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Karur Vysya Bank Ltd
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Ladies and gentlemen, good day, and welcome to the Q3 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. B Ramesh Babu; President and Chief Operating Officer, Mr. Natarajan; CFO, Mr. Ramesh Murthy; Company Secretary and Compliance Officer, Mr. Srinivasa Rao. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. B Ramesh Boddu, MD and CEO, to takes us through the highlights of the quarter gone by, after which, we will open the floor for questions. Over to you, sir.
Thank you. Thank you. Yes, good evening to all of you. I welcome you all to the bank's earnings call for Q3 of financial year 2022. We trust that you and your colleagues, family members are keeping well in good health. Reports that the impact of third wave of COVID virus has not been as severe as the earlier wave, which provides [ strength ]. Going ahead, we are confident that the spread and impacts of this mutant virus will be controlled, aided by increased vaccination coverage. I take this opportunity to extend our gratitude to our team members for continuing to extend required banking services to our clients despite unfavorable environment. We are also pleasantly surprised that the third wave did not impact the business momentum across most sectors, particularly in the southern states of the country. Globally, many countries, including U.S., have initiated measures to contain inflation, and the impact is already felt in the Indian financial market. We are closely observing the policy measures of RBI, which may have an impact on the liquidity and interest rates. And we are prepared to meet the challenges, if any, which may arise. In line with our guidance indicated in the previous quarters, we are progressing well on the basic parameters and confident that we are moving in the right direction. This is reflected in our third quarter ROA, reaching 0.93% on an annualized basis, and ROA for the 9-month period, on an annualized basis, stands at 0.79%. Let me take you through few important business parameters of our Q3. First, net interest margins, NIM. We continue to maintain NIM at above 3.5% level for quarter 3, despite competitive pricing environment in the market. Even though the yield of the funds came lower by 16 basis points during the quarter, the stable low-cost deposit have aided a 10 basis points reduction in the cost of deposits to 4.22%. [ Market ] trends in the financial market clearly indicate hardening of interest rates in the near future and we expect that lower duration of our investment portfolio will aid in improving our yields on investments and also mitigate MTM impact. Our focus on NIM continues and the same will continue to be at 3.5% plus levels. Operating and net profit. Net interest income has increased to INR 687 crores (sic) [ INR 686 crores ], up by INR 103 crores from INR 584 crores during the quarter ended December 2020. Fee-based income has increased by 7% year-on-year to INR 162 crores, the same is up by 13% on a sequential basis, too. Employee expenses were lower during the current year as compared to Q3 of the previous year after normalizing onetime items. Details of the same are available in Slide #7 of the investor presentation. Employee costs for the current quarter includes an amount of INR 27 crores, which is the second installment amount amortized to meet the enhancement in the family patient obligation. You are aware that RBI permitted banks to amortize these expenses over a period of 5 years. We have decided to account the entire amount of INR 81 crore based on the actual valuation during the 3 quarters of the current year itself. So the residual amount to be amortized stands at INR 27 crores as on 31/12/2021, which will be expressed during the last quarter of '21/'22. Other operating expenses went up by 13% during the quarter as compared to a year ago. Reasons for increase include transaction fee incurred under digital transactions. Correspondingly, noninterest income too has risen as stated earlier. We have initiated various cost control measures and closely monitor the various items of expenses. Operating profit, after recasting the depreciation on investment as per the revised disclosure requirement, increased to INR 402 crores (sic) [ INR 401 crores ] higher both on Y-o-Y basis as well as sequentially that is up from INR 375 crore earned during the second quarter of the current financial year. Our follow-up and recovery initiatives resulted in lower slippages. As a result, our credit-related provision requirement reduced to INR 135 crores, which includes restructuring provision also. In spite of increase in bond yields, there is no significant MTM provision on investments on account of our conscious decision to maintain lower duration. So the depreciation number for the quarter pertains to SR provisions. Net profit has risen to INR 185 crores for the quarter, registering growth across the quarters. That is higher than INR 165 crores in the quarter 2 and INR 109 crores for quarter 1. Improvement on all fronts, net interest income, other income as well control over expenses and lower provisioning requirements have led to the positive impact on the bottom line. This is the highest quarterly profit earned by the bank during the past 18 quarters. Slippages and asset quality. Gross