The Karnataka Bank Limited (KTKBANK) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Karnataka Bank's Q4 FY '20 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I would now like to hand the conference over to Mr. Aalok Shah from Monarch Networth. Thank you, and over to you, sir.

Yes. Thanks, Janice. Good evening to all. On behalf of Monarch Networth, we welcome you all for Karnataka Bank's Q4 FY '20 and the full year FY '20 results. To discuss with us about the results and the future outlook, we have the -- entire of the management team of Karnataka Bank, starting first with Mr. Mahabaleshwara M.S., MD and CEO; Mr. Balachandra Y.V., the COO; Mr. Muralidhar Krishna Rao, the CFO; Gokuldas Pai, the CBO; and other senior management team. Without taking much of your time, I would hand over the call to the MD, sir, for his opening comments, post which we could start the session for Q&A. Thank you. And over to you, sir, please.

Yes. Good evening, and welcome to all of you. Before starting management commentary on Q4 FY '20 earnings, I sincerely hope that all of you are hale and healthy despite COVID-19 pandemic-related health concerns, which we are feeling across India and also across globe. Nevertheless, this is the time wherein all of us must take care of ourselves, look after the family, and of course, our dearest and nearest as you all know that we are all passing through this word only once. Friends, yesterday, I had sent a detailed e-mail communicate -- e-mail communication to all the registered e-mail IDs of our shareholders, not only highlighting the current year performance but also for the last 1 decade. Many of you, as shareholders, I believe, have gone through the same. I'm getting good response from shareholders as they were able to know all the important facts about the bank at one go. All along, we had a tradition of having analyst and investors con call for quarterly results and analyst and investors conference for annual results at Mumbai. This practice -- this is being practiced since the last 5 years. Of course, this was started by my predecessor, Mr. Jayarama Bhat. In fact, 2014-'15 -- for the year 2014-'15, our Board meeting that is the result-related Board meeting was held on 22nd of May 2015, and we had analyst meet at Mumbai on 25th of May. Similarly, for the second year, that is 2015-'16, our result Board meeting was on 20th May, and our analyst meet at Mumbai was held on 24th of May. And 2016-'17, the Board meeting was on 13th of May, and we had our analyst meet at Mumbai on 15th of May. And for the year 2017-'18, Board results meeting was held on 15th of May, and we were happy to have the analyst meet on the very next day, that is, on 16th of May. Last year, that is 2018-'19, the Board result meeting was on 13th of May, and we had the analyst meet held at Mumbai on 15th of May. However, during the current year, because of the special situation caused by COVID-19, today, we are having a con call instead of the traditional conference at Mumbai. Nevertheless, dissemination of the information and very -- having an -- a close interaction with you all, that is most important for me, and I am sure it will serve the purpose. Further, you might have observed that all along, we were declaring our annual results during second or third week of May itself. This year, even though we had planned like that, on account of COVID-19 pandemic, the statutory auditors had a lot of logistic problems, especially in Mumbai. And in spite of that, we could able to declare the result during first week of June itself. Even though, as you all know, SEBI had extended the due date up to June 30, 2020. Fag-end of Q4 FY '20 and the first 2 months of the current financial year 2021 have all the indications that entire economic sectors, and more so, the banking sector is entering into an era of uncertainties. Hence, it makes sense to be cautious as well as conservative to protect the bottom line. For us, in Karnataka Bank, conserve and consolidate is our guiding principle for the current financial year because it is now almost certain that year 2021 will not be a normal year. Hence, keeping this in mind, today morning, while interacting with the CNBC TV18 anchor, I had just recollected the old adage saying that top line is vanity and bottom line is sanity. I'm sure all of you will ponder over this particular adage. Friends, as far as Q4 earnings are concerned, detailed analysis is already uploaded in our website. And let me now briefly touch upon the sales. You might have seen a 20.76% growth in the operating profit during the Q4 of FY '20. That means the operating profit went up from INR 324.23 crores to INR 391.54 crores. Similarly, on a year-on-year basis, there is a growth of 14.27%. Interest income went up by 7.05%, and NII, which you -- all along, which used to be in the single digits, has now crossed the double digit. It is now at 10.07%. Other income, we could have a robust growth of 51.54%, which was supported by a solid trading profit of INR 155.74 crores vis-à-vis INR 43.20 crores. Nevertheless, in the fee-based income, a moderate growth of -- a moderate quarterly growth of 15.05% and an annual growth of 18.72% is recorded. Thus, the total income had a growth of 14.14%, whereas total expenditure grew at 12.71%. In the operating expenses, the establishment expenses, that is, salary has grown at a rate of 16.44%. Of course, this is after making full provision for the salary as per the IBA wage revision. So there was 15% additional offer, and we have provided fully. But the superannuation benefit went up by 6.5x, superannuation benefits for the pensioners as well as the gratuity and leave encashment and all such things. So last year, it was just INR 25.46 crores, and this year, it is INR 163.19 crores. And you all know that this is market yield-driven that -- provision that we need to make. But however, in the expenses, the other expenses, the -- last year, it was INR 243.79 crores during this quarter, and it has come down to INR 207.69 crores. So our other expenses, we have been able to contain, not only containing, we have also been able to reduce it by about 14.81%. So that is what we had been planning, and we could achieve during the last quarter of the last financial year. NIM has almost remained at the same, 2.87% last quarter; current year, 2.86%. ROA has taken a beat from 0.32% to 0.13%. But for the year ended, it is 0.53%. ROE for the year ended, 7.35%; for the last quarter, it was just 1.81%. There has been some good traction as far as gross NPA is concerned. It now stands at INR 2,799.93 crores. So last quarter, that means December 2019, it was at 4.99%, now it has improved to 4.82%. But last March 2019, it was at 4.41%. Similarly, the net NPAs, December 2019, it was at 3.75%, now it improved to 3.08%. Whereas last year, that is, March 2019, it was at 2.95%. NPA gross slippage is at INR 304 crores versus INR 402 crores, that