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Earnings Call Analysis
Q3-2024 Analysis
CSB Bank Ltd
The company is witnessing a significant growth trajectory in its Small and Medium-sized Enterprises (SME) segment with a notable 28% increase this year, hinting at a positive outlook for future growth. The wholesale portfolio is also expected to gain momentum going into FY25. However, the retail sector, despite projected faster growth due to its smaller base, may not contribute materially overall. Prudent risk management, particularly concerning unsecured lending, is a hallmark, with the unsecured book well below 5% of the bank's total lending portfolio.
The institution seems to be adopting a cautious approach towards Non-Banking Financial Company (NBFC) lending, particularly in unsecured space with small ticket loans, to manage risk effectively. Furthermore, the yield on the SME book ranges between 10% to 11%, which resonates with the bank's careful lending strategies while continuing to fuel profitable growth within acceptable risk parameters.
Lending is focused on sectors like manufacturing (including light engineering and automobiles), health care, pharma, food processing, and textiles. The bank adopts a hub-spoke model for its lending practices, with an average new-to-bank ticket size of around INR 6 crores. The bank is actively engaging with trade bodies and has tie-ups for mortgage banking advisory to add value to industry associations. On the cost side, there's a significant commitment to technological investments looking to pay off in the long run. While cost-to-income ratio fluctuates currently, it's set to trend downwards starting from FY 26, moving towards below 50% by FY 30, which aligns with the bank's growth and efficiency strategies.
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Ladies and gentlemen, good day, and welcome to the CSB Bank Q3 FY '24 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.
Thank you, Arvind. Good evening, and a warm welcome to all those who have joined the call. The CSB Bank management is represented by Mr. Pralay Mondal, Managing Director and CEO; Mr. Satish Gundewar, Chief Financial Officer; and Mr. B.K. Divakara, Head Strategy and Corporate Legal. 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 throw the floor open for questions. I now invite the management to make their opening remarks. Pralay, over to you.
Thank you, Shivaji and Arvind. Thank you so much for hosting this call, and thank you all of you for joining our post results call of Q3 FY '24. To start with, I think globally the high-rate regime has peaked out with many central banks now indicating a pause in the subsequent cut-in rates. The inflation has also moderated significantly despite some uptick last month due to base effect. Geopolitical risks however persist, prolonged Red Sea blockages could spike the oil prices again. With this probability of rate cuts in the next 1 year has come down to 3 from 5 in the U.S., and Eurozone has extended its pause at least till June 2024.
On the domestic side, I think Indian inflation has showed some moderation, though the CPI turned higher to 5.69% from 5.55% in November, though it was slightly better than what was expected. On an average basis, the core and headline numbers are showing moderating trends. This also suggests that the rate hike cycle in India has peaked, and more inclined towards moderation in future. The main concern, however, has been the persistent liquidity deficit in the banking system, which even touched INR 3 lakh crores in the recent past. It adds to bank borrowings and deposit cost. We expect the liquidity conditions to improve in FY '24, '25.
With credit growth outpacing the deposit growth in the banking sector even in this last quarter, the deposits are rightly to remain elevated in the entire FY '23, '24. On CSB numbers, we had a stable Q3 and we could grow faster than the system maintaining a mean above 5% growth on a quarterly and a 9-month basis.
Highlights of our performances are as below. The bank declared a net profit of INR 415 crore for the 9 months ended 31/12/23, up by 6% over the corresponding period last year. Q3 FY '24 PAT at INR 150 crores, a 13% increase over Q2 FY '24. Operating profit witnessed growth of 9% on a 9-month Y-o-Y basis, Q3 FY '24 is up by 12% over Q2 FY '24.
Provisioning buffer of INR 167 crores, over and above the regulatory requirements has been taken. Despite margins being under pressure for most of the banks in a highly volatile market, we could maintain a NIM of about 5% on both a 9 monthly basis and a quarterly basis at 5.11% and 5.10%, respectively. On a sequential basis, cost of deposits increased from 5.22% to 5.42%, while yield on advances improved from 10.88% to 11.49%. Healthy ROA of 1.78% and 1.84% as on 31/12/23 on a 9-month and quarterly basis annualized, respectively.
On the liability side, deposits grew by around 21% Y-o-Y as against industry growth of 13%. CASA, we had a muted growth relatively at around 6% Y-o-Y, and TD grew by around 27% Y-o-Y. On the asset side, net advances grew by 23% Y-o-Y. Industry had grown around 16% without the larger impact. Gold portfolio registered a growth of 23% Y-o-Y on a net basis. Portfolio buildup has happened across all sectors. Gold, other retail advances and SME did well in the quarter with a Y-o-Y growth of 23%, 44% and 28%, respectively. On a Y-o-Y 9-month basis, our yield on advances improved by 39 bps to 11.19%.
On the asset quality matrices, stable asset quality, GNPA of 1.22%, NNPA 0.31% this year of 75% without write-off. And we continued to -- with the accelerated loan provisioning policy in excess of RBI requirements.
