Bank of Baroda Ltd

NSE:BANKBARODA

Earnings Call Transcript 2023-Q2

[Operator]

Good afternoon, everyone, and welcome to the analyst meet for Bank of Baroda's financial results for the quarter ended 30th September 2022. Thank you all so much for joining us.

We have with us today Mr. Sanjiv Chadha, the Managing Director and CEO of Bank of Baroda. He will be leading the call and he's also joined by the bank's Executive Director and the CFO. We will start with brief opening remarks from Mr. Chadha, and he has a short presentation for you. And followed by that, we'll have the Q&A session. Over to you, sir.

[Sanjiv Chadha, executive]

So thank you very much, Feroza, and a very good afternoon to everybody. First of all, thank you very much for joining us. Frankly, we would have preferred that from now on, we can have physical interactions, but we understand that they would have been a rather difficult clash, so we thought that this quarter, we might do it in virtual mode.

And hopefully, again, we will be seeing you with us from the next quarter onwards. So let me just begin by introducing our team on the call. So we have Mr. Debadatta Chand, our Executive Director on the call, who looks after International Corporate for us and also treasury. We have Joydeep Dutta Roy, our Executive Director, who looks after digital ID and a lot of our platform functions. Ian is our CFO, with the whom most of you would be familiar.

So let me just begin by a few opening remarks. I have a few, 3 or 4, 5 slides for you, and then we can open it up for questions. I understand that the presentation would have been uploaded, a full presentation, maybe an hour or more back, so that may not have been enough time. So I think it would be useful to just go through the key highlights. So we'll have the first slide. So our focus, again, has been on 4 areas for the bank. One has been growth. The other is to make sure that even while we grow we preserve our margins.

Third has been to keep costs under control and fourth has been in terms of doing asset quality. I think this is a quarter where all the 4 elements seem to have come together rather well. So starting with growth, as you would see on the screen, if it's visible to you, that our overall advances growth has been 19%, a little better than industry.

Within that, domestic advances have grown 15% and international by as much as 41%. The good part, of course, is that the growth has been well spread out. As has been our emphasis over the last few quarters, retail has had the most robust growth at nearly 28%, with then agriculture, MSME, corporate all having double-digit growth.

The corporate is actually the slowest, which also again shows that there's still some upside in terms of as corporate credit picks up, demand picks up, I think there is scope for us to maintain or even better this rate of growth. The other interesting point, again, is that pools, again, have grown by a slow 3.9%, which would mean that the organic growth of the bank's loan portfolio would be a tad bit higher as compared to the headline growth that we have just discussed. Within retail advances, again, for the last few quarters, we have seen unsecured personal loans, which was a relatively new area of emphasis for us continues to grow at a very, very good pace, with growth now coming through this quarter about 170%.

So we believe that we actually can have triple-digit growth this year, given the kind of pace we have set. Auto loan, which has been a strength of the bank is nearly at 30%. Education loans is, again, good at 23%. But home loan and mortgage loans, which if you might recall, last year had been an area of some concern for us that we were not really growing in line with the fastest in the industry.

That also is nearly at 20%. So I think overall, it looks good in terms of growth. If you look at the disbursement Y-o-Y figures, in terms of growth, they are even better, with growth ranging from 50% in terms of growth in disbursements for education loans to more than 100% for home loan than mortgage loans. When it comes to deposits, I think for the industry, there's -- the deposit growth is a little slower as compared to loan growth.

So is the case with us, although our growth again at 13.6% is, I think, a bit better than the system. Within that, international deposits have grown in tandem with the growth in loans at 38%. Domestic deposits have grown 10.9%, the change, of course, is that now finally, as term deposit rates have started increasing, term deposit growth rate has moved a little ahead of the growth rate for CASA, which is something which is understandable and what that we expect to continue.

In terms of the prospect of the bank continuing to support robust growth in advances, I think what is interesting is that while our overall global CD ratio is 80% but in the domestic market, it is actually at about 73%, which leaves some room for us to continue to grow our loans at a pace faster than our deposits.

The international CD ratio, of course, are above 100% because a large part of loans there are funded by instruments like medium-term notes and money market borrowing. So the -- again, what has been a matter of emphasis for the bank is that even while you grow, it is not at the cost of margins. Last year, we had tamped down our growth just to make sure that we protected our margins.

This year, as we had guided in the first quarter, we believe that it is possible both to grow in an aggressive manner and also to improve margins. We had guided that we would be improving our net interest margin by about 10 basis points during the year. The growth that you see in net interest margin is at 3.33%, substantially better than that.

Although I must caution that there are some recoveries which are there. So overall, our guidance continues to be that we will be improving our margins by about 10 basis points or maybe a little bit than that as compared to last year during the current year. And just to the previous slide, I think another just if you can go back to your side.

