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Bank of India Ltd
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Good evening, and welcome to Bank of India's Quarter 1 FY '24 Conference Call. I would like to thank all of you for taking out time and joining us today. We have with us Shri Rajneesh Karnatak, MD and CEO; Shri PR Rajagopal, Executive Director; Shri Swarup Dasgupta, Executive Director; Shri M. Karthikeyan, Executive Director; Shri Subrat Kumar, Executive Director; and other top management team representatives from Bank of India.
[Operator Instructions] I would now Shri Rajneesh Karnatak to address this gathering. Thank you, and over to you, sir.
Yes. Thank you so much. Good afternoon to all the members of the -- all the analysts present over here, ladies and gentlemen. I extend a very warm welcome to each one of you for today's interaction and share with you the financial results of Bank of India for Q1 '23-'24.
Global economy has shown resilience and is recovering slowly led by the services sector amid persisting challenges and widening divergences among the economic sectors and regions. The tighter financial conditions and office monetary policy stance and well manufacturing and investment has stalled global growth momentum. Though the global headline inflation has moderated, but the core inflation is still stubborn and hurting the economy. The global economic weakness is also reflected in the trade forecast of IMF, and expectation of decline in growth in world trade volumes from 5.2% in 2022 to 2% in 2023.
IMF in its latest world economic outlook in July has projected a decline in global output growth rate from an estimated 3.5% in 2022 to 3% in both 2023 and '24. The emerging markets and developing economies are expected to grow at a better rate. That is 4% in 2023 and 4.1% in 2024. Global headline inflation is expected to fall from 8.7% in 2022 to 6.8% in 2023 and then further 5.2% in 2024. Despite potential headwinds from weak global macroeconomic conditions, Indian economy is poised to be the fastest-growing major economy in the world. Several high-frequency indicators wind towards a strong rebound in the industry sector. There has been a pickup in capital formation in the economy due to significant increase in production of capital goods and infrastructure and construction goods.
The economy is having a twin balance sheet advantage with a strong balance sheets of both banks and corporate sectors. The GDP growth rate of FY '23 has been estimated at 6.5% by the RBI on account of high capacity utilization, strong growth in services sector growing, manufacturing sector and high growth in agriculture sector. There has been a comfortable forest reserve. Headline inflation is also within target tolerance levels of 4.8% in June '23.
I am happy to announce that the bank's net profit for Q1 '24 stood at INR 1,551 crores, up by 176% year-on-year from INR 561 crores in Q1 FY '23. There has been an improvement in NIM by 49 basis points from 2.54% in Q1 FY '23 to 3.03% in Q1 FY '24. Domestic NIM also improved by 51 basis points from 2.87% in Q1 '23 to 3.37% in Q1 FY '24. Asset quality improved and reduction in gross NPA, both amount-wise and percentage-wise. The gross NPA was brought down to 6.67% in June '23 from 9.30% in June '22 and net NPA to 1.65% in June '23 to 2.21% in June '22. Slippage ratio improved from 0.69% in Q1 FY '23 to 0.53% in Q1 FY '24. During the quarter, the bank has expanded its global credit growth to 8.48% year-on-year with increase in RAM at advance share to 55% with expected credit growth of 11% to 12% during the current year.
To enhance yield on advances and NIM, the bank continues to align its asset growth in high-yielding sector areas with focus on RAM advances and mid-corporate advances. With the bank's continuous drive for managing asset quality, we expect gross NPA ratio to be contained below 6% and credit cost between 60 basis points to 70 basis points. We aim to maintain NIM above 3%, thus ensuring a sustainable growth in profit. I would also, again, thank you for all your continued support. And now the floor is open for discussion and question and answer.
[Operator Instructions] The first question is from the line of Mr. Ashok Ajmera.
We will move to the next participant and we'll take back so back in line. Next in line, we have Mr. Ajay.
Sir, I have one question on the -- on NIM. Typically, we have saw an increase in our net interest income Q-o-Q base, but our NIM has dropped in the same period. So any reason for that, sir?
Can you repeat the question? Actually, your voice is breaking Ajay.
Sir, NII has increased on absolute basis on quarter-on-quarter, but our NIM is down during the same period. So any reason for that?
Yes. You are right that NII has improved, net interest income, which was INR 4,072 crores in Q1 FY '23 has improved to INR 5,914 crores in Q1 FY '24. There is an healthy increase of 45%. However, our NIM has been, this one at 3.03% in June. But if you see the Q1 number FY '23, it has improved from 2.55% to 3.03%. This is the improvement, which is there as far as NIM is concerned. So otherwise, the NIM was for entire financial year is about 3.01%. So in that way, the NIM has been protected by us. And for the guidance sake also the NIM will be protected at 3.03% at this level only for this financial year 2024.
Sir, I'm Ashmira here. Earlier I was not permitted to un-mute. Now I have been unmuted can you hear me?
Ashok sir, allow us a minute, please. We'll complete the Q&A with Ajay sir, and then move to you. Ajay sir, you may continue.
Yes, yes. Sir, any interest we earned during the quarter from income tax refund.
Yes [indiscernible] 472 we got income tax refund.
How much sir? Please that number..