On the capital side, CRAR of 22.99%. Low proportion of risk-weighted assets compared to the industry, partially because of the gold loan portfolio is high in our bank. Shareholder value creation on a 9-month basis, we had an attractive EPS, book value per share other than ROE underlines our firm commitment towards the maximization of shareholder value. Book value per share touched INR 200. EPS as on 31/12/23 on a 9-month annualized basis is INR 31.78, ROE 17.29%.
In conclusion, I would like to say that market is offering ample opportunities for banks to grow their asset book. In order to tap the same, banks are to ensure sufficient liquidity and funds, the tight liquidity conditions prevailing in the market, which is in the deficit mode now is making the job tougher for the banks. Cost of deposits and borrowings is at elevated level. Banks have to carefully manage multiple factors like CD ratio, LCR, NSFR, NIMs, et cetera. Fortunately, most of these criteria, we have fared pretty well in this quarter.
Hope by this time, you might have gone through our numbers uploaded on our website. Here, we sincerely believe that we have -- had done exceptionally well under the given circumstances as we could balance the growth, cost, and liquidity especially in tight liquidity and competitive environment, with most of the ratios showing an improvement. We look forward to doing better in this quarter as well.
Lastly, the additional recognition I want to talk about as the best bank, we've got the Best Bank award in the small category in the prestigious BFSI award in 2023, and the commencement of CBS migration projects are propelling us resolutely towards fulfillment of our vision, SBS 2030, wherein we aspire to become one of the most respectable mid-sized bank.
We had just launched our CBS project. We are probably one of the first banks to do Oracle OPS OGL altogether in one transition at one go. And we'll be leveraging our full service banking license and building a pan-India franchise. We will also be pursuing the branch expansion as a key strategy to fuel the growth.
Our management team is now complete and the entire senior management team has joined, including recent induction in the CRO position, in the treasury position, and also, we had our wholesale banking head, who has just joined us now. With that, we expect that our wholesale, SME, gold and retail, all of that will be the future cylinders of growth of the bank in coming years.
With that, I will open this conference for questions. Thank you very much.
[Operator Instructions] The first question is from the line of Mona Khetan from Dolat Capital.
Congratulations on a good set of numbers. So my first question is on growth. So if I compare versus last quarter, what you gave in your PPT, the segmental loan book, the SME growth has been flattish. So how are you looking at it? How have been the disbursement trends here? And is it more to do with the rundown that you've been alluding to in the portfolio?
Thank you. One for your question on gold also you asked the growth question, is it? I didn't get the exact question?
Yes. I'm trying to understand the growth. So if I look at Q-on-Q, which is last quarter versus this quarter, the SME growth was flattish growth in the SME book. So I'm just trying to understand because this is your core portfolio, why are you seeing a flattish growth? And if it has to do something with the rundown in the portfolio that you've been alluding to some time back. And if you could give us some color on the disbursements in this book.
So let me answer that gold question first. So yes, I think we had a 23% growth year-on-year on gold. And we actually, in terms of disbursement, we had a relatively muted quarter on the gold side. There are two, three reasons for that. We just wanted to balance the portfolio a little bit more between gold and non-gold because with this growth also gold is touching 48% of our portfolio. And hence, we need a more balanced portfolio.
The second thing is on gold, our LTV, we have remained focused on gold with a 74% LTV. And when you look at that kind of a LTV, there are a lot of players in the market who are willing to give higher LTV, but we don't want to get a higher risk because I still think that though gold -- global gold prices have come down slightly only, but still it is reasonably elevated. So given that we don't want to take a higher LTV on gold at this point of time. That's why we are cautious on that side.
And thirdly, we had put lot of implementations in the gold from a system perspective. And that -- because of those kind of implementations, we have slowed down certain portfolio on the gold loan side, which we would like to continue to do. And because the other side of the portfolio, whether it is wholesale, SME, retail, et cetera, is starting to pick up now gradually, so we want to kind of manage the gold loan with a lesser risky, more compliant and kind of with our price volatility we should be able to manage. So that's the reason we'll see that our gold loan LTV has been reasonably stable, well below 75%.
Coming to your question on SME, I think we have grown by around 28% year-on-year. Quarter-to-quarter, obviously, things can happen because there are certain times when because what has happened is -- I'll tell you the issue on both wholesale and SME, you didn't ask me the wholesale, but let me also say that wholesale also slowed down a little bit. And same to some extent SME because we had seen that the cost of funding is going up in the system.
And given our NIM kind of an objective, we actually didn't want to do businesses which would be very, very competitive in terms of interest rate because then what will happen is interest rates will be lesser. And you know that SME is generally linked to T-bill. And 6 months down the line, 7 months down the line, who knows when interest rate starts falling again. That time, because of it's linked to not T-bill, it's linked to repo rate.
So when it is linked to repo rate, immediately the repo rate falls, we have to reprice the SME portfolio. And I don't see, given the liquidity challenges on the liability side that -- and with still the repricing on fixed deposits going up, I don't think the cost of funds have seen the peak yet. So it may continue to go up a little bit more.
Given that, we wanted to do business only what makes sense for us from a NIM and a profitability perspective. That's why you will see that both on the SME book as well as on the wholesale book, we had not done a few businesses which would have otherwise peaked up. Also, the old book, SME book has started running off, which has -- normally which happens, but this quarter also, there has been a runoff.
