Karur Vysya Bank Ltd

NSE:KARURVYSYA

Earnings Call Transcript 2020-Q3

[Abhinesh Vijayaraj, VP of Equity Research & Banking Analyst]

Good morning to everyone on the call. On behalf of Spark Capital, I welcome you to the 3Q FY '20 Earnings Call of Karur Vysya Bank. We have with us today the management team of KVB, represented by the MD and CEO, Mr. Seshadri; President and COO, Mr. Natarajan; General Manager and CFO, Mr. Sivarama Prasad; and Company Secretary, Mr. Srinivasa Rao. I now request Mr. Seshadri to take us through the highlights of the quarter gone by, after which, we will open the floor for questions. Over to you, sir.

[P.R. Seshadri]

Thank you very much, Abhinesh. Good morning to all those who are on the call. Thank you very much for taking the time to dial into this call. We greatly appreciate it. With respect to quarter 3, we continued on our journey. Our -- the business model transformation that we had embarked on 2 years ago continues, and it is progressing well. We continue to execute on our strategy which is aimed at granularizing the book. So as of the end of December, approximately 75% of our portfolio is granular. And by granular, I define the granular portfolio are retail loans, the commercial loans and agricultural loans. So all parts of our portfolio ex the corporate and institutional group. So that now makes up roughly about 75% or 3/4 of the book, up from about 69% in March 2018. Our lower risk categories are growing quite quickly. Retail, which is behaving very well, is now roughly 24% of the balance sheet and growing at the rate of 21% year-on-year ex the IBPC that is booked there. Gold loans, as you're aware, we started a new method of acquiring gold loans. We digitalized the process so that the process from a customer standpoint becomes significantly better. And from our standpoint, the quality of information that we are putting onto the system improves. That digital process has enabled us to grow gold loans at the rate of approximately INR 450 crores during the last quarter. So the balance sheet, as a consequence, what is happening is that the structure of the balance sheet is slowly but surely turning towards more granular products. We provided a whole host of incremental information during this -- in the investor deck. You had asked us what our SMA 1 and SMA 2 was last time when we spoke, and we had promised that we'll provide it to you. The SMA 1 and 2 is together on a -- approximately 3.2%, but that includes some gold loans, which are delinquent. But given the fact that the loss given default on gold loans is 0, if you were to remove it, our SMA 1 and 2 together is roughly 2.8%. Historically, we've been disclosing how those numbers have been moving downwards, but those were indexed to March 2017, and now that you have the numbers pertaining to 31st of December, you can actually reconstruct those graphs. And you will find that historically, approximately 2 years ago, a significantly larger portion of the book was effectively delinquent, which is now not the case. Our collection infrastructure is significantly better. Our focus on quality of acquisition is significantly higher. And all of these are coming together to ensure that the portfolio health improves quarter-on-quarter-on-quarter. We continue to remain very well capitalized. Our common equity Tier 1 is at 14.14%. And the capital adequacy ratio, including Tier 2 capital, is 15.87%. This gives us very significant headroom to raise incremental capital, if not CET1, definitely Tier 2 capital from the point of view of ensuring that we are adequately capitalized as we grow, there's a significant amount of headroom available. From a balance sheet point of view, our balance sheet continues to improve. Net NPA has moved downwards for the fourth consecutive quarter. We are now at roughly 4.13% net NPA. Our gross moved up by 3 basis points to 8.92%. However, net moved down very considerably to 4.13%. We are hoping that very soon, we will be below the psychologically important 4% mark. And we hope that, that will happen in the quarter that we are in at this point in time. PCR, provision coverage ratio, the way RBI defines it crossed 65%. PCR without technical write-off, which is the way you define it, is approximately at 56%. So we are holding $0.56 for every dollar of NPA. And given the structure of those NPAs, we believe that at this point in time, we are getting more than adequately provided. And we had informed you many quarters ago that we will be building roughly about INR 1,200 crores worth of provisions for the year. And we have almost -- we've already provided roughly INR 1,100 crores in the 3 quarters of this year, and we are well on course to make those kind of provisions. During the quarter, we also provided 1 large infrastructure/finance conglomerate to whom we had a fairly substantial exposure. Those have been provided to the extent of 70% or thereabouts in 1 case and roughly about 40% -- 60% in another, but now it is 100% provided. We continue to manage our deposit cost very, very tightly. We have dropped our deposit cost at the 1-year bucket to approximately 6.45%. So at this level, we are priced a little lower than many of the nationalized banks and definitely significantly lower than many of the larger new-age private sector banks. However, our current account, savings account business continues to do well, we grew on an end-of-period basis to 31% CASA. We are expecting this to grow quite strongly during this quarter because of the new initiatives that have been launched on the CASA front. From an expense standpoint, we continue to be very tightly managed, as you would have undoubtedly noticed. Our nonemployee-related costs grew only 4% year-on-year. Employee-related costs grew higher -- grew faster, but that is largely on account of the fact that we had to make AS-15 provisions. And given the fact that LIC's annuity costs have gone up quite considerably, this had an impact on us, which has been fully now provisioned for during the quarter. Our new initiatives are continuing to do very well. KVB NEO, which is a nonbranch distribution that we had set up -- that we started setting up towards the end of last year is now up and running and scaling. We are doing approximately -- are booking roughly about INR 120 crores, INR 130 crores worth of loans every month on NEO, and we expect this to continue to scale upwards as we go forward. The retail and commercial digitally underwriting loans -- underwritten loans are doing quite well. Our focus, as you would undoubtedly recall, is to build a very, very granular book. So on the retail side, we've invested a great deal of money in putting together a new digital infrastructure that underwrites these loans. Similarly, on the commercial side, on commercial, I'm sure I -- we spoke about the fact that we want to get our branches to underwrite the smaller ticket commercial loans, the INR 20 lakhs, INR 30 lakhs, INR 40 lakhs. And the reason why they were not underwriting it in the past was that the process for a INR 20 lakh or a INR 50 lakh loan was very similar to a INR 5 crore loan, and the branch used to focus on the INR 5 crore facility and not on the INR 20 lakh or INR 30 lakh facility. Our new systems are different. They are -- make the INR 20 lakh or INR 30 lakh or indeed a INR 2 crore loan, up to INR 2 crores loans much, much simpler for them to underwrite. In the last quarter, we originated loans at a rate of approximately 2 loans per branch per quarter amounting to approximately INR 419 crores in the quarter of loans, which have an average ticket size of INR 27 lakhs. And we are working with our branches, and we want the run rate to go to approximately 2 loans per branch per month. At which point in time, we would be originating roughly INR 1,200 crores worth of these loans every quarter. We have a slide in the deck, which talks to the momentum. We can see that quarter-on-quarter-on-quarter, the quantum that we are originating, given our new digital systems are increasing. Our transition to a centralized operations platform is progressing well. One of the things that we have centralized is something called concurrent checking. This ensures that every transaction that has happened in the branch is adequately checked by somebody. And we've introduced a new system by which we can check it centrally, and the new system takes into account or takes the help of robotic process automation and the OCR/ICR technology, which enables us to read every transaction that is happening at the branch, compare it with the risk metrics that we have and highlight transactions that require to be reviewed at a centralized level. We believe that this will significantly enhance the control environment of the organization and ensure that every transaction that we do at the branch is -- are transactions that are appropriate and those that have been appropriately authorized by our customers. We transitioned 97% of our branches to digital gold loans. I mean the process is slightly different from our earlier gold loan process. In this process, we actually take pictures of the jewelry. We ensure that all the documentation that is