CSB Bank Ltd

NSE:CSBBANK

Earnings Call Analysis

Earnings Call Transcript 2025-Q1

[Operator]

Ladies and gentlemen, good day, and welcome to CSB Bank's Q1 FY '25 Earnings Conference Call hosted by YES Securities. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. Shivaji Thapliyal from YES Securities. Thank you, and over to you, sir.

[Shivaji Thapliyal, analyst]

Thank you, Yusuf. Good evening, and a warm welcome to all those who have joined the call. The CSB Bank management is represented by Mr. Satish Gundewar, Chief Financial Officer; and Mr. B.K. Divakara, Executive Director; Mr. Pralay Mondal, Chief Executive Officer, could not join the call due to health issues. And as far as we are aware, these issues are not serious in nature. And in his absence, Mr. Gundewar will be leading the call. We specifically thank the management of CSB Bank for giving YES Securities the opportunity to host their results call. The management will first be making some opening remarks, after which we will through the floor open for questions.

I now invite the management to make their opening remarks. Satish, over to you.

[Satish Gundewar, executive]

Thanks, Shivaji, and good evening to everyone who has joined the call. And Pralay couldn't join this call due to health reasons, and he has apologized to all the investor community. He wanted to be part of this call, but due to health reasons, he couldn't join this call.

So initially, I'll make certain opening remarks about the global economy, the market that we are seeing as well as some of the key numbers for the quarter, and then we will open this call for question and answer.

The global economy is currently witnessing the changes in political leadership in major economies of the world. U.K. and France have already seen a change in leadership, whereas India has chosen a continuation, albeit at a coalition government.

With Mr. Biden withdrawing from the contesting, again, U.S. is also poised for a close contest. We have seen rate cuts in Eurozone and lowering of inflation globally. We do not expect U.S. to cut rates anytime soon. However, a start of rate cut cycle cannot be ruled out in year 2024.

Coming to domestic market overview, the systemic liquidity moving back to surplus is a welcome change. It has reduced the stress in the short-term money market thus lowering the short-term rates. The systemic credit growth is still robust. So we do not expect the change for deposits to abate. However, the surplus liquidity, if it persists for a couple of more months, it will prevent the deposit rates from going up any further. The monsoon has begun well through the rainfall distribution is not systemic -- symmetric across India. It gives us hope that the inflation will continue to ease the fiscal deficit part was 4.5% augers well for the country and the financial markets. The overnight rates will remain between 6.5% to 6.75%, and 10-year is likely to range between 6.8% to 7.05% this quarter.

Now coming to CSB specifics, highlights of our performance, our agenda. Profitability, the bank reported a net profit of INR 113 crores. Bank is holding a provision buffer of about INR 182 crores over and above the regulatory requirements. Net interest margin was 4.36% for the quarter, impacted by higher cost of funds and regulatory guidance on P&L charges. Return on assets was at 1.27%.

Coming to liabilities. We are improving our deposit base. Deposit growth has been 22% year-on-year as against the industry growth of around 11%. The CASA ratio stands at 24.9%. Asset growth, net advance growth of 18% year-on-year. industry has grown at about 14% year-on-year. Gold portfolio registered a growth of 24% year-on-year. Yield on advances for quarter 1 FY '25 was at 11.25%, with an improvement of 7 bps from Q1 FY '24.

Coming to asset quality metrics. Gross GMP ratio was at 1.69%. Net NPA ratio was at 0.68% and provision coverage ratio at 82.53%. Continuing with the accelerated NPA provision policy of providing higher than RBI requirements, and holding the contingency provisions intact. We have a very robust capital base. Our capital adequacy ratio continues to be strong at 23.61% with a Tier 1 capital -- Tier 1 ratio at 22.23%. We have a very low proportion of risk-weighted assets compared to the industry. So the RWA to our exposure is very limited, near about 43% to 44%. In terms of the shareholder value creation, our book value per share as of the end of the quarter is INR 217. Earnings per share was INR 26.2 per share, return on equity was 12.69%.

Coming to distribution. We have a network of 794 branches and 757 ATMs as on 30th June. During this quarter, we have added 15 branches. We moderate our branch expansion plans a bit this financial year, and expansion will help us to create a pan-India presence and reduce the concentration risk.

