The South Indian Bank Limited (SOUTHBANK) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the South Indian Bank Limited Q3 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Yuvraj Choudhary. Thank you, and over to you, sir.

Thank you, Aisha. Good morning, everyone. On behalf of Anand Rathi Securities, I welcome you to 3Q FY '20 earnings call of South Indian Bank. We have with us today the management team of South Indian Bank, represented by MD and CEO, Mr. V. G. Mathews (sic) [ Mathew ]; EVP Operations, Mr. Thomas Joseph; EVP Credit, Mr. Sivakumar; EVP Treasury, Mr. Reghunathan; and CFO, Ms. Chithra. I now request Mr. Mathew sir to take us through the highlights of the quarter gone by, after which we will open the floor for questions. Over to you, sir.

Thank you, Yuvraj. A very good morning to all, and thank you for joining us for our Q3 FY '20 earnings conference call. As Yuvraj mentioned, we have Mr. Thomas Joseph, EVP Operations; Mr. G. Sivakumar, EVP Credit; Mr. K.N. Reghunathan, EVP Treasury; as well as CFO, Ms. Chithra with us. Let me take you through the key highlights of the operational and financial performance for this quarter. I'm delighted to state that the bank's operating performance has shown further improvement in Q3 FY '20. We have achieved strong success across our stated strategy of strengthening margins, moving towards a favorable loan mix and recognizing the last of the stress in our large corporate loan book. The profit after tax rose to INR 91 crores in this quarter, an increase of 8%. We continued to expand our noncorporate portfolio, particularly in the segments of retail, gold, agri loans, which now form 70% of the overall loan book. As of December 31, 2019, the total business of the bank stood at INR 150,208 crores, an increase of 9%. Advances grew by 9% to INR 65,334 crores, driven by continued robust growth in agri loans, retail and MSME segments, which the -- while the corporate loan portfolio has declined by 6.6%. The share of corporate loans declined from 35% as of December 2018 to 30% as of December 2019. Retail loan grew by 18% primarily driven by increase in our desired segments such as mortgages, gold loans and auto loans. Deposits, excluding CDs, rose by 11% to INR 80,451 crores. CASA deposits increased by 13% to INR 21,422 crores. CASA ratio rose to 25.2% of the total deposits. Our investment book rose by 11% to INR 21,024 crores, of which HTM category contributed INR 16,684 crores while AFS contributed INR 4,340 crores. Gross NPA ratio remained stable at 4.96% as of December 2019. Net NPA ratio improved by 10 basis points to 3.44% during the quarter. Net interest income for the quarter stood at INR 602 crores, registering a growth of 16%. Net interest margin rose to 2.72% in the quarter as against 2.66% in Q3 FY '19. Other income for the quarter increased by 18% to INR 220 crores. Our core transaction fees contributed INR 57 crores, while treasury income increased to INR 32 crores. We have already entered into multiple distribution tie-ups with leading insurance companies and are seeing strong traction in third-party fees. As we continue to expand the retail and MSME verticals, we expect better momentum in the transaction fee and third-party income in the coming quarters. Operating profit for the quarter was INR 383 crores as against INR 332 crores in Q3 FY '19, an increase of 15%, driven by loan growth and better margins. In Q3 FY '20, the business per employee rose by 15% while business per branch rose by 11%. The cost-to-income ratio remained stable at 53.4% in Q3 FY '20 as against Q3 FY '19. We expect further improvement in the OpEx ratio as we gain from operating leverage from our centralized operations, higher fee income and increase in productivity from existing branches. Overall, provisions increased by 28% to INR 261 crores in Q3 FY '20. These provisions included loan loss provision of INR 203 crores. Including write-offs, the provision coverage ratio continued to improve and stood at 50.4% as of December 2019 as against 48.1% as of September 2019. In Q3 FY '20, gross slippages were INR 358 crores, which were primarily contributed by corporate borrowers from the housing finance sector and the fitness-related borrower, which were part of the watch list indicated in our Q2 results call. The NBFC account mentioned in the watch list has been sold out. The irrigation-related account remains standard. We are confident that the fresh slippages will see a 30% to 35% decline in FY '20 vis-a-vis FY '19. Our overall capital adequacy stands at 12.0% while the core CRAR is at 9.6%. Including profits for the current year, core CRAR is at 10.1%. The bank has a wide geographical presence with 870 branches, 53 extension counters and over 1,400 ATMs. To summarize, the bank continues its steady progress towards strong business growth, favorable loan mix and improved asset quality. We expect that these measures will enable us to deliver higher profits in the coming quarters. With this, we open the floor for questions.

[Operator Instructions] The first question is from the line of Prithvish Uppal from IndiaNivesh.

Sir, this is Ravikant here. Just 1 question on your other income. Was there any PSLC fees that we have booked? Or was it any -- was there any recovery in return of accounts that was there in the quarter?

Both were there. So we had a PSLC commission of INR 16 crores, recovery on return of accounts INR 3 crores, then interest on IT refund of INR 15 crores.

