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

Ladies and gentlemen, good day, and welcome to the Union Bank of India Earnings Conference Call for the period ended June 30, 2024. The bank is represented by the Managing Director and CEO, Ms. A. Manimekhalai; Executive Directors: Shri. Nitesh Ranjan, Shri. Ramasubramanian S., Shri. Sanjay Rudra, Shri. Pankaj Dwivedi and other members of the top management. [Operator Instructions] Please note that this conference is being recorded. Now I hand the call over to Mr. Ajay Bansal, Deputy General Manager. Thank you, and over to you, sir.

Thanks, sir. Good afternoon, ladies and gentlemen. I, Ajay Bansal, Head of Investor Relations, welcome you all for Union Bank of India Earnings con-call for the period ending June 30, 2024. The structure of the con-call shall include a brief opening statement by respected MD and CEO ma'am and then 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, uncertainties and other factors that cause the actual results to differ from the statement. Investors are, therefore, requested to check this information independently before making any investment or other decisions. With this, I now request our respected MD and CEO ma'am for her opening remarks. Thank you, and over to you, ma'am.

Good afternoon to all of you. I welcome you to Union Bank's financial results announcement for the first quarter ended June 30, 2024. Thank you for joining us today. I trust you have reviewed our results. Let me provide an overview of our performance and key highlights for this quarter. The first quarter is typically a flat season compounded by election impacts and annual staff transfers resulting in not-so-good business growth. As far as the banking industry is concerned, the credit growth has been outpacing deposit growth, increasing competition for liabilities. We were mindful of this fact and implemented several strategies to address this challenge, which I will discuss in detail later. The guidance versus the actual performance, let me just give you a brief with regard to what the guidance that the bank had given and the performance of the bank. The deposits has grown by 8.5% y-o-y, advances by 11.5%, largely in alignment with our guidance range of 9.11% for deposits and 11% to 13% for advances. Our NIM is at 3.05%, surpassing our guidance of 2.8% to 3% for FY '25. On asset quality, we are showing consistent improvement in the past several quarters. In line with our guidance, gross NPA reduced to 4.54% with gross recovery at INR 3,368 crores and slippage is restricted to INR 2,318 crores. With regard to my growth, we aim for a sustainable growth, balancing top line and bottom line performance. As per latest RBI data as of June 2024, SCB's reported 10.6% Y-o-Y deposit growth and 13.9% growth in credit, vis-a-vis our bank reported 8.5% and 11% -- 11.5% growth in advances. Both on Y-o-Y and Q-o-Q basis, the deposits and advances of the bank are positive. We are not growing our top line at the cost of our bottom line. CASA and retail term deposits form 72% of our total deposits, and we are maintaining this ratio consistently for a long time. Now with regard to my Q1 highlights. Total business of the bank reached INR 21.36 trillion with deposits of INR 12.24 trillion and advances at INR 9.12 trillion, while our FD deposits registered a Y-o-Y growth of 4.6%. CASA on a whole grew by 3.7% and term deposits registered a growth of 9.5%. We grew better under RAM advances by 14.5% while large corporate advances grew by 7.8%. Higher growth we have seen under gold and under education loan and also vehicle loans. Net profit of the bank has reached INR 3,679 crores in June quarter, a growth of 13.7% Y-o-Y and 11.1% Q-o-Q basis. Operating profit of the bank is at INR 7,785 crores with 8.5% Y-o-Y growth and 19.1% Q-o-Q basis. GNPA has reduced by 280 bps. Net NPA has come down by 68 bps to 0.90%. PCR has improved by 263 bps to 93.5%. The credit cost improved to 0.73%, grew by 24 bps Y-o-Y. ROA has improved to 1.06% and ROE to 15.7% as of June 2024. The implementation of the new investment norms has positively impacted our portfolio. And with regards to CASA growth, we have taken a lot of initiatives and we hope to increase our CASA base based on the various initiatives that the bank has taken. During the quarter, there are major achievements that the bank has achieved is S&P Global Rating has revised our outlook to positive, aligning with the sovereign rating of the bank -- of the country, sorry. India Rating upgraded our rating to AAA Stable, 1 notch up. We have opened the first branch in Lakshadweep Agatti and also opened 12 premium branches in the RUSU locations. We also have a plan to raise capital to the extent of INR 10,000 crores for FY '25. It has been approved by the board, of which INR 6,000 crores will be equity and INR 4,000 crores through AT1 and Tier 2 instruments. In conclusion, I want to emphasize that the bank has been very consistent in performance. Our balance sheet is quite strong, stable and sustainable. The key initiatives we have taken with regard to underwriting capabilities, centralization, verticalization, HR transformation and a robust assurance framework, all are yielding good results for the bank. Before I conclude, I want to address yesterday's outage regarding the Microsoft system. I want to emphasize that the bank has not been impacted with regard to that outage. I conclude here. And now we are open for questions. Thank you.

[Operator Instructions] The first question is from the line of CA Dr. Ashok Ajmera, Chairman, Ajcon Global.

First, compliments to you, ma'am, and the entire team of the Union Bank for another very good quarter as it is the first quarter of FY '25.

Thank you, sir.

