Punjab & Sind Bank (533295) Earnings Call Transcript & Summary

Good evening, everyone. I am Ganesh Shankanawar, the moderator for today's earnings call. I welcome and thank each one of you for joining us today for the Punjab & Sind Bank's earnings call for Q3 FY '26. Please note that this conference is being recorded. [Operator Instructions] I would now like to introduce the management of Punjab & Sind Bank. We have with us today Shri Swarup Kumar Saha, Managing Director and Chief Executive Officer; Shri Ravi Mehra, Executive Director; Shri Rajeeva, Executive Director; and Shri Arnab Goswamy, Chief Financial Officer. I would now like to hand over the conference to Shri Swarup Kumar Saha, MD and CEO of Punjab & Sind Bank for the opening remarks, after which we will have the forum open for the interactive Q&A session. Thank you, and over to you, sir.

Thank you, Mr. Ganesh, and good evening, everybody. I welcome you all on behalf of Punjab & Sind Bank to the Q3 analyst conference call for FY '25-'26. The results were declared on 17th of January and the results were also uploaded in the website. I'm very sure that most of you have been seeing the presentation and the bank's results. However, just to keep a brief snapshot of the highlights of the performance of the bank for Q3, I would like to mention the following: The total business of the bank stood at INR 249,499 crores and we have shown a growth of 11.75% Y-o-Y. The deposits growth was 9.27% and stood at INR 139,202 crores. The advances grew by 15.05% and the same stood at INR 110,297 crores. In spite of the challenges of the CASA in the entire system, the CASA deposits also showed a moderately handsome growth of 8.78%. However, one of the other important component of the liability resources, the retail term deposits has been growing at a very, very handsome rate and for the quarter ending December '25, the retail term deposits grew at 18.34%. In terms of the operating and net profits, the bank's operating profit for the quarter ending December '25, grew at 22.73% and stood at INR 594 crores, and for the 9-month period, it grew at 30.18% and stood at INR 1,639 crores. The net profit for the quarter increased by 19.15% and stood at INR 336 crores and for the 9-month period, it increased by 28.02% to INR 900 crores. The NII grew at 5.01% for the quarter and 6.57% for the 9-month period. What is significant is that we are paying a lot of focus on core fee income, which excludes the treasury and the recovery in write-off accounts. And that traction continues to be positive. And for the quarter end at Q3, the core fee income grew at nearly 29% Y-o-Y and for the 9-month period, it is around 19.33%. Overall, the noninterest income grew at 50% Y-o-Y and 51.52% for a 9-month period. The NPA -- the asset quality continues to be significantly improved. The gross NPA now stands at 2.60%, and it shows a decline of 123 bps Y-o-Y. The net NPA of 0.72% which is as per our guidance, given that we should bring it below 0.75% and we've already achieved that guidance in December, and we have brought it to 0.74%, which shows a 51 bps decline Y-o-Y. The PCR continues to grow. And here again, the PCR on a Y-o-Y basis has increased by 270 bps to 92.23% with TWO. And without TWO, it has shown a significant improvement of 408 bps to 72.28%. The slippage ratio continues to be at a moderate level of only 0.16% and it continues to decline. And the credit cost also is at a low level of 0.05%. In terms of the other parameters, as far as business is concerned, as we have been interacting with you for the last few years, we have been said that we would like to focus on the increasing the retail agri MSME segment. And here, again, in the December quarter, we were able to show a consistent performance in this segment, and it grew at 21.94%. The percentage to the total advances has now improved 57.45%, and we expect that this percentage will gradually go up and by the end of March '26, we should be at 60% next year for the guidance, which we have kept for this growth of RAM percentage is 70% for the year '26-'27. So we will continuously work on this on the various segments as you have most observed in terms of the individual segments also, the retail has shown a growth of 19.58%, agri of 24.29% and MSME of 22.94%. So all around in all the 3 segments, a healthy growth and a consistent growth. In terms of the capital adequacy, the bank continues to be -- have a good capital adequacy of 16.83%. If you add back the 9-month profit, which we have not added so far as pronounced. If we add back the 9-month profit, it is at 18.01%. So it's just 18% overall which shows that the bank continues to work on capital optimized growth. In fact, the credit risk-weighted asset density, which we call RWA density has also shown improvement from 61.18% to 58.64%. So overall, we believe that we'll continue on this capital optimized growth going forward as well. Cost-to-income ratio has also declined 373 bps Y-o-Y and stands at 60.84%. Return on assets is at 0.79%. We'd like to take it forward. But we -- at the end of 9 months -- 3 months, we are at 0.79%. We'd like to take it forward going forward to around 0.80%. So these were the -- some of the numbers in terms of the efficiency parameters. Our -- if you observe our -- that the progress in the operating profit and the net profit of the bank continues to have a steady growth in terms of the operating and net profits. If we look into June '23 onwards, the -- there is an uptick and every year on the quarterly operating and net profits. The other areas of what I'd like to -- in terms of slippages also, we find that the slippages also continue to decline overall. And of course, we have the significant -- we had a retail slippage of INR 34 crores, agri of INR 39 crores. MSME on a Y-o-Y basis slightly increased INR 94 crores, but we don't think that's a very worrisome area. And overall, the percentage gross NPA among the 3 segments has also shown significant improvement. In terms of the SMA-1 and 2, while the sequential -- sequentially, the total amount of SMA-1 and 2 has shown an uptick, but these are the primarily the 2 state government guaranteed accounts, which we have also adequately provided for in our internal books as a standard, but it is backed by state government guarantee. We don't foresee any immediate delinquency situation. But however, we -- as a precautionary measure, and