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

Ladies and gentlemen, good day, and welcome to Union Bank of India Earnings Conference Call for the period ended September 30, 2023. The bank is represented by the Managing Director and CEO, Ms. A. Manimekhalai; Executive Directors, Shri. Nidhu Saxena; Shri. Ramasubramanian S.; Shri. Sanjay Rudra and other members of the top management. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Sunil Kumar Jadli, Deputy General Manager. Thank you, and over to you, sir.

Yes. Thank you, sir. Good afternoon, ladies and gentlemen. I Sunil Jadli, Head of Investor Relations, welcome you all to this Union Bank of India earnings con call for the period ended September 30, 2023. The structure of the con call shall include a brief opening statement by respected MD and CEO madam, and then the floor will be open for interaction. Before getting into the con call, I will 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 the current expectations. These statements involve a number of risks, uncertainty and other factors that cause the actual results to differ from these statements. Investors are therefore requested to check this information independently before making any investments or other decisions. With this, I now request our respected MD and CEO madam for her opening remarks. Thank you, and over to you, ma'am.

Good afternoon. I hope that all of you are able to hear me. It is my pleasure to welcome our analysts and investor community for Union Bank's financial results for the quarter ended September 2023. You are one of the major stakeholders for the bank, and we're grateful for your continued support and feedback that helps us to take informed decisions. The Indian economy continues to be resilient amidst uncertainties in the global environment. During the quarter, we have seen economic activities have performed better, improved GST collection, pickup in the automobile sales, strong traction in the UPI payments, expansion in manufacturing and services. However, there are concerns emanating from the ongoing geopolitical tensions, slowing external demand, volatile oil prices moderating elevated inflation. Our bank's business and financial results continued a good momentum during the Q2 FY '24 with good set of numbers in terms of profit, asset quality and capital adequacy among others. During the quarter, our bank successfully raised equity capital of INR 5,000 crores via the QIP on August 25, 2023. This is one of the largest equity capital raising program in the PSB space in the recent times. This demonstrates the continued faith all of you have on the bank's growth trajectory and prospects. During the quarter, domestic rating agencies have upgraded their outlook on bank's Basel III compliance bonds. While CRISIL, ICRA and India Ratings upgraded their outlook from stable to positive, CARE upgraded the rating to AAA with stable outlook. This demonstrates the bank's sustained improvement in the asset quality, improved earnings over the past few quarters alongside steady balance sheet growth and adequate capitalization. Quite recently, the bank has undertaken one of the primary initiative by launching Union Bank's first ever woman's hockey team. On the inaugural day, we had a friendly match with Indian Railways. This resonates our commitment to empowerment, inclusivity and community engagement. Let me now give a brief on the highlights of our bank's performance for the quarter ended September '23. The total business of the bank reached INR 19.85 trillion with a deposit base of INR 11.38 trillion and advances of INR 8.47 trillion. The deposits of the bank registered a growth of 9.04% Y-o-Y. Credit registered a growth of 9.5% as of September 2023. The operating profit of the bank reached INR 14,400 crores for the half year ended September 2023, registered a -- registering a Y-o-Y growth of 19.8% largely driven by 13% Y-o-Y growth in the net interest income and 25% growth in noninterest income. Net profit of the bank stood at INR 6,748 crores for the half year ended September 2023 with a Y-o-Y growth of 98%. We are above our guidance in NIM by registering a continuous improvement to 3.18% for Q2 FY '24 from 3.13% in Q1 FY '24. The RAM portfolio registered a higher growth of 14.7% Y-o-Y as of September 2023, retail grew by 14.7%, agri by 15%, MSME by 14%. Out of the retail, we have registered a very good growth in education loan, which registered a growth of 50%, gold loan by 56% and vehicle loan by 26%. The gross NPA has reduced by 207 bps to 6.38%. Our net NPA has come down by 134 bps to 1.3%. Provision coverage ratio of the bank has also improved to 92.03%, while credit cost has been brought down below 1%, that is to 0.81%. Return on assets has improved. Return on equity has also improved. Return on assets is 1.07%, and ROE is about 17.97%. The CRAR has improved substantially from 14.5% to 16.69%. CET1 ratio has improved to 13.05%. We continue to enhance our digital capabilities by onboarding new customers in our digital platforms. We have 24 million customers now registered on our mobile platform. The bank has rolled out many digital journeys covering both assets and liability products. We firmly believe that these digital journeys will not only enhance customer satisfaction, but also translate into good business opportunities for the bank. We have rolled out several initiatives like the wealth management, the CRM Edge tool for our customer relationship, analytical center for excellence and many more such new initiatives have been taken up. For better penetration of the market, we have also started extensively utilizing the services of our own bank subsidiary that is UBISL for business expansion. We have also onboarded external domain expertise by recruiting CDO, CRO, wealth management, and head of merchant banking and credit cards, head for digital banking and many more other external domains are also being taken up during this quarter and the next quarter. We understand that by bringing this external expertise, we will be embracing fresh perspectives, new ideas and innovative approaches and thereby increase our portfolio. Looking ahead, we see a lot of opportunity for the bank in line with the emerging trends. We will remain committed on maintaining a strong balance sheet with a healthy growth in profit, so that we stick to our guidance. With this, I conclude my opening remarks, and we are now open for interaction. Thank you.