So this was our CFO, Mr. Kumar, who was responding to the question and just one more clarification, Ajay, on the NIM side. If you see our domestic NIM that we have given in the presentation also. So our domestic NIM has improved to 3.37% in Q1 '24 as against 2.87% in Q1 FY '23. This is -- and the overall NIM has come down because there was some stress in the NIM, which was there in the overseas NIM, though it has improved from 0.97% in Q1 '23 to 1.36%, though the expansion has not been much because of the overall stress in the overseas book because of the hardening of rates in the European and the American markets. So otherwise, overall, the NIM is the quite healthy at 3.03% in Q1.
Okay. Okay. And sir, one thing on the ECL guidelines, suppose RBI implementing on full swing ECL guidelines, then what would be the position of CET1 and overall CRAR by this Q1? And in order to improve the position of CET1, when we look to or take a critical sales like fund raise by equity or any other means to support the impact of [indiscernible].
Yes. So as far as our capital adequacy is concerned, Ajay, we have a very healthy CRAR, which is at 15.6% presently. Our CRAR is a healthy number. Out of which the Tier 2 is 1.8 and Tier 1 is 13.8% overall at 15.6%. So as far as raising of capital is concerned, our Board has already approved raising of capital of INR 6,500 crores in this financial year, out of which Tier 1 will be around INR 4,500 crores, and Tier 2 will be INR 2,000 crores. As far as Tier 1 is concerned, for the capital part, we will be looking at an opportunity timing of the market to come out with our, whatever QIP or whatever we decide. But our 81 bonds will be coming in the next 3 to 4 months. This is what we have decided.
As far as the ECL is concerned, see, ECL is a draft guideline, which has been circulated by Reserve Bank of India presently to all the banks, Federal Commercial Banks. So we are also ceased with those guidelines. And this back paper calculations have been done by all the banks, including us also. So we are awaiting the final guidelines from Reserve Bank of India. And they are cognizant with the issue that once the ECL kicks in and if they do not provide any dispensation to the bank, there will be some issue with as far as the CRAR is concerned for all the banks. So let us wait for the RBI guidelines to come out and then we can give you a clarity on what the numbers would be.
May I come in?
Yes, Ajmera, you can go ahead.
Sir, compliments to you, sir. You are fully now settled here because last time, I think when the last meeting, you had just joined as a manager -- MD and CEO. Sir, compliment for the fantastic performance. If you look at the operating profit, in fact, it is looking lower than last quarter in numbers. But if you remove the one-off component of last year's INR 1,000 -- last quarter's INR 1,614 crore for SR classified to NPI then your operating profit has gone up by almost above INR 1,200 crores in this quarter.
Now this INR 1,200 crores, how it went up in just one quarter so high. So it is because the employee cost has gone down by INR 610 crores in this quarter. And the overall expenditure has gone by INR 200 crores and the net interest, INR 400 crore benefit so total this INR 1,200 crore additional has come. So my question, sir, and my brother -- I would like to seek a guidance, like your -- just thing that whether this trend of INR 3,752 crores operating profit will continue with some more growth and whether the employee cost will remain down to INR 2,227-or-some-odd crores with some minor increase, and the expenditure also will be on control because your operating profit is much higher than the last quarter, if that one-off item is taken off.
Yes. Ajmera, as far as our operating profit is concerned, you will see that in Q1 FY '23, our operating profit was INR 2,183 crores. So, for the Q4 quarter for FY '23, it has shot up to INR 4,184 crores because of the one single item of INR 1,646 crores, which pertain to the SR provisions and the classification to NPA. So if you net it off, remove that item from there, our operating profit still was INR 2,538 crores in Q4 quarter.
Yes sir, that's what I'm seeing.
So now it has improved to INR 3,752 crores. The backdrop of which is, as you are -- you can clearly see our interest income year-on-year basis. Now it has such total interest income INR 14,359 crore. If you closely see our numbers. The growth in the interest income of the bank alone has been 44% year-on-year basis. If you see the interest expenses, bank interest expenses have touched INR 8,455 crores, and the year-on-year growth is 43%, the NII, which is there. We have put it at INR 5,914 crores with a growth of 45%. And other income has grown by 27% to INR 1,462 crores. And operating expenses, as you know, they have grown by only 19% as you rightly said. And because of which our operating profit would finally make it to a figure of INR 3,752 crores, but we are very sure and confident that our operating profit will continue to grow, and we are giving a guidance of having an operating profit growth of around 30% year-on-year basis in March '24 numbers.
So I mean here also, we can go almost up to, say, INR 4,500 crores to INR 5,000 crores per quarter in the next 3 quarters?
No, I would not say in that manner. See, if you see our operating profit, it was INR 13,393 crores. So on that, if you take a markup of 30%, that is the guidance we are giving for the market for March '24 operating profit.
Looks a little conservative. But anyway, sir, in your major announcement as a policy thing when you came in the last meeting, you said we have a -- we are developing a concept of town hall meeting with the staff and the thing. And then simultaneously, we are also going to have a lot of customer deliberation, customer needs and this things. So whether those things have come in place and have started yielding the results. And what is the road map for that, sir?
Yes, Ajmera. So that we have already started to just give you a sense, myself as MD we are -- I'm also moving into the market, and we have 13 NBGs, which are handed by the field general managers. Out of that, 5 customer meet and townhall meeting I have already done. Out of the 13 NBGs, which are there Pan-India. Apart from that, the 4 executive directors with us in Bank of India, all the CPMs at head office, all the general managers at head office, they have also been assigned bargaining role for the NBGs and the zonal offices, which are our [indiscernible]. So they have also started moving into the field. So presently, there is no NBG or zonal office, which is left unturned by the top executives at head office during the last 3 months.
