Bank of Baroda Ltd

NSE:BANKBARODA

Earnings Call Analysis

Bank of Baroda's Steady Growth and Solid Outlook

Bank of Baroda's earnings call revealed a solid performance with a cumulative nine-month profit at 91% of the previous year's total. The net interest margin (NIM) for Q3 is at a healthy 3.10%, in line with the full-year guidance of around 3.15%. The bank continues to surpass its return on assets (ROA) goal for the sixth consecutive quarter, maintaining levels above 1%, with the latest being 1.20%. Growth for domestic and global advances is strong, at 13.4% and 13.6% respectively, with expectations of 14-16% for the year. Deposits grew by 6.3% and 8.3% with optimism for further enhancement in the coming quarter, backed by new differentiated products. Moreover, the bank reports a slippage ratio improvement at 0.95% for Q3 and asset quality trending positively.

Financial Performance and Projections

The company has reported a consistent net interest margin (NIM) with the third quarter at 3.10% and a nine-month average at 3.14%, aligning with the full-year guidance of 3.15% ± 5 basis points (bps). The return on assets (ROA) stood strong at 1.20%, maintaining the guidance of more than 1%. Growth in advances showed a year-on-year increase of 13.4%, with global advances growing at 13.6%, keeping within the expected 14% to 16% range.

Asset Quality and Credit Costs

The company's slippage ratio was at 0.95% for Q3 and 1.06% for the nine-month period. Credit cost was reported at 0.39% for the quarter and 0.69% for nine months. With regards to gross non-performing assets (GNPA) and net non-performing assets (NPA), positive trends were observed. The bank emphasizes maintaining a tight rein on fresh slippages while optimizing recovery efforts.

Treasury and Commission Income

There was a depreciation provisioning in the treasury book amounting to INR 600 crores. Commission and noninterest income have experienced a dip since the last quarter due to the absence of one-off underwriting business that occurred internationally. After normalizing these figures, a consistent operating profit, in line with previous quarters, is expected, with a forward-looking normalized operating profit exceeding INR 7,000 crores.

Digital Platform and Employee Costs

The bank discussed its digital platform, BOB World, clarifying that it is one of multiple customer acquisition channels, including Tab banking and Branch banking. The bank is in compliance discussions with the Reserve Bank of India (RBI) about a specific restriction and hopes for a swift resolution. The bank is well-provisioned for employee wage revisions, ensuring that costs associated with wage settlements are more than adequately covered.

CASA and Liquidity Management

Due to systemic tight liquidity, the bank experienced low growth in current account savings account (CASA) deposits. The bank has planned INR 7,500 crores in fund-raising for the quarter to support projected credit growth of 14% to 16%.

Restructured Book and Credit Deposit Ratio

A reduction of INR 2,200 crores in the restructured book led to a decrease in related provisionings. The outstanding restructured book is at INR 9,900 crores, and expected to reduce by 15% to 20% over the next two quarters, which would lead to further provisioning reversals. The bank aims to maintain a domestic credit deposit ratio around 80%, while the international exposure, which affects the overall ratio, is being moderated to limit impact.

Earnings Call Transcript 2024-Q3

[Phiroza Choksi, executive]

Good afternoon, everyone, and welcome to Bank of Baroda's Financial Results for the quarter ended 31st December 2023. Thank you for joining us for the analyst meet. We have with us today, our MD and CEO, Shri Debadatta Chand, and he's joined by the bank's Executive Directors and the CFO. We have a short presentation, which will be followed by brief opening remarks by Mr. Chand, and then we will open it up for the Q&A session.

And sir, over to you.

[Debadatta Chand, executive]

Yes. So good afternoon all. Thanks all of you for sparing your time and joining us today. So with me, I'm D. Chand, I'm the MD and CEO. And with me, we have Mr. Ajay K. Khurana, who is a familiar face, and he has been there in the bank for last more than four years, and he looks after our MSME vertical and also the recovery vertical -- importantly, the recovery vertical.

Then also, we have Mr. Lalit Tyagi, who is the Executive Director, looking after the corporate credit and personal banking and treasury. And also Mr. Lal Singh. He is joining for the first time. And the third Executive Director is Mr. Lal Singh. He's looking after the IT, the HR and all platform function, most of the platform function.

So with this, Ian, please make the presentation. And thereafter I'll come with some kind of remarks after that.

[Ian De Souza, executive]

Sure, sir. Can we start the presentation, please?

[Phiroza Choksi, executive]

Just a minute, Ian.