In conclusion, the quarter gone by was somewhat soft quarter. On the deposit front, costs continue to be at elevated levels. The signs of policy rate reduction are clear now, and it is anticipated that the cost of funds will level off in coming quarters. On the advances, regulatory guidance on P&L charges and a couple of slippages has impacted the yields, the elevated cost and reduced yields resulted in NIM compression during the quarter. The quarter also witnessed continued investments for supporting the build phase. However, the other income growth helped to offset this partially.

We have done a detailed analysis of the numbers and required efforts are made to deliver consistently in line with the stakeholder expectations. We are confident that the cost-to-income ratio, the GNPA, NNPA and credit cost has peaked out for this financial year and net interest margin will go back to the trajectory upwards of 4.5% from quarter 2 itself, and ROA should be upwards of 1.5% from quarter 2 onwards. We should be able to deliver a much better quarter 2 performance and overall year should be in line with our past commentary. The build phase is progressing on the expected line and executing this right will help us to initiate the scale phase and achieve the SBS 2030 vision set for the bank.

So these are the opening remarks, and now we can open the floor for Q&A.

[Operator]

First question is from the line of Mona Khetan from Dolat Capital.

[Mona Khetan, analyst]

Sir, good evening. So firstly, on the cost of funds, we saw interest expenses increasing by about 15% Q-on-Q. And within term deposits also, the share of bulk has been on the rise consistently over the last 1 year, much higher than what we're seeing for industries. So how do you look at this cost of deposits profile?

[Satish Gundewar, executive]

So let me give a little background in terms of the composition of our deposits. Like in the savings account, almost 90% plus of our deposits are granular deposits less than INR 3 crores. And in the term deposit, it is 65% is retail granular deposits less than INR 3 crores. So on an overall deposit basis, we will be around 25%, 26% as the bulk deposit and rest will be granular less than INR 3 crores kind of a deposit.

So these term deposits will go through repricing. And as we have talked in our opening remarks, the liquidity is tied throughout the last couple of months, and that has had an impact on the cost of deposit. And that we have seen across industry as well.

To augment our entire deposit base, we have been using refinance. We have been doing borrowings through overseas borrowings so that our growth is not impacted. So from that perspective, our overall cost of fund is still reasonable, considering that our overall cost of [indiscernible] is also in the range of 3%, so that helps us in maintaining our overall cost of funds.

[Mona Khetan, analyst]

Sure. So we earlier were guiding for margins of 4.5% to 5%. Where does that stand now with the impact on cost of funds that we are seeing?

[Satish Gundewar, executive]

So last year, when we were giving commentary to the investors, we had said that the current year's guidance in terms of the net interest margin will be in the range of 4.5% to 4.8%. So this quarter -- thanks for asking the question because that will be the question in quite a few people's minds. So I think I should clarify on that.

So this quarter had some of the multiple things. One was a regulatory change in terms of the P&L interest, which was there earlier now it has gone to P&L charges. So earlier that was part of the gross interest income and that was considered in the NIM calculation. But when it comes to P&L charges, it has gone into the fee income. So -- and also, we have seen a marginal reduction in our overall SMA book also. So to that extent, the incidence of P&L charges or P&L interest has also come down. So almost 40 bps kind of an impact has happened on account of this regulatory change, which has happened during this quarter. This was implemented from 1st of April 2024.

The other impact was in terms of marginally higher slippages, which has resulted into interest suspense on those accounts. So that is any way covered in terms of our increased GNP ratio or slippages during the quarter has been elevated, and that has also impacted the gross interest income.

Cost of funds anyway for the industry as well as for us, we have seen an increased trajectory and that has impacted. But our overall guidance for the full year remains intact in terms of -- we will be closing the year in the same guidance that we have been given in the earlier quarters. That overall NIM will be in the range of 4.5% to 4.8%.

[Mona Khetan, analyst]

Okay. And how about the ROA, so if I remember it right, the earlier guidance was between 1.5% to 1.8%, does that change with slightly lower margins here?

[Satish Gundewar, executive]

So in my opening remarks, what we said is that all these parameters in terms of cost-to-income ratio, GNPA, NNPA credit cost seems to have peaked out for us in the first quarter itself and we will see a better trajectory from Q2 onwards. So overall, full year guidance remains intact. The ROA will be in the range of 1.5% to 1.8%, that is the guidance that we have been giving even last year also, we have been giving that guidance.

