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Karur Vysya Bank Ltd
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Ladies and gentlemen, good day, and welcome to the Q1 FY '21-'22 Earnings Conference Call of The Karur Vysya Bank. We have with us today the management team of KVB represented by the MD and CEO, Mr. Ramesh Babu; President and Chief Operating Officer, Mr. Natarajan; CFO, Mr. Ramesh Murthy; and Company Secretary and Compliance Officer, Mr. Srinivasa Rao.[Operator Instructions] And there will be an opportunity for you to ask questions after the presentation concludes. [Operator Instructions] Please note that this conference is being recorded. I would now like to hand the conference over to Mr. B Ramesh Babu, MD and CEO, to take us through the highlights of the quarter gone by, after which we will open the floor for questions. Thank you, and over to you, sir.
Thank you. Yes, good morning to all the attendees. I welcome everyone for this quarterly earnings call of Karur Vysya Bank. I trust all of you are safe and taking care of yourself and your families.So we all witnessed the COVID-19 pandemic and the resulted lockdowns leading to a downward trajectory of the growth downwards last year. It is expected that the growth would rebound in financial year 2022. However, the advent of the second wave of the virus in the beginning of the financial year that led to state-induced lockdowns negated this assumption to an extent. With the accelerated pace of vaccination drive, precautions and safety measures being taken, lots of awareness created, let us hope that the position will not be alarming and exit velocity will be much faster.Due to the ongoing COVID pandemic, as a bank, we continue to face formidable challenges on the personal as well as business front. Being an essential service, we have continued to deliver uninterrupted service to our customers while taking all necessary precautions to safeguard ourselves, our families and our colleagues. More than 80% of our employees have been vaccinated. With the current relaxations of lockdowns at various states, our branches are now functioning with excellent strength.The pandemic created an opportunity for the growth of digital banking. Our brand continued the growth in the first quarter also on the digital front as 92% of the transactions are through non-branch channels as against 88% of the previous corresponding period. The impact of second wave was very much felt in the first quarter by the industry. Despite these [indiscernible], we were able to report steady performance in the growth of business.Let me take you through the numbers in detail. Coming to the business growth. When we met last time on 31st May for quarter 4 and the financial year 2021 performance update, we had indicated 12% business growth based on the normalcy for the current year. Our strategies to achieve the business numbers were also outlined. During the first quarter, we have achieved 7% growth in deposits and 8% in advances on a year-on-year basis. The growth in deposit side has been fueled by CASA portfolio, which is up by more than 200 basis points and is now at 35.2%. On a sequential basis, business growth has been muted especially on the credit front. The sluggish growth is primarily due to lower acquisitions and lesser utilization of working capital limits by existing borrowers on account of specific circumstances prevailing in the market, which all of you are aware of.We achieved 33% growth in the loan portfolio over the corresponding previous year. Sequentially, it is about 3%. We continue to focus on this segment, taking care of the operational issues and faster turnaround time as well as the variation in gold prices vis-à-vis [indiscernible]. We continue to hold our guidance of achieving 12% growth during current year depending upon the external environment and, of course, without compromising on the asset quality.Coming to operating profit. Our cost of funds has further reduced to 4.56%, down by 43 basis points from 4.99% in the previous financial year. The same was 5.42% in June '20 quarter and 4.65% in Q4 of 2021. During the current quarter, we have reduced our interest rates on term deposits across maturities and realigned our savings bank interest rates, too. This will aid in reduction in the cost of funds going ahead.Yields on funds is maintained at 7.41%, and yield on advances improved marginally at 8.55% over March '21 quarter. Net interest margin has improved by 9 basis points to 3.55% for current quarter over 3.46% in the previous quarter, which is quarter 4 of 2021. On a year-on-year basis, too, NII is up by 19 basis points, thus, NII grew by 15% Y-o-Y.Fee income, other than treasury and Forex, increased by 21%. Treasury income has fallen by 80% over June '20 due to unfavorable and uncertain market conditions, as all of you know. Operating expenses are higher by 6%. Cost-to-income ratio stands a tad higher than 50% due to lower treasury income over corresponding quarter of last year.Operating profit for the quarter is at INR 429 crores. That is 2.2% of the average assets on an annualized basis. Of course, the drop in treasury profits did not -- did impact OP, but the overall revenue was almost flat on a year-on-year basis, signifying that business operations are improving.Coming to collection efficiency. Our collection efficiency has been further strengthened and continues to be at 95% levels during the first quarter despite many odds. And the further details are furnished in Slide 20 of our deck.NPA slippages. Gross slippages for the quarter was at INR 519 crore, and net slippages other than typical write-off was INR 404 crores. Technical write-off during the quarter was to the tune of INR 379 crores. Gross and net NPA numbers are marginally increased over March. Details of these are furnished in Slides 25 and 26.Corporate portfolio witnessed fresh slippage of about INR 202 crores, consisting of 4 accounts, of which 2 are in trade and 2 are from real estate, of which 1 of the trade account is already upgraded to recovery during the month of July. Both [ RE-related ] accounts are under consortium. The projects are under progress and in a completion stage.Due to differences between the foreign and Indian promoters, there is stress in the accounts. Neither both the clients have opted for restructuring, nor did they avail ECLGS though they are eligible. The foreign promoters and funds are one of the reputed global players in the RE market, and we expect resolution during the current year.We continue to maintain our guidance on gross slippages at 2% of the loan book. And we are working towards negative net slippages by the end of the year