On almost every front as regard the profitabilities are concerned, various parameters, my only little observation and concern, ma'am, is on the credit and deposit growth, especially in this quarter, which is totally, I mean, muted. 0.59% domestic credit grew and the deposit rather deaccelerated, reduced rather from INR 11,99,197 crores to INR 11,96,168 crores as far as the domestic deposits are concerned. So this is my first question that in the remaining quarters, like when we have to grow our credit books even as per your target of almost about INR 1,10,000 crores, that is almost about INR 36,000 crores per quarter minimum, how do we plan to grow that credit book and, equally, the deposit also? And which are the areas from where -- because our agri portfolio has already grown much, so this is on my just first and later on, I will have certain points of information, ma'am.

Yes, Ajmera, sir. Ramasubramanian here. See, if you're looking at our -- actually our growth, if you're looking at it, we are -- honestly, the banking industry is presently undergoing the liquidity trend, that deposits are not -- are very difficult, and there is a high cost. It involves a large cost for the increase in the deposits. But at the same time, if you're looking at it, our retail, we are -- there's a steady growth of around INR 3,000 crores we have increased in the quarter, despite being one of the flat quarters, normally in the banking industry being the first quarter. The -- as regard, if you're looking at it, we are also -- as madam has already informed that we are taking -- we made various initiatives for increasing our deposits. There will be a special focus on CASA. We have taken a project where we are reaching out to our ETB and also new-to-bank clients for increasing the balance in their CASA accounts. We are also -- as ma'am told, we have also opened some premium branches catering to these clients. The premium branches will be only catering to the CASA clients so that our -- there is a steady growth of CASA in the coming days. So already the bank is aware of the situations, and we have already initiated many, many projects in this regard to keep our market share at the existing level. As regards to credit, as it is very clearly that we are -- if you're looking at the last quarter also, our RAM sector growth is 14%, which is in tune with the market. Whereas, we've reduced growth in the corporate sector where actually because some of the low-yielding advances have been shut down during the last quarter and our CD ratio also we want to maintain between 73% to 76%. So bank is very well aware of it. Once the -- if you're looking at the credit, once the private CapEx come into full force, bank is ready. Already our -- if you're looking at it, we are having an excess liquidity of around INR 65,000 crores. So bank is ready to increase the portfolios in the coming days.

Ma'am, just due to the change in the classification and valuation norms of the investment. Our AFS, there is an increase of INR 1,702 crore and which has gone to the general reserve. But if you take it, our networth, which was INR 87,601 crores as given in the results and if you add the profit of INR 3,678 crores, the total should come to INR 91,279 crores, but it is INR 93,748 crores. So net worth has gone up by INR 2,470 crores versus the AFS increase in the valuation of the general reserve is of INR 1,702 crores. So about INR 700 crore has gone further into the reserves. If you look at the net worth difference between the March and the June quarter. So what is that component of that INR 700 crores, the additional increase in the net worth? Is it zero coupon bond, some calculation?

Ajmera-ji, as far as investment new norms are concerned, which has been implemented from 1st April onwards, whatever the impact on that general is that INR 1,702 crores after tax, which has been added in the general reserve. In addition to that around INR 20 crores, whatever the June quarter addition is there that has been added to AFS reserve. Total addition is INR 1,722 crores, on account of changes in the investment guidelines with effect from 1st April 2024 onwards.

Ajmera-ji, this is Avinash Prabhu. Basically, the INR 700 crores that you're talking about is a reduction in DTA. So because there's a reduction in DTA, you're seeing that differential of INR 700 crores. So that's why our net worth has increased.

Okay. That is why net worth has gone up by another INR 700 crores?

Yes.

Yes, yes. Point well taken. Ma'am certain on the notes to the accounts, there is a fraud in the Note #9, the fraud is reported INR 465 crores. The outstanding is INR 341 crores in this quarter in 128 cases. So number one, it's a very high number in the first -- one quarter itself. Secondly, how much is of the -- this frauds are on the borrower accounts? And how much is the -- on the digital and other cyber frauds? And what are the chances of recovery out of this INR 341 crores outstanding, which has been fully provided for?

Ajmera-ji, in terms of the Reserve Bank of India guidelines, now all the frauds, even though if the bank is not responsible for that, but it is on the digital platform, it has to be classified web fraud. And we have taken this up with the RBI in this regard. So many of these are -- almost like 70% to 80% of these frauds are digital frauds of small in nature and, of course, the remaining are credit and credit frauds that is happening. So this -- the bank has taken a lot of initiatives with regard to this, we have opened a separate transaction monitoring department in the bank. We also have reconciliation department. We have put a lot of steps with regards to arresting the digital frauds as well as with regard to the various transaction frauds that's happening. Real-time monitoring of all the transactions are happening in the bank. We are also putting velocity checks and customer profile [Technical Difficulty] AI and ML, we have taken this. So we are taking up a lot of measures to arrest the frauds. And you also must be aware that the bank is operating a 24/7 cybersecurity operation center also at Hyderabad. So with these initiatives, we hope to reduce the number of digital frauds that's coming up in the bank, plus also the transaction frauds that's happening within the bank.

We'll move to the next question, which will be from the line of Mahrukh Adajania from Nuvama.