means the corresponding last year. Whereas the reduction is -- reduction and upgradation, recovery all put together INR 281.60 crores versus INR 292.09 crores. So as a result, my slippage ratio now stands at 0.57% for the current quarter vis-à-vis 0.80%. But for the full year, it stands at 3.75%. And NPA provision during the current year, it has gone up substantially on account of good operating profit. We thought that this is the right time to provide adequately so as to improve the PCR also. So keeping that in mind, we have proactively made certain provisions so that is the reason why this has shown a 31.31% increase from INR 216.74 crores last year to INR 284.78 crores. As a result, credit cost during the current quarter has slightly gone up from 0.40% to 0.50%. But however, for the full year, it stood at 1.95%. Provision coverage ratio was one thing during -- since last 2 years, we have been focusing on. So our provision coverage ratio which was at 58.45% as of March 2019 has now significantly gone up to 64.70% as of March 2020. Cost-to-income ratio, there is a growth -- I mean, increase from 57.97% to 59.62%. Of course, this is mainly on account of the superannuation-related benefits. And the capital adequacy ratio has eased now at 12.66%. It was at 13.17% about a year ago. SMA2, there is some positive traction. It was at INR 168.41 crores about a year back, now it is in double digits at INR 23.65 crores. And recovery in return of accounts has also shown some positive traction. Last quarter, we had INR 16.60 crores recovery from the return of account. This year, it is at INR 59.61 crores. For the full year, it is INR 95.82 crores versus last year's INR 51.18 crores. Turnover business has grown at a rate of 4.44% only. And our present business turnover stands at INR 128,749 crores. Deposits grew at 4.87%, whereas the advances growth, if you see, it is muted at 3.90%. Here, I have to just submit that, all along, we have been highlighting that we would focus more on the retail and mid-corporates and not that much on the corporates. My retail advances, which was at 42.85% as of March 2019, has gone up to 45.49% as of March '20. And the mid-corporate advances, that means, INR 5 crores to INR 100 crores, which was at 26.85%, had now gone up to 28.71%. Similarly, the corporate advances, that is, more than INR 100 crores, which was at 30.30%, has now declined to 25.80%. So this being the case, during the current year, on account of this position, we could register at a comfortable 11.07% yield -- year-on-year growth in the retail sector and 11.14% growth in the mid-corporate sector and a de-growth of around 8.87% in the corporate sector. So when you look at the credit growth from this angle, then the fundamental changes and the realignment whatever that we have made, that would be crystal clear for all of us. Similarly, our CD ratio has eased now at 79.35%; last year, it was at 80.10%. And the CASA, the overall percentage, it is now at 28.11 -- 28.91% vis-à-vis 28.06% about a year back. And there is some positive traction as far as the yield on advances, which was at 9.26% about a year back, now has slightly improved to 9.41%. Cost of deposit, which was at 5.97% about a year back, further declined to 5.88%. So as a result, interest spread, which was at 3.29%, has slightly improved to 3.54% during this Q4 of FY '20. Our restructured advances has also come down from INR 872.16 crores about a year back to INR 536.49 crores. Now the most important thing is all of would be -- all of you would be interested in knowing the moratorium book. So in this, about 34.67% of our customers, this is by number, they have opted for the moratorium. And by value, that is, by amount, it amounts to 46.62%. So another 54% of the -- that is majority of the customer, that is around 54% of the customers by value, they have not yet, I mean, opted for the moratorium, even though bank had extended moratorium facility as per Reserve Bank of India guidelines to all the eligible customers. So this is the position of the moratorium-related things. And our transformation initiative, KBL VIKAAS, this is progressing well as per our expectation. So digital journey for MSME loans that -- for the, especially working capital sanctions, that is launched very recently, our MSME term loans, it is -- in this digital journey is in the final stage, which is being taken care of through our Digital Center of Excellence, Bengaluru. Other digital journeys, like home loans, car loans, personal loans, everything is stabilized. And now we have a very clear-cut road map of 100% coverage under these sectors, new sanctions. Similarly, we have already, on the pilot basis, tested SB account TAB banking. So this, we are going to roll out all India very shortly. My performance management system is now stabilized, PMS. LMS also stabilized, that is the lead management system. And very shortly, as we have already received the final permission for the subsidiary -- Karnataka Bank's wholly owned nonfinancial subsidiary, that is we have named it as KBL Services Limited (sic) [ KBL Services Ltd. ], we are going to launch it during the current financial year. As far as the outlook for the current financial year is concerned, we are not that optimistic because of the pessimistic surrounding. So you might have noticed that, as I said, in every sector, barring few areas, this type of uncertainty is there. So then, we may have to adopt wait-and-watch situation, but for extending the relief measures as well as focusing on the MSME relief package and all such things. So most probably, we may get about 8% to 10 -- 9% credit growth during the current year. But I feel that this is too early to make any comments on the growth prospects because we had a very lengthy discussion in our recently held Board also. So we will be keenly watching, and accordingly, we will be revising our strategies also. Nevertheless, we will be focusing more on retail and mid-corporates and CASA, trading profit as well as recovery and NPA management and our third-party products. And digital sanctions, yes, we will be taking it forward, and I propose to cover almost all my retail portfolio under this digital journey. And overall, the efficiency enhancement and some improvement in our control measures that is what we are now focusing. And as I said, this is the year wherein we all have to focus more on conserving the capital and also curtailing the cost. So this has engaged the attention of not only the top management, even my Board also. So we will be focusing more on this aspect. So that -- with that background, I said that we will be focusing more on the bottom line. And -- so that conserve, consolidate and emerge stronger, that is the business mantra for your Karnataka Bank for the current year. This is all what I just wanted to share with you. So now any questions from your side, definitely, we will try our level best to address those issues.

