Indian Bank (INDIANB) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q2 FY '22 Results Conference Call of Indian Bank Limited hosted by Emkay Global Financial Services. [Operator Instructions] Please note that this conference is being recorded. I would now like to hand the conference over to Mr. Anand Dama from Emkay Global Financial Services. Thank you, and over to you, sir.

Thank you, operator. Welcome all participants for the Indian Bank 2Q FY '22 Earnings Call. We have with us Shri S.L. Jain, MD and CEO, who has recently joined the bank and the entire top management, including the new CFO; and other participants from the management. We would first request the management to briefly update us on the key highlights of the Q2 results and the outlook on growth and asset quality going forward. Then we will open up the floor for Q&A. Over to you then, sir.

[indiscernible] and investors. I'm with the other 3 executive directors and the general managers. During the quarter, our business has grown by 8%. Deposits have grown by 10%, and it is backed by the growth in CASA by 8%, and we are maintaining the CASA at 41%. Our advanced growth is plus 5%, but this advanced growth is basically backed by the RAM growth. RAM growth is around 13%. We are -- in retail, we are growing 14%, and it is backed by housing and mortgage loan of 10%. In agri, we are growing again 16%. And agri growth is backed by [indiscernible], where we are growing 34%. And 52% of our agri book is as well. In MSME, we are growing at 8% and MSME growth typically is backed by the ECLGS growth as well as for growth for this cluster funding or same sales loan or [indiscernible] loan or your loan or [ a CGT ] best coverage loan. So all these put together are growing at 13%. There is some degrowth in corporate lending. The degrowth is because of underutilization of [indiscernible] because of deleveraging by the corporate itself. And what we have done here is around -- last quarter, we have sanctioned around INR 16,000 crores of loan, new loans, which is reflecting in our increase in processing fees as well. And in this sector, we have basically sanctioned in [indiscernible]. Still, we have sanctioned in [indiscernible], we have seen it in textile. We are in the petrochemical sector also. So it's a credit goal. If you come to further our collection efficiencies, collection efficiency on a month-on-month as well as on a commodity basis, is improving in all segments. If you see our asset 1 and 2 that have come down, both 1 and 2 both as well as our gross NPA and net NPA also come down from -- by 13 bps in gross and 21 bps in net NPL sequential basis. Our provision coverage ratio has improved from 82% to 83.32%. So in asset quality, in NPL side, there is a price addition of around INR 3,952 crores, and this around INR 2,000 crores is corporate, which is mainly in fund account of having exposure of INR 1,821 crores. Barring this, the fleet is very less in retail around INR 150-odd crores. Some slippage in agri around -- which is mainly because of in that crop loan, where because of the COVID and other regions, that the loan could not take place. So in the time to come, we do run over there also in MSME, wherever we could not do restructuring or the units are closed or there are some problems [ in that space ]. So in all in all, if you see out of the INR 3,952 crores, if you exclude this 1 account, which was [indiscernible] and because of the coal decisions, [indiscernible] it is around INR 2,000 crores, which is around 0.4% to 0.5%. So this is regarding asset quality. But the recovery in the INR 3,952 crores over INR 3,400 crores is a recovery. So our slippage and recoveries are more or less -- more or less matching. So in all of this collection efficiency agreement, reduction in asset net 1 and 2 and improvement of asset quality or overall asset quality is slightly better than the last quarter. This is on asset quality. And as far as restructuring book is concerned, yes, we have done INR 4,700-odd crore of restructuring [indiscernible] so some amount has come, so it is around INR 4,600 crores. And in COVID, too, we had done a restructuring of INR 14,000 crores. And the restructuring is in all retail. And retail, whether restructuring is in housing, where we see the loans [ even depart ] in the less and is in MSME. And we are holding a provision of 10% against this -- both in restructuring [indiscernible] for INR 9,000 crores. So this is a restructuring number. Now coming to the P&L numbers. We see why P&L numbers -- of course, on a Y-o-Y basis, our NII has slightly come down. The reason is very simple last time because of the Supreme Court guidelines and there was no classification of NPL and therefore, there is no interest reversal. So whatever interest reversal was part of provisions. So this time since -- after March, the NP classification has started. So you see on a sequential basis, our NII has grown by 2.5% or 3%. You see our fee-based income with the opening up of the economy, our fee-based income has grown. So our processing fees has grown. Our transaction income has grown. Our [indiscernible] has grown, right? So all our government business has also slowly [indiscernible]. With the opening of economy, our fee-based income is growing slowly over this. NII too is growing. So -- and this all put together has culminated into an increase in operating profit by 11%. And slightly, there is an increase in salary overage, where we have made a provision for IAS 15 for pension payments as well as some payment for family pensions and on NPS. So there is slightly increase in that employee cost. Otherwise, these other overheads are remain more or less under control. So put together, all in all, our operating profit has grown by 11%. You see through the provisions part, there is an increase in the provision. But if you go deeper into the provision, so [indiscernible] it is coming from 2 reasons. One, we have done the restructuring of around INR 14,000 crores. So INR 1,400 crore additional 10% provision as well as this big account, NBFC account, where we have made a 50% provision. So this amount, INR 1,800 crores, 50% of that is INR 900 crores. These are the 2 reasons. Provisioning had increased the provisioning. Otherwise, we are not carrying much of a baggage with us for that. So there was a slightly increase in provision, but in all, our net profit has grown by 164%. We come to the capital adequacy point of view. We see that our capital, of course, on total, it has come down slightly, but the reason is in INR 600 crores of a Tier 2 bond, we exercise a call option which has an 8-plus rate of interest. So we have paid this otherwise in a CET and in our Tier 1, there's an increase of 11 bps. And if you add that INR 2,000 crores of profit of the current half year, it will increase [ 75 bps ] in the capital adequacy, so it will cross [ 15.8975% ] to [ 15.63% ], which is one of the highest in the industry. So all capital side, we are more or less [ steadily capitalized ]. So all -- if I put together all these things in one by one, the growth in RAM is 13%, so which is 60% going forward. Going forward, we find that [indiscernible] credit growth should remain between 8% to 10%. So the 60% came -- may come down to 59%, 58%. But we'll continue to focus on this RAM factor. And in the deposit side, we'll raise the deposit base on that based on the [ unit base ] on the lending. So some of the deposits we have utilized for increasing our [indiscernible] numbers. So INR 3,000 crores or we have added in the [indiscernible] because the margin there is better as compared to others. This is some end substance on this quarter. So I'm open to questions.