We have visited all the zones. We have visited all the NBGs. We are conducting customer needs. We are conducting town hall meetings and the results are already showing. We have a pipeline in corporate credit of nearly INR 40,000 crores, as I told them, the channels also today. And as far as the fresh sanctions are concerned during this financial year from 1st April onwards, we have sanctioned fresh and announcement to the tune of nearly INR 30,000 crores as we speak.
So definitely, there is a lot of attraction even in the RAMP sector whether there is retail MSME agriculture, MSME [indiscernible] also has started picking up. Once our numbers come for September '23, definitely, you will see them play out in the balance sheet.
Sir, my one question is on the investment. The profit on the sale of investment has come down drastically INR 297 crores as compared to the last quarter of INR 1,700 crores. And overall treasury, if you see segment-wise also has come down a little bit by about INR 200 crores. So on the treasury front, how are we placed in -- what is the status of our AFS book with the modified duration? And how do we plan to reap the benefits now in the treasury going forward?
Yes. Ajmera, our treasury had. Mr. Sasidharan will be responding to this.
Sir. The figures which you talked about the treasury income from INR 1,717 for Q4 of FY '23 and it has moved to INR 297 crores. And if you see the [indiscernible] below it, there is INR 1,646 crores, which has accrued on account of provision of shifting of security receipts which has been classified as NPA, which was standard as it earlier. So taking [indiscernible] I think the profits are in line with what has been -- it is slightly more than what has been achieved last year.
Now coming to the specific question as to how we are placed with respect to the market dynamics. I would like to say that as on March 31, '23, the modification of our portfolio of SLR was 1.2, which has moved to 2.3. If you see the non-SLR investment, this is Slide #14. The AFS duration has moved from 2.77% to 2.67%. Totally, the portfolio size also has gone up from INR 44,669 to INR 47,616. The total AFS modified duration for us is 2.40 percentage and we are sitting at a PV01 of 11. And we expect that the interest rates have near the peak or it has more or less peaked out, one would say. But the only thing is that we are waiting for the Fed and others to come out with their actions.
The expectation is that the higher for longer as far as Indian markets are concerned, the repo rates will be staying here at around 6.50%. And the [indiscernible] we are well placed in terms of MTM. We don't have any MTM as far as SLR securities are concerned. And as things move down, we expect there's going to be good gains on the treasury book.
Sir, last question in this round on tax angle. On the taxation, our provision is INR 1,370 crores on a profit of INR 3,000 crores, which is comparatively seems to be very high. And at the same time, just to bring in that in other income, we have got interest on the income tax of INR 471 crores. So on the tax front, what is the tax calculation for the entire year because it's just one quarter, it's still we are providing INR 1,376 crores. So what is the DTA effect? And what is the MAT effect has been taken into it?
Ashok, our CFO, will be responding to this.
Sir, actually, you have correctly pointed out that our tax rate has been high when compared to 35% normal thing. Actually, the banks make provision for tax based on the overall estimated profit to the bank during the year. It is estimated during the beginning of the year and it has been better on a quarter on basis. And now this time, what you have taken your call is that due to higher allowable reduction in tax position, there is a tax loss due to which the bank is not able to claim credit for the taxes paid abroad. According to the bank has chosen not to create the DTA on the tax losses, sir, as a result of the effective tax rate higher to that extent. So otherwise, we will be since it is calculated at the beginning of the year, so we'll be tuning out when coming to this thing. But our tax flow rate is, as of now, it is only 35 percentage that will be averaged out during the course of the year. And coming to your point, yes, there is INR 472 crores, we got interest from income tax refund. That is already booked in our income also.
This is just one-off income. I mean, once in a year...
Yes. Correct. Correct.
So sir, this tax, whether the provision on the standard effect [indiscernible] in some of the provisions domestically as you said about global. Some domestic provisions are also not allowed. So how much that component is there in that?
So it is not that overall we will take for the year as a whole and we estimate it, maybe going at quarters maybe we can be able to give you in detail.
No problem sir. These were some of my questions in this round. If time permits, I'll come back again. Thank you sir.
Next in line, we have Mr. Chintan Shah. We will come back to Chintan.
Next, we see is Mr. Suraj Das.
Sir, again, on the question is on the income tax refund. So I mean your NIM, if I see on the reported basis, it has declined only by 12 basis points. But if I exclude this income tax refund of INR 471 crores, INR 472 crores. Then I mean roughly, I mean, I think it has something like 20 basis point, 25 basis point impact on the NIM. So the NIMs, I mean, if I exclude these then the NIMs have fallen more sharply on a Q-o-Q basis, while if I see the other PSU bank, then they have reported broadly stable kind of NIMs on a Q-o-Q basis.
So just wanted to know your view on the core NIMs going ahead in coming quarters as well as for FY '24 perspective. And the consequent question would be, you have given in a presentation that 1/3 of the book is roughly MCLR linked. So I mean how much of that book has already repriced or -- and how much is yet to be repriced? Or do you find any challenge in rate as on the MCLR side in the corporate book? That is my first question.