Another interesting part, of course, is that if you compare the cost of deposits and yield on advances, you will find that the cost of deposits has remained pretty much constant over the half year. It's moved up by about 7 basis points as compared in the quarter-to-quarter comparison. But for the half year, at 3.5 is exactly the same as last year. On the other hand, for the half year, the yield on advances have moved up by 21 basis points.

Our sense is that as is generally expected, you would expect loan margins to improve as compared to deposits, which will increase with a lag in terms of costs. I believe there's possibly another quarter or 2 to run where we will have the advantage of loan repricing, outpacing, deposit repricing. In terms of costs, I think this is, again, one part of the story, which is underappreciated.

You will find that while growth has been good for all banks. But in the case of some banks, you will find that costs also have been increasing largely in line. I think for us, the good part is that the costs have again been under very, very tight control. You might notice employee cost is up only 1% half year and 2% for the quarter. The other operating expenses are higher in terms at a 17% growth.

But a significant part of that is on account of depreciation because we revalue assets from 3 years, and therefore, that results in a higher depreciation charge. But overall, if you were to see, even despite this depreciation impact, the overall cost growth is just about 8% for the half year, 9% for the quarter. So we do expect that over the next few quarters, we should be able to maintain a significantly higher growth rate in both the asset levels as well as in terms of income as compared to costs.

The collection efficiency has been again one of the things which have had a significant improvement over the last few quarters. It continues to improve, and it stands at about 98% and SMAs, which you might argue are the best lead indicator of any species that might be developing are now down to, again, historical low of 0.42%, which would seem to suggest a fairly positive prognosis for the future. The asset quality, again, has continued to improve.

It did so even through the COVID period and now even more so. We have been aggressive in terms of taking provisions because of the fact that profits have been good. And as a consequence, net NPAs are now down to 1.16%, while gross NPAs are down by nearly 300 basis points, about 280 basis points on a Y-o-Y basis. The Provision coverage ratio in consequence, including TWO is at a high of 92%. And if you were to exclude that, it's nearly at 80%.

Similarly, Slippage ratio has been trending downwards. We had guided for the Slippage ratio to be between 1.5% to 2%. So it has come out at the bottom of the range for the half year. And as far as credit costs are concerned. So they also are lower than what we had expected. Going ahead also, we would expect the credit costs to trend downwards. We had earlier been guiding at between 1.25% to 1.5%. Now possibly, we would want to revise that to between 1% to 1.25% even taking into account some mishaps in the coming quarters. But for the moment, we believe that the book is robust and things are pretty much under control. So credit costs should continue to trend downwards through the coming quarters of the year.

In terms of profitability, the net interest income has had a very smart increase of nearly 34%, which again, is automatically a parody of the robust growth we have seen in loans as well as the improvement in terms of margins. Fee income at 12.3%. We normally expect fee income to target a growth of about 15% there or thereabouts. Core operating profit, if you -- that is excluding items like treasury gains, losses, interest on IT refund that's come up at nearly 44%.

I think this is a figure, which, to my mind, is significant in terms of the sustainability of the improvement in operations and operating profit that we have seen. Of course, in terms of the reported operating profit, that is again something which bears a little bit of a qualification. The figure is 6%, but that is depressed by one item where there was an asset which was upgraded. And because of that, there was an equity valuation impact, which was there.

If you will discount that operating profit growth, even taking everything else into account is about 20%. Our net profit of course, as you would see, is again at a record quarter level at about [ INR 3,300 crores ] [indiscernible] 60% what was a good quarter last year for us also. These are the half year corresponding figures, which pretty much show again figures which are pretty much in line in terms of the quarter. The quarterly figure is, of course, being better because the second quarter has been better for us even as compared to the first quarter.

As a consequence, the capital position continues to be robust. The CRAR is 15.25%. But in case you also add the accumulated profits, it comes to about 16.1%. So we are in a position now where, despite having very, very good loan growth, our internal accruals are enough to fund that loan growth. The last point again, is in terms of digital. The fact that we have been able to contain costs is largely on account of the fact that we have made great progress in terms of the digitalization of the bank.

It means that you can grow your business without growing your physical footprint, without growing our staff numbers. So I think this really in so many ways, is the foundation for cost control and for making sure that increasingly, they are widening jaws between our income as compared to our costs. So yes, that's pretty much it. Thank you very much, and open to questions now.

[Operator]

[Operator Instructions] The first question is from Ashok Ajmera.

[Sanjiv Chadha, executive]

Apologies we are not having you in person. Next quarter, we'll make sure.

