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Ladies and gentlemen, good evening, and welcome to the CSB Bank Q4 FY '23 Earnings Conference Call hosted by Axis Capital Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Chirag Negandhi from Axis Capital. Thank you. Over to you.
Yes. Thank you, Ryan. Good evening, and hello, everyone. On behalf of Axis Capital, I would like to welcome you all to Q4 FY '23 earnings call of CSB Bank.
From the management, we have with us Mr. Pralay Mondal, MD and CEO. Along with him, we also have Mr. B.K. Divakara, Chief Financial Officer. Now I will request MD, sir, to begin with by giving his opening remarks, and then we can open the floor to Q&A. Thank you, and over to you, sir.
Thank you, Chirag, and thank you, everybody, for joining the Q4 and annual results call of CSB Bank. So to start with, I'll give you a very brief or understanding of the global scenario and then the domestic scenario as well.
So on the global economic activity, we can see while it remains the -- troubles amid the high inflation levels, tight financial conditions and looming geopolitical uncertainties, amid the slow growth and target is easing of inflation, the global slowdown impact was turning out to be less severe than expected. So far at least, that's what it looks, but we have to wait and watch.
These conditions are expected to do well for a while and inflation rates -- until inflation rates moderate significantly. Both IMF and the World Bank have projected world output year-on-year growth rates of less than 3% in 2023 and marginally above 3% in 2024. And market, we expect to have 25 bps Fed rate hike in May '23 and then take a call to pause provided there are no major debt or surprises in letting action beyond May.
On the domestic side, of course, global challenges [indiscernible]. Indian economy continues to be looked as a bright spot, both locally as well as the [indiscernible] global commentary. Domestic growth was [indiscernible] in Q4 of FY '23.
[indiscernible] has revised the inflation position to lower levels and to a tactical [indiscernible] decision in the last [NPC] forming its downturn, which accommodation to ensure the progressive alignment of inflation within the target was supporting the growth.
The latest [NPC] announcement penetration for FY '24 is 35.2%, [indiscernible] at 6.5%. At the time, the inflation is within the target. No rate hikes are expected in the short term until and unless there are any surprises on the strong [growth] releases.
[indiscernible] that's plunged from a band of 7.35 to 7.4 in March to around 7.1 to 7.15 levels right now after the policy announcements. Liquidity, that has -- was in a slight deficit mode, went to a surplus around 2 lakh crores and which has normalized a little bit more now.
The cumulative impact of monthly action again in FY '23 is still unfolding, and the real rate of transmission is getting still the quarter FY '24. As per [indiscernible] statistics, the banking system deposits grew by around 10% this quarter and advances by around 16% for the year.
So -- and also as reading [indiscernible] Nomura that next year, that growth is expected. Nominally the pay will be around 10% to 12%. But credit result is also not expected much higher than that.
So on that backdrop, let me just get to the specifics of this quarter and this year performance. So overall, the performance on both top line and bottom line was reasonably good on a quarterly and financial year basis.
Highlights of our performance and just quickly top of the key highlights. Improved profitability, net profit of INR 547 crores, up by around 19% from last FY. For the quarter ended 31/3/23, the net profit is at INR 156.34 crores, which is up 20% versus Q4 of last year.
Provisioning buffer of around INR 170 crores over and above the regulatory requirements. We've maintained the mean above 5% for the quarter and FY 2023 around 5.38 and 5.48, respectively.
ROE improved Y-o-Y from 1.9% to 2.06% for FY '23. On the liability side, I think the team put up a good show because it's [due] by 21% year-on-year as industry growth of around 10%.
CASA ratio improved marginally Q-on-Q from 31.44% to 32.18% percent though on a year-on-year basis, there is a slight negative growth in CASA ratio. Assets growth made advance growth of 31% Y-o-Y and 12% quarter-on-quarter.
Industry has grown about 16% Y-o-Y. Gold portfolio registered a growth of 48% Y-o-Y and 10% Q-on-Q. Yield on advances for Q4 FY '23 is at 11.17% with an improvement of 15 bps from Q3 to FY '23. Yield on assets for FY '23 is 10.92, and this was 11.21 in FY '22.
Improved asset gold metrics is also another key highlight. We are pretty well in all key levers like GMP around FY 0.26%, and NPA at 35 basis points, 0.35% and PCR, 92%, which is with the write-off included. And contingency provisions accounted in the books is high, higher than an NPA, continuing with the accelerated NPA provision higher than the RBI requirements and contingency provisions.
We have fully provided the FY portfolio in line with the guidelines. And on the capital, in spite of a growth of 30% -- almost 30%, the CRAR is above 25. It's around 27.10%. Low proportion of risk-weighted assets compared to the industry as [percentage].
And on the shareholder value creation, book value per share has reached 1 73; EPS, 31.55; ROA, 20.35%. On the investments, we are making major investments into branches. So plan to open at least 100 more branches in FY '24, working on technology enhancements, lending system, [indiscernible] systems, payments channels, support system.
I mean, there's a host of world that is going on the technology side and a major investment this year. I mean, this year, our investment is on technology, distribution, [indiscernible] and channels.
And also, we will become a true -- truly pan India bank because more than 60% of our branches, incremental branches this year will be not [enlist] in our [assumptions]..