[Ian De Souza, executive]

Good evening, everyone, and I'd like to take you through the key highlights of our results for this quarter. So in terms of Global Advances, we grew our Global Advances a little shy of 14% at 13.6%. Domestic Advances grew at 13.4%. International grew at 14.4%. We have been guiding that International Advances will moderate in terms of growth, and this has started to track from this quarter onwards, where in International Advances have been growing in line with the Domestic Advances. Domestic Advances had grown at a little faster clip in the last quarter, but you will see on the graph on the left hand on the right-hand side that we have moderated our Wholesale Advances from 16% in the last quarter to around 10.2%.

In terms of retail, we continue to grow very strongly and continue to grow at 22%. Agri and MSME also are growing well at a little shy of 13%. Within retail, you will see the education, auto and personal loans are growing strongly, whereas our core retail, which is our home loan secured book is also growing well at a little shy of 16%.

In terms of personal loan, you will see that the growth, as we had guided, has moderated a bit from what we had reported in the last quarter and is now growing sequentially. The sequential growth is also around 8% as against the sequential growth of 16% that we had reported in the September quarter.

Can you go ahead, please? In terms of our deposit franchise, we had called it out in our stock exchange filing that we have degrown bulk deposits. So bulk deposits, excluding CD had come down by around INR 20,000 crores and including CD, bulk deposits have come down by around INR 14,000 crores. If we had taken that bulk deposits -- if we had done bulk deposits to that extent, our growth in total deposits would have been around 9.5%, a little shy of 10%.

In terms of domestic deposits, we grew at little 6.3%. And overall, if you see in the terms of -- as I was calling out earlier, bulk deposits have degrown quarter-on-quarter 6.6%. So this is a NIM accretive measure, we believe, and you will see in a later slide that our NIM has improved sequentially. Domestic CASA as well has grown by around 81 basis points quarter-on-quarter.

Next slide, please. So largely, the key P&L metrics, NII has grown around 10.5% year-on-year on a 9-month basis. Operating profit is up by 22%. Profit after tax is up by 38%. And our return on assets is up by 22 basis points and is tracking well above the 1% guidance that we had given for return on assets.

Can you go ahead, please? The same numbers, if you look at from a quarter lens or year-on-year quarter lens, operating profit, while it may look optically down, if from the same quarter in the previous year, you exclude the reversal of mark-to-market provisions that we have done of around [ INR 750 crores ] you would have a normalized operating profit for Q3 FY '23 of INR 7,482 crores. If you view the normalized operating profit of Q3 FY '23 versus this, there is a gap of around INR 400 crores.

In terms of profit after tax, we are up by 19% and ROA is at 1.2 for the quarter, up by 7 basis points.

Can we go ahead? In terms of yield on advances, essentially, on a sequential quarter base, we've actually improved our yield on advances by around 8 basis points, where our cost catch-up has moderated down to around 4 basis points. We believe that the impact of repricing deposits will be lower going up year and out, unlike the last two quarters where we saw a quick catch-up on repricing of deposits. Our deposit tenure is generally around one year. So we believe the deposits that will be maturing now will already have the deposit hike cost priced in. So we not see sudden catch-up on deposit costs year and out.

In terms of net interest margin, we had guided that it will be around 3.15%, plus or minus 5 basis points. If you see the 9-month figure, it is tracking to that at 3.14%, whereas for the quarter, it has increased by 3 basis points to print at 3.1%.

Can you go ahead, please? In terms of asset quality, the asset quality of the bank continues to strengthen and GNPA has dropped sharply to print at 3.08%. NNPA is at 0.7%. Our provision coverage ratio remains strong, on TWO loans it is close to 94%. In terms of slippage, our slippage guidance has been between 1% to 1.2%. We are well below that at 0.95%.

In terms of the sequential quarter also, which is not mentioned on this page, slippage was higher optically because of one large aviation account, which slipped in that quarter and one large mortgage loan from our overseas territory of around INR 500 crores. So INR 2,200 crores was the slippage in the last quarter just because of these two loans. Otherwise our slippage is normalized, has been tracking well across quarters. Our credit cost has printed at 0.39% for the quarter.

Can you go ahead? Lastly, if you see SMA1 and 2 has been well below the 40 basis points for a long time now. And now it has printed at 0.24% the quarter ended December '23. Thus, this is the CRILC above INR 5 crores SMA1 and 2. So thus indicative of that there is no large buildup of noncurrent loans, which have not yet become an NPA in our book.

In terms of the collection efficiency, it is tracking very well at 99%.