Ma'am, firstly, on PSLC income, while, of course, it's always strong in the first quarter, it has kind of doubled. So who would be the main buyers? Would it be foreign banks, private banks, who are the main takers of PSLC because the demand this quarter looks to be significantly higher than last year, right, where last year's first quarter also there was good income, but this time, it's even better. And what is it that sells the most? Is it agri gold or what? That's my first question, and then I have a question on cost of funds as well.

As far as PSLC is concerned, it is traded on the platform, which is open to all the buyers. We are not able to understand who is the buyer and who is the seller. It is a platform where it will be dealt on the -- based on the demand-supply. But usually, on observation during the last quarter when the sale took place, major buyers looked to be private sector banks who are [Technical Difficulty] in that segment, madam.

Sorry, who is this? I did not hear the last point...

Private sector banks who are having the shortfall in that segment. Actually, it was traded at a range of INR 1.80 to INR 2 during the quarter.

Okay. That's so helpful. And then what would be the amount of recovery income or dummy interest in NII and any swap-related income in NII this quarter?

Yes, dummy ledger income for the last quarter was INR 607 crores. And what you asked, what's the second question, ma'am?

No, you get some -- in NII, you have some swap-related income every quarter, right, so what was it this quarter?

Yes, it will be around INR 700 crores to INR 800 crores, madam. It is on par with the year-on and quarter-on basis, similar income.

Okay. INR 700 crores to INR 800 crores, okay, okay. Okay, and just 1 last question on cost of funds. Obviously, there's no business growth given that it's the first quarter and it's a dull tad quarter for the banking sector. But as liabilities are challenging, you have well pointed out, deposit growth being slower than loan growth and that there are special offers given by all banks on term deposits. Do you see an upward movement in the cost of funds in the quarters ahead? This quarter, it has somewhat declined.

Yes. Cost of deposits have -- actually, if you look at this [Technical Difficulty] for our bank, Q-o-Q, the cost of deposits has slightly reduced by 5 bps over March '24. It is because of the -- we did not take much funds in the market, and we have got enough of liquidity with us. That's the reason the cost of deposits have fallen in this quarter. But going forward, looking at the increase in advances, we would like to borrow funds or raise more term deposits and that is the time that we will be looking at increasing probably rate of interest. And as of now, we are very competitive in the market with regard to deposit rates. We look at the tight liquidity position and the widening gap between deposits and the credit growth, plus we also have quite good excess SLR growth, so we were not looking at increasing the cost of deposits to a great extent.

The next question is from the line of Suraj Das from Sundaram Mutual Fund.

Couple of questions. One is on the yield on advances, that has declined on a Q-o-Q basis. If you can shed some light, I mean what is the rationale behind that? And has there been any impact because of this revised payment charges guidelines?

Yes. Yield on advances has declined by about 15 bps, primarily due to the fall in our DL recovery. About 11 bps impact it had because of the DL recovery compared to the previous quarter. We also saw a small increase in the average advances, that's about INR 10,000 crores increase in the average advances. That's the reason there has been a decline. And plus, if you look at this, we were able to pass on the MCLR reset of only 25 bps during the year. So that is the reason that if you look at Y-o-Y, there is a decline in the yield on advances.

Okay. So the second question is on the standard asset provision. So I think this quarter, you have provided something like INR 1,300 crores and, similarly, I think if I see the, let us say, SMA-0, that book has also increased. So if you can shed some light here and what would be the...

Yes, standard asset provisioning we have done to the extent of about INR 1,296 crores. It's an increase to that extent. This increase is due to an anticipated stress or potential restructuring in a couple of accounts. That's the reason that we have done this additional provisioning.

Okay. And ma'am the rationale of increase in...

Yes, the rationale also is there in SMA-0. That's the reason that our SMA-0 numbers have also gone up.

Okay. Understood. And ma'am the last question would be on the NBFC growth. I think in your corporate slide that you have given, the NBFC amount -- exposure to NBFC has grown substantially on a Q-o-Q, Y-o-Y both basis. So I mean how you are looking at this growth probably in coming quarters?

No. NBFCs have -- if you look at -- Q-o-Q, there is not much of an increase in NBFC, but Y-o-Y, of course, from INR 107,000 crores to INR 120,000 crores that's how the NBFC book has grown. But we have shared a lot of numbers on the NBFC book plus our other low-yielding advances book also, close to INR 15,000 crores is what we have [ shared. ]

To add to that, if you're looking at the other bank's growth in NBFC, it is -- it's on the RBI data, we find that it is 15% growth is shown. Whereas, our growth is around 14%. Still, we are having a room we will be taking.

No, we've shared almost INR 5,000 crores in our NBFC book. If you look at December '23, it was at INR 125,000 crores. Today, we are at INR 120,000 crores.

Okay. Sure. And ma'am, what are the -- what could be the rates here? I'm assuming these would be AA or AAA rated NBFCs?

Yes. My NBFC portfolio, if you look at almost like 99% is A and above, and 1% is BBB and lower.

The next question is from the line of Dixit Doshi from Whitestone Financial Advisors Private Limited.

Sir, I have 3 questions. Firstly, as you have mentioned that the standard asset provisions we have been anticipating some loan accounts defaulting. So also, do you feel that we will increase the standard assets provision going forward also or it was maybe one-off this quarter and this will be -- not be such high provisions in the future quarters as well?