So there was around INR 170 crores, 180 crores of runoff, which happened this quarter on the SME side -- sorry, we had a INR 18 crores of run on the SME side this quarter. So given that perspective, I think overall, the growth is relatively muted. This is also deliberate. And all this contributed towards a 23% growth year-on-year on the bank, vis-a-vis generally, what you do around 27%, 28%.
This was -- and this also has helped us in having a -- maintaining a CD ratio of below 83%. Last quarter, the CD ratio was above 87%. Our LCR is -- period end is 123% and average is 113%. So all these decisions help us in managing a more balanced growth with an eye on how the funding cost is going to go up and how the linked books will have a challenge in terms of maintaining earnings. So that's broadly what a very prudent decision we took both on wholesale as well as on SME business.
Got that. That's very clear. Just one small aspect on growth. So within other retail, I just want to understand what is driving growth? Is it mostly secured asset?
In retail?
Yes, when we look at other retail.
Yes. I think 2, 3 products are doing very well for us. One is on the auto loan side -- one is on the auto loan side. One is on the inventory funding is doing well for us. CVCE, commercial vehicles and commercial equipments is doing for us. And LAP is doing well for us. So these are the 4 products which are doing well for us. Credit cards also because it was on a 0 base, it is doing well on a year-on-year basis because we started credit cards this year only with alliance with 2 partners. And while we had grown the unsecured business in the -- till the Q2 of this year, but this quarter, we have significantly slowed down our unsecured business based on whatever we are hearing in the market. And hence, this quarter onwards, which is Q3 onwards, we have almost slowed down to minimum our unsecured side of the business, not because of any issue in the portfolio because it's too nascent a portfolio to have any problems at all. But because of what we were hearing in the ecosystem, we have completely slowed down the personal loan business.
Got that. So my second question is coming to the deposit base. So you had earlier alluded to your comfort level with around 90% of CD ratio on the peak time. And we have this quarter seen a sharp decline in CD ratio. So would that comfort zone come down here on because we be hearing a lot that RBI has been guiding banks to lower their CD ratio level. So what's your take on that?
On the CD ratio, RBI has said nothing to us yet, okay? But we looked at two things. We looked at the incremental CD ratio. And that's where it went beyond my comfort level. So we have to look at many ratios, just not CD ratio. We looked at the incremental CD ratio, and that was uncomfortable to me. So I said that we will bring down the incremental CD ratio, which automatically will bring the CD ratio down.
Secondly, I said 90% is a comfort zone in a comfortable environment when business as usual, and everything is fine. But that may not be right when you have a INR 3 lakh crore liquidity deficit, I am a very risk averse person. So given that perspective, in that environment, because on a small balance sheet like this, these percentages can swing big time this way, that way in a very short span of time.
So I would be adding on the side of caution, which should impact my NIM, which would impact my -- because all this money, which is there, will go into investments, which has almost negative will, right, right now because this will come around repo rate and things like that, but your funding cost is higher than that.
But still, I say that liquidity risk is also a risk in the system. And given the situation, what it is, how do we know what happens next year. So given that, I think we took a conscious call saying that let's wait and watch for a while. It's not that we targeted 83%. I mean, I wish we could do that. It is just that we said that we don't want to do business below a certain rate and with a certain kind of a risk. So once we stop doing that, automatically, we reached a level of 83% on CD ratio. Is it that we can go up to 85%, 86%? Answer is yes, okay? And hence, maybe this quarter, we'll be a little more -- a little lesser cautious, let me put it this way. But to ensure that we do not touch 90%, we needed to apply this caution, so we have applied this caution.
Got it, sir. And on the cost of fund side, so how -- when do you see it peaking? Could it easily comfortably go up for the next 2 quarters as well, given the liquidity environment?
Yes. So what will happen Mona is, it completely depends on the portfolio tenor of liquid -- deposit tenor of portfolios, right? So typically people who were sitting on a long tenor when these interest rates started going up, those things will come for repricing. And people who are sitting on a short-term tenure, there repricing have already happened. So it depends on that situation, which bank is where.
Most of our tenors are typically around 1 year for us and little lesser. We don't have very long tenure NPAs right now. So I would say that give it another 3 months for us, I think it will sort of peak, hopefully, okay? But what we don't know is that this liquidity challenge is over because the problem is the incremental business. I thought this quarter it has peaked.
But until the end of the quarter, I saw also CD rates in the market, especially on the shorter term, which is 12 months and below is very, very elevated. So given that perspective, it is very difficult to say that how the cost of funds will go. So we are factoring in a situation where next 3 to 6 months, it can still go up. But for us, the deposit repricing reason, I think that will be over in the next 3 months.
Sure, sir. Got that. And just one final question on the credit cost front, so we continue to see negative credit costs for the bank for the last couple of quarters. So is this mostly driven by recovery from written-off accounts? And how big is the written-off pool as of now for the bank?
That data may not be in the public domain, so -- but I'll give you a sense of your question. So this quarter is -- I mean, we have been on a negative credit cost for a while now. How many quarters I'm providing also, okay? But will it continue forever? Answer is no. Next year, it may not continue at this level. But even if you look at this quarter, let's look at each of the parameters. The slippages are significantly lower than last quarter's, okay? .