Can you go ahead? In terms of our capitalization position, as you are all aware, there were new RBI norms on risk weighting of loans to NBFC and personal loans, unsecured loans. Taking that impact into account, we've seen our RWS go up, and we have had some [ ding ] on our capital adequacy from 15.3% to 14.72% in the quarter ended as of 31st December. However, CET1 continues to be above 12% -- at 11% and Tier 1 is at 12.67%. However, if you include the profit for the 9-month period and exclude dividend, which we have been playing, net of dividend, the profit would have increased our CET1 to 12.44% and our CRAR will be 16.05%. If you look at our LCR, that is our liquidity coverage ratio, it is comfortable at 133%.

That's all for me in terms of opening remarks. I will now hand it over to our CEO, Mr. Debadatta Chand for his comments.

[Debadatta Chand, executive]

So thanks, Ian. And once again, a very good afternoon to all of you. So I'll make some qualitative remarks with regard to the performance we had. As you know, we had a good quarter for the Q3. The net profit has been at INR 4,579 crore, which is Y-o-Y 18.8% growth. On a 9-month basis, the net profit has been INR 12,902 crores, up by 38%. And with this quarterly profit for last four quarters consecutively, we were posting profit in excess of INR 4,000 crores. And on a run rate scale if I say that the cumulative nine months profit has been almost 91% in the last full year profit.

As we said earlier also, we pursue NIM and ROA as a twin objective to achieve. There have been a lot of discussion last quarter when we announced the Q2 results. So I'm happy also to say that the NIM part, not only we sustained that rather, we have increased the NIM vis-a-vis the last quarter. So the NIM for Q3 has been at 3.10%. And for nine months, it has been at 3.14%. This is exactly in line with the guidance that we had given to the market on the NIM where we said that for the full year, NIM would be 3.15% plus minus 5 bps. So we hold the same guidance for the full year.

And also, I said last time, while discussing on the NIM part, we wanted to slightly moderate on the growth of bulk deposit or the dependency on the bulk deposit that we have done for this quarter. I'm talking about the Q3. At the same time, the international NIM, obviously, the NIM is not at the same level like the domestic NIM. So the growth of the international also being moderated. Now the growth of international also been aligned with our domestic growth. So otherwise, if you take the domestic NIM, which are all at a very good level of 3.23% and nine months 3.27%.

See on the bulk deposit, Ian already highlighted and that we announced also while publishing the unaudited numbers that the reduction in bulk deposits vis-a-vis the Q2 outstanding is almost INR 20,000 crores and something around INR 6,000, we got it, I mean, reprice through a CD route. So the bulk and CD has gone down by INR 14,000 crores. So that's something NIM [ aperitive ] and that is what something we intend to pursue for optimizing with regard to the bulk deposit.

At the same time, as I said, this -- the international growth is also around 15%, which is aligning with the domestic growth. As I said, NIM and ROA, both are twin objective for the bank. The ROA has been pretty well placed at 1.20%. We have the guidance at more than 1%. We continue to hold that guidance. Now for 6 quarters consecutively, we are maintaining ROA in excess of 1.

On the domestic -- on the balance sheet side, on the -- the Domestic Advance, the growth has been 13.4% and Global is at 13.6%. As we said that -- we said with bulk deposit at the same time also setting a bit of low-yielding corporate asset. You would have seen the corporate asset growth is almost at 10% as against 16% growth in the earlier quarter. So I mean, without this, the growth would have been much higher. So we hold to the same guidance of the increase in Advances by the 14% to 16% range. At the same time, deposit has been at 6.3% and 8.3% And normally, what we see in this quarter, that is I'm talking about January, February, March is normally a very productive quarter for all the banks.

And a scenario like that, although we also acknowledge that there is a tight liquidity condition prevailing in the market and systematically also all banks are having a lower growth on the deposit, we are optimistic to optimize on the deposit front. And typically, we would have seen that we, as a bank, we have come out with a large number of differentiated products, both on the saving and also on the current account. If I outline some of them, we have introduced differentiated the saving fund account, which are -- we introduced the last time during the festival time, that is a BOB Lite account, BOB Bro account, BOB Parivar account, BOB Salary account, BOB NRI account on the saving front side.

At the same time, current account a couple of days back, we introduced seven new differentiated products, which are all BOB Lite, BOB Woman Power, BOB Smart, BOB Gold, Rhodium, Platinum Diamond, which are all differentiated products just to need to meet to the customer segments in this market and try to get them by offering some differentiated products or differentiated offer best on their customer profiling. So we hope that the March quarter will be a better quarter in terms of the growth of deposit. In case we have not reduced the bulk deposit, the growth would have been much higher on the deposit front, but again, we are hopeful of optimizing in this quarter.