Yes, this is a one-off provisioning [Technical Difficulty] certain, a couple of accounts, and that's the reason that we have done this.

So from next quarter onwards this amount will be lower...?

Sorry to interrupt, Dixit, the line for you is not very clear, it keeps moving in and out...

No, but we understand the question. Yes, in the next quarter, it may not come up.

Okay. My second question is regarding this recent Telangana government farm loan waiver. So first thing is, will it impact us? And also secondly, so how this will be recorded in the books of account? Will it be like moved to the -- those accounts move to the NPA and the government will pay us at a later stage? Or I think the amounts are transferred to the farmers' account, so can we do the auto debit kind of a thing?

Yes, it's done usually. The amounts are credited to the farmers' account and from there, it is credited to the loan account. And it has just started, so we will not know the impact because they're doing it in 2 phases. So second phase will be completed by August 15. So we will know the exact [Technical Difficulty] time.

So since the amount will be transferred to loan accounts, so we don't anticipate a significant jump in the GNPA because of this, right?

No. No.

Okay. And just for one last question. So our capital adequacy is quite strong at 17% and we are targeting a growth of 11% to 13%. So this INR 6,000 crore equity raise, is it just a provisional approval we have taken or do you really feel that we will require this much funds?

Yes, we are quite comfortable, as you say, with regard to the capital adequacy is concerned. We have enough capital for -- to take care of our growth, but we have taken a Board approval to raise capital. In case there is a CapEx cycle revival and then the growth prospects of the bank also increases and the ecosystem also increases, we would like to have more capital to take care of that.

The next question is from the line of Jai from ICICI Securities.

Congratulations on a good set of numbers.

Thank you, Jai.

Yes, ma'am, so my question is on -- sorry, again on this standard assets provisioning of INR 1,200-plus crores, is this entirely due to some rise in the SMA that you have seen or this is like -- and this also includes the usual higher provision on standard assets -- sorry, restructured assets?

Because of those couple of accounts that we are finding a potential stress, that's the reason that it has been done.

Okay. And ma'am what could be the -- these are like large corporates, right? Usually -- yes, yes, so if you can mention the sector, are they like overseas account also? Or this is more like...

Not overseas sectors, these are domestic ones only.

Okay. Sure. And the amount ma'am even if I look at SMA, right, it is only INR 5,000 crore, usual trend of INR 1,000 crore. So it looks like that the increase is more like INR 4,000 crores?

Yes, exactly. Yes.

And against that, you have taken a like 25% kind of a provision...

20%.

Yes, yes. But Jai, it's not necessary that these accounts have to be in SMA. So we've looked at the overall book, and we've identified, like ma'am said, a couple of cases where we could need additional provisioning, and that's why. So it's not necessary that it has to tie up with the increase in the SMA book.

Right. And sir, if you could mention the sector of these potential accounts, just to understand the -- any sector that -- just to understand the sector color there.

It covers, Jai. I mean, unfortunately, it covers a few sectors so -- and we don't want to get into those details at this stage as...

No. Jai, these are -- as I told you, these are potential numbers that we are looking at. We have been upfront about it. So we do not know how those accounts are going to behave. But as a prudent governance method, we have already provided for that.

Sure. No, no, that is very helpful. And ma'am a question -- then the other question on this AFS new guidelines, right? So -- and in conjunction to that, there is a sharp cut in the AFS book also in absolute amount in both SLR and non-SLR, very sharp reduction in the absolute amount. And similar to that, I was under the impression that treasury income may decline because of this new guidelines. So 2 questions here. One is why there is so much sharp cut in the AFS and non-AFS book -- AFS and the non-SLR book in the AFS category, why not too much impact on the treasury income?

Yes. So Jai, Sudarshana Bhat here from treasury. As far as treasury is concerned, after the new guidelines, our AFS book will be treated as -- not treated as a trading book, it is a banking book. So whatever the trading position to be taken, that should be taken in the HFT book. So we have taken the position in HFT book instead of AFS book. And we strategically have done the exercise and we could be able to book a similar amount of profit, which even otherwise annual shifting, other activities were not there, still, we could be able to generate year-on-year equivalent profit. That is the main reason for generating the equal amount of profitability in the treasury during the current quarter.

Right. And sir, there is INR 150 crores of positive impact in the P&L, right, because of this treasury -- because of these norms. If you could explain, sir, what is that?

Yes, that's a mark-to-market.

That is a mark-to-market gain on that, which is not booked. So it is accounted for a daily basis and even quarter end also. As per the new guidelines we have to be done on the fair value and daily impact on all those portfolios should be taken into account in the P&L account. Since our HFT portfolio is having a position, which is having a positive gain that has been added to the P&L.

And Jai, this is Avinash Prabhu. I mean, see, basically, this is the consequence of the new guideline, right? So you see this across the banking sector where because there's a split in the held to maturity, AFS and FVTPL, you see that these movements would happen in the first quarter, but obviously, you may see lesser volatility in subsequent quarters.

Right, right. And ma'am, in your opening remarks, you mentioned initiatives on CASA. And I think you mentioned a range of the loan-to-deposit ratio also. So is that fair to say that loan growth in the near term for next 1 to 3 quarters would be similar to deposit growth, right? I mean, as you grow deposits, you will be able to lend as well, is that a fair understanding?

