CSB Bank Ltd

NSE:CSBBANK

Earnings Call Transcript 2024-Q4

[Operator]

Ladies and gentlemen, good day, and welcome to the CSB Bank Q4 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.

[Shivaji Thapliyal, analyst]

Thank you, Davin. 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. B.K. Divakara, Executive Director; and Mr. Satish Gundewar, Chief Financial Officer. We specifically thank the management of CSB Bank for giving YES Securities the opportunity to host their result call.

The management will first be making some opening remarks, after which we will throw the floor open for questions. I now invite management to make their opening remarks. Pralay, over to you.

[Pralay Mondal, executive]

Thank you, Shivaji, and thank you, everybody, for joining our Q4 and annual result analyst call. To start with, a little bit on the global scenario. I think the world has geopolitical risk at this point of time, though it is kind of stabilized a little bit right now. But still, it is leading to fluctuations in commodity prices and strengthening of the U.S. dollar. It is also further aided, the U.S. dollar is also further aided by the strong economic performance by U.S. and stagnant U.S. inflation.

We believe that the current situation may delay the rate cuts a little bit anyways and this may stay higher than anticipated. We do not believe that the current situation will force U.S. to raise further either way. But when RBI looks at the rates, I think they will also have a close eye on what global scenario is and take calls on how the rate cuts will be in India as well.

On the domestic side, I think the system liquidity has moved back to deficit mode again for the last few days. And after staying in a surplus mode for a fortnight, the liquidity deficit will continue. However, we do not expect it to stress deposit rates for this quarter.

The inflation has been easing slowly. The heatwave and the drought forecast for some parts of India may impact food prices in the short run. This impact will, however, be really transitionary. The overnight rates will remain range bound between 6.5% and 6.75%, and 10 years is likely to range between 7% to 7.25% this quarter, though I think today, it was on the higher end of this range.

Also, the good news is, so far, the projections on monsoons is good, and that is good for the rural economy as well as overall India as a whole from an inflation perspective.

On CSB specifics, overall performance on both top line and bottom line was stable on a quarterly and financial year basis. Highlights of our performances are slightly improved profitability, net profit of INR 567 crores as on 31/03/24, up by 4% from 31/03/23 on a Y-o-Y basis. For the quarter end 31/03/23, the net profit is at INR 151.46 crores, which is almost flat compared to Q3 of the same year.

Provisioning buffer of around INR 171 crores over and above the regulatory requirements, including the contingent provision of around INR 105 crores, INR 106 crores we have, could maintain the NIM above 5% in a difficult market scenario for the quarter as well as for the FY and it is 5.04% and 5.09%, respectively. ROA, we have been close to 1.8%.

On the liabilities front, I think we focused quite a bit and deposits grew by 21% as against the industry growth of around 15%. CASA ratio stands at 27.2% because CASA grew slower than the deposit, we grew deposit much faster. On the asset side, net advances grew by 18% Y-o-Y. Industry has grown at around 16% Y-o-Y. We took a conscious call. I'll -- maybe, we'll talk about it as we go through the Q&A.

Gold portfolio registered a growth of around 22% Y-o-Y. Yield on advances for Q4 FY '24 is at around 11.77% with an improvement of 60 bps from Q3 FY '24. Y-o-Y FY '24 is 11.35%, which was 10.92% for FY '22, up by 43 bps.

On the asset quality metrics, metrics is fairly stable in key indicators like GNPA, NNPA, PCR, et cetera. I'm sure we'll have some discussion on this in the Q&A session. So we'll detail out why our GNPA, NNPA and PCR deteriorated slightly, but still one of the best in the ecosystem with 1.47% on GNPA, NNPA around 0.51% and PCR 86.44%, including technical write-off. And without that, somewhere around 65%.

Continuing with the accelerated NPA provisioning policy of providing higher than RBI requirements and holding the contingent provisions, which I just talked about, INR 170 crores plus we are holding there. Robust capital base with CRAR above 24.47%, low proportion of risk-weighted assets compared to the industry, primarily because of the gold loan portfolio. In terms of shareholder value creation, book value per share has crossed INR 200 mark and is at INR 209. Book value has grown exactly in line with our business growth of around 20% year-on-year. EPS for FY '24 is INR 32.67, ROE of 17.37%.

On the distribution, we added a network of -- we have an overall network of 776 branches and 731 ATMs. We added 76 branches during last FY. While we go ahead with our branch opening strategy, we will also invest into omnichannel banking. And we're also experimented with 25 branches where we've divided the branches into gold and other businesses, and effectively creating 2 separate operations in the branches, and that experiment is working very well for us so far. And based on the success, we will expand on that this year in a significant way.

So those are the numbers. In conclusion, I will say, and I will take a little time on this concluding message because there are a lot of things which are happening in the bank, which are beyond numbers. So I'll say in conclusion that last 2 to 3 years, we have worked meticulously in getting our building blocks in place, which will put us on the right track to reach our SBS 2030 vision, Sustain, Build and Scale 2030 vision to be a respectable midsized bank.

These building blocks would include creating the right culture, right leadership and creating the kind of hands-on leadership, I will say. And defining the culture, that will take us and our bank to the next decade and putting clear process and practices in place to ensure that these are just not mere words, but to be communicated and practiced starting from top management, getting the experienced leadership in place in each function at top 3 to 4 levels, including regional leadership and they are leading through the examples.

Why I'm talking about some of these 4 or 5 points is that this is really what we are now living, breathing, eating every day because we believe that to build a long-term bank, quarter numbers will come and go, but these are the building blocks, which will create the bank for the future. And we are very clearly focused on SBS 2030. And these are more important, at least to us as management, than few basis points here and there on numbers.