As far as the impact of this income tax refund on the NIM is concerned, let me explain again see our NIM is 3.03% as on Q1 FY '23, and it has improved from 2.54%, which was there in Q1 FY '23. So it has improved definitely from 2.54% to 3.03%. However, the overall for Q4 -- Q1 FY '23 was 3.01%, but if you break up the NIM, our domestic NIM has closed at 3.37% as against 2.87% in Q1 FY '23. And overseas NIM also has improved from 0.97% to 1.36%. But if you factor in that income tax refund, definitely, there will be some erosion of that NIM. But nonetheless, overall, it is protected. And as far as Bank of India is concerned, our guidance is that the NIM will get led be protected in FY '24 also, and we will be above 3% in FY '24.
So basically, I mean, if I see the poor NIM this quarter, it will be something around 2.8%, 2.9%, if I exclude this income tax refund, so that you were saying that probably 3% would be your protected NIM for the FY '24 level. I mean, which seems like, in the next couple of quarters, there will be a rise in the poor NIM part.
And on the MCLR side, sir, how much of that...
MCLR, I will be responding. Just the CFO would clarify much further to you.
With regard to the NIM, just I want to clarify that you are not taken that the income tax refund when you are computing that 3.03 whatever the NIM whether it is domestic NIM when you worked out. If you add that on our NIM is additional 20 bps our global NIM and our domestic will be additional 20 bps. So we are not taken that the income tax refund when you are working out for the NIM is concerned. Otherwise, our NIM is around 3.23% exact globally, if we take that one just for clarification.
So on the second part, regarding the MCLR, so if you see our breakup of advances, only 6% of our advances are fixed rate. So 94% of our total loan book is floating which is either MCLR or EBLR link, which is RBLR also as per RBI guidelines, wherein we give it to MSMEs and retail loans and some corporate book is on the EBLR side, which is linked to the repo side. And others are base rate the old ones, which also get repriced. So MCLR, as far as the credit cost is concerned and the yield on advances are concerned, not much pressure will be there because as per the RBI circular, we are resetting our MCLR also on a regular basis, else marginal cost of funds also increased. So last time also we had increased our MCLR by 5 basis points last month. And this month also, we will be increasing the MCLR by another 5 basis points post the ALCO meeting. So ALCO meeting has already happened. So we'll be announcing that also.
Okay. And most of the MCLR book has already been replaced, would there be a clear assumption?
So as far as the MCLR is concerned, 47% of our MCLR book has already been repriced. The remaining 53% will get repriced in the next 4 to 5 months.
Now moving on to the second, so you can look at the staff cost on a Q-o-Q basically has declined. So just wanted to check if there is any -- have you done any kind of retiral provision reversal or there is something else that is what you wanted to check?
It is only a minor reduction only. There's not a major reduction. It is only minor reduction. So it is a course of credit certainty provisions, addition deletion only. There is not much of anything. Whatever we are providing, family pension, if you see clearly, we are given clearly in your notes [indiscernible] also as against to our INR 32 crores, we have provided INR 50 crores. As well as we are also providing for rate revision around INR 186 crores. These are all provisions that are continuing. And this is only an additional some our other expenses, which we have come during year-ending time, which may not be happen during the quarter any time. That may be you will be seeing some aberration.
Yes, sir. Okay. Understood. And sir, last question would be, sir, on Slide 18, you have shown for 1Q FY '23 year yield on advances is 6.5%, yield on investment is 6.4%, but the overall yield on fund is 5.46%. Just wanted to check this 5.46%. Is there any printing error or am I missing something else?
Talking about Q1 FY '23?
That is right.
No. Now it is specifically 7.34% sir. Q1 FY '24 our yield on funds is 7.34%. Slide #18.
So I'm asking about the Q1 FY '23, yield on fund is printed here is 5.46% while your advances yield is 6.5% and investment is 6.4%.
Yes, clarification on this point...
So this 5.46% number is correct. I just wanted to check?
Yes, correct. That is correct, sir. That is correct.
Over to you, Mr. Chintan.
Two, three questions from my end. Sir, firstly, we had a strong deposit growth during the quarter of roughly 4% as odd Q-o-Q. So is there any strategic changes behind it which led to this growth in this competitive scenario? Just one thing on that. And secondly, relating to that, we have also seen a dip of roughly 27% Q-o-Q in the borrowing. So is it the strategy of, say, raising deposits and offloading the high-cost borrowings? Is it something like that? If you could just highlight on that, first check on that.
Chintan. You rightly noticed that there has been an improvement in as far as our detailed deposits and overall deposit is concerned. Just to give you a sense, Bank of India has a very strong franchise. And we have 5,200 branches. We have nearly INR 11 crores of customer base against which we have a very strong 44% of CASA base. And our Casa, which has grown and touched a INR 260,000 crores in June '23 as against INR 242,000 crores as on June '22. So the growth in CASA has been INR 18,000 crores in the Y-o-Y. So that has been a very good number as far as the CASA is concerned. If you see further the liability side of the book. So only 12% of our total liability is bulk liabilities, bulk deposit. The remaining 88% liability is retail term deposits and CASA. So that is the strength of the bank and this is what we are riding on. And this is what we are trying to enforce to our franchisee. A lot of initiatives have been taken by the bank for improvement in customer service and delivery of the product.