The gross formation is also significantly lower than last quarter. The GNPA is lower. The NNPA is lower, okay? So when you look at all the parameters and recovery is also slightly lower than last quarter, but still it is relatively okay, okay?
Given all this, I think we had a very -- and this is happening when you are at INR 106 crores of contingency provision, plus another almost INR 53 crores, INR 54 crores of provision because of our conservative provision norm. So overall, I think around INR 160 crores, INR 170 crores of overall additional provision, which is there in the system. .
Not that we want to touch this contingency provision unless it is -- unless as per formula what we have done, it is to be touched. So to that extent, we are really sitting on a very, very safe quality portfolio and negative credit costs may not be forever. But given that slippage is, I think that is more important to me than recovery-based negative credit costs that itself is very, very comfortable. So on this front, I think we're doing very, very well.
[Operator Instructions] We have the next question from the line of Manan Tijoriwala from ICICI Prudential Asset Management.
I just had one question. Sir, I see the yields have improved almost 68, 70 bps quarter-on-quarter. So could you walk us through what exactly has changed from last quarter because last quarter, we had some gold loans at -- which we pared down, so that brought it down. So how does it come back now?
So two things has happened, Manan. Thanks for your question. One is, as I said that we took a very conscious call of not doing businesses, which will come at a low yield, okay? Because I looked at it this way, that what is my incremental cost of deposits for the highest deposit which I'm taking at -- highest cost deposit I'm taking. Let's say, that is at 8-point-some percent.
And I said, if I take it that incremental business, on an incremental basis, why do I need to take that business on the SME side or on the corporate side, which I just explained to Mona. So those businesses we refused. I said that we'll not do businesses on averages. We'll do business on marginal costing, the service marginal additions. So that's the way we actually very consciously improved our yield.
On gold loan also, if you see that last quarter, we ran off some of this book, okay, which were coming at reasonably but the -- we have started rebooking some of these businesses now because our -- what is this called, LTV has now come down to a level where we wanted it to. So given that perspective, we should start booking gold loan at a higher yield again, because our LTV is at a comfortable level. But again, if we see our LTV going up to 78%, 79%, 80% not because of our reasons, but because of market reasons, which is price driven, gold prices falls, then again, our yield will start coming down, because then again, we will slow down some of this portfolio which will come at high yield and a higher LTV.
So that is the reason why this will be seasonal to some extent and will vary based on the gold prices. But primary reason for yield increases basically we refuse businesses which are coming at very low yield and very competitive yield, we said that our incremental cost -- our marginal cost of deposits, this is not making sense.
But it's largely from the gold business, and if I understand correctly, the increase that we're seeing now.
Our yields have gone up in retail, in gold, in SME also. I think it has gone up all across. So yield has been an overall story for us.
Understood. Sir, one more question on the CASA plus retail TD, how is the performance going? And how do you see it from here on? As in if you could see -- if you could talk about what it was, say the same time last year versus this year now?
So I'll tell you, we have grown CASA by 6%, but I will acknowledge and I've told it in the past also that it will take us at least 1 more year to start building the CASA franchise, okay? Because primarily, we have been a gold loan franchise, okay. Because primarily we have been a gold loan franchise, most of our customers have been -- have not been in that level where you can build a very strong CASA franchise.
And until we have the post-system in place while all other things are in place, like the branches, the distribution, the people, the leadership, the products are also in place now, but unless we have the system, I'm not willing to invest after acquiring so many customers where we cannot give the kind of a service and that kind of thing, which HDFC or Axis can give, then it will be difficult to build that franchise.
So I'm keeping the franchise growth on my CASA, including CAR only after FY '25 onwards. Till then will depend on, to some extent, the retail TD. It's not that CASA is not growing. CASA is growing, but only at that level, right? And that's the story of the industry also, they are growing slow, but we are growing slower. On the -- so what we are doing? We are saying that deposit franchise we build FY '25 onwards.
Till then to ensure we support our growth, we'll have a funding structure in place, okay? Now the funding structure will be a combination of -- CASA will be a small portion of that, and we'll retain our growth of anywhere between 5% to 15% or whatever. So the CASA percentage is not going to come up too much if you continue to grow at 20%, 21% on the deposit side.
But what will happen is that we are looking at borrowings as another way. Our CD book is also doing well. We have built slightly larger deposits based on our relationship. We have created a vertical on task and some of these other relationships. So while we are growing the retail deposits, but at the same time, we are building from the other deposits as well.
So this will continue for another year or so, and then we'll start the liability franchise. I'm being very honest about it that right now there's no point talking too much about the CASA and retail franchise till our systems and processes are in place. That will be in place, and we have completely planned it out FY '25 onwards.
The next question is from the line of Prabal from AMBIT.
Sir, my first question is again on the deposit side, so congratulations on the kind of accretion mobilization that we saw during the quarter. In term deposits are there particular schemes, say, 190 day schemes or 500 day schemes, which is helping up beef up the mobilization?
Yes. Almost every bank has, we also have a particular bucket. And typically, most of the deposits gravitate towards that bucket, which is 444 days -- I think 444 days is our bucket where we get 7.75. So that kind of a bucket we have. So most of the 1-year plus kind of a deposit is coming in that bucket.
