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

Ladies and gentlemen, good day, and welcome to the South Indian Bank Q4 FY '22 Earnings Conference Call hosted by ICICI Securities. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Divya-Purohit from ICICI Securities. Thank you, and over to you, ma'am.

Thank you, Tanvi. Welcome, everyone. On behalf of ICICI Securities, I welcome you all to the results call of South Indian Bank. I would now like to hand over the call to Mr. Murali Ramakrishnan, Managing Director and CEO, South Indian Bank. Thank you, and over to you, sir.

Good morning, everyone. Thank you. Good morning to all of you, and thank you for joining us for the South Indian Bank Limited Q4 FY '22 Earnings Conference Call. We are joined by my colleagues, Mr. Thomas Joseph, EVP and Group Business Head, Sales; Mr. Anto George T, Head, HR and Administration; Mr. Sanchay Sinha, Head, Retail Liabilities; Ms. Chithra, CFO; Ms. Minu, GM Credit; and Mr. Senthil Kumar, GM Recovery. Let me start with the key highlights of the financial performance for the financial year ended March 22. Based new book of INR 22,750 crores, with better underwriting mechanism. GNPA on new book by less than 0.1%, SMA-2 book is 0.35%. Provision leverage ratio increased to 69.6%, which was in mid-50s for the past few years. Bank saw a record recovery and upgrade of INR 1,450 crores from GNPA and good recovery from technically written-off accounts compared to INR 500 crores to INR 700 crores gain in the last few years. Overall, GNPA improved to 5.9% from a peak of 8.02% during the year. Net NPA improved to 2.97% from a peak of 5.05% during the year. Following the robust collection drive, our SMA-2 portfolio has consistently improved quarter-on-quarter from INR 2,139 crores in Q1 '22 to INR 892 crores in Q4 '22. Let me now take you through the key highlights of the operation and financial performance. The total business for the bank stands at INR 1,50,957 crores as at March 31, 2022. Advances grew by 4% year-on-year to INR 61,816 crores, backed by total disbursement of INR 24,533 crores during the financial year ended March '22. The bank disbursed more than INR 10,200 crores of corporate loans during FY '22, predominantly to A and above rated corporates. The share of A and above rated large corporates has improved from 63% as of March 31, 2021 to 89% as of March 31, 2022. We have 0 delinquency and 0 SMA-2 booked in our new concrete book, that is disbursement starting October 1, 2020. Gold portfolio is the segment which has been consistently growing throughout the pandemic. Our disbursement increased by 96% year-on-year to INR 7,998 crores during financial year ended March '22, with an average ticket size of about [ INR 1,48,000 ]. Gold loan book grew by 20% year-on-year to reach INR 10,766 crores. Personal loan is another segment where we are seeing good traction since the launch of preapproved personal loan in September '21. As on date, our PL book crossed INR 1,000 crores mark, we are seeing steady monthly disbursement run rate of INR 100 crores. Credit card is another new product which we launched during FY '22. In April '22, we had more than 72,000 credit cards with monthly average spend of INR 20,279. As far as the SME is concerned, we are seeing good uptick in disbursement month-on-month over past few quarters. We are cautiously doing this segment with monthly disbursement averaging at INR 300 crores in comparison to average of INR 175 crores in the first 2 quarters. We expect healthy economic growth and government spending towards infrastructure sectors will help credit uptick in coming years. Our aim is to grow loan book by double digits in FY '23. Coming to liabilities. Our retail deposits grew by 10% year-on-year, INR 85,320 crores. CASA deposits increased by 20% year-on-year to INR 29,601 crores, predominantly due to continued improvement in our SA business, which grew by 22% year-on-year to INR 24,740 crores. CASA ratio continued to improve and increased by 125 bps Q-on-Q, reached 33.2% of the total deposits as of March 31, 2022. Bulk deposits declined by 21% year-on-year, INR 3,821 crores, in line with our strategy. NRI deposits, which has been growing steadily, rose by 6% year-on-year, INR 27,441 crores and contributes to about 31% of total deposits. The low-cost NRI deposits grew by 13% year-on-year to INR 8,844 crores. The bank saw a robust growth of 36% year-on-year in our NRI remittance business during the quarter. Our investment book was INR 22,534 crores, fit into HTM of INR 19,365 crores and AFS and HFT of INR 3,174 crores. The bank witnessed slippages of INR 345 crores during Q4 '22 and INR 2,142 crores in FY '22, which was within the overall guidance of INR 2,500 crores given for FY '22. This is the first quarter since COVID outbreak where recovery and upgrade of INR 412 crores were higher than slippages. The overall restructured book stands at INR 2,417 crores, of which, business segment is INR 3,338 crores, personnel segment is INR 305 crores and corporate is INR 774 crores. The bank holds standard and restructured provisions of INR 617 crores. The bank's collection efficiency during the quarter were 102% with individual monthly collection efficiencies of 105%, 104%, 102% for January, February and March '22, respectively. Gross NPA ratio improved by 107 bps from 6.97% as of March 31, 2021, to 5.9% as of March 31, 2022. During the quarter, the bank recovered or upgraded INR 412 crores worth of NPAs and sold INR 151 crores of GNPA to ARC. The net NPA improved by 174 bps from 4.71% as of March 31, 2021. to 2.97% as at March 31, 2022. Our endeavor is to bring GNPA below 5% and net NPA closer to 2% in FY '23. Expect the credit cost to be in the range of 1.75% to 2%. The bank reported net profit of INR 272 crores in Q4 '22, mainly due to improvement in net interest income and reduction in provisions on account of lower slippages and better recoveries. Further, the bank reversed the tax provision to the tune of INR 68 crores on receipt of favorable judgment/assessment orders for the previous financial years. Net interest income for the quarter increased by 7% year-on-year to INR 598 crores. Net interest margin improved by 16 bps Q-on-Q to 2.8% in Q4 '22. The sequential growth in CASA has led improvement in cost of deposits of 13 bps Q-on-Q to reach 4.54%. The endeavor to reach NIM of 3% in FY '23. Noninterest income was INR 204 crores. Our core fee income increased by 14% year-on-year to INR 142 crores. Overall provisions decreased by 83% to INR 78 crores in Q4 FY '22. The reduction in provisions was mainly due to lower slippages, better recovery and reversal of standard provisions of INR 60 crores on account of recovery from fully written-off accounts. Our PCR improved by 10.82% during the financial year from 58.73% as at March 31, 2021 to 69.55% as of March 31, 2022. Our aim is to further improve PCR to 75% in FY '23. PCR, excluding write-offs, improved by 17.27% during the financial year from 34% as at March 31, 2021, to 51.27% as at March 31, 2022. Our overall capital adequacy ratio continues to be robust with 15.86% as of March 31, 2022. The Tier 1 ratio stands at 13.22% as at March 31, 2022. We are hopeful that the momentum in disbursements and collections will continue in the coming quarters to achieve the desired targets. With this, we open the floor for questions. Thank you.