In conclusion, the success of our organization has 4 elements in it: vision, aspiration, passion and execution. Our vision for now is 2030, which is the sustain, build and scale team launched last year, which is well [indiscernible] within SBM, and they're translating into reality.
The management team is praying for this to happen and working towards it. Achievements in the year gone by have boosted our confidence as far as the resolution is concerned. And we will embark into the most crucial build phase for 2030.
In FY '24, we are planning a lot of investments, especially in the technology space, which I just talked about. The payback pillar will be closely tracked. We know that it is an exciting journey, and the kind of synergistic approach you're taking within the bank will continue to expand our footprint pan-India. And we will begin focus on driving goals, and we hope to have an even better year next FY.
With that, I hand over to Mr. Divakara. You want to add a few points? Post which, we will hand over the conference back for the questions.
Nothing specific from my side, Pralay. You have elaborately covered it. So during question-and-answer session, if anything needs to be clarified, I will [indiscernible] it.
Sure. Thank you. So we can get into the Q&A.
[Operator Instructions] Our first question comes from the line of Jay [indiscernible] from LIC Mutual Fund.
Two questions. One, first on if you can comment on any more HR hiring which you're looking or which you have done in this quarter on the senior leadership side?
So we are almost 70% done on the leadership side. So -- and we -- when we say senior leadership, now we are no longer looking at only CXO level because CXO level almost 80% is done. We are looking at CXO plus 1 and CXO plus 2 as well. And we have significantly enhanced that side of the -- not leadership strength out there. We are also bringing a lot of hiring on the front end as well and each every product vertical and every business vertical and support verticals.
So we are enhancing everything because the way we are planning our growth next year and for the next 7 years still follow SBS 2030, we are not looking at a single or 2 or 3 products. We are looking at whole service franchise and for which the only way to do is to create the right verticalization so that there is a clear focus on this and then increase the verticalization through our common kind of a platform.
So because of that, we are significantly -- we have actually significantly had a lot of [indiscernible] in the last 6 months, and we'll continue to have more hirings there. So last year, overall, our number of people was hired was around 2,200.
This year, which is around 46% or 47% growth in terms of manpower. Next year, we are looking at even higher growth in terms of absolute numbers. And in terms of percentage growth, it should be almost similar what we do this year. So we'll continue to invest into our human capital franchise.
Great, sir. And on the SME loan book side, we have seen a sequential improvement this quarter. Is it more to do in market or function? Or is it more to do that you have the system, teams in place and now the sequential uptick [indiscernible] from the SME portfolio side?
Sure. No, great question. I told this before. Again, I'm repeating that. One is we took last year as an opportunity because I felt in the first 3 quarters somehow at least from our risk appetite, the pricing of the risk was not happening in the market. And given we are a bank with a NIM of 5% plus and given that our risk appetite is very, very low, so we didn't want to significantly expand the business when pricing of the risk was not to our appetite.
However, we saw that changing in the Q4 of this year -- of last year, last FY. So if you see our Q-on-Q growth is around 10% on SME last quarter. And we hope that we will continue the momentum going into next year unless the market scenario changes.
At the same time, we also exited a lot of accounts last year, some we exited because we didn't like the business. And some we exited because the kind of reps which they are asking, we didn't want to participate there.
So -- but in terms of absolute growth in limit setting, et cetera, we did a pretty good job in Q4. So we are happy that, that momentum is starting to pick up now.
Also, we are going pan-India in terms of our SME going [pan-india] in terms of franchise. And one of our main models will be to work with every branch, and we are launching our current account under [indiscernible] team, by which within the SME, the current accounting, and we have also launched transaction banking.
And we have got a very senior resource who will be heading the -- who is heading the transaction banking. So between these 3 translations will ensure that our SME business starts picking up this year now. So this will be a growth engine for the next 7 years.
Great, sir. Just last question on data getting your -- your CER increased to 27% on a Q-on-Q basis, while the profit is kind of same as Q3. And we also have the risk -- RWA to total asset has increased. So if you can help us to understand the reason behind CER increase.
I think Mr. Divakara will answer this question, but let me try and then I'll hand over to him. I think one is our -- some of the backing of some of the profits, which also comes in. Also risk-weighted assets is also low because our gold portfolio has grown faster and hence, our risk-weighted assets to that extent is doing well, but let Mr. Divakara answer this.
Yes, yes. Apart from that also, so as per RBI guidelines for taking advantage of this external ratings, we need to incorporate bank's NIM. So somewhere in some of these cases, though they have promised to include our bank NIM, they couldn't do it for the results about almost INR 1,000 crores of [indiscernible]. Our risk-weighted assets have gone up on account of non-inclusion of bank's NIM in the external rating they exercise.
So otherwise, by and large, it is in line with the movement in credit enhancement. So apart from that, this is also one of the major reasons why the sales having shown higher profit growth to this capital [indiscernible] move in time with this profit growth.
So maybe that is going to be corrected this year, which is what we have been told at the time of next annual exercise of this external rating. They say that they promise to include our bank's NIM. In quite a few cases, they couldn't do this. So that's why we couldn't get an advantage that it...
