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

Ladies and gentlemen, good day, and welcome to the South Indian Bank Limited Conference Call Q3 FY '21 hosted by Antique Stockbroking Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Sohail Halai from Antique Stockbroking. Thank you. And over to you, sir.

Thank you, Nirav. On behalf of Antique Stockbroking, I welcome you all to 3Q FY '21 earnings conference call of South Indian Bank. Today, we have with us, Mr. Murali Ramakrishnan, MD and CEO; Mr. Thomas Joseph, EVP, Operations; and Ms. Chithra, CFO; along with other senior members from the management team. Without further delay, I now hand over the call to Murali sir for his opening remarks.

Thank you. A very good morning to all of you, and thank you for joining us for the South Indian Bank Q3 FY '21 Earnings Conference Call. We hope that you and your family are safe and healthy. We are joined by my colleagues, Mr. Thomas Joseph, EVP Operations; and Mr. H. Chithra, CFO. Let me take you through the key highlights of the operational and financial performance for this quarter. The bank's operating performance continued to improve in Q3 FY '21. The company reported a net loss of INR 92 crores for Q3 FY '21, mainly due to cumulative interest reversal of INR 73 crores on pro forma NPA and conservatively providing 100% of newly identified fraud cases with an additional provision of INR 67 crores during the quarter. As guided in my previous call, we'll be selectively growing noncorporate book with focus on agri, gold and MSME loans, at the same time, calibrate corporate book as we go along. As of December 31, 2020, the total business for the bank stands at INR 145,139 crores. Advances declined to INR 63,353 crores, mainly due to degrowth in corporate loan portfolio and offset in part by 20% year-on-year growth in total gold loans of INR 8,823 crores, in tune with our strategy. The share of corporate loans declined from 30% as on December '19 to 24% as of December '20. Core deposits rose by 8% to INR 76,573 crores. CASA deposits increased by 9% to INR 23,332 crores. CASA ratio improved to 27.9% of the total deposits. Bulk and certificate of deposits declined by 51%, in line with our strategy. NRI deposits, which has been growing strongly, rose by 12% to INR 25,859 crores and contributes about 31% of the total deposits. Low-cost NRI deposits grew by 18% to INR 7,903 crores. Our investment was INR 22,967 crores, of which HTM category contributed INR 18,719 crores, while AFS contributed INR 4,172 crores. Gross NPA ratio was 4.9% as of December '20. Net NPA ratio improved by 47 basis points to 2.12% as of December '20. In Q2 2021, we had given guidance of INR 1,400 crores slippages and INR 1,200 crores slippages of restructuring for Q3 and Q4 of fiscal year 2021. Following the guidance, accounts not classified as NPA during the quarter due to the order of Supreme Court was INR 1,379 crores and onetime restructuring stood at INR 44 crores. However, the bank has provided INR 154 crores during the quarter in addition to INR 22 crores provided in last quarter towards pro forma NPA of INR 130 crores. The bank also continues to hold COVID-19-related provisions of aggregating INR 100.5 crores against standard assets. The above provision of INR 275 crores towards standard asset is not considered in PCR calculations. Net interest income for the quarter was INR 596 crores. Net interest margin was 2.64% for quarter ended December '20 as against 2.72% in December '19. Cumulative NIM for 9 months ended was 2.74% as against 2.65% for December '19. Other income for the quarter increased by 23% year-on-year to INR 270 crores. Treasury income increased by 160% to INR 109 crores, while core fee income decreased by 9% to INR 162 crores. Operating profit for the quarter was INR 377 crores against INR 383 crores in Q3 FY '20. The cost-income ratio for 9 months ended December 2020 was 54.8%. Overall, provisions increased by 91% to INR 499 crores in Q3 FY '21. These provisions include loan loss provision of INR 272 crores and standard asset provisions of INR 155 crores. Including write-offs, the provision coverage ratio continued to improve and stood at 72% at December 2020 as against 65.2% at September 2020. Excluding write-off, PCR stands at 58% compared to 48% at September 2020 and 32% at December 2019. Our overall capital adequacy improved to 14.5%, while the core CRAR is at 11.6%. The bank has a wide geographical presence with 877 branches, 51 extension counters and over 1,443 ATMs. To summarize, the bank will continue the strategy of building low-cost CASA book, focus on increasing gold lending, improve [Technical Difficulty]

Ladies and gentlemen, please stay connected the line for the management has dropped. Participants, please stay connected while we rejoin the management back to the call. Ladies and gentlemen, thank you for your patience. We have the line for the management connected back to the call. Sir, you may go ahead and continue with your opening remarks.

Yes. Our overall capital adequacy improved to 14.5%, while the core CRAR is at 11.6%. The bank has a wide geographical presence with 877 branches, 51 extension counters and over 1,443 ATMs. To summarize, the bank will continue the strategy of building low-cost CASA book, focus on increased gold lending, improve NRI share of deposits, improving cost efficiencies and improve asset quality by focusing on building granular advances book through personal, agri and business segments. With this, we open the floor for questions. Thank you.

[Operator Instructions] First question is from the line of Lalit Deo from Equirus.

So I have 2 questions on the asset quality. Sir, so in the presentation, it was mentioned that our overall slippage guidance for FY '21 is around INR 1,600 crores, while the pro forma NPA as of 3Q FY '21 is INR 1,500 crores. So is it fair to assume that the slippages in the fourth quarter will be limited to this? Or there -- or will there be any additional slippages?