On the asset quality, we have been as per the guidance which Ian already highlighted. We guided the market for a slippage ratio between 1% to 1.2%. On the credit cost less than 1%. I'm happy to say that already we highlighted, the slippage ratio has been at 0.95% for Q3 and 1.06% for nine months. The credit cost has been at 0.39% at the quarter and 0.69% for nine months. And in terms of GNPA and net NPA also, we have seen the movement on the positive side.

So going forward, the stance of the bank is very clearly to have a tight lease on fresh slippages at the same time optimizing on the recovery efforts. Apart from our normal guidances, we said a couple of things last quarter while talking to all of you. One is, already I highlighted that aligning the International growth in line with the Domestic growth.

Let me again say that we are a unique bank in terms of almost 16% of the book coming out of international exposure. Although the ROE International has been better than that of Domestic, but the NIM is obviously because of the market has been lower than domestic NIM. At the same time also, I said about reducing, I mean, dependency, I mean reducing our dependency on bulk deposit to a large extent, and that also we have done in this quarter.

The third thing, which also we said last time against multiple question is to moderate on the Personal Loan segment. So if you see, as Ian already highlighted, as I guess more than 100% growth Y-o-Y, the growth has gone down to 60% this quarter Y-o-Y. But what importantly is that I announced this measure in last quarter. And the cyclical growth in this quarter, that is Q3 over Q2 has been 8%. And in case I annualize, it would come in the range of 30% to 35%.

So these are few of the thoughts that I thought, let me make a qualitative remarks, and now we are open for questions. Phiroza?

[Operator]

The first question is from Ashok Ajmera.

[Ashok Ajmera, analyst]

Thank you very much by giving me this opportunity. Compliments Chand sir and the entire team of Bank of Baroda. Am I audible?

[Debadatta Chand, executive]

Yes, yes, you're audible. Please go ahead Ajmera sir.

[Ashok Ajmera, analyst]

Sir, a very good set of numbers, especially if you look at the profits and all the asset quality and recoveries as well as slippages control, your credit cost. So compliment for the same. I have some few set of questions based on these results.

Number one is that in the employee cost, can you comment that what is the impact in this quarter, which we had to have because of the increase in the revision in the expected -- I mean, increase from 15% to, I think, 17%. So how much amount or how much hit we have taken in this quarter in the employees cost and why the same is not being reflected if you compare with the last quarter. So this is one on this.

Second, sir, on the operating profit side also. Even though it was explained in the initial notes in presentation, the reversal of MTM provision of INR 750 crores on account. But still -- the operating profit is still, I mean, almost about INR 1,000 crores down as compared to the last quarter. So there definitely would have been some growth in the operating profit with this difference. Where is the difference of another INR 300 crores or INR 400 crores? Is it because of the adding of the -- I mean, because of the gap or because of certain increase in the cost or because I couldn't go through in detail, the every breakup of the cost. So this is my second point.

And sir, my third point is, sir, that you introduced now, we are launching many more new digital products. So are we behind that BOB World episode? Are we totally cleared from Reserve Bank of India and no penalty or no major consequences are there of that, and we are moving away ahead now normally as was before that episode? So this is a few -- just questions and thoughts, sir. If you can just give some color on that.

[Debadatta Chand, executive]

Yes. Let me take the second first and then come to the employee last. As far as operating profit is concerned, I would have seen that the change vis-a-vis on the MTM -- I mean on the investment portfolio, it's almost in excess of INR 500 crores, INR 600 crores now. Because last time, there was a write-back as far as the mark-to-market is concerned, and this time, we have provided a depreciation in the book. So that's a change by INR 600 crores.

Another is if we have looked at the commission and income that is that we have provided under noninterest income, there is a dip there. Our normalized commission and interest income is roughly around INR 700 crores to INR 750 crores. But last quarter, we had some kind of a one-off in terms of few underwriting business we have done in International, giving us a substantial fee out of those transactions, which was not in this quarter. So if you normalize both the things it would match vis-a-vis the operating profit of last quarter and this quarter. And if you compare the year back, the operating MTM change is more than INR 1,000 crores. So it would all normalize into a normalized operating profit in excess of INR 7,000 crores that you are talking of going forward.

On the second, on the BOB World thing, BOB World was a digital platform, so nothing to do with regard to the scheme that we are introducing. Last time also when we interacted, we said that if BOB World is only one of the channels. We have significantly scaled up the other channels for acquiring customers. The other channels can be multiple in terms of Tab banking, Branch banking, multiple channels we do have. So there is no impact in that way. And these are all the schemes where -- which are typically to be sourced at the branch level. So this independent product has nothing to do with regard to BOB World. With regard to the restriction of RBI, we are already on the compliance mode between the regulator and we are the regulated entity -- discussion going on, and I hope that ban is revoked at the earliest.