Yes, yes. That is our strategy. We want to grow our deposits in line with our advances growth, but we have given our guidance for the year. And we will be keeping it to the guidance that we have given. But however, we have taken a lot of steps with regard to increasing the liability portfolio of the bank. And as I told you in the very beginning, that we have also taken a consultant onboard to increase -- to give us guidance on how to increase deposits, plus we also have opened -- we're opening new branches and we are also opening new premium branches at RUSU locations to see that our deposits are growing. We have also established a customer service excellence cell for better service and complaint management and to take care of our existing-to-bank customers. So there are many strategies that the bank has implemented during the last half year. And we hope to see good results. And the gap between the deposit growth and advances growth will be reduced.

Sure. See, there are lot of questions -- so this is Kanika, CEA. So there are a lot of questions coming on wedge between credit and deposit growth and this whole issue around cost of deposits while for our bank, this quarter has been favorable, but overall for the system you've seen, on a macro basis, if you actually see the RBI itself, in the latest financial stability report has come up with an analysis, which shows that in high growth phases, typically, the wedge between credit and deposit growth lasts for 2 to 4 years. Now in the current cycle, which has started from April 2022, this wedge has been initiated between credit and deposit growth. 26 months have passed, we still have a year to go and the RBI itself is acknowledging that even for the next 12 months, there is -- going by historical examples or experience, this wedge may persist between credit and deposit growth. A similar issue for our bank is actually for the fiscal as well and it's reflecting in our guidance, too. The second point to it is everybody is talking too much about CASA cost of deposits. Cost of deposit today for the banking system as a whole is witnessing upward pressure. We've been lucky in this quarter, but broadly the risk is on the upside purely because CASA as a segment is witnessing a structural slowdown. See, there are 2 points, one is, of course, the structural slowdown because households are shifting their savings mix from deposits to equity, small savings, and we are anecdotally facing that. And the money routes back to the banking system in the form of a TD or a bulk deposit. So CASA is facing structural slowdown. And in high-rate periods, CASA usually -- CASA ratio usually comes down, so that's true for our bank as well. And in fact, it's true for every bank on street, especially in this quarter where Q-on-Q, there's been negative CASA growth. Last, but not the least, what you'll actually see is that CASA is facing a structural slowdown, the wedge between credit and deposit to persist, so the fight for deposits is real in this financial year thereby posing some upside risk cost to deposits as well. Thanks.

Yes, sure. That's very helpful. Ma'am, last question is on restructuring provisions. So we have a restructuring book of around INR 11,000 crore, INR 12,000 crore, how much is the restructuring provision that we have? And it looks like that we may be seeing ECL implementation very soon. Do you envisage any additional provisioning, a, on the total loan? And b, specifically on the standard restructured book?

Provision for restructuring. With regard to, in the meantime that we get the numbers for restructured book; ECL, we will not be having much of an impact. We have looked into that portfolio. ECL will not be having a major impact on the bank's numbers. The banking sector is in a relatively better position now in terms of asset quality, capital adequacy and profitability. And we will be able to absorb the impact [Technical Difficulty] of the ECL. And I know the time lines will be given for 1 year time line to implement the ECL norms after the final guidelines. And we are -- the news is that it would be implemented for '26-'27, so in this scenario, we will not have a substantial impact on our balance sheet with regard to ECL.

So Jai, our restructuring book is very small. So we'll get back to you on the amount, but it's only about INR 22,000 crores and we'll come back to you in terms of how much -- so about 39% of that is NPA.

36% of the restructure book is NPA.

Correct. So we'll come back to you on the amount provided, but it would be significantly covered in terms of provisioning.

[Operator Instructions] We have the next question from the line of Prabal from AMBIT Capital.

Ma'am, just a clarification first. With reversal of penal charges that amounted to 11 basis point of impact on advances, is that the correct understanding?

You're not audible.

I was asking a clarification that the reversal of penal charges that amount to 11 basis points on advances, is that the correct understanding?

Yes.

Okay. And this was for how many quarters prior?

Meaning?

Meaning, how many -- last how many quarters prior penal charges have been reversed in this?

No, no. See, if you're referring to the penal charges, which have been introduced by RBI, so instead of payment -- basically payment charges as guidelines you are referring?

Yes.

So there is no significant impact of that movement because all charges are generally collected as and when it is applied. So compounding or anyway had a very limited impact, so it will not have any significant impact in terms of amount.

Okay. So would it be fair to say that, let's say, from next quarter, 11 basis points will get added to a loan yield and it will continue thereafter?

No, so basically, the 11% interest yield on advances has come down primarily because INR 850 crores last quarter we recovered the dummy ledger interest around INR 850 crores. As it is, the INR 850 crores this quarter, the dummy ledger interest recovery is around INR 607 crores, almost INR 243 crore shortfall is there because that has impacted 11% reduction in the -- sorry, 11 bps interest reduction in the yield on advances. And in fact [Technical Difficulty] of penal interest and penal charges, it has not a major impact on bank's earnings.

All right. Okay. My second question is on the agriculture book that's growing pretty strong at 23%. So what is driving that?

See, agriculture book is primarily we have grown around 23% year-on-year basis in the last quarter. In that, we have both the KCC and infrastructure lending investment credit towards the major focus, but that has also -- our gold loan portfolio has also helped in increasing our agriculture advances.

