Union Bank of India (UNIONBANK) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Union Bank of India Quarter 4 and Financial Year 2020 Earnings Conference Call. The bank is represented by the Managing Director and CEO, Shri Rajkiran Rai G.; Executive Directors Shri Gopal Singh Gusain, Shri Dineshkumar Garg, Shri Manas Ranjan Biswal, Shri Birupaksha Mishra; and other top management. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference call over to Mr. Nitesh Ranjan, Chief Channel Manager, Strategy. Thank you, and over to you, sir.

Yes. Thank you. Good afternoon, everyone, and welcome to this call. As is the structure of this con call, we'll first have a brief opening statement by our MD and CEO, and then the floor will be open for interaction. However, before getting into the con call, I'll read out the usual disclaimer statement. I would like to submit that certain statements that may be discussed during the investor interaction may be forward-looking statements based on current expectations. These statements involve a number of risks, uncertainties and other factors that cause actual results to differ from the statement. Investors are therefore requested to check the information independently before making any investment or other decisions. Thank you. Now I hand over the call to our MD and CEO, Shri Rajkiran Rai G.

Very good afternoon, everyone. It is my pleasure and privilege to welcome you all to our con call on financial results, results for quarter and financial year ended March 31, 2020. A lot has happened since our last meeting. Firstly, I'm happy to share with you that our amalgamation process has continued well and all milestones have been achieved on time. However, the biggest disruptor came in the form of a virus. The COVID-19 pandemic had brought every economy in the world to a standstill. Governments have been trying hard to protect citizen lives and livelihoods while containing spread of virus. Lockdowns and social distancing measures have bought policymakers time to respond to this crisis more effectively. The IMF sees current economic hardships as severe as Great Depression with both demand and supply shock coming simultaneously. Policymakers are responding with both fiscal and monetary levers with stimulus as high as 1/10 of GDP. Businesses across the globe are still coming to terms with the situation and working with the new operating manual. I'll structure my remarks in 3 parts. I'll begin with a brief on financial results for quarter ended March '20. In the second part, I'll share how bank is responding to COVID-19 challenges. And finally, some thoughts on amalgamation journey. Before sharing highlights of business and financials, let us see how we fared vis-à-vis the guidance given during our last con call. Guidance for credit growth and deposit growth was 7% to 9% and 9% to 11%, respectively. Bank actually registered 6.6% growth in credit and 8.4% growth in deposits. NIM stood at 2.29% against guidance of 2.30%. Delinquency ratio stood at 5.38% against guidance of 4.5% to 5% range. Credit cost stood at 3.51% against guidance of 3%. But for harmonization impact, which I will deliberate later, credit cost stood at 2.77%. PCR guidance was 70%, while the actual PCR is 73%. Gross NPA, net NPA ratio stood at 14.15% and 5.49%, respectively, well within guidance of 14.5% and 6%, respectively. To summarize, the operating performance was in sync with the guidance. Coming to business and financials. Total business rose 7.6% annually to INR 7.98 lakh crore. Deposits stood at INR 4.51 lakh crore, while advances stood at INR 3.47 lakh crore. The RAM sector share stood at 55.3%. The bank noted operating profit of INR 9,181 crore, an increase of 22% from last year. Provisions, however, continued to weigh on financials. This also included harmonization of provisions on nonperforming loans, which amounts to INR 2,500 crores. Consequently, there was net loss of [ INR 2,898 crores ]. Let me give some color on harmonization. We [ erupted ] the principle of providing the highest provision on common accounts. That is, if an account is common in 3 banks and status of classification is D3 in 1 bank, then other 2 banks shall manage the provision of D3 in the account, even if presently classified as D1 or D2. Slippages for full year stood at INR 14,911 crores, while recovery and upgradation together amount to INR 6,138 crore. Provision coverage ratio stood at 73.64% as against 66.24% of last fiscal, with net NPA ratio declining to 5.49% at the end of March '20 as against like 6.85% of March 2019. Our CRAR stood at 12.81% as of March 2020, within which CET stood at 9.40%. The bank is adequately capitalized for growth opportunities. Speaking of our response to COVID-19 pandemic, our first priority was to ensure safety of our workspaces and health of our people, both staff and customers. Business continuity plans were activated to ensure essential services are not affected. For critical support infra, alternative sites were kept on standby. Average 98% of our branches and 88% of our ATMs continue to function during lockdown while we continue to serve through vibrant digital channels. This brings me to our amalgamation journey. We were able to complete our amalgamation milestone as per time line. There was smooth transition on amalgamation effective date, AED. With the basic services going live for all branches and all customers, staff benefits, products and policies were harmonized, keeping best-in-class principle in mind. With a business mix of INR 15 trillion, 9,500 branches, 77,000 staff, Union Bank is today fifth-largest public sector bank, having a rich product suite for all kind of customers. Bank has over 5% market share in 15 states, which promises a lot, given positive network alternatives. Amalgamation has given us opportunity to build a great modern bank capable of serving the needs and aspiration of new India. We are approaching it from a position of strength. Best thing is that our partners are complementing strength, which gives us a head start in integration with minimum overlap. We are pretty confident of completing integration access smoothly this year, making available better opportunities for growth for our customers, staff and stakeholders. Traditionally, we provide a guidance on various parameters. However, at this time, the guidance for FY '21 would be fraught with several uncertainties given the evolution of pandemic and duration of effects. Therefore, I can only talk about the deposit and advances guidance for FY '21, which we expect would be in the range of 7% to 9% of our deposits and 6% to 8% for credit, respectively. We'll provide more color on the rest of the guidance as we move forward. We are thankful to the investor fraternity, the analysts for being with us on our -- in our journey to become a great modern bank. Your feedback matter a lot in shaping our understanding. I'm open to your questions now. Thank you very much.