[Operator Instructions] Your first question is from the line of Vaibhav Badjatya from Honesty and Integrity.

So you have given this a nice breakup between old and new book. So out of the new book of INR 22,752 crores, can you provide the breakup as to what is the gold loan and what are other -- like corporate and SMEs and personal loan kind of [indiscernible] of the new book.

Yes. Got it. Out of INR 22,752 crores, we have -- Retail is about INR 5,039 crores, Corporate is about INR 7,204 crores, Digital segment is about INR 2,023 crores, Agri is about INR 8,486 crores.

Understand. And so this new book of this average tenure obviously, started in October 1, 2020. I mean to say that, a lot of this would be loans, which is very early in the tenure as of now and as the credit cost will be low as of now. How much of this would be related to project expansion and -- on this interest? Is it still being capitalized in the book...?

No, I didn't understand the second part of your question. The first part of the question you were saying is, since you have built this book fairly in the second half of this year, is it too early to talk about quality? Yes, I agree that it's too early to talk about quality. But having said that, since we are using -- I mean advanced technics in terms of credit underwriting, we are fairly sure what we are onboarding. Therefore, I'm fairly confident that this book will hold. And as you know, especially in retail, et cetera, the nature of the deal will start showing up much earlier. If you have not onboarded a good customer, you will start showing delinquency much earlier. And if you look at -- while addressing, I talked about the quality of corporate credit which you're adding, all these are rated A & above, and substantial portion of my new book is on highly rated corporates. Similarly, business segment also we have -- we are using tools available, and we are also now sort of completing our pilot using a credit model, which has been built with the McKinsey's help and with which we are underwriting now. So we are fairly confident of the quality of the book which we're adding. So even if you look at the GNPA from this book, obviously, it's very low. But even if you look at SMA-2 or SMA-1, even they are very, very low as of now, despite of the fact that the average age of this book is still -- I must say that it is still too early, but I'm fairly hopeful that it will sustain.

Got it. And lastly, on this new book again. How much of this INR 22,000 crores is basically the customers which were not previously the customers of South Indian Bank [ pre October 1, 2020 ]?

In terms of number of customers, probably I wouldn't be able to tell immediately, but I can tell you that personal loan and credit cards, these are the -- personal loan predominantly, we have used a preapproved model, where we have actually mined our own database using data analytics. You know that we formulated our Data Science division during this year. This was 1 of the important strategy, which I wanted to adopt, that using analytics for sourcing and underwriting. So PL, which we have almost added INR 1,000 crores during the year. I must say that most of them would be for the existing customers, but we have started now sourcing new-to-bank customers, obviously using imputed score model, et cetera, where customers may not be banking with us, but they might be banking with somebody else, but then they have a good CIBIL Score, et cetera. Using bureaus help and doing some analytics, we are onboarding a lot of new-to-bank customers also. In credit card, I must say that out of the 72,000 cards which we have sourced, initially we started with giving cards to our existing customers, but of late, when we have actually started ramping up the number of cards in terms of averaging close to 15,000 to 20,000 cards, almost 60% of them will be new-to-bank customers, who have got an excellent credit score. And that actually is a fertile ground for me to go and cross-sell many of my retail products. So this is 1 of the biggest source for me for new-to-bank customers. So with the plan I have for building credit cards this year, close to say, 1,30,000 cards plus, I'm expecting that a lot of good bank customers will get tie up during the year.

Yes. But that is only a small portion of the book. I think out of INR 23,000 crores, you said about INR 8,500 crores is Agri. And I think INR 5,000 crores is, what you said, Corporate.

Agri includes Agri Gold also. Just for clarifying that.

So yes, in that so large segment, how much would be to the new customers and how much...?

Hardly anybody will be new because this segment is -- this segment is -- as you know, this segment comes back for loan again and again. Once their initial loan gets matured, they can come and again take, especially since we are experiencing COVID, et cetera, where clearly, the disposable income of the customers, especially in the semi-urban and rural have come down. So it's natural for them to come back and avail loan again by pledging the goals again -- gold again. So therefore, that there may not be many new-to-bank customers. But we are actually not really differentiating. When it comes to products like gold, as you know, credit risk is rich. It's only operation and the fraud risk which we need to be concerned about. So, so long as you have those in traction, it doesn't really matter whether somebody is new or existing.

Understand.

The next question is from the line of Prashant Kumar from Sunidhi Securities & Finance.

My question is on operating expense side. Actually, just to understand where after 1 year or 2 years, the overall cost-to-income ratio is going to be sustained? I mean the staff expenses is decreasing, obviously, churning off the old employee and I think so voluntary retirement and other operating expenses increases because of business and other. So what will be the run rate, sir, to -- of staff expenses for FY '23 and '24, quarterly or yearly basis? If you can give some guidance.