Sorry to interrupt, sir. But just because the Q3 to Q4, there's a 200 basis point increase in CER, while our RWA to total assets has also increased from 38% to 40%. So you're saying INR 1,000 crores is because the CER should be up more than the current number. That's what you're saying? I didn't get this answer.
Yes, yes because that is the March 31 of the deadline for the success rate to be completed. That impact was [felt in] this quarter only, not in the earlier quarter. That is one of the reasons. The other one is credit growth has happened. So the Q4 growth was quite sharp in this quarter. So these are the 2 main reasons.
Okay.
No, I think, Mr. Divakara, the question is asking is that in spite of the fact that risk-weighted assets has gone up, why -- how is it that we have been able to show a sharp uptick in our [indiscernible] when [indiscernible] asset. So I think because of primarily the profit growth and the balance sheet growth, right?
So profit will be recorded only at the year-end. So first 3 quarters ago, we have been making profit as we couldn't get that benefit. For capital adequacy purposes, that gets accounted only in Q4. So only when the annual is published, the results are announced.
Our next question comes from the line of Pratul Shah from [indiscernible] Advisors.
Congrats on the set of numbers. My question is with respect to the loan book distribution based on interest rate methodology, so what is the proportion of loan book which is [REPO] linked and CRE linked and fixed rate if you can give a number?
Mr. Divakara, you will have that specific number. I know broadly, but if you have that specific number, [indiscernible] broad numbers.
Just a second. The rate of interest is 58%. So because predominantly, so we are into the gold loan business. That is why 58% is fixed at rate of loans. [indiscernible] 27% and the report increased 11%.
Okay.
Broadly, the way it is the corporate book is primarily [indiscernible] linked. The SME is primarily report linked. And on the loan is mostly fixed rate. And on retail, it's a mix of both fixed as well as variable rate. But it broadly mirrors the portfolio mix in the bank.
Okay. Got it. Got it. And sir, one other question with respect to cost of borrowing. So Q-o-Q, we see the cost of borrowing has gone up in the quarter. So what was the main reason for it, whether it was to -- and also our rate deposit ratio has gone up in the quarter. So is it that because we are getting opportunity in case of advances, we are borrowing at a higher rate? Is this understanding correct? Would you like to comment on that part with respect to cost of borrowings and CD ratio both?
So I'll give you my perspective on a macro and other kind of a high level, then Mr. Divakara can dissect the numbers. So we are very clear that the scenario where we are in on a global banking scenario, and we cannot be completely insulated from what is happening globally.
And in a way, now we also heard that from [indiscernible] governor speech, which was published in media today, is the liquidity management and then the capital management is a top priority of the banking because that ensures -- insulates the banks from any kind of an unnecessary risk.
So while none of that is hitting the Indian shores today but I think we need to be prudent. So from that perspective, on the capital side, we are very well protected because we are one of the highest CRE issuers in the banking ecosystem.
On the liquidity side, I was very clear that we are looking at growth, strategically I'm saying, we are looking at growth for the next 7 years. And when we're looking at growth, and I've said this before, that I will -- I'm willing to sacrifice margins for growth, okay?
So ultimately, we are building a large franchise, and we leverage the franchise over the next decade, 2 decades. So given that perspective, a few basis points here and there, I don't want to lose my sleep on that.
So given that perspective, we are very clear that we will focus on ensuring that our LCR, our liquidity and our ability to grow the asset side is not constrained by any kind of a liquidity risk or any kind of a liquidity availability. So given that perspective, we have grown our deposits twice the system, which is 21%, which is 10%. That's number one.
And even with all that, if you look at our CD ratio is if you look at all the private sector banks, we are well within that range, actually on the lower end of that range. And I think 83% if I remembered the number correctly. And on the -- I think 83% to 84%, I think some are there.
And on the -- in spite of doing all that and despite of the fact our broad comfort is between -- around 5% on NIM, we have been able to retain the NIM at a very, very healthy rate. So at this mean and with this growth and with this level of LCR are comfortably in having a few basis points going up on the cost of borrowing or cost of deposits. So I have no issues with that.
And the good news is that we are seeing that [indiscernible]] you said is tapering down. And hopefully, the red cycle is coming almost to a close to peak. So given that, I think our strategy is playing out very, very well.
The other thing which we have done very tactically is we are not kind of taken long-term deposits or long-term CDs. We have kept our listing pretty short term. And to that extent, whatever is there, we are not going to get bound by a hard [bread] for too long a time once the interest rate starts getting flat to starts coming down.
So overall, strategically, we are going this way. And I'm pretty confident that we should be able to be closer to 5%, 5% plus for some more time. And given the perspective, we are quite happy in building some buffer in the liability side. So that's broadly the strategy perspective the bank has.
Okay, sir. And also one thing that this quarter gone, RBI has increased the repo rate, but we have reduced our MCLR in the same quarter. So what's the strategy there in case you can comment on that part?
I'll request Mr. Divakara to answer this. But before that, I just wanted to add one more point in my previous response that we have also tactically brought down, for example, a CD last year on 31/3/22, just INR 520 crores. This year, we ended with only INR 96 crores of CD, so 2023 March.
So which means that most of the liability side of the business we're seeing are mostly deposit-focused and hence, core franchise. So with that, Mr. Divakara, would you like to answer the question on reported and MCLR?