required is done properly. And we provide certain other facilities to the customer. This has enabled us to actually grow our gold loan business quite rapidly. We grew, as I said, INR 450 crores during the quarter. We think that this should be the new normal, and we should continue to grow at this range. On the corporate side, we continued to degrow from September 30 to December 31, ex INR 300 crore IBPC that has been booked on the corporate books. Basically, the corporate book actually degrew to the extent of INR 463 crores. So we are now down to about INR 12,800 crores on the corporate side. And our focus is to grow the other 3 businesses whilst we work the corporate book downwards and with a focus also on improving the quality of the corporate book. Another portfolio that we've been working out is the warehouse loan or the commodity loan. The commodity loans used to form roughly have approximately -- a balance sheet of approximately INR 1,500 crores. We are now down to INR 100 crores or thereabouts. Actually, as we speak, we're significantly below INR 100 crores. We are slowly working those out. As of March 2019, the commodity loan portfolio was roughly about INR 650 crores or thereabouts. So we've dropped about INR 550 crores from there. As we work down both the corporate and the -- some of these other high-risk products that we had in our balance sheet, their space is being taken by significantly lower risk products. And we will talk through that as we work our way through this deck. Our performance on the digitally underwritten new loans are good. And we have very significant amount of data for you, which you can look at. The ever 30 at 6 MOB which is a measure that most credit specialists look at is at approximately 1.5% for our retail book, which is exceptionally good, actually. I mean when the industry averages were published by Transunion CIBIL, that indicates a level of approximately 8% at 6 MOB, which seems to be the industry average. So we think that we are at the southern end of the industry average, and it gives us the ability to actually loosen some of our screens as we go forward. Our DLite app, which is the banking mobile application, continues to do well. It has well over 1 million customers now. And it has the full range of functionalities. You can do everything that you can do in our branch with our DLite app today. The co-origination platforms continue to work well. We now have 5 co-origination partners. We continue to book loans through the API gateway. As of this moment, we are -- we strongly believe in the process of test, validate and then scale. So we are in the test/validation phase at this point in time. So scalability will come with time as those co-originated loans behave, we are watching behavior, early vintages are good, but we need a couple of more months to make up our mind that the co-origination actually works, post which we should be able to put our feet to the pedal and grow that very, very quickly. Bullion business continues to do very well. I mean continues to progress well. We expect to have our first transaction done in the next -- during this month, post which that will become a regular feature of our product offering. I'm going to skip through a bunch of slides, which undoubtedly you would have seen, and go to Slide 12, which talks to the digital SME platform. You can see that we -- this is a new platform. The aim is to build a platform that enables us to focus on small ticket commercial. And you can see that every quarter, we are getting significant lift in business. And if our objectives, which is to get every branch to originate 2 such loans every month happens, we are looking at roughly INR 1,200 crores worth of bookings every quarter, which should enable us to change the structure of our balance sheet very dramatically. And you'll notice that the average ticket size here is roughly about INR 27 lakhs. Page 13 talks to the gold loan book, and you can see that that's growing very nicely, INR 450 crores between September '19 to December '19. Operation and centralization continues at pace. I'd like to spend a few minutes walking through the credit slides which start from Page 23 onwards. We've been giving Page 23 in this form over the last, I think, 3 or 4 quarters. You had asked us to give you the SMA 1 and SMA 2 numbers. We have now disclosed those as well. And you notice that those numbers are reasonable at about 2.8% ex the gold loans. And if you were to back trace, you can see that in history, at certain points in time, approximately 1/10 of our book used to be delinquent, which is no longer the case. We have now delinquency rates which are reasonable and which we think will translate into significantly lower NPA -- gross NPA slippages as we go forward. Slide 24 gives the same information, indexed to March 31, 2017, but by product category. I'd like to draw your attention to the retail book. As you know, our retail book has been growing very, very rapidly. But in rupee terms, the delinquent stock has not -- has barely budged. It has not moved, which basically means that the newer vintages that we are underwriting are of good quality. They are not adding to the delinquent stock, which, in the long run, will ensure that the overall delinquencies that you see in our total portfolio will start coming off. Page 25 is data on 6 and 12 MOB on our various portfolios. You can see that the trend lines continue to work for us. The newer vintages continue to behave better than historic vintages and which we think is very, very encouraging. 26 and 27 give you distribution of what we are booking on the retail side. And 28 gives you performance on new digitally underwritten loans. At 6 MOB, you can see that this is significantly better than industry averages. And 29 talks about the quality of the commercial book that we are underwriting through our digital process. About 82% of that book by value has CMR scores. And out of that, 86% of the book is between CMR 1 and 4. These are low risk. That's the way CIBIL defines it, 1 to 4 low, 5 to 7 is medium and 8 to 10 is high. And you notice that majority of our book is between the low and medium risk categorization. So one of the things that we've been battling is the fact that we've been trying to work out a portion of our portfolio and replace that portfolio with higher quality loans and in an environment of reasonable amount of stress. If you will recall, same day last year, we came and told you that we are seeing the first rays of problems in the marketplace. I take some credit for being one of the first to actually come and report to all of you that we are seeing some issues out there and that we are addressing those by taking appropriate steps on the origination side and also on the collection side. And all of that has helped us to ensure that our portfolio proposition, which we have reported to you now, improves even through what are extremely difficult times in the marketplace. From a financial standpoint, given all of this, given the fact that we have been migrating from higher risk to lower risk, growth on our balance sheet has been anemic. And I think that will change, both as the market shifts and there is a little bit more momentum in the marketplace; and b, as our people get more and more used to the new methods of doing business, we should start getting growth back. But you will notice from our P&L that our revenue is basically flat to prior year, as is our balance sheet. I mean our balance sheet hasn't really budged from the prior year. Expenses are up on account of -- to a little bit on account of the fact that the AS-15 one-timer. But given that there is no real growth in our balance sheet, revenues haven't really grown. But we expect growth to come back quite strongly as our systems reengage and understand the new processes. And the slide that we just showed you with respect to the commercial booking should give you some amount of confidence that as our people get more used to certain methods, the new methods of doing work, the throughput actually does increase. So the future P&L performance is predicated upon growth on the balance sheet. I think we've done most of our heavy lifting, most of the work that we needed to do with respect to restructuring the book, ensuring that the legacy-related items are dealt with. Majority of all of that is done. I think the balance sheet is in significantly better health than it has ever been. And we have a great opportunity now to go forward, grow the balance sheet in a very, very, very tightly structured manner and ensure that the P&L appropriately flows through. So there is one point that I'd like to make. As you're all aware, I decided to leave Karur Vysya Bank, and I tendered my resignation on the 4th of January. This is on account of purely personal reasons. That is one area where, unfortunately, I will not be in a position to offer any further clarifications. But every other question that you may have, I'll be more than happy to try and provide incremental information. But with that, let me turn this over to Abhinesh and so that whatever questions you may have we can try and answer them. Thank you.