[Operator Instructions] We take the first question from the line of Kishan Gupta from CD Research.

[Audio Gap] In the investor side. Sir, my first question is on the provisions side. So this INR 1,135 crores of provision, where is this going, sir?

Yes. It is in breakup.

Yes. You have the breakup? I'll give you the breakup. 1 second, 1 second, just hold on.

Sure.

Provision for depreciation on investment, 28-point -- no, there is a write-back of INR 1.95 crores. Provision for security receipt, there is a write-back of INR 3.04 crores. Provision towards NPA, INR 1,108.22 crores. Provisions towards standard assets, INR 35.17 crores. So other provisions is around INR 5.84 crores. And provision towards taxes and all, INR 90.25 crores.

Okay. But sir, if we see the difference between gross and net NPA between FY '20 and '19, the difference has just jumped by INR 205 crores. So I don't understand where this INR 1,000 -- this INR 1,108 crores, which you said for NPA, where is that going? Because it's not reflecting in the NPA figure.

No. See, I think there is a technical error -- other write-off of around -- for the full year, INR 147 crores other write-off is there. So last year, it was around INR 93 crores. So this year, INR 147.19 crores. During this current quarter, INR 16.61 crores.

Okay. But for this INR 1,100...

And other technical write-off is also there. Last year, INR 806 crores. This year, INR 943 crores.

Other technical write-off, yes.

Yes. Technical write-off is INR 943 crores.

So where is this reflected, sir, in the financial statements, this INR 943 crores and INR 1,108 crores?

Write-off will not get reflected there. If you want, we can give the movement of the provisions, we can give you.

Sorry, sir, you can give us the...

Movement of provisions, we can give you the movement of provisions.

See -- yes, one second. I will also give the movement of the NPA as well as the provisions. See, closing NPA -- that is opening NPA for the current year was INR 2,799 crores. Technical write-off -- what is this? No. No. That details, we will share, in one minute. It is not correct. Yes, movement -- provision for NPA opening balance is -- previous -- current year is INR 810 crores. Provision made during the year is INR 1,297 crores. Write-off and write-back of excess provision is INR 1,093 crores. Closing balance is INR 1,017.31 crores remaining. It is in Schedule XVIII that we get 1 week in advance, that will be shared subsequently.

Okay. So you're saying, sir, that provision for NPA this year has been created INR 1,200 crores?

Yes, yes. INR 1,297 crores is the provision made during the year.

Okay. And have there been any deductions? Because this figure has jumped from INR 2,456 crores to INR 2,800 crores.

Yes. Opening balance was INR 810 crores.

INR 810 crores? Okay.

Provision made during the year, INR 1,297 crores. Provision utilized for write-off is INR 1,091 crores. Closing balance is INR 1,017 crores.

Okay. Okay. But sir, net and gross figures, they don't match with the closing balance which you gave me.

No out of the INR 1,297 crores, INR 189 crore is debited to the reserves and balance is debited to the profit and loss accounts.

Okay. Okay. All right. And sir, how much principal repayment is due this year, FY '21?

Repayment?