The margin and cost, the MCLR has been reduced by 2 basis points because it is being completed as per RBI guideline. So with operating cost slightly -- it has come down. So based on that, [formula] has been worked out.
But it is not that quite steep. So it's only by a few basis points only it has come down. And that has been passed on to the customer because our MCLR is already very high. So as and when some opportunities are there to pass on the benefit to the customers, why can't we do that? So based on that, it has been done.
Our next question comes from the line of [indiscernible] from Prosperity Wealth Advisor.
Yes, am i audible?
Yes, yes. Yes on that.
Okay, yes. So 2 questions. One is we had an impact in NIM quarter-over-quarter. From first quarter FY '23, there was a good increase, and then we had a drop in last quarter. So what would be the reason behind that?
So as I said before that in general, I'm not saying guidance, but in general, in my -- all my previous analyst calls, I have said that we are quite happy to have a NIM closer to 5%, but we'll forgo some growth because NIM by itself doesn't mean anything, which we have brought the growth, which is doubled in the system.
But -- and on the NIM is also is a function of the mix of businesses, the cost of funds and various other things, right? So to that extent, I think we are, on a year-on-year basis if you look at NIM, it's looking okay. Maybe on a quarterly basis, it is slightly tapered down from that perspective. So I think it's 5.38.
5.38 for the quarter.
Yes, yes. For the quarter, it has been slightly down. But when you look at Q1 versus Q4, we are pretty much okay out there. And when you look at Q4 last year, this year Q1 we're almost similar. So I think this will play in this range between 5 to 5.5. And we hope to retain at this kind of a level.
So we should not have a problem with this. But we are quite happy being in this range. Too high a NIM is not sustainable when you're growing a franchise consistently.
Okay. And you also said in your remarks that you have a [indiscernible] target of opening 100 new branches.
That's right.
Yes. So that would be for the full financial year?
Yes, for the full financial year. So I'll tell you that strategically what the thinking is that we are going to start focusing on building the CASA franchise now, okay? I'm sure some questions will come on CASA at some stage, so let me just upfront it.
And hence, the CASA franchise will not be built on gold-focused branches. So we are expanding significantly in North and West. Almost 50%, 60% of our new branch openings, almost 60% of our new branch openings this year will be not [indiscernible].
Along with that, we are building products which will help us in building the CASA. CASA is not always grown by just focusing on liability. So we will start retail assets. We are starting payments. We are starting SME in a big way.
We have the best building transaction banking. We have the best non current accounts in our both savings and current and [indiscernible] float. And that remains in the account depending on either transactions or usages.
So to that extent, we have to start building. And we have significantly grown our new acquisition this year, and we want to get significantly more new acquisition next year. So we are building a fairly large team to get new customers to the bank. And new customers to the bank only helps when we have the right products and services and the technology to onboard them and cross-sell other products.
So this entire journey is a 3-, 4-, 5-year kind of a journey, and we are starting it this year. And significant investment on technology is going to help us in scaling this from FY '25.
So our CASA journey is in a way, we are kind of a [indiscernible] this year. And this will see larger scale over a period of time. And hence, as we see FY '24, we should see similar kind of a CASA ratio as we are while we continue to grow at a similar kind of a pace next year, both on deposits and non advances.
So that's broadly what we are kind of strategically thinking of. So on the branches, I said that yes, we'll have 100 branches minimum. And out of that, 60% will be in north and west, and these are not necessarily [indiscernilbe] branches.
Our next question comes from the line of [indiscernible] from Moneylife Advisory Services.
My first question is regarding our gold loan origination. Can you provide me with the split of what percentage of our gold loans are we currently sourcing in-house? And what percentage are to -- externally through direct assignment, securitization, other means?
So this is an easy one. So the gold loan portfolio, what you're seeing has nothing on direct assignment. The Direct assignment portfolio is reported separately, and that comes under the wholesale banking business, which we do through [indiscernible] basis. That gold loan business, which you're seeing, have all organically in-house acquired customers within the bank.
Got it. Second -- my second question is around our treasury strategy. So I can see that we have a duration of about 4.5 [indiscernible.. I just wanted to understand what are -- how are we thinking about the duration strategy going forward?
Like are we going to be increasing the duration of our treasury portfolio like if we have a view on our interest rate? Or are we going to be conservative and sort of holding those duration securities for now?
So thanks for the question. So I will give a partial answer, and then Mr. Divakara can add to that. So obviously, in the overall global scenario, the way things are playing out, increasing the duration may not be the right kind of risk strategy or even from optically, it may not look the right thing to do.
So we obviously watch things out because treasury strategy can change depending on how the macro changes globally and in India. So what do I say now may change after a quarter or after 6 months, or after a year. But right now, what you are seeing and there are -- I mean, as you know, that the yields have softened a little bit in India, 10 years.
So from that perspective, I think we can tactically move some portfolio and book some not only profit but also reduce the duration of the portfolio. So I think we will use those tactical opportunities to ensure definitely, we don't increase the duration of the portfolio. Mr. Divakara, do you want to add anything to that?
Duration of AFS portfolio is already 0.37. It's only on account of this HTM. So we don't have anything in HFC also [indiscernible] at 5.6 points. So overall, it looks 4.57. But the AFS duration is a hardly [ 0.37% ]. So we don't anticipate any issues on the business.