[Ashok Ajmera, analyst]

Yes, sir. No, no, but it was required because immediately thereafter, the State bank meeting is also there, which is digital at this time. So anyway, thank you very much for having us considered it. But definitely we'll meet digitally in next quarter.

Sir, I'll begin with a very rich compliments to you and your team for showing the -- I mean, not showing, but for giving us the fantastic results in spite of all these problems, which are being faced -- and not only on -- I mean, only on operating profitability or profitability. But on other parameters also, the bank has worked very well. Even the asset quality has improved a lot. I've got a just a couple of observations and questions.

Sir, our international book has grown a little higher than this, which in most of the banks we have seen. But ours being -- the next largest international bank is next to the State Bank of India having the maximum outright branches. Where do you see this growth is coming in and what kind of yield with the interest rate going up there also -- are we in a better position to make more money on the international business?

And secondly, we must be having large investment in our international branches or subsidiaries, so with the provision of mark-to-market of 100% on those investments, what kind of a hit which you have taken in this quarter or the half year on that account. So a little bit clarity on the entire international -- I mean, the book. This is my first this thing. And secondly, sir, this last time also I had mentioned that our auditors are giving emphasis for those 2 notes, which are basically allowed for the agri policy only and which every bank is doing it -- but why a special emphasis is required for that?

Because as for the RBI circular, and I don't think like for additional pension liability of amortize of INR 1,018 crores and also that fraud amortization of about INR 91 crores, INR 92 crores I think we can have a little discussion on that. But why emphasis required because this is generally treated as -- I mean, emphasis are generally for the negative points, not for the positive or for the standard points.

So this is something -- and one is on the note #3 on the hedge policy, which the bank has adopted, profit on the derivatives contract would have been lower by INR 63 crores. So is this only this quarter phenomena now it started as for the approved policy or it was a regular event in the past half because past, we had not seen this note -- so a couple of other things if you -- if I may be permitted.

On the treasury front, our treasury has performed well. In fact, even in the segment-wise profit also, there is a profit of INR 1,460 crores as against the loss of INR 169 crores in last quarter. And I think in trading book also has been good. But now going forward, this further pressure coming in now with the increasing 75 basis points, and we might also see 50, 60 basis point increase.

Where do we -- where are we placed as far as the -- I mean, how much are we cushioned for our AFS book or other investments. So these are a couple of questions and observations. I have many more, but then my other colleagues are also there if permitted in the second round, I'll come back -- but if you can answer these, some of these questions.

[Sanjiv Chadha, executive]

So thank you, Ajmeraji. I'll just again try to answer a couple of them and then hand it over to my colleagues. So in terms of the international book, I think we have been, for the last few quarters been reporting high growth. The reason for that was twofold. One was that we found that in the domestic market, particularly in the corporate segment, the margins were very depressed.

So as compared to the margins in domestic market, we are finding better margins in the international book. The second part is that, to your question whether how our NIMs are. So actually, if you were to look at our NIMs and the trajectory over the last few quarters, -- our NIMs in the international book have increased from about 1.3% to more than 2% now. Now if you juxtapose this 2% NIM, again, the fact that as against a 50% cost-to-income ratio domestically on an average, you have a less than 20% cost-to-income ratio abroad.

You end up making, again, a margin after cost of operations internationally, which is higher than what we have done domestically. So it is on a net basis, margin accretive rather than margin dilutive. So it is something that was an opportunity for us because of the fact that we have a fairly good international footprint. And therefore, what we have built up is a very diversified, granular portfolio which again is reasonably well protected even against in terms of credit risk. So it achieves diversification. It also improves the margins for the bank on a net basis.

Now the second part was in terms of the international investment book. So there, we have tried to be disciplined. I think the fact that interest rates were likely to increase was something that we were aware of for some time. So we have made sure that either we are fully hedged or again, the duration is kept at an appropriate level to protect the books of the bank.

So we see very little downside there as far as the investment portfolio is concerned. And in most jurisdictions, excepting for 1 or 2, the investment portfolio is largely to take care of regulatory requirements, for instance, by way of high-quality liquid assets. There is not a very large investment portfolio, which might be there besides that.

In terms of the point of emphasis, I think you can almost take it as good news that auditors believe that this is something that is -- what is to be emphasized. It would give you comfort that apart from this, there's nothing much which is we emphasize, but I'll again request our CFO to again give his stake. But of course, I think in terms of your point that this is something which is entirely routine and can be dispensed with.

We'll try to see whether we can take it up with the auditors. In terms of that INR 63 crore derivative figure and, of course, the treasury, I think I'll request Chand saab and Ian to take it forward.