The second part of the pillar is governance and compliance. We all know how important it is. And globally, this is becoming more and more important. So we are focusing on the highest level of governance and compliance, including experienced and knowledgeable Board and implementing the compliance culture in letter and spirit. I myself look at each and every compliance part in the bank on almost on a regular basis, and this is a key focus for me personally from the MD's office.

Risk management. Solid risk governance, mindset and defined structure with clear guardrails, be it credit policies, cybersecurity, market liquidity risk, operational risk, reputational risk, et cetera. And one of the reasons you saw that our liability growth has been faster than credit growth, is managing the liquidity risk because we think that these are important parameters, which creates a long-term sustainable organization.

And I have been a part of a large organization building in the past. And I can say with reasonable conviction that these kind of things are more important, at least from my perspective, this is what I tell my management, to sustainably build this kind of pillars, which will build the bank in the long run.

The fourth one is customer centricity and customer focus. So we have clear focus on execution and customer service and customer centricity. We were actually working hard towards making this as a key differentiator in the long run. And though I personally feel that we are a long way from that, we have to do a lot more, but we will be there. And we have a special vertical under our service and process engineering head, Tapasya Vaid, who looks up to this.

I myself chair the service governance council meetings, where all CXOs meet periodically and discuss progress on identified areas of improvement and customer delivery and service. This is a subject very close to my heart and one of our top most priorities. I have built businesses in the past, primarily based on these kind of parameters.

And last but not the least, is technology. The most critical lever in the current phase is technology for us as that is where we are putting our everything down. The bank won't have almost anything in technology that was running in the bank 4 years back, and everything will be new age and new implementations.

We are talking of a complete transformational journey on the tech side. There, our motto is incremental to transformational mindset. Because we don't want to incrementally improve, we want to transform the entire technology stack, amongst all, and this mindset is among all senior management participated through the entire leadership team and driven by our CIO, Rajesh; and our IT Chair, Mr. Sharad Saxena.

We are on track with the various project implementation time lines as of now. We are planning to go live of Phase 1 in current FY on our core system migration. We are told by our implementation partner, we are one of the first banks who are doing our Oracle OGL [ offsite ] implementation together. And the Phase 1, we should be able to finish in this FY, and this will lead to process streamlining. And a lot of products and services, which we plan to launch, will be launched on the back of this.

On the distribution front, we are looking at opening around 60 to 75 branches in the next FY, plus the project which I just talked about. So we, as a senior management in this bank, want to think big and be accountable for the delivery on all of our priorities. That's why I mentioned these priorities. That's why I believe that we are ready to communicate this confidently to all our external stakeholders, just like I'm doing it right now. Because unless you put it upfront, you don't become accountable for this. This remains mere English.

We envisage FY '25 to be the most challenging and exciting year in our 7-year SBS 2030 journey. We are already as a team now, and each member of the CSB family is geared up to meet this challenge and will engage more and involve more and strive to do better in the coming quarters.

We have 4 verticals on the business side: wholesale banking, SME banking, retail banking and gold. Now, each vertical is led by extremely senior and very, very capable leadership. Our wholesale banking led by Manish Modi, who's a well-known wholesale banker in the industry. And he is building his entire team and hence, we will see a lot of changes, which we'll bring in, in wholesale banking now.

SME banking is led by Shyam Mani, who last 2 years has done very well and now we are starting to see the fruits of that work, and we'll see a lot more in the coming years. Retail banking, of course, Narendra Dixit, a veteran across various organizations, big banks sales work, and he is building up on the retail side. And gold is a part of Narendra Dixit's vertical itself, which is integral to our branch lending today. So with that, I stop here, and I would welcome questions, and I'm sure there will be a lot today. Thank you very much.

[Operator]

[Operator Instructions]

We have the first question from the line of Sumit Rathi from Centrum PMS.

[Sumit Rathi, analyst]

Sir, congratulations on a steady set of numbers. Though there were some surprises and as you alluded that we would be discussing that. I had questions regarding: one, the slippages, there is almost a 4x jump in our -- almost 3x jump in our slippage ratio. And another thing which came slightly negative to me was advances growth Y-on-Y. As we have always kept the notion that we would be growing 1.5x the industry growth, if not more. So -- and you alluded to some extent that you took a conscious call, so you shall give more idea about that, that would be very good to start with on the asset quality, including slippages and advances growth that we'd like to hear from you?

[Pralay Mondal, executive]

Sure. Thank you, Sumit, for your question, very relevant set of questions. So first of all, on the slippages, if you ask me, there is only one item there. Rest are all business as usual for us. There is one account which is a INR 70 crore exposure with us. This account slipped, though it is not expected, but it slipped because of some technical reasons on their side. And we are reasonably confident that through this year, we should be able to pull that back, because there is not too much of a problem there as such.

But if you take that out and which led to around INR 17 crores, INR 18 crores of provisioning because we do 25% provisioning and another INR 2 crores because of interest, this thing, reversal. So other than that, it takes INR 20 crores. If you take that out, then pretty much everything else is business as usual in terms of the business growth, everything else is there.

And this specific account and this specific INR 20 crores will answer the other 2 questions which you have not asked, which is GNPA, NNPA and provision coverage ratio. If we calculate all of them, you will see it normalizes back to where we were before and where we'll be again very, very soon.