Which repayment?

Principal repayment?

Okay. That is the current year's due. Current year's due maybe in the range of around -- on an average INR 500 crores per month? Yes, current year maybe in the range of -- see, on an average, the repayment is in the range of around INR 6,000 crores to INR 7,000 crores, correct? Yes, I don't have the correct figure, but going by the past track record, it is in the range of around INR 500 crores per month. So for the full year, it could be in the range of around INR 6,000 crores to INR 7,000 crores.

All right. And sir, why is the moratorium so high? Because we checked for SBI, it's 21%. And overall, RBI releases per press release, they said overall, 39% of assets are under moratorium. So why are our moratorium rates near 47%, 48%?

I don't think it is on the high. There are so many banks which have -- which are still in the process of extending the moratorium. There is some banks, good banks who are even at 71%, 60% and all. As I said, we have extended this benefit to all. So of that, around 46%, they have opted for the moratorium as of now. This number, I don't know whether it will stand at that level. It may still go up as this pandemic advances. So by -- month-on-month, I think this may still go up. We have time up to August end. Yes, August -- 31st August end, that time is there. So as of now, this is the position, but -- yes.

Okay. Okay. So you're saying, sir, what levels do you think it can go up to 60%, 70%?

That we are not able to tell. Maximum is 100%. Because, see, it is our responsibility to extend the benefit to all. That is the spirit of RBI circular. So keeping that in mind, we have extended it. But in some of the cases, hardly, there is moratorium availed. So for example, if you look at my NBFC book, only about 10% by value and about less than 5% by number, they had availed the moratorium so far. So from each sector, it varies. Let us see, we are keeping a very close watch on that. In fact, agriculture sector, as of 31st May, only 19% of the customers, value is around 39.98%, they only had available. So in each sector-wise, it is varying. So we are keeping a close watch on that. Hello? Hello?

We take the next question from the line of Amit Rane from B&K Securities.

Sir, what's our SMA2 number and the risk-weighted assets number in amount?

Risk-weighted assets number? I'll see that. SMA2 is INR 23.65 crores as of March 2020. And in March 2019 -- for the year ended March 2019, it was at INR 168.41 crores. And risk-weighted assets -- yes, risk weighted -- yes, total risk-weighted assets is INR 52,708 crores.

Okay. And sir, any reason for such improvement in the SMA2 number on a Y-o-Y basis?

SMA2 number because of the good recovery and also a close follow-up. And as I said, we have shed certain assets, corporate advances. And as a result, now whatever the book that we have is showing some good quality. In our website also, we have disclosed all the externally-rated borrowers. There, you could see that in that entire portfolio of -- consisting of this externally-rated borrowers, none of the accounts are in SMA2. That is also one of the main reasons.

Right. And sir, this rating that you have disclosed is as on what date?

Which rating? That is the latest available rating. Latest available rating.

So as in March end, it is -- it might be?

Not necessarily.

Not necessarily be March end. Yes, because this is ongoing. Whatever that -- if they had been updated today, we will take that. That's the latest available rating.

Okay. And sir, have you done any internal analysis of the moratorium book that we have in terms of -- I mean, how our risky...

One minute, one minute. In this externally-rated advances, there is one account under SB -- SMA2 with an exposure of INR 10 crores. So I was referring to some other slide. One account with an SMA2 of INR 10 crores. Yes, what is your question?

Sir, my question is, have you done any internal analysis of the moratorium book of this 47% by value? Any accounts which are identified as highly risky, which are more likely to slip into NPA?

That type of analysis, we have just started, and we are now first interacting with respective customers. And now we are fully involved and engaged in extending the government-related release packages, especially to the MSME accounts, that is the priority for the banking sector. So there, once the economy revival happens through the MSME, and then, of course, we will be able to gauge the impact of the moratorium that -- and intention is to revive the economy. So that is the intention of the regulator, and we are all with them. But nevertheless, as I said, whether it would have any short-term or the long-term impact on the bottom line, that we have to very keenly watch, and that exercise, thereafter, we will take up.

We take the next question from the line of [ Lalit Garg ] from [ Global Services ].

My question is about additional capital that we were planning to raise and looking at the current market condition about the share price and also the growth in the top line, are we going to defer this capital raising for some time? Or what's the plan?

No, no. For that only, I am banking on you. See, what happened that there is no question of deferring or shelving. This particular -- the special resolution, which we had from the shareholders somewhere in the month of March 2020, this is valid for 1 year. So we have that 1-year room. So during this period, once the right price that we are convinced, yes, we can go ahead, at that time, we will go ahead. Secondly, as I said, my -- this CAR is presently at 12.66% as against the RBI-stipulated minimum of 10.875%. So internally, we have a policy of having at least 1% over and above the RBI -- regulatory -- regulator's stipulation. So I am still more than 2 -- around 2% above the regulatory stipulation. So for the time being, there is no dearth for capital. But nevertheless, going forward, we thought that we should go for this. So we will be taking this issue at appropriate time.