Yes. But what we -- I understand the question, what you're saying. So I'll tell you what, I had done -- when this issue happened, et cetera, and this is for the entire banking ecosystem. So even when you're in HTM, you can say that hypothetically, what happens if -- I'm not saying that is going to happen, but I'm just saying what happens if you do a hypothetical calculation of [indiscernible] on a HTM portfolio as well.
And we do all the calculations. And we see whatever is, whatever this thing and what are the challenges, et cetera. So in that perspective, I think what Mr. Divakara is saying is right. At the same time, there will be tactical opportunities just so that you can move one time from HTM to AFS and A, book some profit; B, reduce the duration and things like that.
So we look at this technical opportunity. But overall, broadly, things don't change because we are not into majorly trading. And we -- as Mr. Divakara has just said that we don't keep much of AFS in our portfolio.
So that's our strategy. It's not a major -- we are not into majorly trading into this kind of portfolio. But duration, I don't see how it will significantly [indiscernible].
Our next question comes from the line of Mona Khetan from Dolat Capital.
So my first question is on the cost of deposits. So we saw this rise of 55 bps Q-on-Q rise in cost of deposits this quarter. So one, I just wanted to understand what exactly led to this? And two, assuming that there is no interest rate increase, what sort of rise in cost of funds per quarter could one sort of anticipate broadly speaking?
Thanks, Mona, for the question. In a way, I partially answered this question already that we wanted to ensure that we have enough buffer and dry gun powder in the system to grow not only for last year and last quarter but on a sustainable basis especially when on -- NIM and other things are looking very good.
So I don't -- somewhere, you have to ensure you take it all. So given that perspective, we have ensured that our LCR and our CD ratio and our liquidity is extremely strong.
Having said that, when so much of [indiscernible] happened on the deposit, at some point of time, some increase will happen on the cost of funds also -- sorry, on the cost of deposits also. So -- and that has happened this quarter because if you see for us, this never happened in the whole year, right?
This is only 1 quarter, which has happened last year. We ended at 5.29. Last quarter, we ended at 5.24 where the other [indiscernible] will tell us that we are not transmitting this thing to the customers. No. So we also have to be looking at that, and that's a little more on the LIFO side.
But having said that, I do know what we did tactically. We said that, A, we will keep it within a shorter term, okay? We will not -- because we knew that there is a reasonable likelihood of [GSEC] flattening out. And hence, we didn't take too much of a longer call.
And that takes me to the second part of your question, which is what would be the outlook ahead for the next few quarters or next year? I think outlook ahead is reasonably flattish from here, and we don't see too much of growth on cost.
The marginal growth can happen, but I don't see anything which would impact on NIM to that extent, which eventually actually impacts your P&L positively or negatively. So that is not been there [indiscernible] the NIM and the strict cost of deposits at this point of time.
Okay. So when I look at your -- so I see that most of the rises come from higher term deposits. Now when I look at your quoted rate or card rate, they have not necessarily increased over the quarter. So is it like a lot of wholesale term deposits coming at higher cost short term or something like that?
So see, you know how much business happens in a tight liquidity situation on card rates, okay? We all know that. And we were -- at least I can tell you that we were lower than some of the larger banks where we're putting even.
But nothing is really wholesale as such. Our -- most of these are retail by RBI. [indiscernible] these are wholesale because these are more than INR 2 crores, but these are actually mostly retail customers except for 1 or 2 maybe wholesale customers who are there. But mostly with the retail customers, the way we know when retail branch vending source them basically from that perspective, but there could be slightly larger ticket size.
Secondly, none of these businesses which we did, I was very clear that we are not going to compete with some of the banks which have given very high rates. We are not competing there. I said that only when the top 3 largest banks, the 3 largest private sector banks, there, I said that either we'll match or we'll not do the business. So to that extent, this is mirroring what the larger part of the market was and not some of the players which we are getting because we didn't participate there.
And thirdly, the benchmark -- sorry, the card rates generally want -- do it very carefully because you have an existing book. You have existing, for example, savings work, [indiscernible] and all of that stuff. So you know how this entire thing plays out.
So one would handle the card rate very carefully. Otherwise, the cost of funds can go very, very high. So that's the way -- I mean, that's a very standard practice across all banks. So we have followed that. But yes, to some extent, special rates, if you can ask. Special rates have gone up last quarter a little bit for the entire ecosystem and the industry, and that is true for us also. But we have not given privilege in the market to buy business. We have not done a single deal which is higher than any of the large -- 3 largest private sector banks what they are doing those businesses.
Got it. So I mean, the kind of rise we have seen in this quarter is not something that will be sort of replicated in the subsequent quarters, maybe 20 bps per quarter or something?
See, I cannot do that kind of a splitting of hair at this juncture. It's almost like this [indiscernible]. But what I can tell you is that I am not worried on this. I'm going to [indiscernible] great extent and to -- I mean, I'm not at all worried about NIM.
And I don't see cost of deposits really -- I mean, maximum 1 or 2 quarters here and there, a little bit few basis points here and there can happen. But eventually, it will actually start tapering down after that because we have not taken long-term funding. So that was done practically as [indiscernible] decision, and that is exactly how it is playing out right now.