Coming to your second question on asset growth. I'll tell you why we were a little careful. Because we take the RBI inputs and guidance very carefully and we listen very carefully. So when this entire thing we are hearing that lending to NBFCs or unsecured lending, I'm not saying there is any problem there. But because we are very small as a balance sheet, we need to look at these things lot more closer and lot more carefully compared to some of the larger banks who have a large cushion.

So I'm not saying anybody who's growing very fast, these businesses are doing anything wrong. But for a bank like us, you saw that just a slippage of one INR 70 crore account, which you also know will repair itself very soon, can create so many questions, right? So we are very careful in some of these things. So we have stepped back in some of those businesses. That's number one.

Number two is that on the wholesale side, if you see, we have grown negatively this year, primarily because of 2 reasons. We have de-grown our DA book, the direct assignment book. And direct assignment book is not really a wholesale business. It can be parked anywhere, but we consciously decided that for the rates -- yields there, given the cost of funds where it is today and for the yields, what we get there and for any kind of a risk which can emanate from there, we would not grow that book at this point of time, unless things changes, which I don't think that kind of changes rates. If it doesn't change, we will not do this business as much.

And secondly, LCBD again, it is also a clear decision based on rates because these are not franchise business for us as yet. This is a rate-oriented business. And at these cost of funds, we said that we'll not do this business. So other than these two, you will see that we had grown -- SME has grown 28% last quarter. This question was there, why SME business has not grown? You saw that SME business has grown. Retail has grown. Gold also, we took a lot of preemptive actions because there are certain questions we saw in the media in various other environment.

And we did everything to ensure that we plug any kind of operational issues which there can be a gold loan, because anything to do with regulatory question, not to us, but what we have seen in the system, we have proactively managed some of these things. So given that even then gold loan has grown by 22%, SMA has grown by 28%, retail has grown well. The only business which has not grown is wholesale. And given that kind of a cost of funds, it was more of a commercial decision that we didn't want to grow those businesses at that cost of funds at this point of time.

Again, because these are not franchise business, this can be built any time. And right now, because we also knew that we are building a very strong wholesale banking team now, we will look at real mid-market, emerging markets and even large corporates entry in some places, wherever we can. And you will see a very clear turnaround on wholesale business in the next 2 years. So that's the primary reason where we didn't grow as much. But between -- but liability, you saw that we grew against a 14% industry, we have grown 20%. So to that extent, we have grown almost 50% faster than the system, okay? So on the asset side, it was a conscious call, that's what I mentioned in the opening remarks.

[Sumit Rathi, analyst]

Yes, sir. Very well understood, sir. Another one aspect which I wanted to check on was our OpEx to average assets have also shown a slight high trajectory this time. I know we are into building phase and there can be expenses here and there in order to build the kind of vision we have for FY '30, and we really respect that, and we are looking forward to that. Still, are these just one-offs or this kind of surprises on OpEx too and can come again in the future?

[Pralay Mondal, executive]

So you are talking about OpEx to average assets...

[Sumit Rathi, analyst]

Correct.

[Pralay Mondal, executive]

Okay, OpEx to average assets. So I think the primary reason for that is that the investment in technology at this point of time. So there are 2 investments we are making today. One is investment into technology, which is both OpEx as well as CapEx on the technology side; and, b, is we are building distribution. Along with that, we are creating various verticals and building the teams for future. Because we know that in the next 18 months, we'll be fully ready with all our technology and everything.

If we don't start today investing into the verticals and creating, and after that, we sequentially start doing it, then we won't be able to achieve what we want to achieve by SBS 2030. So that's why we are starting investing into the verticals. We are doing bits and pieces business everywhere so that the branches understands how to do cross-sell, what are the products, how do we do business, how do you have manufacturer relationships, key relationships, all of that stuff we're doing. On the transaction banking, we are building teams; wholesale banking, we're building teams; retail, we are creating a sales vertical, which will be in the customer acquisition and all of that.

So 2 primary areas where we are investing: one is investment into new verticals and people with a vision of building a larger bank; and, b, is significantly into technology because if you are saying that you're rebooting the bank and changing everything in technology, you can understand that there is so much investment going in there. Having said that, what I can tell with reasonable confidence because I have done all these calculations till FY 2030, that FY '26 onwards, you will start seeing tapering down of this. And by FY 2030, our cost to income will be well below 50%.

Today, it will hover around, I've told in my last call also, last to last call also, that we'll be around 65%, sometimes 2% higher and sometimes 2% lower. But clearly, FY '26, '27 onwards, you will see sharp tapering of this, and we will be well below 50% by FY 2030. So that's the way -- and that's the answer to your question.

[Sumit Rathi, analyst]

Great, sir. But one last thing, sir, on advances growth since from last 2 quarters, we are taking a conscious call of not becoming a victim of rate challenges and reducing NIM. Going forward, should we expect a similar kind of, say, for next 2 quarters? Or are we going to address it and we'll get back the advances in shorter term. I understand the medium to long-term, we are there. But in shorter terms, are we going to address the advances challenge by somehow and getting back to our growth rate of 1.5x the industry?

[Pralay Mondal, executive]

See, I have always said that we'll grow 30% to 50% faster than the industry. So I have to look at my calculator, but at a 18% growth, we are closer to, probably 20% faster than the industry. But yes, I've said before that we will not compromise growth for margins, okay? So you will see this year that we are not emotionally attached to a 5% margin. We can be lower than that. We will be lower than that. We'll be somewhere between 4.5% to 5%. We will get our growth back.