Yes. So the pro forma NPA for this quarter is INR 1,508 crores. This includes INR 535 crores towards 2 specific accounts, one of which is where there is resolution that has already happened, where we are expecting money to come back by end of January possibly. And other one is likely to get upgraded from NPA into restructure. From these 2 accounts, we are expecting a recovery of -- I mean a drop of close to INR 400 crores. So net-net, the INR 1,508 crores to INR 507 crores is actually INR 1,107 crores. This also includes INR 132 crores of pro forma NPA, which we had declared in Q2. So if you actually look at the actual increase, but for these 2, which got slipped into January, it's less than INR 1,000 crores for this quarter. And we are expecting NPA for the next quarter to be close to about INR 550 crores. Estimate is about INR 550 crores. So together, we expect that the overall number will probably be increasing by maybe INR 100 crores or so in NPA. As far as restructuring is concerned, between Q3 and Q4, we expect restructuring to be less than INR 1,000 crores as against INR 1,200 crores, which I presented in Q2 results.

Sure, sir. And sir, on the restructuring assets, like you have mentioned that you are planning to do a restructuring of around less than INR 1,000 crores. So as of 3Q, we have done only INR 44 crores. So the remaining restructured assets, will it be mostly -- will this be mostly corporate loans? Or is it a combination of corporate, SME and retail loans?

As I said, out of 1 of the 2 big accounts where we are expecting upgrade to happen from NPA into restructuring is, obviously, a corporate account. Yes, it's going to be -- the major share is from corporate, and then from -- next segment is some business loan and third one is from personal segment.

Sure. Sir, can you give us like the major sectors in the corporate, like which are the sectors from where you are seeing more steep structuring?

Actually, there are -- it's actually running across various sectors. So frankly, with the COVID situation, as you know, it's very few segments, which have actually revived. So it's actually a mix of major segments. So I wouldn't particularly say that a specific segment is going to be contributing. It is actually across different segments.

The next question is from the line of Renish Hareshbhai Bhuva from ICICI Securities.

So just the couple of numbers. One was on the interest reversal side. What was the number you said, sir, on the interest reversal side?

INR 73 crores.

INR 73 crores. Okay. And any number? I mean what sort of margin impact we have seen because of interest reversal?

So if you look at -- if you have to really compare the -- I'll -- just give me a minute, let me take out the page. If you look at the ...

Comparing the sequential margin trend...

Yes. That's what, I'm coming there. So if you look at our numbers for Q2, Q2 -- the total income for Q2 was INR 903 crores, which included net interest income of INR 663 crores and other income of INR 240 crores, which added up to INR 903 crores for Q2. For Q3, net interest income is INR 596 crores and other income of INR 270 crores, adding up to INR 867 crores. So in net interest income, if you see, it has dropped from INR 663 crores to INR 596 crores, which is actually 37 -- INR 67 crores drop. Sorry, not INR 67 crores, INR 37 crores plus INR 4 crores, INR 41 crores drop. So add again INR 73 crores of reversal, net interest income drop is only INR 47 crores.

Got it. Got it. Okay. And so basically, should we consider this as a one-off quarter in terms of margin? Or what explains the maybe sharp drop in the yields? I mean it is largely because of the interest reversal?

Yes. As per the guidance given by me, for the fourth quarter, we are expecting another INR 550 crores of likely NPA. And there is a restructuring, which I had indicated of INR 850 crores. So the -- obviously, the -- there will be reversal -- if you are estimating NPA, there will be an interest reversal which will happen for such accounts. And therefore, to that extent, there will be interest reversal. But we also believe that like the way we have worked this quarter, there will be definitely improvement in terms of our yield from the assets, which we'll be building. So with that, we believe that the impact may not be as much as the reversal, which happens, it will be probably muted compared to that. So I would probably say that Q4 -- always, I look at Q3, Q4 together as a block because these are the 2 quarters just after the lockdown. So hopefully, by April, when the economy also starts reviving, we will be expecting asset growth to really kick off from there. This is in line with the strategy also which I had laid down. So as we build our -- as with our strategy, as we build our assets book, we believe that the traction in NII will start happening. But that certainly for Q4, you will see impact of interest reversal to the extent our pro forma -- I mean, NPA, which we're envisaging for Q4.

Got it, sir. And sir, the next question on this fraud account provisioning, which is INR 70 crore, which is fully provided also. So sir, if I recall, I mean, so once in a year, we have such sort of provisioning on the fraud account. I mean, every year, we have around 100, 150 sort of fraud accounts being identified and provided for. So sir, since you have joined, what is the risk management practices we have changed to sort of get away with this fraud account, what is happening currently, which is actually hitting up our P&L significantly over the last 2 to 3 years?