[Operator Instructions] The first question is from the line of Mahrukh Adajania from Nuvama.

Congratulations to you and your team. Sir -- ma'am, my first question is on deposit growth. So you had excess SLR, which you have utilized and you still seem to have excess LCR. So could we expect deposit growth to remain in this range even in the quarters ahead till you utilize additional excess LCR? That's my first question on deposit growth. And then I have a question. Last time you had explained, but if you could elaborate a bit. So your other interest income has been higher than your normalized level and that's largely treasury-related interest income. But if you could elaborate on what has actually happened. And then, of course, your outlook on NIM because you've done -- when you were seeing so many other banks showing falling NIMs, your NIMs have actually improved marginally quarter-on-quarter. So given festive offers, do you expect to be able to hold on to NIMs at these levels?

Thank you. In -- with regard to deposit portfolio for the year, we will be -- we had given a guidance of 8% to 10%, and we have grown by 9.04% in September 2023 and we hope to maintain that kind of a trajectory. As I -- as we have already told that we have got enough liquidity in the bank, we will not be that aggressive on taking bulk deposits. But our major focus will be on increasing the CASA ratio, CASA of the bank. The CASA, if you can see from the results, the SA potion has increased by 4.5%. So we will be concentrating on increasing the CASA balances in our bank. So for that reason, we have taken major -- strategies have been taken up for increasing the CASA like we have started to have deep segmented approach for CASA. Specifically, I can tell you that we have started exclusive projects for women, for salaried, for pensioners, for women entrepreneurs and such like that. We've also put in place a concept of relationship managers, which is able to nod there, dedicated relationship managers to take care of the top clients of the bank. We have started an exclusive vertical in the bank to concentrate on salary, current account and relationship, all those things. We have also taken up the digital path, which will enable us to increase our footsteps in CASA. We also have onboarded, as I've earlier told in my opening remarks, wealth management and merchant acquisition and credit card also has been taken up. With regards to NIM, ma'am, we understand, yes, the markets have shown a little bit of decline. But we are sure that we will be able to protect our NIM at 3% going forward. There will be a little pressure on the margins due to the liability repricing, but I don't think that our NIMs will fall to a very great extent. We will be able to maintain the NIM at 3%. With regard to income...

Ma'am, good afternoon, Samal this side. With respect to your third question on the other income, you are right. This basically comes from our treasury for deployment of the temporary funds in various like interest received from other banks, interest from RIDF, et cetera; interest from FRA, IRAs, et cetera. So since we have some surplus fund available, so that is temporarily deployed. So that is the income, right? And also swap income.

In addition to that, arbitrary swap income between ForEx and domestic market because ForEx market yields are higher than the domestic market, which has been deployed in arbitrary swap, which has generated around substantial income in the other interest.

And sir, could you quantify the amount like how much is -- what is [indiscernible] than normalized?

It will be around INR 700 crores per quarter.

Our next question is from the line of Rakesh Kumar from B&K Securities.

Yes. A great set of numbers. Firstly, ma'am, this credit yield number for this quarter, so what is that is driving this credit yield number? There is a sequential rise. Previous quarter also, we had seen a rise in the credit yield. This quarter also, we have seen a rise. And CRR at the movement is not that much. So what is contributing to this rise in the credit yield? So like -- is that the credit composition has changed in the favor of high-yielding advances, if you could explain? And what is the longevity of this rise in the credit yield number in the coming second half, if you can help with that, some understanding on that, ma'am, it would helpful.

Yes. Thank you for the question. The yield, we were able to maintain at 8.8% and what I can tell you is here the 50% of my portfolio that is advances portfolio is MCLR backed and repricing is happening on a quarterly basis. And we have seen that even in the present quarter and the next quarter, I have almost INR 1.2 crores -- INR 2 lakh crores of repricing yet to be done on my domestic advances. And secondly, if you have seen my -- improvements in CD ratio, that has also enabled the increase in my yields. And thirdly, we have phased out low yield advances. We have phased out in a very, very strategic manner. Last but not the least, I can tell you that we have increased our portfolio of the retail advances. If you've seen earlier, it was almost like 55-45. That was my ratio, retail and RAM. But we have now increased our RAM portfolio to 57% and my credit portfolio, which gives you a lesser yield, I have bought it down to 43%. So all this mixed strategies has given me a better improvement in my yield on advances.