But one of the reasons we are not growing, not because of margins necessarily, at that high cost of funds and with trying to focus on -- our average LCR, if I remember it correctly, it was 117, okay? So with the average LCR, which means that many days, we are 126 to 128 also on LCR, average LCR means overall quarter average LCR. So managing our average LCR of 116 and managing a CD ratio of 82% in this kind of dynamic and slightly uncertain environment, was a bigger trigger for us than just margins.

But I will never shy away from building business even at lower yields if it's a franchise business. See, DA business and LCBD business is not a franchise business at our life cycle of a bank. But if tomorrow Manish Modi comes and tells me that I want to enter this group and I want to enter this group at this rate and that's where I'm having a very low margin, I'll be happily taking that because that's a franchise business. Or if somebody tells me that I want to do this on the retail side and their margins are low, let's say home loans or something else, I'll happily grab that because that's the franchise business.

So we are here to build a bank. We are not here to build and run a niche bank. We are here to build a medium sector bank by 2030 and then try and look at even beyond that. But at this stage, growth will come back and growth will come back provided the ecosystem is helping us getting that growth in a very balanced manner between liquidity, margins and risk. If all 3 gives me that opportunity, then only I will grow. I will never shy away from building a franchise business, be it wholesale, retail or SME.

[Operator]

We have the next question from the line of Mona Khetan from Dolat Capital.

[Mona Khetan, analyst]

Congratulations on good set of numbers. Firstly, on the deposit side, I just wanted to check how much of repricing is with you and where do you expect the cost of funds to be?

[Pralay Mondal, executive]

So on the deposit side, I think it's almost 80% done, a little bit -- because generally, you know that deposits are 1 year or lesser average tenures in most banks, including us, okay? So given that and this deposit repricing has been happening for a year or more. So we are almost done. A little bit of a tail is left, maybe another quarter or so. So -- and you also know that our cost of funds is well below 6%.

So we are one of -- in spite of being a small bank and in spite of this entire liquidity challenge, et cetera, we have managed our cost of funds reasonably well. But yes, the cost of funds has gone up -- cost of deposits has gone up, which has impacted the NIM a little bit, but I think that's an industry phenomenon.

[Mona Khetan, analyst]

Got it. And secondly, you expect basically that next quarter [indiscernible] what funds could be?

[Pralay Mondal, executive]

It is difficult to say but see, at best what another 10 basis points here and there. I mean I'm just taking a shot at data. I don't know. I have not done that number. But I will say -- I don't think more than 10, 12 basis points here and there will be left anymore, okay? So we're almost reaching the peak in my view, unless a major global geopolitical issues comes up, et cetera, I don't know.

But otherwise -- but only point, Mona, is that what we are thinking before that suddenly, this thing, interest rates will start reducing and things will change overnight. You saw that today, the [indiscernible] is 7.24% or 7.26% or something like that. And then globally also, it has now almost 4.6%, I think, U.S.

So given all that, I think it's not changing very much. So I'm not seeing too much of a change happening in the next 2 to 3 quarters. So we'll be pretty much where we are for the time being, and that's what I'm baking in into my plans right now. But it will be difficult to retain 5% NIM given that we want to grow again. But overall, I think we'll be somewhere close to between 4.5% to 5%, maybe closer to 5%.

[Mona Khetan, analyst]

Got it. Secondly, on the yields aspect. So this quarter, we saw a lot of growth also coming from SME where I assume the yields are lower. And therefore, -- and yet, when we look at the reported yield on advances, they have increased by about 25 bps from Q3 to Q4. So what is helping the yields, if you could give some color?

[Pralay Mondal, executive]

I mean some of your voice is breaking so I didn't get the full question. But yes, I mean, just to give you a perspective, I told it last quarter also when this question came up on SME, I said that you'll see -- I know what the kind of work is going on, you will see the SME growth. So we are growing in SME and you see that the SME growth has now started showing up in the system.

On the yields in SME, I think our yields are somewhere around close to 12%, somewhere around 12%, SME and MSME together. But actually -- no, I think this is not the right number. So our yield is somewhere around 10.7%, our SME yield, but if you take the MSME yield, it is slightly higher. But broadly, the way it works is -- see, I don't have the exact number in front of me, but I'll tell you, broadly, wholesale works in the range of 9% to 9.5%; SME works in the range of 10.5% to 11%, okay? And gold works in the range of 12% to 12.5%, in that range, it works, okay?

And rest are very small like microfinance and agri and all that, that were in the range of 15%, 16%. So this is the range where we are in. And this has been pretty consistent all across. Maybe, it has gone up by 10, 15 basis points here and there. But broadly in that range, we have managed. So in case something got wrongly reported, I don't know. But this is broadly -- my memory says these are the kind of range where we are on our wholesale SME, gold and this thing. Retail is also again around between -- around 10% to 11%.

[Mona Khetan, analyst]

Okay. And sorry, can you come again on the corporate yield, wholesale book yield?

[Pralay Mondal, executive]

I told you between 9% to 9.5%.

[Mona Khetan, analyst]

Okay. Got it. Okay. Just one last thing. So there have been media reports suggesting probable mergers with IDBI Bank if the CapEx bid for IDBI Bank goes through. So if you can just share your comments if any around -- how this will play out and how do you see it?

[Pralay Mondal, executive]

See, I'll tell you. Media reports, I can't comment on, frankly, because I think it's a flavor today. Last 2 days, it was in a different flavor. Before that, that was a flavor. So they will report what they think right. But from my perspective, from purely from CSB perspective, I have absolutely no information about anything.