Okay. So IT refund was the major part. So that INR 79 crores -- out of the INR 79 crores, INR 50 crores would be IT income, right?

INR 15 crores, 1-5, 1-5. I wish it was INR 50 crores, yes.

So sir, the total miscellaneous is INR 79 crores, and I think the -- so we still have some INR 30 crores left in that?

There are many small items, like insurance commission charges, which we get upon maintaining customer account, locker rent, variety of things.

Okay, understood. And sir, just quickly on the Tier 1 capital raise that you have -- you're doing, the AT1, I'm sorry, so the final pricing is what? I mean, is it 13.75%?

No. I mean the Board has approved issue of AT1 bonds up to INR 500 crores, including any greenshoe option. But beyond that, no other decision is taken.

Okay. So the pricing is yet to be decided?

Exactly.

The next question is from the line of Rohan Mandora from Equirus Securities.

Sir, wanted to understand with respect to noncorporate growth outside of the south region, if you could share some color on how that growth is shaping up because overall growth is negative in the non-south geographies, primarily because of corporate, I believe?

Yes, that is the only problem. That is, the corporate book is typically parked in Mumbai, Delhi, Hyderabad, the largest part of it. So all of them have declined. Apart from that, all the areas, including MSME and retail, all components of that, including mortgage loans, they're all growing in line with the distribution of the branches. There is absolutely no divergence in terms of growth in ex Kerala areas.

So ex south, the retail and MSME would be growing close to 14%, 15%? Would that be a fair assumption?

Exactly. Everywhere it is growing in the same levels, yes.

And sir, if we come to Slide 19, where we are giving the bifurcation of the loan mix based on the ticket sizes, so if I look in the INR 25 crore to INR 100 crore segment, the number of accounts have gone up by around 100 accounts in -- from September to December quarter. So just wanted to understand, are we getting aggressive in this segment in terms of originating new loans? Or is there something else to read into it? 227 to 327?

That is INR 25 crores to INR 100 crores.

Yes, INR 25 crores to INR 100 crores.

But INR 25 crores to INR 50 crores, we have given the breakup, no? Okay. We will come back on that, yes.

Sure. And sir, corresponding question on the data point is that the loan outstanding has also not increased materially. So on both the points, if you could revert back? And then thirdly, in terms of the restructured book, which we are doing under MSME, that number has gone up substantially in the last -- in the 9 months for the current year. So how do we -- how should we read into that restructuring, like eventually, do we expect material recoveries? Or what is the management's assessment on those portfolio?

Yes. We mentioned in the last con call also, 15% to 20%, we expect slippage in that portfolio given the current environment. Otherwise, many of them would have survived, but we are not very, very confident. So that's the reason why we are mentioning 15% to 20% can slip. And the only difference here is, these are all companies where not only the primary security is available but we have taken sizable collateral security. Whether it is in Kerala or outside Kerala, we have taken a sizable amount of collateral security. So at the end of the day, I mean, we find, in such cases, there is always an orientation towards settlement, recovery, et cetera.

That's right. But sir, like, in terms of the cause of the stress that they are seeing, if you could highlight in terms of what is the sectoral composition? And what are the reasons why [ these and -- ] PPs are not able to service? What are your observations on the same?

Basically, these are all well spread across all MSME sectors. Like, for example, if you take Kerala, it may be more like we have got various areas like -- marine is there, cashew is there. So many sectors are there in Kerala. And then, of course, outside Kerala, if you look at it, there could be some textiles in some cases. So various other -- I mean all sectors of MSME. So it's not as if any particular sector is finding a significant weakness, but overall economy is not growing very well. And we will expect some kind of a knock-on effect on the MSME sector. And it is reasonable to do that. That's the reason why we believe that 15% to 20% slippages could happen in that sector. Otherwise, at the moment, I mean, there are no such visible symptoms.

Sure. And sir, lastly, on this security, we see its valuation, which is due for -- as of December. So anything on that?

We haven't heard yet. And typically, it takes 1 month for the rating agencies to finally communicate the position to the ARC. We are in touch with them -- I mean, in touch with the ARC rather. We have to get their word yet. So as we mentioned last time also, we believe that it is sufficiently covered. But of course, it is the prerogative of the rating agencies we are just awaiting.

The next question is from the line of Jitendra Upadhyay from Bonanza Portfolio. [Operator Instructions] The next question is from the line of Elesh Gopani from Gopani Securities.

I have 2 questions. One is, in which companies we have tied up for insurance business? Whether we are doing life insurance or general insurance?

Yes, we have tie-up with Bajaj, Kotak and SBI Life in life. And in general insurance, again, we have in -- we have Bajaj, we have New India.

Yes, the tie-up in the life side, it is primarily -- we have got SBI Life, LIC and Kotak Life. And in the -- on the general side, we have got tie-up with Bharti AXA, we have got tie-up with Bajaj Allianz and also with New India Assurance.

Okay. Sir, you have told that for the next year, our fresh slippages will be less 30% to 35% than '19. So what are the targets of gross NPA and net NPA for the next year?

The levels absolutely will not increase from the 4.96%. That 4.96%, we will never cross now.