[Operator]

[Operator Instructions] The first question is from the line of Drashti Shah from Investec.

[Drashti Shah, Research Analyst]

So my first question is despite of our retail advances growing by 21% ex IBPC, our NIMs have declined substantially this quarter. So is it because of the impact on interest reversals? So if you could quantify that. And what would be the other reason for the NIMs declining so much?

[P.R. Seshadri]

I think it's a very, very good question. There are 2 reasons why our NIMs are dropping. One is the yield on our treasury book dropped, as you would have undoubtedly seen. So sequentially, it dropped approximately 30 basis points. And that translates to a 10 basis points drop in -- on an aggregate NIM. So that addresses most of it. There is -- there are some other issues with respect to -- we did have INR 400-odd crores of slippage. So there are interest reversals that come on account of those slippages. So these are the 2 issues. The major issue, the way I see it, is a basis risk issue that is flowing through our balance sheet. We have repriced our assets faster than our liabilities. Because of the way RBI asks you to run your MCLR as well as base rate and other methods of pricing, these are based on the deposit rates that you have at that point in time. And the repricing does not take into account the changes in the aggregate average deposit cost. It just takes into account headline costs of new deposits that are coming through the door. And we have dropped our time deposit rates by 90 basis points. But our cost of deposits sequentially has dropped only 10 basis points. So some of it is because of a basis risk that is playing through. We think that this quarter, you will see a significant uptick in spreads. And as I said, some of it is on account of the treasury yields dropping as we book profits over the prior quarter. So we are managing this quite tightly. We think this will reverse as we go forward.

[Drashti Shah, Research Analyst]

So sir, the entire cost of deposits benefit will be seen in this quarter?

[P.R. Seshadri]

Not entire, it will progressively come. But the deposit rates were changed -- when, about?

[Sivarama Prasad]

[indiscernible]

[P.R. Seshadri]

No, no, no. Prior to that, also, we had changed. So we changed last quarter -- or for the quarter prior to that for the first time, and we've been progressively reducing our rates. So our 1-year bucket rate now is 6.35% which is -- when you compare it to Canada Bank, it is 6.5%. So some of that will start flowing through. But it depends upon how the -- how those deposits come up for renewal. But you will see a very significant impact now.