CapEX, being an investor, they can look at any opportunity at any of time. But I don't think that there is anything which I am aware of on this. And in one of the town halls in Chennai, somebody asked me this question, one of my employees, I have a simple answer that if I knew anything like this is happening, then I would have taken Finacle as a software and not Oracle as a software, okay? Because IDBI is on Finacle and we have taken Oracle.

So I think that settles the question that -- we are building the bank purely based on organic growth, and that's what we have been told to do and we are investing into the bank in the same manner. Beyond that, I have absolutely no idea.

[Operator]

The next question is from the line of Prabal from AMBIT Capital.

[Prabal Gandhi, analyst]

Am I audible, sir?

[Pralay Mondal, executive]

Yes, Prabal. Thank you for coming on the call.

[Prabal Gandhi, analyst]

Sir, my first question is on your deposit strategy. So we have seen around 30 to 35 branches getting added during the quarter, but fairly sharp price in the ATMs that you have added, around 200 ATMs you have added. So just trying to understand your thought process behind this?

[Pralay Mondal, executive]

No, there's a very strange reason, let me tell you. I mean, this is very unique to our bank. Our bank, in past, they were -- all the branches are not having ATMs, okay? Because we used to run gold as a primary product, and hence, many of the gold-focused branches didn't have ATM. I just explained in one of the previous questions that how we are converting many of our gold-focused branches also into primary universal branches because those locations are very good locations, and we never leveraged them for the other businesses.

So now as a part of the full service branch, we are adding ATMs and many other things we are doing in those branches to ensure they become full-service branches and just not of gold branches. So that's why you're seeing that the number of ATM additions are primarily because of those reasons in addition to, of course, addition of new branches.

If the question is, are we adding too many offside ATMs? The answer is no, okay, unless there's a very strategic location or strategic decision, generally, we are not adding too many offsite locations. Also what we're doing is in certain branches where we are seeing more than 200 to 300 transactions in ATM, there we are putting our second ATM also. So that is also happening, but they are far and few. But primarily, it is basically we are making most of our branches full-service branches. That's why these ATM additions are happening.

[Prabal Gandhi, analyst]

Sir, second question will be on gold. So this quarter, of course, there was increase in gold price and that would have led to even growth. But our LTV has not changed much. So how to think about LTV going forward because it is still relatively high at 74%?

[Pralay Mondal, executive]

I have to look at the data, but I think LTV did change. So I'll tell you what. Our tonnage growth was around 8% to 9% -- around 8% and our overall growth was around 22% in gold, okay? So as far as I remember, this I am really drilling from memory, so maybe somebody else can help me with the number or we can get back to you later on. I think our LTV was around 77% to 78%, which has now come down to 73% to 74%, okay?

So that's broadly if I remember it correctly. Also, our -- almost 80% of our -- 78% or 79% of our business is agri gold loan. So I think if you put all of these numbers together, I think the math will work out in my view.

[Prabal Gandhi, analyst]

And going forward, how should we think about LTV, any range that you want to stick to?

[Pralay Mondal, executive]

So LTV, we would -- see there are 2 parts, right? Agri LTV, we keep it below 85%. And non-agri LTV, we obviously keep it below 75% because that's the regulatory norm, okay? For agri, there is no specific regulatory now, but we try to keep it below 85%.

Given that our agri is more heavy on agri in terms of portfolio, that's why it is slightly higher than 75%. Also, we -- like as per regulation, we had interest and that adds up to the LTV. So you can see that if 77% to 78% of our business is agri and our LTV is 73%, somebody is giving me with the number, it's 73.53% at this point of time, then you can as well understand that non-gold, non-agri, what is our LTV. It will be very, very low, correct?

So I think we will keep it below 80%, okay? Even if prices goes down, and we always factor in, in a sensitivity analysis a 10% drop in gold prices, and then see in terms of risk where we stand. And we are very, very comfortable. And we know that gold prices are almost at all-time high at this point of time. But we don't take that into consideration. We keep it around -- somewhere around 80% overall LTV. Now I have got the number, we were around 80% in Q2 against which we are around 73.53% in Q3 and Q4 on LTV gold.

[Prabal Gandhi, analyst]

And sir, given now the retail and MSME have started growing 25% and above. Should now we start expecting that eventually now gold will start seeing reduction in share and SME and retail will make up for that? Has the time come now?

[Pralay Mondal, executive]

Yes, absolutely, that's -- see, ultimately, we have given a vision of SBS 2030, where gold will be 20%, SME will be 20%, wholesale will be 30% and retail will be 30%. So that is our vision for FY 2030. The only piece which will be a little back-ended will be retail, because retail, the real heavy lifting will happen between FY '27 to FY '30.

Rest of the things, whether it is -- SME now already happening, wholesale will happen in the next 2 years, and this thing will start picking up. So this will help us in overall faster growth as a bank. So as you see, with larger balance sheet, we will actually grow faster because we'll have more levers. Today, we don't have levers, and hence, you will see FY '27 to FY '30, we will grow much faster than what we are growing today just because we'll have those levers.

And once we do that, it's not that gold growth will come down -- may come down a little bit, but not necessarily it will come down significantly. But other businesses picking up, will automatically take the business mix of gold down. That is going to happen. And that is a part of our very clear, structured, strategic kind of a road map, which we have designed for ourselves.

[Prabal Gandhi, analyst]

Sir, I have 2 more questions -- small questions. Can I ask?

[Pralay Mondal, executive]

Sure.

[Prabal Gandhi, analyst]

Sir, on the yield side, we have seen a very good jump this quarter. Going ahead, what are the levers which can help us improve yield thereon?