[Operator Instructions] We have our first question from the line of Jai Mundhra from B&K Securities.

To start with, sir, if you can share the moratorium number in rupees crore, maybe if you have the data month-wise, just to see as to how it is progressing.

Any like -- Sumit? I think you want to -- yes, overall, it is 24% on the book. So yes, I think the amounts we will not be able to give, but I can give you sector-wise. In retail, it is about 35% under moratorium. In MSME, it is about 37%. This as of March, so 37%. Corporate, it is about 16%. NBFC is about 12%. So overall book, it comes to around 24%.

Okay. And sir, after this -- this is for stand-alone Union Bank, right?

Yes.

As of March?

Yes.

Do you have any number after that? Because, after March, a lot of other banks' commentary suggests that from March, it has definitely gone up, either in May -- in April or May and probably in June, it has started, but declined a little bit. So if you have the latest number either for the merged entity or for the bank.

See, as of March, I can give you merged entity number. It is about 25.6% actually, so -- for the merged entity. So -- but then April and May, even though we are tracking it, at this point of time, we will not be able to share the number. We will share at the June quarterly results. So you rightly said that there will be some increase during April and May, but not very phenomenal increase that way. In the June, we are seeing it is coming down.

Sure, sir. Sure. And sir, on the overdue loans that we have that you have shared in our BSE note that is SMA-0 plus 1, plus 2. How is that trending? I mean, that number is also as of March 1?

Yes. That was INR 2,500 crores, if I'm correct.

Sir that is the standstill. I think the total overdue was even much higher.

Okay. Because those accounts, generally, we don't -- we are not given any relief. Actually, that amount must be all SMA-0, SMA-1 total book. So we are keeping track actually. Even this INR 2,500 crores, actually, like the latest, this thing -- there are a lot of recoveries which have happened. Because, see, what is the risk? As of 1st September, all these accounts will shift to the same level. Like the SMA-2 as of 1st March will become SMA-2 as of 1st September. Now if there is no recovery in between, there is a possibility that they may slip at September end. So but then all these accounts, we are tracking because I think it involves about 60,000 accounts, this 2,500 accounts. So now these accounts, we are tracking. And I'm very sure that there are recoveries coming in this account. I'm not able to share those data. But then there are recoveries coming in this account also. So our assumption that all these INR 2,500 crores will slip in September is wrong because like not more than 10%, 15% will slip.

So anyway, INR 2,500 crores, this number is not that big anyway. I was more concerned on the INR 25,000 crore number, which is the total overdue, right, which is as on March 1, that INR 25,900 crores, how is that number moving, sir? Because some of the people -- some of the customer would have paid also, right? And they would have moved out of overdue status?

Right, right, right. Now that, actually, like we are tracking those. So every month, we are tracking these accounts, and there are recoveries in these accounts also. So like -- see, if you look traditionally, SMA-0, 1, 2 book, this size is very normal at the beginning of the month, then the recoveries of course continue to be there. And ultimately, there will be a small slippage in the month end. So this is a trend. I think more than this, I'll not be able to share at this point of time. But all those accounts are being tracked, and like the behavior is very normal. Corrections are happening.

Correct. Sure. Sure, sir. And sir, this -- so on merged entity, if you can provide some more numbers at least on GNPA and NPA, RWA and CET1. Or if you have the -- I don't know if you can share the merged entity 1st April balance sheet. But even gross NPA, net NPA and capital numbers that will be most helpful.

I'm afraid that I'll be able to share this because, like, I think it will be shared only at the time of 30th June amalgamation balance sheet. I'll just check actually if legally if we can share, we'll be happy to share. But then I may have to check, actually, whether I can share these numbers. So only thing I can tell you is the net NPA numbers as amalgamated entity will be lower than what we have now. So that is one thing. And then the PCR also is going to be higher than what we have as a stand-alone.