under normal circumstances. SMA 30+ balances as of the end of the quarter was INR 1,662 crores, about INR 647 crores, which comes to 39% of this book is under [indiscernible], which is mainly the result of the lockdown measures whereby many customers could not visit the branches. Of this, INR 249 crores has already [indiscernible] out of stress, either by way of closure or renewal post June. LTV of the remaining balances of these accounts are very much lower than the current market price, and we do not foresee any challenge in these segments as our branches are in touch with the customer for closure or renewal of the accounts. The LTV and other details we have provided in the investor deck.We have worked out our strategic plans, our recovery and, in many cases, are in advanced stage of resolution, which include out-of-court settlements, legal proceedings and sale of properties. As the environment is becoming normal, we will show better performance in upcoming quarters. We have strengthened our collection capabilities to sustain and improve our collection efficiency.As all of you know, last year, we have been mentioned, we have taken measures for our resolution thing and as a general manager also we have placed, and we are working on that. But during the year, because many of the courts, they were not functioning, we were not getting the court orders. That's why many of the disposals of the properties which we are supposed to do got delayed because once things become normal, I'm very sure the pace will improve. And we have done the entire groundwork to take it forward. Further details are available in Slides 20 and 21 of our investor presentation.Coming to restructuring. During the quarter, bank has restructured 375 accounts amounting to INR 96 crores. Overall, standard restructured book as of the end of the quarter stands at INR 1,028 crores. That is 1.97% of our loan book. Further details on this are available in 28 and 30 pages of the investor deck.So coming to provisions. We have provided INR 278 crores towards NPA during the quarter and continue with our plan for making higher than the required provision towards NPA and to bring down our net NPA. Provision coverage ratio excluding written-off accounts is lower at 54.4%. As on March, it was 57.1% mainly due to the prudential write-offs. We intend to keep this ratio in the range of 55% to 60%. Our estimated credit cost for the current year will be in the range of 2% of our loan book, and we are working on those lines.Finally, coming to the ROA. In our earlier briefing to, we had indicated to reach ROE of 1% at the end of financial year 2023 and 1% in the year 2024, 1% plus. We hold on this guidance considering our profitability trends, expenditure controls, growth, recoveries and lower provision requirements from the next year.So friends, you would have seen that with a lower treasury income of INR 143 crores also, so we are able to manage well because rest of the [ rigs ], they are supporting that way. So that way, we are reasonably confident that we'll be back on track, provided the environment and external factors, they support us.So that's it from my side. Now we can go to the Q&A, please.
[Operator Instructions] The first question is from the line of Vikas Sharda from NTAsset Management.
One thing I wanted to -- yes, one thing I wanted to clarify, that -- you mentioned that you're looking for gross slippage of 2% for the year, the net slippage to be negative. So what is -- where do you expect the gap between the 2?And secondly, you also said that your guidance of credit cost for the year is 2 percentage of loans. So how does it reconcile with the negative net slippage number for the year?
Yes. The gross slippages, what we said 2%, we are trying for that. We'll work on that. When we are talking about the negative net slippages, that includes the write-off also. Recovery, upgradations, write-off all these things together, so we will aim for the net slippages because even if you look at the write-off also, 100% of that has been provided by us. So that is the reason every year, every quarter, beyond what all is required, we are providing additional amounts to take care of these things. So that way, we are aiming for the net slippages to be negative. So with all these 3 factors, we can get to it.Now coming to the credit cost is concerned, if you look at it, as it is the net, our intention is to bring down the net NPA. Otherwise, we would have guided earlier itself that ROA will be 0.8, 0.9 this year itself. This quarter also, more than what is required, we have provided for the next slippages. So if we add it back to the profit, so we'll be crossing this 0.8, 0.9, what we are thinking. But net slippages have to come down.So this year, to the extent possible, the provisions, what all we are creating is to take care of the net slippages. So with that, our intention overall is so 2% we'll be maintaining. But over a period of next year onwards, this 2% will progressively start coming down because we would have addressed major part of the net slippages by the end of the year.
But I mean just curious that why 2% credit cost this year. Like, [indiscernible] the fact that...
If you will need to meet the RBI guidelines and all, you may need 1%, okay? But until and unless you make an accelerated provision, the net NPA numbers will not come down. If you look at our net NPA, it's coming to around [ INR 1,800 crores ]. So progressively, we had to break it down. So that accelerated provision, we need to make it. If I go on adding it towards the profit and ROA, this number will not come down any time. So that the upgradations will be there. And recoveries will be there. Focus will be there. All these will be there. In addition to that, as a kicker, if we do not provide something more than what is required, so we'll not be able to address the problem. We want to keep this problem behind because, as all of you know, not many measures have been taken in the corporate front. And the bigger exposures we stopped taking and all, and quality, we are looking at it. So that way, so corporate, it comes under control. And net NPA also brings under control.The focus will be -- on 3 fronts we'll be focusing. One is on the business growth. Ultimately, the percentages will come down. Second thing is the accelerated provisioning, what we are going to make. That also will bring down the net NPA. And third thing, the recovery efforts, what we are making both through legal, out of the court, all these things. So common point for us now with single point is how to bring down the net NPA with all these things, then the rest are things we can focus, and ROA will ultimately go up.