Got it. So if you can help us, ma'am, to understand that [indiscernible] debit for Q1 and Q2 includes a portion of loan related to MCLRs got the repricing...

Sorry, Mr. Rakesh Kumar. May I request you to please use your handset. Your voice is not audible, sir.

No, I got the question. The bank's domestic advances, 50% of my domestic advances is classified under MCLR. Quarter-wise, if I can tell you in Q1 and Q2, we had repriced about INR 1.1 lakh crore of the MCLR. And for the Q3 and Q4, it will be about INR 1.2 trillion of the domestic advances under MCLR will be repriced.

So INR 1.2 trillion is like a cumulative number, which is coming from...

Yes, for Q3 and Q4, that's a cumulative number. For this quarter, if you want the breakup, it's about INR 58,000 crores. And for Q4, it will be about INR 66,000 crores.

So term deposit becomes TD yield this quarter. What proportion of TD is...

Sorry to interrupt, Mr. Rakesh Kumar. Your voice is breaking, sir.

CDs, huh?

I was asking that TD, term deposit. What proportion of term deposit is coming for repricing in Q3, Q4?

See, we have taken a lot -- deposits as of September '22, the repricing has happened actually. So as on date, we do not have much of our portfolio which will be repriced in Q3 and Q4.

Okay. And what is the reason for such a sharp increase in the processing charge of advances? Like so this quarter also, we have close to around INR 417 crores, INR 418 crore number processing charge on advances, part of the other income number. So why there is such a sharp jump, ma'am?

See, if you've seen my portfolio has also increased and plus, the -- usually, there are a lot of review and renewals will come up in the Q2 part of the year. And that is why the process -- this is a legal income that the bank has to get. First of all, you should all understand this. And then we have been doing our renewals and review right in time, and that's the reason there has been -- the processing fees has been increased. It's not that dramatically if you can see that my portfolio in the corporate structure has also not increased. But the bank is very prudently looking at renewals and review of the term loans. And accordingly, my processing fees has also gone up.

So this run rate will continue as...

Yes, it will surely continue. We are -- if you see -- because it's a festive season, some of my portfolio, we will not take processing charges or the reduction will be there. But however, this run rate will continue.

And the sundry interest income received, I think last quarter also we had discussed this quarter also, this is quite sizable number. So this has interest income on the income tax refund, which is sitting in the noninterest income line, which is still -- this quarter also, we have got quite sizable number, ma'am.

Yes. This quarter also, we have got some income tax refund. We've got INR 255 crores. So we are actually -- the pattern is not something as and when department, they complete the assessment and raise the refund, we get that. Of course, we do a lot of follow-up with them for the early assessment in refund that is one thing. So we get that the interest portion of that one. The other part of the treasury income, which we have already explained now when madam Mahrukh had asked the question.

Correct, correct. So in the second half, this kind of income would not be there, this income tax refund on the IT?

May not be, may not be, but it depends, it may come also. We are still following a certain assessments are pending. So if they release, we may get something. So this pattern is not -- it can be unusual like it can come, it may not come. It's not a core income, right?

Got it.

[Operator Instructions] Our next question is from the line of Ashok Ajmera from Ajcon Global.

Congratulations, madam, for the fantastic set of numbers. There is hardly anything, I mean, which can be pointed out because on all the parameters, the bank has performed very well. And congratulations to you for raising the capital also of INR 5,000 crores at such a good rate, INR 2,500 crores issue and doubled to INR 5,000 crores with the extra subscription. It's a fantastic job. Also for the rating upgrade because of your performance. And congratulations and welcome to our ED Rudra-ji to this bank, Union Bank of India. Having said that, ma'am, I have got some certain discussions, certain point of information and some -- your idea on revision of some of the targets because of this performance. Coming first is our slippage target for the whole year is INR 12,000 crores. But up to September, it is only INR 5,400 crores. So you would like to reduce this target, slippage will be more under control, number one? Similarly, on the recovery side also up to September, we have almost achieved about INR 8,000 -- INR 7,800 crores. So whether the recovery target of INR 16,000 crores also may be upgraded? Can we be a little optimistic on that? And can I get the answers of this and then we go on...