Excellent question. So I would put it this way. See, fraud account which we had actually provided for this quarter, we had a choice of providing it over next 4 quarters. As you know, once we declare an account as fraud, we have a choice of providing it over 4 quarters. But we decided to take the full hit in this quarter itself for 2 of those accounts. That only has led to this amount which I had mentioned in my opening remarks. With respect to the changes which I'm planning to do or which I've already started doing to really reduce the impact of fraud going forward, see, frauds, broadly, you can say that there are 2 kinds. One is credit frauds happening due to things happening in the account. Once the account start deteriorating, there are things which typically in a counterparty does, which probably would fall into the definition of fraud as per Reserve Bank guideline. That makes the consortium of banks to declare an account as RFA. And then once an investigation happens, they then call it as fraud. So that is one thing which happens due to credit-related frauds, which keep happening. The second one is, of course, fraud related to the internal as well as customer frauds, which are more of retail, non, I would say, corporate in nature. So with respect to the first one, where we are talking about deterioration happening in the counterparty and therefore, counterparty doing things which are not ethically right. For that, one way to have a good control over that is by through an efficient asset monitoring. So therefore, we need to have a quality asset monitoring and I have definite plans of doing that, and we have already started strengthening them. This is basically to have an ops eye on how each account will be behaving and having a closer look at how the account is behaving and where -- whether the cash flows are indeed happening, whether the debtors are really moving in the right direction. Because this is where typically, I have seen in my experience some of us committing unethical practices. They have realized that some debtors not coming in, they can probably manage it for 1 or 2 quarters, and therefore, they do things which are not ethical, which is not generally noticed. And over a period, it deteriorates into irreconcilable situation. The only way to have ops eye on that is to do good account monitoring. So that is one thing, which we are strengthening. The second one is to ensure that the quality of underwriting, where you actually look for abnormalities or discrepancies in the documents getting submitted. So you're having a good hold on what is getting misrepresented through cross-checks, et cetera. That comes through improving the competency in terms of quality underwriting. So we are taking definite steps in improving the quality of underwriting. In fact, as I'm talking to you, we have just finished training our entire SME team on sourcing good quality proposals and underwriting good quality proposal. Similarly, we have already -- in half way through in terms of developing credit models prepared by consultants who are working closely with us in the retail as well as in SME area to ensure that the deals, which actually passed through the [ muster ] of quality underwriting will only be approved and sanctioned and onboarded. So there -- once you spread out the balance sheet and P&L, et cetera, which you get, and you can easily figure out what is being misrepresented because you can cross-check that through various other numbers, which can -- which has to correlate with each other. So it's a question of improving technology to have a better understanding of the transaction; two, to increase the competence of the team, which is looking at it; and third, sensitizing the entire team, which is involved both in sourcing and underwriting to look out for this. I think once the sensitization happens and people actually start applying this, my endeavor is that it will definitely help in identifying frauds much before they worsen. And also, we can probably eliminate them not onboarding them in the first place. So these are some of the short to medium-term measures which I'm taking. And other big thing, which I'm planning to do is also that we are creating a separate operations division, which is distinct from sales, distinct from credit, distinct from risk, where operations will not obviously carry any of the sales target. There work -- we'll be focusing only on what are the pre-disbursement conditions and how -- whether all the terms and conditions have been met with before money gets disbursed. So all that checks, which we are expected to do, before we lend money or before we start looking at the repayments of the customer, that will be done by an exclusive team, which doesn't carry any of these deliverables. So like the way it is done in some of the larger banks and investment banks, we are creating that division. So that will actually access a watchdog from not letting in anything which is not in the right way of doing things. So these are some of the measures, which I am taking.

Right. So sir, this redefined business operations, I mean, when it will be -- get fully implemented and when we'll see the [ 70s ] coming through from these initiatives, sir? From next year onwards or?

We have already appointed a Head of Operations who is likely to join in the next couple of months, probably within a month or so. And we already have a -- see, obviously, the bank has been running for many years. So there is an operations activities and processes which are there. So it's just fine-tuning them to create a separate vertical under him. So once he joins, with the existing, which is already involved in these operations, we'll be clearly creating a retail asset operation, retail liability operations, which will ensure that as far as liabilities are concerned, all the KYC checks are done properly before we onboard an account. As far as asset is concerned, all the pre-disbursement checks will be done and then be clearly manual created and sensitization will happen to the business teams. All that will start happening simultaneously. So good progress is happening there. And I'm fairly sure that this is in tune with what I spelt out as my strategy. So from April onwards, we will start seeing impact of those changes in the -- where we are doing business.

The next question is from the line of Deepak Poddar from Sapphire Capital.

I just wanted to have some comments from your side on the credit cost in the next quarter and the next year.

Yes. So credit cost, as I said, we are expecting -- slippages of about -- estimated slippages about INR 550 crores for Q4. So in all, we are talking about credit cost to be around 2.2% for the full year. That's what we are looking at.

For FY '21?

Okay, that's right. That's right.

So 2.2%, okay. And what about the next year?

Next year, see, there is a whole lot of changes, which we are doing. As you know, I have laid down a strategy of building retail book plan. So the composition of the business is going to change dramatically in the next year. So therefore, I would not hazard a guess now. But we would -- definitely, the existing book of corporate business segment and whatever little we have done in the retail, we will have to manage them, and I feel that the slippage, which has been at about 2.2% plus kind of thing, I would probably expect from the existing book, something similar to that. But then whatever new book which we are going to add, we would want to add a quality book, so that, overall, the impact is less. I would not hazard a guess now because the composition of the book is definitely going to be changing.

The next question is from the line of [ Utsav ] from B&K Securities.

This is Jai here. So sir, first question, you're talking about the new hire as in Head of Operations. Any other hires that you can specify that you have hired and probably they're joining?

Yes. All the key lines, which I'm talking about, whether it's unsecured loan, home loan, then analytics head, collections head, all these have been -- we have given offers -- and credit head, a new credit head for the entire bank. So all this, we have already recruited and given offer. So they are expected to join in the days and weeks to come, operations head as well.