And not only in terms of we will have an improved net interest margin from quarter 2 onwards. But if you look into our fee performance for last 3 to 4 or at least 5 quarters, what we have seen is a very robust fee performance. Even for this quarter, fees contributing almost 1.92% of my average assets, which is also a very good number to have. So overall, full year guidance remains intact. ROA will be in the range of 1.5% to 1.8%.

[Mona Khetan, analyst]

Sure. And just lastly, what is our LCR currently, LCR ratio? And what is the impact from the changes in the recent guidelines by RBI?

[Satish Gundewar, executive]

So for the quarter, our average LCR was about 118%. The guidelines, of course, will apply to the entire industry so it apply to us also, but ballpark, at least 10% impact will be there on the LCR, but then we still have a lot of time to take corrective measures. These are implemented from 1st of April from next year. Most of the banks will have some impact on that, but we'll work out because we are at least 3 quarters to our that.

[Mona Khetan, analyst]

Okay. And just on the slippage as well. So if you could just give some color as to what were these and if there was any large size exposure on the corporate side or anything yes.

[Satish Gundewar, executive]

So on the slippages, we had couple of accounts, not couple, just a handful of accounts in the SME space, which has slipped during this quarter and 1 account in the corporate banking space, which has slipped during the quarter. Like we have explained earlier also that this year, that is the current financial year will be a complete rejig of the entire corporate banking business for us, and we will be looking at all the exposures that we have. And to that extent, there could be certain -- we are exiting not only just the accounts which are not good, but even good accounts we're exiting where which are standard accounts are giving good income to us. But from a coverage perspective, relationship management perspective, we're not comfortable with those exposures, we'll be exiting those accounts. So this year will be a kind of a complete rejig of the corporate banking portfolio. And full year-wise, probably on a corporate banking book, we will be flat to last year.

And in SME space, similarly, if you see last 2 years back, we did a similar rejig in our SME business also. We had certain legacy book, which we exited. And now if you see our SME trajectory for last 2 to 3 quarters, we have been delivering good growth even this year, first quarter, it has grown by 28%. Our expectation is that full year SME will show a growth of almost 35% over last year. So same thing we can expect going forward from the next financial year onwards for corporate banking. So this year will be, I would say, largely a cleanup year for the corporate banking. And from next year, we will see a steady -- stead growth when the corporate banking go...

[Mona Khetan, analyst]

And what is the size of this corporate slippage?

[Satish Gundewar, executive]

We generally don't talk about specific accounts that way.

[Mona Khetan, analyst]

Sure. I mean, last quarter, the one corporate slippage was about INR 70 crores. So if you could just let us also know the quantum of the corporate slippage.

[Satish Gundewar, executive]

I think the overall slippage, what we have seen for the quarter that is there in the investor presentation is about INR 100-odd crores. And it is not just that because some amount of slippages have happened in the agri and MFI space also that is again an industry-wide phenomenon and a handful of accounts in SME and one accounting, corporate banking as well. So it's a mix of all.

[B. Divakara, executive]

Highest slippage, you can take it as INR 33 crores. That is the highest slippage what we had witnessed.

[Mona Khetan, analyst]

This quarter?

[B. Divakara, executive]

This quarter. Yes, of INR 103 crores, so INR 33 crores only major accounts. So rest are all combination of so many other accounts.

[Operator]

[Operator Instructions] Next question is from the line of Pruthul Shah from Anubhuti Advisors.

[Pruthul Shah, analyst]

My question was with respect to the NIM. So basically, on a Q-on-Q basis, we are seeing a dip of 50 bps. And as per your commentary, 40 bps out of that is attributed because of the P&L charges, the decategorization. So is this understanding correct? And broadly because of the actual yield on advances, there is only 10 bps for this quarter?

[Satish Gundewar, executive]

So on a like-to-like basis, because the 40 bps has gone on account of this regulatory change and plus there was intersuspension because of the slippages during the quarter. So if you do a like-to-like basis, we would have actually have marginal improvement in the gross yields on the portfolio. However, because of these 2 factors, the gross yield has seen a dip and that has impacted on the NIM also. So if you remove these one-offs, in which case the gross yields would be largely flat to positive.