[Operator Instructions] We have a next question from the line of [ Meru Azania ] from Elara Capital.

Sir, what were the upgrades or recoveries during the quarter? Any key accounts or sectors that you can mention? And which are the big accounts that were not resolved this year in FY '20 and will be resolved in FY '21?

Okay. I think the last quarter recovery and upgradation was around INR 1,130 crores. So March month was a loss actually. We were aiming at about INR 3,000 crores of recovery in the last quarter. But then like one of the main account we expected was Bhushan Power and Steel, so -- where we were expecting close to INR 800 crores of recovery. And there were some other accounts which are under discussion. So let us get to the specifics later when we come to the account-wise discussion. At this point of time, the identified accounts worth about INR 5,500 crores under NCLT, which can be settled during the next year, where there is like a good possibility of recoveries coming up, includes Bhushan Power and Steel also.

Okay, sir. Sir, and was there any big account that was upgraded in the March quarter of the INR 1,130 crore?

No, no.

Okay. No big account, yes?

No major accounts. These are all mostly smaller recoveries. I think we had one settlement of Orchid Pharma.

Okay. But that was a onetime settlement?

Not one time. Actually, it was through NCLT only, but the payment was done. This was acquired by one company and they paid. I think that is one major recovery, maybe INR 300 crores, INR 400 crores. So...

Okay, sir.

But INR 300 crores, INR 400 crores for the system, not for Union Bank stand-alone, yes.

Okay. Okay. Sir, my other question was that in terms of moratorium. Now that as of March around 25% of the book is under moratorium, would that mean -- and given that there's corporate and NBFC moratorium as well, does that mean that in the first quarter there'll be more slippages? Or there would be still some weak accounts in the corporate segment that could slip outside of the moratorium?

There will be some slippage for various other technical reasons. So -- but it will be very small.

Okay. Sir, technical reasons mean that you don't have...

Like, see, consciously, sometimes we mark some accounts as NPA, and like -- because, see, all the accounts are not eligible for moratorium. If the unit is closed, there is no operations in the account. There are various reasons why which account fall. So there will be healthy developments happening in the existing NPA accounts, so that will be [ BB ] is getting involved in an existing NPA account. There are various reasons why accounts fall. Sometimes, like as a business entity, we also take a call to classify some accounts as NPA. So that kind of things will be there. But then it will be like a much -- I think our total slippage for March was something like INR 2,400 crores.

INR 2,500 crores.

INR 2,500 crores. So it will be less than that, much less than that.

Okay, sir. Sir, and my last question is that there are many AA NBFCs which are not yet finding it easy -- even AA NBFCs which are not finding it easy to raise money from banks. So what is your view on these AA NBFCs? Would you be willing to lend to them or...

I think NBFCs at this point of time are flooded with the money offers. So somehow -- and that, too, if it is AA or A, there is no issue. Particularly, if you see TLTRO, our bank itself gave close to INR 10,000 crores to NBFCs, and various other banks also have given. So NBFCs are the major beneficiaries out there. Now there is a scheme under PCGS. So now PCGS also is going to give you about INR 40,000 crores, INR 45,000 crores to NBFCs. So now -- and NBFCs are not lending that much? Now if you would see -- look at their balance sheet, it is only -- the liquidity in their balance sheet is going up. They need to keep 1 month repayment as liquidity. Now they are keeping 4, 5 months of repayment as liquidity. So whatever borrowing they're doing, they're keeping it as liquid rather than lending. So actually, they also have to relook at their business models, how long they can continue like that. And most of the borrowings are also going because of the moratorium to pay the other lenders, but then not much of lending activity in NBFCs also. So I don't think that there is a shortage of money for NBFCs, particularly at AA category. So it is their business model where there is a risk aversion in the NBFC itself. That is the problem.

Okay. Sir, and your INR 10,000 crores TLTRO was to NBFCs, what was the total amount deployed by you?

We -- both TLTRO put together, we did up to INR 14,000, I think. Out of that, about INR 10,000 went to NBFCs.

We have a next question from the line of Bhavik Shah from B&K Securities.

Sir, this was regarding the prudent provision that we made of INR 2,700 crores. Sir, you indicated that it's across 3 banks, so if the classification of D3 in other banks, even we have brought down classification to D3 and made additional provision, there might be standard accounts which also might have been slipped, right? But it would not appear slippages as of now because of moratorium. Can you -- sir, what would be that number then?