[Ian De Souza, executive]

Yes. Sir, I'll just take the points on the emphasis of matter. So largely, Mr. Ajmera is right, it is a very routine matter. But essentially, this is a dispensation provided by RBI, which overrides the generally accepted accounting standards. So it is permitted regulatorily to be done.

So the auditors contention and the contention that we have accepted is that it is non-standard but permitted by regulation. So as Chadha saab said, given that this is the only thing that they need to bring to attention, it's a good thing. The second thing in terms of the international book we have adopted the ICA guidance note on derivatives. As per that, it is permitted that the hedges that we have taken on international investments can be used to offset any losses in the underlying book.

So that is that note that you see. This is a Board-approved policy and hence, the disclosure to indicate that if we had not adopted this policy, so this disclosure will be there till the end of the year, wherein from next year, it will become business as usual. But essentially, it is a [indiscernible] which are offsetting losses in the investment book of the international territories.

And lastly, just as an additional point, in this quarter, we did have impairment in international territories in terms of mark-to-market. But that was more in terms of a corporate bond which had to be valued as per RBI norms and hence, there was a loss. But otherwise, largely, there was no significant loss in our investment book in international.

[Debadatta Chand, executive]

Just to give you outlook with regard to the domestic treasury and also international treasury book. You have seen that this quarter, the income on investment has been quite strong and that is rather higher than the increase in book in that way. So in a [indiscernible] scenario, typically, this happens in terms of a higher income at the same time pertaining profits. So going forward also, considering the interest mix still elevated, we'll still try to optimize on the income side on.

As you also earlier, we articulated that we book FRB book which is a substantial portion so that component that delta is going to be there in the book for the coming quarters. On the international, Ian has rightly clarified on that, our normal investment is totally hedge in terms of hedging instruments, so any profit loss out of that would be duly controlled, except barring one investment, which was a loan plus investment kind of thing out of restructuring, which was appearing below the line earlier in June that only look above the line.

So in terms of net impact on the book, the net profit, hardly anything because it's only accounting because September the loan was upgraded at the same time, the NPI, I mean, the [ regression ] and the investment can continue to be there in the same way which had just gone from below the line to above the line, otherwise remaining investment, we do have adequate person in terms of [ instrument ], and these are all be it over.

[Operator]

The next question is from Saurabh Kumar. Please unmute yourself and ask a question.

[Saurabh Kumar, analyst]

Sir, a few questions. One is you said that there were some one-offs in the interest income. Could you comment on what's the magnitude of those one-offs Second is with this INR 808 crores, the charge you have taken. Could you comment on what's that? And the third is basically, can you comment at the ROA you've achieved 1% is obviously great. Do you think there is sustainability around this number from here on?

[Sanjiv Chadha, executive]

So thanks, Saurabh. I think the first part was -- sorry, again, I lost that, let me take the -- so I take last one or sorry, we'll just repeat again the question I make note of it if you don't mind, please.

[Saurabh Kumar, analyst]

Yes. So the first is on the interest income. You said they have one-offs in the interest income.

I could comment on that. The second is the INR 808 crores the [indiscernible] done. If you can comment on that. And the ROA 1%, how sustainable do you think? I'll probably just add one more. Sorry, what's your restructured book as well?

[Sanjiv Chadha, executive]

Okay. So I'll just take 2 of these. This INR 808 crore write-off, I think I'll hand it over to either Chand Saab or Ian to take that and also the restructuring one. So in terms of the interest income, normally, again, I did say one-off, and that's correct. You have at times slightly chunky items. So there was a large upgradation of an account, which was there.

On account of that, there was an accretion to the interest line. You can argue with that, that is something which could happen every quarter. But again, I think just to sound a note of caution, we believe it is always good to mention that because there's always a possibility that in the next quarter, you might not have as much accruing as in terms of that particular line.

So if we were to take that figure, so there is again that recovery. And also what Ian mentioned that I think there was one swap that we unwound, which again added to the interest line. Both taken together would be about 20 basis points. 18, 20 basis points, which were there. So some of this could come again in future, particularly in terms of recovery, but may or may not, right? So that's what the quantum is.

Even if we were to entirely remove that we would still be pretty much in line with our guidance that we expect a 10 basis point improvement in the net interest margins. What we see this quarter is a substantially larger improvement. Therefore, we thought that in terms of disclosure, it is best to qualify that. Now in terms of the sustainability of the return on assets, I think we have been guiding that we expect to hit a 1% ROA and a 15% plus return on equity in the next year.

Now because of the fact that this is a good quarter, we have hit that figure in the current quarter. We expect improvement to continue. But as of now, we would be guiding that we should end up with an ROA maybe a little below 1% this year and across the 1% threshold next year. But in terms of trajectory, we expect to maintain the upward trajectory and fairly strong reporting in terms of results. Over again to Chand saab and Ian in terms of, a, that write-off that we spoke off and also the other part, which was in terms of restructuring.