Now, sir, question on asset quality. If I look at the Slide 20 -- 19, which says the collection efficiency at 89%. Just to understand this correctly, sir, if you can provide -- if this is broadly similar across SME, commercial, corporate? Or is there any variation in that 89%, roughly broadly, it will also help?

Yes. Actually, yes, it is broadly -- see, if you look at -- one trend which I just want to sell out is that if you recall in the last Q2 call, I mentioned about retail being particularly better than the business and other segments. So -- and also one thing which we noticed is that whenever it's falling due in a month, for that month, the recovery is on an average about 80% to 85%. But then 1 month from then and 2 months from then, we are seeing that recovery percentage is as a high as 95% plus for many of the products. So -- but if you really ask me how much is the percentage in each of the segments, I mean, just to give you some indication, housing is around 90% plus -- 93% is housing, mortgage is 91%, vehicle is about 94%, corporate is at about 91%, business is about 88%. So these are some of the -- and others are at about 79%. So overall, it's about 89.5% is what we are seeing. This used to be 92% for last year Q2. So it's a drop of about 1.5% or so.

Right, sir. So the second follow-up, sir, is -- so the collection is in the 89%. So in a way, as of December, the total overdue book, right, SMA-0, 1, 2 is around 10.5%, 11%, right?

You see, what actually happens is, as it's a very dynamic book, which is what I -- let me do, let me -- I think it's important to understand what we are doing to manage SMA-1 and 2 book. Your question is a valid question. So spell out exactly what we are doing to control this book. See, as I'm talking to you every week, we take stock of what is happening in SMA-0, SMA-1, SMA-2 book of the entire portfolio, both in the corporate and retail side. So the way SMA-1 and SMA-2 will get built up is through the slippages from SMA-0. And any recovery happening in SMA-2 will get upgraded to SMA-1. Similarly, if more recovery happens, then it will fall in SMA-0. And if any deterioration happens, it slips into NPA. So what we are clearly concerned about is how much of slippages will happen from SMA-2 to the NPA book that we have looked at all the individual segments, and we are estimating that it's likely to be about INR 550 crores for Q4. And historically, what we are seeing in restructured book is because that's another area where today, restructured book could be in SMA-1, SMA-2, it could be any of those. And therefore, there's -- one another thing which we should be concerned about is, how much a restructured book will not actually behave the way we are restructuring, how much of that will slip into NPA. So this is another area, which can impact your overall NPA percentage. So that -- what we have seen is historically, it's been at about -- I mean earlier days, I'm saying it was slightly at about higher level about 30%, 40%. But last 2, 3 years, we are seeing it will be close to 25% to 30% range. This time, when I -- after I joined -- the way I'm going about restructuring is to really look at each of the cases with the cash flows, with the business model. So we are indeed restructuring only those cases which we probably believe will behave. But having said that, obviously, environment is something which you can't have control on. Therefore, we are expecting slippages to anywhere between 25% to 30% to happen even from the restructured book. So overall, the estimate which we are giving for Q4 is INR 550 crores towards NPA and about INR 850 crores of restructuring is likely to happen. Actually, we have not done too much of restructuring as of Q3 end. So restructuring book, which I had estimated INR 1,200 crores by end of Q2 call, I'm expecting a bulk of that about INR 850 crores to be done by Q4.

All right. So I think the way to understand is 11% overdue book, INR 550 crores, let's us say, which is 1% of the total loan book may slip and INR 900 crores, which is, let us say, additional 1.5% may get restructured. The rest will not change bucket, right? That is the understanding that they may remain overdue, but probably will not slip.

Yes, correct, correct. Yes.

Okay. Okay. Yes. So that is that. And just a clarification, sir. So the way to understand March '21 number of INR 1,600 crores is the gross number, right? I mean, as you have said, that INR 500 crores -- INR 400 crores recovery, this is net of that number in a way?

Yes. For the full year of Q3, Q4, put together. You are talking about the NPA guidance, which I had given from the moratorium book, right?

Right.

Yes. So that takes care of it INR 400 crores. Not INR 400 crores of recovery, it's about INR 285 crores of recovery and INR 115 crores of upgrade from NPA to restructuring.

Okay, sir. And just last 2 things, sir. If you can specify the sector of these 2 restructuring -- probable restructuring and probable resolution and the fraud account.

You are wanting to -- sorry, I didn't understand your question. You want to know the names of the accounts.

Names, no sir. Sector will also help.

Sector, okay. The one which is -- which we are expecting the resolution to happen by January is in the -- is East-based company, and it's in cement business. And the one which is getting upgraded from this thing is a retail.

Right. Okay. And the fraud account is the jewelry account?

No, no, no. Fraud account is infra, large infra.

Right, sir. And the last thing, sir, restructuring, is there any -- what is the interest accounting? I mean do we keep accruing interest on restructuring? Or is there any -- I mean we don't accrue the interest on restructuring, so that was the last one.

The way restructuring will be done is, whichever is the interest overdue, we will do it as FITL. And then we expect them to pay as per the revised repayment structure. And it will then follow a regular criteria. I mean if it doesn't get paid, then it will get slipped into bucket. And then it will become NPA if it across the 90 days.

Right. Okay. Understood. In a way, it will keep accruing. But if they don't pay, you will create an FITL, so provisioning is adjusted.