[Pruthul Shah, analyst]

Okay. Okay. Got it. And sir, with respect to one account which became NPA and we have, I think, provided 25% in the last quarter. As per the commentary on last quarter, we are hopeful to get it reversed in FY '25. So is there any update with respect to that specific account in this quarter or is it same?

[Satish Gundewar, executive]

So generally, we don't provide specific customer or client-wise kind of updates. But of course, those efforts in terms of recovery, everything will be ongoing. And of course, we will have security in our hand and all those recovery efforts are ongoing. Let's see what happens in this current financial year. But of course, our efforts are on.

[Operator]

Next question is from the line of Parag Jariwala from White Oak Capital.

[Parag Jariwala, analyst]

Regarding the slippages of INR 100-odd crores, I mean if I see the annualized slippage ratio is around 1.7%. I know you mentioned that being the first quarter and also some problems with micro finance and all, some of the exiting microfinance you did see some of these slippages with respect to those sectors. But how should we see this INR 100 crores in the overall context, I mean, for the quarters to come by, I mean, are we expecting some recoveries out of there or what is built into our annualized slippage for the remaining quarters and correspondingly our credit costs for the full year.

[Satish Gundewar, executive]

So if you see the slippages only for the last quarter as well as this quarter, we are seeing elevated slippages. But if we go back a couple of quarters then our slippage ratio was less than 1% on an annualized basis only for the last 2 quarters, we have seen because of a handful of such accounts which have slipped into an NPA. But going forward basis, we don't expect elevated slippages to come in. And in terms of the recovery also, we have a large pool of written down accounts for which recovery -- every quarter, we see recovery, and we see that momentum picking up from quarter 2 onwards. So that will also help us in terms of the overall credit cost.

In spite of these elevated slippages and provisioning that we have done. Our overall credit cost for the quarter was 22 bps, and that is very much in line with the kind of guidance that we have been giving to the market that overall my credit cost will be the range of 20 to 30 bps. So to that extent, it has not really altered the overall story because of 1 or 2 quarters.

[B. Divakara, executive]

So even if the credit cost is written, that is based on the accelerated provisioning that we -- what we have created. So if you are aware that we are going for this accelerated loan provisioning policy. So more than what is required to be provided as per RBI guidelines. So that is why nothing of that, if you are going by quickly as per RBI norms, then it could have been still far less than this.

[Parag Jariwala, analyst]

And regarding the slippages, any -- I mean, you also mentioned that the largest account is around INR 33-odd crores. So are these a kind of technical in nature, like in the first quarter, you do see some bit of higher delivers in the second, third quarter, you -- probably there are chances of recoveries or upgradation and all or you will take them as a one-off or a normal course of business and there won't be any meaningful upgrades in the quarters to come by.

[Satish Gundewar, executive]

So I would say that on a normalized basis, you wouldn't see this kind of slippages and there'll be significant improvement in the slippages going forward. And that will also get reflected in the overall credit costs going from Q2 onwards. As I said that right from the Q4 of last year plus the current financial year first quarter, we are doing a kind of a rejig of the entire corporate banking and maybe it is a result of that kind of exercise that we are doing. But I would say that it's a one-off and that is -- one cannot say that this is the trajectory going forward I would say these 2 quarters has been a one-off.

[B. Divakara, executive]

So I don't think it's an aberration only, but it is expected to be get rectified during the course of the year. No major accounts are under threat even for our SME portfolio.

[Parag Jariwala, analyst]

Okay. And this changes to the corporate book and all, which we are trying to do for the last 2 quarters. Is this fully done now? Or it is an ongoing process currently as well? So can there be a surprise in second, third quarter as well there?

[Satish Gundewar, executive]

No, I -- okay. As I said that this year, in the corporate banking, the entire DA book that we have is also in a downward trajectory. So we will have a dip in the DA book. March '24, we had almost INR 900 crores of DA book, which is on a downward trajectory. Incrementally, we are not doing any DA kind of transactions. So on a year-on-year basis, we will have a flat corporate banking book. But I don't think that there will be any major such kind of surprises going forward in a corporate banking book.

[Operator]

[Operator Instructions] Next question is from the line of Suraj Das from Sundram Mutual Fund. .