[Debadatta Chand, executive]

The restructured book, if I talked about it is something around INR 17,000 crores as compared to INR 20,000, it was in March '22. So it has gone down. With regards to that one-off that we talked about in terms of we already classified with regard to a provision impact, which was below the line and above the line in the other income, which is appearing actually the [ realization ] investment, which is minus because of this particular impact, although there is no impact on the net profit because it was earlier accuring in June below the line.

With regard to the IRS, one-off, sir has already said, that's a one-off. But remaining, again, we say that whatever our international investments, we do have were [indiscernible] pushed in terms of having proper hedges against that. So given a scenario further rate hike happening and there are depreciation on growth in investment, and we do have also on the IRS covering of those depreciation. So in a broad sense, the book is quite stable.

And again, on the income side, if I investment more I focus on, the growth in investment income has been almost [ 27% ], which is higher than the bookings and this is a rising interest scenario where typically we're trying to optimize on the income side more as compared to the trading profit, and that would continue for this quarter also, that is what our book. Ian, any further you want to add on.

[Ian De Souza, executive]

No, nothing sir.

[Operator]

Next question is from Jai Mundhra.

[Jai Mundhra, analyst]

I wanted to check on the sustainability of the growth. So far in last quarter and this quarter, we have clocked 19.6% and 20.6% kind of a number, part of that could have been because of the lower base. So sir, wanted to check your thoughts as to how do you see the growth by March end?

[Sanjiv Chadha, executive]

So I think we can see it in 2 contexts. One is, of course, you're right that the first 2 quarters for us were back between the first quarter of last year where we had negative growth in terms of loans. Second quarter, I think Q-on-Q, we grew by about 5% but if we were to take the full year growth last year, right? It was, I think, below 10%, maybe 7%, 8%.

So if we have grown 20% in the first half, then you pretty much have grown equivalent to what we did last year. So anything which comes after this is a plus. So therefore, we can safely say that we should grow at a substantially higher rate as compared to last year, now that we compared last year. Then if you were to look at this quarter and how could things be in the next quarter, I think the kind of rates we have seen in some segments, right?

I think they are exception to my mind, right, 20% home loan, 30% car loans. Some moderation is possible because there was pent-up demand. For instance, in cars because of semiconductor crisis, availability, there were issues. But I think there is some upside for us in the fact that in terms of the composition of our growth.

Now our corporate loan growth continues to be slightly depressed at 10%, right? That is the segment, which is the slowest growing segment, and it is 50% of our book. Now as pricing power is returning, I think there is scope for us to increase that substantially. We have continued to be disciplined in terms of pricing, which is why our corporate loan growth is slower as compared to some other banks.

But we believe that is something that could translate into an upside in terms of yields also, right, as interest rates are moving up. And remember, interest rate increase has not got transferred into MCLR in any substantial manner yet. It will get transferred into that over the next few quarters. So to my mind, if we were to back end the corporate growth a little bit, which I think will work out in our case, you have an upside both in terms of growth as also in terms of margins.

[Jai Mundhra, analyst]

Understood, sir. So fair to say that we would be growing at -- or we would be growing as much as the system. Right now, we are going slightly ahead of system. But if the system was to end at 15%, 16%, can we expect a similar growth for [ both ]?

[Sanjiv Chadha, executive]

I would believe that is something which you should expect, yes.

[Jai Mundhra, analyst]

Sure, sir. And secondly on, sir, your EBLR transmission. And also if you can give the breakup of the loan book by EBLR and MCLR and maybe the fixed rate and others. And the 30th September, what is your EBLR transmission policy 30th September rate hike by RBI, when you would have -- would you have passed on immediately or that comes after a certain lag?

[Sanjiv Chadha, executive]

So to my mind immediately, but let me again pass it on to Chand saab in terms of, again, the full breakup in terms of how is our benchmark into EBLR, MCLR and the rest.

[Debadatta Chand, executive]

Yes, we'll provide with the exact data, but then all the retail loans are on the BRL or the EBLR rate. And the remaining -- the corporate loan mostly because earlier there used be a [ TV line almost ] But these are now largely NCLT. So in that way the pricing, our transmission also happening, but exactly the breakup we will provide you.

[Sanjiv Chadha, executive]

So [Foreign Language] 30%, 35% is linked to EBLR. About 50% is nearly MCLR and then you have other benchmarks, some of them include [indiscernible] . That's the rough thing, but I think we'll give you the exact figures.