Sir, as a shareholder, I would really prefer if this is deferred for some time. But of course, the Board has the call. Sir, my second question. Sir, it's more on the academic line. I wanted to understand, we have debited INR 189 crores to the reserves for these fraud cases instead of taking it directly to the P&L. My question was, if this amount was taken as a technical write-off, we would have got less deferred tax assets, is that the right way to see it?

No. What happens here is that whatever technical write-off tax benefits you are getting is 1/3 of that. So our profit -- tax liability would have come down by INR 60 crores, but our profit and loss account would have been down by INR 130 crores. So now what happens is, is that deferment is actually given -- regulator has given the benefit, so it will be -- it will get amortized over the next 3 quarters.

Yes. Whatever that you said is the right [ CA brain ], but there is another point also. You see that during the current year, just for academic interest only I'm highlighting this. See, superannuation benefit for the full year, we had INR 211 crores, whereas last year, it was just INR 3.61 crores. Now you take it into the profit, then you realize what would have been our profit. These are all -- yes, see, in one area, we may get; in another area, it may balance out. So eventually, our intention is to -- quarter-by-quarter or year-by-year, we should keep on strengthening the balance sheet. That is the main motto of the bank. So that is what we have said. So that means this year, if you are -- see, if you look at the COVID-19 provision also. So even though there was a regulatory provision for us to absorb only 5% and amortize another 5% for the next quarter, that is the June quarter, I have -- I mean, upfront, we have absorbed the entire 10%. So wherever that type of things is there, we have done it. Holistic view has been taken, [ Lalit ].

We take the next question from the line of Bunty Chawla from IDBI Capital.

I was just referring to the results. In the results section, on the notes under accounts, Statement #6, it says -- under other matters, it says, we have not audited the balance sheet of approximately 58% of advances and 78% of deposits. So can we say these results are not audited or I am missing something here? Can you share your thought on that, sir?

The internal auditor. Yes.

No, no, no. You got -- you missed it. In our bank, all the officers, the branch office as well as the back office, 100% of them are audited. Now here, we have a central auditors -- 2 central auditors, and we have also designated branch auditors. So they have done 100% of the audit, whereas the central auditors, what is the audit that generally they do, that is also disclosed. That's all. 100% of the books are audited. That is why it got delayed. Otherwise, we would have come out with the result somewhere in the second week of May itself. So this -- because of the logistic problems our auditors faced, so we had to slightly delay it. But nevertheless, it has not prolonged up to the June end. At the earliest indication, we had declared the result.

Okay. And sir, if I -- sorry for -- if I'm repeating, if you can share the total fraud accounts, which you have declared, 4 fraud accounts, amount outstanding as well as the provision against that? And as well as if possible, if you can name all these 4 accounts?

Yes, yes. 4 accounts, it is already disclosed to the share -- stock exchange. One is, of course, Dewan Housing Finance. All these 4 accounts are the consortium accounts. We are not the sole banker. And Dewan Housing, my exposure is INR 180.13 crores. Then Religare Finvest is INR 43.44 crores. Leel Electricals, we have an exposure of INR 20.65 crores. These are the 3 accounts. And in another account, Fedders Electrical and Engineering Ltd. (sic) [ Fedders Electric and Engineering Ltd. ], INR 41.30 crores. But there, we had full provision. So there was no need for additional provisions. These -- all these 4 accounts, these are the consortium advances, wherein we were members with the minority share, less than 1%. And what happened is since either the consortium leader or many other banks in the consortium forum, based on either the forensic audit report or any other issues, they have treated it as NPA because they observed that there is diversion of fund. But in our books, we have not observed any such things. But since we have to follow the spirit of the consortium, we took an proactive stand to fall in line with the consortium, the decision what is being taken. And accordingly, once we declare it as a fraud, then next important thing is the provision. So we have taken up that process.

So how much total as a percentage provisioning has been done against these accounts?

25% has been done.

Around 25% is the -- that is already done. Remaining 75% is charged to the reserve. It's fully provided, but by charging to the reserve, which has to be reversed subsequently on a quarterly basis in the remaining 3 quarters. It may come to around INR 60 crores per quarter?

Yes. INR 60 crores.

Yes, INR 60 crores per quarter for the next 3 quarters. Since ours is a growing concern, so this type of accounting is practiced. These accounts, they have been with us for the last 2000 -- since last 2009, 2014 like that. So it is very unfortunate that in spite of the consortium arrangement, it happened.

We take the next question from the line of Parthiv from NVS.

Sir, I just wanted to continue on the previous participant's question on that matter for...

I didn't get your name, please?

Parthiv, Parthiv.

Parthiv, okay, yes.

Yes, yes. Sir, I just wanted to continue on the previous participant's question on the auditors matter. Can you just elaborate it because you said apparently that all the branches are being audited, but in the note, it's still being clearly mentioned that 824 branches with 53% of the advances. So why the note has been inserted in the financial statement by your bank? And such kind of things are not visible or -- we cannot find across any other banks. Just wanted to have an elaborate understanding on the matter?