as per the norms, we have significantly provided for in these 2 state government guaranteed standard accounts. Finally, as far as the futuristic outlook, we continue to focus on branch expansion, expanding our delivery channels through branches, brick-and-mortar, BCs, ATMs. We will -- we have also built -- we are also now decentralizing more and more for in terms of operations. We have new -- 4 new zones were opened during the year, then zonal offices, another 4 zones are planned for the next financial year. We have now 2 FGM offices. We intend to increase it to 5, increasing another 3 and also expansion of BCs further to around 6,000. In terms of the other areas, which are very important for any bank institution today, innovation. We find that our digital journeys have streamlined. In fact, the digital home loans during the quarter of December, 40% share of the total housing loan sanctioned was digital E or digitally assisted. Similarly, for the digital car loans, 54% share was total vehicle loan that was sanctioned was either through digital STP or digital assisted journey. So that shows that it is picking up. MSME loans, we have just launched, so it will take a bit of time to traction, but we find that initial signs are very encouraging. In fact, we also now launched the digital rooftop solar and a scheme under STP journey and also the digital commercial vehicle loans. And by March, we'll have a host of other new digital journeys on personal loan, gold loan, self help groups, mutual funds, secondhand car finance, education loans. So these are all lined up at very advanced stages. We expect that by March '26 most of these will be actually implemented, a bit of 1 or 2 areas may spill over to Q1. But overall, the traction is that we will continue to focus on smart delivery of our products from the bank side. In terms of the customer protection, we all know that we are living in a very dynamic world. And therefore, we need to create multilayer defense to protect our customers in terms of cyber-related frauds that happened. So we have taken lots of host of measures. We have integrated with i4C, Mule Hunter, the Enterprise Fraud Risk Management Services also has been activated and much more and more activities are happening in that as we learn from the system. The FRI/MNRL of the negative list of mobile numbers for enhanced due diligence are also be worked on. So we have been very, very conscious of the fact that we need to take all the mitigants that are required to protect our customers in various forms that are happening in today's ecosystem. In terms of future, of course, a lot of technology-driven interfaces are getting created for customers and also for bank staff through various AI-generated chatbots. I think these will all play its role going forward. And with excellent CRM solutions, the audit systems have also brought in a lot of value to the bank, the security operation centers are also getting upgraded. The CASA back office is one of the very important thing that the bank has taken important step. There are a lot of news items float around the new account process. So we had earlier announced that the savings accounts have been integrated. All the savings accounts were getting opened through activation from the back end, where 1 lakh accounts have been opened through that. That's the only channel of the branches to open. And now the current account and the nonindividual accounts opening has also been made live recently. So we hope that by these robust measures on opening accounts and customer acquisition, a lot of much more due diligences will be made. The activations will be done at the back end, which is through a centralized software system, and we expect that going forward, these sort of risks that we carry in terms of the challenges of ecosystem will, to a large extent, get mitigated. However, we never can be complacent. We need to continuously upgrade our systems and processes to mitigate the emerging operational risks that are coming. ForEx businesses is also under pipeline, the centralized ForEx division is at a very final stage to be -- centralized ForEx trade finance solution is in a very advanced stage. By March, we intend to complete the project and take the bank in the next year to a much more -- augment to increase our ForEx business. In fact, we have also approached RBI for the GIFT City and approvals. We hope -- we are hopeful that we will get it sometime. But at the present point, what matter is that we have requested RBI for the formal process to give us an approval of the GIFT City. So if that is done, I think the bank will also get a lot of opportunity to do ForEx business sitting in India. A lot of other initiatives also being planned in terms of operational cost management, CRM-led generation, AI-driven features, mobile apps, et cetera, HR initiatives have also been taken to a very -- I think when I joined this bank, a lot of questions came from the analysts that how are we building capacities. And we are now in a position where we have got the state-of-the-art processes to do this manpower, not really manage them, but also skill, risk skill and risk skill them for their -- through various tools -- scientifically device tool. So we have made it in 2 phases. The first one has been implemented. And the second phase is under implementation, which takes -- the second phase particularly focuses on learning and development. I think that would be the key. The first part was on performance management system, target settings, appraisal tools, et cetera, manpower assessment, succession plan. All these are primarily the first phase that has been now done. Now the second phase is getting implemented. I'm very sure these will all get -- it will give benefits to the bank in the going forward. A lot of various products have been introduced. And finally, if you come to the achievements of the bank, vis-à-vis the guidance that we have been given. I think we have summarized the guidance in the last slide, and we find that overall, whatever targets that we have set for in terms of the financial year, we are all in track in all we have achieved in most of them and also in track in the gross NPA, which we are already at 2.60%, and we are very sure that we are going to bring it to below 2.5% very shortly. So thank you for -- very much for your patient hearing. Now we can open up the floor for the discussions. Thank you.