So what are the targets that you wish to achieve for the next year?

For FY '21, what we are trying to do is to give a target of INR 800 crores to 1,000 crores. That is, we are assuming around INR 200 crores to INR 250 crores per quarter. That's the max. And we are taking a very conservative view there because of the restructured book that we are having at the moment. And of course, there would be a recovery of more than INR 500 crores per year.

Can we come to the list next year?

Pardon me?

Can we come to the dividend list next year? Dividend list means for...

We are paying dividend, of course.

Okay. This year also we'll pay dividend?

Yes, yes.

I mean, we should. The decision is to be taken by the Board and -- at AGM, of course. But definitely, I mean, we never stopped paying dividends.

The next question is from the line of Drashti Shah from Investec.

Sir, could you explain us the rationale behind growing our noncorporate book rather than conserving capital at this point of time till the time we don't complete our capital raise?

We also generate significant amount of profit. Every year, you would have noticed, even in the worst period, we have put INR 200 crores back into the business. So the growth is definitely consistent with whatever we are generating internally. In spite of providing significantly for the corporate problems over the last 3, 4 years, we have been putting back money consistently into the business. And it won't come down at all in this year, it would be only improving. So there won't be any difficulty about it. Apart from that, we do not find any significant challenge in raising either tier 1 -- additional tier 1 or tier 2.

Sir, till when can we conclude our capital raise then? You know how confident are you to conclude a capital raise and by when?

We are fully confident. We are fully confident. The work is already -- I mean like the Board has given the permission yesterday, and it will happen immediately.

The next question is from the line of Nitin Aggarwal from Motilal Oswal.

Sir, I have 2 questions. Firstly, on -- if you can give some color on the progress in the stressed accounts, like, though, you mentioned about irrigation and the HFC, but the other stressed accounts that we had. So what is the outlook on them? And where our SMA-2 number is now?

Yes. SMA-2 number has improved vis-a-vis last quarter. So I'll just give you the details on that. Yes. I think the SMA-2 for the current quarter is 2.71% vis-a-vis 3.51% in the last quarter. And the more important point that we would like to highlight is, there is no SMA-2 accounts at all in the INR 100 crores and above or -- yes, INR 100 crores and above. And in the INR 50 crores and above, there is just 1 account. That's about all, yes.

Okay. And about the stressed accounts, sir, other stressed accounts that we used to...

Basically, the problem -- I mean, like you know what we are having at the moment in terms of stressed accounts, they are all about more of the MSME restructuring, the flood restructuring. Those are the accounts that we are talking about. The restructured book is the one that carries some stress. But otherwise, like in the last list, we had 1 account pertaining to irrigation, that has become standard. And in any case, we are talking about INR 50 crores kind of thing, and we should be able to deal with all that within the INR 800 crores to INR 1,000 crores slippage that we are talking about in case any such slippages come up.

Okay. So that run rate will hold even for Q4 or the improvement will happen only from next fiscal?

Even for Q4, that is what we are looking at. That is what we are looking at even for Q4, yes.

Okay. And related to it, sir, if you can give some color on the fraud accounts that we have, like, recognized this quarter and...

There is only one, which is, like, major credit fraud, in the sense like it is a road asset belonging to a very, very major group. And it was, I'm sure, taken way back in maybe 2012, '13 or something. We have not taken a single road project, port project, EPC contractor or thermal power, any of those accounts, telecom accounts or any of those accounts in the last 5 years. So this is one of those old accounts and where -- which has already become NPA, but I think there was some observation, I believe, through the courts to carry out an inquiry and in the inquiry, I think it has been found that some money has been diverted. It has to be made fraud account. So that is what we have done along with the other members of the consortium. That is a larger one. Apart from that, others are very small ones. There is nothing much in that.

Okay. And sir, the other thing is on the margins. Where do you really think that the margins are going to be some -- in FY '21? Like last 3, 4 quarters, we have seen some modest improvement there. How much room you think we have further improving this?

Yes. We talked about an improvement of 10 to 15 basis points in Q1 when it was 2.53% or so, 2.53%, 2.56%, if I remember correctly. And so therefore, that has already happened. So we are at 2.72% on a stand-alone basis. And we hope to maintain that, that is the most important thing at the moment. I won't commit to an increase in the 2.72% level at the moment.

The next question is from the line of Sachin Kasera from Svan Investment.

Congrats for a decent set of numbers. Sir, can you just give us a break of this deduction for the 9 months? How much is because of write-off and how much is because of upgradation and recovery? And how do you see the full year number in that?

Sure, we will. So we had slippages of INR 358 crores and increasing and I think growing. So therefore, INR 361 crores is the total addition. And the cash recovery is INR 45 crores, upgrades are INR 54 crores, ARC sale is around INR 17 crores. And therefore, the total recovery and upgrades are coming to INR 116 crores. Then we had a write-off of INR 146 crores. Therefore, the total reduction is INR 262 crores. Therefore, we have a net-net position of INR 3,244 crores.