Having said that, there are deposits which also comes at a slightly more elevated costs also closer to 8%. And those are typically slightly larger ticket deposits, typical institutional deposits, et cetera. And also, we have to understand that in such a way the entire design has happened between LCR, NSFR, CASA ratio, deposit growth and CD ratio, the whole complexity is such that there is no escape of doing one kind of a business, you have to have a very balanced business.
So I think -- I must give credit to the team that the way they have built up the entire business that we have ticked almost all the boxes. Deposit growth, we have ticked. LCL, we have ticked. CD ratio, we have ticked. Only we have not ticked the CASA ratio, and I'm telling you this will not get ticked for the next 2 years.
Cost of funds, we have ticked, okay? So almost all the parameters we have ticked. So there must be something which you're doing right on the liability side of the business, in spite of the fact that we are not having our franchise, which will happen FY '25 onwards.
Understood, sir. Sir, my second question will be, going ahead the cost of funds rise for us which is true for the system as well. Which are the segments of the loan side where we can pass on these higher cost of funds? Because gold loans typically are quite volatile, they tend to be in the range of 11% to 11.5%. So are there some other segments that you've identified where you can pass on these rates?
Yes. So cost of funds has typically gone up by around 1% or so in the last 1 year. And on a 9 months basis, year-on-year basis and cost of deposits have almost gone up by 1.2%, 1.3%. So roughly, anything between 90 basis points to 130 basis points depending on what kind of cost of deposits we are talking about has gone up, cost of fund we're talking about. .
How do we pass it on? Answer is some, we cannot. That's why you see that our NIM in spite of the fact it is 5.11%, it was on a 9-month basis -- last year on a 9-month basis it was 5.52%. So 40 basis points sacrifice on NIM has already happened on a 9-month basis. So we cannot pass on everything. Having said that, I think it's -- if every business starts picking up a little bit.
So the way I handle it on the execution side is very I tell wholesale that if you were at this level, you have to get me 20 basis points more. Same thing I tell SME. So SME has actually given me a much higher yield this quarter, okay? And same -- and of course, gold loan also has gone up this quarter.
So given that, I think it's that incremental part, which is more of an execution story, it's not that one size fits all. But yes, there is some impact on the NIM, which you can already see when you look at a year-on-year basis, roughly around 40 to 50 basis points impact on the NIM.
So let's say, 20 basis points higher on some segments. This is driven by more prudent or selective customer basis? Or how do they how -- how are they able generate more yields from same portfolio?
So it's very simple. What we said is that -- I said that below this trade will not do business. In fact, you will be happy to know that there are a lot of banks when I look at most of the results of the other banks, the variation between yields between 1 portfolio or 1 customer to another portfolio and another customer is anywhere between 6%, 7%, 8% difference.
For us, the highest yield is around 12%, lowest yield is around 8.7% or 8.9% or something like that. So our -- that range is very low, okay, between 3% -- 3%, 3.5%. That's the way we operate in a very small range. So what it means is, effectively, we are not taking the high risk, okay? And we are willing to sacrifice business, which comes at -- where we think that the business ROI is not right for our kind of a bank at this stage, okay?
Some of the other banks can do it because they have other incomes whether it's on the wealth side, whether in the transaction banking side, I'm not saying they're doing wrong business, they're doing the right business. But given the life cycle we are in right now, because our cross-sell opportunity into wholesale and SME is relatively lesser compared to some of these other large banks, so we have to primarily play the LTV.
So we play in this 9% to 12% range. 12% for gold loans, 12 or lesser than that. Actually less than 12% here and more than 9% there. So in that range, we operate. So that's the way we do. So we refuse business which doesn't make sense for us. But that does not mean we're taking higher risky business. We don't do business at 13%, 14% also.
So let's say, if the maximum is 20%, and with our OpEx...
There are some agri business, which can be slightly higher than that, some micro finance, which can be slightly higher than that, but they are very, very small in terms of contribution to the portfolio, it is very, very small. I'm taking out the agri and the microfinance business, but they are very small in terms of contribution to the bank. Sorry, your question?
But we see the cost of funds of 5.5% and OpEx to asset of 4%. So if you are doing business at say 11%, that is hardly making us money in an environment where credit cost is benign, this could still be supportive to us. But as the environment normalizes, could there be a risk of ROA of return ratios getting diluted because of this strategy?
So let me put it this way. I mean, if you -- the way you're calculating then banking business would have never made sense. So I can put our calculation on it said and say that in spite of all this, I'm having a NIM of 5.11%, right? So it depends on which statistics you're looking at.
Plus, when you look at ROA, we have almost 1.8% ROA. which also happens because now on the fee side, we have now almost 14% consistent basis. We are having 14% fee -- noninterest income to total interest income. This used to be on the core noninterest income. This is to below 5% at some point of time in the bank.
So it's -- how you create the ROA tree overall and how you ensure that you manage the cost of funds and build the right business depending on what ROA you generate. So I don't think that calculation works for us because there will be businesses which also comes with lesser risk, okay?
There will be businesses which comes with a lot more franchise building on the wholesale side in the long run. So -- and also -- some of these are funded with lower tenure kind of deposits also from my perspective. So it's more complicated than this. But net-net, we are saying that our NIM will be 5% for the full year or more.