[Operator Instructions] Our first question is from the line of Ashok Ajmera.

Yes. And congratulations Saha sir, Ravi sir, Rajeeva sir, all the management and the other management staff and the staff of the bank for a good quarter, a very good results in this quarter. If you talk about the operating profit also has gone up, the net profit also has gone up, a good growth in the credit also in this quarter of 4.48%. So on the whole, it's a very good quarter, and my compliments to you all for the same sir. I've been said that sir, I've got certain observations, some queries and some clarifications. So my first question is on basically on the overall business and the -- especially the credit and deposit growth. Now whereas the deposit is at 7.26% in 9 months, and targeted to be around 8% to 9%, 8% to 10%. Our credit growth target is 15% to 16% out of that 10.73% we already achieved in 9 months. So with this kind of difference in the deposit growth and the credit growth, how are we matching the -- our ambitions going for large credit growth of 15% to 16%? This is my first question, sir. If you can just a little bit elaborate on that, though your opening remarks were very, very -- I mean, you elaborated everything, but some of these questions need some more clarification, sir.

Sure. Yes. Thank you, Mr. Ajmera for your kind words and a very appropriate question that you have raised in terms of the mismatch between the credit and deposit growth. And you have rightly pointed out that our credit growth is a bit higher comparatively to the deposit growth. Having said that, you'll appreciate that in terms of the -- in the present situation that what we are in at this point of time, our CD ratio is around 79.24%. And what is interesting here is that, while the pressure on the CD ratio may look a bit challenging in terms of managing the overall outlook of the bank's business growth. What I would like you to focus on is that though the total deposit growth is a bit less, our retail term deposit plus CASA is -- sorry, the retail term deposit is growing at around 18% plus. And overall, the credit growth, we are aligning around 15% to 16%, right? So -- and also, we are trying to -- in terms of the various dynamics of the ecosystem to protect our margins as much as possible. We are also very conscious of that. And we are trying to do a dynamic what we call strategically and dynamically, we are trying to monitor that how do we fund credit in terms of the various resources that we have. So one of proposed that deposits is a very important resource for funding credit growth. So what we are trying to do is this is our LCR average -- liquidity coverage ratio. We feel that if we are able to handle -- maintain, sorry, maintain a comfortable LCR, we can have a leeway in terms of the increase in the CD ratio so that we don't get choked in terms of our business projections. So therefore, we are doing a very calculated methodology of trying to fund our credit growth. We are not -- because as the last quarter comes, the interest rates are getting hardened now, both on the -- while the retail, we have taken a lot of steps. We have rationalized our deposit interest rates, our savings bank interest rates. So these are some of the steps we have taken to maintain the margin. But going forward, we'll take a very quarter-on-quarter analysis. How do we handle this situation of the adding of rates on one side and also the impact on the repo rate cuts that Reserve Bank has been done -- has done continuously. Overall, at the end of it, what I can summarize my submission is this. We don't feel any challenge in terms of funding our overall credit growth. And we expect -- we are very comfortable -- confident that we will be able to maintain the guidance that we have been giving you. But on a quarter-on-quarter basis, these things will be monitored going forward.

