overlap in the smaller accounts because of the geographic -- lack of overlap. So there is really no -- if you are asking whether the same account is there with Indian Bank and Allahabad Bank even today, there's no such account. Across the verticals, across the amounts, everything is harmonized.

And ma'am, as far as the agriculture book of Allahabad Bank is concerned in the past, it had very large NPLs. How much understanding we have currently of the agriculture book as such because Indian Bank always had fabulous -- very low NPLs on the agriculture side. So I mean where do we stand? And could there be a surprise or a shock on that side once books are completely integrated or you already done all of that and you don't see much happening on the agricultural side?

No. What you said is true. There was a concern because there were -- given the geography in which Allahabad Bank was -- I mean, is present, there were issues around KCC, and the bank itself had addressed them in the last 1.5 years. Even before amalgamation, they started declaring those NPAs and actually addressing those issues. But even after amalgamation, we have focused on that. Even during the due diligence exercise, this was very clearly brought out. And we know what we were -- what the issue is, and we have been addressing those issues. That's what I mentioned in the earlier question also that we have been continuing that office in Calcutta, both for the recovery and also for the credit monitoring so that whatever renewals are due people are -- it is ensured that people do approach the farmers get them and actually renew them or we settle an OTS, there is an online OTS scheme that is running, or we declare them as NPAs. There is no third -- fourth option there. So I think if you ask whether we know what is the issue, we know what is the issue. We are addressing those issues. And surprises, we don't foresee. Yes, there would be a slippage again in January, which we will take into account in March, and we already have made necessary -- we have built in the necessary cushion to take it in our stride. It is not a big figure. Maybe INR 600 crores to INR 700 crores is what we expect to slip in January. And this happens once in 6 months, given the way the agriculture advances are given. It's not that every month agriculture slips. In Allahabad Bank, it was in July and January. So July, we have already taken in our stride. Now January, we know the figures. Almost on a daily basis we monitor, and every field personnel is on that job. So we see that traction happening in renewals. Wherever it is unviable or not possible, yes, it will slip, and we will take it into the balance sheet by -- in March quarter. I expect that this would be about INR 600 crores to INR 700 crores. And with that, we should be on stream.

And ma'am, how is the integration of the SMA book? Do we have a complete handle now of the SMA book of Allahabad Bank as well or that will take a while because of smaller account sizes?

No. As I mentioned, the -- yes, we have a complete visibility, complete handle. There is full control over all the SMAs. Whether it is -- there is no Allahabad Bank, Indian Bank now. It is all being monitored almost continuously by both the corporate center and we have monitoring -- 2 GMs for credit monitoring. One from Chennai, one from Calcutta. And there are a lot of monitoring happening through dashboards, through MIS. So on a daily basis, we see the slip, what is likely to slip. There is either restructuring because in MSME there is GECLS was there, then restructuring was there, then there is continuous monitoring that is happening. So we are on track. Yes, there is stress, but, I think, we are having to handle on that. There is clearly no opacity about the whole thing. There is what -- we know what we are having and how to handle it.

And ma'am, my last question on the education institutional side. Would you expect any major slippages or everything is under control or they have been restructured already?

Education loans is a legacy issue in Indian Bank. I think that INR 4,700 crores is there will be -- they have -- some of them have been restructured earlier. So it is only monitoring and trying to recover through all means. We sometimes have recovery agents also looking for this. Part of it is -- I think, about 15% of that is NPA, not the entire thing. So we will be focusing on that. And eventually, as it becomes difficult to recover, we will make them -- we will show them as NPAs or we will be bundling them and seeing whether there is any option of selling them to NARC or any other recovery mechanism. But that's -- the portfolio is small now, and we are focusing on that so that we clean it up fully.

The next question is from the line of Mahrukh Adajania from Elara Capital.

Ma'am, I had 2, 3 questions. Firstly, that -- sorry, just to reconfirm, this was discussed earlier. The retail account that we talked about is in the restructured book and it is in pro forma slippages or in notional slippages. So it's the same account, right? They are not different companies of the same group?

You are talking of corporate book or retail book?

Yes, corporate book. Corporate book, there's a retail account which is in the restructured and there is also a retail account in the corporate book which is in notional slippages.

Yes, it is the same account.

Same account only. So once it gets restructured, it will be upgraded.