That is now resulting in better numbers for the bank. And as you said that for the deposit and the borrowing side, reduction in the borrowing that has been a conscious call by the management to reduce the borrowing and optimize the overall returns.
Sure, sir. So I think we had a deposit growth guidance of 10 percentage for FY '24 as per the last analyst call. So would we like to up the guidance on deposit and advance growth? Or would we continue with the current guidance?
So, Chintan, our guidance for March '24 for both deposit and advances remains the same, which has been said in earlier. So deposits will be growing at around 10% to 11% and for credit, 11% to 12% for March '24.
Sure sir. And sir, if I'm not wrong, just one thing to clarify on the margins part. I think earlier, we had a guidance of roughly around 3.1 percentage on margin. So now it is or more than 3% FY '24, right?
No, it was always 3 plus. So presently, like we have shown a 3.03, we are saying that our margin NIMs will be protected.
Okay. Sure sir. And sir, have you mentioned any guidance? The guidance on this ROM cost-to-income also remains same right? ROA 0.75 and cost-to-income of around 47%.
Yes, that guidance remains the same. So cost-to-income and which was the other one you are saying?
ROA guidance 2.75%.
Yes, ROA.
Okay. And also sir, in terms of -- if you could just help me with the book breakup in terms of fixed and floating and how much would be MCLR linked and then EBLR linked? That would be helpful.
Yes, there is a slide we have. That is Slide #12. To give you a sense, our RBLR is 42%, out of which separate credit EBLR is 16%. MCLR is 35%, fixed rate is 6.31%. BPLR, which is very small, insignificant at 0.23% and others is 9.81% and base rate is 6.26%. This is how our loan book is broken up. So floating is 93% and fixed is 6%.
Sure, sir. So I actually missed that slide. And sir, on the deposit costs, so accordingly, this quarter, we had a deposit cost size of 31 bps Q-o-Q. So -- but this kind of should be this -- the magnitude now should slow down from here on, right? Since now already, we have grown 4% and we are guiding for a 10%, 11% deposit growth. So the cost -- deposit cost would kind of more or less peak around in Q2 also -- can that be assumed?
Yes, there will be some uptick in the deposit cost, but it will peak in the next coming 1 or 2 quarters as you rightly said.
And sir, one thing, just to clarify on the tax regime. So currently, we are on the old tax regime, if I'm not wrong. And is there any view on when are we shifting to the new tax regime? Or would we be comfortable with the old only as of now?
Yes. So our CRO is taking -- CFO is taking the question.
Sir, at present, we don't have any plans to migrate to new tax regime, but, however, we'll taking a call at appropriate time, sir.
Next in line, we have Mr. Sushil Choksey.
Congratulations for very stable and good numbers and very positive guidance which you have given. What would be our CD ratio and credit costs FY '24?
Yes, Sushil. As far as the CD ratio is concerned, so presently, our CD ratio is 74.41%. If we knock off the CRR and SLR which is required as per the regulatory guidelines, we can go as up high as 77.5%. So with the growth of 10%, which we are saying for deposit and guidance of 12%, 11% to 12% for credit. We are anticipating our CD ratio should be around 76%, 77%, around 76%, 77% for March '24.
And credit costs, which we have been at 0.75 and 0.79 for last 2 years and 0.67 for current quarter. Will it be lower than that or will you maintain here?
Yes. See, our credit cost has improved significantly from 1.21% in Q1 FY '23 to now 0.64% in Q1 this year. So -- but we are in the guidance, we are giving a guidance of 60 to 70 basis points only. In this range, only the credit cost would be there.
That's an excellent number. Related to that, your guidance on Q1, you've achieved 14.9% on ROE and ROA 0.7%. Will you improve from here? Or will it be remaining stable here?
So definitely, it will improve. So already, we have touched the ROA of 0.71% and return on equity of 14.90%. So definitely, we would be improving on this number for March '24.
Sir, very, very clearly visible that Bank of India is coming out of slumber or consolidation, whatever word you want to use in the last 2, 3 years or maybe a little more longer. What kind of business mix would you see? Are you likely to see that these numbers would beat your guidance kind thing is? How much of public sector and private sector are we holding in our books where credit is concerned? Can you break up that divide?
Yes. So as far as the book is concerned, so we have taken a conscious call than in FY '24, our loan book would look like 55% of that would be in RAMP and 45% of that would be in corporate. As far as the granularity of that is concerned in this year number presentation, you must have seen our state government advances, they have gone down by 15% year-on-year basis, and that is a conscious decision we have taken. So we want to build our RAMP book, which is agriculture, retail and MSME book. And also on the corporate side, it will be a balanced growth wherein we will be giving to infrastructure. And to industry also, there is an industry in the textile, there is iron and steel is there. There is food processing is there.
There is pharma is there, and traders are also there and export is also there. So the growth would also be totally balanced as far as the corporate book is also concerned. So we have robust 10 large corporate branches, and we are also planning to restart our mid-corporate branches with 18 new mid-corporate branches will be opened up this quarter subject to the approval of the committee that also we are trying to do. So the trust will be on mid-corporate advances, INR 50 crores to INR 200 crores and also large corporate advances from the 10 existing large corporate branches.
Another thing which I would like to say Sushil over here is that we are trying to give corporate advances where we are finding some commercial sense. This is what we are trying to do. And our main thrust is improving the net interest income, the net interest margin. Finally, the operating profit and the net profit and also reducing the cost-to-income ratio.