Sure. And secondly, on the loan-to-deposit ratio, you mentioned you are at the lower end of average for private bank at 84% or thereabout. So can one assume that loan deposit ratio can continue to rise from here on? Or it has reached that level where it should remain closer to where it is?
So I think it depends 6ctually on our credit growth next year, okay? So if we are at around, let's say, if the market is at 10%, 12% and if we grow by, let's say, 20%, 22%, 23%, 25%, then we should be able to retain this kind of a CD ratio.
But suppose we do a better job and grow the book faster, then I don't mind having our CD ratio because 86%, 87%, 88% CD ratio I have lived with in my past in my previous organizations. It's not a big deal.
So as long as it remains below 90% for a root cause, not because we cannot mobilize liabilities, but because credit growth has been faster because all the cylinders are firing, I would not lose sleep on that as well. So -- but we will never go above 90%.
Got it. And on the fee income side, we've seen a very strong uptick in fee income this quarter. So I mean -- and the entire fiscal as well. So could fee income continue to grow at a higher pace than loan growth, something we saw in this system?
This, I can tell with definite conviction that it will grow much faster than the loan growth, okay? I'll tell you why. And this is something -- and actually, if you look at most of our operating metrics, Mona, most of the operating metrics if you follow my analyst calls in the past or our one-on-one meetings, most of these trajectory is exactly moving in the same line, which I've talked about before.
And that's what gives me and my management a lot of satisfaction that it is moving exactly as predictably, each of the operating metrics. So on the fee income, let me tell you, which I have told before, that we had a significantly lower fee income this year on treasury and on PSLC income.
I think within the 2, we did almost INR 30 crores, INR 31 crores lesser than last year between the 2, okay? In spite of that fact, we have grown by 28% on the fee income, which is in line with the credit growth.
Next year, the PSLC income will come back for reasons which I've explained before. And we do have a very good PSL book this year as well. And our momentum on the process increase will only go up because with credit cards and retail assets and SME businesses coming in and transaction [indiscernible] getting launched, the granularity of the fee income is only going to improve significantly.
And our TPP business, trade, ForEx, we are focusing a lot more on NRI and trying to ensure that our -- some of the remittance happens from NRI book through -- directly through the bank. So all of these will give us significantly higher traction on fee income.
So I'm very bullish on the fee income. I said that sometime back, if you take ex treasury and ex PSLC, our fee income is to be less than 5% of the total income. And I said that at some point of time by SBS 2030, we should be somewhere around 17%, 18%.
In fact, we are ahead of that trajectory. We have reached, I think 13%, 14% or something like that or 15%, I don't know. So I think -- at least definitely, I think in the next 2 years, we should be able to reach at least 15% of our -- coming to the fee income of the order income, which we will be then we are in the same league as the big players. So I think we are well on track on that front, and this is something which is doing very well.
Got it. And so if I look at this quarter, the 44% growth in the core fees, which is commission and processing fees, so this already included or what has this benefited from? Is it the same thing you mentioned card, trade, forex, transaction fees?
No, those have not yet come. So this has come primarily from gold and insurance, some debit card here and there, ATMs and all that. And so mostly, it is -- and liability fees, of course, the standard liability fees, which also has grown because as you add more customers and the spring, this will grow to [indiscernible].
So I think we have done the basics right. Next year, we'll add on a few more cylinders to it. And these basics which we have done right, some of them will fire even better next year. So I am pretty confident that on the fee to -- definitely fee income will grow first. And then next year, we'll not have a negative growth on treasury and PSLC. In both, we will have a positive growth. So if you add all it up, there is a reasonably good traction you'll see on the fee business.
[Operator Instructions] Our next question comes from the line of [indiscernible] Shah from Sameeksha Capital.
So we had a great year in terms of profit quality, and we saw improvement each quarter. And we had a negative credit cost for 2 years in a row, and now we -- definitely outstanding. For FY '24, can you please share your credit cost guidance and your thoughts on slippages for FY '24?
So before that, let me just tell you what happened in FY '23 and what is the good news in that. Other than recovery from regional book as well as [indiscernible] of accounts, I think the other factor which is slippages is something which makes me very happy because the slippages has been pretty positive for us, the entire trajectory.
So what it tells us that our risk management, our credit governance and all of that is working very well for us. So that's number one. And hence, going ahead into next year and future, we see that we have a good risk and credit governance, which finally leads to credit costs, right?
Secondly, the -- on the credit cost, yes, we have continued to improve on our credit costs, and we were more negative this year than last year as well. I think it is around 70 -- 25 basis points, I think, negative this year compared to, I think, 7 basis points last year.
But this -- of course, this cannot continue forever as you grow your book. So what I have told in the past, I'm telling again that our GNPA will be less than 2%. NNPA will be less than 1%, and our credit cost will be less than 40 basis points, and this I'm saying at least for the next 3 to 4 years on a [indiscernible] basis.
So I will hold on to that. Having said that, obviously, given the trajectory, we may not have a negative credit cost, but we may not reach that higher end of this limit -- I mean, the higher end of this range. So we should be -- do reasonably well on our credit cost next year as well and well below the 3-, 4-year guidance.