slippages were at INR 223 crores during the quarter. And for the 9-month period, the same was at INR 621 crores, which works out around 1.11% of the loan book. Our recovery upgrades have gains surpassed slippages for the second as well as third quarters, resulting in net slippages being negative to a sure of INR 84 crores during the quarter. There is a reduction of INR 255 crores in GNPA during the 9-month period. There was no technical write-off or SR transaction during the quarter. We are working towards keeping the gross slippages well within 2% of the loan book at the end of the financial year and are confident of meeting these goals. We aim to achieve negative slippages in the coming quarters also.SMA 30+ balances at the end of quarter 3 stood at INR 737 crores, which is 1.32% of the loan book. SMA book includes jewel loan balances of INR 279 crores. Due to lower slippages and recoveries, GNPA level has come down by 41 basis points during the quarter to below 7% and stands at 6.97%. Our aim is to reduce it to below 5% levels by 2023. Our net NPA level has further reduced by 86 basis points to 2.47% during the 9-month period, bringing net NPA to below 2% will be one of our most focused items on the agenda. Restructuring book. Our overall standard restructured book as of 31st December stood at INR 1,616 crores, which is around 2.9% of our loan book. During the quarter, INR 84 crores slipped to NPA, and further details are available in our Slide #28 of our presentation. In terms of regulatory guidelines, we have provided INR 146 crores towards this book. Coming to the growth. We have achieved total deposit growth of 8% year-on-year and major contribution from CASA segment. Our current and savings book are growing well, recording 12% growth. CASA share is at 36% level, and we continue to work for further improvement. Our DLite banking application is working well, and we have been continuously adding many more features for better customer experience. Our agricultural loan book, which mainly consists of jewel loans, grew by 12% year-on-year and sequentially by 3%, and we expect that the trend will continue in the fourth quarter. We are in the process of implementing interest fluctuation model of agricultural loans at our rural and semi-urban branches. This will be helpful for the branches to expand our customer base. Retail loans under personal segment have grown by 11% year-on-year, and sequentially, 3.4%. This is predominantly on account of residential mortgages and jewel loans. Our preapproved credit card program has been rolled out to our existing customers during this quarter, and we propose to scale it up further to our existing customers before opening up for the general public. Our overall jewel loan book has grown by 14% and constitutes 25% of our loan book. LTV stands at 72%, with negligible NPA and SMA 1 and 2 at less than 2%. The entire loan disbursement process is fully migrated to digital modes to ensure 100% compliances. Commercial loan book has grown by 8% year-on-year and close to 5% sequentially. Though there is a visible increase in the sourcing and disbursement, existing book rundown and non availment of sanction limits have impacted the growth. We are focusing on this segment very closely, and we expect that we will be in a position to improve further and achieve double-digit growth. Corporate banking growth remains muted, and there was a marginal degrowth. We have made fresh disbursements of INR 687 crores during the quarter, and due to the pre-closure of certain large accounts, the growth is not visible. However, we expect a moderate growth of around 5% during this quarter, both NEO and precious metal portfolio continues to grow sequentially. Our NEO business model, transactional banking, bullion business and co-lending business models with NBFCs are doing well. We are now focusing to scale up our activities under these business segments. We expect to achieve a growth of 10% overall in the loan book during this year. Our CRAR continues to be robust and is at 18.79%, providing us a comfortable headroom for growth. Our liquidity is also comfortable, and we continue to maintain LCR of about 200% levels. Treasury contribution is on an even track. Duration of AFS book is 1.92, and we do not foresee any material MTM losses in the current quarter despite raising interest rates. We have indicated during the last meeting, on the launch of government business, we are glad to share that our customers are now able to remit custom duty payment through ICEGATE portal of Central Board for Indirect Taxes and Customs. An integration work is in progress for direct and other indirect taxes. We are now working on to expand our business relations with other central and state government departments and undertakings. We have launched account aggregator services and integrated it with our digital loan origination systems. We have successfully tested APA services with CERSAI, and this will enable us to upload required data to CERSAI registry without manual intervention. Let me conclude by stating that the financial performance for the quarter is an important milestone, considering the continued improvement in the performance and is an indication that bank is moving towards a better times ahead. I thank you all for your participation, and we'll be glad to accept your continues feedback. Thank you very much.
