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

At the outset, I would like to thank the management of the Karnataka Bank to -- for giving us the opportunity to host them at our conference. The management of Karnataka Bank is represented by Mr. Mahabaleshwara M S, MD and CEO; Mr. Sekhar Rao, Executive Director; Mr. Balachandra Y. V., COO; Mr. Abhishek Bagchi, CFO; and Mr. Manoj Saha, Head of IR. I would request the management to commence this session with some opening remarks on the business environment as it stands today, further to which we will open the floor to the investors for the Q&A session. Thank you, and over to you, sir.

Yes. Good morning and good afternoon, Mr. Nikhil of Nirmal Bang. Thanks for arranging this Investor Access Meeting. I am Mahabaleshwara, MD and CEO of the Bank, accompanied by our Executive Director, Mr. Sekhar Rao, as well as our Chief Operating Officer, Mr. Balachandra and our CFO Designate, Mr. Abhishek Bagchi. So, for this meeting, whatever that we have already conveyed and communicated in our previous Q3 con call, we will be making use of that and to give a brief introduction of our performance for the Q3 of FY '23, as well as for the 9-month period ended December '22 of the current financial year. You are very well aware that Bank has been able to show a consistent and sustainable performance in all spheres of banking. The net profit for the 3-month period, it went up by about 105.14% and for the 9-month period it is up by 118.49%. So, that is why we are at a historical high of INR 826.49 crores of net profit for the 9-month period ended December '22. Operating profit also for the 9-month period ended it showed a growth of 21.42%. NII also showed a growth of 26.74%, whereas for the current quarter, that is the third quarter, it went up by 34.07%. NIM is again both for the 9-month period as well as the 3-month period, it is at a historical high of 3.63%, as well as 3.81%. ROA also for the 3-month period ended, it is at 1.21% and for the 9-month period, it is at 1.14%. ROE is also again, at a historical high for Karnataka Bank at 15.61% for the 3-month period and 14.74% for the 9-month period. Our asset quality is continuing to moderate. Both the GNPA and NNPA have come down. GNPA now stands at 3.28% and NNPA at 1.66%. And provision coverage ratio has significantly improved to 80.21%. About a year back, it was at 73.47%. And CRAR also has improved to 15.13%. A year back it was at 14.15%. And, of course, this is excluding the current year's eligible profit. If the current year's eligible profit is included, then my CRAR would be around 16.57%. So -- and the advances grew by 12.51% year-on-year and deposits grew by 7.86%. So, as already mentioned, we are focusing on a credit growth of around 15% for the current financial year by March '23. Again, '23-'24, we will be entering into the centenary year of Karnataka Bank. In fact, day after tomorrow, 18th February, '23, we will be completing 99th year and entering into the 100th year. So, a year-long centenary celebration is also planned. However, while entering into the centenary year, our aim was to have -- strengthen all the fundamentals. That was our primary objective and that was the focus that we had paid during our last 5 years' KBL Vikaas Transformation Journey. The fruit is -- the result is on the expected line. We are able to see the results now and so that during COVID also, we have already put a strong foundation for the consistency and sustainability of these numbers. So, once again, thanking all the investors and the shareholders for their continued support. Now, the forum is open for the discussion. Over to you.

[Operator Instructions] Firstly, we have a question from Mr. Krishna Kumar from Lion Hill Capital.

Sir, congrats on a great set of performances over the last many quarters. Sir, could you give us some perspective in terms of the deposit side, how we are looking at kind of getting to 15% kind of improvement and also going forward, what will be your strategy given that there is a lot of pressure on deposit mobilization by all banks? How do you see this happening for you? And what could be potentially the cost increase that you will see on the liability side for the next 6 to 12 months, sir?

On the deposit side, as MD pointed out, this year, the market or the industry as such has seen some kind of a rate rising scenario only. To respond to the kind of a competitive situation in the market, we have also tweaked our rate of interest multiple times. And the growth as such is sub-10% for the current financial year and we have adequate liquidity also in the system to cater to the requirement of 15% advance growth what has been projected and as just now highlighted by our Managing Director. So, as regards the schemes are concerned, we have also launched to celebrate our centenary year, a centenary deposit scheme has already been launched. In October itself it was launched and further tweaking of the rate of interest has also happened in response to the market movement. So, as such, yes, liquidity for the industry this time appears to be a challenging area. For us, we have adequate liquidity support to what you call fund the advance requirement, lending requirement. As such, we are not foreseeing any challenge in terms of meeting the advance requirement of growth rate of 15% through deposits or of the wherever required for the short-term borrowing side also.