Okay. Just one quick question. If you can share total investment that we have done for the current year.
Total investment?
Yes. Is it a tight investment?
Big investment.
Yes.
So what we have done is we have built a structure and the architecture and clarity on what we want to do on technology this year in FY '23. The leadership [indiscernible] is in place, the structure is in place, and we have clarity what we want to do.
The easiest way to say what we're doing in technology is almost 70%, 80% of what is there in the bank only there after 2 years, okay? Whether it's a core system, whether it's the LMS, whether it is the LOS, whether it is the corporate net banking, whether it is the entire API integration, I can go -- lead management system, the entire project management system, I mean, whatever I tell, they're architecture.
So we've got full clarity these are how much. We started investing this year, but the big investments are coming in the next 2 years. So in terms of CapEx, most of the CapEx will be through in the next 2 years in the bank, which obviously on accounting principles will flow through our [indiscernible].
And hence, it's not that everything will leave the P&L, but maximum investments in terms of CapEx will happen in the next few years in the bank. And after that, obviously, we will continue to do with some [research] here and there.
And that's where the major investment will come in, in FY '24 and FY '25. And we'll try and see if we can execute it right. A lot of that would get front-end loaded in FY '24 provisions.
Okay.
This is a big investment for us, and this is a big strategy for us next year.
Okay. Can you just quantify it?
I mean, it's a difficult number to give. But what I can tell you is that in terms of -- because I've told it before, I can repeat it, that our -- whatever our annual profits are, hopefully, we should be able to invest that kind of money in CapEx. Obviously, it will get a portion over 3, 4, 5 years.
We take our next question from the line of [indiscernible] from Moneylife Advisory Services.
I just had one small question regarding regulatory treatment of our bank. So in terms of RBI classification, we are classified as an old private sector bank. We are trying to kind of transform the business towards a new private sector bank.
So just wanted to understand from a regulatory perspective, does that have any material impact on us that we're classified as an old private sector bank vis-a-vis competitors who are in new private sector banks?
Frankly, I have not thought through this yet. Since you have asked this question, I have to now think about it. But from a regulatory -- I mean, license -- from a license perspective, whatever I understand is we can almost do everything what large new private sector banks can do. If there is any restriction anywhere, not that I'm aware of. Mr. Divakara, would you know anything?
No, I don't think so. Any restrictions are there. We can do all -- [indiscernible] there seeing as of now.
But I'll check this out. This has never crossed my mind actually because we have not actually faced any [hardly] in doing anything so far. So I have worked in 2, 3 large private sector banks before -- 3 large private sector banks before, 3 large -- 2 large and 1 medium. And whatever I have done, I -- so far, nothing has been told not to do here actually. So -- but let me take a clarification of this.
Our next question comes from the line of Mona Khetan from Dolat Capital.
I just had 2 additional questions. So firstly, on the -- you mentioned that there's this plan of big investments [indiscernible]. So on the OpEx to assets, we had to take 2 assets of 3.5% or so this fiscal. So could this continue to be at similar levels? Or will the other OpEx growth of 28% over the last 2 years moderate, given the high [indiscernible]?
So a very good question, Mona, and this is something which I have been telling to all investors, including investor calls in the past, that we will significantly increase our investments primarily into 4 parts. One is distribution, one is to plan leadership, including customer acquisition mostly in technology for the next 2 years, and fourth is building channels, including digital and other partnerships and things like that.
So these 4 investments, we'll do come what may. So given that perspective, yes, OpEx will go up because this is not cost, this is investment. And each of these investments have a clear payback period.
And I said that by FY '20 -- FY '30, SBS 2030 as we call it, our cost-to-income kind of our target is somewhere between 40% to 45%. Having said that, I said in the short term, our cost to income target is between 55% to 60%. We have retained within that this year.
Next year, probably, we'll be at the tipping point out there, maybe 3 basis points [foreign language]. But from next year onwards, again, we'll be in the range within 50 to 60, and it will gradually start tapering down every year to 43% by FY '30. So that's my plan. And we'll -- it will exactly play out that way.
Okay. Got it. And just finally, on the retail growth, we have seen a very strong growth in other retail. So where is this coming from if you could share some details around it?
It's coming from a low base amount. So we have -- our retail growth has not yet started, frankly, okay? So what you're seeing is primarily because we have started nibbling bits and pieces here and there because I'm very clear with the team that we will not grow retail till we have our systems in place, till we are able -- have the right to ask the right business from the right partner and till we get our branch distribution on retail cross-sell well, and till we get our liability franchise where we have the acquisition machinery working like a machine to which we can cross-sell.
So frankly speaking, none of those will take off till FY '25. FY '25, we will start seeing some green shoots out there. Right now, it is basically low base, and we are seeing bits and pieces here and there. That is showing it up.
But you will see -- so what I told before, I said that by FY 2030, we will have 20% enrolled, 30% retail, 20% SME and 30% wholesale and other businesses, including securitization of everything, okay? So if you have to go to 30% retail, where are we in retail? I mean, we have to go there, right? So you will see a significant scale up in retail between FY '27 and '30.
And between FY '25 for the first time, we'll start seeing the real growth happening. What you are seeing is that we are on a low base, we have started with bit and pieces everywhere. That is what it's showing.