Okay. There is no account which became NPA because of the harmonization. So across all the 3 banks, not even a single account we got where it was NPA in 1 bank and standard in another bank. There was nothing. So it's only in the NPAs we had a divergence because Corporation Bank was pretty advanced in provisioning because they were coming out of PCA. So they had a higher level of provisioning in many accounts. So that is a very generic segment. But then most of the account, they are higher provisions. So Andhra Bank and Union Bank had to match that level of provisioning. Because what we did is all common accounts we matched them like to the worst NPA status. Suppose if they are D3 or loss asset, we went there. And then we also did the provisioning level matching. Suppose if they have 60% provisioning level, we reach the 60% provisioning level. So all the 3 banks have made accordingly provision as of 31st March. That's why INR 2,510 crores is the amount which was for Union Bank accounts where higher provisioning has to be done.

Okay, okay. And sir, you mentioned that next quarter there might be very marginal slippages because of technical classifications. Sir, can you explain again what kind of technical classification could there be?

Like, actually, it's the -- like right number, right now I will not be able to share any number with you. I just...

No, sir. The nature, I mean.

Yes. Nature is -- basically, see, at the ground level, if there is a business where the people -- where a person has stopped the business long back, maybe 3 months back, 4 months back, and you are very sure the account there no chance of revival. And there are other reasons like where you know that the business is not going to come back. See, moratorium is basically for businesses which are affected by COVID. So for other accounts which have other natural reasons why they are becoming NPA, so for them, we should not extend the moratorium. So such cases will be there. We are seeing that, but then there are a few hundred crores here and there. Because, see, when you look at amalgamated entity of INR 6.5 lakh crore advances and 9,500 branches, you'll find these cases.

Okay. But sir, this would be at the discretion of the bank, right?

This is the discretion of the bank, definitely. If I want to give a moratorium to that fellow, we can do. But it is not fair actually because [ they also ] may question. Because this moratorium is for businesses which are purely affected by COVID. But if the problem was there in the account much before, like they stopped the business, there are some other reasons why the account has become NPA. So such reasons, actually, like I think it's better to make it as NPA.

Okay. And sir, one more thing. Sir, the moratorium number that you have said, sir, sector-wise can you broadly syndicate? Were they opt out or were they opt in, given to the customer?

See, maybe the difference in numbers maybe because of that also. Initially, we have offered moratorium to everyone, so from the system itself. So then softly we have started advising people that there is a cost. If you are capable of paying, you please pay. Because otherwise, if you postpone your payments, there's a cost. When people realized that they are going to pay a higher amount if they defer, people started paying. And in our case, particularly in the retail and all that, mostly, there will be a standing inception from their accounts and all that. So we didn't stop those things actually. So with that, actually, what happened, when I said on the retail side, about 30% is -- where the people availed moratorium, if they wanted, [ they're able ]. So what we did is wherever we had collections and people are paying, so we reduced them from the -- this thing. So we raised the demand on those accounts and recovered. That's how the strategy works because this is a very evolving situation. So in MSMEs, now that we are keeping them engaged by giving them extra limits, first, we came out with a 10% additional limit scheme. Now there is a 20% guarantee scheme. So we are continuously engaging with them, giving them additional limits. So naturally, they prefer to pay their installments and keep it up to date, not to postpone the pressure to September. So it basically comes to engagement with the customer, but not to hurt. Because the moment you put more pressure, they may complain and all that. So it's a very soft way we are working. Every branch is working on that. So that's why we are able to keep it at that 25% level. But then you look at retail and MSME, yes, it is 30%, 35% levels, actually, like it is almost 1/3 of the book which is under moratorium.

Okay. Sir, understood, sir. So just last one question, sir. Just one question.

Sir, Mr. Bhavik Shah, can you please come back in the queue? We have a next question from the line of Parth Gutka from Macquarie.

Sir, my first question is on the eligible -- the credit guarantee scheme with the government has come from -- how many accounts are eligible for the same? And what is the amount? And my second question is a number of MSME accounts which have been restructured, which are 42,767, what has been your experience there in the last 1 year?

See, on this question of the guarantee scheme, we -- as an amalgamated entity, we have 7.5 lakh accounts eligible and approximate amount which can be sanctioned is close to INR 12,000 crores under this guarantee scheme. Okay. And on the second question, we have declared 1,124 crores, if I'm right. Actually, that is -- like restructured account under the MSME now, amount-wise. So 1,124. We have seen a slippage of close to about 150 crores from this book.

Okay, sir. Okay. And sir, out of that INR 12,000 crores, how much your sanction? And what is the disbursement amount?

On the guarantee?

Yes, yes.

I think there's INR 3,500 sanction on sanction and 2,000 crores is the disbursement.

[Operator Instructions] We have a next question from the line of Sushil Choksey from Indus Equity Advisors.