See, 1 thing which I want to tell you is this cost-to-income ratio, which is 1 of the Cs which we are focusing on as part of our 6C strategy, clearly is to bring down the cost-to-income ratio to the levels of 50% and below because that's a healthy ratio. In fact, 45% and below will be the most healthy ratio. But having said that, the structure in which the bank has been organized, as you know, we follow IBA methodology. And IBA has certain frequency of negotiation, which happens on behalf of all those banks where IBA system is followed for employee salaries, et cetera. So those settlements also happened at regular intervals. And obviously, we need to improve those costs into our cost. Therefore, the only way to bring down the cost-to-income is to increase the income. And the increase in income, as you know, will happen when, a, when the economy actually starts really showing up opportunity for more and more quality assets and the interest rates in the market start going up. Now with the inflation going up, et cetera, the traction in terms of interest rates hardening in the market is certainly seen now. Now we are hoping that both in assets as well as in our treasury, we have a good opportunity to reprice our assets at a much higher interest rates than what we were contracting earlier. And whenever any case, whether it's SME or corporate comes for annual, et cetera, we'll obviously price it by linking into the reference fleet, which will only start going up. So to answer you, cost, I'm looking at the -- making an impact in cost-to-income, not necessarily by tweaking on the cost because, as you know, cost is something which we -- it's a [ give us ]. We need to manage that, and we need to continue to work with that. But only way to bring down the ratio is to increase the income, and that is what we are attempting to do. And the whatever measures which I talked about in terms of and focusing on good quality assets and high-yielding assets and repricing the entire book, depending on the interest rates hardening in the market, et cetera, we hope that the traction on overall income will start going up, which is the surest way to bring down the cost-to-income.

Yes. On the other one, I think I missed, you have already mentioned, but just to repeat. What will be the credit cost? What is the guidance for FY '23?

Credit, we are looking at 1.75% to 2%.

[Operator Instructions] The next question is from the line of [ Aditya Doshi ] from Chanakya Capital.

Just a follow-up on the previous 1 also. So our credit cost guidance of 1.75% to 2%. So can we say that South Indian Bank has reached a steady state in terms of our past NPAs. And second, where does competitive edge of South Indian Bank be going forward?

See, I wouldn't say steady state, you start saying only when you see consistent performance, that is what steady is all about. So we have just come out of much higher credit cost. So this is the first quarter where actually our recovery has been better than the slippages. So we need to replicate this in the year -- in the quarters to come. And the way actually, I look at it as when we compare this with many of the large banks, there is a certain amount of slippages which happen for every bank in terms of the portfolio composition, which typically I am saying it is in the range of 1.5% to 1.75% of the portfolio. Normally, they -- when they say these percentages, they include even the restructured book. Whereas for us, as you know, since we were -- we had 2 consecutive floods and we had COVID restructuring and MSME restructuring and the book composition is predominantly in the business segment, et cetera. Clearly, the restructured book, which was, let's say, INR 1,200 crores about a year back, today is at about INR 2,400 crores. From there, I'm expecting a slippage of close to 1/4 of that. So I'm -- what I'm hoping is -- approximately INR 1,000, INR 1,100 crores to come from regular slippages in my overall portfolio, plus another INR 600 crores to come from my restructured portfolio. So I'm looking at the overall slippage of, let's say, INR 1,600 crores, INR 1,700 crores for the full year, which obviously is a much, much, much better number compared to INR 2,200 crores, which I had experienced this year and INR 2,350 crores, which I experienced last year. Though this year, it was lower than what I gave as the guidance in the beginning of the year. So I really need to -- we need to really work on this. And if this -- with this and with the double-digit growth, which I'm anticipating in the overall loan book, where I'm currently at about a INR 61,000 crores, which I want to, let's say, reach to INR 67,000 crores, INR 68,0000 crores. If you take that into account, I think our slippage ratio will be about 1.75% to 2%. And our credit cost naturally will be much, much lower than that.

Okay. And my, sir, second question, where does South Indian want to be in competitive edge?

See, competitive -- in terms of -- you're saying competitive edge? I didn't understand your question.

Where does -- what does South Indian Bank has to have a competitive edge over other banks? Any mode we want to be or you want to be edged on a few segment of business?

See, there is no aspirationally, obviously, we all would want to be a big bank at some time in the day. Therefore, that is the aspiration. Obviously, there is a path which you need to take to reach that level. So the way I envisage the vision for the bank is, in terms of milestones, first, we need to get the metrics right. All the bank performance metrics in terms of CASA, GNPA, net NPA PCR, capital adequacy, slippages, credit costs, provisioning costs, employee costs, cost-to-income, CASA, everything we'll have to get to the level where it is respectable. So journey has already started. And if you look at almost in all these parameters, which I mentioned just now, we have shown a good improvement from where we started. And this journey will have to continue, and we need to keep building the asset book. And in the whole process, what happens is the entire team will also get used to the right way of doing business, right way of sourcing, right way of underwriting, right way of monitoring, right way of collection, and also doing excellent customer service, which has always been our strength. So with that, we expect the book growth to happen. And this book growth, if you lay quality as the emphasis, clearly, the profitability of the bank can really go at an exponential pace. If you look at, let's say, some bank having a NIM of, let's say, -- operating profit of INR 1,600 crores, INR 1,700 crores, and if it has a negligible provisioning, you can pretty well imagine that the entire -- at least 2/3 of that can actually get reflected as a PAT, if you do manage our book very well. So the endeavor is to build the book, which is of high quality, continue to work on improving on your income without sacrificing on the metrics which a bank will be measured on. So clearly, the end state would be to realize that the market recognizes this turnaround, market recognizes that we have put all the building blocks in place and the bank really is poised for a big growth. That's when it will have a positive cycle. And that will only help us to grow more and more. And eventually, the first milestone will be, obviously, to reach some of the big milestones which I mentioned earlier, like reaching INR 1 lakh crore of asset books, really reaching an ROE of 15% plus, ROA of 1% plus. These are some of the milestones which we are working towards.

[Operator Instructions] The next question is from the Suraj Das from B&K Securities.

I have 2 questions. First, on the NIM side. So I mean your NIMs have improved Q-o-Q. However, that seems to be driven mainly by the leasing cost of deposits. Because if I see your yield, I mean, that has declined Q-o-Q and if I see our new -- I mean, yield on the new book that you were building, that yields are looking on the lower side. And you were estimating, you are guiding where the NIMs -- I mean, will improve gradually from here from 2.8% to 3%. Sir, how do you envisage that because I believe in the rising rate scenario, your cost of deposits may have bottomed and it should go up. So I mean, yes, I mean any comment there?