On the employee cost, we are -- maybe one of the banks where we are adequately provided in terms of the revision of wage and salary. And rather, we have disclosed that we are more than adequately provided in terms of the increase that we are talking vis-a-vis the settlement.

Ian, anything further you want to add on this?

[Ian De Souza, executive]

Yes sir. So Mr. Ajmera, we have taken in the quarter of provision of close to INR 425 crores for the wage areas. And this is tracking in line with the provisions we made in earlier quarters. It is only marginally higher by around INR 50 crores, INR 60 crores. That is why you cannot spot it as huge variation. So we've been providing at a higher level for almost nine months now. So you cannot actually spot it out in the Q-on-Q sequential. So cumulatively, just fair knowledge, as we had disclosed in the [indiscernible] to accounts, we have a cumulative provision of wage areas of INR 745 -- INR 1745 crores.

[Debadatta Chand, executive]

So Ajmera sir, just to again -- because I know you track the treasury quite closely. In terms of the depreciation, as we said earlier also, it run a large FRB book. And although the 10-year GSEG is almost the same level via-a-vis September and December. But the FRB because you have to take the -- what you can say, the market price in terms of valuation, there is a dip there. So because of that the additional depreciation.

[Operator]

[Operator Instructions]. The next question is from Rikin Shah.

[Rikin Shah, analyst]

I had two questions. First one was that the CASA growth for the system in general is weak. And for us, this quarter, we degrew the bulk deposits. Now with the LDRs of 83%, 84% and the CASA problem for the system persisting, so in that context, do you still expect to keep running down the bulk deposits? Or would you be looking to mobilize it going ahead? That's number one.

And second is pertaining to the reversal of the provisions on the standard loans that we are seeing in the P&L in the last two quarters. Why are they reversing? And how long this reversal will continue?

[Debadatta Chand, executive]

So let me address the CASA. This is a systemic considering the tight liquidity, the growth in CASA has been low. In terms of our guidance, if you look at a couple of things that allowed us to slightly degrow on the bulk deposit because last quarter also, I raised almost INR 7,500 crores through the bond route that is infra and also the Tier 2 route.

In the same way, we also -- INR 7,500 crores planned for this quarter. Out of that -- [ INR 5,000 crores ] already we have raised on the infra bond and the pricing would have seen that has been very good. The market has good response vis-a-vis the Bank of Baroda brand.

So it's, again, a mix and match of multiple sources just to support the credit growth. As you are guiding that we'll grow at 14% to 16% credit growth, then to the extent the required amount of liquidity required, whether it is a CASA growth or a bulk deposit growth or some kind of borrowings in the form of bond, these are all the options available.

But the fact that we are conscious of while doing all these that we also -- we discussed last time is the impact on the NIM. So to the extent, we manage both in terms of how do you manage the NIM at the same time, optimize the cost, we'll keep doing. We set dependency on the bulk going forward, just we see the market and also may raise bulk, but at the same time, clearly consists of the fact that the new impact is more important in terms of how do you see the growth in the bulk.

On the standard reversal of provision, what I understand that because the restructured book is going down and there is a reversal happening. Khurana sir, anything further you want to add on this?

[Ajay Khurana, executive]

Yes, sir. This is the same thing because this standard book also contains restructured book. So there is a reduction of INR 2,200 crores in the restructured book. So because of that, this provision has been reduced.

[Rikin Shah, analyst]

Sir, just two follow-ups on the same question. The restructured book if you could quantify what is the outstanding number today? And assuming that this continues to trend down for how many more quarters do we expect a reversal on the standard loans? That's the first follow-up.

And the second one, going back to my first question, Chand sir is, do you -- are you targeting any particular level of credit deposit ratio?

[Debadatta Chand, executive]

Just to address on the credit deposits, we -- earlier also I said, we have a very unique in terms of that may not be true for many of the banks here in India. We have almost 16%, 17% of the exposure coming out of international.

And there are two things that happen in international. One is, your NIM is low at the same time, credit deposit is much higher. So a scenario like that, if you look at my credit deposit on a normalized basis, it is normally higher than any other bank. So if you look at the domestic credit deposit, we are almost trending at 80%, right? So that is something, again, we intend to continue with that level of around 80%. But international, because of that, it goes above 80%. But then we have aligned moderated the international growth. I don't think the impact would come much from that. So there is no specific what you can say, targeting level for the credit deposit ratio, but we like to operate within around 80% level.

On the earlier thing, Khurana sir, can you just take it off on the restructured...