[Jai Mundhra, analyst]

And secondly, sir, on your overseas slippages, right? So this quarter, there seems to be a slight increase in the overseas slippages. If you can comment on the nature of these slippages? And because we have grown overseas book rapidly. Is this some change on the NPL trajectory there?

[Sanjiv Chadha, executive]

So I think we continue to guide that our overseas book is very good. There are no surprises which are there. This was not a surprise. So this was an asset which was restructured. It was also partially provided. Now it has slipped and it is fully provided. So again, we will continue to guide. We don't see too many surprises in the overseas pool.

[Jai Mundhra, analyst]

Right. And last question, sir, on standard assets provisioning requirement and there were a few sovereign [ cashier ] sovereign state government accounts, which other banks seems to have provided an accelerated standard assets provisioning.

Has that been the case with Bank of Baroda also? Or you expect accelerated standard assets provisioning for some of the state government or FCI or civil supply kind of an account.

[Sanjiv Chadha, executive]

So let me first give you a small answer, and I'll pass it on to Mr. Chand again in terms of more complete thing. So to the extent it is required. We actually have done all provisioning which is required, right, either required by reserve bank or by our own auditors. But if there is anything more to add to that, I'll request Chand saab to do that.

[Debadatta Chand, executive]

See standard this provisioning, we do have the reference that we are making in terms of the government account. We do have a higher provision there in, but not to the extent impacting anyway with regard to our already held provision or impacting the further provision for the bank.

[Sanjiv Chadha, executive]

So Jai let's put it this way. There's nothing which we were supposed to provide, which we are not provided.

[Operator]

The next question is from Mahrukh Adajania.

[Mahrukh Adajania, analyst]

Congratulations. So I just have a couple of questions. Firstly, to clarify, so compared to the one-off or slightly lumpy margin from one-off this quarter? What would it be last quarter, roughly, any idea, first quarter?

[Sanjiv Chadha, executive]

So are you -- so in terms of margins, I'm not sure, Mahrukh, I understood you correctly. So what we have been guiding that we would expect a 10 basis point improvement in margin this year. So we continue to stand by that guidance, right? But I'm not entirely certain what was -- whether you were buying something else, you can just clarify please.

[Mahrukh Adajania, analyst]

Yes, yes, please. So what I'm saying is that you said that 20 basis points of this quarter's margins, could be attributed to reversals and swap unwinding. So was there any such reversal or unwinding last quarter in the first quarter of '23, that's my question. And how much was it?

[Sanjiv Chadha, executive]

So I don't think anything.

[Ian De Souza, executive]

We would have disclosed that, sir, and Mahrukh. So there was no such lumpiness in last quarter's margins.

[Mahrukh Adajania, analyst]

Okay. And my other question, sir, is on the new wage bill. So when will you start providing towards it? And basically, when we have to calculate even if you assume a 10%, 12% increase what do we apply that increase on what proportion of the employee expenses, 60%, 70%. So some -- just some clarity on the new wage bill and what kind of per quarter provision, you could see just a ballpark number?

[Sanjiv Chadha, executive]

Ian any comment on that?

[Ian De Souza, executive]

Yes. So basically, if we go by the past trends, it could be something like INR 200 crores to INR 250 crores provisioning per quarter. This provision will only be largely for the last quarter in a major chunk because it will apply to the full of the Q4 and partly to Q3. So it's not a significant dent on the operating expenses of the company. But yes, it will have to be made.

[Mahrukh Adajania, analyst]

Got it. Got it. And just one clarification on the outstanding restructured book the INR 17,000 crores is the all-inclusive number, including any MSME restructuring of prior schemes?

[Sanjiv Chadha, executive]

Yes. It is.

[Debadatta Chand, executive]

Jai, if you are still connected, that breakup you wanted on the different pricing, right? So we have MCLR almost to the extent of 53%, the EBLR, [ BRLR ] That we talk about, that is almost 28%. The remaining are there a small component of fixed rate at 7%, remaining all [indiscernible]. So roughly around 28% is the EBLR and then [ 52%-53% ] is the MCLR.

[Operator]

The next question is from Rakesh Kumar.

[Unknown Analyst]

Yes. Am I audible, sir?

[Sanjiv Chadha, executive]

Clearly.

[Unknown Analyst]

Yes. So just few questions. Like we have done quite well on the margin front this quarter. And looking at some of the unamortized provisions that we carry. So what is the reason that we are not like in the family in something. And so we have not cleared it off, instead of showing the kind of ROI we have done. So just a kind of a solution, and just to understand from you that why we are carrying it still.

[Sanjiv Chadha, executive]

So Ian, would you want to take that?