Congratulations on the merger, and best wishes for the amalgamated entity.

Thank you, thank you.

Sir, moving away from COVID and moratorium, what initiative led by COVID where digitization technology is concerned? And what initiatives are we taking for HR and asset monetization as a total entity?

Okay. See, there are a lot of initiatives on the technology side. One is we provided that Mobi-Teller on the day 1 on all 9,500 branches so that any customer of any of the 3 banks can go to any branch and do the basic transactions. So that we successfully implemented. Then all the product rationalization we did. So harmonized, today, like any branch you go, you'll find a common product, whether it's on the liability side or the asset side. And we did substantial virtual training. Because of the COVID, we could not train staff. Because, see, we have a lending automation system fully active in Union Bank, where there is a process of processing a loan and in the system, LAS. Now Corporation and Andhra, they -- Andhra didn't have proper relays whereas Corporation had, but then they were different. So we trained more than 25,000 people by using virtual mode, so how to use this and all that so they become very, very comfortable. So like we are -- and then when it comes to the cost and revenue synergies, we are planning about INR 2,700 crores of revenue uptick because of the amalgamation both by the cost and the asset side. So this includes a sale of insurance company where Andhra Bank has a stake, some of the asset sales and then mostly on the branch rationalization side. So about INR 2,700 crores, we are thinking in the next 3 years we should be able to book in addition to what we are normally doing.

Sir, certainly, you replied to the previous question that you did disbursement of INR 12,000 crores in TLTRO 1 and 2. And you would be doing further in the current credit guarantee scheme. Would you have lent in the TLTRO mainly to AAA, AA type of companies? Or it would be even lesser?

Yes, that is the allegation against us, that we do only AAA and AA. But as a prudent banker like...

No, no, I'm asking, sir. I'm not looking at as allegation...

I'm -- actually, we generally prefer AAA and AA. So under the TLTRO, it is mostly AAA and AA.

What yield would have [ gotten ] 8.5%?

It is between 8% and 8.5%. I think average yield came somewhere around 8.07 kind of thing, yes.

Sir, barring this government scheme where you would be borrowing MSME and others, what kind of credit growth are you seeing between corporate and retail now because you have pan-India branch network with 9,400?

Yes. See, the projection for this year is between 6% to 8%. See, corporate book, we are strong. So like we already have sanctions. Some disbursements are happening on the infra space. Infra, it is mainly coming from the government side, NHAI kind of thing. So we are active player there, and we are expecting strong sanctions in that area. So on the other corporates also, we have a good presence. So we expect that the corporate book should grow between 6% to 8%. Retail, actually, last year, it was a bit of timid growth. But this year, we are getting into some kind of straight-through processing. Actually, your earlier question, I missed that answer. We are developing a straight-through processing. We are already active on the personal loan side. Now we are going to expand into the other retail products that the person can log into our website and just apply for the loan, and he will have a sanction. It is a much advanced level of sanction we are building in. We have tied up with some fintech players also for this. So this actually should push our retail growth about 10%. Because watching the sanction space, June, my retail sanctions, if I compare to the last June, it is almost the same and maybe slightly higher. So the Tier 2, Tier 3 cities and maybe the NBFCs slowing down is helping us.

This would be mainly towards salary class or more self-employed?

Actually, we have both. Actually, in our case, we can say 50-50 because our regular customers are mostly self-employed who take loan from us. But at the same time, we have salary tie-ups also. But more of my personal loan is mostly salary tie-ups. We have seen good traction in personal loan also in the last 2 months.

Knowing as well, Union Bank for more than 20 years, what synergy benefit do you really potentially see out of Andhra and Corporation India, where they are actually physically present in a customer base?

See, if you look at that way, today, my market share in 15 states is going to be more than 5%. That is a substantial presence. In Andhra State itself, my market share is going to be 20%. Technically, if you say every fifth customer will be from this bank. So now this kind of huge presence and domination in this state is going to benefit me. And actually, particularly on the south side, Union Bank was a bit weak. Now these 5, 6 states, I think we'll have a very, very dominating presence now. So we are building our systems because, see, last 2 years, we have moved in a big way for centralization. All our credit, about 78% of my credit today happens at back offices. We have a very strong technology platform in Union Bank. Now we are expanding that to Corporation and Andhra. And all my rollout is getting completed by June. All my new regional offices are in place. All my zonal offices are in place. All my credit processing centers are in place. All the manpower is already posted. So they're all fully active. Within 3 months, we have done all these. So we are expanding this technology platform to them. So I'm very sure, including my mid-corporate vertical, so by 1st July, we'll take off. Most of those customers of Corporation and Andhra, for whatever reason, you know they are very good customer, old customers, we have not fully used them. So now actually, we are getting back those customers in a big way. So I think there will be a lot of synergy benefits, particularly on the southern states for Union Bank.