Yes. Once we restructure, we need to provide immediately as per -- 10% as per the COVID provisioning norm. So that will happen. Then we'll keep monitoring the account as per the revised cash flows, which were envisaged in the revised repayment structure, and then it will follow the regular bucket movement, SMA-0, SMA-1 and 2, et cetera, and we will keep providing as per the bucket movements.

The next question is from the line of [ Shri Shankar ] from [ InCred ].

I've a couple of questions. The first question is, thanks for the guidance for March '21. But at the same time, can we know on -- I don't know whether you answered this question earlier, what is our SMA-0 plus 1 plus 2, our total outstanding today as at December? And I'm sure that SMA-2 will have, because of the current guidelines, it may have more than 90 days also life in SMA-2. So what is your total? Can you give a breakup?

No, we can broadly say that -- see, as I said in my earlier reply, SMA-1 and 2 -- SMA-0, 1 and 2 and NPA, is looked at as a dynamic book, which we keep reviewing every week. So if I give a number also, it's a number as of, let's say, December 31, which -- for which I've already told how much is the NPA, how much is the likely restructuring and what is the provision NPA, which we are carrying and also the provision, which were made towards those pro forma NPAs. So it's a dynamic number. Therefore, I would probably say that the COVID restructuring, we have -- what we have done is only INR 44 crores as of Q3 end, which we will probably be doing about INR 850 crores in Q4. And pro forma NPA as of Q3 end is about INR 1,507 crores, which includes that INR 535 crores of 2 accounts, where we are expecting recovery/upgrade of INR 400 crores and additional provisioning of about INR 550 crores. So if I were to really say from SMA-1 and 2 book, what will happen to those book in terms of actually having an impact in provisioning is something which I'm giving guidance for. I mean I think that should be good enough to sort of understand where we are, right?

Okay. And see, sir, you have bit the bullet this quarter by actually taking a large amount of provisioning, thereby probably reported a loss. Do you think that this ethical reaction, to me, it's only a book entry, which should have happened long back? Do you think it will impact your liabilities account, sir?

Fraud account where you have taken a full hit, you're asking whether it should have been done long back. Is that what you said in your question?

No, no, no. The entire provisioning, which has been -- our PCR has been extremely low when compared to the peers in the market. So that was one issue, which has got addressed to a great extent. But my question is, do you think that this is going to have an impact on your liability customers? Because a loss from the bank is probably not something that customers probably wouldn't have taken care. So have you addressed it with your large liability customers? And do you think that our deposit growth of 8% or so. So now that's not going to be an issue going forward?

No. See, look at it this way. This COVID -- I mean if you want to really look at -- probably my answer will be a little longer, so you need to have patience for hearing me out. See, what we have experienced from April of this year, from March of this year, after the -- not this year, I mean, the year which ended, it's an unprecedented situation, where the entire banking system was going through lockdown situation where customers were asked not to make any payment during that period. And depending on each bank's announcement, x number of customers opted for moratorium, and we also had a -- we offered it to everybody and about 58% -- 57% of our customers chose to avail moratorium. And this got lifted in August end. And therefore -- then this is the first quarter after the moratorium got lifted because in the month of -- in the Q2 quarter, we had only 1 month of recovery happening. So that's the reason why we actually gave upfront to what we estimate from our assessment of the book which we are carrying. We gave an estimate of how much is likely to deteriorate over the next 2 quarters and also over the subsequent quarters. I had mentioned clearly that 10%, which is about INR 1,700 crores. We said that INR 1,400 crores of that will likely to become NPA in Q3, Q4 itself. And then we expect another INR 1,200 crores to be restructuring. So this announcement has been made very clear, and we've been transparent in telling that. And after that, we have seen our deposit growth. So -- and our deposit growth is not something, which has happened -- which is happening now. I think we have a terrific franchise of retail deposit base for decades, and the customers of this bank has been extremely loyal to this bank, and we are very, very -- we are very thankful to them, and we are very fortunate to have a very stable franchise of retail deposits. And what we have done over there is also to reduce the impact of bulk deposits suddenly moving out and creating a fluctuation in our deposit base. We have consciously degrown our large corporate, I mean, large deposit book. And despite degrowing happening there, overall, our deposit growth is still continuing to show. This is one side. The second side is on the CASA, where you can very clearly see that our savings account deposit is clearly going up and that has led to overall CASA growth. So I would tend to think that by making it very transparent and clear, I think the credibility of the institution definitely gets built as we keep coming up more and more in terms of what we actually are doing and what we are actually doing to improve our franchise and improve our brand positioning. This will only help more and more customers to actually start putting more and more deposits is my reading of the situation. So I would tend to think that the more we are closer to what we are announcing in the sense that based on our estimates, the more we stick to that, I think, we will be definitely building a lot more trust with our stakeholders, and deposit holders are indeed one of our strong pillars of this bank. So we will definitely -- we are expecting things can only improve going forward.

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

Sir, I just wanted to get a sense on the pro forma NPAs that we are having, what is the provisioning that we have created against those?

15%. Like in NPA, which we carry 15% for year 1, we have provided 15% on that. And we've also done the interest reversal for the entire pro forma NPA cases.

This 15% is part of the INR 225 crores COVID provision that we are carrying? Or is it part of the provision there?

No, no, it won't come under the PCR. This is part of the INR 225 crores which you talked.

INR 225 crores. Okay.

We were calling that COVID provision. In Q1 and Q2, we were talking about COVID provisioning across the banking. So it continues to be proved under that because still we can't call them as NPA. Therefore, we can't put it under provision of NPA. So it's a pro forma NPA provisioning, which is added to sort of COVID provisioning.