[Ian De Souza, executive]

Yes. So one is, these are not items which would help strengthen the company from a risk perspective. So if you see, it's not that we have tried to take one-offs and overstate the profit of the company. For example, when we had this large state-owned entity, which was privatized, we released more than INR 2,500 crores of provision in Q3 and Q4 of last year against which we built up our provisioning cover significantly.

Again, in this quarter, we had a significant release from one chemical international account, which got upgraded. In the NPA line, we had a significant release, though we made some provision in the FDM for their corporate bond. So given any large release, we always build up provisions that will counter [indiscernible] help the financial position of the company. So this particular thing is a permitted accounting treatment.

It is more accounting in nature. It doesn't either way, strengthen or diminish the strength of the balance sheet of the form or the financials of the form. So I hope I have answered your question.

[Unknown Analyst]

Got it, sir. Sir, another question was pertaining to notes of accounts #16. So we have delinquency from RF 1 and 2 to an extent of around 16%, 17% in the first half. And we have outstanding of close to around INR 8,400 crores now. So what is the provision just on this number that is outstanding provision on this number?

[Ian De Souza, executive]

We'll come back to you on this exact provision number, but your numbers are right. We have about INR 8,000 crores in RF 1 and 2. And we have NPAs also in that. We'll come back to you on the provision.

[Operator]

The next question is from Anand Dama.

[Anand Dama, analyst]

Am I audible?

[Sanjiv Chadha, executive]

Yes, Anand.

[Anand Dama, analyst]

Yes. So first question is, sir, basically, how much is our LCR? And what is the strategy going forward on the deposit growth front. [indiscernible] it was pretty strong, but we also need to accelerate the deposit growth. And if the rates are going to go up, then basically, your guidance of the 10 basis point margin expansion here on, does it hold good going forward?

[Sanjiv Chadha, executive]

So broadly, again, we believe that it is normal for advances growth to lag deposit growth when the economy is slow and liquidity is abundant and vice versa when the economy is improving, and liquidity is tightening, right? So this is exactly what we see now and to my mind, again, the continuation of this trend for a few quarters is par for the course and should not give us any reason for this [indiscernible].

Having said that, we are focused on deposit growth. And as we saw in the numbers, our deposit growth has been possibly a little better than the system. We'll continue to focus on deposit growth, while being fully conscious that this is a time where disciplined in terms of rates could give disproportionate benefit in terms of impact on the bottom line because to the extent that the repricing of loan stays ahead of deposits.

I think there is profit again, which is likely to accrue. So without, again, in any way compromising our efforts in deposit mobilization, we will want to make sure that any increase in rates is directed in wherever there is a rate elasticity in terms of deposit growth. So I think we'll try to be very intelligent about it, but try to maximize deposit growth. So we are fully conscious of that.

The second point I want to draw your attention to is another figure that in my brief presentation that we have made, that while our overall CD ratio is 80%. When it comes to the domestic book, it is about 73%. So we have some scope in terms of allowing advances go to get a little faster than deposit growth.

[Anand Dama, analyst]

Sir, your LCR number.

[Sanjiv Chadha, executive]

LCR about [ 135%, ] I believe, but Ian, if you can confirm that.

[Ian De Souza, executive]

Yes, [ 135% ].

[Anand Dama, analyst]

Sir, second is that your term is going to end in Jan 2023, but I think you have an option to take an extension. Are you going to exercise that option?

[Sanjiv Chadha, executive]

So I believe that the auction is more with the government than with me. But yes, should that possibility be there? You might probably see me for another quarter or 2.

[Operator]

The next question is from Rahil Shah.

[Unknown Analyst]

Hello Yes, Yes, so this is Abhishek. My question is back to wage revision. I think Ian said 200 to 250 per quarter in a couple of quarters, 3Q, 4Q. But my question is, what is the overall impact? I'm sure it will be amortized over several quarters. So what would be the overall impact? And what is the assumption you will be taking? Is it going to be around 10%, 12%? Or is it likely to be higher, maybe 15%, 16%. So just some clarity around that.

[Ian De Souza, executive]

So to begin with, let me talk about the accounting perspective before Chadha saab comes back in terms of his expectation. So this is not an amortization. This is actually a current period cost. It's just that the wage area amount will be crystallized after negotiation that would stretch over 6 to 12 months.

So at that point, it will be a bad dated payment. So it's going to be areas as of now. It will become [ base areas ] maybe 2 years from now. So at that point, banks would not like to take a hit all at one go. So in a prudential basis, they start making the provisions from now. So there's no amortization involved.

[Unknown Analyst]

Yes. Ian, that I understand. I just wanted to understand the total hit or total provision that you would estimate? Because, of course, when the actual comes, you will make the balance provision, but the overall estimate is what I wanted.