Sir, for the full year, at the beginning of the year, you had guided that upgradation and recovery would be in excess of INR 500 crores. Can you tell us what is the picture for these 9 months? And how is it looking for the...

9 months cash recovery is INR 208 crores. This is actually Y-o-Y. So I won't know. I understand, but what I'm reading out is, I think, Y-o-Y, so it's okay. So the total number will be around INR 300 crores. And we should be able to achieve. We are trying our best because a lot of things, particularly slightly larger value cases, we have initiated a lot of action in terms of selling off the landed property. So that is where -- the question is, how much you want to realize? You see, we want to maximize, that is where the debate comes up. So if those things happen, of course, INR 500 crores is absolutely no problem.

So for the 9 months, we have a INR 300 crore number, and we are trying to achieve the maximum number of closer to INR 500 crores in the Q4?

Exactly, exactly.

Sir, secondly, for the next year, you mentioned that the slippage could come down from INR 1,200 crores, INR 1,250 crores this year to between INR 850 crores to INR 1,000 crores. How do we see the upgradation and recovery next year? And secondly, what is the type of provision number we can look for next year?

Yes, I will answer the last one because that is a very critical number we are always looking at. So we have crossed the 50% threshold. That is the most important thing for us. We want to reach 60%, that we will achieve. 60%, we will achieve by 2021 March, by all means, it could be better than that. What we are trying to achieve is at least 60%. And that is quite doable because what we have seen is even 41.2% -- 9.2% improvement is there already compared to last year. So therefore, we know that, that kind of improvement is definitely possible. So 60%, we are definitely achieving. And in terms of the recovery, we -- obviously, we -- the internal targets are certainly not INR 500 crores, it is definitely more than that. So we will definitely try to maximize, but what we would definitely mention on a conservative side is still around INR 500 crores to INR 600 crores.

Okay. Sir, my question was more in terms of the provisions that you may have to take in the P&L in FY '21 vis-a-vis the provision that we have made -- make for FY '20.

Yes. The provision should also be like some more time, the higher provisions, elevated provisions, will have to continue because we need to reach that 60%. So we are expecting around INR 200 crores of provision for some more time to continue, maybe for the whole year.

So next year also, we should look at INR 800 crores plus/minus, something as a provision number?

Exactly, exactly, around INR 800 crores, yes.

And sir, any sense in terms of, if we see, you have given on Slide #32, the slippage trend across all the 4 segments. On the corporate side, you mentioned this is the peak and we should go back down now. In case of retail, agri and MSME, last 2 quarters, there has been, especially agri and SME, there's been an improvement. So do we hope to sustain this? Or is it that in Q4 and Q -- and again, we will start to see increase in the slippage ratio in agri, SME and retail?

MSME, retail, et cetera, we are really not expecting any serious change. In agri alone, I don't want to commit at this particular point of time because there is always -- we have a tendency to, I mean, have a slightly elevated level in March because of the interest servicing requirements in the agri sector, some of the interest servicing are only 1 year based. So obviously, that can create a bit of a problem. So we -- that is the reason why we are still very conservative in our estimates of what would be the overall provisions and the slippage level, yes.

Okay. And sir, this ratio has improved to 70%-30% corporate versus noncorporate. Next 2 years, will this ratio further improve to, say, 80%-20% or 75%-25%, how do you see this ratio going forward?

Our commitment to the Board was that we would bring it down to 30%. That was the main commitment that we had made and that we have achieved. Now this year, we are supposed to reach 30%, which we have already achieved. Now I mean, on an ideal situation, it can go to say 25% to 75%, but even 30%-70% is absolutely comfortable as far as the Board is concerned. And our strategy decision was precisely that a 30%-70% kind of scenario with a distributed kind of corporate portfolio. The problem was from the large corporate portfolio, which was, as I mentioned earlier, around INR 11,000 crores plus that was there in 2014. That number today is INR 7,300 crores. Instead of growing at 15%, 20%, 25% on that portfolio, we have been actually degrowing on that portfolio, the INR 100 crores and above. So now that we have brought it down significantly and we have also avoided all sensitive, supersensitive sectors like telecom, aviation, entertainment, EPC contractors, thermal power, all these things are not there in the book. We believe that, that is quite cleaned up and even at 30%-70% kind of scenario is also quite high. But on an ideal level, yes, 25%-75% would be very good.

Just 1 last question. You mentioned regarding 2 accounts, 1 in irrigation and 1 in NBFC, which have now become standard. Can you just tell us what is the level of exposure to these 2 accounts?

So one is already sold out, that is, the NBFC is already sold out. And so that's not in our book at all. Then what we are talking about is irrigation accounts, we've got around INR 50 crores.

Is the exposure?

That's the total exposure.

The next question is from the line of Bhavik Shah from B&K Securities.

So I needed 2 clarifications. Sir, the irrigation account is a standard account, it not an SME?

It is standard, it is standard. Yes.

Okay. And sir, so the NBFC account that we sold this quarter, so what would be the, broadly, haircut that we took on the account?

It's a 15-85 kind of a transaction, very low haircut, very low haircut, yes.

So this was an all-cash deal?