[Pralay Mondal, executive]

My view, you will not see too much of growth in yield because -- see the question which you only asked before, if the business mix changes and gradually gold starts coming on even by 1%, 2%, 3% here and there on the overall business mix, replaced by wholesale and SME and to some extent retail, weighted average yield will not go up, okay? If at all, it may have some compression.

But our product yield, we will ensure that we will not do business which doesn't make sense for us, unless it's a franchise business. I'm willing to do franchise business at any cost, okay? Because franchise business has a very long-term impact. But otherwise, tactical business, I will not do just for the sake of balance sheet growth. So that's the way it will work. So overall, yield, I will say that we'll be happy to hold it where it is today, primarily because business mix will change.

[Prabal Gandhi, analyst]

Right. And the last question will be on other income. We saw a sharp jump during the quarter, any one-offs there?

[Pralay Mondal, executive]

No, no, no one-off at all. I'm most happy with this to report you the business which we have done on this -- on this other income? And why I'm happy not because of the number because this is exactly played out. I told it 2 years back, 1 year back, 6 months back, is one of the gap areas I found when I took over is our core noninterest income to total income was below 5%.

There used to be income on treasury and PSLC side. And for us, PSLC income has been somewhat okay. Previous year was very muted, but not that high, right? So to that extent, we focused on core fee income business, and this core fee income business, which, in my experience, is not only sustainable, it keeps growing as new businesses comes. We are not even heavy into payment business. We are not even heavy into retail assets business. Wholesale transaction business is starting to come.

Even then now our noninterest income to total income is now reaching around 17%, okay, which is in line with some of the best players in the market. My vision was to take it to 13%, 14% and it is 17%. Now one can argue that it has happened because your other income has not come. That is also true, it's a numerator/denominator game. But at least somewhere, we have reached to a vision where we want to be there.

And what is good about this is that it is sustainable. So what I'm committing here is you will see a sustained growth in this noninterest income. And we are not upfronting any income, we are not doing any of those things. We always do the right practice. So this is core income, which will continue to sustain over the next years to come.

[Operator]

The next question is from the line of Saptarshee Chatterjee from Groww Asset Management.

[Saptarshee Chatterjee, analyst]

Sorry sir, harping on this again on the slippage part, the account that has got -- so you have talked about there is some technicality and therefore it has got slipped. I didn't understand fully. Can you please elaborate on this too, what had actually happened? And this is from which industry, which credit rating, some details on this, please?

[Pralay Mondal, executive]

So that level of details we can't share because that is not right also to share. But what I can tell you is that -- let me put it this way, that even 6 weeks back or 8 weeks back, I didn't know that this slippage will happen, okay? So -- otherwise, I would have given some kind of -- because I always believe -- I don't believe in surprises or giving surprises to the market.

So there is no way I knew anything about it last quarter when we talked about it. And this will give you a perspective that this is something which is an event -- a sudden event, which is -- remedial action is not very difficult. And we believe that remedial actions should happen in 1 or 2 quarters' time, okay? So to that extent, when -- if I -- I can tell with almost 99% confidence that next financial year when you look at it, okay, we will not even discuss this account, okay? Next financial year, means FY '25.

So it -- and when we are talking about FY 2030, this is of no relevance to me in the longer term of things. One quarter here, one quarter there can happen, but this is something which is not taking my sleep away because this will get the remedial action and reversal will happen sometime in this year. When it will happen, I can't say, but it will happen because this is not one of those issues, which will drag on for quarter after quarter and year after year. So we are pretty confident about it.

[Saptarshee Chatterjee, analyst]

Got it, sir. Got it. And generally, when we see the larger peers, they are maintaining around 1% plus kind of contingent provision. Any thoughts on building contingent provision or you are comfortable at this level?

[Pralay Mondal, executive]

See, we have around INR 170 crores of -- INR 171 crores, if I remember it correctly, of excess provision, vis-a-vis regulatory provisions and including INR 105 crores of contingent provision. One -- the INR 171 crores, I think, is a reasonably good number for us, especially because our provisioning policy is very conservative at this point of time.

So our Board believes that this is reasonably conservative. Given that -- again, you have to see it from a business mix. I don't know other banks could have very different kind of business mix. And the day we get into the business mix, we may change some of our philosophies. But when 40% of the book is gold loan where there is effectively no risk other than some small little risk, operational risk, which doesn't even flow through as a risk. And some of the other businesses where we have not seen that kind of an issue, having more than INR 170 crores of excess provision doesn't make any sense for us at this point of time with, I think, such a high PCR coverage ratio.

Now this quarter it has come down for technical reason and it will go back. So it will go back to 73%, 74%, 75%. So I think we are quite comfortable with INR 171 crores with vision of having our 75% PCR kind of range.

[Saptarshee Chatterjee, analyst]

Understood, sir. And like 2 data keeping questions. One is, you have talked about the yield across segments. Can you also give some idea on the yields on the retail part, like you have given microfinance, but the other parts like supply chain or CEV book, what are the yields that you are working on? And second is, what is the -- our non-gold branches where we have other products available along with gold, the number of branches?

[Pralay Mondal, executive]

Okay. So yield, I think I've given the answer, but I'll tell it again. Very transparently, I'm telling that our wholesale yield is between 9% to 9.5%. It's not that -- I'm not saying we will not do business below 9%, but I'm just saying somewhere in that range or average yield remains. Our retail yield is somewhere between 10% to 10.5%, SME is between 10.5% to 11% and gold is somewhere around 12% to 12.25% and microfinance and agri is somewhere around 15% to 16%. So this is where our yield this thing is. What is the second question?

[Saptarshee Chatterjee, analyst]

The number of branches where we have other products along with gold?