The agri book, yes, as ED said, gold loan increase was also there plus agri SHGs that also has grown substantially to about 30% growth we have seen in agri SHG. Investment credit, food and agro and all this has helped us in increasing the agri book. Also, you must be also aware that 59% of our branches are in the RUSU market. So that's the reason that we're having a healthy growth in our agriculture portfolio.

Got it. And how do you look this growth going ahead?

Well, we would be growing, if you see consistently, we have been growing 21% or 22% in my agri book. So it will be increasing in the same level. In the interim budget, the FM also talked about the GYAN, that is rural also was the main focus of the present government. So we are looking at growth in those locations also. Agri infra is one portfolio that we are very aggressively looking at. So my portfolio will have a good growth in the agriculture.

Right. And ma'am prior to you, agriculture book had a lot of NPA, so after you taking charge, have you made any strategic tweaks in the way it is getting undertaken and...?

Yes, agriculture NPAs are there, of course, but we have a very robust OTS system there where we are able to immediately settle the agriculture NPAs and also give loans apart from that. We've also seen some debt waiver schemes from 1 or 2 states. So this has reduced the NPA in agriculture. We started off with almost like 10% in June '23. Today, we are at 8%. That's the kind of sectorial NPA that we have seen at our agriculture, it's coming down year-on-year.

And supplement to what ma'am said, we changed our strategy for the agriculture also. Our major focus now, if you see for the last 1 or 2 years, we have focused more on the SHG fund -- lending also, where we are growing at 30% and the delinquency rates are very low. In addition to that, the major NPA, which was seen over a period of time was in the farm credit and that also we have seen mostly from the farm credit to investment credit also. So with all these strategy, our overall NPA percentage has come down. And it is, in fact, further improving with the recent debt waiver, which has been announced with few of the states, there also we are finding not much, but some positive impact on our recovery side also is happening.

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

Ma'am, first question is with respect to this INR 1,296 crores standard asset provision that we have made. So what is the outstanding number against which we have made this kind of provision, so...?

So Rakesh-ji, we'll not be able to tell you the exact number against which we have created. These are the general provisions we have made. But you will find that some of the accounts are already happening on the SMA-0 category also. And some are not -- still not happening under the SMA category also. So there are a couple of accounts for which we have made the additional provision on this standard provisions we have made.

Correct. But sir, generally, like whenever we see such scenario, we generally start to [Technical Difficulty]...

Sorry to interrupt, Rakesh.

We're not able to hear you.

No, I was saying, ma'am, that generally, whenever there is such occurrence, we start with making 15% to 20% provision, correct, ma'am?

Yes, yes, it will be in a similar line only.

20%.

20%.

Yes, 15% to 20% provisions.

Correct. Correct. Ma'am, candidly the interest income coming into the NII line this quarter, it was INR 607 crores, so last year, FY '24, we had INR 3,065 crore. So would we like reach a similar kind of a number of INR 3,100 crore in FY '25?

Yes, yes. This being the first quarter, as you are aware that this quarter, we had an election and all transfers has happened. So there were slightly -- the recovery itself was slightly muted because of the various factors. One of that majorly is because of the election also. So we hope that as we have already projected INR 16,000 crores of recovery in NPA, so will be able to meet INR 3,100-plus crores of recovery in the dummy ledger interest.

Okay. And ma'am, the small and marginal farmer now we have 11.3% as against [Technical Difficulty] so like this quarter, we have sold quite a lot of like -- and we have been quite good gain also of around INR 950 crores. So what is the sustainability of that number considering that now we have a new base of ANBC as compared to fourth quarter, we had 13% similar number? So like what is the prospect of this PSLC till the remaining quarter?

Yes. PSLC usually, we gain in the first quarter. We do not do this in the next quarters also. But the small and marginal farmers, we will be able to sustain those both, as I told you earlier also that our growth in agriculture is quite substantial, it's quite good. And we will be able to meet this requirement of [ S&FM ] on a quarterly basis.

The next question comes from the line of Sri Karthik Velamakanni from Investec.

I have a question on the AFS book. You mentioned our excess liquidity is roughly INR 65,000 crores, whereas the AFS book itself aggregates to INR 25,000 crores. So how do you intend to really deploy this excess liquidity because it's largely locked in the HTM portfolio?

We have kept the AFS portfolio after the new guidelines, it will be catered as a banking book, not a trading book. Whatever the excess liquidity we provided depending upon the requirement, we have taken strategic position in the different segment to generate additional gain on account of fluctuation in the bond yields as well as expectation of the rate cuts. Accordingly, we have positioned ourselves in various segments to take the advantage of the market moment during the current fiscal.

Yes, sir. But a part of the liquidity will have to be sold from the HTM book also, right?

No, we kept depending upon the requirement 60%, 20%, 20% and it can be easily accessible and can be disposed of as and when required a liquidity requirement. It will be in assortments, which can be disposed of as early as possible, which will not be kept in HTM portfolio.

Understood. And on a -- in this quarter, what is the percentage of recovery in our net interest income?

Dummy ledger interest recovery is around INR 607 crores for the June quarter.