[Drashti Shah, Research Analyst]

Okay. Sir, my second question is, on Slide 24, you've given the SMA performance -- SMA book product-wise, if you see the commercial trend line, the commercial bit has been declining substantially for the last 1 year. But the slippages in that last 1 year has increased significantly. So if you could just help us understand the correlation between the SMA book and the business. And how should we read this?

[P.R. Seshadri]

You're right that it has been declining. And in the last quarter, it actually turned up a little bit, which is something that we are looking at. We think that's a onetime, and it will continue to decline as we go forward. Declines can happen because of 2 reasons there. One is that they become NPA, then this number declines. As long as there's no fresh inflows into SMA 1 from the current standard buckets. So there because of the nature of the -- because we had reasonably large numbers within -- in SMA 1 and 2, the forward flows were also high. We expect these numbers to come off even more from where we are right now. And that structurally will alter the flow of accounts into NPA as we go forward. So I think it's a question of time. I think you should look for the numbers as of this end of this quarter, which we think will be significantly better. Post that, structurally, the NPA accretion on the CBG, on the commercial side will continue to drop.

[Drashti Shah, Research Analyst]

Okay. Sir, and my last question is, sir, after the management change, what happens to the various initiatives that have been taken on digital and retail side?

[P.R. Seshadri]

I think the company is continuing -- going to continue with what we have done. This is a path that we embarked on with great deliberation. There will always be some amount of change that is made to ensure that the path that we've taken is appropriate for the time that we are operating in. But a vast majority of what we are trying to do will, to my mind, continue as we go forward.

[Drashti Shah, Research Analyst]

Okay. Sir, and the last bit would be, if you could give us some watch list on corporate because we've not seen the corporate slippages decline. So is there any watch list in your mind?

[P.R. Seshadri]

My -- I -- we don't have a specific watch list on the corporate side. We are now left with very few accounts that are very large ticket. As we have shown you in page -- of the pages we've given you what the standard book is, about INR 2,300 crores is what we have on Page 45, which is basically greater than INR 100 crores. These are all largely high-quality names. We don't expect these to give us problems in the near term. And the rest are smaller, more manageable accounts. So given all of that, we think that the corporate performance will improve as we go forward. You can also see a very significant drop in the corporate accounts that are nonperforming at this point in time -- or rather who are delinquent at this point in time. So we are a little bit more confident that as we go forward, portfolio performance will improve and the outcomes will be different from what they are right now.

[Operator]

[Operator Instructions] The next question is from the line of Jai Mundhra from B&K Securities.

[Jai Mundhra, Research Analyst]

Sir, first is if you can talk about the succession planning. Now that you have decided to move on, so what is the bank doing in terms of the next successor? Would it be internal, external? Has the process been started? How do you see that?

[P.R. Seshadri]

So the process has been deliberated at the Board. The Board has set up a committee, which in turn is meeting periodically. They're in the process of reaching out and trying to figure out how to fill this vacancy. So there's a full process the Board is undertaking. And I'm always available to help the Board if necessary. But I think you'd be -- it is something that they're working on, and they'll keep the markets, the regulators, everybody posted as it progresses.

[Jai Mundhra, Research Analyst]

Sure. And sir, is there any existing management personnel who is at the Board at the moment [ in the ] management side?

[P.R. Seshadri]

As of this moment, there is nobody from the existing management who's on the Board. We've written to RBI, seeking certain dispensation, which once RBI gives us, we will elevate 1 particular person to the Board, but that is subject to the RBI approving it.

[Jai Mundhra, Research Analyst]

Sure. And so far, the approval has not come, right, but we have seeked?

[P.R. Seshadri]

Yes, we have sought. Yes.

[Jai Mundhra, Research Analyst]

Sure, sir. And secondly, sir, on this asset quality, if you can quantify the absolute SMA 1 and SMA 2 number, just to get it correct.

[P.R. Seshadri]

As it is 3 point -- 1.8% of the total. Total is 49,617. So you multiply 1.8% by 49,617, you get absolute SMA 1. SMA 2 is 1.4% into 49,617. Okay?

[Jai Mundhra, Research Analyst]

Yes, sir. Yes.

[P.R. Seshadri]

Ex gold, you just multiply by 1.4, both of them you multiply by 1.4. Okay?

[Jai Mundhra, Research Analyst]

Sure, sir. Yes, yes. And sir, on growth side, sir, now we have -- even we were expecting some little bit uptick in the third quarter itself in the core commercial and probably corporate sector. So what is your sense, sir, on the core commercial book? When do we start seeing the growth there despite all these disruptions and sort of [ revisiting ]?

[P.R. Seshadri]

My own view is that we should start seeing the growth this quarter. See, I mean, we booked -- and I'm more interested in seeing the granular growth. I want the retail growth to happen. And I want this retailized commercial to really grow quickly. That's where the spreads are because you can charge -- you can have 500, 600 basis points spread in what you do on the retailized commercial. We booked 1,550 loans last quarter, which is 2 loans per branch. We are trying to get 6 loans per branch. If you give me INR 1,200 crores, many of these are overdrafts, so limitation, there will be some draws that need to take place. But assuming 60%, 70% utilization, we're talking about INR 1,000 crores addition to the balance sheet. The other thing that we think will happen during this quarter, and we are very hopeful, is that utilizations will start going up. So one of the things that have happened is, as you noticed from our report, the structure of the balance sheet is changing. The composition of the term loan has increased vis-à-vis the overdrafts. That is essentially because overdrafts have got paid down. So I'll tell you which page this is on.

[Jai Mundhra, Research Analyst]

Yes, yes, I saw that, sir.