I would like to add just 1 -- 2 quick points here. In fact, the Bank implemented a 5-year kind of transformation journey called KBL Vikaas. BCG was part of that entire transformation road map. As part of that, a lot of processes got digitized and a significant technology transformation happened. So, customer onboarding now almost -- is completely digital. 80% of our savings account is originated or fulfilled digitally. As we speak, we are implementing the digital journey for current account as well. So, we've kind of created the platform for growth and all the engines are available. Now, as we enter into the coming year, we plan to leverage this opportunity or this infrastructure to grow in identified segments, like savings accounts and particularly salaried corporate accounts, government business where we have got approval for CBDT integration. We are already live with custom duty. We have integrated with 2 State treasuries, both Karnataka and Maharashtra. That is the agency bank arrangement. And lastly, also leveraging our presence in southern markets for current accounts. So, these are 3, 4 areas where we clearly see significant ramp-up in the sourcing and the book [ casual ].

So, in a nutshell, CASA franchise will be further strengthened. No doubt, entire banking system has entered into an area wherein the interest rising scenario is quite visible. If you look into the exact numbers cost of deposit, so in our Bank also, our cost of deposit, as of September '22, it was at 4.46%. Now as of December '22, it is 4.54%. So, definitely interest rising scenario. So, going forward, it may also have some impact on the NIM, but that is what we have already factored in. And our aim is to maintain the decent spread. So, that is how I think we should be able to have a decent NIM also going forward.

Sir, on the RBI guidance on the -- draft paper on provisioning for credit losses on an ECL basis, how are we placed on that front? What is the expected increase in provisioning costs that one may look at into the next year if it comes through? Other things remaining same, what could be the delta impact, sir on provisioning?

So actually, it would take some time to be implemented. If you see that ECL paper, it has been explicitly mentioned that it would take a year for the draft. After that, it would invite all the pointers and comments, and only after a year, it would be final, the guidelines. Even after that issuance, RBI will give us a horizon of a year to implement. So, as of now, what our estimate is that at least it would take 3 years to implement it. Now, internally, we have discussed the nuances and we have found out some grey areas. RBI has asked us to respond by the end of February. RBI has asked banks to reply to 18 questions. We have drafted our replies and we will be submitting it in time. At the impact angle, it is under calculation and I will come up on the estimated numbers.

As far as this ECL is concerned, definitely, we are on our way to implementing IndAS in the banking industry. And our Bank, what happened is about 5 years back itself, we started a working group on the IndAS. So, we are consistently and continuously preparing our pro forma balance sheet based on the given principles of ECL as well as the IndAS. So, in that front, we have already started the preparation. So, we are very well aware what are all the requirements of the banking sector that is by the regulator. And we have started already working on it. So, keeping that in mind, in fact it is 2 things are very pertinent here. One is historical data. Second one is capital-intensive nature of this particular accounting practice. I must say that in both the fronts, we have taken abundant precautions right from the beginning. So, even going forward, whatever the action plan that the RBI is proposing for the entire banking industry, I am sure that Karnataka Bank will not lag behind in implementing those requirements. So, that is the preparedness as of now we have at Karnataka Bank.

So, just one last question, sir. We are a bank which has a very diversified set of shareholders, not identifiable promoter group, et cetera. So, going forward, sir, we hear a lot about, you know, how consolidation could happen, et cetera. So, in such a scenario, how do you see our Bank, our Board would respond to, you know, consolidation attempts by others? Or are we on another way where we want to acquire and consolidate? What is the broad thought process at the Board level, sir?