Sir, just to clarify if your question is on the recovery in written-off accounts in the noninterest income, it's INR 954 crores.

Yes. No, this was the dummy ledger income which was...

The next question is from the line of Nikhil Agarwal from VT Capital. As there is no response, we'll move to the next questioner, which will be from the line of Kunal Shah from Citi.

Yes. So on gold loan, what is the quantum of gold loan out of this INR 1,90,000-odd crore and what was it year prior to that? And what would be the GNPAs out there?

Yes, total portfolio of gold is about INR 78,000 crores and out of that, INR 66,000 crores is in agri.

Okay. So in agri it is INR 66,000 crores, and this INR 66,000 crores compared to last year, Q1?

INR 43,000 crores.

Yes, INR 43,000 crores in June '23.

Okay. Okay. And in terms of the GNPAs out there, how would be the GNPA proportion in that portfolio?

In gold?

Yes, in agri gold? Yes.

GNPA is around approximately 0.02%.

Okay. Okay. So assuming that INR 66,000 crores is almost 0. So when we look at the agri GNPA at maybe almost 8.13%, then ideally on the other proportion, it should be relatively on the higher side. So what improvement we are seeing from 9.92% to 8.13% that's primarily coming because of almost like 0 GNPA on the agri gold loan?

Yes, that is 1 area. Similarly, in SHG also, the GNPA is very low. Exact number is less than 2% in the SHG portfolio also. And when we move towards the investment credit, there also the GNPA is low. Primarily, the GNPA was high on account of the farm credit, which is gradually we are not increasing much on the farm credit, but in other area, we are increasing our portfolio. So not only the gold, even the SHG and also the farm investment credit has helped the bank to improve the reduction in GNPA in the agriculture portfolio.

Okay, okay. And in terms of the standard asset, you mentioned like it would be 15% to 20% provisioning on the outstanding on an average. And there would be only a couple of accounts, which would be there in that provisioning? So that's correct?

Yes, that's correct.

Yes. And any impact on interest income because of that?

Currently, no impact.

Okay. So interest is still getting recognized on that?

Yes.

Yes.

The next question is from the line of Rahil Shah from Crown Capital.

Yes. Just one, I just like to know where is our return on assets and cost to income headed? So if you have any guidance outlook for FY '25?

So cost-to-income ratio, we are in the 44% range -- 44.08%. So in terms of guidance for cost to income ratio, where we've not formally given out any guidance, we expect to be in the range of about 45% to 45.5%, somewhere there. So it will be between that 44% range to the 45.5% range. The reason why we say this is because if you look at our peers, they have a much higher cost to income ratio. So we have room for investment. And that's the reason why we don't -- we're not actively looking at bringing this down further. ROA, we have given a guidance that we would be above 1%, and that's what we've achieved in Q1.

So any further room for improvement on ROA expected ahead?

We will obviously -- I mean, I think ma'am in her opening remarks also said that we will not chase growth for the sake of growth, and we'll obviously keep in mind the metrics. So obviously, we will look at opportunities to improve the ROA, but we don't want to give any specific guidance on that.

Okay. Okay. And any branch opening targets? Have you released that as well?

Branch opening targets.

Yes. Branch opening, yes, we are looking at opening branches at RUSU locations and other locations also. We have also rationalized about 25 branches in the current year last year, of course. And this year, we would be opening about 200 to 250 branches. And basically, these branches will be in the premium kind of a branch [Technical Difficulty] opened 28 premium branches in this year. And these branches, we've also taken a lot of analytical tools to -- and digital tools to see that the branch locations are properly done and especially in high-growth centers, we are looking at opening our branches.

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

Congratulations on the good numbers.

Thank you.

Ma'am, firstly, on the fee income front. The growth in fee income was quite strong in this quarter, are there any exceptional items here?

Yes. The -- like we covered earlier on the call, PSLC fees, we've got about INR 955 crores. That is generally a Q1 event. So we would not see that recurring in subsequent quarters to this extent.

Sir, but I'm referring to just the fee-based income, which is INR 2,868 crores for the quarter. I believe PSLC is separate from that one.

No, that's included in that.

Okay. Perfect. Secondly, if I look at the provision on investments, there has been a reversal in the last couple of quarters. Can you elaborate what is causing this?

From 1st April onwards new accounting guidelines have taken place. Earlier, whatever the MTM gains are there in AFS portfolio that will be taken in the P&L account. But during the current quarter onwards, the AFS book will not be a trading book, it will be a banking book. And daily basis, the mark-to-market with the fair value will be happening and whatever the impact will be there, that will be taken into P&L account. Accordingly, current quarter, there is very limited scope. In the earlier quarters, that option was available. Now in the new guidelines, the MTM gains on the AFS books were not available, that is the reason it is showing that.

I was referring actually to the provision on NPI, nonperforming investments, that has been negative in the last couple of quarters.

Okay. See, whatever the -- as far as the nonperforming investments are concerned, we will provide 100% provision. Due to a variation in the market value of those equity instruments, which have resulted into gain that has to be reversed back. That is why there is a INR 300 crores reversal is there in that segment, which is shown as reversal of MTM gain on the NPI item.

Got it, sir. And lastly, on the recoveries from written-off accounts, which goes into noninterest income. That item was also fairly strong in this quarter. Given that this was an election-related disruption quarter, were there any one-offs in this INR 955 crore number?