[P.R. Seshadri]

So that overdrafts are getting paid down. So we -- if the economy becomes a little bit more upbeat, I think the draws on the overdraft will increase and it will move back towards the 80% overdraft and 20% terms that we used to have in the past, okay? So growth, we think, should come back reasonably well during this quarter, essentially because we think utilization on existing lines will increase. And that is actually a -- it's sort of utilization will increase and economic opportunities increase and people feel more confident that business requires more money. But we are hopeful that this quarter, that will happen and origination will also increase. So all of them taken together, we'll see some growth come back.

[Jai Mundhra, Research Analyst]

But it would be still some quarters away before we see, let's say, double-digit growth in that segment?

[P.R. Seshadri]

I would say a couple of quarters, yes.

[Jai Mundhra, Research Analyst]

Sure, sir. And sir, a couple of things more on this write-off recovery, sir. If you can quantify that number and also the ARC transaction that we did, if that was material.

[P.R. Seshadri]

Okay. We've done an ARC transaction in the amount of INR 156 crores. And so it was done on the commercial portfolio. As you are aware, our commercial portfolio is largely property secured. So the gross NPA was 176 -- INR 160 crores. And recovery on cash terms was INR 74 crores, that left us with INR 86 crores of net NPA and we sold INR 156 crores. So that's the transaction that we did. What was your second -- first question? I'm sorry, I...

[Jai Mundhra, Research Analyst]

Sir, recovery write-off number.

[P.R. Seshadri]

Recovery write-off number is on Page 54.

[Jai Mundhra, Research Analyst]

I mean separately. Separately, sir, sorry.

[P.R. Seshadri]

Can we give it to you out of the call perhaps and publish it appropriately in the next deck, yes?

[Jai Mundhra, Research Analyst]

Sure, sir. And the last question is, sir, about KVB NEO. So I believe this is an alternate channel. But what is the kind of product that it does because the average ticket size is around INR 3 crores. So does it involve LAP SME? Or it is almost product-agnostic? How do you see that?

[P.R. Seshadri]

So they are doing basically 3 or 4 types of products. They are largely writing loans to self-employeds to small businesses. We are doing -- we are trying to do business where cash flows can be somehow sequestered. So basically, if there's an individual who's got a point-of-sale machine, we know what transactions are happening on the point-of-sale machine. We have that assigned to us, and then we give him a loan, him or her a loan. Similarly, rentals and so on and so forth. So the focus is on trying to do about wherever cash flows are visible and taking those cash flows and providing credit to businesses. There is -- most of these loans are secured by property, so it would classify as LAP. But the essential aim is to do cash flow back. It includes the lease rental discounting of nonreal estate type of leases as well. So all of these are structured. And the idea is that we sequester cash and ensure that whoever is paying the cash to us has a better credit quality than the customer itself. So that's the aim.

[Operator]

The next question is from the line of Anil Kumar from Contrarian Value Edge.

[Anil Kumar Tulsiram]

Sir, the first question is in the last 2 years, lots of changes has happened in the way bank operates. So any problem from employee unions or any problems with the employees shifting roles?

[P.R. Seshadri]

Just give me 1 minute. So with respect to that, our relationship with the union and the officers association is very good. In fact, they've been very, very helpful in ensuring that many of these things happened. There is realization that change must happen for the -- for this 103 year old institution to continue to grow and prosper. So we don't have an adversarial relationship with either the union or the association. We've also tried to ensure that whatever we do, we do in a manner that we carry them along with us. So to answer your question, the relationship from an IR standpoint continues to be healthy.

[Anil Kumar Tulsiram]

Okay. Sir, and the next question is in INR 100 crores plus corporate loan book. Can you give details what percentage is BB-rated and below?

[P.R. Seshadri]

Why don't we publish that in the next investor presentation? We can give that to you then.

[Anil Kumar Tulsiram]

Okay. And sir, any guidance on the slippages including from the nonfunded exposure of the corporate segment for FY '21?

[P.R. Seshadri]

I really don't have a specific guidance. I want to repeat what I've been saying that as an institution, what we are trying to do is to have a net NPA accretion rate of roughly 1.5% per year, which on a INR 50,000 crore book is INR 750 crores, against which we want to provide roughly 67% or whatever amounting to INR 500 crores. And the rest remains available for us for appropriation towards profit. That's the game plan that we have. And I think we are getting closer and closer to it. Unfortunately, it has taken much longer than what we thought.

[Anil Kumar Tulsiram]

Okay. Sir, if not a guidance, then can you just confirm about the nonfunded exposure? Is any detailed exercise being done about any risky segment or any possibility of slippages in next 1, 2 years has been exercised, then also for the nonfunded exposure of the corporate segment?

[P.R. Seshadri]

We have been very risk-averse as an institution. And what I can tell you is that our nonfunded exposure has been shrinking month-on-month. So I have a page, let me just find it for you, give me a minute. Where is that security coverage page? Yes, here, Page 47. Page 47 gives you the total risk assets of the bank. If you were to go back a couple of years, you'll find that the risk assets of the bank were much larger and the nonfunded limits were also much larger. Okay? So we practically, with great deliberation, exited wherever we can, the nonfunded limits largely on the infrastructure side, right? Because that is where we were having problems. It's in the public domain. This information is there, I think, over the last 2 years, you should be able to see that this number has been coming off. We haven't specifically mentioned it. But you can see it. Every time that we have an NPA and the individual concern is -- does enjoy nonfunded limits. As a matter of course, we get a review done of the bank guarantee extended to figure out whether those are high risk, low risk or medium risk. I am not -- I do not have with me aggregate information as to what is high risk, low-risk and medium risk across the various categories where bank guarantees have been provided. But if it is, we will try and incorporate that information also in the deck. As you can see, we are putting more and more into the deck, we'll see how to incorporate it so that it's made available to everybody.