Yes, 2 things are very important. Merger and acquisition is not a new thing for Karnataka Bank. In the 1960s, 3 banks got merged with Karnataka Bank. In the year 1960, it was Sringeri Sharada Bank. 1961, it was Chitradurga Bank Limited. And 1966, it was Bank of Karnataka. So, these 3 banks got merged with the Karnataka Bank. Second one is, as you have rightly pointed out, we don't have any promoter group. None of the shareholders, as of now, hold more than 5% of the equity. So, that clearly indicates that it is a professionally managed bank. So, on many occasions, I have made it very clear that we are a professionally managed bank with professional board, seasoned executives, committed employees, and the loyal customers. These are the 4 strong pillars of Karnataka Bank. So, all these 100 years, we have been focusing on that, and that is why in none of this 100 years, Bank had incurred loss. This is one very significant feature of Karnataka Bank. Not only on the 100 years but also, if you look into any quarter, not even on a quarterly basis, the Bank had incurred loss. That means we have been a profitably run bank. So, the identity and these core values of the Bank would continue. So, going forward, let us say I am also not averse for the inorganic growth also. As and when an opportunity comes, my Board will discuss and take an appropriate view at that time. But Bank would continue to have its identity and would continue to contribute in a significant way to society, as well as to all its stakeholders going forward. That is our centenary resolve.

[Operator Instructions] Nikhil, go ahead with your questions.

So, meanwhile, I will just take up my few questions. Sir, as you have indicated, like overall we are targeting 15% growth for FY '23. Sir, just wanted to know your sense, like taking a broad sense and, you know, further ahead. So, overall for next couple of years, like '24-'25, what would your overall growth strategy would be? In which segments we are kind of focusing more? And what is a sustainable growth that you believe when the Bank can achieve, our Bank can achieve it?

The Indian economy is poised for a very decent growth in the coming years. And as India is acting as an economic engine for the entire world, I am reasonably convinced that we can have a high-teen growth in the credit for our Bank for the next couple of years. Second one is definitely we are focusing on the agriculture sector. That is our priority area. And we also having a very good action plan to take our gold loan portfolio from the present 5.03% to a level of around 10% down the line, may be about a couple of years. And the home -- auto loans, that is, the 4-wheelers and the 2-wheelers, that is our identified priority focus area. And also the home loans. As of now, my home loan portfolio consist of around 16% of the loan book. Definitely, there is a very good scope for taking it to a level of 20%. As already mentioned by our ED, Mr. Sekhar Rao, we have already automated the entire underwriting process of these retail loans. So, that is the capability that we have. So, these capabilities will help us enhance our efficiency in all spheres of banking. And coupled with that, our MSME portfolio is also faring well. So, we will continue to focus on that. There could be some good proposals in the mid-corporates also. We are not focusing more on the large corporates, that is more than INR 100 crores exposure. If at all we are focusing there, it is the high-rated corporates. And what are all the ancillary business that we are going to get from that sector, that is also being taken care of. So, we have identified these sectors for our future growth and we will definitely continue to focus on that. So, in a nutshell, our focus area should, I mean, our aim, is to have a very decent high-teen growth in the advances without compromising the quality.

Sir, just to further push on this thing, like home loans what we are targeting, like we were also having a discussion with few of the management this week, where many -- few of the managements have indicated that because of the increasing interest rate scenario or there is some like on the volume side, the growth has been on the lower end and it's more because of the premiumization that the overall growth is sustaining. Sir, are we also facing such kind of things? Or how is it, if you can...

Yes. We have to -- right now, to answer your question directly, we are not focusing just on the premium segment. It is in more diverse kind of buckets that we are getting our home loan sanctioned. Also, in the markets that we are currently present, particularly our strong markets are South and West, Mumbai included. Mumbai region is our second largest region. So, in these pockets, say, for example, Bangalore, Hyderabad, Chennai, even Mumbai, we are seeing fairly sustained, less of Mumbai but more South market, we are seeing fairly sustained, what we call, home loan inquiries and growth. And we see that happening for at least for another 2 to 3 years because there is ample capacity and demand on the real estate side. And, of course, then it comes to funding. We -- till now, we were largely dependent on the branch to originate these loans. It was more of inbound or cross-selling of home loans to our customers, but now we are setting up or already set up in major geographies a fairly extensive DSA network to increase outbound business as well. This, coupled with properties, [ empaneled ] properties, pre-approved properties, we really expect a fair bit of growth in home loans.