[Operator Instructions] First question is from the line of Mona Khetan from Dolat Capital.

So my first question is around the restructured book. You mentioned of RP 1 of INR 4,600 crores and another INR 14,000 crores under resolution plan 2.0. So is there any overlap between the two?

Madam, restructuring has basically 3 components. One is a tranche 1 and a tranche 2 for SME restructuring, RP 1 and RP 2. So there is an overlap between the tranche 1, tranche 2 in MSME as well as RP. But there's hardly any overlap between RP1 and RP2.

Okay. And then saying SME, you mean the non-COVID MSME restructuring that we had of INR 4,400 crores?

So the other part of this is overhead in COVID too.

Okay. Okay. So if I have to look at the total restructured book for the bank, I should only be adding 1 and 2. And excluding the MSME restructuring of INR 4,400 crores because that's already an overlap to 2.0.

Entirely, it's not overlap. So 1 and 2 plus given [ INR 8,500 crores ] or so, so around INR 20,000 crores growth in input, so which is around 5%.

Okay. So total restructured book, including COVID and pre-COVID MSME restructuring, should be, say, about 6% of your book?

So around INR 20,000 crores, say, about 5% of book.

Okay. Okay. Okay, yes, INR 20,000 crores?

Yes, we are holding a provision of 10% there, I guess.

Sure, sure. And the second question was how much have we provided against the share exposure?

Presently, we have provided 50%.

Okay. And your restructured book is very large at around 5%. So how much of slippage could we eventually expect from this so-called building?

When you see this book of INR 20,000 crore, INR 7,000 crores is the retail, which is mainly in housing. So we don't see any loans departing this portfolio because housing already a margin of 25% or 30%. And second is around a INR 3,000-odd crores is a corporate. There are 2, 3 corporates out there. So presently, we are working okay. Remaining is in MSME sector. This is in MSME sector. If you see the fund we have restructured for INR 4,750 crores has come down, [indiscernible] come down. So people are paying also. It is for that not paying also and if there is a degradation from that, we have adequate product. Presently, [indiscernible] year 1, 2 and now this additional 10%, so liquidity is available with these MSME, our economy has opened up and so these companies, they even survived in the COVID times, so we don't see much of a risk there.

Okay. And of the INR 7,000 crores...

Ma'am sorry to interrupt. But for any follow-up, may we request you to rejoin the queue, please. The next question is from the line of Gaurav from Bowhead India.

So you helped us with the overlap between RP 1 or RP 2 and understand the restructuring. Following on that, you have disclosed SMA 1 and SMA 2 also. So will the -- is there any possibility that the restructuring numbers have some overlap with the SMA 1 and SMA 2 also? And if it is, could you help us with that number again?

Sir, always SMA 1 and SMA 2 restructuring only will be there because SMA 1 and SMA 2 is our overall book, right? There's always be. There's always. So on a daily basis, this overlap and calculation of this overlap overall [ will be built up ].

But let's say, as on 30th September, you have reported INR 22,000 crores of SMA 1 and SMA 2. And then you have INR 20,000 crores also of restructure. So even a broad idea would be very helpful. I understand that these changes on a daily basis. But if I were to pinpoint it or like, say, on 30th September, so what would that overlap be?

One thing I want to add here because it was COVID too restructurings we have done in the last quarter. So greater part of outstanding is taken care in the restructuring. So if there is overlap, it will be very less. It is very less because it has done in the last quarter, September quarter only.

Okay. So I should consider SMA 1 and SMA 2 broadly over and above 30th September. Hello?