Sure, sir. And in terms of like incrementally, after, say, the current financial year, when we enter to next year and going ahead, as a provisioning policy or incremental slippages, would we be broadly calling what the RBI is doing or like some banks are doing where they're looking at the LGDs from those slippages and then making adequate provision upfront? So will we like to change that policy? Or as of now, we are thinking of continuing with the RBI provisioning guidelines in FY '22 onwards?

Yes, we will definitely be following regulatory guideline on them. And in our estimate, if we firmly believe that recovery from a particular account is going to be worsen, we will go ahead and provide more. Like what I had indicated earlier, in the fraud account also, we had a choice of providing it over 4 quarters. So we did not go by regulators -- regulatory requirements. We wanted to provide fully, so that we are taking care of that. I mean one of the reasons, which also prompts us to be very prudent on that is to improve our PCR, which this is one of the areas where the bank traditionally has been having issues. So we want to address that head-on.

The next question is from the line of Sharvari Joshi from Trivikram Consultants.

So my question is regarding the loan book. So this quarter, there has been a decline as you mentioned in your commentary that mainly due to the corporate book decline. So I just wanted to get the sense of how to look at the loan book going forward for, say, FY '21 and '22? And what segments do you think would be the drivers for growth for the future?

This has been spelt out in detail in my strategy document, which is there in our site also. So we -- as a stated strategy, we are going to be growing our retail, MSME, SME and agri book, and we'll have a calibrated growth of our corporate book. So for the -- where we have given in each of these product lines, how much delta we are growing in terms of book has been clearly worked out, and we have stated that in our strategy document. So I suggest that you have a look at that, and I'm sure -- if you still have any questions on that, I'll be happy to take. Right now, I'm not carrying the strategy document with me, but I can broadly tell you that we are looking at -- for the year 1, which is -- which I'm saying as starting with April '21 to March '22, and then if you compare that with the subsequent years, the growth which we are envisaging in asset is going to be gradual. We are not expecting post-COVID to be having a huge revival. Therefore, we are looking at a moderate growth in all our chosen area of growth for the year 1 and then it will increase further to year 2, and then it will probably be more in year 3. This is also in tune with what I believe is the assimilation of the changed practices amongst the employee base of our organization. So as they get used to the new way of doing things, I'm sure the traction on growth of these products will also happen more easily than in the year 1. So that's how we are looking at -- by way of directionally, that's what we are looking at for the next 3 years. So we have clearly laid down our -- the list of products to be launched in the 3 phases. First phase from April 1 and second phase starting with October, and third phase from April 1, 2022. And clearly, these time lines also we will be choosing carefully depending on how well the changes are assimilated by the employees of the organization. So with these new products and with the revised change of processes and the credit models, et cetera, which I talked about in my earlier reply, we believe that we will be getting traction as we go along in growth of each of these product lines.

[Operator Instructions] The next question is from the line of Vaibhav Badjatya from HNI Investments.

So just 2 questions from my side. First is that historically, we have seen your bank raising equity capital at really discount to book as well and discount to the share prices as well. And that is a big hurdle in terms of long-term creation of wealth for the existing shareholders. So just wanted to understand your views on this policy because this kind of creates a catch-22 situation for the existing shareholders, basically to put in more money or to dilute themselves at a substantially lower price. So just wanted to hear your views going forward, under your management, what would be the policy? Secondly, on the credit size side, just wanted to understand the changes that in your credit assessment team, wherever capability to judge, whether quality of the accounts can be substantially improved. Because this is the key here, from a longer-term perspective, what matters is the quality of the lending. And just wanted to understand what changes you have done to improve that?