And next year, even if it comes down a little bit, it will not go down under 4.5 on any circumstance. ROA, we will be between 1.8 to 2. And next year, we will be even in a difficult phase where our other businesses are picking up, which is ROA is lesser, we will be within 1.5 to 1.8. So given that, I think that's the play we'll play, and we should be able to deliver that.
Sir, just last one question. So you mentioned about balancing growth between gold loan portfolio and non-gold loan portfolio. So which sort of segments this quarter we get see retail picking up by 5% sequentially? Going ahead, which segments would you say that are ready for now growth traction and we should start seeing pickup there as well?
See, for another 2 years, we are in love with gold. So gold will continue to do well because it doesn't take away the risk -- I mean, it doesn't need risk as much. It has high yield. Our losses are -- the NPA in gold loan is lesser than the bank level NPA, which itself is only 31 basis points. And gold loan is much lesser than that. So -- and the cost of operations is high, but that is already baked into the system.
So as long as these equations are there, we'll continue to focus on gold loan and do that business. I'm not saying. I said in the long run by FY '30 gold loan will come down to 20-odd percent, not because we will de-focus on gold loan because all other businesses will start picking up after system starts delivering, which will start from FY '25 onwards.
Having said that, other than gold loan, which are the portfolio will start doing well? This year was muted in wholesale. I think FY '25 onwards, our wholesale will start picking up, SME will significantly pick up. Already SME is showing a 28% growth this year for the first time in a long period. I think they are fully engaged to take the growth further.
And retail on a small base, will grow much, much faster, but will it materially contribute? The answer is maybe no because ultimately, the -- it is only a 9% mix, 9 going to 10 won't make too much of a difference, and also some of the businesses which we didn't do so well, like agri, MFI and all this, this year. Agri, we actually didn't grow much. So some of these businesses will start picking up next year.
So overall, I think we should be able to grow. Growth in assets is not a problem for us. Our constraint will be, can we grow liability at higher -- more than 20% consistently with a reasonable cost. So that is something we have to notice. If we are able to grow that, we'll be able to grow by proportionately in -- then we have to choose which one we want to grow. So constant is liability. Constant is not growth on the asset side.
The next question is from the line of Pallavi Deshpande from Sameeksha Capital.
Just two here. Just first one would be what would be the increase in the rates that we've passed on to the NBFC given the increase in the risk weightage? And second question would be on the retail loan side, what share of the book is unsecured which you referred to which slowed down this quarter?
What is the second question, unsecured?
What is the share of unsecured loans to the total book?
Okay. So on the first question, let me tell you that this -- so this -- I mean, yes, RBI did raise 25 basis points on NBFC spreads. But we have not passed it on as such, unless there is a renewal happening or something happening, we have not deliberately passed it on. Because my thinking is like this. If there is a risk somewhere, why take higher risk, okay? .
So what we have got is, we have got a little more cautious, and seeing that which are the kind of NBFCs, because what is it? It is a translated risk. If there is -- hypothetically, if there is a risk that is emerging in unsecured space and small ticket unsecured space, and if certain NBFCs are doing business there in a large amount, then -- and if we lend there, then it's a translated risk, which is coming back to us, right? So that's the challenge.
So we have started getting a lot more careful on this kind of NBFCs where this kind of business are happening. And we have refused a lot of these businesses this quarter. So we have taken it more from a risk guidance perspective than a yield maximization perspective. We have not done that, okay?
Secondly, going ahead, I think while our NBFC proportion is slightly high in our wholesale book, but we have taken a conscious call of actually growing the other portfolio, and which will automatically bring down the NBFC as a part of our this thing. So that's the way we are going to manage this. We are taking the RBI direction, not as a yield maximization but as a risk management tool. On the second question on unsecured to total? What is it, Satish?
Pallavi, we don't have this information in the public domain in terms of what is the total unsecured. But if you look at the overall book composition, 48% is the gold loan, which is anyway fully secured. Then within retail also, quite a few products which we are doing are secured like CVC and all, are all...
Overall for the bank, it is not more than 2%, 3% maximum. .
Even SME also, it was secured business. So it is very small kind of a percentage.
So Pallavi, I'll tell you a simple answer. Our unsecured book in the whole bank is well below 5%.
[Operator Instructions] The next question is from the line of Shivaji Thapliyal from YES Securities.
Yes. So my question is really regarding some -- having some more color on the SME -- broader SME segment. So just wanted to understand what are the subsegments within SME? And what are the ticket sizes and what is the yield maybe for those subsegments? And between these subsegments, would -- are you getting the sense as you are piloting initiatives that maybe one segment is more attractive for you to do at this point in time over the next couple of years.
Just some color around what is happening within the SME segment? And also on the retail side, while you have answered which are the segments that you are seeing traction, but maybe from a long-term perspective, what will be some of your bread and butter retail segment? Will it be affordable housing, which part of vehicle finance and some color on the subsegments within SME and retail would be helpful.
Thanks, Shivaji, for both the questions. Both are very critical questions. So let me answer the retail first, then I will invite our Head of SME, Shyam Mani to give you full color of the SME business that he's building. On the retail side, again, because you said long term, so I will divide into short, medium and long.