No, let me -- I think, some factual corrections just I wanted to do. See this INR 22,000 crore book which you have added, my NIM is 3.7% in my new book. So clearly -- and if you look at my Q4 ROE, ROA, all of them have shown the range where we want to be. ROE is in excess of 15%, ROA in excess of 1%. So clearly -- and you know that we have added substantially a portion of our asset book in the second half of this concluded year. See -- and also, you must remember that while your observation is right in terms of the yield coming down, but you should actually compare it with the rate in which the market yields have dropped. This is something which I've shared with all of you earlier also that today SMEs -- not today, I mean, until recently SMEs were getting rates of 7%, 7.25%, 7.3%. In corporates, we are getting sub 5.5% rates, et cetera. And even the retail loans like home loan, et cetera, as you know, it's been hovering between 6.75% to 7.5%. Auto loans, good auto loans, good quality auto loans are at about 7.5%, 7.75%. So these are the rates which are prevailing for a good credit in the market. If you look at my quality of book and if you look at my yield in the quality of the book, which I'm maintaining, I must say that the team is really negotiating hard and getting good yield because I'm maintaining an yield of 8.8% today with my quality, which is close to fairly clean. So this improvement will happen on 2 accounts. One is with the market rates hardening. Definitely, our ability to price our loans will be better, number one. Number two, with our constant efforts towards bringing down the cost of funds, which is clearly happening due to CASA going up, and all my 4 engines have CASA firing today, whether it's government banking or TASC or retail or NR. All of them are firing for me, and it can only become better because, as you know, we got our agency license during the year, and we have already started engaging with many governments for improving CASA by doing business with the government. Similarly, TASC and -- that has also started showing good traction. Retail has always been our forte. And we are also seeing good traction happening in the current account. [ Savings and ] salary account always have been showing good growth. And NR clearly is also firing. Today, my CASA from NR alone is close to INR 800 crores for the full year. So with my CASA continues to firing, which you know comes at a much lower cost, and with our constant traction in bringing down the cost of funds by working on cost bulk deposits, which is continuously showing decline, my overall NIM, that is the difference between the lending rate and my cost of deposits, even in the situation in market rates were going down like nobody's business, we have been able to maintain. And this is not the cost of sacrificing quality. This has come at the cost of impeccable quality. So I'm fairly sure that the effort in this is not so much about what is available in the market. It's also to do with our ability of our team to go and negotiate hard as far as the rates are concerned, and the ability of team to go continue to improve work on CASA, improve work on our TASC, government as well as NR. In all these areas, by continuous working, I'm sure we'll be able to increase the spread. And I agree with you that the deposit rates will have to be fine-tuned depending on the hardening which is happening in the market. Definitely, we will do that because at the end of the day, our -- 1 of our biggest strength is our liability franchise. So we certainly don't want to disappoint our liability franchise. We'll continue to price it as it should be priced. And we'll continue to enjoy their patronage. That's something which we'll definitely do. And the third last 1 is on the yield on the investment. See, 1 of the reasons why my NIM is also going down is due to my fairly large investment book. And as you know, treasury yield, et cetera. I mean the opportunity in fixed income clearly has dwindled, and we have did a smart thing of reducing our duration. Within the first quarter, we completed that exercise. Now with the rising interest rates, et cetera, we are well poised to reprice it, and we are actually much better placed than many of the large banks also in terms of improving yield as the market rates start going up. So with all this, I'm fairly sure that we'll work on improving NIM. And I'm anyway, not giving too much of guidance on improvement, I'm talking about improving it marginally, which I'm sure we'll be able to.

Understood, sir. Sir, can you give a breakup of the total loan book, how much is EBLR linked, how much is fixed, how much [indiscernible] linked? Any guidance there would be really helpful.

That -- I don't have the data, but maybe we can get offline with you and probably share. But just to tell you that predominantly off late, we are seeing that most of the corporates as well as -- especially corporates, they -- obviously, the rates are like to T-bill or the rates are linked to repo. These are the rates because I'm talking about well rated cost rate and A & above. So their expectation is to link it to these rates. So my INR 10,000 crores of disbursement, which I have done in the corporate group, which is a combination of short-term and build as well as long term, they're all linked to reference rates, which are 1 of these 2 treasury or repo rates. So with the repo rate, which are already at 4.4%, and the expectation is that repo rates are going to be high depending on how Central Bank looks at the inflation trajectory, I'm sure there will be an opportunity for us to keep repricing them. And obviously, we need to ensure that we meet with the expectation of the corporates.

Okay. Understood, sir. And the last question from my side is, sir, if you can give the outstanding number of ECLGS, what is the outstanding disbursement or outstanding portfolio under ECLGS. And how has the book base may have been? I mean, concerning of slippages of NPA and NPL from this book?

I just -- just give me a minute, I'll let me just take a -- see if you look at ECLGS. Okay. ECLGS, totally, if you look at -- I'm including all of them, ECLGS 3,4, 1 extension, 2 extension, 3 extension, 4 extension, et cetera. We look at the overall vesting is INR 9,950 crores, of which, -- number of accounts is -- just give me a minute, let me just... Number of accounts is INR 9,950 crores. The limit is INR 3,163 crores. As of March '22, we have INR 2,665 crores, of which NPA is about INR 131 crores.

[Operator Instructions] The next question is from the line of [ Selvamuthukumar ] from -- an individual investor.

First, I congratulate the management team of South Indian Bank for a wonderful excellent result during this kind of COVID pandemic period. So just I would like to know about, do we have any further planned reduction of our branches in upcoming years? The second question regarding our dividend. So past 3 to 4 years, we are not able to get any dividends for long-time investors. So please try to provide a dividend in next year.

Yes, we will -- we understand. We appreciate that we have not been able to do that. Certainly, we'll work towards that. As you know, these are the outcome of how well we are actually repositioning the bank in terms of profitability, et cetera. Clearly, we are conscious of it and we know that we need to do a lot more hard work to ensure that we declare dividends. But certainly, we will work towards that. Thank you so much. Thanks for your appreciation.