Yes, sir.

So I should count SMA 1, SMA 2 of INR 22,000 crores over and above the INR 20,000 crores restructure. Is that what my understanding should be?

Yes. Maybe from the COVID one, they can be. It can be.

Sir, if you could just help -- maybe you don't have the data right now, that's okay, but we need, sir, a [indiscernible] help us with -- yes.

[indiscernible] the SMA 1 and 2 is [indiscernible]. So around 5.5% or 4% there, right? But overlap number we'll provide it because when we [ call it burn, there can be ].

Okay. And sir, now on this restructuring, like for other banks whoever has come to detailed so far, we are not seeing this kind of quantum of restructuring in India RP 2. And also in retail housing, like for us is 2.5% of the retail book. So sir, could you help us give some more clear why it is so high in RPA?

And basically, in retail, it is -- yes, in housing and all, because we have encouraged other [indiscernible] to our customers because of COVID. COVID Is a once in a century event and that RBI has also come out with this guideline. So that is how we have done the restructuring of the book.

And sir, in corporate, do you have any accounts which where you think that they could be problematic in the next 1 or 2 quarters? Like we have already provided share that over a share of any accounts where you think the position this.

Maybe some of those was small, exclusive, but not a big amount. Not a big amount.

Okay. And sir, just last question. you have reported your...

[ INR 50 crore ] account in there, but not a big amount.

Okay. And sir, just last question is, you have given your rating disclosures on Slide #18. And in that, you have BB and below of INR 35,000 crores. So that is around, again, 8% of your book. So this should -- so can you give a breakup of this INR 35,000 crores? Like how much would the government accounts in this or any color because it's a very large amount for you?

[indiscernible]?

Yes. On Slide #18, sir. Slide #18.

[indiscernible] Do you have a breakup of this?

INR 25,000 crores [indiscernible].

INR 25,000? To my mind, majority of these accounts are basically government guaranteed or a PSU account.

Roughly 24,000, 25,000 [indiscernible].

Better part is basically backed by government [indiscernible] that number will provide or maybe the CRE exposure. Where we are having this LRD and all.

Okay. Sir just to -- I just wanted to correct or understand correctly. So will be below INR 35,000 crores, or are you saying [ INR 25,000 crores ] would be backed by government [indiscernible]?

Yes. A major part is typically to the government [indiscernible] major part. [indiscernible].

The next question is from the line of Himanshu Taluja from Motilal Oswal.

Yes. First need one clarification. What is the recovery we have made in the DHFL account?

INR 600 some odd crores, sir.

Under INR 610 crores?

How much is recovering? 206, sir.

Sorry? 206 crores?

INR 610 crores.

Okay, sure. And then secondly, what is your slippage guidance for the second half or maybe over the full year? And similarly, what's the recovery you expect?

We see our recoveries INR 1,800 crores in that of 2 quarters. Hence, we are having a INR 70,000 crores of NPA book. Of this, around INR 22,000 crores is an NCLT book, right? So we expect a recovery both from this as well NCLT book as well as some other accounts close to INR 4,000 crores.

Okay. For the second half. And what is the credit cost? Sorry, and your [indiscernible].

Most of our credit cost is around 2%, so it should be less than that because the major provision has come, I've already told you.

The next question is from the line of Ashok Ajmera from Ajcon Global Services.

Can you hear me?

Yes, sir. Yes, sir. Everything's fine.

If you see the performance of the bank is very good. Even though you have taken up the charge recently, but otherwise also the things are looking very good in this time. Having said that, because on all the parameters of the property and other things, there are only few information point and few concerns about the higher slippages, number one. Number two is that the credit growth, which we are talking about 8% to 10% and with a major focus on RAM. Well, everybody is sharing it for last so many years and now people are going for a 6.4% interest in some banks, even the big corporates going to even below 5%, below 4%. And today, only the PNB has given the kind of the results where the margins are under great pressure. So how do you see yourself there standing in that position, sir?

Yes. Because we are in the [indiscernible] surplus liquidity, the pressure is on the interest rates. So in the given situation, we have 2 options, 2 or 3 options. One is to reduce our deposit costs. So you might have seen in our presentation that we reduced our deposit cost. Second one is to grow more in retail where the pressure is less, and that is why we are growing in all the sectors in the degree backed by [indiscernible] that the margins are better. in the retail, slightly better. And that is why some reduction in corporate. But going forward, the margin pressure will be there in excess liquidity with a growth of 13% in brand sector, we will be able to have a -- protect our margin issues at 2.8%, 2.9% estimate. So our margin will be between 2.8% to 3% also.

Sir, in case of the Srei and DHFL, you have given reply to some of the other people who have asked the questions. I would just like to say that 50% of the provision which you have done in Srei, what was the total outstanding of that account?

It was INR 1,820 crores.

Okay. So INR 910 crores is provided for there?

Yes. And that is why [indiscernible].

Yes. And -- no, but then the benefit of DHFL, which has come in, which according to you are INR 610 crores, is it comprising of both the bond and the cash or this is only the cash recovery?