[Anil Kumar Tulsiram]

Sure. And sir, I think you have taken a lot of good measures in the last 2, 3 years. So all the best for your future, whatever you decide to do. So all the best. And thanks for all the measures you have taken. Thanks a lot.

[P.R. Seshadri]

Thank you very much. Much appreciated.

[Operator]

The next question is from the line of Renish Bhuva from ICICI Securities.

[Renish Bhuva, Assistant Vice President]

Congrats on a great set of numbers as well as the initiatives you have taken over the last 2 years. I think it's extremely needed for a bank to continue as a growing concern in a most competitive scenario, especially in the banking sector. Sir, a couple of questions on the asset quality as well as the fresh slippages, which we saw in this quarter, specifically from the corporate side, where we have again reported 2 billion plus slippages. So if you can just throw some light on the nature of the slippages and whether this is one-off, which suddenly came up this quarter or this has been throwing some sort of pain in past and then we decided to recognize it as NPA in this quarter.

[P.R. Seshadri]

Thanks, Renish. The corporate slippage was largely 1 particular entity. The name of that entity actually is in the public domain because we issued a notice on [ SARFAESI ], et cetera. This is a large-ish retail entity engaged in the retail trade in Madras. And the ticket in question was roughly about INR 160 crores. We had expected -- we have been noticing that the business in question was getting into trouble. It had very strong cash flows when the loan was written, roughly about INR 2 crores, INR 2.5 crores a day. And we saw that come off. As the individual concern and the business concern acquired incremental property, they removed money from the business and bought something else. So we were monitoring it. But it's not always possible to get out of these facilities. This is fully secured by a very valuable real estate collateral. And the parties that run the business are engaged in conversation with us, and they believe that they can raise enough money to restart the business. It has a very strong brand name. So we are working with them. There is a -- there is some chance that whatever has been recognized as NPA during this quarter may actually get reversed as we speak during this quarter. There's some chance. We are crossing our fingers and figuring out if the individual in question can liquidate some of his properties and raise enough cash to stock the retail outlet as well as pay us back, and in which case, we would be subject to all the approvals at the Board level, be willing to continue to bank with him or her. So this was a one-off, but we think that underlying loan by itself was not a bad loan. It was a chunky loan, too large for our balance sheet, perhaps. But the business itself wasn't -- the loan wasn't written in a bad way. With respect to the rest of the corporate, we've been reducing our exposure to various segments, infrastructure, manufacturing. In general, we want to focus more and more on trade. So we have recognized as NPA, out of a total balance sheet today of INR 12,800 crores ex the IBPC that is parked there, roughly about INR 3,000 crores is already recognized as NPA. So we have roughly only INR 10,000 crores unrecognized on our balance sheet. I am hopeful that during the current year, which starts 1st of April of next year, the total recognition that we will get off NPA will moderate very considerably to about INR 300 crores, INR 400 crores or thereabouts is the expectation that we have from 1st of April. That's what we hope. And there is reasonable -- it is reasonable for us to sort of expect a significantly higher, better performance as we go forward because everything that's needed to be recognized has been recognized, as you can see. And the delinquency performance is also encouraging, right?

[Renish Bhuva, Assistant Vice President]

Right. Right, sir. So, sir, just a follow-up on IBPC. Is it fair to assume that this is old account, let's say, 3, 5 years old account or...

[P.R. Seshadri]

Yes. Yes, most of -- 99% of what we are recognizing on corporate are historic accounts.

[Renish Bhuva, Assistant Vice President]

Okay. Okay. Great, sir. And sir, just the last question on the growth side. So just wanted to understand, right, is this the higher repayments or, let's say, since we are exiting some of the riskier segment is actually hurting the overall growth but disbursement is still intact or, let's say, in excess of 12%, 15% a year-on-year basis. If you can just quantify gross disbursement versus payment number in Q3 would be really helpful.

[P.R. Seshadri]

So very clearly, we are de-growing the corporate. You can see the numbers.

[Renish Bhuva, Assistant Vice President]

Yes. Right, sir.

[P.R. Seshadri]

Right, INR 500 crores -- INR 463 crores in last quarter itself, we de-grew, right? To replace that INR 463 crores, we got INR 450 crores of gold loans, right? And we grew our retail, so we have only 2 elements that are right now growing. One is gold and the other is retail. On the commercial side, you can see that the small ticket is beginning to now become important. Earlier, commercial also was lumpy. We used to do big ticket commercial in the branch level because the branch guy was given a target, which is a number target. You still look at every year, you have to grow your balance sheet by INR 5 crores or INR 10 crores, as I would go and do 1 loan for the year. So historically, we have noticed our commercial loan originations at the branch level used to be roughly 2 loans per branch per year. Okay. We are now doing 2 loans per branch per quarter. Only thing is they are much smaller ticket. You only get that 2 loans per branch per quarter into 6 loans per branch per quarter and then we think that, that growth will start coming back strongly, okay? So this quarter is an important quarter. You guys should watch out. We think that you will see growth coming on account of 2 things. One is utilizations, we are hoping that will come up because our utilization rates have dropped by about 10%, 15%. And utilization will come back. And we'll also see much stronger booking on the commercial side. The other reason why growth has been difficult is because we are working out of the warehouse book. Warehouse book was at peak, about INR 1,600 crores or thereabouts. We have taken it out over the last 12, 18 months. That's another chunk of growth that got taken out. So my own view is that we have enough levers that are helping us grow. And at the same time, there are a bunch of things that we are degrowing. So as a consequence, the total book has been flat. But now the degrowth will moderate a little bit. And the growing elements will enable us to see some significant growth as we go forward.