[Operator Instructions] The next question is from the line of Rohan Mandora from Equirus Securities. We've lost the line from Rohan Mandora. [Operator Instructions] The next question is from the line of Akhil Hazari from RoboCap.

Am I audible?

Yes, yes, yes.

Sir, I just wanted to know the tax credit that you got this quarter, going forward, again, would there be any -- is this a onetime thing for this quarter? And going forward, would there be any other tax credits that you're getting?

Yes. It's a continuous effort. I think what we have got clearly has been due to the sustained efforts put in by the management. And we have got lots of orders favorable to us of the cases which we had filed over the last few years. And this is a continuous exercise. We'll continue to do that in the coming year. Obviously, you know that these are not something which we can predict as to how much will come and how much will not come, but efforts will be on to continue to work on. Wherever there is a possibility of redeeming, we will definitely redeem them.

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

Sorry, got disconnected last time. So [indiscernible] that we have? So what impact on it [indiscernible]? Will there be...

Sorry to interrupt you. Your voice is breaking up in between.

Your voice is not clear, Rohan.

Yes. Is it better?

Slightly better. Yes, tell me.

Yes. So on the OneCard partnership that we have, just want to understand post the RBI market directions on the co-branding arrangement on the data sharing chain part, how does that affect this partnership? And what is the data change that we were having earlier with OneCard?

See, as I'm talking to, we are also looking at very closely the RBI directions and how the bank as well as the partner will have to realign the way we are having the partnership today to ensure that we continue to have a working relationship with them. That's the broad thing which I want to share. Second thing is that, obviously, the arrangement has been -- has taken off very, very well. And clearly, we expect that this partnership is something which will continue in this year, and we have a plan to really take it up to a significant level this quarter -- this year. But this will be, obviously, after we completely scrutinize the impact of the new regulation, there could be a little bit of tweaking, which they -- which we might have to do in terms of the agreements, et cetera, which we entered into with them. And we also need to ensure that whatever we are setting out to do, is in complete alignment with the guidance which has come from the regulators. So we are closely looking at what we'd be done in to ensure that we completely satisfy the regulatory requirements.

Right. Sir, so if you can just elaborate on here in terms of what is the data sharing that would be happening with OneCard or what all things would need to change post the circular? If you have some clarity on that front right now?

Currently, let me just tell you, the current arrangement what we have is, see, we have tie-up with OneCard in terms of their own sourcing where they have a methodology for sourcing new customers who are -- probably who could be new to bank -- new to our bank. So those customers are obviously -- I mean, looked at for credit quality, et cetera. And once they meet in with the norms which the bank has specified in terms of what we need for the issuance of credit card [indiscernible], such individuals are given cards, et cetera. So that is 1 thing which is working. Second thing which was working is, wherever we have an existing customer base, we are using data science to ensure that we do a data mining of our customers and whoever we think are eligible for having cards, we share the details with OneCard, and OneCard then issues card to our existing customers. So clearly, the customers belong to us and the risk norms are obviously our own risk norms. The third product, which we are working with them is a Secure Card, where the credit card limit is backed with the FD. There are many customers who hold FD with us and we would probably give a Secure Card, which -- where the limits will be backed by the FDs, which we carry. So now the 1 of the important things, I think, which as per our understanding as per the new regulation is, obviously, the partners should not have access to the transaction data, et cetera. And the -- and obviously, we need to, particularly in the credit card kind of business, you need to understand that. There are 3, 4 big areas where we have the partnership. One in terms of technology alignment. Second, in terms of sourcing and processing. Third one, in terms of collection. And fourth, in terms of customer service. So we need to see that how we ensure that all these are done by fully complying with the regulations, which has now been introduced. So team from our side and team from their side is carefully going through all this. And whatever needs to be done to ensure that this is fully met, we will endeavor to do that. And we hope to put everything in place so that we are fully compliant with the regulations.

Sir. Sir, that was helpful. Sir, secondly, in terms of PSL, how are we placed at the end of the year?

In terms of what?

Privacy sector lending agreement.

We are always well ahead of whatever is the requirement of regulators. So we have no challenge there. In fact, we have -- always, we are surplus so we keep selling also PSLs, et cetera. So we are very well placed.

Sir, just if you can talk about how is the PSLC rates trending right now? And are there any expectations of that increasing given that the -- larger bank is going to...

Let me put this way. It's more opportunity-based to sale which we do. We really don't do that as a business. We look at it, if there is an opportunity, and if you are finding it to be surplus where we are fully meeting with all the requirements of the bank, and if we see an opportunity, we go under look for rates at that point in time. And if it makes sense, we do that. It's not looked at as the main business activity or anything like that.

And sir, lastly, on the NIM that we have generated post October 2020, what will be the effective ROA, ROE if you were to look at only that particular book?

NIM is -- we have calculated the NIM. NIM is about 3.7% for the new book. And delinquency, as I explained earlier, it is negligible. So we are talking about SMA -- Give me a minute, I'll just -- Yes. In terms of new book, SMA-2 is hardly INR 79 crores out of INR 22,752 crores, and GNPA is only INR 3 crores. So it's clearly negligible delinquency. And average yield for this new book is about 8.03%. And this obviously might look lower compared to the old book, but you must remember that the interest rate scenario actually has been going down. So in the lower interest rate scenario, we are continuing to work on improving our cost of deposits and cost of funds, and we are also continuing to work on improving rates in a way that our spreads keep going up. So ROA, ROE, we haven't really done for the new book per se. But Q4, which is what I shared, I think, earlier, my ROA and ROE are pretty good, 15% plus for ROE and ROA is 1% plus. But obviously, it's a one-off, you can't really expect that to be replicated because we have done a fantastic job in terms of recovery and upgrade in the Q4. In fact, the recovery and upgrade done in Q4 is equal to what we did for the full year of year before last. So we have almost improved our performance at 250% in terms of upgrade and recovery. So obviously, we would endeavor to replicate that going forward. But that obviously has to got -- we need to factor that when we are calculating the profitability, which might arise. So right now, the ROA and ROE for the full bank, which is clearly very, very low, and we need to work towards improving them. It will start happening as we churn the existing portfolio with more and more of new portfolios.