[Operator Instructions] The next question is from the line of Renish Bhuva from ICICI Securities.
[indiscernible]
Renish, your voice is pretty feeble. You need to either come to the -- nearer to the mic or something like that.
Okay. Sir, it is better now?
Sir, no, we are unable to show you well, sir.
It is better now?
Definitely.
Okay. Yes, sir. So first question is on our gold loan book. So sir, what is our total gold loan book as on June?
INR 13,000 crores, that is -- it is -- if you look at the total book, it is INR 13,206 crores. So Slide #20, we have given it, so INR 13,206 crores total, this is the book.
Okay. Okay. And how much of that would be towards SMA?
SMA, by inaugural, this thing I would have told you -- I have told you. If you look at it, the NPA under the gold loan is a pretty small amount, okay? If you look at the SMA portion 30+, INR 600-odd crores, what I have told in my inaugural remarks. Out of that, more than INR 260 crores has already been recovered or renewed or whatever it is we have done there.So the good thing here is, comforting factor is, over last year, the relaxation was there for -- giving a relaxation, the LTV of the 90%, we were relatively conservative. We were maintaining a 75%, not more than 80% in 2 cases at all. So that way, if these loans account for renewal, the problem is currently what other phase is. So people will have to bring some more money because [indiscernible] percentage really has come. Whereas in our case, in our slides, we have shown it is 78% for that overall. [indiscernible] if you look at the personal segment also, it is 68%.So hardly above 90%, our LTV is INR 1.96 crores. 90% of our LTV, INR 1.96 crores, that's all. And the above 85% and below 90% is hardly around INR 400 crores out of INR 13,000 crore portfolio.So the only question is now that people may have interest in the gold and even if you go to the market, we'll be able to dispose of, we are relatively better placed as far as the jewel portfolio is constrained.
Got it. Got it, sir. And sir, just to follow up on that...
Renish, one more point I'd like to add there. If you see the Slide #20, we have clearly mentioned what is our SMA 30+ level. And also, we have provided what is the current level of these accounts. So it's very clearly indicated it's purely because of the operational issues, people are not coming to -- not able to come to the bank. Otherwise, as far as the LTV and market value is concerned, absolutely, there is no issue. And after a period of time, I think these numbers will come down drastically.
Renish, just to clarify, one last clarification on Slide 20. The LTV number which you see there of 78% relates only to the SMA book, okay? We are much better off [indiscernible].
That's very good.
This is only focused on that.
That SMA book LTV, it still is 78%. You have 22% margin for this LTV also.
Got it. Got it, sir. Sir, just a clarification on that. So of this total INR 13,200 crores of gold on book, what is the split between agri, retail and SMA? So retail, I'm assuming that INR 1,800 crores is part of this INR 13,200 crores.
Yes.
I mean what is like would be -- or how much would be agri and SME?
Agri, majority is agri. INR 10,000 crores is agri. So now [indiscernible] the balance amount [indiscernible] is on the retail segment, very small amount.
Got it. Got it, sir. Okay. And sir, just last question from my side on the fee income, okay. So interestingly, the 1.5 billion kind of a run rate is sort of sustaining from almost like 7 to 8 quarters. So if you can throw some light in terms of the more general details, whether it is a given from a liability side or the asset side. Because in this quarter, as you already had it in the opening remarks, that business activity was muted in terms of the credit growth. So I'm assuming this INR 150-odd crores of the fees is largely coming from the liability side in a sense, which is sticky. So what is the sort of expectation on this [indiscernible] fee income line? And if you can throw some light on the details about on the [indiscernible] in terms of the breakup.
No. Coming to the other income breakup which you talk about, I'll just share with you one thing. There are 2 factors. One is, to some extent, last year, in respect of some ATMs and these sorts of things and all minimum balance charges, we were not recovering in the first quarter because of the government dispensation. So that's a small amount. But in addition to that, we started looking at carefully on the credit front, the processing charges. And these sort of things, when we look at it compared to last year, the processing charges itself has gone up by INR 9 crores. INR 9 crores.Likewise, a few other areas, wherever these things are there, we are going head-wise. What is the room available, what we need to do, we are working on that. In addition to that, I also mentioned earlier, we have just recently brought out a CRM also, a revamped CRM. With that, how we need to go ahead for the cross-sell and upsell, we are working on that. Once that also kicks in, the cross-sell income also will go up.So our effort is two-pronged. One is on every lever of the income head what we need to do, where we need to reduce the concessions, we need to look at the quality of the borrower and the risk-reward pricing, are we doing properly or not, that way to legitimately get our income what we are supposed to get from each account. And other side, also expenses, wherever we can contain, we are working. So that way, the two-pronged approach we are working.