[Operator Instructions] The first question is from the line of Prashant Poddar from ADIA.
I have very quick question on the retail growth, which still looks modest compared to many of your competitors despite having a much smaller...
Which growth, Prashant, what did you say? Sorry, we missed that point.
The retail growth is larger when compared is what we are seeing even in the larger bank.
Okay.
In both secured and unsecured. The second question is -- and even in commercial, we are seeing the growth -- there is an uptick in the quarter, but we have seen stronger growth in other large banks actually. So the first question is related to growth, both in terms of branch additions, are you planning any in the next 1 or 2 years? Would there a net branch addition? And what would it exactly mean for the sub-segmental growth rate after this year? Second question is related to digital penetration. Value at 93% -- sorry, the digital volumes when we look at it, again, it is modest despite being a small bank compared to even the large banks. You have relatively low engagement with the set of [indiscernible] the other customer or the transaction what you have with them. Could you help us understand how do you plan to improve that [indiscernible]?
Sorry to interrupt you Mr. Prashant, but we cannot hear you clearly, sir. Mr. Prashant, sorry to interrupt, but your voice is not properly audited.
So can you hear me now?
Yes. Okay, it's all right, Prashant, what all we could hear to that extent we'll respond. If at all, some gap is there, you can supplement that. Okay? The first thing what you're asking about the business and growth, and you were also mentioning about the branch expansion. So this year, actually, we are planning to open around 10 branches. So if everything is okay because we are trying to get the branches, the location, all these things and all, we are on the job, so that will be there. But irrespective of the branch expansion, the question is business growth is something different because rest of the network whoever is there. So that way, organic and inorganic, we have been trying. If you look at our retail growth is concerned, our home loan business, you'd have been around 10% growth. But naturally, when the rates of interest actually are 6%, 6.5% are being offered by a few big banks, so naturally, a few of the loans will ultimately go out also. And we are acquiring also because major of our portfolio is self-employed. And these sort of thing and all, a robust growth we have seen in quarter-on-quarter, December quarter is one of the highest quarters we have booked under the home loan. Coming to LAP. LAP to some extent, we have given a lower preference because of these pandemic and all the cash flows, how they move we do not know. Now we have restarted that. So that way the numbers started coming in the LAP trend. Coming to the personal loan portfolio. Personal loan portfolio, last time we have told -- our overall portfolio is INR 500 crores. We found a bit of stress in the first wave as well as second wave. So under these circumstances, we thought it is not fair on our part to open the flood gate at this stage. So now we have reassessed our position and all with reversed measures. So in a calibrated way, we are opening and we are going ahead on the personal loan front. Vehicle loan is concerned, as all of you know that the chip shortage, these issues are there. So despite that what can be done, we have done that. But your point is well taken. How we need to get it up on the secular front and all? We will see that. Coming to commercial, if you look at it. Commercial, suppose 1 or 2 years back, actually, the things were actually negative. We were growing and all, we were continuously losing, losing the business. So it took some time for the bank to understand, modify the processors as well as the product. With all these things, this is a quarter where every vertical has contributed, including business banking unit, which was giving around INR 300 crores to INR 400 crores of degrowth earlier. This year, for the 9 months period, we have grown by INR 300 crores. So likewise, every vertical, including NEO, commercial, retail, every vertical has grown. So that is the reason we are able to show. With the momentum what we have got, we are reasonably sure we are activating all our branch network as well as our distribution network also. So based on that, we will push it further and all. So that way, we are reasonably confident that 10% at least we will get. But next year, we'll aim for the higher numbers. Coming to the digital, what you are saying. So 93%, if you say that. You see, the number of transactions which were coming to the branches when we have reduced it, naturally, the more free time we are giving to the branches and all. So as you said, we are focusing on this process of the product per customer and how we need to engage more with the customers and all. So these sort of things we are already on the job. We are actively leveraging our analytics team for this purpose and all, and we are getting some certain pointed leads where we can actually convert them. So that way, we are on the job. And product-wise also, we are trying to see product per customer, so what is the level of penetration, insurance, how much, all these things we are internally working and -- so you'll be able to see the traction next year.