[Pralay Mondal, executive]

Yes. So right now, we philosophically don't want to have any branch which is only doing gold business. So if there are -- I mean, first of all, you cannot do that also. Regulatorily, you have to have branches with tellers, with cash, with everything. But I assume your question is retail assets, fees, everything.

So all branches does most of this thing, but SME is -- the real SME -- the larger SME is focused on not beyond 100 branches, and MSME is focused on 200 branches. Fees, we do almost everywhere. And retail assets, we are gradually building because we don't want to go all over the place in retail assets. We are going slowly. And what else, savings, current accounts are there everywhere.

So to that extent, I think most of our branches are there. But yes, there are some branches which are little more gold focused, and they are mostly in 3 locations, Kerala to some extent, Tamil Nadu to some extent and Andhra Pradesh and Telangana to some extent.

[Saptarshee Chatterjee, analyst]

Can I have just one small follow-up on this -- on the retail yields?

[Pralay Mondal, executive]

Yes, yes.

[Saptarshee Chatterjee, analyst]

In the retail, when you said that it is between 10%, 10.5%, like can you give some order of which are at higher yield and which are lower yield within retail?

[Pralay Mondal, executive]

It is difficult to say, but I mean, I don't even have that number with me, but having run very large retail businesses in my life, I can tell you which range in the industry is, and we cannot be outside the industry, right?

So CVC business will look between 9% to 10%. Auto business will be somewhere around 8.5% to 9%, okay? The passenger auto, I'm saying -- okay? Passenger car. Then home loans will be somewhere around 9%, okay? Then inventory funding will be around 9.5% to 10%, okay? Then some [ used ] businesses will be slightly higher, maybe 12%, 13%. [ LAB ] businesses will be somewhere around 9.5% to 10.5%. So I think -- I'm not saying these are our numbers, because I don't know, okay?

But I don't think we are anywhere too different compared to what these markets are because we do not operate in a different market, and we do not have a yield maximization strategy. We have a risk minimization strategy. So from that perspective, I would think that we will be in this range only in most of the businesses.

[Operator]

[Operator Instructions]

We have the next question from the line of Pallavi Deshpande from Sameeksha Capital.

[Pallavi Deshpande, analyst]

Just wanted to understand on the gold loan business. Are we getting any benefit from the recent problems for this for a leading NBFC and do you see higher growth next year on that account?

[Pralay Mondal, executive]

Thank you for your question. First of all, I don't feel good if there are any issues anywhere in the banking ecosystem or financial ecosystem because there is a learning for all of us. So only thing is we learned from any of these regulatory measures. The market is too big. We are not even a large enough player. Our business mix in gold can be large, but with the INR 11,000 crore, INR 12,000 crores book, what are? We are very small, right?

So to that extent, we are very focused inward in terms of what we can do, what we should do. And I don't even think our segment of customers has any -- we are in the same segment of customers compared to the NBFC which you're talking about because our yields are around 12%. I would believe that any NBFC will be around between 16% to 20%.

So to that extent, I don't think you can think that we are in the same segment of customers. But philosophically, I'm not in that risk that somebody else is losing business and I will take. We will have our own way of doing business.

[Pallavi Deshpande, analyst]

Is there any target for next year in terms of growth for this business?

[Pralay Mondal, executive]

For gold business?

[Pallavi Deshpande, analyst]

Yes.

[Pralay Mondal, executive]

Yes. So as I said before that, as a bank, we'll grow around 30% to 50% faster than the system. And within that, I would say that probably gold will grow similar or maybe a little lesser. So if the system grows, let's say, next year, around 13%, I'm saying 13% because some of the -- one of the rating agencies are saying around 12% to 13%, it can be 15% also, I don't know. So if the system grows at 13%, 14%, we'll grow at 19%. And if we grow at 19%, then probably gold will grow somewhere between 15% to 20%.

[Operator]

The next question is from the line of Jai Mundhra from ICICI Securities.

[Jai Prakash Mundhra, analyst]

Sir, my first question is on wholesale banking, right? So we have added people, we have hired Manish Modi. And you mentioned that as of now till this quarter, it was not a franchise business. I wanted to understand, sir, when -- I mean, what could be the pace for this business to become franchise business? And of course, the wholesale market is very large market, considering our size, our cost of fund advantage, our distribution, and maybe the corporate connect, how would you segment the entire wholesale market?

And what could be the near-term segments which you would prefer to play in, maybe by ticket size, maybe by certain industry or maybe any color to understand thought process on this business becoming franchise business?

[Pralay Mondal, executive]

Okay. No, that's a great question, yes. So let me take a little time in answering this question. So first of all, if you look at the kind of leadership we have got into the bank today, be it on the SME side, be it on the retail side, retail/gold or now be it on the wholesale side. These are all guys who have seen businesses which are 20, 30, 40, 50, 100 times bigger than us, okay? Which means they understand the entire market in their respective areas of operation, whether it is SME, wholesale or retail.

But the challenge is that one could have handled the largest credit card business, but we don't even do credit card business ourselves directly. So question is where we stand as a bank, okay? So then when Manish has come in, he has to first see that where we stand and what are the steps to build. We are not in a hurry. Let me put it this way. Retail assets, I could have built just like that by appointing DSS and getting businesses, those are easy things to do, and I know DSS, I know the market. But we said, no, we'll not do this.

We -- and same brief is to Manish, that build the building blocks right, okay. Build the franchise business. What are the segments we want to operate as you rightly said. As a size of a balance sheet, we can't even participate in most of the larger tickets or larger consortiums or larger kind of this thing. Having said that, given he and his team, he is building a very good team also across the country. Each of these guys have worked in the largest -- have lend to largest companies in the country also.