Sure. And sir, lastly on -- again on the new book part, is the fee income profile as a percentage of, say, the average loan book similar to the old book or would it be better? And if it is better, where have we brought in that?

Substantially improved. I mean the habit of charging fees, et cetera, we've actually now inculcated into the team. And in fact, in all our income streams, if you look at, whether it's a transaction income or a technology income or fee income or all the areas, third-party, everywhere we have shown substantial improvement. I think as a culture, we are now looking at improving our wallet share.

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

Sir, if I look at our Slide #18, and where we have given the breakup of loan book in terms of ticket size, we are reducing less than INR 5 crores, INR 5 crores to INR 25 crores, INR 25 crores to INR 100 crores. The only segment where we have grown is above INR 100 crores. And is there a decent healthy growth there, which is also improving the overall growth. I wanted to check, sir, is this going to be the strategy that maybe from -- at least from a near-term perspective, you will be going more aggressive on this INR 100 crores plus size? [indiscernible] is very good. Or is there something which is why we are [Technical Difficulty]

Yes, please continue, sir.

So I was saying, sir, if I look between the above INR 100 crores and below INR 100 crores, there is a clear difference in the way the bank is growing. So just wanted to check, I thought maybe the focus would have been more on granular below INR 100 crores kind of loans, but somehow it is not coming out that way. So what do you think what is going to be the strategy?

This is the operator. We have lost the line for the management. Please hold while we reconnect. This is the operator, we have the line from management reconnected.

Yes. Sorry, I think we got disconnected. Tell me.

Yes, sir. Sir, on Slide 18, that gives the ticket-wise breakup of the loan book? This quarter, at least we have shown a healthy growth in above INR 100 crores. I wanted to check, are you facing some, let's say, more competition or you are more leaned towards -- sorry, away from below INR 5 crores to INR 25 crores, INR 25 crores to INR 100 crores ticket size, and hence, we are degrowing there or what is -- maybe the risk reward is not finding that attractive? So what is the reason that we are having degrowth in 3 smaller ticket size versus above INR 100 crores.

No. If you look at less than INR 5 crores, it's only grown, INR 32,408 crores to INR 33,833 crores, which we have grown in less than 5 crore, which is clearly the retail growing, obviously, that is growing. If you look at predominantly in INR 25 crores to INR 100 crores, in terms of number of cases and this thing there, what we are actually doing is, we are churning wherever the cases which are slipping, et cetera. Obviously, we are addressing them through recovery and collection. And any new addition to this -- in this segment, we are obviously looking at the quality as a criteria. And as you know, INR 5 crores to INR 25 crores typically would be SMEs who are -- whose average ticket size would be, let's say, INR 8 crores to INR 12 crores kind of segment. This segment, especially across banking, also, this segment is something which we need to be very careful about because they may not have as much resources as a corporate would have. And they are much like retail in terms of their discipline and in terms of their maintenance of books, et cetera, et cetera. So you need to be very good in doing quality underwriting. This is 1 of the reasons why SME, if you look at industry as a whole also, always suffer some higher delinquency if you don't have your credit act right. So if you look at more than INR 100 crores, why we have grown, clearly, we are focusing on large well-rated corporates, whose requirements are of a larger site and where we are very sure about the credit quality. Obviously, the flip side to that is, the rate rates, et cetera, would be relatively much lower compared to what probably you would get for an MSME or a mid-corporate. To that extent, yes, you will have a little lesser income, but then -- if you actually look at the risk-adjusted income, they still will make a lot of sense.

Right. And do you see higher competition in INR 5 crores to INR 25 crores, and INR 25 crores to INR 100 crores because other banks, for the large banks seem to be getting more aggressive for the last few quarters?

I mean, probably each bank is in its own stage of evolution as to how they want to do this act. But as far as I can only talk about my bank, where I can tell you that this segment of INR 5 crores to INR 25 crores, especially, we need to be very sure about the quality of our underwriting, and we need to be really keeping our team to identify good cases. So because today, typically, INR 5 crores to INR 25 crores, if you look at, average ticket is INR 8 crores. I'm just giving you a backup manual calculation. If somebody is looking at INR 8 crores. His working capital, his turnover, let's say, we are in a multiple banking or consortium banking. Let's say, 3, 4 banks are together. Let's say, INR 30 crores, INR 40 crores will be the working capital requirement, which means you are talking about a company which has a turnover of, let's say, INR 120 crores to INR 150 crores. This segment, if you look at it, in the last couple of years, this is a segment which has had the worst hit. 80% of SMEs facing losses were mostly in the smaller and mid-segment of SME. So 1 needs to be very sure about the quality. So the way we have gone about addressing this segment is, clearly, the operational methodology will be mimicking to some extent the corporate underwriting methodology. But at the same time, there will be emphasis on collateral, because these are the segments where because of the less resourcefulness, you might -- if you experience any delinquency there, you need to recover or reduce your LTD by having a good collateral backing you up. So therefore, we are carefully choosing this segment. And as we feel that our model is right and our credit underwriting quality is definitely becoming better and better. And if the opportunities for this segment keeps moving up. Today, the opportunity also is pretty low in this segment. While you are saying that other banks are growing, they are mostly, if you look at it, they are actually poaching by offering very low rates. It's not that any new entity is coming up today. They go and look at well-performing customers or, let's say, other banks and go and offer 6%, 6.5%, 7% which obviously smaller banks cannot offer such rates. So these customers are getting poached. That is what is happening. And to a large extent, this also to some extent, puts pressure on the NIM of all the midsized banks because in order to retain a loyal customer, they need to offer good on rates, which is clearly the bank's own created situation. It's not that risk is going down in any way or the pricing to risk is happening in a proper way. So I am of the view that pricing to risk is clearly missed out in this segment. And today, people are growing in this segment just to show advances growth. It's not really -- and in the overall scheme of their things, probably, to still be very low because they are a much larger book size. So therefore, even if it go aggressively in this, it may not be very contributing much to their book size. But for a bank like ours, especially when we are trying to correct the situation of slippages coming under control and credit costs coming under control, we need to be choosy about who we want to lend in this segment.