So overall, it is -- the package is for improving the profitability, improving productivity and operational efficiency in the system.
Sir, any outlook on international book. And one question to Mr. Rajagopal on digital spend. He's been answering that question for the last 4, 6 quarters. So I would like to hear his voice on the same. International book first if you can.
Yes, yes. So international book, we presently Sushil, our international book is 16% of the total global book. And we -- and our guidance is that it will continue to be maintained in spite of the headwinds the global economy is facing, especially in the U.S.A., Europe and other parts, with the rising interest rate by Fed and other central banks. So in spite of that, we continue to give the guidance of 16% of our total book will be the international book.
Yes. And the last was on digital?
Digital, we have spent around INR 800 crores Sushil. And business also generated as good as that, and then we'll actually roll out by the end of this year. All the end-to-end journeys have been rolled out already 2 -- 3 journeys have been rolled out end to end and the remaining, we are planning actually 20 journeys. We'll do it by end of this month. We would like to take it to a good number next year, at least.
Yes. Just to supplement our ED, Rajagopal, Sushil, I would like to just say that recently, we have hired a CTO from outside. So he has already joined the bank. So he will be strengthening the hands of our CGM IT, Mr. [ Sushil Badeji ]. So that will also help the bank in transformation of the IT and digital journeys as Rajagopal has already said that some of the journeys we have already started. And in the next 2 quarters, like in the next 6 months, we will be starting the KCC journey above INR 1.6 lakh then Kisan Vahaan we are starting. The KCC renewal we will be starting. Agrifood agro will be starting. Loan against FDR, preapproved personal loan, we'll be starting home loans, top-up loan, working capital above INR 10 lakhs also and up to INR 2 crores that also through digital, we'll be starting, working capital review and also preapproved business loans. All these journeys will be starting in the next 6 months for the bank.
So once all these things are scale up, definitely, the digital book of the bank will also start growing.
Sir, my last reply to all your positive guidance is please do not consider QIP at current market prices. There is good news for AT1 bonds, which I've just shared and possibly your guidance will lead to a betterment. So please consider a rights issue to existing shareholder over a QIP, if you're doing it in the next 2 quarters.
Noted.
Next in line, we have Mr. Jai Mundhra.
Sir, my question is on your guidance [indiscernible] operating profit -- on your operating profit. So you said [indiscernible] growth and stable margins then you said...
Jai, your voice is breaking. You are not audible...
Is this better, sir, now? Sure, I was asking on the operating profit guidance that you shared of around 30% Y-o-Y. Now if you see the component individually, you're seeing loan growth of 11%, 12%, stable margins Y-o-Y. And then staff cost ideally -- at this point of time, we are in the [indiscernible] has been lower. So retirement liability will be a bit higher. And then you have the wage revision, which was there only for 5 months. This year, it will be about 12 months full. So how are you projecting that 30% growth that looks -- I mean, if you can elaborate that.
Yes, rightly said, Jai, you have -- but one thing which you have not taken into account is our NPA book. That is the gold mine with the bank. So there is where we are trying to get some recoveries, good recoveries through OTAs and other kinds of tools which are available as per the RBI guidelines. So if you see 90% already, we have achieved our provision coverage ratio. So most of the assets, majority of the NPA book is already provided. So whatever the 10% left is the recent NPS, which will be provided as per the hedging for the IRA guidelines.
So we want to go aggressively for the recovery, both on the OTA side and also on the other settlement side. So once that happens, so definitely some profit will be coming to the bank and operating profit will be protected because of that.
No, so I agree -- that operating profit should be protected, maybe it will grow at 10% in line with the advances growth. But for it to grow at 30% is the question, sir. Full year, last year, our recovery in write-off account has been the lowest within all PSU bank. We had INR 100 crores, INR 66 crores, INR 183 crores. So what can change so dramatically that operating profit increases by 30%?
Yes. If you see our NPA book and see this total slippage and other things, so last year, we had a total -- in the entire year, we had a total reduction of INR 15,888 crores, right? Against which total addition in the NPAs of INR 7,900 crores. So this year, we are targeting to keep this total addition in NPA at the level of INR 8,000 crores only. And we are targeting a cash recovery and upgradation of INR 12,000 crores apart from the write-off, which will happen. So there, the numbers will be coming and there the difference will be there and the profit will be coming over there. The additional top-up will be coming from there. Already, we have -- we are going to the Board for some schemes -- OTS scheme, very aggressive OTS scheme. So presently, there was no OTS scheme for return of accounts. Let me tell you, 2 strategies are there apart from the other things which we are doing. So there was no OTS scheme for the return of accounts. For that also, we are going to the Board shortly for a special OTS scheme in return of accounts.
There, the entire money which is recovered will be going to the profit. Apart from that, what we are doing is that the other 2 schemes also will be pushing hard for the recovery and the OTS. That will help us reduce the numbers. And finally, also, we have also opened now zonal collection centers at all the 89 zonal offices which will help us reducing the SMA and fresh slippages. So that will also help us reducing the overall slippages and the overall gross NPA number.
Right. So sir, this INR 12,000 crores of recovery and upgrade that you said is comparable to INR 7,000 crores that we did last year, right? The INR 7,000 crore plus INR 1,000 crores of recovery in write-off accounts. So INR 8,000 crores like-for-like number that you are saying that it should increase sharply, right, because of new schemes that you will be launching.