[Ajay Khurana, executive]

Regarding this restructure, present restructure book at this -- now we are around INR 9,900 crores. So every quarter, there is a reduction between 15% to 20%. So this is what we are expecting that this is going to happen, even the next two quarters also. So accordingly, the provision also will be reduced.

[Debadatta Chand, executive]

Just to add one point, while giving, particularly on the asset quality, see, we normally mimic the economy in that way. If you look at the -- currently the economic cycle is in a very good form. So the asset quality concern, I do not see for many quarters now. But all these are guidances basis on how the economic cycle would behave and then accordingly adjusting those guidances then.

[Operator]

The next question is from Mahrukh Adajania.

[Mahrukh Adajania, analyst]

Congratulations.

[Debadatta Chand, executive]

Thank you. Thank you, Mahrukh.

[Mahrukh Adajania, analyst]

Yes. So I have a couple of questions. You did mention about it your...

[Debadatta Chand, executive]

We can't hear you, Mahrukh. Can you repeat your question?

[Mahrukh Adajania, analyst]

Sir, can you hear me now?

[Debadatta Chand, executive]

Now I can hear you. Please go ahead.

[Mahrukh Adajania, analyst]

Yes, sir. Sir, so my question was on deposit. You did mention on your deposit growth that your deposit growth will pick up in the fourth quarter. There was a bulk repayment, et cetera. So that would be true of loan growth as well, right? As in that maybe corporate loan growth picks up a bit and then your sequential loan growth would be higher than what we saw this quarter. It was 2.5% this quarter on a sequential basis. So the same was true of loan growth as well, correct?

[Debadatta Chand, executive]

If I recollect my loan growth guidance has been 14% to 16%, that is what we said earlier. And this time, it is marginally below 14% because of a precise strategy that we talked about. So for -- as far as the Q4 is concerned, we'll operate in the 14% to 16% band. And if the resources are quite strong, then possibly the growth can be high. But all will depend upon how the resources side mapping up.

One thing that clearly we said to the market or to you is that I'm not only dependent on the deposit now. I have the bond route also to strengthen my ALM structure, right? So last quarter, we raised INR 7,500 crores. This quarter, we're going to raise INR 7,000 crores -- already INR 5,000 crores raised. So these are all supporting me in terms of how do I again look at the loan growth. So I think we'll operate within that band of 14% to 16% for the entire loan growth. If you have seen the components of the loan growth also, the retail, MSME and Agri continued to be at the same rate, which was in September. The only -- what you can say, the change thing in the corporate growth. So that's a number which can be aligned very well. So if there is a pickup further in the corporate book, we look at the resources and raise money accordingly, right.

[Mahrukh Adajania, analyst]

Okay, sir. And what do you -- in terms of yield on loans then, do you see a further pickup especially in domestic yields? Of course, international is difficult to predict but do you see margins expanding in the fourth quarter since your deposit...

[Debadatta Chand, executive]

Guidance -- that is what said that full year guidance is 3.15%. So again, the quarter NIM is around 3.10%. So another 5 bps to cover on a quarter and sequentially, I mean for nine months, we are almost at that level.

So two things can I say that in terms of the MCLR book still can be a component in the book, which can be repriced because everything happens with a lag that can be quite a possibility. Secondly, on the NBFC book, because there was RBI guidelines, where there was a higher risk weight. So a bit of resetting happening on the NBFC book. So that can also be upside there.

And I think a very stable outlook in terms of the NIM structure because the cost of deposit already like my entire deposit is now repriced in one year time because the incremental rate, the new rate is only on the incremental deposit, so already one year has been lapsed and the duration of deposits in banks are almost like at one year. So I don't think much of cost pressure coming out of deposit in anywhere. At the same time, a bit of upside is there in the in the income side. So we'll maintain the same guidance and operate within the NIM of 3.15%.

[Operator]

The next question is from Nitin Aggarwal.

[Nitin Aggarwal, analyst]

Congrats on a good set of numbers. So first question is on the fee growth. While other income, I understand is down because of the treasury and the revalue of investments will get effect. But even the fee growth, which has been a focus area for us, and we talked about it in the prior quarters, has been [ running ] bit slow. So how do you see that shaping up in the coming year?

[Debadatta Chand, executive]

Okay. So fee as I said earlier, the bank is focusing very strongly on the -- I outlined a concept called fee and flows. So flows is talking about capturing the cash flow, whether it is a retail customer or a corporate customer, at the same time on the fee side. So you are right on that, actually, the growth has been almost 16% on the fee side on a Y-o-Y basis. We want to optimize that and try to make it more higher. We have instituted some kind of a structural change within the bank in terms of how do you look into particularly the charges, the commission and all those stuff. So going forward, we are going to have a comprehensive look.