All right. Understood, sir. And secondly, on the security receipts book that we have, right? So clearly, out of around INR 1,600 crores book value, we have around -- we have provided INR 900 crores and INR 700 crores is still NAV. I mean, usually, this still looks like the provisioning is on a lower side. Would you -- do you intend to provide much more here? Or how do you look at the residual provisioning here?

No, I probably may not agree fully that we are providing less for anything because if you look at the way the sale to ARCs which have happened in the past, clearly, the performance of ARCs, if you look at overall over the last several years, if you look at it, many of the sellers were not too happy with the redemption of what's happening in SRs. But 1 thing which you should also remember that every quarter, there is a rating agency, which looks at the possibility of recovery from the various underlying cases, and they say what is the likely recovery, et cetera. Now given the fact that market has actually deteriorated in terms of recovery over the last 2 years, thanks to COVID, et cetera, clearly, rating agencies have also rightly reduced their prediction of recoverability from these cases. And therefore, as a bank, we need to obviously take into account the provisioning, which will -- which we need to take as additional provisioning. So -- but now if you look at the last, I would say, 12-month scenario compared to the first year of COVID when most of the courts are not functioning, most of the resolution mechanisms are not functioning, et cetera, obviously, the recovery from -- by ARCs were pretty low. But if you look at last 6 to 8 months across, all banks, if you look at the recovery, has been improving. And so are we finding that even from ARCs. Today, ARCs are getting cases resolved either by going in for OTS or to a resolution, et cetera. There is some traction happening. And we are also seeing that quarter-after-quarter, things have started moving. Now we have more and more, I mean, I wouldn't say we are in a happy state, we still have a long way to go. But whatever we used to experience earlier, compared to that, I think what we are getting now is slightly better. So I only believe that collection and recovery scenario will become better, and that will make ARCs also improve their performance, and we continuously engage with all the ARCs to who we have sold our portfolio and we are engaging with them. We have also done an additional initiative of ascending somebody who has got a rich experience in handling recovery and collection, who has been with the bank for many years, to work very closely with ARCs so that we can -- our engagement with the customers whose accounts have been sold to ARCs are handled reasonably well, and we are getting maximum value out of whatever we saw. So that's how we are planning to address this. So in my view, we will take it as it comes. I mean as of now, what you said is right, that 55% provision coverage is what we have. But depending on how the whole thing pans out, we will provide whatever is required to it be profitable.

Understood, understood. And lastly, sir, on capital. Is there any capital raising plan? Or I mean, concrete capital raising.

No. Actually, if you look at the capital adequacy, we are pretty well poised now. But having said that, for the opportunity in the market, clearly, we need to beef up our balance sheet strength, for which definitely we'll be looking for opportunity to raise capital. If you ask me whether we are in a dire need to raise capital, the answer is no. But will we be raising capital when there is an opportunity? The answer is yes.

And last question, sir, on this OneCard, right? So what is it for the bank? I got the [indiscernible] Is this any better?

I didn't understand your question. You're asking whether...

Question [indiscernible] OneCard, on credit cards. So why not go [indiscernible] and why do you need OneCard partnership. Actually, my initial impression [indiscernible] I mean OneCard operates in a segment which are -- which a bank of your size would have very tiny percentage. I mean you -- anyway, as you said, we have data mining and everything. So maybe there would be very hardly overlap between their targets and then your existing customers? Sir, I wanted your thought.

So 2 things. One is, if you want to start the credit card business on your own, as you know, credit card is a long decision business, and it requires a lot of considerable investments in the technology as well as in the human resources side. So if you ask me whether it is a product which we want to start on our own and want to raise -- take it to the level where we might initially have to take some capital expenses as well as some losses before we turn around the business. This is a long gestation business. Currently, in my our scheme of things, we don't want to venture on our own. Having said that, is it a business which is worthy of pursuing? Yes, it's worth pursuing because this is 1 business which can give you much better ROA. And what we are now trying to do, we are trying to basically partner with somebody who has got expertise in this, who has done this credit card business for years, and all of them are -- have worked with me, so I know all of them. And they have good expertise in this area. And we are specifying the norms, which will match with our risk appetite. So we are clearly specifying this is the risk which we would want to take in this business because credit card business, as you know, is a high-return, high-risk business. So how do you control risk? By only having your own risk appetite clearly understood and having a norm which will fit in with your risk appetite. So with that, if you underwrite, obviously, you will have everything to gain. So today, I would slightly disagree that the segment which they are targeting and the segment which we want to target, they're not different. When we are trying to say that we would want to grow in retail, let's say, better quality, we would want to obviously target customers whose CIBIL scores are better, who are in the age group of, let's say, 25 to 35, who've got a lot more professional carrier ahead and who are working in good sectors, et cetera. That's the segment we generally want to look at for growing our retail. If somebody is looking for a credit card today, he might look for a home loan tomorrow, he might look for a car loan day after tomorrow. So clearly, what you are acquiring as a customer today, you have a customer life cycle dependent loans, which we can do from the bank. So the whole methodology is to acquire a customer and then work with the customer to keep increasing your penetration with the customer in terms of offering all of the products apart from the third-party products, which you want to set. So clearly, it very much synchronizes with the strategy which I have in mind in terms of improving -- increasing our customer base, increasing our product suite and improving the overall wallet from the customer, which will improve overall ROE and ROA. So it makes immense sense to go with the partnership at this junction instead of starting on our own, which today may not make sense for the bank of our size.

The next question is from the line of Sagar Rungta from Anand Rathi.

I just want to follow up on the earlier question about if you can throw some color on how the market currently is in terms of competitive intensity among SME business loans and about the growth prospects it has.