So another thing that we have done, just to keep you more updated is that we have shifted all our large accounts, NPA accounts, substandard accounts to the ARB. So presently, all INR 50 lakh and above accounts the entire pan-India, we have shifted to our ARB branches. From there, only all these accounts will be monitored. Earlier, what was happening, Jai was that these large accounts, even NCLT accounts and corporate NPAs were parked in the large corporate branches and other big branches, AGM branches. Now they all have been shifted at these ARB branches, which are dedicated NPA branches. All INR 50 lakh an account book will be there. And another 18 ARB branches we are opening shortly in the next 6 months. So with this kind of a strategy, there will be a lot of pressure and focus from the top management side right from the all-time directors to the CGMs and GMs on the recovery. And with this recovery, definitely the operating profit and the overall profitability should improve for the bank.
As you rightly said, there will be a lot of pressure on the margins. As far as the NIM is concerned and also as far as the treasury income is concerned. So the differentiator, [indiscernible] the NPA account. And if you are able to crack that for this financial year, definitely, the operating profit, which we are giving a guidance will not be far away.
Right. Okay. And sir, then I noticed that you have a gross slippages and net slippages in 1Q. This -- the difference is that the account or amount which would have been recovered during the quarter itself, right? The INR 4,000 crores and INR 2,500 crores difference is the same quarter recoveries or recovery after...
Okay. I think sir, most of the banks have shifted to gross slippages only. Only you and SBI report the net slippages. All other banks have now shifted to reporting gross slippages and showing that recovery as a part of recovery. But anyway, so that is good. And so -- and lastly, sir, if operating profit increases the way as per your guidance, then and your credit cost is, of course, your asset quality continues to improve in the way that you see. Then your ROA of 70 basis points, 70, 75 basis points, again, does not seem fair. I don't know. Are you building some prudent non-NPA provisions in anticipation of India with whatever information that we have?
So Jai, in the guidance, we do not want to give a guidance, which is we are not able to achieve. So I agree with you that ROA guidance, which we have given is a conservative one. But definitely, whatever the number has been given, we will achieve it.
And sir, basis information that we have, some of the banks have calculated the ECL provision, of course, that is subject to the draft guidelines. What would be your ballpark number? I hear you that, of course, the guidelines have not been finalized, but you have done your initial working. So what would be the credit -- extra credit provisions that you need to make if the guidelines were to be implemented today?
Yes. So our CRO will be responding to that.
Yes, Jai. The incremental provisions that would be required to be made under the ECL regime would be roughly around INR 15,000 crores. But I'm sad here that in the present regime apart from the provisions that we make as per [indiscernible] launch, there is incremental provision done on various items based on RBI guidance and our own prudential requirements. So if you knock off that the incremental provision requirement would be around INR 10,000 crores.
Apologies Jai, we will have to come back to you later. I request you to join back the queue. Next in line, we have Mr. Himanshu Taluja.
Most of the questions have been answered. Just a few ones probably. First on your -- since you mentioned already that since you have a pressure on the margins delivery, although it looks to be optimism. Sir, what's your outlook on this government guaranteed advances which is a low yielding portfolio, although we are seeing a decline? So how we are going to trend in the coming quarters? And if the declining trend remain, do we see a gradual sort of a decline? Or there will be a possibility of a sharp decline in this portfolio? That's my first question.
So as far as this government guaranteed advances is concerned, if you see our Page 7 of the slide, it has come down from INR 48,000 crores in June 2022 to INR 41,000 crores in June '23, which I said that it was a conscious call taken by the management to prune down those advances. Basically, the issue is that it is not any issue of the state government advances, but it is more of an issue of the guidance, which we had all the banks received from RBI regarding the funding in the state government and their entities.
So that was the issue. So we have segregated these state governments into certain categories, red, amber and green. So wherever our exposure is there in red. So that immediately we are trying to prune down and getting the payments of. So this is the strategy or the states which are green states, which are healthy states as far as their fiscal deficit and overall debt is concerned, there we will continue to fund.
Okay. So broadly, overall, sir, if you have to give some guidance, how do we see this book from INR 41,000 crore to run down in the coming quarter?
So we can keep it at INR 41,000 crore. We have not thought it about -- much about that. There are certain -- some of the accounts in red category, we have reduced our exposure, some of the categories in amber also we have reduced. So even if the number stays at 40%, it is well within our threshold. See our loan book, if you see it is at INR 515,000 crores as on June. So INR 41,000 crore out of that INR 515,000 is not even 10%. So we are within a reasonable number within 10% of the total overall loan book. So INR 41,000 crore number seems to be okay as far as the guidance is concerned.
Yes. Sir, second question is on the capital only. Since you have a Tier 1 of 13 -- more than 13%, you broadly look very much comfortable from a growth standpoint. But I just wanted to reiterate as well from the earlier participants like if you -- or in order to reduce the government holding, if you want to go for a rule, this would request to go for a rights issue rather than a QIP and thirdly, if you raise the capital, what sort of the amounts shall we look at around?
So as far as that is concerned, we have not yet decided. As I told you that we have a Board approved this one approval that we can raise INR 4,500 crores in Tier 1 which includes the raising of capital plus 81 bonds. So we have still yet to decide what is the amount and the number and what would be the timing. So it will all depend what would be -- how the market is there and how the banking index and other things perform. There are a host multiple of things which are beyond our control. So looking into that only, we will decide the amount and the timing of the issue.