Both are both.

So sir, what treatment has been given to the bond? Have they taken in the security or you've taken it directly at full value?

So we have provided the investment. It was discounted. [indiscernible]. That was the MTM on the day of the listing itself, and we are probably totaling INR 80 crores on that.

About 300, if the bond was -- I don't expect, but maybe around INR 300 crores. So INR 80 crores has been provided on that?

Yes, yes. Reported in INR 80 crores.

Okay. Sir, your view on that again, on the advances I was asking. Are you now, again, started looking at the -- some good corporates and in those areas where the construction loans are credit -- onward created through the NBFCs? And are you again looking in order to increase your advanced growth in those areas?

In -- we have sanctioned around [ INR 50,000 crore ] loan in last quarter, mainly in the area of steel, cement, textile. So we are open for all kind of businesses. And focus is also getting shifted to mid-corporate. So the sales of tickets -- while the ticket sales is INR 25 crores to INR 35 crores, barring that not much negotiating [indiscernible] with that, but the ratings are equally good. The focus has been shifted to the [indiscernible]. We have put on GM for mid-corporate to increase our mid-corporate, the margins are better.

Mid-corporate, you count from INR 50 crores to INR 150 crores or INR 100 crores to INR 250 crores?

INR 25 crores to INR 150 crores. So in this [indiscernible] margin.

Yes, of course. And sir, will you elaborate a little more on the slippages of INR 3,952 crores? In addition to the -- what is Srei is. Which are the other big accounts in this?

INR 1,800 crores on this account and INR 200 crores [ on another ] project. The remaining [indiscernible] account. There are 3, 4 accounts. In retail, it is around INR 150 crores, sir. And agri, it is INR 983 crores, and MSME is INR 746 crores.

Okay. So agri and retail may not be that big a thing. I think you should come back to order in the near future?

Yes, sir. It should. It should. So given the pressure was on this provision is on account of this big account and the restructuring will not be there in the time.

Yes, sir. And sir, we are taking every quarter the credit for income tax. This quarter also INR 361 crore credit has been taken. Can somebody explain me what is your total income tax calculation? How do you calculate? And how long these credits are going to come in the next 2 quarters also or not?

Actually, this income tax calculation is nothing, sir. Whatever the carryover losses as well as [indiscernible] was there, that benefit is available to us. So that benefit we are taking on a quarterly basis. And here, we are making some [indiscernible] provision for NPAs and all because this is an allowable reduction. So this benefit will [ get later on ]. So that is why we are crediting as a tax and creating a DTA from that.

So how much of the carryforward losses are left now from another bank for in future to take benefit of in amount terms?

That amount will [ make it later ].

Okay. No issues, sire. Sir, on this, there is one last thing, just a small observation. There is a loss of revaluation of the investment of INR 153 crores in this quarter. Can you give or throw some light on it?

[indiscernible] the RBI changes the guideline. When RBI says earlier this loss on the valuation used to come out of the provisions. It is coming as a part of other income. So you [indiscernible] majority of the banks is a part of other income. That is the thing, but a realignment of regrouping of the [indiscernible].

Okay. Sir, lastly...

Mr. Ajmera, sorry to interrupt, sir. But for any follow-up, may we request to rejoin the queue, please? The next question is from the line of [ Rabo Zhatia ] from [ HNI Investment ].

Congratulations for a good resilience. The bank has always been regarded as relatively better bank among the public sectors bank. I have just a slightly different question. This issue of Indian Bank housing, it has been there in our neck since a long, long time. I guess by now, they're finally given a deadline of December 2021. So just wanted to know what is your plan regarding that? And if we are not able to finalize any plan by December 2021, then what will eventually happen? Will RBI revoke the license of that thing? Or it will force a merger with the [indiscernible]? What is the game plan here? If you can highlight some text on that.

So my colleague [indiscernible].

See, actually, even during the earlier years, we tried for some partnership, though it is having a reporting license. Certainly, it is being kept on hold. Now what's happening is we are having a very good franchisee. So we have got a very good [indiscernible] network. The issue is coming up as far as the management is concerned. So on this, we have had to come out with a clear-cut approval from the Board what extent should go it. Hopefully, with the new MD and CEO, I will be discussing it in detail, and we'll take a call before December the way forward.

So basically, I mean, as of now, pretty much, it is certain that they're going to miss the December 2021 deadline.

We'll take a view. Sensibility as of today, if you see neither we are adding any value on it or we are adding much asset on it. So it's like [ 80% ] operated. We -- what we are thinking is in case the [ banks ] are able to use the capital and build a book of INR 3,000 crores to INR 5,000 crores, then we'll be getting some value in that. Where we keep [indiscernible] the regulator a couple of years back, permission to increase the capital, [ which you could have induced it ]. So okay on all these parameters, [indiscernible] that and maybe approach the Board and take a further follow-on.