The SME business scenario, if you look at the market, it is clearly it -- unlike a large corporate, et cetera, where to a large extent, it will be driven by the outlook of the industry. In SME, it seems it would be mostly regional-based or area-based entities, clearly, the uniqueness of the SMEs is what is going to make them survive. So whenever we look at SME cases for our onboarding, we need to see what is their uniqueness, what is special about them, which will make them survey. Because if it's a very easy business where the barrier to entry is very low, anybody can get in if the margins are attractive, more and more people get in and that is a sure way to spoil the spreads, et cetera, and that is a sure sign that SME will go down the drain. Therefore, when you are looking at onboarding good SME customers across the country, we need to see which business are they in, depending on the geographies which they are operating. -- let's say, if it's a SME based out of, let's say, industrial center in Pune or in Chennai, are they contributing? Are they acting as OEMs to a major auto manufacturer over there? Obviously, you look at how long have they been supplying that product and how integral are they in terms of the overall scheme of the principal, et cetera. That's what we should look at when we are trying to onboard them. If you look at markets like Kerala, for example, we will look at whether somebody is in the rubber plantation or somebody's in a tourist business, et cetera. And what kind of penetration they have had in that line of business. So when it comes to assessing SME potential, I must say that it is more and more regional based and more and more area based. So what we are trying to do is, since we have a fairly good distribution network. We have 925 branches spread across the country with 18 regions. And each region has its own uniqueness. So we clearly give the target and we sort of give the guideline on which industries are having outlook, which are positive -- which industries are having a stable outlook, which industries are not having positive -- which have a negative outlook. So we try and stay away from industries which are not doing well, which are where there is a negative outlook. But here again, there could be locations where even though they might be in that industry, but their uniqueness in that locality probably will be helping them to do very well over there, and they might have a long history of operating from them. As customers, obviously, we would definitely onboard. So when it comes to SME, it's more, I would say, very location-based strategy is what we should -- we are following. So -- but -- and therefore, the way I look at it is SME, the key to building an SME book is to be very sensitive about the quality. If you get your quality at right, you have a good money to make, especially in the rising rate scenario, you can afford a charge reasonably a good rate for pricing the risk. And if you get your act right, you will be able to make good money. So right now, we are at a phase where we are -- we were degrowing. We are continuing to -- we were continuing to degrow for some time. Now we started actually building back now. We have still reached a level which we were. But this year, hopefully, we will be able to surpass the book, and we will be able to show some decent growth over there. I'm looking at overall double-digit growth for the entire portfolio, of which definitely SME will be 1 of the key contributors to my business. The average disbursement run rate we are seeing is about INR 400 crores to INR 450 crores in a quarter. If you look at the 6 months average, it will be about INR 300 crores. So we are seeing continuous traction happening in terms of disbursement happening. And here again, the subsegment which is growing is the lower segment, which is essentially up to INR 2 crore ticket size, where the average ticket size would be about INR 1 crore, where it will be more at into retail and even the way the business is run will be at into retail, where you have a very standard set norms and you don't have too much of deviation, it will be back with a good collateral and the business model is sustainable, and there is a uniqueness for the promoter to have a sustainable advantage.

The next question is from the line of Mehul Khandelwal from Span Capital Services.

This is Mehul Khandelwal. Sir, my first question is, last year, we have grown at 3% on loan book. So what gives us confidence that we will grow double digit in FY '23?

If you see it by growth in the last 4 months, see I said that asset growth, we started actually growing -- we were degrowing order book for -- because we are setting up the entire structure of the bank to really do quality sourcing and quality underwriting, and we are also setting up control divisions, et cetera, to ensure that we are not hit with any conflict of interest and frauds; internal, external frauds; et cetera. So all that got stabilized and we -- and the economy was also not doing that well in the first quarter and even up till mid of second quarter, things were not bearing that great. So we actually started growing our book, if you ask me, from month of September onwards. So if you look at the growth which we have actually posted in Q3 and Q4, and especially in Q4, if you look at it, we have shown a growth of close to 10%. We have almost grown INR 2,500 crores of book from the book -- starting book of January. So I'm not saying that I will do an annualized growth of 30%, 40%. I'm looking at a growth of, let's say, double digits, lower double digits. But I would like to repeat that between quality and growth, still go for quality because that's the 1 which is going to sustain. If good quality assets are available, we will definitely grow more. I'm not limiting -- I'm not going to limit myself by saying I'll grow only 10% or 12% or 13% or 15%. If there are good quality assets available and if the team really which is geared up now to really source more and more, I'm sure we are taking an ambitious target of wanting to reach double digit. We will take it as it comes.

So sir, would you like to quantify double digit in terms of number, like what is your targeting with teens or high teens, anything?

Double digit starts at 10%. So you can take it as 10%.

Okay. Okay. Okay. And sir, you are targeting ROE of 15% and 1% ROA in how many years?

It's a very theoretical question if you ask me because we would want to reach this level. It's not about in how many years we will reach. It's a question of how soon we would want to reach, which is dependent on so many things. I mean it's a composite number, right? So you need to look at the composition of the book that you're trying to build. You need to look at the delinquency, the behavior of each of the sub portfolio, et cetera. So our endeavor is to reach this by -- in my original vision statement, I said we will reach it by 2024. But given the fact that COVID has really pushed everything by 1 year, I'm hoping that we'll reach it by 2025 March.

Okay. Okay. And sir, there is -- out of restructuring book of INR 2,400 crores, how do you see this panning out this year, like what are the chances of a recovery or any kind of improvement over here?

1/4 of the book to slip into NPA. Rest all I think will behave. No issues.

And any lumpy account are we seeing?

Sorry to interrupt, sir. I would request the management to go ahead with the closing comments in the interest of time, you may email the questions, sir, please. Management, over to you.

If you have any more questions, please do not hesitate to send an e-mail or send -- talk to any for our colleagues. We'll be happy to take your questions. I would like to thank all the participants for taking your time out to be part of this call. And as I keep saying in every analyst call, our endeavor is to provide as much information as transparently as possible, whatever information we have, we would want to share it in full detail. that you know exactly how we are sharing the bank. And I sincerely expect all of you to continue to support us in this journey of transforming the bank and to reach the next level of growth. Thank you so much, and thanks for the organizers for organizing a wonderful teleconference. Thank you so much.

Thank you very much. On behalf of ICICI Securities, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.