Long term, our retail group will exactly look the way the industry looks at it, home loans, personal loans, auto loans, credit cards, all of that in those kind of a proportion because fundamentally the way we'll build our retail portfolio is based on how our liability franchise is getting built, which means that customer getting acquired, cross-selling to them is -- we are not going to go out and buy retail business through DSAs and all this external kind of channels.
So if that does not happen, our retail group will mirror how the customer franchise is building and based on it cross-sell to this. This is how I had built businesses always. This is how we'll build it here. In the short term, till the franchise -- liability franchise starts picking up, which will take 1 or 2 years till then we are doing businesses primarily through our internal customers.
Also, we are building bridge with the manufacturers, with the end customers directly, et cetera. And hence, short term is mirroring those kind of products like our auto, commercial equipment, commercial vehicles, loan against properties -- sorry -- so health care business. So these are very niche direct to customers, and you can address this segment in a -- because this is not distributed segments.
These are very concentrated segments, so we can address these customers and with our value-added services, we can -- with the manufacturer tie up, we can do these businesses. So that's primarily where our focus in the short term is. But medium to long term, we'll be exactly mirroring the franchise we will build on the liability side of the business.
That's the way we'll do retail asset business, the typical classical and classical way of building that business. On the SME side, you talked about the yield and all that. So on the yield, I think we are somewhere between 10% to 11% on the yield in SME book, okay? Rest of the thing segmentation, et cetera, let's Shyam answer this.
Thank you, Pralay. This is Shyam here. So just to give an outlay brief in terms of the way we have started scaling up on SME business. If I look at purely on a top line growth to growth, volume on disbursement, both fund-based and nonfund-based put together, we have grown 108 percentage as we speak.
So on the net growth is what it's hovering around 28 percentage at this point of time. Of course, there's been a late pickup because we were working on setting up our process, systems and the platforms right and also some of the policy upgradation which we need to do, which we have done. And post that, we are starting to see a momentum in the business. Because if I have to compare FY '23, we had ended up at around 5 percentage, currently it's moved up to 28%. So quarter-on-quarter, there is an upside movement in the overall net SME book as well.
So this year, as we speak, on a fund-based alone, on an overall disbursement we have done INR 1,066 crores in fund based, so limit set. And both nonfund-based and fund-based put together is INR 1,256 crores. So that obviously talks about -- there's been a stress on the existing book in terms of some clients, we had wanted it to outright, and some client due to interest rate pressure we have to let go.
As Pralay was mentioning that we're not compromising on the yield, and that's why overall the momentum and the book growth has been in line with our expectation. So specifically, on the ticket size, which you asked, the new-to-bank ticket size is around INR 6 crores, and overall ticket size at the portfolio level will be around INR 3 crores to INR 3.4 crores.
So we follow a hub-spoke model, branch centric where SME cluster has been identified and the key branches are identified, so we focus on the top quality branches. Within that, we focus on top 20 branches as catalyst and the next 22 branches as prime branches. And around that, we work with trade bodies, industry, association in terms of engaging with them so that we go and reach out to them with an industry solution.
So we had certain mortgage banking advisory tie-ups as well so that there could be a value add to these associations and industries. So primarily, the focus sector for us is manufacturing. Within manufacturing, light engineering as well as automobile, health care, pharma, food processing and to some extent, textile -- and textiles and apparels. And that's the way the progress has been, and we're very, very positive about further growth on this.
So my next question was around operating expenses. So I mean, while you have given an ultra long-term guidance that cost-to-income ratio will decline several years later. But -- just how -- what is the composition of the cost at this point in time? I mean, how much of that may be technology investments and for how long will these technology investments kind of continue? And when will they start to taper off? What -- so just some understanding of the glide path when it comes to operating expenses would be helpful.
Yes. So there are 3 primary costs if you look at the cost line. One is people. One is infrastructure, distribution and all this and, and third one technology. So these are the 3 primary cost lines for us. Within that, as you rightly said, that technology is highly front-end investment because we are rebuilding and rebooting the bank from an infrastructure perspective, technology as well as other infrastructure.
And -- but the only thing is a lot of this is CapEx. So it will flow through the P&L over the next 4, 5 years, okay? But most of these investments will be done in the next 2 years, okay? And then only MCs and some add-ons here and there will keep happening, which are like OpEx at that post 2, 3 years. So it will go through for the next 4 or 5 years, but it will start tapering off maybe FY '27, '28 onwards, and then -- and then it's a payback two year for technology starting from FY '27, '28 onwards, hence, the cost to income will severely taper off to below 50% by FY '30 to below 50%.
Coming to other 2 costs, which is distribution cost, typically, we will add around 75 to 100 branches every year, which as a percentage will be keep going down as the branches start picking up. And on the manpower side, that cost will keep growing because we want to keep investing on the acquisition side because once we have the technology ready for building the retail franchise, our manpower costs will continue to elevate, but not at the same level.