Yes. Thank you, Ajmera-ji, and thank you for all the compliments that you have given us. Of course, the guidance the bank had given was on the beginning of the year, but we will not be revising those guidance. We have as against INR 12,000 crores, we have done about INR 5,404 crore as you rightly pointed it out. But this is the maximum line that we have kept. We will try and keep the run rate below INR 12,000 crores. And with regard to recovery, we have kept the maximum limit of INR 16,000 -- sorry, guidance of INR 16,000 crores. As you can understand, last year, even though we kept the guidance of INR 16,000 crore, we had done about INR 20,000 crores. But for now we will not be revising the guidance. We will maintain the guidance and see that we surpass those guidance levels.

Point well taken, ma'am. Ma'am, we had already discussed in the earlier question about CASA. Perennial, in fact, our CASA ratio as compared to some of the other peer banks is low at around 34%, 34.5%. And because of them -- that our NIM is also in the range of that 3%, 3.1% or something. So while you are taking as you said actions on increasing the CASA, can there be some more aggressive or out-of-box thinking to increase this CASA ratio over the period of time so that we also match with the other banks of going beyond 40% or so? Is there any thought to remove some of those obstacles which comes in the way for CASA for us?

So Ajmera-ji, Saxena this side and, see, as already told by MD, the deposit growth, what we have seen in the September quarter is 9% against our guidance of 8% to 10% overall. And within which CASA has grown at a Y-o-Y rate of 4.5%. Now actually, what we have been doing, we are analyzing how the market is performing in CASA and how our bank is positioned vis-a-vis our peers and all PSBs put together. So the figures for September are not available, but we have seen since June and what we -- this analysis tells us that, yes, CASA has become a little competitive area definitely and there is -- the growth is a challenge in this sector. What we have seen in savings, CASA put together, term deposits and total deposits, Union Bank so far is performing quite well when we compare and see the comparative position. So we are almost second or third highest in terms of growth in all these individual and overall total deposit parameter. Having said that, see, CASA is definitely an area of focus. We have added despite the challenge in the low CASA ratio, around INR 16,500 crores is what net CASA we have added year-on-year figures and lot of initiatives have been taken. So if I have to share a few of them, some initiatives that already have been implemented and some that are going to be implemented in due course, so maybe share a few of them. So what -- in the opening remark, MD has also shared. So we have gone for product improvements, what we had found that our salary share of SB was low compared to others players and the private players. So we improvise on our product. Today, our product, we can -- most of the best of the product in the industry in terms of corporate salary accounts. We are having the best product in the industry. We have also looked at customer engagement product per customer. We have also revamped our mobile app to include more and more services. So these are all implemented things, and we are seeing some benefits going to come is coming also. Going forward also, we are seeing the onboarding experience should be a smooth one. So the video KYC is going to enable the online digital account opening end-to-end. That experience, we want to give. We also have our own set of marketing officers and branches, which are mobilizing the CASA business. But to reach out to a wider segment, they are not sufficient so we are engaging our own subsidiary and the workforce available there. The UBISL to engage more and more -- mobilize more and more CASA business. So those and many more are the strategies that are going to get implemented and CASA will remain our focus going forward.

Sorry to interrupt, Mr. Ajmera. May we request that you return to the question queue.

One -- can you permit me for one more question, please?

Sir, may we request you to return to the question queue for follow-up questions as there are several participants waiting for their turn. Our next question is from the line of Dixit Doshi from Whitestone Financial Advisors Private Limited.

Yes. Can you hear me?

Yes, sir. May we request you to use your handset, please?

Yes. So I have a couple of questions. Firstly, in terms of -- as the Chairman has mentioned the merchant banking and wealth management business. If you can throw some more light by when we can build this business, wealth management and merchant banking? And how many credit cards we have operational right now? So some light on those businesses. And my second question is regarding the income tax. So in the H1, if I see our provision for tax is almost 36%. So it will remain at that level or for the full year, it will be lower in the H2 and for full year, we will be at 25%?

Yes. Thank you for the question. We have started the credit card. We have actually onboarded head of credit card and merchant banking actually. And our card base has now increased as of September to 7.27 lakh as against what it was at 5.5 lakh in September '22. We aspire to reach at least 1 million cards by end of the year. And we've also stated -- we have started the STP journey for existing customers for issuance of credit cards. That's about credit card. And with regard to the bancassurance or the wealth management here, the bank has got 2 partners in the area of life insurance. We've got good partners with regard to general insurance and with health also, we do have some of the products. Now the marketing, we are also onboarding wealth managers or what we call as relationship managers for our high net-worth clients so that using the analytical tool and lead generation, we will be able to effectively talk to these customers and onboard them to our wealth management. And in fact, as our ED has also told in his -- when he was talking about CASA, we're also looking at PPC, increasing the number of products per customer. All this will enable us to increase not only the fee-based income, but also to increase the stickiness with the customer.