Got it, sir. Got it. And sir, how big is the team for data analytics for this quarter?
Yes, these data analytics, not many things we are doing and all. Now for the business, there are 2 fronts actually for the data analytics we are working. One is on the stress side. And the stress side, if you look at it, because currently the problems are there much in advance, how to identify this, [indiscernible] which can go these things and all. And these things we are working. That's why a lot of control we have got on this particularly on the retail and SME front from the data analytics.Coming to the business side, so a lot of mining is happening. The current accounts they are [indiscernible], profiling they are doing and all, what sort of products, we can give it to them, that preapproved laws also, when the things were going on well and all we did a lot on this preapproved loan. Now we are seriously considering how the position has slightly improved, can we go back to the preapproved loans? But even with the preapproved loans, you go also.Our unsecured loan portfolio is around 500. There itself, we have enough [ scope base ] there. So that today, analytics, we are using both for business as well as for the stress. Both sides we are working. And we have further strengthened our analytics wins by providing a few more people also who are experienced there. So every win vertical, what we can derive from the analytics, we are working on those lines.
Got it, sir. Okay. Sir, just last question on this write-off. Obviously, a write-off suggest that it is primarily from the corporate book. So is there a, let's say, series of accounts or is this towards a couple of accounts?
It's 7 accounts, Renish.
And it's all legacy, let's say, [indiscernible].
They're all completely to our legacy account or NPA. But Renish, one thing, the fact that we would have written off, but mentally, we have not written off. We will be after them and all, those NCLT, all these things will be going on because these core NCLTs, they are not functioning now. They are already subdued. Otherwise, once this normalcy restores, so whole [indiscernible] will be going on these fronts or recovery of this, not only these accounts, smaller, everything. So there will be a big pool supporting us for the net NPA reduction.
Got it. Got it. So this is a broadly technical writeoff?
Yes. Yes, absolutely.
[Operator Instructions] The next question is from the line of Anand Dama from Emkay Global.
I wanted to check on these jewel loans segment. So when we speak to other banks, which we have indicated there is a lot that [indiscernible]. And post the LTV reduction, banks are finally difficult to lose or [indiscernible] into this segment. But if you look at our book, we have seen a decent growth in the jewel loan segment. So can you explain like how this is happening?
Yes. So as I was telling Mr. [indiscernible], as I was telling earlier, so we were relatively conservative last year though we had the elbow room to go up to 90%. So we were assuming saying that post with the [indiscernible] of this, what will be the position? So that is the reason, that has hindsight, if you look at it, that has helped us. So that is the reason this SMA book itself is 78% only the LTV. The rest overall, if we look at it is less than 70%, 75%, something like that. So LTV front, we are comfortable.But then that will be the case why this SMA has come. SMA has come, you would have seen that particularly in the areas where we operate, so part of April as well as May, there was an absolute difficulty for the people to move out. So that's the reason our people, they couldn't go, and the customers could not come. So June when the normalcy started restoring, so we started working on much of the pain we have removed.But even with that at the end of July, June, INR 600 crores [indiscernible] in the month of July. So a lot has been out. So we are working on that next 1 or 2 months and on, we will be able to renew a majority of them even if we are unable to renew these things or not. We have sufficient margin available with us to take care of that even if you go for an auction, which is a last resort. So that way, we do not foresee a much strain in this particular portfolio because of the comforting factor of the LTV.Now coming to the growth front, I agree, last year corresponding period first quarter, we have grown by INR 700 crores odd. And this year, we have grown by INR 285 crores, INR 300 crores, something like that. So we were also cautious saying that the same run rate goes and all, how it would be. And that is the reason when we have gone reasonably okay is INR 300 crores we have grown, but a few of them, when they are cutting the corners, we didn't want to do that.So we start saying that reasonable growth is better than having a pain later. So that is the reason INR 300 crores. I am not assuming saying that last year how much of growth we have, what is in the gold loan. We may get it or not, we do not know. But our focus will be there provided, if operationally we are comfortable and we are confident.
Okay. Secondly, the [indiscernible] that we have seen INR 519 crores. So you mentioned about some almost lumpy corporate [indiscernible]. So that pertain mainly to the real estate?
First thing I want to clarify, the lumpy was the word, actually. So of course, 1 year, 1.5 years back, when we were having these slippages of INR 150 crores, INR 200 crores, these sort of things. Now If you look at it, all these slippages barring one account are all below INR 50 crores. So below INR 50 crore, ideally, any bank will be taking. And also that way, this is granular. Unlike earlier problem of lumpy, that is not there now, first thing.And second thing, if you look at it, out of the 2 accounts are from the trading and 2 accounts are from real estate. Real estate also, if you look at it, they are big projects under consortium and the partner is a foreign partner. And more or less updated but then the construction also has been completed.And the -- one of the good factory, we had observed, I have told, GECL restructuring. Though we were offering, we didn't take it. We were saying that there is no need for us. We have internally resolved 2 issues and all. With that, we'll go ahead, we do not want it. So we have been offering them for the last 6 months because they're just ever trading, you can take that money, and all you can repay, and all these things can be done. But they didn't prefer to do it. That gives us the confidence that they are serious about the resolution.So coming to the 2 other trading accounts and all. One of the account has already been upgraded, and second account will work on that even if something is not possible also. I can give you confidence that these are backed by more than 100% collateral.