Yes, sir, the point is taken, sir, but with a low NIM of 2.59%, I mean it is continuously coming down. Which alternative source you feel can be cheaper than the deposit or CASA so that you can protect your NIM also at the same time, growing the advances to this level. So what are your views on the NIM going forward with this alternate method with dynamic methods, which we are using to raise the funds and maintaining the LCR above a comfortable level of, say, 120 or so. So how do you -- means from where do you get the cheaper -- access to the cheaper fund than the normal deposit, sir?

Yes, point well appreciated. If you see, there are 2 things here in the dynamics of the ecosystem. While it is very difficult to really get a substitute of a CASA and -- which is the low yielding -- the low-cost resources. And the only option for us as deposit is very important is to go strongly on the retail term deposits. So that let's say we have also done a lot of changes -- while we are growing at 18%, what I'm trying to tell you is this that in spite of the challenges of the deposit mobilization, we are still growing handsomely at 18% in spite of lowering the rates in the deposit buckets -- and various deposit buckets. But the point to be what we have to -- in terms of the NIM, if you see that in spite of the significant reduction in the repo rate cuts by the regulator, we still in the December quarter, we were still at more or less at the level of September quarter. So that shows that the NIM going below a threshold there has been -- we expect that it gets bottomed out by the end of this quarter or maximum up to the end of -- by the next quarter. And the alternative is -- and the alternative is this that we price our products and we go into the segments of the asset side where we can really get a margin of 3% and 3.5% -- 3% to 3.5%. And if you see our dynamics of our rating -- credit rating, external rating [Foreign Language] portfolio, you will find that we have moved from the AAAs to the AAs. And overall, we are keeping the balance well. AAAs were at one point of time was 19.49%, it is at 16.60% now. AA-rated was 22.38%, now it's 26.43%. So this is where we create a room for us. And also, as we increase our retail, agri, MSME growth, now you find that earlier in our bank the agriculture was not growing at any rate, which was to be posted above. Now you find every 3 segments, retail, agri, MSME, all the 3 segments are growing at tandem with each other. And these are the areas where we find that the margins are still possible. In the corporate world, we will not be able to compete with a low CASA base. It is very difficult for us to compete in the corporate world in terms of pricing of the good rated accounts. In fact, we have let go around INR 3,000 crores of corporate -- we have shed INR 3,000 crores of corporate loan book just because we didn't want to provide a repricing at a rate, which is not convenient to us. So we have let go those. But in spite of that, we are still growing our corporate book at a reasonable rate. So how do we balance our portfolios will be very, very important. And -- but this is a challenge. We will like to overcome through our various -- so that's why we are saying that as we increase our retail, agri, MSME to 60% and maybe from next year, to a very, very significant level of 70%. These dynamics will play out very, very solidly in favor of the bank in protecting the margins.

Yes, sir, taking the -- this your point forward of rating and getting a yield, a higher margin on the advances. What I see is that in NBFC and gold loan, there are greater opportunity at the time of -- at the same time, a good security also. But when it comes to the NBFC, we are still on A, AA kind of thing, where there is a small business, NBFCs, which are even BBB- -- also BBB- also, but their business is very, very secured. They are giving to low-cost housing, average price is INR 5 lakh to INR 7 lakh and not a single default and other things. But at the same time, we get very good returns. Maybe the interest from 9.15% to maybe 10.25%. So that those kind of strategies should be relooked. It should also be looked at similarly for the gold loan also. I would just like to know the composition of NBFC and the gold loan and gold loan also, how much is the agriculture and non-agriculture and the kind of yield we are getting, sir?