There is a question in the chat box. So, I'll just read it out. It's from Ketan Shah. Like, is it possible to share your view --

Ketan sir, there's a request from the management, if you could just, if possible, turn on your cameras. Participants, a request from the management, while asking questions, it will be great if you could turn on your cameras. Thank you. Ketan sir go ahead. Thank you.

Can you hear me?

Yes, Ketan.

Sir, last 2, 3 quarters, we have just come out of the phoenix, I would say.

It is sustainable and consistent hereafter.

Yes. So, my question was on that only, sir. If you can share your view on your asset quality going forward for the next, let's say, 1, 2 years, how do you see your GNPA and NNPA ratios? If I exclude the last 2 quarters, you know, the spikes have been quite high in past as well. So, any guidance will be very helpful. That is 1 question. And the other is, sir, I was reading your annual report and we are doing some CapEx on the corporate office front. So, if you can guide us on that, that will also be very helpful. And the third question will be on your technological initiatives. I got some information, but how do you intend to increase that tech initiatives? Are you recruiting some key people there? Or are you taking some more help from outsiders? That will be helpful.

Let me answer all these 3 questions one by one. As far as asset quality is concerned, I think all our past, the negative surprises, it is totally over. We are into the area of positive surprises only and we have been doing the asset, this stress identification, some proactive steps also. EWS, everything we have put in system. So, the hidden stress, if any, we are also able to identify that. In fact, that is one of the assignments or the use cases that we have highlighted for our ACOE journey as well, that is Analytical Center of Excellence. So -- and we have been in an accelerated provision mode since last couple of years. As a result, the GNPA now stands at 3.28%. I am sure that we will be heading towards below 3% very shortly and we should be able to sustain that. In the NNPA also, now it is at 1.66%. So, most probably, it may stabilize at 1.5% and below very shortly. And thereafter it would further improve because of the stress in the portfolio in terms of SMA 0, SMA 1, and SMA 2. Not only the stress, as I said, the hidden stress, even some of the regular accounts, they may also be as far as the financial parameters are concerned, they may not throw out any stress-related issues. But we have already put in place a tool wherein the non-financial parameters related to stress is also now being identified. So, corrective actions are initiated at an appropriate time. So, that is the confidence that I have that going forward, since our onboarding of the loans, a lot of filters have already been put in place. The quality of onboarding has improved significantly. The monitoring process has also been taken to a new high. I am reasonably convinced that the asset quality that what we are seeing now is going to further improve in the days to come. It would get better and better. As far as the CapEx is concerned, I think it is maybe the total CapEx is not even 1/3 of our quarterly profit as of now. It would be in that range. So, it is mainly to serve the back office related activity and of course, that is also -- it is coming up as a centenary building mainly to cater to our back office related activities. In the technological initiatives, you are very well aware that we already had DCOE, Digital Center of Excellence at Bengaluru, which is an innovation hub for all our underwriting products that we have launched and also for onboarding of liability products. So, now, as rightly pointed out by our ED, the majority of our day-to-day [ SAW ] onboarding customer, it is happening through the digital channel. Apart from that, we have recently started the ACOE, Analytical Center of Excellence. That means we are convinced that, in due course, all the decisions that we take it is driven by data. You know that data is asset. So, to encash that opportunity to put Karnataka Bank in a lead position in that area, we have started ACOE. So, a lot of initiatives have already started. About 32 use cases have already been identified. And that is the new way of doing business ably supported by ACOE initiatives. Another important thing that has happened for Karnataka Bank is that, about a year back, we have started our own wholly-owned subsidiary. We call it as KBL Services Limited. So, this is 1 major instrument wherein I am betting big on enhancement in efficiency. I call it as all-around enhancement of efficiency because we are going to have more feet on street from this particular subsidiary. A lot of back office work is also being entrusted to KSL subsidiary. And we are hopeful that going forward, this would be very handy in having a decent cost-to-income ratio also, which is presently at 47.90%. So, these are all the initiatives which would have a far-reaching impact, and that is why we are convinced that going forward, we would definitely be emerge as a strong, vibrant digital bank.