Sir, is it possible for you to sell out the exposures of each of these 4 accounts, 2 in trading, 2 in real estate?
I will tell you.[indiscernible] out the return to whom, [indiscernible] or separately?
Well, I'm saying what are the exposures to these 2 trading account and 2 real estate accounts.
No, no, trading exposure is concerned, [indiscernible] because we're a full banker and all you'll be able to dispose of the property. But whereas both the real estate are concerned, you are one of the consortium lenders, the consortium lenders, all of us, we need to come together. But I can tell you, [indiscernible] has been given by the lender, and the process is on. And every one, other lenders, the 4 lenders who all are there are equally concerned. They are putting entire pressure. They are not waiting for the partners to settle their stores. And we are on our own proceeding as if nothing is going to happen. So these 2 will concurrently proceed.
So what is the exposure of this large real estate account?
It is INR 700 crores.
INR 700 crores. And overall systemic exposure will be how much?
Systemic exposure, really, I think that [indiscernible].
Or the concession as a whole?
That is around INR 350 crores.
Okay. INR 350 crores. So it is not a very big area.
No, no, not at all. I tell you the project itself value is INR 950 crores.
Okay. And this is from South India?
Yes, yes, definitely South India. [indiscernible] one is from South India.
One is South India and one is from the...
So we are balanced in there. South and North.
Okay. But is it possible for you to name it?
No. No. Basically, it's not the [indiscernible]. So they're all very -- recruited by a global player. That's what - it's not in our part to name it [indiscernible]. Because we work as a banker, what we are supposed to do that, we do that.
Okay. So you mean to say that from all these 4 accounts, about 1 trading account which has already got upgraded, what is the exposure of that account?
I say INR 50 crores, that's also, because out of these 4 accounts, they are less than INR 50 crores. And that real estate account, what I said is less than INR 100 crores. So that is the resolution is on. Rest of them all, 3 are less than INR 50 crores.
Okay. Okay. Got it. And sir, you said that basically real estate, some restructuring also might happen. So what's the pipeline of restructuring that we have now?
That is a [indiscernible] question. The reason is, up to September, RBI has given the time. So the pipeline, things are coming. The majority of what are coming from the [indiscernible] segment, if you look at it, housing loans as well as loan against property. These 2 are the main. But because personal loans, maybe other banks will be getting a lot. As I said earlier, our total portfolio still is above INR 500 crores. So that much of pressure and requests are not based on the unsecured loans.One of these things have come up. So we are skeptical. If the chances of these people over a period of time getting the cash flows and revival and servicing is good, we will go for the restructuring. If that is not possible, it is better to bite the bullet itself [indiscernible], you take it forward and all and proceed under [indiscernible]. So that way, very critically, each of the case, our people, they review if it is workable and meets our standards, then only we'll go for restructuring.Otherwise, suppose even if you find a partner on INR 600 crores. Finally, you may land at around INR 200 crores. If you see the last quarter, [indiscernible] is at INR 100 crores. So that way, [indiscernible] if we think that the pipeline is INR 1,000 crores finally and we land at INR 200 crores, so overall, if you look at it, initially, 6 months back, we were giving a guidance of 2.25%. Finally, we landed at around below 1.5%. And even now today is 1.97%. So we are careful about restructuring. We are not opening the floodgates. Wherever it is warranted, we'll do that. But the window is open up to September ending, so I will not be able to say any number at this stage. I can share this number only in the October.
Okay. But is it fair to assume that basically it will be less than 2.25%?
No, no, that's what I'm telling. My intention is that suppose how it pans out in the next few months, we do not know the stress [indiscernible]. Based on that in the month of August and first week of September, many more customers, they come. So I cannot say that I have my 2.25%, and beyond that, I will not do because RBI provisioning is there, everyone can demand. So intentions are that. So to selectively go for that, that is the reason we are not close even 2% around it.
Anand, it is difficult to say in the last 2 weeks of September what will happen. They could -- because the deadline is coming close, some more people may decide to go up for restructure. And it's left to us. If it's a restructurable account, we will do it.
But a few of them, they don't want a tax. The restructuring tax, they don't want. That is a precise reason they are not coming forward. And finally, they exhaust all revenues, they are pushed to the wall. They may come out at that stage.
Yes, [indiscernible]. But since, sir, I mean, what kind of monitoring we have offered on the restructuring?
No, no, majority of the case, it is only about 6 months to [indiscernible].
[indiscernible] is permitted.
Majority of the cases, we have extended that unit only.
On the [indiscernible] basically for how long?
No, that's not. I mean depending upon their cash flow availability, 6 months to 2 years. It ranges, Anand. It's not everybody is opting for 2 years. Some of them want only 6 months. It's their choice. Some of them is a year, 18 months, like that. So it's a mix.