Yes. In some of the banks, there is a practice where statutory central auditors themselves will be conducting the audit of not only the head office but also the entire branch setup. Therefore, invariably, they will be the only the auditors. In our case, there is no exemption from audit for any of the officers. We have 2 systems: one is central statutory auditor, another is the branch auditor. Where statutory central auditors are unable to take up the audit of any office or the branches, we will allocate it to the qualified chartered accountant practice only to such branch audit. Therefore, in their report, they have to mention how many of the branches they have audited and what is that percentage coverage of the -- such branches audited by themselves. That is only -- as a matter of abundant caution, they are mentioning, they have not audited all the branches, rather they have covered so many branches covering a percentage of the advances, whatever is mentioned there.

So this matter is by the statutory auditor and not the branch auditor, I believe, right?

Yes, yes. Other branches are audited by the statutory -- the branch auditors. But the branch...

But you want to say that all the branches have been done -- audited by the branch auditor, thoroughly?

Yes. See, there, the procedure is branch auditors also we have to appoint from the central -- that is from the central office and taking those names from the RBI's approved list. That is the first requirement. Second one is, whatever the audit observations that these branch auditors have here with the central auditors by means of an MOC, that is, the memorandum of changes. Both MOCs are thoroughly scrutinized, if any, by the central auditor, then they certify it. Even to have a crystal clear, how many of the branches are the -- this is audited by the central auditors. in our bank, this is the tradition. Going forward, of course, we are now discussing about the centralized audit process. So for that, now I am in the process of implementing document management system, DMS and all. Most probably during this year or from next year onwards, we should be able to have that centralized auditing system.

Okay. And sir, my next question is pertaining to the 12 number in the notes to the account. I know quite a few participants have already asked you the same question regarding that fraud which you have -- the INR 180 crores -- INR 190-odd crores, which you would reverse. So this is it -- or do you expect any further addition to the provision apart from these going forward?

Additional -- you are telling about...

Any other -- I would say, any other jerks or any other addition to these kind of cases?

No. See, as of now, whatever that we had come across, it is already considered and disclosed as fraud.

And this INR 189 crores would cover the entire INR 252 crores, right? Like, everything will be done?

Yes. Yes.

Yes. Correct, correct.

Okay. So there is nothing more what -- at the moment, you are viewing in the near future?

We cannot just hold it like that. See...

No. So my -- no, no, my -- sir, so my main question was, do you expect anything to be added new to these kind of one-offs, basically? Something like a new fraud coming in? Like, any kind of a [ jerk ], I would say?

As of now, we have not come across with any such early warning signals.

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

Sir, I have flight of questions.

Sir, your voice is cutting. Could you please come nearer to your phone?

Yes, sir. So I have a couple of questions.

Yes. Your good name?

First, sir, if you can highlight that we have given moratorium to NBFC, some of them are AA rated and one is A rated. If you can provide the sector of these moratorium -- NBFCs which have taken moratorium?

Yes. Okay. Sector-wise, I have not said. Rating-wise, I have mentioned there in that. You want it sector-wise?

No, no. Sir, I only want the NBFCs which have taken moratorium, which sectors are they from?

Okay. NBFC, the moratorium sector-wise. Do we have right now? Because in the NBFC moratorium. Yes. We will note down. Please send an e-mail. We will share it. That must be available. Sir, please send an e-mail, we will share that with you.

Okay. And second thing, sir, in Slide 20...

One minute, I think right now I have this sector. One second, one second. One is housing finance sector, another one also housing finance, another one also housing finance. So 3 are from housing finance sector, mainly from housing finance sector, okay? Rest is -- any other area? Housing -- yes, for major portion is from housing finance. Yes, others is commercial -- commercial financing, okay? Right.

And sir, Slide 20 of the presentation.

Okay. Slide #11 -- yes, please.

If I look at the, let's say, bottom last 3 rows, B, C and D -- which is B, C and D. In B category, you have INR 1,400 crores of exposure, of which let's say half of them or 60% of them have turned NPA. What is the -- your view on the residual INR 500 crores, INR 600 crores, and staying in the B category, INR 900 crores? So do you think they will definitely -- I mean, they are very, very weak in your internal assessment also?

Yes. See, there, I think you might have noticed that 18 accounts have already turned to NPA, and it is INR 872 crores. And another 9 borrowers, they have taken the moratorium, that is around -- amounting to INR 537 crores. So the rest of the accounts even including the moratorium-availed accounts, they don't have -- they are not even coming under SMA2, that is also disclosed there. So -- and this has been the tradition, these accounts. So there, one is in the infrastructure, second one is the internal trading, third one is the educational institute, another one is the energy generation. So like that, they have been with us for quite a long period. Even though their rating is -- external rating is D, our internal rating is somewhere in between KB3 and KB4. So from another point of view, yes, external rating is not satisfactory, but these are generally high-yielding advances, and track record has also been keen, and they have also not yet reported any given point of time either to the [ CRISIL ] or something like that. So we are fully satisfied with the performance and conduct of these accounts.