Sorry to interrupt, Mr. Dixit Doshi. May we request you to use your handset, please, as there is disturbance from your line, sir?

Yes. Can you hear me now?

Yes, sir, please go ahead.

Yes. So my second question was regarding the income tax. So for H1, it was almost 36%. So for full year, it will be 25% or it will remain at these levels?

Yes. Dixit-ji, this is Samal this side. You would have seen the past half, it is INR 3,879 crores, which almost coming to that percentage, 36%, mostly on account of the reversal of the deferred taxes. Foreign tax is only INR 1,217 crores and INR 2,662 crores is the reversal of deferred taxes. So the bank is actually planning to move to a new tax regime this year. So because of that, the current tax will remain at 25%, but there will be a onetime reversal of the deferred tax asset that has to be recasted from 35% to 25%. So we'll have a onetime impact for -- on account of that. So put together because of the onetime reversal, so our whole year tax provision could be around 35%, which will be same as the old tax rate. But then going ahead, next year onwards, it will be brought down to 25%.

Our next question is from the line of Jai Mundhra from ICICI Securities.

Congratulations on a great set of numbers. My question -- first question is on margin. So within margins, we have seen a sharp rise in the yield on advances. Maybe the MCLR portfolio is repricing with a lag, and you have done successfully very well there. You also mentioned that some INR 58,000 crores of advances will come for repricing. But what is your sense on the yield going forward? Can they still rise by, let's say, the similar proportion at 30, 35 basis points or the incremental rise will be limited to 5, 10 basis points?

Ramasubramanian here. See, yield on advances, it is rather -- as already we have discussed about this, there are many factors contributing to that where major is that we have repriced our MCLR advances to the large extent in the quarter. And we saw this quarter also, we are getting is -- some around INR 58,000 crore is going to be repriced under the new MCLR regime. But the yield on advances, it will be purely depending on the market demand and supply. So going for the present condition, we expect that we will be able to maintain our -- above the current rate, we'll be able to do that.

Right. Understood. And secondly, sir, the similar question on yield on investment, right, in a rising rate scenario, I mean, Y-o-Y yield on investment have risen at a decent pace. But do you think -- I mean, in the last 2 quarters, it has almost -- it has been flattish to stable. Do you think there is some more scope in yield on investment also or -- which can contribute to the margins or that contribution should be small?

Definitely because our AFS portfolio consists of liquid investments treasurable to the extent of INR 40,000 crore to INR 45,000 crore that will be replenished with the high-yield securities over a period of time. Definitely, we will be improving 10 to 25 basis point improvement in the yield on investment also in the coming days.

Oh, great. Okay. And if you can quantify the TWO recovery that is there in the interest income line this quarter?

That is TWO recovery. TWO recovery current quarter, INR 856 crores.

No, no, sir. In NII sir.

That is -- okay. So that is the dummy ledger recovery, we'll say. That's around INR 700 crores roughly.

Okay. So that -- even for the last quarter, it was also INR 600 crores something, right, because...

Yes, yes, yes, both Q1 and Q2, it is around INR 1,400 crores. INR 1,400 crores, both Q1 and Q2.

Right. Understood. Okay. And then secondly, ma'am, in your opening remarks, you mentioned that the bank has, of course, filled a lot of position laterally CDO, CRO, wealth and credit card heads. And you also mentioned that there are a few openings that you intend to fill in the coming months. So if you can specify, I mean, which positions the bank is trying to fill further?

We will be taking on roll our Chief Economic Analyst actually and the Chief Compliance Officer and the CFO also.

Okay. Understood.

And we're also recruiting -- you know that we have got Union learning academies that are the training centers, which are highly expertised in certain areas. So we have around 9 ULAs for various sectors like marketing, for operations, for credit. So we are also taking 7 ULA heads for those also we'll be taking. And further, domain experts in the middle management and the level of digitization, senior domain experts in terms of debt identification, all those areas, we are looking to take from the market.

Right. Okay. And yes, so ma'am, and on the retail book, right, so we have done a -- I mean, the retail has been focused area, and we have been increasing the feet on street. So I have 2 questions. A, what is the feet on street right now? And B, out of the entire retail portfolio, how much is the portfolio which is a buyout portfolio or is not originated by the bank?

So feet on street, we can say that we have got DSAs actually. We have got our own marketing officers. And as we have already told you earlier, we have a subsidiary, the UBISL who gives us a lot of inputs with regards to distribution of loan products for recovery and sales. And so that is how our feet on street works. And we are using all these tools for increasing our -- what is the second question? Yes, pool buyout is negligible. It's around the -- in the whole bank, the pool buyout is close to about INR 1,400 crores.