[Suraj Das, analyst]

Just a couple of 2 questions. One, again, going back to that cost of fund -- cost of deposit trajectory, I think last quarter, you had guided that 10, 15 basis point would be the increase from last quarter run rate and then that would be the peak. However, this quarter, we have seen probably more than 20 basis point increase. And then I think, till last quarter, you were also publishing the savings account cost in term deposit costs. So it looks like that your term deposit TD cost is something like more than 7%. So my question is, if I see your term deposit offering, maybe only a couple of buckets have more than 7% card rate.

So would it be fair to assume that whatever incremental deposits are getting mobilized would be in those buckets only?

[Satish Gundewar, executive]

Savings cost, which was in the range of 3% does not change materially, it is in that same range. We have changed the format of our investor presentation probably so that's the reason that is not visible now. And in terms of term deposits, if you see most of the deposits that we get will be that 12 months to 18-month kind of a range. And so largely, it will be at that kind of a card rate. But if you look at the overall deposit structure, considering the savings deposit as well as the term deposit almost 25%, 26% will be only bulk deposit that is more than INR 3 crores and 74%, 75% will be granular deposits.

So of course, we participate in the bulk deposit market as well. And the overall CASA book is largely flat, and that's the reason to support our growth, we have been making use of term deposits as a tool and that you can see for other banks as well.

From a funding perspective, we have been also using refinance because quite a few of our portfolio becomes eligible for refinance and in refinance the kind of rates that we get, again, they are CRR, SLR free, so -- and they are [indiscernible] efficient money. So we are using that. We are also using overseas borrowings like FCY borrowing and converting into INR at attractive rates. So we have done that as well.

So in the current -- in the last 12 months, almost we have borrowed INR 1,000 crores through the FCY borrowings. So we have -- like same thing goes for CD as well, we have borrowed CD during the year and close to INR 900 crores is our CD book. So we have multiple sources of funding. So to that extent, we are able to manage the overall cost of funds much better, I would say.

[Suraj Das, analyst]

And the special schemes there like 401 days or 750 days. Do you want to continue these schemes, I mean, given that probably cost of deposit is peaking and there would be no rate cut somewhere 6, 9 months down the line?

[Satish Gundewar, executive]

So we are managing that effectively. And our general objective is not to lock ourselves in a very long-term kind of borrowing or long-term deposits and it is managed in terms of the requirement at that point in time. So we will never be borrowing for a very long period of time and locking ourselves in higher cost deposits. .

[Suraj Das, analyst]

Sure. And last question, sir, on the OpEx side. Was there any one-off in the staff cost? And the second question would be this other OpEx has seen a Q-o-Q jump and as well as Y-o-Y. So is this the normal trajectory now given that we are continuously investing in the franchisee? So yes, that would be my last question.

[Satish Gundewar, executive]

So last year, there was some one-off in the staff cost. This year, there is not much of one-off in the staff cost. However, from the OpEx side, I would like to address that in 2, 3 fronts. Last year, we opened 75 to -- 78 branches. This quarter also we opened 15 branches. And when we open branches, there will be CapEx involved in terms of refurbishment that gets capitalized.

And as you're aware that we are making significant investment in technology and some bit of that investment gets capitalized every quarter, and that will start getting the depreciation. So depreciation both for the non-IT OpEx as well as IT OpEx will -- and this is very well articulated by us in earlier calls as well that we are making significant investment into technology.

And to that extent, our overall capital -- fixed asset based on the technology perspective is also increasing, and that results into depreciation on those assets. So I would say largely, this is a growth OpEx. And some of the OpEx items are directly linked to the business also, like any kind of BC cost will be linked to the BC collection business and all that.

So from an OpEx perspective, that is on our expected lines. However, the current year because -- current quarter because the income was impacted, and we have spoken about that earlier part of the call, our cost-to-income ratio for the quarter is elevated. But however, we feel that from Q2 onwards, this cost-to-income ratio will also get rationalized and we will come within the guidance that we have been providing to the market.

[B. Divakara, executive]

And the staff cost is almost -- staff cost is flat actually as compared to Q1 of FY '24. Staff cost is almost flat.

[Operator]

[Operator Instructions] Next question is from the line of Prabal from Ambit Capital.

[Prabal Gandhi, analyst]

Sir, just one question. Our cost of fund is already closer to 6% now. Is the percent of growth not hurting our competitive advantage that is at 6% cost of funds, if we are trying to get -- say, maintain a margin of 4.5%. You're essentially looking for a 10.5%, 11% retail customers. So while you can maintain the margin for a few quarters, but eventually, that will also translate into higher credit costs. So why not slow down the growth, build a more robust deposit franchise have competitive advantage and then go for...