No, no. It is a 15-85 structure. 15-85 structure means, it is -- we have to provide as if the account is in our book. So we have done that because we -- I mean there is a certain amount of uncertainty in terms of whether it will remain standard, not standard. So we wanted to get it out of our book, yes.

Okay, okay. And sir, you mentioned that you'd be taking your PCR, including written-off accounts, to 60% next year.

Right, absolutely.

Yes, sir. As and if we exclude the written off accounts, the specific PCR target would be approximately?

So we have an LGD of 24%, including corporate. And if you look at a scenario of the retail side, it is just about 14%, not corporate part, it's just about 14%. So anything like a PCR of 30% on a bearer bond basis is absolutely fine for us. But anyway, I mean, we obviously want to maintain a target of 16%, that we will definitely achieve. And this will give us at least something like 14-plus in any case. And that is very, very comfortable.

Okay. And sir, we have like INR 7,300 crores of large corporate. So I just wanted to have a broad understanding of which sectors would this be in? I understand, they won't be in the telecom, EPC, as you just mentioned.

Yes, we have no exposure to telecom. We have no exposure to EPC, no entertainment, no aviation. I mean, these sectors are not there. One fairly larger sector would be NBFCs. And there, our total exposure is 6.89% of our total loan book. And we are -- we can go up to 15%, but we are absolutely clear that we wanted to maintain it at this level. And there also, we are -- exposures are very well rated, mostly AA and AAA accounts. So we are very comfortable on that side. And all others are -- I mean, various sectors like, all manufacturing, some major hospital and things like that where we have -- we are absolutely well placed.

Okay. And sir, what would be our growth target for next year?

Growth for the next year, again, I mean, we always wanted to grow more than, say, 18% to 20% at all times. Our problem is about the economy. If the economy is growing only at 4.5%, 5%, then we have to be careful about it. So the underwriting standards will get always tightened because it is centralized processing environment. The moment any weakness is not eased in the economy or in a sector, immediately the rules get tightened. So obviously, sanctions will not happen. So it's not as if marketing efforts are not there, marketing efforts are there, but sanctions will not happen. So that is where the small challenge is coming. So there is a very well-defined risk control architecture here. So it has to work according to that only. So in the preferred sectors, we are growing very well. And I mean, of course, we would have loved to see a growth of 20% even in MSME, which is very important for us. Around 25% of our book is MSME. That has not happened so far. So that also would go to around, say, 20% is what we believe. Ideally, we want that 20% growth in MSME. 21% is already there for agri. That we would continue to see that. And in the retail, I mean, we have grown only 17.8% this quarter on a Y-o-Y basis. There, we would also like to see a 20% growth. So finally, finally, even if the corporate does -- I mean the corporate book does not grow at that level, if it is only growing at around, say, 8% to 10%, we still will be achieving 18% to 20% growth. That is the whole idea.

Okay. And sir, in corporate, the rundown has been done, as in I understand, we won't be taking exposures to stressed sectors, but do I assume that we won't be taking any corporate exposures going forward, as in there would be some outlook?

So that is certainly not the case. It's not as if we avoid corporate sector altogether, we have a very strong infrastructure for managing that very well-defined large corporate group in the bank headed by country head. All that is there. But the problem is, as I mentioned, we are extremely selective. It's opportunity-based. So if any particular sector opens up and there is stability, yes, we will very much like to go in for that. But then we are very clear that some large syndicated debt, et cetera, which created a lot of problems in the past for us, we may not be very keen to participate in those things. And in any case, our desire is to participate to the extent of, say, INR 50 crores, INR 60 crores in any syndication rather than say, INR 100 crores, INR 200 crores, INR 300 crores. So those things are ruled out. There won't be any INR 300 crore exposure, there won't be any INR 200 crore exposure except exceptionally select groups. So we will not be able to participate in such things. So around INR 50 crores, INR 60 crores, in a very risk-controlled manner, if we can get opportunities, we'll definitely look for that. We are constantly looking for that.

Okay, sir. Got it. And sir, we had 3 fraud accounts this quarter?

Yes, it's all -- only 1 is important. Just 1 is important, which is a road project, where, as I mentioned, some time back, it belongs to a very important group, but then I think there was a court ordered investigation. And I think -- I mean some diversion has been found out. And therefore, it has to be classified as fraud by the consortium. And again, I want to highlight, we have not taken a single road project in the last 5 years.

Okay. So sir, I just wanted to know which sectors are the other 2 from?

Textile.

Textile and anything else?

FMCG.

FMCG, okay.

Sir, are they very big for the system or is it...

No, no, they are not very big for the system, not at all.

And sir, one more thing on succession planning, sir, I assume October '20, as in -- post that, is there a scope for renewal of term?

That, I think, a decision has not been taken yet by the Board. But as I always mention, there won't be any challenge on that at all. It will be very well taken care of.

Okay. And sir, 1 last thing. So on divergence, has the RBI audit been done?

Yes, yes. Audit is over long -- quite some time back. And obviously, we have no divergence. We are not -- I mean, there is nothing in the stock exchange -- sorry, in the SEBI. There is absolutely no divergence, which we have to talk about.