In terms of the relationship corporate side, things have started doing well. One small component that may not be -but that is a decision already we have taken because a lot of fee and commission used to come out of the Personal Loan segment. And there, as a strategy, we pull to slightly degrow impacting on the fee or the processing fee side move. So these are small, what you can say, impact as on today, but then bank would -- short term, medium term and long term, continue to focus very strongly on the fee. And our concept of fee and flows, we want to really see that coming into a real what you can say, value for the bank in that way. So we'll continue our focus. I do agree that slightly this quarter has been low against my -- our expected because of a small component of personal loan where we deliberately tried to pull the growth down. Otherwise, it will continue to be strong in that way.

[Operator]

The next question is from Rakesh Kumar.

[Rakesh Kumar, analyst]

So most of the questions have been already asked. Just one question I had that was with respect to this margin again. So in our view, correct us if I am -- if we are wrong, so LDR, domestic LDR is already at 81%. And this quarter, as we also said in the opening remarks that we have ceded a lot of wholesale number and we might have also ceded some of the corporate asset also so that margin can be held up. And there is an increase in the overseas field also -- overseas margin also. So is that because of that we are kind of going slightly slow on that? So what is the headroom here in the margin?

Like -- to my understanding, like we don't have as much as space on the asset competition side. And if we can do anything on the credit composition side, please kindly highlight, just to understand the margin trajectory possibly from here?

[Debadatta Chand, executive]

See as far as -- thanks, Rakesh, for asking this question. As far as margin is concerned, we'll be sticking to the guidance of 3.15-plus minus 5 bps.

In terms of composition on the asset side, all would depend upon, as you have seen also last quarter on the balance number on bulk deposit and the corporate is one key driver in terms of how do I construct the book. But personal loan, we have said that we'll -- because that was a high-margin product, we are slightly moderating that's given at this point of time. So not much I can see a change in composition in any way from the current and all will depend upon how the yield curve or the rate structure start moving off are going down for the next two months. So it's a strategy -- balanced strategy in terms of how do you see a decent growth at the same time maintain the margin for the bank. The cost of liquidity is a key factor while that you have seen that we have done in the last quarter and going to do also in this quarter.

On the cost side, Tyagi sir anything further you want to add based on the market scenario?

[Lalit Tyagi, executive]

So sir, we see that in terms of the RBI stance on the rates and globally also, rates appear to be have [ peaked ] unless and until there is any certain market development on either side. So we feel that going forward rate either should stay for some time and then come down post second or third quarter.

As far as liquidity is concerned, we also think that after some time when the government spending comes to the market, liquidity situation should also improve. So overall, we feel that deposit cost pressure, which is felt now by banks, including us, should get softened out probably from the next quarter onwards. This quarter, probably we may not -- we do not think that much of ease. As far as asset side is concerned, as MD sir has already encapsulated, we also feel that there is a slight upside in terms of the MCLR advising book or some sort of upward movement. However, because the business pressure margins will always remain in pressure on the asset side. So that's why the NIM is going to stay where it is, and we have already said this. And from the next quarter onwards, probably there should be a softening in the -- on the deposit side.

[Debadatta Chand, executive]

So just to add to that, actually, we last time said that margin expansion is not the only objective for the bank we are doing. So we also have a twin objective of both margin and also ROE. So it's a balance in terms of how do you do the trade-off. So to the extent the margin that impacted, then you add the fee income and others to include the ROA. So we'll continue to do that. And the margin is in a very tight spot as far as banks are concerned at this point of time. So I'm also arranging a band of maximum 5 bps upside in that way. So we are still sticking to 3.15% kind of guidance for the current year.

[Rakesh Kumar, analyst]

Thanks. A very elaborate response, sir. Thanks very much. sir. Just one clarification we needed, sir. On the wage revision, what was the assumption that we had as on September '23?

[Debadatta Chand, executive]

Ian, can you take this question?

[Ian De Souza, executive]

So the assumption has been similar. So essentially, from June onwards, we've been providing at 18%. So no change. Only thing we had a small increase in provision in December of around INR 65 crores. But essentially, our assumption has been throughout been the same. In terms of wage areas where we seem to be sufficiently provided, the only thing I'd like to call out since you asked the question, is that there may be some small catch-up on the AS-15, which is the retirements and gratuity payments. But we will see that once the full details of the wage settlement are published probably this quarter.

[Operator]

The next question is from Jai Mundhra.