Yes, it is on both the sides, yes. It is invoked and it is under implementation.

Okay. So -- all right. But once it's restructured, it does get upgraded, right?

Yes. Yes.

Yes. Yes.

But today, we are taking it as notional NPA.

Got it. And sorry, I did not completely catch the conversation you had with Mahesh on that 89-day past due in notional slippages.

I think he was asking whether -- see today, there is only 1 stream of notional NPAs. There are not many accounts that are slipping -- I mean we are able to flag as NPAs. So I think what he was asking was, if you recover from the notional NPAs, are you showing it as recovery? We are not showing it -- we can't show it as recovery. Whatever is being recovered in notional NPAs is just coming down from the outstanding balance in notional NPAs. So that was the clarification given.

In short, whatever the recoveries are shown as NPA accounts it's not included such recoveries in the case of notional NPAs. Only once we classify an account as NPA, any recovery in NPA account is only shown as recovery in NPA account.

On industry related, there are too many talks about bank holding company, bank privatization and again, bad bank, though now most of the corporate NPLs have been classified as such. But even so, any comments you could offer on these 3? And how soon could any of these 3 be possible?

Our knowledge is as much as yours. So we shall await the announcement, if any. I think bank holding company was an idea that was mooted earlier also. Hopefully, that will happen. The other one is this privatization. I think we are seeing a lot of news items. We don't have any more information on that. And bad bank, yes, to the extent that it allows the aggregation of loans with so many disparate lenders, it may help speeden up the resolution, but that also we will have to see what will be the contours and if at all they really approve that proposal.

Got it. But the bad bank is only for PSU banks or it's for all banks?

I think it will be for all, if at all it happens.

Okay. Got it. Got it. And in terms of bank holding company, it will only strengthen the corporate governance, right? I mean is that the idea because...

It also gives an arm's length distance to the government recapitalization and all, there would be a separate entity which would own the investments in the bank. So it is not like government direct investment. It would be through the holding company. Eventually, divesting will also become easier. And as you mentioned, corporate governments can be stronger.

The next question is from the line of Anand Laddha from HDFC Mutual Fund.

Ma'am, in the disclosure, you had indicated that INR 401 crore of interest which has been recognized in the P&L, this pertains to the notional account which has slipped into NPA.

Yes.

Okay. So this interest pertains to 3-month period or this is more than 3-month period, ma'am?

It pertains to all the 9 months.

Up to 31/12/2021.

Okay. Okay. And ma'am, in the case of agriculture, which are part of your restructure asset, is this slip into NPA in January, would be reversing the interest for 2 years on those?

Can you repeat, please, repeat the question, please?

On the agriculture exposure which are part of the SMA book, you indicated that INR 600 crores, INR 700 crores odd of that will slip into NPA in January. In that event, you would be reversing the interest for 2 years on those exposures?

Yes. See, whatever the interest is not recovered till -- on the date of the recovering NPA -- declaring it as NPA, that will be reversed. In some cases, they must have made repayment for 1/2 year, the second half year. We are not sure about the total quantum. But whatever the amount as on the date of declaring it as NPA is unrecovered, that will have to be reversed.

Okay. Okay. And in terms of the investment book, your outstanding security receipt is INR 4,000-odd crores. If you can give any color on this, like how much provision we'll have to make in Q4 on this book and next year?

Security receipts.

I think already, we have provided over -- already -- 70% to 75% is already provided. And secondly, we have taken a valuation also. And as part of valuation, we don't foresee any major provision that is required to be made.

Okay. And by when do you expect this that you will be able to realize this money from securitization, this SR assets?

The account-wise follow-up is taking place with all the ALCs -- ARCs and review is being taken of all the ARCs in once in a month by the recovery team.

So these are different pools and different time lines when that ATS will end. So the recovery is coming up. Because of the monitoring, again, I think there is...

Ma'am, any amount if you can indicate like in Q4 we can get or in next year how much we expect to recover.

Okay. From the security receipts, how much do we expect next year, another INR 500 crores to INR 600 crores we expect next year.

Okay. And ma'am, on the employee cost side, this quarter, we have seen a Q-o-Q dip in employee cost from INR 1,750 crores to INR 1,571 crores.

Yes.

Is there any one-off element in this quarter because of it there is dip or was there any one-off item in Q2?