[Renish Bhuva, Assistant Vice President]

All right, sir. So just the last question, if you may allow, on the margin side. So of course, you explained the reasons why there has been a deterioration in margin. But just want some clarity on whether this is due to the, let's say, we have been trying to grow in better-rated corporates or better-rated loans. So where, of course, we'll not have the pricing which we used to get earlier, and that is actually hurting the yields because yields on a sequential basis is also down by almost 40 basis points. So I mean -- so what is the key reason behind the drop in yields? I mean is this because of the -- under the new digital platform since the rate is predetermined on the basis of the score, which will throw, of course, the pricing will be linked to that and that will be lower than what we used to charge historically? So is this the structural change which might lead to the lower yields going ahead? Or is this due to the couple of reasons which you explained and it will normalize going ahead?

[P.R. Seshadri]

So when you say that we are now going after the AAA-rated names on the corporate side, and we are offering lower rates to onboard them, that indeed is happening. But that is limited to corporate, okay? We are not offering lower rates to other folks. One of the areas where our rates were relatively low was gold loans up until the beginning of this quarter. So in January, we increased our gold loan rates. Basically, we wanted gold loans to take off. And to aid that, it was an entry pricing strategy where we went and reduced our pricing. And that has been taken up by about 50 basis points. So these are the 2 areas where our prices were a little aggressive to get volumes. But the majority of what you are seeing. See, the -- we are now completely risk-based priced. So our system on the retail side is risk-based priced. On the commercial side, it is completely risk-based priced. We are -- our average pricing, I'll ask Prasad to try and see how information may be shared, which is in line with whatever regulation exists. But you will notice that on the commercial and on the retail side, we are netting roughly about 11% is the yield that we are getting, booking yield. The reason why you are seeing this shift downwards in net interest margin is because, as I said, of 2 reasons largely. One is because of the basis risk, our cost of funding sequentially has come down 10 basis points. But the -- my base rate book has been repriced downwards 55 basis points because of the way we -- the structure of RBI moves, and our MCLR has also come down. But over this quarter, we think that there will be a catch-up on the liability side because liability pricing is down 90 basis -- 90 basis points. So the liability book should reprice and the spread should come up, come back up again. I don't see that as a very big problem, Renish.

[Renish Bhuva, Assistant Vice President]

Okay. What should be the sustainable sort of NIM you would like to expect given the entire restructuring of the business?

[P.R. Seshadri]

Well, I keep saying that we want 400 basis points, and I still stick with 400 basis points. Achievable NIM and we should get 400 basis points.

[Operator]

The next question is from the line of Bhavik Shah from B&K Securities.

[Bhavik Shah, Research Analyst]

Sir, so on Slide 28, we have seen a spike in April 2019 of 30 plus 6 months MOB. So what event led to this?

[P.R. Seshadri]

We are analyzing that. We think it's a one-off. And our credit guys are looking into it. I don't have the exact reason. But it's -- even at 4%, it is half of industry average. So I guess not that bad. But yes, we are aware of despite we don't really know at this point in time what exactly caused it, our risk guys are looking into it at this point.

[Bhavik Shah, Research Analyst]

Okay. Okay. And sir, our corporate book, the 30% one, which is above 0.5 billion. Sir, what sectors are they from? And how many accounts would they be?

[P.R. Seshadri]

No, you're talking about the NPA for the quarter. Is it?

[Bhavik Shah, Research Analyst]

No, sir. Sir, we have like INR 13,000 crores of corporate book, of which 70% is below INR 50 crores. So the rest, 30%. So how many accounts would there be roughly? And which sectors would those accounts be in?

[P.R. Seshadri]

I don't have the information readily available, but I can have -- I can request our team to put it together and make it available.

[Sivarama Prasad]

Bhavik, I'll talk to you about it.

[Bhavik Shah, Research Analyst]

Sure, sir. Sir, and do we see any stressed companies there as in like they are showing signs of stress as of now likely to slip from the lumpy corporate book?

[P.R. Seshadri]

No. It would be inappropriate to say that there is no stress. There is a certain amount of stress within -- in a book of about INR 10,000 crores, something or the other will be there. But we don't think that it should be more than, as I said, from 1st of April onwards, I was saying INR 300 crores, INR 400 crores. So if you include this quarter, about INR 500 crores, INR 600 crores or thereabout should be the level of stress that we should have.

[Operator]

The next question is from the line of Saikiran Pulavarthi from Haitong.

[Saikiran Pulavarthi]

Just quickly continuing one of the earlier question on the margin side. So you said that you have moved to the risk-based pricing. And then appetite for risk, especially on the incremental underwriting is also lower. So logically, if I look at then the margin should come down versus what they were earlier, but you are suggesting that they can move up further, how to read this?