Even to a housing loan customer, you would offer principal loans [indiscernible] a year?
No, that's not what I'm saying. It depends on the cash flows, the estimate is there. Suppose it is retail, within 6 months, this normalcy will be restored and all. We'll be opting only for 6 months, it's a question of major discussion what is there. Most of all, [indiscernible] And he may say that 1 year is required because I do not know how things are going to pan out, and now I have to come back and restart my business also. So you may have to be like slightly considerate because you cannot [indiscernible] straight. So there you must answer for 1 year.So it depends on the nature of profession, profile of the customer, cash flows. That is the reason each case we'll evaluate critically. Based on that, we are giving it -- just like giving a straight jacketed method of, "Everyone, I will give you 2 years. Everyone, I will give you 1.5 years." Not just that way.
The next question is from the line of Jai Mundhra from B&K Securities.
Yes, sir. First, this collection efficiency number that you have given is for the entire bank, right? Because it was given in the gold loan side, so just wanted to...
Yes. Yes, the collection efficiency slide separately is for the whole book, whole book term loan. [indiscernible] separately we have given it, yes.
Right. So even in April, [indiscernible] not too much of it, right? [indiscernible] according to the situation today, maybe based on the repayment that may have come after the month, right?
Correct.
Right. Okay. And why is there a slight dip in working capital versus term loan? I thought it should be the other way around. But I mean if you can qualitatively explain that why would the collection efficiency be lower in working capital versus the term loan.
See, Jai, actually, in the case of working capital, as per the IRAC, the interest, whatever we are debiting during the quarter, at least the collections should come. The credit should be equivalent to the interest debited during the 3 months period. And because of the lockdowns, the shops are not open or the customers are not able to reach, they may find it difficult to give the credit when the call is out of order. So basically, the collection efficiency, we talked about working capital is now the problem is the interest, number one.And during the 3 months period, the credits would be equivalent to the [indiscernible] of the account. This is what we calculate asset demand, unless the term loan, right, there is a very specific [ EMI ]. In the case of working capital, this is what we work out. So that definitely, [indiscernible] operations are not there or credits are not equivalent to the interest debited, there will be some time delay with it. And not only that, I suppose sometimes, the working capital, they may be debited and all. They may honor the term installment also.
Right. Understood. Sir, now on your commercial book of around INR 16,000 crores. If you can qualitatively explain what percentage of this book would be in, let us say, B2B customers and how much would be B2C facing the customer. I mean commercial, I mean would they be just in the supply chain wherein end-to-end, they are facing a large corporate? Or how much proportion could be in the B2C kind of a segment?
Jai, I think we need to work out on this and we need to come back because, currently, I don't have the data with me.
But any broad number, sir? I mean we do [indiscernible]?
Commercial book is concerned, there are 2 components, okay? INR 9,500 crores is the small business. Small business is up to INR 2 crores to INR 3 crores, something like that. Out of this, majority of the business is from the traders. And so that way, you cannot expect this B2B supply chain directly, all these things, you cannot expect because there are small time players. It is different for us because yields what we get from these people are around 10% to 10.5%, okay?Now coming to the BBU customers, if you look at it under the commercial, the INR 4,500 crores what you see, which is about INR 2 crores, INR 3 crores they're not. Only those segments we may have to look at it how many of these things are there. So otherwise, B2C or B2B, whatever it is, the focus what we are giving is one and the same.Currently, if you look at it, one more thing, if the buyers are not able to honor in time, so these people are struggling, so during the COVID period, with the earlier concept of these things they have undergone change. So a few people that are unable to operate, the production itself is not there, a few people are unable to get, but whatever it is, your point is well taken. We'll work on our BBU customers, how it works and all. And accordingly, we'll plan for that.
Understood, sir. And second, sir, on your guidance on 2% credit cost, so if someone was also explaining this would mean this is slightly elevated number. So this would include your restructuring and provisioning as well, right?
Jai, you have been tracking the bank numbers for the last few years. So 2% was a limited number, 2.5%, 2.7%. These things, INR 1,600 crores, INR 1,800 crores also, INR 1,600 crores used to be there. So if you see the real capability of the brand, not to boast, I tell you, 2021, the majority of the period, the moratorium is there. People, they were [indiscernible] even if they were asking for the money, they were telling them Supreme Court dispensation is here, why are you asking the money?When we have got a little and small window of 10 days, so we could bring it down, these slippages, to below INR 1,000 crores, INR 900 crores, so which used to be INR 1,600 crores. So now if you look at it, had the position continued, the second wave of this, that a stringent wave is not there, the momentum will have continued. So we would have confidently told you saying that we can bring it down further is not an issue.But because of the position these things are there with all these things also, if you are saying 2%, which used to be much, much above 2% in the earlier years and all, so we are reasonably feeling okay. With the March experience, what we had is the market and environment is conducive. We will be able to take it forward. And because the issues earlier I said, and I just gave these accounts have gone out, now we'll have a better control on these accounts.So currently, if you look at it, 2% over a period of time, our intention is to bring down to 1.5% over a period of time once things improve. So 2% current number under the current environment, if you look at it, I think it is a good number.