So the entire retail book is originated by the bank only, right?

Yes, yes, yes.

Understood. And last question on asset quality, ma'am. So we have done -- I mean, the experience in the last few quarters have been phenomenally well and the net NPAs now have come to 1.3%. I wanted to ask if the -- I mean, assuming the credit environment remains as it is, would you be keen to put some buffer at this point of time as a standard asset buffer or you would keep saying, huge decline in the net NPA? I mean how would you be balancing the two? As of now, I think we do not have any significant buffer apart from the, let's say, maybe the 10% on restructuring. But how are you looking at creating a buffer versus reducing the net NPA?

Yes, immediate targets for us is to bring down the net NPA below 1%, which is the immediate target. But going forward, what you said also, we are also looking forward to create some additional provisions, which we have done somewhat. But further additional provisions, we will do in the standard assets category also, depending upon the availability of the profit and all. But immediately, first target is to bring down the net NPA below 1%.

Mr. Jai Mundhra, may we request that you return to the question queue for follow-up questions as there are several participants waiting for their turn. Our next question is from the line of Nitin Aggarwal from Motilal Oswal.

Congrats on good results. I have a few questions. One is on the yield, which has been talked like there has been a very sharp increase Q-on-Q on the lending yields. So just wanted to understand as to how is the bank's ability to pass on the interest rate? Because when you look at the portfolio yield going up by 37% and there will be borrowers who are seeing a 90-100 basis point increase in their borrowing rate. So how is the bank's ability? And ultimately, how do you see that progressing?

Sir, Ramasubramanian. Sir, as I already told, this is because the major is -- those yields or the yields on advances have been passed on to the customers on a phased manner. So we have already done -- around 50% of our portfolio -- MCLR portfolio has been already repriced. Remaining will be repriced during the current and the next quarter. At the same time, if you're looking at it, our retail RAM growth, where our yields are a little more, we have increased it from 55% to 57% now our total advances. So these 2 factors combined together, it has increased our yield. And presently market also, it is like that only because we have to -- there are -- in the corporate sector, there is a lot of competition is going on. So we are more focused on the retail segment. There, we can get a good yield that's what it is happening, sir. And as I already explained that we are very, very hopeful that this we will be able to protect and increase it further.

And to supplement what sir said, our CD ratio has improved by 2%. We had a 74% CD ratio, which has gone to 76%. So this 2% of the asset which has basically moved from our investment portfolio to our credit portfolio, investment portfolio is having the 6-plus yield while the advances portfolio is having the 8-plus yield. So as a result of 15 of our -- this portfolio, our overall yield on advances has improved.

Right. But sir, my question was also around like how forthcoming the borrowers are to see such a big change in their borrowing rate? Is competition not limiting your ability to pass on the rates?

Sir, see, this MCLR, which is basically charged to the corporate customers is not that something immediately because MCLR depends upon the deposit -- incremental deposit cost. So is being revised kind of INR 0.05, INR 0.10 over a period of time. And there is also a time lag. And most of the borrower also know that when there are particular interest reset and MCLR is due, so they know it well in advance. So the offering is also a factor. So that is one. And the other thing is that no customer is going to leave because of the MCLR reset. Wherever the deserving cases are there, good performance and other based on the risk appetite, we, of course, give certain concessions and all. But largely, we are sure that we are able to pass on the interest, that MCLR revision to most of the borrowers.

Right sir. And the other question...

And that should not create any major problem in terms of -- issue in terms of customer moving to other banks that will not happen. That experience show that, that is not happening.

And in case of the retail borrowers, the RBI has also given the dispensations to extend the tenure as per the request of the customer. So basically, the customers are not feeling very high pinch on account of the increased rate of interest. But the tenure is getting adjusted with that.

Got that. And the second question that I have is on operating expenses wherein the growth rates have been quite controlled. And so what quantum of wage provisions have we made during the quarter? And what level of wage hike are we building in?

So as we have also mentioned last time, so we are providing at the rate of 15%. Historically, that's what we expect when the settlement happens. So that amounts to around INR 110 crores per month, so INR 330 crores. That is what we provide.

We've actually started providing from November '22 onwards. That's the date when the -- it will be effective salary revision. So from November '22, we are providing.

At the rate of 15%, right?

Yes, yes.

15%, right.

Right, right. And ma'am, my last question is on the treasury. We have been reporting very strong treasury performance. This quarter, we have seen some private banks reporting losses also the treasury fund, but Union Bank has been consistently making very healthy treasury gains. So if you can comment on the outlook because of late, we have seen some rise in the bond yields again, how are we placed? And what is our cutoff yield on the treasury?