Employee cost.

In Q2, what has happened is since that MOU was signed with the unions, so they had agreed for 15%, whereas we were providing at 12%. So one-off cost was there in the Q2, as a result of which we had to make a provision. That was provided fully. So Q3, no additional provisions are required to be made.

How much was one-off provision in Q2?

One sec, one sec.

In Q2 how much did we make? So INR 250 crores were made in Q2.

Okay. Ma'am, would it be fair to assume now the employee cost run rate will remain at this level only, INR 1,600-odd crore?

Less than that. Around same, yes.

The next question is from the line of [ Sunny Sehgal from Amigo Stock ].

So most of my questions have already been answered. I just have only 1 question. So on Slide 20, you have given the rating distribution. So roughly, you have around INR 43,600 crores or 19% of the book in BB and below rating. So ma'am, if you can give some color on this. I mean what are the primary sectors here? And does this include the government account as well? And how do you read the health or behavior of this book?

So if you -- I think you can see the Slide 20, right, where we have given the -- yes, you mentioned BB and below 19%. We have took the -- so in the BB and below, we have one of the corporate thing which is NBFC that is also BB or below. So the major portion -- one of the major items there is that the Calcutta-based NBFC we were discussing. So that -- apart from that, there is MSME portfolio, there is the small value, high-volume loans. I think that rate, the BB and below also has some of the MFIs, which are rated BB, but they are all performing. So as I mentioned, one is a government account, one is a NBFC, so -- one is the retail that is under, yes, that is under restructuring. So I think mostly, these are government accounts, again. And some of the private sector which are about INR 1,000 crores maybe from the private accounts, which are all again well performing. Normally, the hospitals or the hospitality segment or the LRDs, they don't get the investment grade or higher ratings, but they are all well secured and well-run companies. So we don't see too much of a problem there, except that there is an overlap in that NBFC and the retail account. These are also, again, reflecting in this BB and below.

The next question is from the line of Jai Mundhra from Batlivala & Karani Securities.

Just 2 questions. Ma'am, first is, what is the blended collection efficiencies we have given the segment wise? But for the bank, for third quarter or maybe for the month of December, the blended number, that will be helpful. And second thing, ma'am, I think this was asked by other participants also. So just let us say today is 22nd, hypothetically, if tomorrow Supreme Court stay gets vacated, do you recognize people who have 90 days past due as on tomorrow or do you do that thing at the end of the quarter? So I mean the slippages number would be considered after quarter end as of who are 90-day past due or they would slip immediately and if they pay, then they will recover?

Actually, we take it as on that month end. So if the Supreme Court revokes the suspension tomorrow, then January end, all these accounts will become NPA. And whatever recovery happens will come as NPA recovery. So that is the way it goes. It's not -- we don't wait till the quarter end. Quarter end results are declared, so it comes in the results, but otherwise, on a monthly basis, these are recognized.

Right. And ma'am, just last thing on RBI FSR, right, so they are saying that the system NPA will go up by 600 basis points and even more higher for PSU banks. I mean any reconciliation, ma'am? I mean so far, the bank's results and even the commentary, the restructuring has been lower than expected, the slippages, even in your case, are around very much under control, probably less than 2%. So any hidden risk or any perspective on that, ma'am, as to what -- why so much of a difference between RBI assessment and maybe individual bank assessment.

We are giving our figures. Where RBI got it, maybe you should ask RBI. But the thing is, I think, that they have taken the whole -- the worst-case scenario that they've built in and also to maybe -- there are some sectors which are more vulnerable and where probably Indian Bank doesn't have too much exposure. So RBI, I think, on a macro basis, they have taken those figures because many banks where we see -- we don't see that kind of -- I keep talking to our peer level people, but we don't see that kind of a deterioration. So if it doesn't happen, it's good, and RBI would have done its job in terms of alerting people to the possible risk.

Ladies and gentlemen, that was the last question for today. I now hand the conference over to Mr. Bhavik Shah for closing comments.

On behalf of Batlivala & Karani Securities, we thank Indian Bank management for giving us opportunity to host the call. Thank you, everyone, and have a good day.

Thank you very much.

Thank you.

Ladies and gentlemen, on behalf of Batlivala & Karani Securities, [indiscernible] that concludes today's conference. Thank you for joining us, and you may now disconnect your lines.