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

Just 1 question, sir. We used to give this internal classification of rated corporate exposure. And this is -- I believe, this is not there in this quarter presentation. Last quarter, we had double-digit kind of a number in the double --- below BBB category. So if you have that number handy, that would be much useful. And the second...

See, we can share that. That's not an issue. All what we have done is, I mean, we -- whatever we write, at the end of the day, in the larger accounts or wherever an external rating is there, only the external rating is taken seriously. And not only that, any comparison with other banks is possible only on the basis of external rating. So we -- that is the reason why it was debated and then we just dropped it. We can always give that data separately. Absolutely, no problem. We always have that. There is no -- and our rating is always more conservative than external rating is what I believe.

Correct. Because, sir, this irrigation account that you mentioned, that it has now become -- it has become, let's say, standard. But in your internal rating, this would continue to be as kind of stressed, right?

In the sense like -- I mean, rating is always there. That is okay. That maybe whatever is -- I don't recollect specifically what is the rating. But all that I know is that it is not NPA account at all, and it is standard at the moment. Yes, but the data can be shared without any problem. We can do that.

Sure, sir. And there's no movement in the security receipts book. So the transaction that you mentioned about real estate NBFC, that would -- that has not been reflected yet? Or how do I read that?

Just -- we have completed just sometime back, it's hardly anything. Just small -- relatively small exposure as compared to whatever we are having. It is reflected also. Yes, it is reflected actually, yes.

The next question is from the line of Pranav Gupta from Birla Sun Life.

Just 2 questions from my side. So firstly, you're going ahead and raising AT1. If you could help us understand what is the rationale for not raising equity, that will help?

Yes. The Board felt that this is not the most appropriate time for dilution. And of course, I mean, it is again our perception that our equity pricing and all will definitely see a re-rating now that we are coming out of this large corporate problems, which has been hobbling the bank for the last 4, 5 years. So we have seen the last of it, and therefore the perceptions will definitely start improving. And so therefore, with an improved perception, we should go with the dilution process so that our existing shareholders also don't get into any disadvantage. And additional Tier 1 is a doable exercise, that is what we have seen.

Sir, but I mean, once -- given that margins are not improving from here on, why put additional pressure on your P&L to take a hit on interest?

Yes. But the point is, it is not a static scenario. It is not -- I mean, we are -- it's not just as if we are raising a particular liability and hedging against that. That is not what we are doing. Obviously, it is leveraged times. That is one. Secondly, I mean, we will definitely work hard to see that the CASA, et cetera, improves to that extent, so that the interest burden does not become obvious on our balance sheet, yes. We'll work very hard on all those things.

Okay. And just 1 clarification. You said there is no -- so is there no reportable divergence or is there no divergence at all? If you can...

I don't even remember. I don't even remember. Anyway, there is no meaningful divergence of any variety. Yes, I don't remember. Obviously, any divergence is there?

Nothing.

Nothing.

Nothing is there, yes.

The next question is from the line of Sri Karthik from Investec.

Sir, I wanted to check how is the -- what has been the impact of a couple of these issues around cooperative banks on our liabilities, sir? Has there been -- have we benefited by it? Or has there been absolutely no impact?

Yes. I mean we don't find any impact of any variety, any -- yes, anything at all, yes.

But generally, our sense, speaking to customers, do you see them overly worried about high ticket deposits -- given high ticket deposits into the banks, particularly smaller banks?

See, our deposit franchise is growing steadily across the geographies. Although Kerala is a very primary geography for us, it is growing steadily across the country, across the branches in the same manner. And as you all know, we do not pay anything more than the peer banks. We -- like peer banks level, maybe one bracket alone, we may be maintaining a 5 basis points differential. That is the only thing that we are doing. Otherwise, there is absolutely no extra interest rate that we pay. And everything is growing, our deposits are growing, our core deposits are growing, CASA is growing, NRI deposits are growing, everything is growing without any problem.

For your -- some of the stressed entities, stressed banks, do you see any panic among depositors?

We have not seen any such thing because anyway there is no comparison in their mind, you know, I mean, I...

Not only your customers, sir, for competitors?

No, I don't find. I mean, there is absolutely no such thing that we find anywhere, yes.

Okay. And sir, the second question is on your expectations towards MSME. You seem to be very, very positive in terms of your expectations on growth, et cetera. Is the optimism coming from the fact that your customer segment, that you have, is actually demonstrating better in terms of revenue momentum, cash flows that you can see into your accounts? Or is it a general expectation on macro recovery?

No. In fact, the expectation on the macro recovery is certainly not very high at the moment. We mentioned that also. That is one of the reasons why the MSME is not growing at 20%, is growing only at 14% for that reason because, as I mentioned sometime back, the underwriting rules are immediately changed in the centralized environment the moment there is a perception of additional risk in any particular segment. So obviously, the sanctions do not get done. But as far as the bank is concerned, our overall approach is definitely in favor of the MSMEs because that is a very important sector for us. So it is 25% of the loan book of the bank, and we would definitely like to see that sector growing steadily. But that doesn't mean that we will take additional risk in that sector or if the cash flows are not visible or the documentation is not available correctly or the securities are not available, we are not interested in that account at all.