So now it is, a positive, reasonable number. I just wanted to check that this would include your restructuring provision also, right? I mean all...
Credit cost [indiscernible]?
No, no, credit cost. Credit cost you would also...
Yes, yes. The credit cost, we mentioned about the 2%. Even in our MD guidance, we are mentioning that our plan is to make higher than required provision. Even the current quarter, whatever we offer, the credit cost of INR 278 crores, if you exactly work out the IRAC [indiscernible] and all, we have made some accelerated provision. In that sense only, we are talking about this 2%. That include restructuring.
Sorry, I was thinking earlier the slippage which you are talking, that's the reason I responded. Like credit cost [indiscernible] is very correct because net NPA over a period of time, we need to bring it down. For that accelerated provisioning, what all is required, we had to do that, which includes the migration provision, the current slippages and accelerated. All these things together, we are planning for 2%.
Right, sir. Okay. Just a small observation, sir. The SMA number that we give, I mean, the chart that we show, that seems to have almost doubled in, let's say, from March to June, I think, in the [indiscernible] number?
That is slightly deceptive. The reason is I tell you. March, you would have found out around INR 900 crores, okay? Now INR 1,600 crores. In the INR 900 crores, the jewel loan SMA was less than INR 100 crores at that time. Now the jewel loan SMA is INR 600 crores. So that is the reason if you exclude this jewel loan SMA, it comes to INR 1,000 crores. Earlier also, INR 900 crores; INR 100 crores, if you exclude that, it comes to INR 800 crores. So INR 800 crores, other than jewel loan, has come to INR 1,000 crores, which with the second quarter and second wave is there, it is expected because people could not go out and all. So that way, this is not that alarming. But if you conclude with including the jewel loan, if you see, it looks like that, but it is slightly deceptive.
The next question is from the line of Amaan Elahi from Investec India.
So just some comments again on [indiscernible] the corporate book, so now we had INR 210 crores of slippage in the corporate book, and we have been sort of slowing down and rationalizing this book. So going forward, what kind of slippage rate can we expect from this book? I understand most of these are smaller exposure than -- so just some guidance on what kind of slippage we can expect on this book.
No, Amaan. In fact, if you look at our March ending SMA, it is less than INR 50 crores, SMA 30 plus under the corporate book, okay? So we were reasonably confident everything has been brought under control, everything has been disclosed. So these things, because second wave has hit and the issues which have come up in respect of the real estate, so those 2 accounts, the foreign player as well as the Indian player, these have cropped up. Otherwise, we were not even expecting this in end of March.So that way, if you look at it, so nothing big we are expecting as it is. We are having a sort of control. And overall, we have granularized the book also. So I don't expect these sort of lumpy accounts and all coming forward. That's what I can say. Because you see, my number of March ending, that corporate book was -- how much it is, it is INR 13 crores, 1-3, SMA 30+ as on 31st March was INR 13 crores. So these are the developments which have come up during the quarter because of the peculiar customer senses. Otherwise, we were on a firm footing as far as the corporate is concerned.
Right. Sir, the other question was on the margins. So we have been able to maintain our yields of [indiscernible], and there was some reduction in cost of funds. So do we have further room for deposit cuts? And what should we expect on the margin front in the coming quarters?
No, I had to be open with you. The room available for further deposit cut may not be there. The reason is we have come to this stage, and how long this will continue, we do not know. Now the reversal starts, clearly, you may have to start working on this. But only advantages in respect of liabilities repricing, so the [indiscernible] is there. At least they will not get repriced, whereas in the assets, the repricing starts. It is the advantage.Now coming to the margins also, you need to look at it because of the liquidity overhang in the system. There is a rat race going on. So a few people, they offer a lower rate and all. Now at least to retain your own customer who is good actually because acquiring a fresh customer is a costlier affair compared to retaining existing customers. Sometimes you may have to compromise on the margins if they are good customers. So that way, intention is to optimize the margins both from the cost-wise reduction as well as improving the margin. So improving the margin now would be difficult. There is [indiscernible] advances also. Once the interest rate cycle starts moving, we'll be able to know. Otherwise, so we can think of maintaining this [indiscernible] margin. And here and there, there will be brief here and there.
And sir, lastly, you have given this chart on employee and attrition rate. So attrition rate has been what?
Attrition rate.
Yes. The past 5, 15 months, your employee count has gone down by roughly 400, and the attrition rate has been coming down. So what explains this?
There are 2 things. As it is, we are focusing on the productivity business for employees, these things and all. So that's why wherever loose ends are there, we are trying to fix those things. So next thing is the wastages. Wastage is in terms of early retirement, any debt. These things are there from the employee side. We are not replacing at one point of time a few years back on a person-to-person basis, every year, we were replacing that.Now we didn't replace that also. So that way, with the existing structures what we have created and the digitization what we have brought and the back office centralization what we have brought, with all these things, wherever the manpower can be reduced, we are trying to reduce them and focusing the existing manpower on the sales to improve the business levels and all rather than on earlier the back office was doing in the brand.