Yes. After the MPC meeting, there were some discussion on OMO sale by the Reserve Bank of India. And in addition to that, U.S. Federal Reserve is consistently hiking the interest rate with the inflationary -- higher inflationary trends. And continuous outflow on account of FIIs taking away the money, all those factors are very critical for rate moment. However, RBI has supported telling that they will control the volatility by way of [ improving ] the liquidity on timely manner. And during the coming quarter or by June, there will be indexation of JPMorgan bond that will give support to the market. Overall, the trend is yes, the interest rates have already peaked. But the stress is that there will be further scope for another 10 to 15 basis point hike, not beyond 7.50%. And as far as Union Bank is concerned, our duration is at 1.19. We will be able to comfortably add wherever possible and generate required interest as well as trading profit as and when the opportunity emerge.

Our next question is from the line of Ashlesh Sonje from Kotak Securities.

A couple of questions from my side. Firstly, if I look at the unsecured personal loan book that has been broadly flat over the past 3 quarters at around INR 12,000 crores, any reason why this growth has been sluggish, sequential growth?

Unsecured lending rate, we are not -- INR 11,000 crores is what the book is and it remains to that extent only. And our total personal loans is -- out of that, 70% is almost to salaried employees and some extent is, of course, some credit card business. As we go on to increase our credit card business, this will see a little bit of growth. But with regards to personal loans, we are just taking it up only with the salaried employees. So that's the reason there is not much substantial increase in that product. But as and when the credit card business grows, we will see some unsecured lending on personal loan.

Okay. But any trends that you are seeing on delinquencies in this book as of now?

Delinquencies has -- the NPA on personal loans is about 1.5%. And slippages, we have seen to the tune of about 1%.

Okay. Ma'am, and secondly, question to CFO sir, can you explain what would be the balance sheet and P&L impact of -- moving to the new tax regime?

This will be -- 10% savings will be there on the total taxable profit. So current year, as I told you, current year, it will not be there, even though we are moving to lower tax, but the onetime impact of the write-down of the DTA around INR 2,400 crore is there. So therefore, the benefit will not be there this year because of this onetime impact. For next year, there will be a 10% saving in the post-tax profit.

Our next question is from the line of Sushil Choksey from Indus Equity Advisors.

Congratulation to team Union Bank for excellent results. Based on some Q&A, which we have already done, it seems that we are seeing that interest rates are going to peak out by the year-end. Ma'am, am I right in understanding that?

So it is very difficult to forecast interest rates whether it has picked up or not. But what we believe, in the next 6 months, it will not start reducing, and it may remain at the same level. The RBI also hinted that they will tighten the liquidity to control inflation. So they may not take route of hiking interest rate. That is what we believe at this point in time.

How do you see the second half treasury income based on that reply?

Our duration is 1.19. We were not having a much hit on MTM because portfolio is well protected. We are already at -- yields are at 7.35% as against 7.10% on September 30. So there will not be any further hike we are expecting. However, if 10 to 15 basis points hike also happens, there may not be much impact on our portfolio assets. It has totally been controlled by duration. We will ensure that we will minimize the MTM as and when the coming days.

And next question is based on various initiatives on retail, wealth management, digitization, new structure and corporate products, where do you see your cost of income? And what kind of digital spend are we likely to do for current year and years to come?

With regard to digital spend, of course, we have taken a budget from the board close to about INR 1,500 crores. That's what we have taken a budget, and we hope to see that it is utilized during the year. And with regard to the yield on advances, we have already told you that we would like to maintain this kind of numbers that we are looking at. With regard to cost of deposits, we are not trying to increase the deposit numbers because we've got enough liquidity. We will take deposits at higher rates or bulk deposit rates only when I need it or when my credit growth is substantial. Otherwise, I've got substantial liquidity right now. So I feel that the cost and the yield will remain to whatever rates that we have got right now.

How do you see your percentage in corporate and retail RAM by the year-end? In the similar number or will it be drastically different?

So as an internal guidelines that we will be at 55-45, so we'll try and maintain that kind of a stand. It depends -- now the festive season has started, so retail lending will surely go up. So -- and even the crop season is up, so we hope to see some better results in retail. But the guidance, of course, was 55-45. We'll try and keep it to that level or retail will be a little higher.

Ladies and gentlemen, we will take the last 2 questions for the Q&A session. The next question is from the line of Akash Jain from Ajcon Global Services Limited.

Congratulations team Union Bank of India for excellent set of numbers. My question pertains to the write-offs. The write-offs looks higher in this quarter at around INR 6,108 crores. So wanted a breakup on the regular write-offs and the technical write-offs and a color on the policy for write-offs, like what is the provision we do before writing off the asset and what are the regulatory guidelines towards the write-offs?