Because in a lot of situations, the problem which these MSMEs is facing is the business viability itself is under question, sir. So while some of the near-term stress numbers might be okay, but the arbitrage that they used to enjoy and just because there were a few inefficiencies in the system, they were surviving. I think a lot of those are getting challenged and disrupted. Are you not worried for the customer base?

So we are sensitive about all these parameters. Only thing is, I mean, we build that into the rule book, that's all what happens. We -- there's a constant evaluation that is going on from the credit vertical, from the risk management vertical. So constantly, there is a dialogue and an evaluation and the rules get reframed consistently, that's what happens. So I mean, obviously, sometimes what happens is we have MSME growing better than what we are growing today. So obviously, it depends on the environment. If the environment is not good, obviously, it will not grow that much. But the next point is our lending is not on the basis of only primary security. Our lending is also on the basis of significant amount of collateral security. In Kerala, if you are talking about a trader, it has to be 100% collateral security, then only it is going to work. And that collateral security is by way of land, building, residential property, et cetera, et cetera. Then only the paper moves.

Sir, last bit on capital. While I understand the CET1 ratios are still okay and the comfort levels there could be closer to 12%, on the leverage bit, what is the comfortable leverage that you would want to operate at?

So leverage is a little on the higher side for us because we have a gold loan portfolio, which is significant. And obviously, it is a 0 risk weight. So the leverage is a little -- traditionally, a little higher on our bank, but we are very comfortable about it. Even today, 12% is quite fine for us. Only thing is, I mean, with a reasonable amount of growth coming in and there is an opportunity, if it is there, we would like to be a little better capitalized than this. That is the only thing. We know how much is the plowback likely to happen, plus we need some more particularly on the CET1 side. So therefore, we would like to see that some more additional Tier 1 is raised. That's about all.

Because an alternate way to actually adjust for this is if I exclude your gold loan portfolio from leverage, it is still at 14.5x, sir. Even that number is actually quite high.

I don't have precisely that number because I have an overall number. So I am not able to comment on it at the moment. I will -- we can do that separately. We can do that separately, please, for now.

Okay. Irrespective of that, sir, would a 12x leverage be comfortable, 14x leverage be comfortable? Have you had any discussions along those lines?

See -- I mean, in the sense like indirectly is -- I mean, in the sense like we know our ROA is relatively low and a slightly higher leverage, obviously, uses a better ROE, that's always there. But I'm sure, I mean, what we are looking at is not only our own comfort. Our Board is comfortable with 12%, for example, CRAR. But if you look at the peer banks, there's a comparison separately. So we are meeting all the regulations, we're meeting the Board requirements, still, we may come into an adverse position just because peer banks are having a better capitalization. So we need to -- it's better to be there. And now that all our other problems are getting over, this is time that we start looking at all these opportunities.

The next question is from the line of Maan Vardhan Baid from Laurel Investments (sic) Laurel Securities.

Sir, just wanted to understand, Q-o-Q, why is the profitability on the retail side substantially lower?

Yes. CFO will talk about the segmental calculation.

See, retail side, yield is slightly lower than Q2 for various reasons, right? Otherwise, interest rate is coming down. So naturally, there will be demand from the customers. And that is the basic reason of yield coming down in retail portfolio, right, on Q-o-Q basis.

Okay. So how much has the yield moved on the retail portfolio on a Q-o-Q basis?

We don't have the exact numbers as of now. We can come back to you later separately.

And do we see this trend continuing? Or is there some stability in terms of...

It can have a stability going forward. The downward trend may not continue.

The next question is from the line of Saikiran Pulavarthi from Haitong Securities.

Sir, just a couple of questions on the liabilities franchise. I think in the last 2 quarters, you have seen some movement up in CASA in point of time if [Audio Gap] cost of deposits as the margin has seen some sort of a moderation while your yields are moving up. Just want to understand what are those things which are working on the liability side for you? And how do you look going forward?

Yes. The liability side, the most important thing is, we would like to reduce the bulk deposits to the extent possible. But that doesn't mean that we will not look at that at all. It's an important portfolio for us. So we will definitely look at that also. But that is one way in which the liability franchise can be improved a little bit. Then, of course, the CASA is the main pillar. It has reached 25.02% at the moment. Our target, of course, is better than that, but I won't be able to give a commitment on that exactly where we target at the moment. We definitely intend to maintain this, that is the most important thing at the moment.

Sir, but meaning any initiative starting to yield results for you? What are the things because maybe reduced competition or maybe the risk awareness -- averseness in the market, so people are happy to deal with you? What is that helping you at this moment, sir? If you can elaborate, that will be really helpful.