Okay. Okay. I think that's it from my side. I was just worried that what we did before was to bail out that [indiscernible] because it's all negative. I mean there's [ CAR ] and everything is negative. So that's why the question -- that's it from my side.

Just one more clarification I would like to give. Whatever the money the bank has received by way of interest only, which is interest. And secondly, one asset is done in this particular company, adding the mortgage of client is that with value operation of INR 130 crores, that has gone through the bank will gain. There will not be anything for the bank to do this transaction.

The next question is from the line of Rishikesh Oza from RoboCapital.

Sir, you just earlier mentioned that you -- the credit cost for this year will be less than 2%. So just wanted to confirm on absolute basis, can we to say around INR 8,000 crores?

It is very difficult to say in number terms. It's very difficult to say in numbers terms. But our [indiscernible] will be to bring it to 2%.

So like last year, in FY '21, we had around INR 8,000 crores to INR 8,500 crores in that range of provisioning. So like relatively, I was actually asking.

It is very difficult to take in terms of number. But [indiscernible] always need to bring to 2% or below that.

Okay. Okay. No problem. And also, sir, what was the reversal for this quarter?

So I request the CFO to please explain. So what is the net reversal?

Reversal, you are asking for provision reversal?

No, no. Interest reversal.

Interest reversal, yes.

Okay. Interest reversal, we have done around INR 320 crores income from interest.

Also just a clarification, sir. What will be our next year credit growth?

What was that?

Next year credit growth.

Next year credit growth. Presently, we are at a growth rate of 5%, right? So we are planning to have a credit growth of 8% to 10% in this current year. So we're on track where we will plan for the next year. So we would like to grow more, but everything depends on the market because of the growth in the economy now.

My question actually, sir, what will be your FY '23 credit cost?

Next year, credit cost.

Next year credit cost? This year, it is around [indiscernible]. Presently, we are [indiscernible]. So but going forward, you see what is the provision coverage ratio is 83%. Our net NPA is [ INR 12,000 crores ]. So considering this, credit cost should come down potentially next year. So it should be like...

Way below 2% and [indiscernible] that?

Yes, it should be. It should be because -- it should because we are not seeing much of a risk going forward, so really, it should come down.

The next question is from the line of Suraj Das from B&K Securities.

A couple of questions only. So you said you want to recover the INR 610 crores, and you made some provision on the bonds. So out of this INR 610 crores, can you give a breakup how much you received in cash and how much in bonds?

Yes. Any question of [indiscernible], right?

333 is bond, balance is cash recovery.

277 is cash and 333?

277 is cash, sir. And 333, bonds, sir.

Okay. And my second question, second and last question is -- so do you have any kind of nonspecific non-PCR provision? So I understand that you had 50% provision on the [indiscernible]. But that [indiscernible], so do you have any contingent buffer provision nonspecific?

We are having provision of 10% for this COVID book around INR 2,000 crores of and we are adding provision [indiscernible]. We are adding a provision for -- again, [indiscernible] provision, again, [indiscernible] specific to that number of provisions we do have.

Okay. I understand. This 10% provision is on the total outstanding restructured.

Yes. Yes. Yes, sir. Yes, sir. So we are adding provision in the standard [indiscernible].

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

So coming back on the restructured book. You mentioned about INR 8,000 crores is from retail. And the last part of question, how much could that be -- what part would [indiscernible] be of this INR 8,000 crores?

Okay. So I request [indiscernible] what part of this INR 7,000 crores restructuring is housing. Maybe around 70% prospect -- exact number.

Out of this INR 14,000 and odd...

Out of this INR 7,000 crores...

INR 5,349 crores will be home loan, and mortgage loan will be around INR 700 crores.

Around [indiscernible]. Majority of this is backed by [ political, so LCD ] will be very, very less.

Sure. And secondly, if you could throw some color on your branch rationalization plan.

So far, since amalgamation, we have regionalized around 250 branches. So you see the amalgamation of Indian Bank and Allahabad Bank because Allahabad Bank was very strong in the eastern part and central part, and Indian Bank was very strong in southern parts. So the branch complement [indiscernible] there. There are other situation that the bank entered -- there are branches nearby which is [indiscernible] in other bank like [indiscernible] where there [indiscernible] the banks for rationalization was more there. But here, basically, we were operating different territories. So there, overlapping was less, and therefore, the [ expansion ] was around INR 250 crores.

Okay. And is this done yet? Or could we see some more reduction in branches?

Yes, there is always a process. There's always a process we keep on reviewing. So some of the process [indiscernible], and we are working on that.

Sure. And on this impact of NPS and family pension. So if I'm getting it correct from your most accounts, the impact will be about INR 90 crores per quarter?

It is INR 31 crores per -- actually, this is INR 90 crores per year. Since in the current financial year, the guidelines may come later, so the current financial year, the INR 91 crores is being apportioned in the 3 quarters, because first quarter is gone. It is why we have made INR 31 crores this time. Otherwise, it will be INR 25 crores or so in quarterly basis.

Okay. Including both NPS and family pension?

NPS is fully provided. NPS, you can't amortize, only family pension.