And sir, where is the coffee plantation exposure now? Is that NPA or is this not NPA here?

Which coffee plantation?

Sir, I think we had an exposure to CCD?

Yes, yes. Okay. Okay. That is Coffee Day, Coffee Day Global. We had, see, total sanction limit of INR 183 crores, and that was brought down to INR 153 crores, and now it is further brought down to INR 130 crores, and it is performing, and up to date, it is servicing. Yes. And for that, we have a security of around INR 155 crores.

Okay. As of now, have they taken moratorium, and hence, they are standard? Or...

They have not taken moratorium.

So they are in very -- reasonably good state...

It is standard and regular.

Okay. And sir, then another question is, sir, if you can highlight that -- some of the banks have also declared SMA0 plus 1 plus 2 accounts as of Feb end. Sir, I think we declared SMA2, but it also becomes imperative for, let's say, coming quarters because we have moratorium. So I think the key track number -- #2 track is the SMA0 plus 1 plus 2 number as of Feb-end or March end?

Yes. Internally, we have that system, but too many data may also create a problem because there is not any consistency. But for internal improvement of the portfolio, we are keenly tracking these numbers.

Okay, sir. And sir, now apart from this 10% provision that we have done, we have not provided anything on contingent basis, right?

Contingent basis, no, not yet. That -- whatever that RBI stipulation of 10%, which was, of course, for the current quarter, it was -- provision requirement was 5%, we made full 10%.

Next question is from the line of Sagar Shah from Alphaline Wealth Advisors.

Sir, my first question was regarding our asset quality. Actually, my question was very related to the last participant. I had calculated your external rating exposure, actually, below BB book that came around INR 1,392 crores, actually, the B, C and D category, external rating. And you have said that you're fairly comfortable on that book, actually. So that's what...

Fairly comfortable because that is what I said, they are dealing with us for quite a long time, and we have not taken any fresh exposure under -- either under the D, C, B, BB. My -- this policy doesn't permit. But here, what happens if the existing high-rated accounts downgrade to the -- this category, then only they get reflected there. Otherwise, on our own, we are not taking any exposure under these categories, fresh exposures. Yes.

Okay. On that note, sir, my -- another question was regarding to our employee costs. As you said that we had a one-off in regards to superannuation benefits that we had declared in this quarter, and that's why our employee costs rose to almost INR 370 crores as compared to INR 203 crores a year ago. So is this kind of a -- this will be the new normal cost for Karnataka Bank going ahead or is it a one-off in this, actually?

No. Normally, what happens, according to the AS 15 accounting standard and also guidelines issued by the IBA in this regard, the pension funding will be -- depend upon the yield as on the reporting date of all the maturity of the employees -- retirement age of the employees. So normally, what happens if the yield falls, then the provision will increase for the employees. Pension funding will increase. So it has become a very, very volatile nowadays because if -- next year, if the yield goes up, again, there will be releases from this particular funding. So it is based upon the accounting standard and the guidelines issued by the IBA.

Okay. So as in for this quarter, the employee cost will be the same as of -- for FY '21?

For the June quarter compared to today's yield versus the March yield, it is almost at the same level. So June, there may not be any hit.

Okay. So sequentially, it will be the same?

Yes, yes, yes. Every quarter, we'll obtain the actuarial report. Based upon that, the provisioning will be made. But we don't feel that any hit will be in the first quarter. We don't know about the future.

Okay. Okay. On that, we have, sir -- hello?

Yes.

Yes. My second question, sir, was regarding to our return ratios, as our MD sir said on the last quarter's con call, that our advances would be -- our focuses should -- would be on advancing to the -- especially the MSME side, for the -- at least for the high-yielding advances so that our at least the yield on advances goes up and our NII comes in double digits, and as it is rightly reflected in this quarter, actually. So going ahead, do we expect at least our ROE and our ROA to actually get better as compared to the FY '20 levels? Because currently, they are at very, very -- at low leverages compared with should be so that we can at least gain on the valuation front as well?

Yes, this should be too early for us to comment on that because you -- that is why I think you will fully agree with me that we are in an era of uncertainty. So my first focus is to safeguard or protect the bottom line and also have some decent growth. I think when we come out with the first quarter [Technical Difficulty]

Ladies and gentlemen, thank you for patiently holding the line. We have the management reconnected. Also, we have the questions on the line of Mr. Sagar Shah.

Yes. Hello?

Yes. We are back.

Yes. So my question was that only, sir, that, at least not in FY '21, but [ gold rise ] and we expect some decent improvement in our, actually, return side, sir -- return ratios actually.