Okay. So just one more addition on that. Could you share any data on liabilities, account number of liabilities that you've done this year compared to last year?
Liability returns, the number of accounts you're talking?
Yes.
Number of accounts compared to last year. But last year, more or less, we have done better than -- slightly lower than last year. The reason is -- so the pandemic of this, May -- April-May has hit us a lot. During that time, they couldn't do. So then again, if you look back from July onwards, and we are much, much better than last year. So one more thing what I can say, the quality of accounts what we now opened, the per account balance and the average outstanding for the lower number of accounts though we have opened, the amount of business what we have got it out of these lower accounts is much more than last year. So that way our focus is not to grow for a granular, smaller, unproductive accounts and to go for a qualitative -- quality accounts and all. This has been circulated and boys are doing that.
The next question is from the line of Renish P from ICICI Securities.
Congrats on a great set of number. The first question is on our other operating expense. So in Q1, in absolute terms, this number used to be INR 200 crores, which has gone up to now INR 240 crores. So Q2, it went up to INR 220 crores and now it went up to INR 240 crores. So just trying to understand where we are incrementally spending.
There are 2 aspects in it. First quarter cannot be a representative quarter for comparison now because once the things started opening up, the people started moving out, and we need to spend on this also because until this is spent on this you will not get the business there. So not only that, suppose the upfront for the acquisition, what all you are going to pay on the assets. So this, it may look like an expense this quarter, but you need to amortize, let us say, home loan. For a DSA you are paying something and all. But you need to amortize that over a period of 10 years. So that way, the sort of acquisition cost is also there. And we are also getting free term for the liabilities also. We are mobilizing. And rest expense also because we are making some people to move around and get the business, this has gone up. Another thing what we need to see is the UPI expenses. UPI expense is actually -- so because the number of transactions are going up month after month. So those expenses are going up on which we have no control. We need to see how we need to mitigate that.
Got it. Got it. So it's a combination of business growth...
Yes, yes, absolutely. Otherwise, we are trying to have every head-wise control. So everything unnecessary, we'll not want to do it and all. That's what a lot of sensitization awareness has come amongst all.
Got it. Got it. No, I was just wondering, sequential growth is some 9% versus loan growth of 4%. So I was just trying to reconcile that number, sir. Okay. And sir, second question is sort of a follow-up about what Prashant has asked. So sir, if I look at the -- our asset quality performance, it has been by far one of the best on the street when we look at SME pool of sub 1%. So clearly, we are far behind the balance sheet problem. And again, when we look at our liability franchise and when we look at our cost of fund of around 4.4%, it would be one of the lowest on the street. So sir, why not pushing for the growth aggressively and gain some market share from NBFCs and SFBs?
I'll tell you. What happened, suppose that if you had to push aggressively by reducing the pricing, there is a major risk what you find is, is a closely knit market, whereas many of our customers, particularly in South, particularly in Tamil Nadu, if you look at it, if you make a rate of interest of 1 account from 9% to 7%, within 5 minutes, the message spreads. And around 20 accounts will come immediately in a Q2 to reprice. So first of all, I may get another INR 5 crores business or INR 10 crores is immaterial. My repricing, first of all, comes down from 9% to 7% for INR 50 crores. So I had to go in a calibrated way. That doesn't mean that you see, the number of loans what we have booked under the commercial segment where this pricing is not a major issue that is up to INR 2 crores, likewise, at the business banking unit up to INR 15 crore. That is the reason, here, they are not price-sensitive customers. So we are pushing a lot this year. That's the reason you are able to see visible growth under this segment. Whereas, in corporate, if you go for that, so despite that good corporate accounts and all we have done that, AA, AAA these cases, there we have done that. But across the board, if we -- call rate itself if we change, there will be a total change actually repricing of the whole portfolio. That is the risk.