Next in line, we have Mr. Rakesh Kumar.
So sir, first question, sir, is with respect to the guideline, which you mentioned just now, the RBI guideline for the government-guaranteed loan. So what about the deals that banks are holding for the states, which are in red category?
So for that also, it is the same guideline basically. So red, green and amber is the same thing, which is there for all the states. This is a generic guideline from RBI to the bank. Normally, that guidance is predominantly on the credit side, not on the STL side.
No. But we keep credit or we keep credit substitutes. The difference is not much. We have to make the provision for like for loan or the investment, it doesn't matter actually. So I'm just trying to understand which are those states, sir? So which are those states?
So that is an internal note for us. Basic -- that is the internal metrics which we have formulated within the bank. So that is something which is for the internal document of the bank.
Okay. So out of the total government guaranteed loan that we had before this guideline and after pruning, so what percentage we have pruned on the original number?
So it is there in the slide. We have reduced our exposure by INR 15,000 crores -- 15%. 15%, 1-5. Slide 7.
Got it. Okay. Understood, sir. And sir, second question that I had with respect to your Slide #13, where we have given this RBLR thing, so the corporate loan, out of which it is 16.31%. So is it this mid -- mid-corporate or this is MSME. So which are the corporates there we are giving loan on the RBLR instead of giving EBLR...
As per the -- yes, this is EBLR lending as per the RBI guideline. So in Bank of India, we have taken the benchmark as the repo rate. So these are all large corporates, INR 50 crores and above where we have given. Typically, these accounts are AAA and AA rated. So RWA up to 30 -- these are the 30% of the exposures.
So why are we not taking it on the MCLR, sir?
See, the simple thing is the market, see AAA-rated corporates, they are getting funds at a very cheap rate. So other banks have also started doing the EBLR linked. So some of the banks have linked it to [indiscernible], some from [indiscernible], some from EBLR which is repo rate. So in Bank of India, we have linked it to the repo rate. So this is how we are giving to the AAA and AA rated corporate typically, who are public sector enterprises like oil companies, HPCL, BPCL, IOCL, all AAA rated or GAIL, Gas Authority of India Limited or other kind of corporates who are AAA rated. So this is that kind of lendings.
But I'm not able to understand. Instead of taking interest rate risk why don't we give credit substitutes instead of taking credit exposure to these companies? So if we take like say, bond LCD instead of taking the repo rate exposure because if the repo rate is coming down, we will have to either curtail this exposure or we have to take the interest rate risk -- so instead why it not we go for credit substitute?
So credit substitutes also, we are giving the sanction fee. Typically, it is the NBFCs, which are taking a combo offer, wherein they take, we are giving them some NCDs and some these kinds of books. So that also we are doing. But as far as that is concerned, presently, what we are doing is these repo exposures are all short term. We are not giving any exposure on the repo linked DBLR more than 12 months.
But the 12 months is quite high, like suppose from March, March '24, if the repo rate is being cut then what we will do about the 16.3%. Either we curtail this exposure and reduce the credit growth or we take the credit risk on the book?
No. See, this is not only repo. There is a markup over the repo, business strategy premium is also there.
No. No the spread is okay. Spread you cannot change, sir. For a given kind of client, you cannot change the spread, spread will remain the same, but the repo will be reduced, and you will have to reduce the rate.
Dramatically, whenever the repo will come down, you are right, the rate will come down definitely. But these are all majority, they are predominantly short-term exposures only within a year.
No, but even if it is for 6 months, I'm saying that even 6 months, it can take away your good amount of margin or you reduce the exposure. That is the only 2 ways you can do the things.
So our CRO will further elaborate on this.
Rakesh, you see this thing that the interest rates will definitely fall. See, as a bank, we hold a view on interest rates. And our view is that the repo rate will remain at the same level until the first quarter of the next year. That is until others. There is a conscious call we are taking. And if you have observed over the last 4 quarters, banks have made windfall profits on account of this rise in interest rates, right? To assume that the interest rates are definitely going to fall would be a kind of wrong estimate of the direction in the market...
I was trying to intervene, sir.
Hear me out. Just hear me out. See, you are suggesting that we replaced loans with a credit substitute, which is investment. The investment in fixed rate instruments carry their own risk, right? In case the inflation shoots up and the interest rates do not move down and they in fact go up, there will be a diminution in the value of investment. So it's a very conscious call. We manage our books in a very dynamic way, and we balance it out. If you look at our book -- advances book, only 41% is linked to RBLR. Balance is linked to MCLR where the transmission is not immediate. This is something we do dynamically and the book is managed in such a way that the volatility in earnings is actually managed well.
Thank you, sir. Participants. With the quantity of time, we would now like to comment that there will be no further questions. I would like to hand over the conference to Rajneesh Karnatak for closing the comments. Over to you, sir.
So thank you so much for the entire fruitful discussion. So I think we have taken most of the questions, and most of the slides are also very clear and transparent enough. So we'll be happy to take any questions later on through e-mail or any other way. Thank you so much for joining.
Thank you, sir. On behalf of Bank of India, I now announce that this conference is concluded. You may log out. Good evening. Have a good day.