[P.R. Seshadri]

I think it's a good question that you make because at one level, the two are contradictory statements. But having said that, there is a very strong basis risk that is flowing through. This is very clear from our point of view. We have a time deposit book, which is 44,000 crores, right? Where our pricing 6 months ago was at about -- was 90 basis points higher than where we are today, right? This is the time deposit book, which needs to reprice as we go forward. We are watching what percentage of reprice of renewals happen, et cetera, et cetera. And that repricing action, we perhaps could have done a little earlier than what we did, and that has led to the repricing of liabilities becoming a little slower than the repricing of assets. And this was done deliberately because we wanted to stay very liquid as an institution, because we believe that the external environment was a little challenging. But now that we have repriced, we think that the sequential drop in our cost of funding will be higher than the sequential drop in the net interest that we are earning on our existing loans. So the basis risk that we are currently -- or the basis-related issues that we are currently facing will, over a period of time, moderate. To your question, which is that, look, you are going after better quality customers, so you must be charging them less. I repeat that, that is most accentuated on our corporate book. So if I'm going to lend to a AAA-rated name, that AAA rate tends to be significantly lower than what we used to lend to on the corporate side. Historically, our corporate customers were small businesses run by entrepreneurs, et cetera. We are now changing our focus and saying that, look, we want to go after better quality names with higher credit ratings. There, there is a change and the rates do drop, but it's limited to that because both on the retail and on the commercial side, on a risk-weighted basis, our yields are holding. So our submission to you is that what you're seeing now is on account of 2 things: a, our treasury book yield has dropped and our treasury book is highly inflated today. And it's roughly 1/3 of our total book, where we did notice a 33% -- 33 basis points reduction on a sequential basis, which plays out to about a 10 basis points reduction on an aggregate NIM. So we think that as we go forward, the contrary force, which is the repricing of our assets will come through and we should revert to closer to our historic average. We used to be in the 3.8% or thereabouts, we should get to about 3.6%, 3.7% reasonably quickly.

[Saikiran Pulavarthi]

Got it. And what is the SB rates we offer at this point of time?

[P.R. Seshadri]

It's on our website. The peak FD rate that we offer is 6.45%.

[Saikiran Pulavarthi]

Not FD, I'm just saying savings bank deposit rate.

[P.R. Seshadri]

That is 4%. We have not changed that for the simple reason that we believe that dropping that is not warranted. We want to grow our savings in current balances. They have been growing, they are now at 31%. We are hoping that as we close this year, we will be closer to 32.5%. We expect another 1.5% growth this quarter.

[Operator]

The next question is from the line of Darpin Shah from HDFC Securities.

[Darpin Shah]

Exactly a year back, you had mentioned about roughly 1,750 crores, 1,800 crores kind of a gross slippages, which can happen over the next 5 quarters. And that is exactly how it has played out for you. So from hereon, where do you see this kind of the slippages coming and how it should shape up? I know you have explained a bit about the improvement which have happened. But if you can quantify the slippages, which you can see.

[P.R. Seshadri]

So Darpin, you are being very kind to me by saying that it has played out the way I said it would. In reality, I have exceeded that number. We are at 2,050 as of now. I had said 1,850, we are at 2,050 right now.

[Darpin Shah]

Sir, the macro also have been not supportive, so.

[P.R. Seshadri]

You are being very kind, I appreciate that. Thank you. I think this quarter, again, we'll have another 300 crores or thereabouts of gross slippage if all goes well. So we'll end at 2,350. So we'll have breached that number of about 500 crores. But on a net basis, we are okay. And I strongly think that next year, numbers will moderate. You can -- that's why we've done all this disclosure on our portfolio quality, and all that kind of a good stuff. The stressed accounts that are there in 1 and 2 are reducing. As we speak, our 1 and 2 is lower than what it was at the end of December. So we think that all of this is going to translate into significantly lower slippages. As we move into the next year, which is why we thought that the best way of dealing with this is to give as much information so that people understand that there is significant improvement that has already happened to the book.

[Darpin Shah]

Okay. And just one more thing. Anything to comment on the -- if you have any exposure to the telecom sector and if you see any stress there funded, nonfunded?

[P.R. Seshadri]

No exposure to telecom.

[Darpin Shah]

And again, the coffee, Southeast coffee?

[Sivarama Prasad]

No, no, no.

[P.R. Seshadri]

No exposure to coffee also.

[Sivarama Prasad]

No, [indiscernible] No, [indiscernible]

[P.R. Seshadri]

He is trying very hard not to mention the name.

[Darpin Shah]

That's why I said the sector, I didn't say the name, sir.

[Operator]

Next question is a follow-up question from the line of Drashti Shah from Investec.

[Drashti Shah, Research Analyst]

Sir, I wanted to understand the difference between the gross slippages that we report and what we report in our Basel disclosures.

[P.R. Seshadri]

Are they different, madam? Which page of the -- [ bullet ] you're referring?

[Drashti Shah, Research Analyst]

The gross slippages that we disclosed in our PPT and the gross slippages that we disclosed in our Basel list.

[Sivarama Prasad]

I'll just check, madam. I'll just check and come back to you, madam. Prasad here, okay?

[P.R. Seshadri]

We will come back to you. If there's any difference, we'll try and explain that to you.

[Drashti Shah, Research Analyst]

So -- okay. If you go to slide, I can tell you right here. Slide #54, the additions that we've disclosed is 449 crores?

[Sivarama Prasad]

Yes.

[Drashti Shah, Research Analyst]

And in the table beneath, the additions during the period of 9 months is 1,267. If we derive our gross slippages from that number, it comes to 293 crores.

[Sivarama Prasad]

No, no, madam. You -- that way, that reconciliation will not happen. Yes. See, the slippages...

[P.R. Seshadri]

Why don't you take this off-line?

[Sivarama Prasad]

Off-line, I'll talk to you, madam.

[P.R. Seshadri]

449 is the right number. Both numbers are right, but I think the definitional issue, that you can talk about.

[Sivarama Prasad]

Madam, I'll talk to you.

[Operator]

Ladies and gentlemen, that was the last question for today. [Audio Gap]