Sir, 1 question. Do you see any specific stress in any specific industry, let's say, MSME or gems and jewelry space? If you can give any qualitative info on that where you see, you know, any surprises or any stress in the industry as such?

Yes. See, you mentioned stress in specific sectors. In fact, our exposure to gems and jewelry is very, very negligible. But 1 portfolio which during the COVID, across all the -- like housing or MSME where you have some kind of a restructuring with a moratorium. That portfolio is closely monitored also because majority of the restructured accounts started repayment also. In the sense, they have come out of the moratorium. Moratorium period maximum of 24 months. You all know the COVID-related packages being announced by the Reserve Bank of India and implemented by the banks in India. So, this particular portfolio is getting the required attention. And yes, during the current year, we had some kind of what you call, delayed repayment -- the delayed payment coming to the contractor from the government, which is now getting some kind of a focus, where we saw some kind of stress. Therefore, this particular exposure to the contractor segment, especially the state government, I am not talking about the NHAI contractors, it is only local state government contractors. We are hopeful that during the fag end of the year, a lot of payments also naturally and traditionally used to happen. That would continue to flow to the contractor and the stress in that portfolio will also substantially come down. So, we have already set up separate monitoring teams to look into the stress management, identifying the stress well in advance and having one-to-one interactions to address the stress. All these are taking place because of that exclusive monitoring team in our credit monitoring department.

To give few numbers, we have been closely monitoring the NPA level in each and every important sector. Say, for example, agriculture, about a year back our NPA percentage in that particular sector was at 5.88%. Now it is at 4.73%. And if you look at the MSME, about a year back, it was at 6.02% of that particular sector. Now it is at 5.46%. And if you look into the infrastructure, our stress about a year back was 3.48%. Now it is at 1.41%. Similarly, the real estate. Both the commercial as well as residential, it was at 3.49% about a year back. Now it is at 2.90%. NBFC, we had 0.16% NPA about a year back. Now, that it is totally at nil. None of the NBFC accounts are figuring in the NPA accounts. So, in all the portfolios, individually, we are keeping a close tab of it and there has been a consistent improvement across many loan book. And I am reasonably convinced and confident that we will be able to take it forward on account of 2 factors. One is a very, very efficient onboarding process now that we have put in. Second one is a very effective monitoring process.

Thank you, Ketan sir. That was Mr. Ketan Shah from Shriram AMC. Thanks for your questions. [Operator Instructions] We have question from Mr. Dhimant Shah from ITI.

Am I audible?

Yes. Dhimant, one second, a small request, please put on your video.

Yes, I'll just try that because there was some issue with the camera, but I'll just try. Sir, 2 quick questions. Your ROA, ROE is functionally there. I mean, you had guided earlier for around 1%, targeting 1% and the ROE around 15%. Functionally, with the current construct and the retail tilt that you have, how do you kind of for the next 1 or 2 years in the medium term, especially given that quite a few PSU banks are also wanting to have this retail tilt, so what are those 2, 3 things that will give us an edge and also continue to maintain the ROA upwards of 1% and ROE hopefully, has an outcome greater than 15%? So, if you can spend a minute on this? And question number 2, could you also give us the color of your investment book? What is the overall duration and the duration for the AFS and the HTM book? And do we see, you know, some more pain in the ensuing quarters or, by and large, the depreciation that we saw is almost done? So, if you can just help answer these 2?

Yes. ROA and ROE related, I think our ED will answer. Investment book related, our CFO will answer.

So, coming to the ROA and whether it is sustainable and the linkages to our retail strategy, I will first speak about the retail strategy compared with public sector banks. Yes, there are some public sector banks which have done well in the retail space, particularly ones like [ NCI ], Bank of Baroda. But there are a host of other ones who've been kind of, adversely impacted by this bank consolidation and that has happened more or less to a large extent in Karnataka. You have household names like Syndicate Bank, Vijaya Bank, Corporation Bank, which are no longer existing. And we are still trying to figure out how to appreciatively kind of create the new structures that are there. So, we are getting a fair bit of what you call positive rub-off on account of that. Customers wanted to wait and watch and give them some time so that the consolidation merger works but still, you have fair bit of normal here and we see customers willing to kind of migrate to us. Here our investment in technology where across retail, we are -- all our, what you call schematic loans or parameterized loans are now digital end-to-end, which makes customer onboarding easier and work at scale as well. A lot of our MSME loans are also along the same lines. We have introduced products for cash flow-based lending in MSME. We are also working with [indiscernible] and others in the industry to kind of create innovative products. One such initiative is a product which will work with the GeM Sahay model, and we will have a cash flow-based product. We were till now restricted to kind of inbound businesses. But like MD sir mentioned, we have institutionalized a subsidiary, which gives us additional feet on the street to do outbound selling also. So, lot of models which are more akin to new-gen private sector banks in the retail space have been adopted over the last year are falling in place. So, clearly, the groundwork for growth has been done and we would see fair numbers -- fairly good numbers happening in the retail space.