Sure. And just lastly, on this [indiscernible] transfer of accounts. So you've set aside about INR 1,900 crores of assets that will be transferred. So is it done? And how much provisioning do we hold against it?

So this INR 1,900 crores account, these [indiscernible] accounts of INR 1,900 crores will be transferred to [indiscernible] because this has been identified by the [indiscernible] to be done, but in the first [indiscernible]. So we are having 100% provision there again and whatever we'll receive is the income for us.

Okay. And when is the transfer expected to happen?

In the current half, it will be booked. This company has already got the license. So things are moving, things are moving.

And these are not written off? Or what part could be written off for you?

Majority are written off, to my mind. So the 100% [indiscernible]. The majority of these are written, so it will come as income, and this is 100% provided.

Right. But not always do we provide 100% and also write off?

Right.

Right. As you mentioned, majority are written off. Got it.

The next question is from the line of Jai Mundhra from B&K Securities.

And congratulations first, first on your elevation to [ MBTU ]. And congratulations to [indiscernible] also who has joined in this quarter. Sir, first question is on your MSME stress quality, right? So large corporate, maybe after this quarter, we are done with. How do you see MSME stress panning out, especially when we have done the restructuring this quarter? So assuming they have, let's say, a moratorium of around 6 to 12 months, is it like that MSME shortages should fall dramatically over the next 2 quarters, at least? Because all borderline cases may have been restructured and, the remaining are reasonably healthy.

Yes. So you see that our presentation on our SMA numbers as well as collection efficiency. So you see the MSME collection efficiency, which was 78% in June, is going 92%. So the remaining are better accounts, first point. Second point, if you do SMA 1 and SMA 2 of this, so the SMA 2 has also come down in MSME. So this is -- this shows that comparatively, the remaining [ aren't better on ].

So I see the numbers there, they have been trending down only or at least they have not deteriorated. I was asking that at least on last quarter, do you have a visibility that certain large accounts you will be monitoring on day-to-day basis. But on MSME, how should one look at it? Because the restructuring in COVID 2 has been relatively higher. And on ground, the situation could be mixed. So some industries would have got back, some industries, they still be struggling. I mean some MSME industry would still be struggling. And so from a near-term perspective, how should one look at MSME slippages, which is the INR 1,000 crores plus? I mean how should we look at MSME slippages [indiscernible]?

So there is a pressure on MSME, right? Do you see the degradation in MSME book in the quarter 1 and the quarter 2 [indiscernible]? So some of the accounts have already been [indiscernible]. Some of the accounts which we see there is potential for improvement has been restructured. Remaining, there is a reduction in [indiscernible] to end up on growth number. Fourth, there is a collection efficiency into it. So you have to see in the light of all these growth trends.

Right. So I'm saying the MSME [ book ] should improve dramatically over the next 2 quarters. Is that the right way to think about this?

Look, dramatically is a very difficult word. Dramatically, slowly...

Significantly?

My point is that the [indiscernible] is giving this ECLGS at least 10% because still the pressure is there. Still, we are not out of the COVID.

Most of the units are in [ a independent ] sector [indiscernible].

But COVID happened.

Yes, yes. But INR 2,500 crores roughly was in the first quarter, which came down to INR 700-odd crores. Yes. So in the SMA 2, in the collection of [indiscernible] collection facility also it raised to 92%, and that includes the collection in a previously restructured result. So it means the overall portfolio is okay. Going forward, there will be pressure always in MSME, but it won't be that much.

Understood. And sir, you have given good details on restructuring and SME book. If I were to add them up, would there be substantial overlap? Or how should -- I mean, what is the quantum of overhead between restructuring and SME book? Or they would be negligible because all restructuring may not come under SME even if they are slipping behind?

No, no, sir. There is a substantial overlap between this number, for which [ 2 ] is restructuring vis-a-vis '21 and the '22 restructuring. So the numbers we will provide in the con call, somebody and is also [indiscernible].

Okay. Understood, sir. And the second thing is, sir, if you can talk about the expected NPA recovery upgrades for the remaining fiscal year. How do you see the run rate?

So I reflect that we have so far recovered around INR 4,800 crores, keeping in view the stock available of [ PNPA ] and realty sectors restructured as a liquidation or a resolution plan approved, we are of the view that we should get recovery of around [ INR 1,000 crores ] in the remaining half of this current system.

Understood. Great. And last question, sir, if you were to bifurcate your loan book into MCLR-linked and external benchmark-linked, that would be very helpful. And maybe the fixed and whatever the extra. I mean how much percentage of the loan book is MCLR-linked and [ EDLR-linked ]?

Our retail and MSME is external benchmarking. Remaining, the exposure on excellent benchmark is how much?

[indiscernible] around 65 to 66.

Okay. 65, 66 MCLR remaining is on external, but the other major part, [ 20 to 2040 ] is on account of excellent benchmarker. Retail is totally to be a benchmark and MSME to be an external benchmark [indiscernible].

The next question is from the line of Ashok Ajmera from Ajcon Global Services.