So those connects has to be maintained, and in some form through supply chain, through something, we can build some businesses, et cetera, we must do that. So that is something first, we are working on. So without taking names, I can tell you that after he has joined, I have gone and met 3 to 4 largest business houses in the country, and I know that we can't do business with them with our size. But still we are meeting and trying to see that how we can -- because each of these large companies, largest companies, or largest conglomerates also have small, small units with them which is a part of their group.

So we are trying to see if you can work in some of these companies, et cetera, which has a larger kind of a guarantee of this larger company. So that is one segment, which is very, very attractive to us. But yes, they will not come with great rates, but still we need an entry. So that is one.

B is, we will clearly operate in the mid-market, okay, in most of geographies and in segments which will work well for us. We will work in emerging corporates. The way he has divided his team is, under him, Vatsal looks after the corporate banking, Avinash looks after the emerging corporates, and Runa looks after the FIG business.

So we never had segment in our wholesale business. And under each of them, they are now building regional heads and things like that, which is like good experience people who are going to handle this business. So we are driving the classical way of building a wholesale tranches. Parallelly, we are also having, transaction banking had Aman Singla who is working both with Shyam Mani as well as Manish and -- the SME head and the wholesale banking head. And he is building products like SME, supply chain. We are launching Vayana very soon, which is a software.

We are going to have trade-offs systems. We are building products out there. So we are building the blocks of building a proper high-end SME business and mid-end wholesale business, okay? So that's the second part.

NBFCs, we're always very strong. But as some of these manufacturing or other parts of the businesses starts growing, because eventually CapEx will start to pick up, private CapEx maybe 1 year from now, and we have to get ready for some of those businesses. So naturally, as a proportion, as wholesale business goes up, NBFC business -- the proportion will go down, but still NBFC business will be there.

Government business is something else, which they're focusing on, but that's primarily for liability. Because they also will have a target for liability and fees, and you know that in the wholesale side, fees is very important. We would like to have at least a 1.5%, 1.6%, 1.8% fees in the wholesale business, wishful thinking, but we would like to have that, okay?

So that kind of approach we are taking. So in short, what I can tell you is that -- then we have a very good treasury team, TFX, other businesses. We have got Alok, who is a very good treasurer. So the treasury team, the transaction banking team, the wholesale team and the SME team is working together in building a wholesale franchise. So it's -- it doesn't take that kind of a time our retail business takes time, but still, it will take a year to start having a full-blown wholesale because you need technology and other things as well to come together, but they are doing the building blocks. And given the pedigree they come with, they should be able to build the business along the way.

We don't have to wait for everything to come to build the business, so they will build the business along the way also. So we are pretty hopeful that both SME and wholesale will do very well for us this year.

[Jai Prakash Mundhra, analyst]

Understood, sir. That is very elaborate answer and very insightful. The other questions were partly asked and you have given your thoughts. But if I understand it correctly, sir, I mean, the credit environment has been very, very good in the last few quarters, and we had a large INR 70 crores kind of slippages. And if I were to see out of INR 6,000 crores corporate portfolio, this maybe one of your top 20 to top 30 accounts, I don't know, but [Technical Difficulty] because has turned very suddenly as you said, without too much of a warning.

But I mean, does this worry you in terms of risk management or what is the comment that you can offer there because it looks like it is not a run-off-the-mill kind of slippages?

[Pralay Mondal, executive]

It is -- I don't know what run-off-the-mill slippages is, but it is a surprise slippage, and it was not in our radar because it was not supposed to slip. So beyond that, I cannot say anything. That's the reason which we are also quite confident that we should be able to cure this. Having said that, on your original question, first of all, that is -- if I have to put top 10 things which keeps -- which can keep me awake at night, top slippages doesn't fall in the top 10 in the bank, okay? I have 10 other more bigger worries than a slippage right now.

Having said that, what we have also done is we have taken potentially top 20 stressed accounts in the bank -- potentially, okay? And we have put them into the contingency provision of that INR 105 crores because we were thinking what to do with this COVID provision what we have created. And then after talking to our statutory auditors and SCB Audit Committee, what we did is we -- and this is the disclosure I'm giving, we put certain provisions against potentially top 20 stressed accounts.

And I don't even think that any of this -- this was done only to ensure that the INR 105 crores contingency provision, we don't need to use it at this point of time. This was the most conservative approach we did. And I don't think we will need too much of usage of this contingency provision. In case we need, we have top 20 -- sorry, top 20 potentially stressed accounts against INR 105 crores of contingency provision we have kept.

This account -- by the way, this account was not even a part of this 20 list. So that's why I'm saying that this was a surprise one. If it was not a surprise one, I would have given an early warning to the market. So I'm confident that we will be this thing and -- we will cure this. And I don't have any -- I don't worry about slippages or this thing on the corporate side of the business.

[Operator]

Ladies and gentlemen, we will take that as a last question for today. I would now like to hand the conference over to the management for closing comments. Over to you, sir.

[Pralay Mondal, executive]

Thank you very much. Thank you, Shivaji for organizing this call. We had a great set of questions. And again, I want to reiterate that we are building the bank for the long run. SBS 2030 is our vision. And I have not seen as much excitement in the bank as we are seeing today. So I'm very hopeful that we are on the right track. And hopefully, FY '27 onwards, the real color of the bank will emerge, which would be very, very positive.

Thank you very much, and have a good evening.

[Operator]

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