Sir, just to -- sorry for the interjection. Just a question here. When you set goals and targets for the ensuing 1 or 2 years, what are the areas you can course correct and enhance so as to fall in line, just in case, let's say, you have targeted just for argument's sake, let's say, in the current year, you have targeted, let's say, 1.25 as ROA, and let's say, 16% as ROE, upwards of 16%. And let's say half year, you find that this is 1.1% and 15% only. Then what are the levers you would tap into or course correct and kind of push the pedal so as to reach closer to the goal?

So, obviously, these are, like you correctly mentioned, lag indicators. So, we will continue to work on the lead indicators, which is consistency in our quarterly results, consistency in the health of our book, consistency on the growth, particularly top line, on the advances growth, which this year we are already clocking. And with this, we have already seen the results of us being consistent over the last 3, 4 quarters in ROE. ROA will be slightly more of a consolidation, I would say. You won't see anything spectacular there. We will hover around this range, or it will be ranged on between 1.14% to 1.25%. And ROE, we see some, if we stay consistent, some good news there.

And the second part of the question, if you can?

Second part of the question on the investment book. Yes. What's your exact question on this investment part?

So, yes, the overall duration of the book, then the HTM portion duration, and also the duration of the AFS, as well as held to -- our FRE, the trading book?

So, we will have to get kind of back -- I'll get back on the duration numbers. I don't have it ready-made. But what I can help you with is that on the depreciation. So, you were also asking me about the depreciation on the AFS and the HFT angle, isn't it so?

Yes. Correct.

So, actually -- on this entire 9-month, we have incurred a depreciation of about INR 200 crore. As the rates are hiking up, we are factoring in the decrease in the price and the depreciation on the AFS and the HFT portfolio. Not only so, but at this time, RBI has asked us to provide on the SR portfolio as security receipts.

For the entire banking sector.

On this entire banking sector. So, we have made a provision of INR 95 crore in this quarter. So -- and another issue is that RBI also issued a discussion paper on in adjustments also lase year -- January.

Sorry, just to clarify, this SR is on what you have...

On the ARCs.

On the ARCs, okay.

On the security receipt, just very quickly on that. Our security SR book is more than 93% provided for. We have stopped the SR ARC sale almost 3 years back. Even post-Q3, there has been some recovery in the SR book. And in fact, we have made some money out of it. So, the point he was making the Q3 results would have been even better if this INR 94 crores one-time provisioning had not been made.

Dhimant, you might have noticed that SR provision, whatever that INR 94 and odd crores that we have made, it does not get reflected in the PCR, not in the CRAR.

Okay. So, this is an extra portion that you have.

Yes. Correct.

And lastly, the focus areas as far as this year goes in terms of, you know, the high-yielding loans, what would be those areas? Would you [ comp-prime ], let's say, to balance out, so would you be focusing on housing? Would you be focusing on gold loans? What are the focus areas this year?

I think I have already answered that question. See, our focus area would continue to be agriculture, contractors, and infrastructure-related things, home loans, and the auto loans, as well as the gold loans. So, these are some of the focus areas and we are very active in those areas. So, for the current 9 months, this has been our focus area, and I think we will be getting stronger and stronger in those areas, including the MSME.

Dhimant, I will get back on the duration front. I will [ email ] you.

Thank you, Dhimant for your questions. [Operator Instructions] Nikhil, why don't you continue with your questions? Thank you.