Yes. Yes, both are good questions. The first one is this I've articulated a few times in the past also. So we are quite conscious of the fact that when we raise capital, naturally we -- there is this apprehension about the dilution of the existing shareholders' interest. Therefore, we are quite conscious of that. At the same time, we also need to look at the institution requirements and look at the other stakeholders' requirement. Therefore, we'll be weighing between these 2, and then we will choose to raise certain amount, which would definitely help the institution to make the balance sheet stronger. Therefore, in the first tranche of whatever amount we are planning to raise, we are quite consciously choosing not too huge an amount, but a reasonably safer amount to ensure that the institution balance sheet is strengthened. And as we see traction happening in our strategy in the coming years starting with, let's say, April 1, 2021, and if we believe that we are going in the right traction, that's when we'll probably raise the balance, a portion of the tranche 1, which we are talking about. So I'm quite conscious -- we are quite conscious about the dilution aspect, which you talked about. And therefore, it is to take care of the institution's strength that we are doing this. And I believe that as existing shareholders, I'm sure all of them would be interested in taking the institution to the higher level of performance, which will happen with making up of capital and with traction happening in the strategies which we have spelt out very clearly. So therefore, it is in no way jeopardizing the interest of the existing stakeholders who have waited this long for making returns in investing these 2 stocks. I think it's a question of watching it carefully and tracking the traction of this institution in -- the way I'm envisaging the transformation to happen. And I believe that if we do the things as envisage and if we stick to what we are -- what we believe are the right things to do for building the institutional strength, I'm sure there is much to gain for existing shareholders to stay invested. I mean that's the limit, I think, which I would say, as far as the capital question is concerned. With respect to your second question, I think it's a very important question, and this is something, which is very fundamental to the strategy, which I'm spelling out. As you are right, because this institution has actually suffered from provisioning need due to lumpy corporate exposures, which we had in the past and also due to some of those accounts declared as fraud because of various things, which I spelt out in my earlier reply. This has actually impacted the provisioning of the institution. So though at the operating profit level, the institution has been generating decent amount of operating income, but always the bottom line suffered due to provisioning impact. So in order to improve that, the way -- turnaround happened, where I have had the fortune of doing 2, 3 such turnarounds in my earlier stint in other organizations, it's -- there are 2 things should be taken care. One is how do you manage the existing book, how do you churn the existing book into a high-quality book, for which you need a stronger credit and stronger sourcing skill. So we are going to be focusing upon improving the sourcing skill of our employees, and we are going to be strengthening the way we credit underwrite, which is what I'm planning to do both in the areas of retail, SME, MSME, through building credit models with expert's advice, where our business acumen will be put in to ensure that we have the model, which can reasonably predict what is the likely default rate for the book, which you are creating. And we will definitely closely monitor the traction happening in each of this through vintage curves, et cetera, which we will be drawing through our analytics division to track how well the book is growing. One thing is to say that wait for the delinquency to happen before we start correcting. The other one is to take proactive actions. Once we start to see the trend line of vintage curve, we can start taking action much before, it actually reflects in delinquency going up. So by taking proactive action and with the basing up of credit skills through models as well as training our employees and with analytics capability, I believe that we are doing all the right things to bring traction in the quality of books will be created. But it is a journey because you can't just make the existing book to suddenly become clean. It has to have journey, which will happen as we keep building more and more retail book and more and more MSME book, where the granulation of deals will happen and we're growing in corporate in a selective way. So that lumpiness and the concentration doesn't affect our portfolio. So this is a journey which we will be undertaking. And I believe that with the clear milestones laid down for year 1, year 2, year 3, the way we have put in our strategy document, and if we get the act right, I'm sure we will be looking at the clean book going forward -- in the period which we've envisaged.

So on the corporate, [indiscernible] is retail and MSME. But on the corporate side, you are not thinking to kind of start again afresh with good credit assessment capability and start corporate lending, that's not on your radar at all?

No, no. It is definitely in my radar. So there are 2 things which we will be doing in the corporate side. One is the portfolio which we are carrying today, there are obviously set of corporate book, where we have got good experience, where the repayments have been very good, and we have seen even the down cycles, they have done very well. So we will continue to nurture those accounts, and we will obviously be conscious of the total exposure, which we will take on such group, but we will definitely be staying with them, and we'll be definitely supporting them through incremental lending, which will happen. As far as the other segments, which -- where this approach -- I mean as far our approaches to other corporate cases will be, we will be preselecting the set of corporates who we want to have a relationship with. In the sense that we will use the externally available rating mechanism as well as the databases, which are available today in the market, like Probe 42 or those kind of packages that are available. We'll be able to preselect the set of corporate customers who we want to target. And this will be approached through the 20 regions which we have across the country, and we will have a separate vertical created for this created by one of the talented employees within the bank to drive this business. I mean like the way retail business will be run with the experts who understand the specific retail businesses, we are going to have national bridge for driving gold business, driving SME, MSME business and driving corporate business. So these set of corporate customers, who we are preselecting, will definitely be approached by this team, which is spread across the country to take exposure. But having said that, we'll be conscious of how much exposure do we want to take in each of them. We'll be conscious about the industry risk which we are carrying. So all this will be clearly supplemented with the capabilities built in the risk fee. So that the book which we are creating will be behaving the way we are envisaging. So clearly, we are not neglecting that. In fact, in my strategy document also, as you can see, there is a growth which we are putting across even in corporate book. And that will be with a good corporate book, replacing the deteriorating corporate.

The next question is from the line of Saket Kapoor from Kapoor & Company.

Sir, firstly about this provisioning part, sir. As per the percentage, you mentioned about 70%, 74%. Are we now having the adequate provision ratio? Or what is our target going forward, depending upon the nature of the book?

Yes. See, for this to be spelt out, let me say 2 specific things. One is the provision coverage ratio doesn't take into account the provision, which we have made towards pro forma NPA. And pro forma NPA, as you know, we have provided 15% of the pro forma NPA, which is about INR 1,507 crores for this quarter, which we are expecting actually to be INR 1,107 crores due to INR 400 crores of likely recovery and upgrade. With another INR 550 crores getting added in Q4, hopefully, by then, if Supreme Court comes with a ruling saying that it can be declared as NPA, then all this provisioning will go towards actual NPA provisioning. But since we are providing only 15% positively towards COVID provisioning towards this pro forma NPA, clearly, this 15% is lower than the provision coverage ratio, which we are talking both of 72%. So there will be a dip in the PCR. If Q4 government -- Supreme Court says that we can declare these as NPA, obviously, you will see a dip in the PCR. But we are wanting to ensure that this will not dip below 60% by Q4, even if the Supreme Court order comes says that we need to declare all this as NPA. We would want to ensure that PCR doesn't fall below 60%.

Sir, you spoke about one cement player in the eastern region, their account sour and that is getting restructured the next month. What is the quantum of provision we have made for that account?

So both accounts are NPA today, which is about INR 535 crores. 15% of that is made of provision.

Both means that there are 2 players? In the East, the cement part, I'm talking about.