And doing AV, micro finance, a little bit of a PL, some of the home loans, some of these [indiscernible], some of these businesses here and there. So these are all showing up a little bit bits and business.
But this is not the real journey. Real journey will start only post FY '25 after our system, processes are in place because I have done this enough to tell that we should not scale this business unless all our [machines] are ready. And by that, we'll be actually picking up a faster pace than doing it now and then taking two steps backward. I'll not do that in retail. We don't go all out, only once we are fully ready. And this growth we are seeing is basically develop low risk.
Okay. So the systems are expected to be in place only by FY '25?
No. The retail asset systems will be placed all by FY '24, okay, mid to end. But then what happens is just from my experience, I can tell you that once the system is in place, you need channel machinery to work, you need the process machinery to work.
Also, what we need is customers, right? So we are starting that entire sales machinery of customer acquisition. And what we'll do is because we have digital access now unlike 20 years back, so onboarding of customers will happen with some retail asset businesses as well because of the digitized ecosystem.
So all of that stuff will happen this year. And that experience of cross-sell, all of a sudden [indiscernible] deliver, but we have to ensure that the culture of retail assets cross-sell in the branches. So I'm getting the team to get activated towards that.
With the sales team, they will have a separate strategy. With the branch banking, they will have a separate strategy. With the OCC, which is outbound contact center, they will have a separate strategy. And only these 3 machineries are working fine then we will look at DSAs and dealerships and all that and start building the businesses, not the other way around because we should [bolster] strength and not looking for businesses because our other businesses are not happening.
So that's the way we'll build the businesses. So to that extent, yes, the short answer to your question is the systems will all be ready. Only system which will not be ready this year will be core system. Core system will come in FY '25 because that is something which we are not going to compromise. We'll get the best of the best. And hence, we -- that will take a little while. That will come by FY '25. And then everything gets integrated around the core system.
Ladies and gentlemen, due to time constraint, we take our last question from the line of Pallavi Deshpande from Sameeksha Capital.
You just previously mentioned about the special deposits. So what will be the share of that in the total deposit mix? And secondly, on the NBFC side, we've seen some exposure picking up to that. So what kind of NBFC [indiscernible]?
See, typically, I don't have that exact data, but I think we have always worked on 30-70 kind of model where 30 is large -- I mean for us, last year was a very small ticket also from an ecosystem perspective.
But whatever reason, for the special rates, special deposits. Generally, it has been 30-70. Maybe it would have gone up a little bit last quarter. But again, it will come back to somewhere around 30-70 or 35-65 because most of these are relatively -- it is not more than a year or 6 months kind of a thing.
Also, you must understand that we ran up our CD book completely almost, right, which I told. From a [indiscernible] 500 something we had CD book, we brought it down to INR 95 crores, so INR 594 crores to INR 94 crores. So we ran off almost INR 500 crores of CD book last year.
So given that, I think we had that special dispensation in a way to build some book on a shorter-term basis, which we have done. And hence, we have buffer on CD and things like that. And CD rates are coming down and things like that.
So it will be a play of all of this till our entire CASA machinery fully picks up. So I'm not unduly worried on this percentage. But it may have gone up a little bit this quarter compared to what is generally they have around 30-70. But I'm giving you a very broad picture. I exactly don't have the data [indiscernible].
And sounds like NBFC exposure, that's at 8.8%, less than 7% in the third quarter. So what are you seeing in that space?
Mr. Divakara, would you like to answer this question? After that, I'll top it up. I don't think Mr. Divakara is able to answer this. Maybe he's not able to connect. So I'll answer this. So what has happened is, see, when it comes to NBFCs, we always do at a category of A+, A+ category.
Advance of the NBFCs are A-rated and above. So out of the total 3,000 [indiscernible] exposures towards NBFCs, 94% is for A-rated and above type of account.
Would this be primarily vehicle finance or the diversified financial?
No, no, it's not vehicle finance, very, very highly diversified. A lot of this is to do with home loans and those kind of businesses. So these are highly diversified. In fact, not too many vehicle actually.
Yes. And sir, lastly on the recoveries from written-off accounts, what is the [indiscernible] to be part of the other income?
Sorry, I didn't get the question.
The recoveries from written-off accounts, how much of that has been this year versus last year? I'm talking about the amount that's included in the other income from this.
Mr. Divakara would like to answer.
Yes, yes. Total [indiscernible] written-off recoveries, this year, it is INR 70 crores. Last year, it is INR 77 crores.
Right. Okay. How much out of the 70 would have impact on the other income?
That has been correct. So that is netted up against the provisions to be [indiscernible].
That is a new regulation, right? I think that's -- but the regulation [indiscernible] yes.
Ladies and gentlemen, we have reached the end of the question-and-answer session. I now hand the conference over to Mr. Pralay Mondal, [indiscernible], for closing comments.
Thank you very much. I would really thank everybody who patiently listened to our commentary and asked very relevant set of questions. What I can comment is on behalf of the management that everybody is very excited to build the bank based on the SBS 2030 vision. The first installment is delivered this year, but more excitement to come in the next few years, that much I can comment on behalf of the management. Thank you very much.
Thank you, sir. On behalf of Axis Capital Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.