Yes. So first of all, from your first point is regarding the -- taking exposures in the NBFCs with a lower credit rating. We will take your feedback, and we'll look into that strategically in-house to see whether what we can do. I think it's a fair point that you have raised. And regarding the agriculture -- gold loan portfolio. I'll request Mr. Mehra to comment here.

Overall -- with regard to overall gold loan portfolio of INR 4,800 crores, INR 1,700 crores is through co-lending and out of the INR 1,000 crore in agriculture. And with regard to the yield in gold loan, somewhere around 8.85%.

How much, sir? Can you repeat it?

8.85%.

8.5%.

8.85%.

8.85%. Very well, sir. So that's what only I'm saying, sir, that in case of even some of these lower NBFCs where with the secured business, also you can get a very good margin and can increase the profitability back. So having said that, sir, now you -- in the segment results sir, I just -- I was looking at the segment bifurcation because of this high profitability in the corporate book and the retail book up to INR 69 crores, INR 390 crores overall was coming was INR 863 crores. Out of that, unallocated expenses of INR 270 crores has gone for the first time so high as compared to INR 50 crores, INR 70 crores unallocated. So what happened this time that unallocated expenses has gone up to so much of INR 269.58 crores, whereas the segment-wise profitability, if you individually look at treasury, corporate, retail book and retail banking, then it is INR 863 crores.

We'll reply. I think if we look in that, it's a fair point, and I'll just look into it. My CFO will inform you separately on this matter.

Arnabji will explain. Okay. Sir, my last question in this round is basically that the government account, like you said that 2 state government-backed, first SMA-1 and then part that SMA-1 and SMA-2. And you need not worry and you have made some reasonable provision also. But is that those accounts are going to slip finally as per the IREC norm in the NPA category or before that only they are going to be resolved.

See, these are systemic accounts. First of all, as of now, we don't foresee the accounts getting delinquent, number one. And I can also tell you, if they do so at any point of time -- at present, we are having more provisions in a standard account than it was required in a substandard account. So we have built that cushion already, okay? So -- but we don't foresee those accounts because in one of the accounts, we had an exposure of INR 1,500 crores, exposure has come down to INR 1,000 crores. Another account, we had an exposure of INR 1,200 crores, it has come down to INR 627 crores. So repayments are coming, albeit at a -- not at a space that we like to have. But we don't foresee any immediate delinquent -- delinquency in these 2 accounts.

The next question is from Sunil Choksi. The next question is from Jaya Mundhra.

Congratulations on a steady quarter, sir. Sir, I have a few questions. One is, sir, this quarter, we had a stable NIM almost and negligible credit cost. But still, the ROE is below 80 basis points. All other banks, they are now well -- they're very close or higher than 1% ROA. I think in this quarter, we had a negligible credit cost and still we are far off from 1% mark. Of course, it is a journey. It will -- it may take some time. But I wanted to know, sir, do we have an aspiration for 1% ROA? And how soon can we reach there? Hopefully, the NIMs will expand and credit cost may not be negligible, but I do not see any problematic thing on credit cost. So in your assessment, when can we reach that 1% threshold?

I think Mr. Mundhra, I think, excellent question from your side and very, very appropriate also. You have actually -- already discussed how we have maintained the September quarter. The ROA part in net profit actually. Yes. So now do you want coming to the point of your ROA, see, ROA is a component straight away from the net profits. What we have been building, and as you rightly said, that it's a journey. We would like the bank to move in a very, very steady and a very strong footing in terms of our efficiency parameters. So there is a lot of cushion being built up in the balance sheet in terms of our -- managing our portfolios. In fact, as we said -- as I said that in terms of the standard account provisioning, we have a ECL framework coming up in future. So we are building up in one of those 2 guarantee -- state government guarantee, we are having provision of 30%, one of them is at 20%. So we are providing more than required, number one. We also see our increase in our provision coverage ratio is also increasing. And we have also built up cushions in that. We are now -- our aging provisions are as extended up to October '26. So we are building that we should be ahead of this at least by 6 months in terms of our aging. Why are we building it? Your question would be what was the even the credit cost is low? What is pushing the bank to these sort of strategies? We are doing it very consciously Mr. Mundhra, first of all. And we would like that the banks, whatever assets that we are having and any semblance of stress in some form or the other. So we feel that -- we have a lot of other standard assets. We are in another standard asset from -- which is a technical NPA, we're running provision of more than 80% in that. So all this and we don't have too many of these accounts. But whatever we have because of the size of the balance sheet is small for INR 1,000 crores of one corporate. And if that goes bad, it can have a massive impact on the overall scheme of things of the bank. So we are building it steadily. And in terms of the futuristic ROA guidance, we think that ROA of 1% is surely possible by the end of March '27.