Sir, last question in the media interaction today morning, you said your NIM will be much higher than what you saw in the Union Bank NIM level?

Yes. Actually, we -- if you look at NIM of Andhra and Corporation, they're much higher than us. So because it's the kind of portfolios they have, basically. So now like as a combined entity, I'm definitely looking at NIM of 2.4 to 2.5. Because Union Bank, strategically, last 2 years need working on the NIM, see? But then the ecosystem did not favor us because, one side's lending rate started coming down. There was too much pressure on us to cut the rates. And CASA doesn't improve that way that quick, actually, despite all of our efforts. The cost of deposit doesn't come down that well. That's the same. But then our operating incomes have helped us, but the NIM somehow remained subdue. And I'm very aware that among the peer banks, my NIM is quite low. So aiming at a 2.5 NIM as amalgamated entity is a must for us.

Sir, what will be our estimated CASA on the combined entity?

It is around 35 -- actually, we are around 35. It will be around that because those 2 banks are also at similar level of CASA.

We have a next question from the line of [ Anand D. ] from Emkay Global.

Yes. As far as your SME book is concerned, so that seems to be on the higher side, about 20%. And I believe for Andhra and Corporation also, it will be on a higher side. So what is your asset quality outlook, particularly in the SMA book going forward, where we are seeing a lot of businesses have been hit primarily because of the COVID impact?

See, yes, SMA book actually has no relation to...

SME. MSME.

Oh, you're talking about the MSME. MSME, actually, like we have something close to 15% NPA. And see, if you're seeing -- traditionally, also, this is the assumption that you see about 15%, particularly in the stress situation, last 2 years. So it is around 15%. We are around that. So I think it cannot -- even these guarantee scheme when it came, because they're assuming about 15% NPL accordingly as being worked out. So I think this is very standard over a period of time, we assume. I don't think it will go beyond that. And with the kind of supports coming now by way of guarantee scheme, now there is a stress-tested fund coming. That's -- so I don't think it will go beyond that. And the stress book in MSME is always there. We need to work very closely with the MSME accounts. It's not that easy because, see, my foot on ground is very high. We have brands, people who are connecting to MSME, and we have built a verticalization in MSME, what we call SARAL structures. . Today, any account above INR 50 lakhs is being monitored by a centralized vertical, which is called SARAL. So we have a lot of data about these people, and we are working closely with them. They will continue to be under stress. I'll not say they will not come out of stress. But then slippages will not be that high. I'm very sure.

That's the specific fund that you referred. That is the one that was in the economic package side.

What is that?

This test asset fund that you referred just now. It is the same which was there in the economic package which was announced by the government?

Right, right.

Okay, okay. Sir, I mean, that has been formed already?

No, it is in the process, actually. This will come more for SMA-2 and NPA accounts. Because in the earlier package, they avoided SMA-2 and NPA. Basically, MSMEs are short on equity. So this is a kind of sub-debt, which is likely to come.

Okay. And it will be basically funding directly the SME? Or how the mechanism is really to work in this?

Accounts which are under SMA-2 and NP on a particular date is identified and wherever there is a liability because if the unit is running and there's a business, but then the customer has lost his equity for whatever reason, so he's borrowing. So generally, what happens, banks will not be able to lend further to them because the current ratio will not be there, debt equity will be like all spoiled. So this sub-debt will be treated as equity. With that, all these financial ratios will improve, and he'll be able to borrow more from the bank. That is the idea, basically.

Okay, okay, sir. Sir, other than that...

Sorry, Anand. Sorry to interrupt, Anand. Please come back in the queue.

This is just the 1 question that I have asked.

Sir, please come back in the queue.

Okay. Go ahead. Complete your question.

Yes, sir. The hit that you have taken on the NPA provisioning front for -- in terms of realignment. So similar hit also the emerging banks would take like in Andhra and Corporation Bank, where you would have a higher provision, right?

Yes. They are have done -- they have done that.

So what would be that amount?

So I think maybe I'll not be able to -- actually, I'll take an opinion whether I can share this data because this is not a public document as of now. Corporation and Andhra, they also have finalized their books. But then since it is not as per the policy, no, not a public document. But then that will be disclosed when we put the amalgamation balance sheet as of 30th June. Before that, if I am able to come out, I'll come out with this data. At this point of time, let me avoid this question. But they have done that. I can assure you that they've done that.

So in that regard only, so the Tier 1 ratio that you have now, whether you will need to raise equity capital going...

Not necessary. That assurance also, I'll give you. That it is not required.

Okay, sir. Your Tier 1 ratio will remain similar? Or it would actually...

No, it will go down a bit.