[Satish Gundewar, executive]

Okay. So Prabal, if you see our investor presentation, almost 50% of the book is gold loans, and there, our yields are pretty good enough in the range of 11.7%, 11.8% of range is the yield that we get on the gold loan book. In the SME space, we get close to 11% is our yield.

In the retail is also in the range of 10.5% to 11%. In retail, we are present only in a handful of products like CV/CE, inventory funding, credit cards. That is the kind of growth engine currently in the retail banking space. Corporate banking yields will be in the range of 9%, 9.5%. So from an overall yield perspective, our gross yield will still be pretty healthy. This quarter was impacted for the reasons. But otherwise, from Q2 onwards, we will be going back to the same trajectory of 11.6% kind of yields.

From that perspective, we should be able to maintain the NIMs of 4.5% to 4.8%. From a cost of funds perspective, I explained earlier that we have multiple sources of funding, and we use judiciously the various instruments available at our disposal so that the overall growth is not impacted by non-availability of funds. And to that extent, I think we will manage the NIMs appropriately.

[Prabal Gandhi, analyst]

Okay. As we are moving from this year onwards, since our target is to move away from gold towards more retail and other products that could have some bearing on our yields. At the same time, cost of funds are going up, then we'll have to move down the risk in order to meet the [indiscernible] cost.

[Satish Gundewar, executive]

So for the current financial year, we don't expect gold as a -- in the overall pie of my advances, we don't expect gold to significantly reduce. So it will continue to be in this range of 47%, 50% and that gives us a good yield. So I don't think that it will have impact for the current financial year.

for the next financial year as the year progresses, we'll start giving guidance in terms of what is the mix that we are looking for the next financial year.

[Operator]

Next follow-up question is from the line of Mona Khetan from Dolat Capital.

[Mona Khetan, analyst]

So I just wanted to check on this loan mix. When we look at other retail, which is retail ex of gold, there has been a sequential decline of about 12% in the book. So if you could just highlight which segments or what is contributing to that?

[Satish Gundewar, executive]

Mona, where are you able to see a dip?

[Mona Khetan, analyst]

So if I could refer to your presentation, the loan mix, which is on Slide -- which is on Slide 15. So the INR 3,541 crores of retail book, if I compare it with what you had shared in the Q4 FY '24 presentation, which was about 12% lower essentially. So what has led to this? So last quarter, this quantum was about INR 4,029 crores. So -- and it has fallen to INR 3,500 crores. So what has led to this decline sequentially? What segments are contributing to it?

[Satish Gundewar, executive]

So this agri and MFI book, which was about INR 1,500-odd crores in Q4, that has come down to INR 1,300 crores. So that is one reason. So from a percentage perspective, it looks larger because overall retail composition is small. But within that only this agri is the book that has fallen. And we had earlier also spoken that we are not doing any incremental disbursement in any unsecured personal loans and things like that. So whatever book we will have, we will have some downward trajectory, especially on the unsecured book.

[Mona Khetan, analyst]

Okay. So it's fallen by about INR 500 crores. So INR 200 crores you explained is because of the again MFI book? And what about the rest of INR 300 crores? Is it mainly the other unsecured pieces like credit card, [ PL ] but those are 2 small to be having such a sharp decline.

[Satish Gundewar, executive]

There is some reclassification that we have done in terms of the laps that we have now taken into the SME earlier, it was getting reported as a retail. So the entire lap has now been converted into the SME space. That's the reason. There's a reclass actual...

[Mona Khetan, analyst]

Got it. So how much of the book has moved from other retail to SME, just to understand this better?

[Satish Gundewar, executive]

No, I don't have that specific number with me at the moment.

[Mona Khetan, analyst]

Okay. Okay. And just one more. So on the loan-to-deposit ratio, what is our comfort level as on today?

[Satish Gundewar, executive]

LTD ratio, if you see it as currently is pretty comfortable because overall, our deposits for last 2 quarters have been growing better than the advances. So we are currently at a CD ratio 83.89%. So our guidance was also earlier that we are comfortable up to 85% of the CD ratio, and we'll continue with that guidance.

[Mona Khetan, analyst]

Okay. So 85% would be the peak on this front? Because earlier, I think at some point, it was also 90%. So I just wanted to understand this better.