I talked about 2 accounts. One is the cement player, the other one is retail, no. I talked about 2 corporates. 2 corporates, put together, the total exposure is INR 535 crores, in which we are expecting INR 400 crores reversal to happen by recovering INR 285 crores by way of cash and INR 115 crores by way of upgrade from NPA into restructuring. Today, they are NPA. One of them will get upgraded to restructuring.

Sir, you have articulated the vision document for 2024 in your earlier conversation with investors and analysts. And to be just the speaker you spoke about keeping the faith for investor community. Sir, how confident do you feel, sir? Since you have already mentioned that you have -- you could be called as a specialist in turning around cases. If you could give example, how you have in past turned around the assignment. So that would give us -- giving us more confidence that in this case, also, there can be light at the end of the tunnel. Just to have an understanding, sir, that if we take the stock price performance, the result performance in all parameters, South Indian Bank is at the bottom of the pyramid. And it is only -- whenever the investors -- whenever the results are being declared, it is only -- it is adding to our worries. You are doing the -- you might be doing prudent things right now for -- so that the path can be cleared. But as of now, it is the period of pain for us. And on top of that, you are looking for capital raising. Sir, if you could give some color, sir, in soothing our nerves that you will be working the talk, sir. So that would suffice our anxiety.

Sir. You'll have to see me walk to really estimate whether I'm walking the talk. So I can only say that you need to have patience to stay with whatever I've articulated. I think I am articulating right from beginning in a way which I feel what is the path I'm taking and what I'm -- I'm not giving any 10,000 feet view. I'm actually giving you the ground view of how I'm planning to do all these things. So I hope that should give you sufficient understanding that this is not something, which I'm just talking from thin air, it's actually out of experience of actually having handled such things in the past. I mean I would only urge you to refer to my profile and I've worked for organizations, which are in a very reputed organizations, where obviously you have to deliver to reach the levels which I had done. Therefore, I would only want you to make your own judgment about it because there's no point in me trying to convince you saying that I'm good. I mean you need to really convince yourself. At the end of the day, that is the one which is going to help you to soothen your nerves. Whatever I can do I can only say, articulate, and I can be more transparent, and I can probably discuss the nitty gritties and any questions you have, probably, I can try to answer to the best of my ability. After that to really see whether it is going to reflect in action, you will have to sail through the whole -- my only thing is you have probably been staying with this institution for long, stay for some more time and see what actually happens.

Right. And on the capital raising part, sir, you would like to throw some light anything in the annual or planning...

Yes. This is something which I've articulated many times. I mean, we are -- we have plans to raise capital. We have got approvals from the Board, and we are looking at the quantum and timing, depending on how the whole thing is panning out because see just in this few months, few days of this quarter, we have seen 5, 6 banks coming out with the results, and I'm sure there are a few more in the pipeline. So it clearly depends all the -- any existing investors, et cetera, they will also be looking at how they would want to allocate capital to which kind of companies, et cetera. I'm sure those discussions will also be happening through the potential investors. We are doing our best to present the institution's view and how we are getting traction in each of those areas, which I spelt out. So we are in touch with potential investors, and we are -- we will take the appropriate action when it is right for doing it.

The next question is from the line of [ Anuj ] from 3M Investments.

My question is on capital raise, again. I think the timing and the quantum, I think you are the best judge to decide what is a good time. My question is really on the mode of capital raise. I think one of the previous speakers also asked on this. See, typically, the South-based banks have a peculiar way of raising capital for long. My question to you is, are you willing to evaluate different modes and optimize the way you raise capital? And have you gone through the various things and you're willing to accommodate a different mode or the same old mode? Because it seems that, that's a suboptimal mode, just your thoughts on that.

Can you, please, elaborate? I didn't understand. When you say suboptimal mode, what exactly do you mean?

Yes. See, it seems that the right issue way of raising capital, which has been very typical of the old private sector banks, has been the preferred mode. And there could be various modes of raising capital, right? So my question is, are you really open to look at the other modes, which could seem -- so this could be just a -- which could seem to be more optimal way of raising capital. I think one of the previous speakers also had the question on the same part. So are you willing to explore other modes of raising capital other than right issue?

Yes. Yes, 100%. Yes, of course. We are -- that's why I talk about other stakeholders also. So one is definitely our present investors who are critical stakeholders, but we also need to look at other stakeholders. And therefore, we are pretty open in exploring various ways of raise. And we are guided by our merchant banker also on this issue. So we are -- that's why I'm saying timing and quantum and even the mode, et cetera, we will take at the appropriate time. We are not married or tied to any particular way of raising. And I appreciate that it's nothing to do with what has been done by others, et cetera. We will do what is right for our institution. And we will take it at the right time. And we will not hesitate to take even untreaded path, if it's really deserving for this organization.

Ladies and gentlemen, that will be the last question for today. I will now hand the conference over to Mr. Sohail Halai for closing comments.

Yes. Thank you, Murali sir, for the time and opportunity to host the call and giving a detailed insight. Sir, before we end the call, would you like to add any closing remarks?

I once again wish all of you all the very best, and this is an unprecedented situation in terms of what the economy is going through and what we are all going through in our own workspace and personal life. So I wish all of you take extreme care of yourself and all the very best. And I really enjoy conversing with all of you, and I wish to state that we will do our best in being as much transparent and as open to all of you, and I'll be more than happy to get into detailing of anything which you would want to hear from us. Thank you so much.

Thank you very much. On behalf of Antique Stockbroking Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.