Yes, sure. So, sir just one bit like, you have already indicated this in our con call as well, in now our ED, Mr. Sekhar Rao, has joined. To Mahabaleshwara, sir, just like if we have 2 months for your term to get end, sir, what is the process there? And how if there is some incremental news as well if you can share?

Process has started. So, Board is totally seized of this particular action point. So, we are very much on track. And as I said, our Bank is professionally managed and system and process-driven bank. If you look at the transformation journey what we had treaded during the last 5 years, it is a testimony for that also because that transformation journey, KBL Vikaas it was not any individual-driven initiative. In fact, it was holistic and inclusive and it also had an element of a bottom-up approach, as well as crowdsourcing the ideas. Our staff members they acted as the change agents. So, in a nutshell, this is basically system and process-driven bank. So, things will be taken care of accordingly in a professional way going forward also. My second term that would come to an end by the 14th of April, 2023.

So, just incrementally wanted to know that on the PSL side, like what we have heard is like there are -- if the rates have not been so much and how are we placed there on the priority sector lending?

Priority Sector Lending, mandated target is 40%. In fact, we are positioning ourselves almost reaching 50%. As regards the achievement of the target, it is not an issue. And majority is coming from our focus area, like agriculture, because it is also a mandatory requirement. 18% of the PSL should be towards agriculture, where earlier we had some shortfall. That's why you would have noticed that there is some kind of investment into [ RIDF ]. That is already addressed. This because we are already doing some direct lending to agriculture. And our focus towards the agri gold loan together with we are confident that this time there will not be any shortfall in agricultural of sub-target under priority sector.

So, like I said, no incremental kind of additions to any RIDF, et cetera. We have more than overachieved both the PSL and agri target.

Taken care of.

Taken care of.

Sir, just the last question from my side. If you can share on the data-keeping points, like what could be our incremental yield on housing loans and gold loans?

So, incremental yield, of course, we will be in line with all our products are linked to external benchmarks. So, it will move in tandem with how the pricing moves. On gold loans, of course, yield of our, what you call overall advances book will improve because gold loans have a higher yield as compared to other loans, and we are planning to increase our penetration of gold loans, given that we have 500 plus branches in South, which is a very active gold loan market. But otherwise, we will stay competitive in the market and our pricing will be as competitive as other peers or competitors in the market and it will be linked to the way external benchmarks move.

See, 2 things are there. One is, of course, across the industry, the interest rate is moving up. The second one for us is the quality of the portfolio is also improving. So, these are the 2 major factors which are contributing for the increase in the yield on advances, not only in a particular sector but also for the entire loan book. So, that trend is very much visible. We have been tracking this trend for the last couple of quarters. This is moving in as per our expectations.

Sir, just one last thing if we can squeeze, that is mainly on our branch expansion. So, we have been growing, and we have been expanding branches. So, any specific area that you will be targeting or regions?

We have identified about 12 promising states across India for our brick-and-mortar branch expansion. So, this year we have targeted to open around 20 branches and that is very much on track. Next year also may be in the same line. May be 20 to 30 branches, we may open, but our focus is on having more and more digital touchpoints. The second one is more business per branch and more business per employee. So, these are the qualitative factors that we are driving. That doesn't mean that we will not focus on the physical branches. That is also there, but we will not be going big in the physical branches.

And Sir, any specific regions that you are targeting? Like you are pretty well spread in the regions that we are right now, working in like Karnataka, Maharashtra, and Delhi. So, any other?

No, as I said, we have identified 12 states. So, these 12 states are spread across India. Depending on our past experience and exposure to those states and the present, the economic conditions of those states, as well as law and order, we have identified these states because we should be able to get the best out of those branches that we are opening. Because for me, how quickly these branches would break even that is also a significant factor. In fact, that is one of the KRAs for my executives also. So, these things are really factored in, while taking a call on branch expansion.

[Operator Instructions] As there are no questions and in the interest of time, Nikhil, we can conclude. Thank you.

On behalf of Nirmal Bang Institutional Equities, I thank you to the management and the participants for giving us time and joining this conference today. Thank you very much.

Thank you.

Thanks, everyone.

Your effort is appreciated. We are really thankful to you also, Nikhil. All the best.

Thank you, sir.