[Satish Gundewar, executive]

Yes. Last 2 to 3 quarters, we have seen a moderation in the CD ratio and that has been our stated intent as well. But 1 or 2 quarters, aberrations can happen, but our general intent is to be in the range of 85%.

[Operator]

[Operator Instructions] Next question is from the line of Dhaval from DSP.

[Dhaval Gada, analyst]

Sorry, I joined a little late, and I missed the opening comment, but I just wanted to understand what's the path that from the current levels, you will be able to reach a 4.8% margin guidance that you have given on the upper end of the band. I'm able to understand 4.5%, but just where you have started the year, what will be the path to that 4.8% that you have as the upper end of your band?

[Satish Gundewar, executive]

So Dhaval, I explained this in the initial part of my call that current quarter has got impacted because of the regulatory changes in terms of the P&L interest moving to P&L charges, so that had almost 40 bps kind of an impact for us on the gross interest income.

Apart from that, we had elevated slippages in the current quarter compared to our normalized trend. So both these factors probably will not be there from Q2 onwards. And whatever interest suspense has gone because of the slippages will not be there Q2 onwards, and that will bring our gross yield with the normalized rate that we were reporting earlier. And that will help us to reach to that 4.5% to 4.8% kind of a guidance that we have been given.

[Dhaval Gada, analyst]

So in this next quarter, we should be -- the yield has to move closer to 11.6% or so. Is that the normalized level that you talked about? Like what's the normalized yield adjusted for these 2 factors?

[Satish Gundewar, executive]

Yes. Generally, it has been in the range of 11.6%, 11.7% at an overall portfolio level, and we don't see that there will be any major change in the mix of the portfolio in the quarter or the full year also. So to that extent, we should be able to deliver that kind of a gross yield for the portfolio.

[Dhaval Gada, analyst]

Okay. So basically from where we are, we are looking at about 40-odd bps of jump in the yield and cost of funds remaining around these levels directionally.

[Satish Gundewar, executive]

Cost of funds, of course, because there will be deposits which will be get repriced and things like that. So to that extent, there will be upward -- marginally upward trajectory in the cost of funds. However, from a yield perspective, what you said is right that because the 40 bps went only because of regulatory reasons, plus we do not have that kind of slippages in the next quarter. Not only that, the other lever that we have is in terms of the recoveries from the written-off accounts, which was also -- which is also likely to improve going forward from Q2 onwards and which will also have an impact on the overall provisioning.

So from a perspective, there are multiple 2, 3 things, which actually has impacted this quarter and probably from next quarter onwards, we won't have those one-offs. And hence, we should be able to go back to our earlier trajectory.

[Dhaval Gada, analyst]

Understood. Just one last thing on this is the upper end for that to play out. So I mean, you have to see cost of funds to stabilize, right? I mean otherwise, mathematically, I'm unable to see 4.8%, even assuming this 40 bps of normalization and some bit of cost of fund increase. The 4.8% looks very illusive right now. So would that be a fair -- like it is -- as you're predicating the fact that the rate has to peak -- is that a broad thought process that you have in the 4.8% guidance?

[Satish Gundewar, executive]

But the entire book also gets repriced also because the major product that we have is a gold loan, which is largely not a very long-term kind of a product. And if we see elevated interest costs and we also have the ability to reprice our advances, both in SME as well as gold. So to that extent, for maintaining our NIMs that will help us in terms of repricing.

[Operator]

[Operator Instructions] Next question is from the line of Neel Mehta from Investec Capital.

[Neel Mehta, analyst]

Sir, just a simple question following up from the previous one. If we are structurally going to stop recognizing P&L interest as part of gross interest income, shouldn't our NIM settle 40 bps lower on a structural basis going forward because we are no longer recognizing that is interest and that's getting passed in fees?

[Satish Gundewar, executive]

So Neel, 40 bps is a ballpark number that we have given, but the overall P&L interest is dependent on multiple factors, largely being the SMA book, okay? So if the SMA book falls down, then that incidence of the P&L interest also will actually in the normal course of business also will fall down. And with the SMA book finds a lower trajectory that is good from an overall bank perspective.