Sir, if you see in this quarter, you have made excess provisions. And all along, you have been, let us say, making some extra buffer. But sir, this quarter, the credit costs are negligible, right? It may not become negative, right? Because -- so I was under the impression that if credit cost is negligible, still ROAs only very minor uptick. Yes, it's minor uptick. I'm saying over the next 5 quarters, even if ROA -- I mean if asset quality remains steady, but the credit cost will not fall down below this level, right? So credit cost is not a lever any more from this quarter perspective, all you have to do is either improve NIM or fee or OpEx?

Absolutely, you're absolutely right. Yes, fee income -- fee income, if you see, as I was saying, the bank was not doing well earlier in fee -- in core fee income. Treasury and written off, of course, recovery write-off, they also contribute quite significantly. But those are also part of market dynamics. We are more concentrating on the areas other than these 2 big noninterest income method. So our core fee income continues to increase. A lot of stress has been -- has been given for -- to stop revenue leakage to promote third-party products, to increase nonfund business. Our -- and whatever in fact, yes, in fact, in this time, we have also been able to generate some additional income through our sale of PSLC -- the PSLC component, we have contributed INR 25 crores -- INR 21 crores in this quarter. So now with an agriculture thing picking up -- the portfolio picking up, we think that we have a lot of scope for increasing the more -- getting more and more income through these sort of methods. In terms of futuristic planning, we are now -- we are going to very shortly remit supply chain financing. We are going to have cash management services by June. So wherein some of the banks are generating lots of fee income through these methodologies. So I think your point is absolutely right. We need to improve NIM. And that's why I was talking of how we churn our assets book into the various segments, and also increase our fee income to that. And hopefully, with -- supported by a good -- sometimes good or sometimes moderate treasury performance because of the market dynamics and good recovery. And our slippages continues to be less and less, but our recovery in NPA accounts continues to be a lot of focus as it continues to be given. So in this quarter also, we expect around INR 250 crores to INR 300 crores of recovery in the written-off accounts. We expect that. And if all that materializes, this will not add value going forward in our overall scheme of things. So we will focus on getting -- generate more and more NII, NIM and other income on various sources.

Sure sir. And sir, are you also -- have you migrated to the new tax regime or that is you're still on the old earlier tax regime?

No, not yet. We have taken away -- we have covered all our accumulated losses. So we will look -- now the time has come for us to look into this subject. And maybe going forward, we will be -- still not migrated . We'll look into this. Yes. Now we have come to that situation.

Sure, sir. And secondly, sir, on gold loan, right? So there is a 100% Y-o-Y increase in the gold loan. Is there any reclassification that in the sense that earlier you were having retail gold or agri loan, which has now reclassified from agri to retail or retail to agri or these are all -- I mean, like-to-like sort of a number.

Yes, Mr. Mehra will.

Actually, the gold loan growth is there, but I just informed that we have done the co-lending part as well for gold loan. First time, we have done it and INR 1,700 crores because of growth that is there. And then there is no reclassification among these 3 sectors in the gold loan.

I think Mr. Mundhra, as far as retail and agri classification, that's the dynamic. But overall, what I'd like to say is that the portfolio as such is growing both organically through our branch network and also through our co-lending platform. Our co-lending has been doing exceedingly well. Our experience has been excellent so far. So we will promote more such models of financing, both organically and inorganically. And so far, I think the quantum jump that you see are contributed by both the segments, both on the branch side and also from the co-lending side.