Right, sir. And lastly, sir, under the OTR scheme 2.0, we have restructured INR 90-odd crores. So is there any corporate account in there? Hello?
Yes, sir, you may go ahead. We can hear you.
Yes. So my question is, under the OTR scheme 2.0, we have restructured INR 90-odd crores of loan. Is there a corporate account in that?[Technical Difficulty]
Mr. Elahi, just allow me a minute. We are just trying to reconnect the management.
Okay, go ahead, please.
Yes, sir. We have Mr. Elahi on.
Sorry, sorry, the line got disconnected. One thing is, I'll just clarify, the attrition is suppose someone who has left the organization before the retirement is under attrition. The normal retirement, what I was telling a normal wastages, we are not taking. That's why the numbers are coming down. Attrition is coming, so it gives a confidence for the people saying that "I need to stay back with the organization."So there's a good for us to lower the attrition rate and all because you have seen our average age is also around 35. So in this age and all, lower attrition is good for the organization because many measures internally, employee welfare measures we are taking internally to promote them to capacity building, to train them. But all these things, the confidence levels of employees are going up, that has resulted in the lower attrition levels.
Okay. And sir just lastly, under the OTR scheme 2.0, we have restructured close to INR 90-odd crores. [indiscernible]
I'm sorry, your line is breaking. I said, please.
[Operator Instructions]
So my question is, under the resolution scheme 2.0, we have restructured close to INR 90-odd crores. So is there a corporate account in that?
Is there a corporate account in this [indiscernible]?
Mostly retail. It's primarily a retail book, not corporate.
[Operator Instructions] The next question is from the line of [ Arjun Chandrani ] from [indiscernible].
Yes. What I wanted to ask was how is the recovery shaping up in Q2 because the problem of overhead has still not receded in the Southern part of the country. And do you expect a net -- negative net slippage number for this quarter?
The question is so as far as we are concerned, we are working with the ports, as I said earlier. So we sort of getting the orders from the ports things are not coming. That's a problem. But we are trying for the [ OTS ]. [indiscernible] under the OTS, even without the ports and all, we'll be able to do that. So our intention is to have the negative net slippages. We are working on that. We need to see how it pans out and all.But otherwise, this year is concerned, it will be a year of recovery, and we'll be focused on this, if not this quarter, in the coming months also. And as and then a window of opportunity is there, we are for that and all. And in fact, we are taking people in the market in the recovery who have the expertise from few of the companies and firms who are actually dealing with them, some experienced people also we are taking it because too we want to take it forward to the next level.
One more point, Mr. [indiscernible], if you see our production efficiency for July, it is something around 96%, 97% as far as the collections are concerned. But as far as slippages are concerned, in July, we are not seeing that much slippages when compared to that the earlier quarter. So what we are confident is whatever recovery measures the bank has taken during the last year and during the first 2 quarters, we think that many of the things will materialize. So that is why we are constantly, we are planning that at the end of this quarter or end of the year, we are planning for the negative slippages. So there will be some slippages. But what we are expecting is our recoveries will be better than our slippages. So we will write off to them.
[Operator Instructions]
I think there are no more questions, so I think let's [indiscernible] to end. Our MD will give you concluding remarks now.
Thanks to all of you for your interest in discussing and participating in this call. But finally, I just want to say a few things to you. We, from the management side, we are very keen to fix the issues what we have because particularly a two-pronged approach we need to do. One is the focus on the ROA. As I was mentioning, if we are providing for the NPA, net NPA reduction on these sort of things and we focus on ROA, we'll be able to achieve the ROA of 1%. But somehow I feel it will not work that way. The percentages of the net NPA and other things need to come down.A three-pronged approach is very much required. One is the growth, growth in the business. As all of you can see, the little window what all 5, 6 months was available last year, so we could grow better than the market at 11% excluding the IBPC . And so that's where the growth we could get, particularly more so in the last quarter. Had the position continued, the momentum would have continued in the first quarter also. Now many of the operating teams, they are geared up, and various verticals started contributing. So that way, once the environment is normal, we'll be able to get the growth numbers.Second thing is our intent we have shown during this quarter also. So the accelerated provisioning, rather than confining to what all is required, we want to provide accelerated provision so that we need to bring down the net NPA issue, what all is there. Your total focus would be on the ROA.And third thing, it also need to support from the recoveries. That is the reason we now strengthened the recovery mechanism here and provided once these legal things are available, it will be much more better because auctions also, if you go for that, the people are not coming forward because they are bogged down with the COVID-related issue. Once these things are fixed, the recovery also will start giving good numbers. Where the total base is ready, we have enough numbers on the recovery front to get it.So if these 3 fronts supports us, we will be in a better position to bring down the net NPA and the provision, ultimately, the cost, credit cost, comes down. It goes towards the ROA, and we will be able to focus on that. So this is our approach. And all verticals, we are working very seriously business, nonbusiness, recovery, collection, everything we are taking it quite seriously. And thank you very much once again from the entire team of KVB for the interest of what you have shown. Thank you.
Thank you. On behalf of the Karur Vysya Bank, that concludes this conference. Thank you all for joining us. You may now disconnect your lines. Thank you.