Okay. It will just go down a bit. Okay. Great.

But then we'll be on the safer side. It is not that we will like default kind of thing. We'll have a sufficient cushion.

[Operator Instructions] We have the next question from the line of [ Devanshi Gandhi ] from [ Quant Capital ].

Devanshi from Quant Capital. I just wanted to ask you about your expected credit loss considering the current scenario on your outlook above that going forward.

See, we are not giving the projection because there is no -- not much clarity on this. So we avoided giving that guidance. But see, what we have clarity is the -- as the amalgamated entity, what will be the aging provision. Because, see, there is 2 costs coming, basically aging provision and then the fresh slippages. So aging provision can be around 1.6. That is -- if there is only aging provision, credit cost will be around 1.6 kind of thing.

All right. And regarding the fresh slippage?

The slippage, it depends. Like on delinquency, if it is 3% delinquency, what will be the number? 5% delinquency, what will be the number? So you can calculate you know the base. This is the credit cost based on the aging provision. Further, because these are all legacy accounts, which I already have, on which actually the provisions will come in different quarters. I'm not factoring any recovery in this because most of these accounts' recoveries will come. It may not be required that further provisions to be done and all that because some of the accounts are like that. That aging provision [ and bad debt ] get settled, then the further recovery like -- will stop that. But then, at this point of time, assuming that no recovery comes in these accounts, there will be aging provisions in every quarter. So I think around 1.6 may be the credit cost.

We have our next question from the line of M.B. Mahesh from Kotak Securities.

Just wanted a couple of clarifications. One is, if we kind of do the [ balances ] the charge that you've made for the network of about INR 2,200 crores [indiscernible] cost. I understand that you've made a 25% provision in the previous quarter. You need to adjust for that. You don't see getting this answer to the closing network. That's one. The second one is how much of treasury gains are you currently sitting with that you can encash today, given that the capital levels are quite weak? And at some point of time, during the course of this year, you may have to take a call on the DTA, which is picking up there. How are you approaching that profit?

Okay. First, on the fraud, this thing because RBI gives me 4 quarters for provisioning. So these are different accounts at different level of provisioning. So like during the course of next year -- because now, actually, it is a capital charge, which is charged to capital, what is the remaining provision. As we make provisions, the -- like capital will be restored, and it will be like when I said aging provision during the year, these factors provisions which are required to be done for the fraud also as we go forward. So that is one part. On the treasury side, yes, because...

Sir, sorry, sorry. Just to clarify. See, the reduction in your network has come down from INR 24,200 crores to INR 20,000 crores, which is about INR 3,870-odd crores. The loss for this quarter is about 2,500. And there is INR 2,272 crores of fraud adjustment. Even if I adjust all these numbers, there is a shortfall here. Just trying to understand what are you [ losing ].

There is like -- DTA, it is basically DTA capital charge comes from 3 actually. Basically, one is the loss, and there is a DTA. And because the DTA beyond the point also we reduced on the capital. We create DTAs because we are making huge provisions.

Yes, but the DTA, you're just making the adjustment only for your calculation of your Tier 1, right? But otherwise, it's part of your network, right?

Yes, I think you are looking at net worth compared to December, right?

Yes. Perfect.

And you're also telling that there is a difference of around INR 4,000 crores. So around INR 2,800 coming from this, INR 2,000 is coming from the loss, and around INR 2,300 is coming from the debiting of reserves for the prospective provision on fraud accounts.

But that fraud account -- one of the fraud account, you've already made a provision of 45%, right, with respect to the NDA?

During March, what we do, actually, suppose if there is a fraud of INR 1,000 crores in March, I make 25% in March. And the other 3 quarters, I'll make another 25% each. But then at the end of March, the balance provision which I have to make, INR 750 crores, it is reduced from the capital because I have not made the provision fully. So capital hit [ quota ] and going forward, from the quarterly profit, we'll debit that account in the next 3 quarters.

Sir, sorry, just to clarify this. See, this -- the NBFC part, which most of them seem to have taken it to the network, 25% of it was provided in the previous quarter is what you had indicated last quarter.

Right.

So what was pending is only INR 1,300 crores, right?

No, no. That is only 1 account you're talking about, but we are talking about all fraud accounts.

There are other products also there.

At fraud account, we have reached about 40% provisioning level now.

Perfect. Okay. Perfect. And how are you looking at the DTA side for this year and the treasury gains?

See, treasury, like I think even the Q1 looks like almost similar to Q4. Q4 was very good when Q1 is very good. So treasury gains will be there. It will continue to book actually. So on the DTA side, actually, we need to take a call because we have accumulated losses coming in from the other 2 banks also. So our fair estimate is another 1 or 2 years we can like take the benefit of these carryover losses and all that then shift to the new taxation regime. That is -- but then anyway, final call will be taken by the Board, but then this is the feeling at this point of time.