[Ian De Souza, executive]

This is per quarter, right? So basically, if you presume there is no long lengthy negotiation and it all got sorted out in one day. Presuming the wage bill per quarter would go up by INR 250 crores, INR 300 crores, INR 350 crores. So that's the way it is. We are building a kitty that will work that way.

[Debadatta Chand, executive]

Yes. Just to add to what Ian is saying. This is just an estimate. This is not an actual figure. So 12%, 10% is this is what has happened in the past, which negotiations. So we take a cue from that and make a sort of a conservative estimate for 15%.

[Unknown Analyst]

Understood. Understood. My second question is this NARCL, approximately how much would you be selling? And what kind of realization do you expect or provisions?

[Sanjiv Chadha, executive]

So I think last few quarters, I've been saying don't hold your breath. It is of no large significant for us -- so it's -- again, given the nature of our balance sheet and how it has evolved for us, it's not going to be a very large figure. So marginal impact.

[Unknown Analyst]

Okay, sure. And finally, just how much additional liquidity are you carrying and approximately how many quarters until this runs off because that's the space you have from even raising deposit rates, you can hold off on that.

[Sanjiv Chadha, executive]

So Chand saab, would you want to take that?

[Debadatta Chand, executive]

Yes, we do have adequate liquidity, and that would continue. Liquidity is a management. It's not like keeping liquidity for something. It's a management of liquidity and adequate provision. We do have adequate liquidity. And depending upon the loan growth and our resource like the strategy would be according to the book. So absolutely, on liquidity, we run in a very optimized way or a very existent way, right?

[Sanjiv Chadha, executive]

And just again, I think we probably come back to a previous question. I don't believe that this pace of loan growth is something which is likely to be sustained indefinitely. And also, I think in terms of deposit growth, again, I think that's also likely to pick up as rates get revised, right? So I think at some point in time, we find our convergence.

[Operator]

Sir, we will now take some questions from the Q&A chat. The first question is, what is the value standard restructured book and how much repayment of restructured book and [ ECG LS ] book happened this quarter and outlook for restructured book and [ ECGLS ]. What percentage of restructured book is either SMA-1 or SMA-2 and the second question is, what is the outstanding standard loan provision, including standard restructured provision? And the final question is what is the latest outstanding [ ECGLS ].

[Sanjiv Chadha, executive]

So Joydeep, we want to take it. Otherwise, if the detailed questions, we can always, I think, provide answers in writing because it's a bit of a complex information set that is required. But if there's any heads up, you want to give please do that.

[Debadatta Chand, executive]

Joydeep, you want to like to add something.

[Joydeep Roy, executive]

So right now, the standard restructured book, as we had said earlier, was around INR 17,725 and the SMA 1 and 2 there is actually very negligible. So we are -- it's around 0.4% of the total standard advances, as a percent in percentage terms if we look at it, SMA 1 and 2.

So from that perspective, again, it's not very significant. The ECLGS book that we have currently is around, outstanding is INR 10,000. We have sanctioned around INR 16,000 of ECLGS book of which 30 -- around INR 14,000 was dispersed. The current outstanding right now is around INR 10,453 crores.

[Debadatta Chand, executive]

And just to add, the SMA 1 and 2 is very insignificant compared to the outstanding. Very, very insignificant.

[Operator]

Now we take the last question for the evening from Mona Khetan.

[Mona Khetan, analyst]

Just 2 clarifications. If you could share or slippages from the restructured book for each of the last 3 quarters and on the EDLR loans, what is the typical reset period?

[Sanjiv Chadha, executive]

Chand saab, anything?

[Debadatta Chand, executive]

Yes, that the slippage on the restructured is only something around 18% that we have seen for the past average of past couple of quarters, but quarters, we'll provide you in case you require that data. On the EBLR reset, these are all scheme driven. So absolutely, when the scheme due date would be there, it would be set. But the benchmark rate would pass on the moment there is a reported increase happening.

So in case typically, you're looking at repricing, the repricing is happening immediately the time that is a report hike. In the same side, the reset would happen depending upon the scheme that we have announced for different scales.

[Mona Khetan, analyst]

Okay. So it's typically T plus 1.

[Sanjiv Chadha, executive]

Yes

[Operator]

Yes. Ian sir, now we request you to do the vote of thanks, please?

[Ian De Souza, executive]

Yes. Thank you, everyone, and we've had an excellent set of results. As usual, thank you for spending time and has been quite engaging, interacting with all of you. Looking forward to meet you again in the near future. If you have any questions, you can reach out to me or Rakesh [indiscernible] who is on this call for any follow-up questions. Thank you so much.

[Operator]

With this, we announced the end of this quarter's analyst meet. Have a great weekend ahead. Thank you.