But what you say is right in terms of that incidence of income, which was part of the interest income now will be part of the fee income. But from an overall P&L perspective, it will get shifted from, say, the net interest income to my fee income. And ultimately, it will be part of my ROA. So overall, from an ROA perspective, it will help me because -- it will not help me, but it doesn't get impacted adversely because it will just move from one line to other line.

But looking at that, we will also look at the product construct as well and see that how we -- so we are studying this closely all the businesses in terms of this movement of P&L interest to P&L charges. And possibly, we will make certain changes in the various product construct so that overall NIM is maintained.

[Neel Mehta, analyst]

Got it, sir. So broadly ROA neutral, but from a NIM perspective, could be structurally lower if your SMA accounts are depressed basically.

[Satish Gundewar, executive]

So if my slippages are reduced, in which case, it will be NIM accretive because all the interest income which is suspended that will come back. So NIM is actually a very complex thing. There are 7, 8 factors, which actually impact the NIM. So it's very difficult for anybody that way to really say that exactly what is going to be the NIM.

However, the guidance that we give is on a general based on what is our business model, what is the general yields on various businesses that we generate? What is our expectation about the SMA as well as slippages? And basis that the kind of guidance that we give. What we are talking about is that on an overall basis for the 1 full year, that is all the 4 quarters, we should be in the range of 4.5% to 4.8%.

[Operator]

Next question is from the line of Chinmay Nema from Prescient Capital.

[Chinmay Nema, analyst]

Just wanted to double click on the slippages not getting into the specifics of the loans, but because they are driven by -- the elevated numbers are driven by few loans. So is it that you are seeing some kind of stress building up in a certain industry? Or are these from a particular vintage? Is there anything to read into it? That's the first question.

And the second thing is, if you could talk about what kind of early warning signals to exist for such -- what kind of visibility do you have on the asset quality of such large loans or if they come as a surprise to you as well?

[Satish Gundewar, executive]

So there is no pattern as such. So I don't think that one should read that if there were elevated slippages, it is overall question on the overall portfolio. These are only a handful of accounts, especially on the corporate banking, as I said, that we are rejigging this entire business.

So 1 or 2 such accounts will fall into NPAs. But there is nothing that overall structurally as a portfolio, whether we are looking at any kind of a trend like that, it's not like that. So a handful of accounts in SME and a handful of accounts in corporate banking that have slipped into NPA which will get normalized going forward in Q2 onwards.

So we don't see a trend as such emerging. We have small slippages in the agri and MFI book also, but our book is not very large enough to really cause any dent in the overall profitability or NPAs.

[Operator]

Next follow-up question is from the line of Pruthul Shah from Anubhuti Advisors.

[Pruthul Shah, analyst]

Yes. Sir, just wanted to directionally understand that -- now that the P&L interest is not categorized within the interest income and it is in the other income? But directionally, whether the amount that we are going to earn return that will -- is remaining same or that is getting impacted and to how much extent if you just give a broad color on the same.

[Satish Gundewar, executive]

So it is too early to really say that whether on an overall basis, it will be a negative impact on the overall P&L. It is too early to say. We are analyzing these because it's just the first quarter where these regulatory changes happened, a similar kind of a trend for other banks also we are seeing. So we are studying that in terms of the overall P&L charges collected versus what was the P&L interest, trying to study that basis the SMA trends, what was our trajectory of earning P&L and versus that, what is the P&L charges that we are collecting. So we are analyzing that very much. And if required, we'll make respective product changes or changes into the P&L charges structure so that we don't lose as such any income.

[Pruthul Shah, analyst]

Okay. So broadly understanding is in case we are losing we will reprice the products and gain back -- gain back the profits that we are earning in the earlier period, right?

[Satish Gundewar, executive]

Yes. So overall, it will not be a -- on a full year basis, we don't expect that this will be a negative kind of a surprise for us. So we are -- this is just the first quarter. So that's the reason that we will study that product by product segment by segment and we'll put close corrections in that.

[Operator]

As there are no further questions from the participants, I'd now like to hand the conference over to Mr. Satish Gundewar for his closing comments.

[Satish Gundewar, executive]

So thank you, everyone, for joining this call and patiently being part of this call for all through 1 hour. And it's very nice to speak with all the analysts every quarter and we'll see you again next quarter. Thank you very much.

[Operator]

Thank you. On behalf of YES Securities, that concludes this conference. Thank you all for joining us, and you may now disconnect your lines.