No, no, these are mix of various accounts. It's not one-off item is not there. And on an average, we recover around INR 1,000 crores-plus in technical write-off. Last year also, it was INR 4,000 crores-plus for the entire year. This year also, we expect a better recovery because we have kept a higher target for overall recovery. And accordingly, our [ TW ] recovery also will be INR 4,000 crores-plus, which earlier also we have discussed.

The next question is from the line of Anurag Mantry from Oxbow.

So 2 questions. One is on the credit cost. So I think this quarter if you look at it as a percentage of the net loan debt is about 1.26%. And I think your guidance in general has been about less than 1% for the year. So do you see that you have levers to beat that less than 1% mark by the end of the year? That's number one. And the second question is regarding the ECL impact, if you can just quantify that amount? And if the capital raise that your planning of about INR 6,000 crores, is that related to the ECL impact at all?

Credit cost, what did you say? You said the impact is 73 basis points. And then, yes, we've given a guidance of less than 1%, so yes, we will -- we're looking at sticking to that.

No, I think the credit cost annualized number for this quarter is 1.26% on net loans, that's higher than the 1% that you've guided for is my understanding. So just wanted to get a sense of what the levers could be to get that 1.26% down to 1% through the year? I'm looking at the gross numbers ex of the recoveries...

Our credit cost is 73 basis points -- yes, okay. So we -- I mean, we look at it from a standard advances point of view. So that is what we are looking at in terms of guiding. So we would look at keeping a control on that unless there's any one-off event, but that is what we're guiding in terms of keeping it below 1%.

Got it. And the second one on the capital raise and the ECL?

Yes. On the capital raise, like was mentioned earlier, the -- we've got a Board approval for INR 10,000 crores. We will look at opportunities in the market. Obviously, we currently have a very strong capital ratio. So we don't immediately see a need for capital. But if there is a growth in our advances book and an increase in our risk-weighted assets, we will approach the market at the opportune time. It's not linked to ECL, no.

Got it. And could you quantify the ECL impact roughly?

No, ECL -- no, so we have been monitoring ECL over the past few years. The gap between what is required under ECL and what's required under the current accounting norms has narrowed down significantly. We obviously are waiting for the final guidelines on ECL because the governor has -- I mean the Reserve Bank of India has indicated that they may finalize the ECL guidelines this year, but the gap has narrowed down significantly. We are not in a position to publicly mention that number.

Ladies and gentlemen, we will now take 1 last question, which will be from the line of Nikhil Agarwal from VT Capital.

Right. So my -- I have 2 questions. One is with regard to the standard accounts that may be potentially stretched. Like you said that there could be a 15% to 20% provision. So assuming a 20% provision, the amount comes to INR 6,500 crores and the SMA is INR 5,000 crores right now. So my question is how -- like you said, some of the accounts have come and some have not come in to SMA till now. So what is the bifurcation, if you could explain that? And secondly, like you mentioned, the different efforts of shifting from farm credit to investment credit, which is helping in bringing agri NPA down. Similarly, what are the efforts in bringing MSME NPA down as well because that is also significantly higher at 8%. These 2 questions, please.

Yes. With regards to MSME NPAs bringing it down, if you can see my -- if you look at my NPA -- sorry, the MSME book, almost 50% of my MSME book is in the micro advances, and which is 75% collateral is available in the form of CGTMSE. So we are very mindful of that. And of course, in the other sectors of small and medium, there is a robust mechanism to improve underwriting and, of course, the recovery mechanism also is good. Plus we have got substantial collaterals in those accounts. So we are not -- that's the reason that if you see the NPAs in my MSME book is coming down. And with regard to your question of SMA, the total SMA book consists of about -- if you look at the June '24 book, it's about INR 5,144 crores and that's differentiated between retail, MSME, agriculture and the corporate. So that's a number that we have. Retail is close to about INR 200 crores, MSME about INR 1,000-odd crores, agriculture is also to that extent. So it is equally distributed among the portfolios.

See, the only thing you have to understand that, see, some of the things maybe the interest -- as already we have replied, the interest would have come, but we may be entering into ICA because of some default in somewhere else where there will be some restructuring will be going on. These are all in a very fluid stages. We are hoping to resolve it quickly. Otherwise, as a precaution, it has been done.

Yes. Like we mentioned in the notes of the call, this is on a prudential basis, right? So therefore, we have just looked at our accounts, and we've said, okay, fine, the INR 1,200 crores provision seems to be appropriate at this point in time and would cover our risk and that's what we've done. We are not getting into a further split into how much is SMA, how much is standard, et cetera. That's the number that we have in mind in terms of what could be the right number for this quarter.

That would be our last question for today. I would now like to hand the conference over to the management for closing comments.

Yes. Good afternoon to all of you. See, as you all can see that despite the difficulties or the challenges happening in the banking sector, we are focused on only 1 thing is that is a sustainable and steady performance for our bank. And as already explained in our opening remarks by madam that we've already taken a lot of initiatives to counter these challenges, which are happening. And we will be more focused on that. We can assure you that the management is focused on the dynamic changes and the challenges happening in the market and we hope to get the same amount of support and cooperation from all of you. Thank you very much.

Thank you very much.

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