Sir, we have the tie-up for the core lending with the India on housing, India whole commercial IISL. Can you give some color on this core lending business that what is your total quantum under this business? And how do you see it more profitable than your direct lending? And are you aggressive in this particular area to increase your reach for the co-lending, sir?

We have just entered into an agreement with these companies, right? So specifically, the purpose of co-lending is that we are having our own limitation these NBFCs are having. They've reached to the other part of the country. So it is a win-win position for the customer. It is a win-win position for the banker. It is a win-win position for the NBFC. And based on these, RBI has come out with the co-lending. So going forward, we are developing our IT sector because the guidelines, you should have one account and we should regularly reimburse the amount to the lender. So we are working on it, sir.

So my next question comes from this only on this digital thing because in your focus areas and trust areas, with more and more strategy areas, you have mentioned digital transformation as the first area. So sir, what is exactly the plan in the digital field? Do you have a dedicated General Manager for this, looking after only the -- mainly the implementation of digital penetration? Your focus on digital products and end-to-end digital lending? And how much budget have you provided for, say, 1 year or for at least remaining part of this year for the digital and how fast you are going on this digital, sir?

It is that we are [indiscernible]. We are having a GM leading up digital separately, and we are having another GM looking after transformation because this is a transformation activity. What we are supposed to do both sides in a liability and asset, both sides, we're going to move digitally. Now for all -- for lending, we want to develop a platform where we can do a housing loan, auto loan, personal loan, consumer loan digitally. And also this [indiscernible] the number of -- because going forward, sir, you told earlier that there will be a pressure on margin. So that needs to be changed, the operating model for a bank. So we -- in this direction, we are working in the already [ floated parity ], and we'll work on that. So this is on our asset side. On the liability side, from customer acquisition, to crosses, to upsell, to bank management, to account planning, a number of things we want to do for -- in the digital side.

Okay, sir. Good to know that because the contract must not have been a lot given so far because you have just voted the RFP for that. I come back to the earlier question of the -- I mean the national asset company, that 8 of the assets which you identified for INR 1,900 crores. That is only in the first tranche. But have you done the larger exercise for the remaining part of the year because this will go in this quarter only mostly? And out of this 1,900...

Other exercises they have done for 102 accounts, right? So around close to [ INR 28 crores ]. And [ over shares on ] around [ INR 5,000 plus crores ]. We are going through this strategic account, and the account will move with that. Because this account needs to be -- then we have to do documentation, sign papers and then we transfer accounts to the [indiscernible]. So this process will go step by step, step by step.

So sir, on this INR 1,900, any idea at what valuation of 20% or 25% these accounts are going? Any calculation has been done for that?

Exact calculation is a [indiscernible], but we should get around [ 20% to 30% ]. The exact calculation in the [indiscernible] around 18%. Around 18% of...

Okay. So even if you get INR 380 crores, INR 400 crores, what cash you are going to get is only 15%, that is around INR 50 crores, INR 60 crores, which will [indiscernible] in the income. Rest all is the [indiscernible].

18% of INR 1,900 crores.

Yes. So 18%.

INR 300-odd crores.

Yes, yes. So INR 350 crores or INR 60 crores, whatever is there. So out of that also, you will get only 15% cash.

Right. Right. Right.

And remaining 85% is government guaranteed [ FSR ]?

Remaining will be guaranteed.

Yes. So that also will be taken in the income?

Why not that should be?

Because from that base, no clarity on those FRs, whether in the current year only, you can take it as a entire 15 -- anyway, I mean, we'll come back and I think...

Okay. And when the guidelines will come, we'll go [indiscernible].

The next question is from the line of Gaurav from Bowhead India.

Sir, on the credit cost you mentioned, it will be below 2% for this year. So absolute number would be somewhere around INR 7,000 crores. Is that correct? Because last year, we had -- you provided only INR 8,500 crores. So this year, if we are at...

That is the same number.

No, sir, I'm asking broad range. I'm not -- I don't want to pinpoint any specific numbers. So it can be maybe INR 7,000 crores to INR 8,000 crores. I just want a broad guidance.

Our endeavor is to bring it below 2%. It is very difficult to say in terms of amount of numbers, absolute number is very difficult.

And sir, on your employee cost, what will be the quarterly run rate that you expect? It was around INR 1,500 crores in Q1 and around INR 1,700 crores for Q2. So going forward, what kind of run rate should we go with?

Because this time, we have made a provision of INR 300-odd crores because of employee benefits [indiscernible]. So out of the INR 300 crores, around the INR 200-odd crores is a onetime item, right, to my mind. So our CFO will explain maybe in better terms. This is a [indiscernible].

Last year, our total employee cost was around INR 650 crores. So this time, though in this particular quarter, it has been on the higher side, as already explained by [indiscernible], there were onetime pension reasons why we are around INR 200 crores, INR 220 crores. So for the year as a whole, it will be less than the previous year number. It will be around INR 6,000 crores.

Okay. And what about other expenses, sir, which was INR 4,000 crores last year?