[Jai Prakash Mundhra, analyst]

Yes. Good evening MD sir, [indiscernible] and CFO. Sir, a small question on term deposits. So in the presentation, we see that we have introduced new retail products -- retail deposit products, which are priced at 7.6%, 7.8%, 7.9% and have a decent tenor also, which is clearly higher than the current outstanding cost of term deposit, right, if one were to assume something. So -- and as you said that you want to focus more on retail term deposit versus bulk deposit side. So this could ideally move the pressure, I mean, this should ideally move the cost of deposits upward for the next -- from next quarter onwards. Is that the right understanding? Because you don't want to focus too much on the bulk, whereas retail term deposits you have hiked the price.

[Debadatta Chand, executive]

A couple of things here. One is that the rate that you're talking about is unloaded rate, right? So loading with the senior citizen and all those stuff. The base rate on those are much lower as compared to the rate you are saying. So the peak rate is always the -- all loading factors and the peak rate and that is how banks do announce in the same way we announced.

The two strategy, clearly, we have done this is that we recently increased the interest rate for buckets below one year the short-term rates. And the moment I'm getting any short-term rates, the cost would be definitely cheaper than the 1-year rate, but higher than the rate we had earlier. So I'm able to reprice those deposits at a lower cost. Our sense is that possibly post May 2024, the liquidity scenario may completely change. And in that scenario, I'm not trying to look in [indiscernible] on a longer term.

The second strategy was that while putting the 360 BOB deposit, which is the flagship deposit scheme now and the base rate of that is 7.10%. So even if we are getting the deposit under that segment, that would be much cheaper than the current bulk rate -- current bulk rate are really at very higher level.

Thirdly, we also in the presentation added two coming soon product on the term deposit. That we'll introduce as early as possible. One is with regard to [indiscernible] linked floating rate deposit for slightly [indiscernible] and institutional customer at the same time coming out of Green deposit because Green deposit is a different segment altogether.

So all the strategy possibility that we are thinking of would optimize the cost structure on the term deposit. There is a big push going on in terms of -- if you see the retail term deposits, the growth has been better than the last quarter. And that is something we want to optimize in this quarter fully rather, we are asking extensively the branches telling that. That's a retail term deposit, CASA, these are the things we need to source considering the very tight liquidity scenario. So it's a mix and match option in terms of how do you optimize, but the idea is to reduce the cost, not to add to the cost, right?

[Operator]

We are taking last question for the evening from M.B. Mahesh. There has been a drop in recovery and upgradation of loans. Could you let us know what is in pipeline from an accounting perspective? How are inter-quarter slippages and recovery or upgradation accounted for retail loans?

The second question is breakup of slippages in retail loan book. What would be the contribution from personal loans within the Retail segment? And thirdly, of the personal loan, is there co-lending also in this portfolio? What is the contribution? And how is it risk shared?

[Debadatta Chand, executive]

So Khurana sir, can you take a couple of them? I'll comment on the last.

[Ajay Khurana, executive]

As far as the drop in recovery is concerned, we are -- as per the target, the target whatever we have fixed for the quarter as well as for the -- till nine months, we have already achieved the targets. And similarly, whatever internal targets are there, those are going to be achieved for -- even for the next quarter also. All the pipelines are there. No, there is no big NCLT recovery in pipeline, but the normal recovery what we have been doing through our franchises to all the branches that we are doing aggressively because this is a very -- last quarter, mostly -- everything gets activated. So this is what we are expecting that the entire recovery is going to happen.

As far as this retail NPAs are concerned, the total, it was around INR 5530 crores which includes co-lending, but there is no NPA in co-lending. NPA in co-lending is zero as of now. And majority, of course, it comes from Personal Loan, a little bit, it is higher than which is normal, the unsecured personal loan remains higher than the home loan or the other auto loan. So -- but still within the overall slippages is 1% in retail. This is what is the status.

[Debadatta Chand, executive]

So just to add to what Khurana sir said, as far as personal loan on the NPA is quite a lower number as on today and if you have the risk-based pricing, we are all covered off in terms of the risk-based pricing. So absolutely no concern at this stage. And our book percentage is a very large extent, our existing customer, so there is no concern. But normally, the regulatory guidance with regard to the risk rate and all we have decided to moderate with regard to the outline last quarter and continue to follow until we come out with a new stance on the personal loan segment.

[Operator]

Thank you, sir. That will be for the evening. Ian, if you can please give the vote of thanks.

[Ian De Souza, executive]

So I'd like to thank everyone for engaging with us this evening, and it's been a very constructive and engaging conversation. Look forward to seeing you in the following quarter. Thank you very much.

[Debadatta Chand, executive]

Thank you. Thank you all. Thanks for joining. Thank you. Thank you very much.