Sorry. Just to clarify that treasury gains of about INR 800 crores be the same for the combined entity? Also, you have only INR 800 crores.

See, INR 800 crores for Q4 stand-alone. So like you don't expect that I'll make INR 1,600 crores in this quarter. That is not possible. But yes, as you rightly said, like I can't give that number as of now, but the Q1 is also good.

No, in the sense, why don't you exhaust all the gains and just ease off the capital because clearly, the levels are reasonably inadequate as we speak.

We can. Actually, see, what happens is the market also should absorb -- like these are different securities as -- like whenever we get the opportunity, we sell. But then the market also don't have that kind of appetite for [ G6 ] today. As we get the opportunity, we sell.

[Operator Instructions] We have our next question from the line of [ Jayant R. ] from Crédit Suisse.

Actually, I just wanted to know on the amalgamated book, what would be our closing advances and deposits?

I think that we have put out, actually. I think that number, as a combined entity, we did publish?

So we have not given the numbers. But if you look at the December number, which is available for all the 3 banks, it comes to something around INR 15 trillion, of which around INR 8.5 trillion, INR 8.6 trillion is the deposits, around INR 6.5 trillion is advances.

So March number, we are not putting out?

March number will be similar. The growth during the quarter has not been very significant for the banking industry.

Okay. And sir, on the March basis, what will be the CET1 right now?

March, actually, as amalgamated entity, we have not disclosed. We are 9.4 as stand-alone.

We have a next question from the line of Bhavik Shah from B&K Securities.

So this was again, with respect to slippages. Sir, [ modern ] benefits would also be extended to agriculture slippages? So usually, when we see spike in agriculture slippage in the fourth quarter of a year. So will we be seeing that next quarter?

Difficult, actually. Difficult to predict, actually, at this point of time, what will be the agriculture slippages. So -- but the activity has been quite good. So maybe we'll be able to give you more color at the end of June. We are not seeing potential -- because, see, these are times when they come for more review renewals and all that. Agriculture NPAs happen only when there is a debt waiver announced by the state government and that kind of thing. Otherwise, agriculture, there is no possibility of huge NPA. It is only when the governments come into the loan waivers, people stop payments. Otherwise, I don't see a spike. And this time has been very cool, and the agriculturists are having good crop. And so hopefully, this year should not see much agriculture slippages.

Okay. And sir, one last question, sir. Sir, waste provisions, what hike have you assumed on our book?

12%.

Is there any update on the negotiation?

I, myself, is the Chairman, so I -- actually, we -- because of the COVID, last 2, 3 months, not much of discussion happening. But then I think we should be able to close it pretty quickly as the things open up. Yes. Almost final stage, actually. Yes.

Okay. Sir, just one last question. Sir, any update on Religare and Jindal Holding resolutions?

Religare, I feel, the SBA has already declared their thoughts. I think that is the news. I can't authentically say that. But I think that's what the news is. So -- and RBA anyway did not permit the Chatterjee Group to take it over. We are all approved, and we were expecting that this will be done. So we are all thinking of upgrading that account, but then I think RBA did not permit. Now I heard that they declared as fraud. So that you can verify. But then anyway, I don't have authentic news. I'll have to check with my team.

Okay. And sir, Jindal Thermal?

Jindal Thermal, I think is as close to a resolution, but then did not happen. So this year, let us see.

Okay. And sir, with respect to recoveries, have you received anything from Anrak Aluminum or Alok Industries?

Alok is closed.

The money has been received?

Yes, yes. I think -- yes, it is completely registered. Anrak Aluminum, I think, also is -- [indiscernible] is not here. Anrak has not yet come. Alok is closed.

That was the last question. I now would like to hand the conference over to the management for closing comments. Over to you.

Yes. Thank you so much, and thank you for the participation. So we would definitely would like to clarify on some of the questions which are raised, but then I have a limitation at this point of time because of the legalities involved. And as the things evolve and once we are close to June, we'll come up with more clarity. And I thank the investor community again for actively participating in this discussion. See, it's a difficult situation so things are evolving. But as we see, things are not as bad as we thought during February, March. Definitely, my ground feelings, actually talking to the branch heads at different places giving me a very positive signal. And as an institution, we have a huge presence in Tier 2, Tier 3 centers. So I think economy is definitely coming back to normalcy. And many of the sectors are also coming back to normalcy. Maybe by end of June, July, we should be able to speak and come with more clarity. Thank you for the participation. And all the best. Please take care.

Thank you very much, sir.

Thank you.

On behalf of Union Bank of India, that concludes this conference call. Thank you for joining us, and you may now disconnect your lines.