Definitely, definitely. Like, for example, if you look at some of the regions in Kerala, they have already closed their 30% mark, which is the internal target for CASA. So obviously, a lot of people are putting a lot of money with us. And that is primarily because of the traditional relationship that we are having, that is one side of it. Second side of it, there is a significant amount of deepening that is going on because of the analytics and data, which is available for the centralized environment today and there are significant verticalizations that have taken place. So there are people responsible for CASA, people responsible for trusts and associations and all those things, people responsible for government business separately. So there are so many verticals today, which are all focused on the CASA side. And similarly, there is a vertical, which is running on the term deposit side, on the recurring [ credit ] deposit side. So there are campaigns running continuously, there are people who are, I mean, monitoring that steadily. And there are, I mean, efforts to mine on the basis of the database that we are having. For example, wherever we find that our customers are still maintaining deposits elsewhere, we are trying to get them back over here. So these are the efforts that is all working on, which is definitely helping us quite a lot.

Good. And the second question is on the Slide 20, what you have on the rating profile of the corporate loan book. If I look at double -- BBB and below, actually seeing an increase. So just want to understand, of course, I do understand that less than BBB is coming down from 8.3% to 3%, while BBB has increased from probably 14.5% as of March to 26.5% as of December. Are you worried at this point of time with this deterioration on the rating profile? How do you see this?

See, we are not at all worried about the rating profile because we have -- know these accounts. These are the accounts where they are slightly lower rated. But then, all those accounts, for example, there's a road project there, which has been with us for more than 7, 8 years. So obviously, I mean, every time -- I mean, there will be some problem or the other, but then it has never come into a default situation or even an SME situation at all for us. Then, we talked about 1 account, which is, of course, an irrigation systems account; another account, which is restructured account, around INR 21 crores. So obviously, he cannot get a rating, good rating at all. But then we cannot exchange the account, we cannot do anything about it. So we are just continuing there, but we don't have a problem coming out of these accounts. That is the most important thing. So that is what we are looking at very carefully, and that's the reason why today we are saying that we have no concerns on any of these accounts. And in any case, all the larger accounts are all very well rated.

Got it. And one final last question. If I look at your branch network, broadly, in the last 3 years has been more or less at 900 levels? And how do you -- meaning, do you have any thoughts in terms of increasing that going forward? Any thoughts?

We do have, we do have actually. Only -- yes, what we have been doing is a lot of rationalization also that has been happening. And another thing that we are doing in instead of opening a full-fledged branch, we are trying to open only extension counters, part-time outfits, so that the cost is really coming down. And not only that, we are able to assess the position in a particular locality and then convert it into a branch, full scale branch only if there is a real benefit coming out of that. So we are very sensitive about that aspect. So that is one of the reasons why we are not seeing a significant change in the network. But along with that, I would say that there are certain geographies, which we are focusing on at the moment for branch expansion. For example, Coastal Andhra, Andhra, we don't have many branches, we are working on that. Even in the Northeast, what we are having is a very limited presence. One branch in many other states, we would like to see some more traction that side. Then in some of the other industrial clusters, we do have a branch in many of those places, but we would like to see maybe 1 or 2 more branches in each one of them. So these all are areas on which we are working on.

[Operator Instructions] The next question is from the line of Amit Rane from Quantum Securities.

My question is about asset quality on the MSME. So we are seeing that slippages are coming down. At the same time, our restructuring in MSME is on a higher side. If we calculate as a percentage of advances, it is coming to 3.5%. So once this scheme gets over in April 2020, what's your outlook on the MSME slippages in Q1 of next year?

Yes. From the restructured book, we are looking at 15% to 20% slippage. That is -- I mean, although we -- I mean, I can't say specifically that I am getting a feedback from a specific account that there has to be something to be done about it, but that is not the case. But overall, our sense is that around 15% to 20% slippage we should expect. So that's about all. Otherwise, many of the restructured accounts, particularly Kerala-based accounts and Tamil Nadu-based accounts, they are all very safe accounts because there's a lot at stake for them. There are collateral securities also with the bank. And in the event of any failure, our loss also is going to be very, very minimal.

Okay. And sir, can you provide similar number for the Kerala floods restructuring? How much slippage can we expect from INR 190 crores?

Kerala flood also, we are -- actually, I mean, the problems are really not there so much because we are not encountering anything significant at the moment. They are able to service, they are able to manage. Now we will see in March whether there is any more difficulty they are facing. So far, people are saying -- I mean, our regional heads are confirming that there is no serious issue with many of these borrowers. We will try and evaluate this a little bit more in March when the actual repayment comes. All of them are saying that there is no real problem at the moment. But we are mentally prepared for, again, maybe 15%, 20% kind of slippages all over, and that is one of the reasons why we are still taking a very conservative view for the next year, saying that it will be INR 200 crores to INR 250 crores per quarter. So that is the reason for that.

Thank you. As there are no further questions, I would now like to hand over the conference to Mr. Yuvraj Choudhary for closing comments.

On behalf of Anand Rathi Securities, that concludes today's conference call. Thank you for joining us. Now you may disconnect your lines. Thank you.

Thank you. On behalf of Anand Rathi Share and Stock Brokers Limited, that concludes this conference. Thanks for joining us, and you may now disconnect your lines.