We are somewhere around 35%, 37% growth, I think, in manpower around 40% growth in manpower, cost is around -- cost growth will be somewhere close to 30%, I think. But that will start tapering off in 2, 3 years because -- especially when you have a ratio of cost to income because as the wholesale starts picking up and the SME starts picking up, then on a cost-to-income basis, those are low cost-to-income businesses, right, especially wholesale is a low cost-to-income businesses.
Once that mix starts going up and revenue starts coming from there, then cost to income also starts tapering off. So given these 3 situations -- also on branches, not only percentage of branches growth will start coming down, some of these branches we are investing will start breaking even within 2 to 3 years of setting up, and that also will start tapering off.
So we have done all these calculation, and that's where we are saying that how we are confident that by FY '30, our cost to income will be well below 50%. And currently for the next 1, 1.5 years, it will remain around 65-odd percent or close to it. And then it will start tapering off maybe by FY '25, '26 onwards below 60% and then below 50% by FY '30.
[Operator Instructions] We have the next question from the line of Pallavi Deshpande from Sameeksha Capital.
So just wanted to understand again on the previous, the cost to income side. Like you mentioned, we have this -- where does it peak, I mean up or are we exclusively implementing now. So that is implemented by when? And 65 is the peak or do you see it going beyond that in the short term?
No. So see, this is hovering between 60 to 65 right now. So we are very close to 65 quarter or two back. Now we are back to somewhere around 62%. But this will keep happening because of other income or cost because it's a ratio at the end of the day. So we are saying between 60% to 65%, we will hover. But for sure, it will start on a glide path starting FY '25, '26 onwards. And then it will go to below 60 and then below 50 by FY '30, that's what I said. But right now, it will fluctuate a little bit because on that quarter how it has gone in terms of income and costs and things like that. But for sure, the technology costs will be hitting us for the next 2 years.
The tax spend would do what percentage of PBT number, I think for the large bank, it's around 9%, 10%, perhaps you could...
It will on -- it will be well above that.
Right. And so the absolute amount will -- like, I mean, like you said, on the income side, you can have other income on the absolute amount, or do you have some guidance, right, the increase in absolute amount for the mix.
We know that number, but we don't give it in public domain, but it's a significantly higher percentage compared to what you just mentioned for the next 2 or 3 years.
The next question is from the line of Mona Khetan from Dolat Capital.
Yes. I just had one query on the fee income side. So we have seen a strong growth on the fee side in the last few quarters. But I just want to check whether we still have more levers? Are we already seeing a good contribution from lines like transaction banking or that's yet to play out for the bank?
Very good question, Mona. So the transaction banking side, we have just started. The PFX income will continue to grow as our wholesale side of the business and the SME side of the business starts doing the sophisticated conversations with customers, and that will happen now. So transaction banking fee will start going up from next year much more. We have set up the team. And -- in terms of percentage, you will see that we are around -- hovering between 13% to 15%. Last quarter was exception. But generally, we will be happy with this range because most of the other banks are in this range, except for some large banks who are in the 17% range. .
This is where our sweet spot is around 15%. We were 5 actually. So from there -- once we have reached there, the easy job is done. Now how do we go from 14 to 17 on a consistent basis is the next journey. We'll be happy to be there. I think we'll achieve that also at some stage. But also, you must understand that right now, NIE is also a little muted right now.
So because of that, the ratio is sometimes also very high. The ratio is a very funny subject. So now NII also starts picking up, which is good news for us is if noninterest income also goes up, interest income also goes up, our overall income goes up, so that is fine. But generally, our sweet spot is between 13% to 17%.
[Operator Instructions] We have the next question from the line of Shivaji Thapliyal from YES Securities.
Just one clarification. You pointed out that the tech spend is more than the figure that was quoted by the previous -- one of the previous participants. So the 9% figure that was quoted is to be taken as a proportion of total OpEx or PBT, I mean...
I thought you said PBT, you said, PBT.
Yes, PBT.
Yes, PBT.
So it's more than 9% of PBT. So how much will it -- so it may not be more than 9% of total OpEx or what would you peg it at as?
I only responded Shivaji to the question which was asked that some of the other large banks are around 9% of PBT. What I'm saying is that ours is higher than that at this point of time. It may not be forever, but at least for the next 2, 3 years.
Yes. But just to clarify, I think the 9% figure is the ballpark that we have been noticing in other conference calls is as a proportion of total OpEx and not for PBT.
Okay, okay. But I calculate it as a PBT, so will be higher than the PBT. On the total OpEx, what is our OpEx, Satish?
Total income is about INR 500 crores.
No, no OpEx he is saying. What is the total OpEx.
INR 310 crores for the quarter.
Then it will be much higher than that, okay? Much, much higher.
So it's much higher than 9% of total OpEx.
Absolutely. And this is for the quarter or for the year?
No, this is for the quarter I'm saying.
No, no, no. Then it will not be. It will be around that number, close to that number. Because I reacted, I thought it is talking about the PBT. If it is OpEx, 9% of OpEx, then our ballpark will be there, somewhere there.
We have no further questions. I would now like to hand the conference over to the management for closing comments. Over to you, sir.
Thank you, Shivaji. Thank you, everybody, for participating in our conference call, and look forward to even more exciting Q4. Thank you very much.
Thank you. On behalf of YES Securities, that concludes this conference. Thank you all for joining us. You may now disconnect your lines.