Yes, definitely. That will be our endeavor, but we will come out with the correct number once we are through with the first or the second quarter result. But one thing as I have briefly mentioned in my opening remarks, we are taking last -- not many cost-cutting measures, both in the capital cost as well as in the revenue cost. So that is why, it has already reflected during the fourth quarter itself, whereas our other expenses, it has come down by -- there is a de-growth to an extent of 14.81%. We will try to repeat that during the ensuing quarters. Wherever it is possible, we will definitely cut short that. And wherever only inevitable expenses that we have to incur, we will definitely incur that.

We take the next question from the line of [ Yashwant Vanu ], individual investor.

This is [ Yashwant, ] here. So I have seen that right in the opening remarks, you have mentioned that over the period of time, now Karnataka Bank has been announcing Q4 results in the month of May, mid-May. So -- yes, I mean, as an investor community, and I have researched why investors do not have trust in betting, or otherwise, investing in Karnataka Bank. So one of the reasons which I felt was, Q4 results have been deferred for a multiple business, which you have mentioned. So my question is, so as a management, so considering the crisis that we are going through, so I'm pretty sure that in the month of June, you could have foreseen that, okay, we will not be able to publish the results by mid of May. So my question is, why is that not being communicated to the exchange and the investors? So I mean, I'll tell you the reason also. This has created the air for the speculators to speculate that Karnataka Bank has so many things, internal problems, which is why it is not being able to publish the results. So my only question is, so when you can foresee that there is a crisis, why is this not being communicated in early?

[ Yashwant ], I think you are closely watching what is happening in the banking sector. So this year, how many banks have so far declared the results?

I completely agree, sir. My question is, my questions is, I'm not...

I think in our peer group, we are the second to come out with the result after the Federal Bank. So you can compare the peer group, and that is why, I said, consistently, we have been doing that. And unless -- we have this practice of 100% auditing of the branches also. That is why, I have made it very clear, that is the reason. So these are the facts. I think, hereafter, you will be able to back for us in the market. We'll see if there is any further need is there for improved investors' communication, we will definitely adopt those best practices.

Yes. Because it is the eyeopener, how the inferences are drawn, even though everybody is aware that practically, it is not possible for anybody, lockdown areas are there, sealed-down areas are there, branches were actually allowed to offer only the limited services. So we thought that it is well understood in the market that this time there will be delay. Anyhow, this point is well taken. Regulatory, yes, we have been communicated in the Board meeting, yes, well in advance. If there is any kind of -- this kind of a situation going forward, we will keep the investors also well informed.

We take the next question from the line of Parthiv from NVS.

I just wanted to know the cost of funds for the bank?

Cost of fund is around -- one minute, do you have that number? Somewhere around 7%. We will...

Around 7%?

Yes, yes. 7.62%.

7.62%. Okay, 7.62%. Against, sir, any idea?

Which one?

Against last year, FY '19 would be?

7.29%.

7.29% and...

Okay. So that's slightly increased.

Yes, yes.

Okay. And sir, you just applied to me on my auditor -- or like some time back on my remarks for the -- on the auditor, the Matter 6 in the auditor's note. So just as an investor -- and as an investor of the bank, I just wanted to do -- it's a humble request because, see, this gives a bit of a misconception or a misinformation that the branches have not been audited at all, okay? So...

No. We will trace it correctly.

Yes. Because you need to face it -- because see, eventually, these kind of information when it goes to an online portal, not just the BSE or your website, but there are N number of online pages and groups, which these kind of information go, it affects -- as an investor, it affects our valuation, right?

Yes. We too [ didn't realize ].

Yes. So because you need to clearly mention because at the end of the day, a statutory auditor has to rely on a branch auditor before giving out the financials, irrespective you give out in May or you give out in June, but they have to rely on the branch auditor at the end of the day because it's practically impossible for a person or a company to run around the entire nation.

Yes, yes. I am also on the same page. We will again bring it to the notice of the central...

And if possible, please, sir, as a humble request, please just put it across the BSE with the revised language or a revised note to the investors. Just upload a small one-pager kind of a thing, which will help a lot, basically.

Your suggestion is well taken. I will take it up with the central statutory auditor...

Yes. Whatever language as per the auditing committee, they have to use it, they will use it, of course. And that's their decision to do it, but just as an investor, it gives a very wrong impression, sir.

Yes.

Well, ladies and gentlemen, that was the last question for today. I would now like to hand the conference back to Mr. Aalok Shah for his closing comments. Over to you, Mr. Aalok Shah.

Yes. Thanks, Janice. On behalf of Monarch Networth, we thank you all for joining on this call. Thank you, Mahabaleshwara, sir; Balachandra, sir; and -- Muralidhar, sir; and all of the senior management team for taking out your time. Thank you, and have a great evening.

Yes, Aalok, thank you for your time, and thanks to all the participants who have taken not only keen interest, I know that they have taken a lot of trouble also. Many of them might have joined from their respective houses also. Most important thing is we are all passing through the difficult days of COVID-19. So I would pray God, and also wish all of you [Audio Gap]