Yes, we have -- if you see the balance sheet, the last year, we had written-off close to about INR 18,000 crores. And during the current year also, we have done -- last quarter, we did about INR 2,000 crore. And this quarter, we have done INR 6,000 crores of write-off. The bank also will lay down the write-off policy. And accordingly, the write-offs are being done. This is in various sectors that we do, whether it's retail or MSME, agriculture or large corporates, the write-offs are being done accordingly. And most of -- and all of them are technically write-off. This doesn't stop us from not recovering from those written-off accounts. And these are all 100% provided accounts.

And these write-offs were NPAs for how many years?

Sorry to interrupt, Mr. Akash Jain, you are not audible, sir. If you could please use your handset.

And the write-offs were NPAs for how many years?

These are different period of NPA and not having any specific period NPA only. It's a different, different period of NPA has been written-off depending upon the possibility of recovery only accounts were technically written off. And these are fully provided accounts.

And then the outstanding written-offs...

Sorry to interrupt, Mr. Akash Jain. Sir, your line is not clear. May we request you to use your handset, sir. We are unable to hear you, sir.

The total portfolio of written-off accounts is around INR 72,000 crores.

And what can be the expected recovery from this portfolio, say, in next 3 to 4 years?

So we have recovered close to INR 1,500 crores during the current year, and we hope to hit around INR 4,000 crores by end of FY '24.

Ladies and gentlemen, the last question is from the line of Rakesh Kumar from B&K Securities.

Ma'am, I have 2 questions. Firstly, on agri loan, the slippage run rate is a bit elevated at around INR 1,000 crores in this quarter. And last quarter also, we had a bit sizable number on the agri fresh slippage. So any comment on that, ma'am?

Yes. The bank has got almost 59% of the branches spread in the RUSU areas. So we've got substantial numbers. And you know that the bank has 2 major banks, Corporation and Andhra Bank was also amalgamated who also had a good substantial number in the agriculture advances. And accordingly, we are growing the advances portfolio under agriculture. Plus, the government has also come out with various schemes under the agriculture schemes like the dairy farming or agriculture infrastructure and the CPG, food processing. There are so many such industries are now been added apart from the traditional KCC. And that's reason that it has grown. Plus, we also have grown substantially in the agriculture gold loans, and these are all -- has helped us in the growth in the agriculture portfolio.

Okay. Secondly, ma'am, this LCR number that has fallen to 145% from 161% on a sequential basis. It's a very -- like a very sensitive number that for us that deposit growth is like below 1%. And we are -- like our total domestic investment number is flat, marginally lower and duration is also not changing much. So what is the reason that LCR is falling so much, bulk deposit ratio number is also same at around 27%? So if you can explain like why there is such a sharp fall in the LCR?

Yes. So if you look at LCR number, this is still substantially higher than the inventory requirement. So idea is not to keep surplus liquidity beyond the level because the balance which we need to make between making profit and keeping liquidity. So we'll keep on maintaining liquidity at a comfortable level, including LCR. And this is still above the threshold required by RBI. And we were conscious of this fact and it's a conscious decision which we have taken to keep at this level.

No, no, I understood that, sir. But only question that we have is that, sir, why -- like what is that change in the operations in the numbers at least what is there in the PPT, we are not very well placed to understand what is the reason for such a sharp fall? Like see, LDR is going up marginally and all that, that I understood. But still like more than 10% fall on a sequential basis, like just because it will limit our opportunity to use the extra liquidity that we have in the future quarters?

Yes, I'm Sanjay Rudra here, Rakesh-ji. Now if you see the liquidity position, in fact, if you see the post demonetization, the LCR was in the range of 175% to 200%. But it is not good to maintain such a high liquidity ratio. So gradually, over a period of time, the LCR came down. And we cannot deny that there is not as liquid a market available as on today as it was earlier. So LCR will come down. And ideally, we'll try to maintain the LCR. As this is 100%, we will try to maintain our LCR above 110%. 10% reduction in the LCR for -- in a Q-on-Q basis is not very high. It is in line with the market trend.

Ladies and gentlemen, that was the last question of our question-and-answer session. As there are no further questions, I would now like to hand the conference over to the management for closing comments.

Thank you, all of you, for your continued support. And I'm sure and we all understand that the expectations of the investors and the analysts are there with the bank. And with the kind of trend that the bank has taken, the kind of steps that we are taking, the new entrants that we are taking, the new fresh innovative ideas that the bank is taking, we will be able to maintain the same kind of numbers. And we will reach out or we will maximize the guidance that's been given and see that we fulfill whatever the guidance that has been given to us by ourselves. Thank you.

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