Which one?

Other expenses, other operating costs, which is -- which was INR 4,000 crores in [indiscernible].

As I explained, on a quarterly basis, it will be within the same, only INR 1,000 crores. First quarter, you can [indiscernible] increase for that.

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

Sir, how do you see the outlook for your agriculture NPAs? I see that overall, your SMA 1 plus 2 combined has gone up. And historically, the bank has had very high NPAs. And in light of approaching UP rations, do you expect any swaps? And I understand that the winter rains have also -- may have an impact on the agriculture crop in the season. So sir, what is your expectation on the NPA side? And why the SMEs have increased yet? Secondly, I wanted to understand when do you expect -- ECLGS loans were given about a year back. When can one expect any -- if there's any negative impact, in which quarter do you expect that? If any negative impact, when do the payments -- when would these loans have to make the payments back to you? That's my second question. And third one is a simple query. Did we become NPA this quarter? Or was it last quarter?

So say the NPA in this quarter because of the court decisions, account was not classified and NPA is not with us with all other banks. So to my mind, all the banks might have declared in the current quarter. So this is one side. Second question of yours was regarding the agriculture. Yes, SMA 1 is showing increasing trend in agriculture. But with the harvesting in April, the harvesting that happened, that one will come down, sir. So this is your agriculture, second question. Third question was you asked regarding ECLGS 2 and ECLGS 3. So already the repayment has started. And now the ECLGS additional 10% is being announced by the government of India and we, too, have [indiscernible] out and we have started lending in [indiscernible].

Sir, but are you seeing a trend where these payments have started off a negative impact? And would the impact us in the December quarter? Or is it too early for you to make a comment about this? Or are you seeing defaults? Just some color if we have any on this year.

Second part, these moreover, than we are giving 10% extra. So it is too early.

I'm sorry, sir?

Since COVID has announced 10% addition, 10% to 20%. So the same borrowers, same borrowers. We are outstanding is being considered 29 February or 31 March '21, and we are giving an additional amount. So it is too early to tell.

So because of the support, it's unlikely that NPAs will happen, right, in the short term because you're giving them additional 10%. So it feels that will give you some kind...

The economy has also opened up.

And sir...

MSME sector and collection efficiency is 92%. [indiscernible] collection efficiency is showing -- that shows that's not going to have much negative on it.

And sir, do you expect any impact on UP actions on your agriculture SMAs sector or the impact of the unseasonal rainfall on your agriculture NPA sector going forward?

Well, actually it's very difficult to say what part will come with what declaration. But hopefully, because of the previous experiences, now political parties are not announcing that kind of relief which they were announcing earlier. So we hope the election is at least not going to affect. And monsoon and all had been good, the crop will be good. And going forward, whatever SMA are there, I think most of that will be regularized.

Sir, 2 small follow-up questions. Was SMA 2 in the previous quarter?

Yes. It was, yes. Yes, it was. It was not declared just because [indiscernible]. Otherwise, it was NPA only. It was part of it. [indiscernible]

Sir, secondly, you said that there may be overlap between your restructured book and the SMA book. So is it fair to conclude that the company is -- which have a overlap in spite of having got the benefit of restructuring? If they are still in the SMA category, they are definitely in trouble because they've got all the leeways of restructuring...

The other part of the restructuring we have done in the last quarter [indiscernible].

So if you've done it in the last quarter, then it won't be SMA?

I said that most of the restructuring, where we did restructuring, we found the account was variable. Where the unit was close, our business were at a very low capacity level. Within the [indiscernible].

No, I understand, sir. What I'm trying to ask you was that you said there's a significant overlap between your restructured book and your SMA book. Is that correct or my understanding is wrong?

There is an overlap, yes.

Okay. Wait, regarding the RP 1, RP 2?

The RP 2, we are just restructure.

So there's no overlap as far as the restructured 2 is concerned. Now coming to restructured 1...

There can be some overlap with RP 1 and [indiscernible].

So sir, what I'm trying to understand is that if something was restructured, obviously, the principal and interest payments must have been postponed. So in spite of that, if somebody is still an SME account, that part of the book is obviously a potential NPL. Or what am I missing in my analysis?

Both accounts is in the standard now. [indiscernible]

Sir, the accounts which were restructured under RP 2 and RP 1 are presently standard. Those segments will not be very negligible or only could be a SMA -- or could not be an SMA. The ones which could be in SMA could be from tranche 1 and 2, and a portion may be from RP 1. There is a possibility. But from RP 2, it is all in standard only.

Yes, I understand. I'm only talking about RP 1. So I'm trying to understand...

Sir, we will give you a number, then only we can conclude.

As there are no further questions, I now hand the conference over to the management for closing comments. Over to you, sir.

Thank you all the analysts and the investors for taking active interest in the bank. Thank you once again, and Happy Diwali.

Thank you. Ladies and gentlemen, on behalf of Emkay Global Financial Services, that concludes this conference. Thank you all for joining us, and you may now disconnect your lines.