No, sir, I agree with that. I mean there could be some pressure on margin, but somewhere down the line, we have to strike the balance between rate sensitive growth plus hard growth. I mean so I was just wondering till what time we would be -- we'll be happy with 10% growth?
Okay, we'll do one thing. We'll do our own working based on, suppose pricing in a few locations, which are price sensitive locations by reducing the pricing and all, how best we can grow and all, accordingly, we'll take a call on that.
So I mean, is there a thought process about all these things, sir?
Every day, every day. I'll tell you the number of cases, what we consider every day for a reduction, so many. So many cases we'll be doing, and then we're seeing what is the market, what others are doing, how we need to frame. All these things continuously every level people are looking. That is the precise reason we are able to see our NIM more or less, we are able to maintain at that level and yield also. But otherwise, we are very much aware we are not allowing many accounts to go past us, and simultaneously we are acquiring fresh accounts also.
The next question is from the line of Jai Mundhra from B&K Securities.
I have a few questions, sir. First, again, on growth, sir. So if I see your commercial growth, while you had mentioned that you have done a reasonably good business, but there is non availment in the facility of this underlying borrowers. And if I see your average -- I mean the detail that you have given is your commercial -- majority of the commercial is about INR 10 crores. So: a, could you comment that how is the competitive intensity there? Because it looks like large banks have come down to this ticket size in the last 1, 2, 3 quarters. So any comments there? And second is, if you can share what would be -- let us say, within commercial, what could be balance transfer ins and balance transfer out? And is there any change in the trend there?
Yes. First of all, coming to competition. So competition is not accelerated in this quarter. It is there for the last 2 years. Actually, when the COVID started, every banks started to get the other's accounts and all. But despite that, we also knew to recur trade, how we need to manage. So that is the reason this quarter, despite all these issues and all, we knew our strength. Textiles, we are pretty good and all; traders, we're good and all. So through analytics also we did what is our expected loss going on with all these things. So we worked on that. So that way, INR 10 crores up to INR 15 crores also. So granular portfolio under BBU is growing pretty well. We have a strong pipeline also for the BBU. So that way competition is there. I'm not disputing that one. But despite that, so the potential is also so much. That's why we are able to grow this year under the commercial. Coming to the organic in indirect and direct, if you say, everything what we have done is absolutely from our branch channels, and we have done that and all. So no any bulk here under the commercial.
So what I was asking, sir, let's say, 2 years back, if you had 6 customers -- 6 new customers and maybe 2 customers outgoing to competition. Has that changed over the last 2 years that you may have to dig deeper into newer customers because your BT outs may have increased. Is that the -- I mean how would you look at that BT ins -- I mean, new customers coming in and existing customers moving out?
Yes. I'll just share, while President also a supplement. Now you see very correct, not only for our bank, every bank, more or less, the outflow compared to the previous years and all, the numbers have gone up. But we have managed in such a way the inflow is much, much higher than the outflow to take care of our growth as well as for the outflow. So that way, few accounts what we have lost consciously, which is an exit market account, there is weakness. So many collateral issues. All these issues are there. Despite that others are offering on a platter we are handing over. Because in the normal course, you may not be get rid of that. It is an occasion now others are taking, we are giving it. But wherever the quality of the account is good, we are trying our level best, everything what we need to including the rate of interest what Renish was mentioning. We are giving the competitive rate what others are offering to retain them. So that way, the outflow is concerned, yes, numbers have gone up relatively compared to last year, but the inflow is much, much higher than the earlier years. So that way, overall, we are able to grow well.
Jai, actually, I'd like to add a couple of points here. So our commercial lending is bifurcated into small business group and business banking. Small business group takes care of up to INR 2 crores and more than INR 2 crores up to INR 15 crores taken care by the business banking. So now we have created a very clear cluster for the business banking at all the important locations, specific RMs are posted. Now if you see when the incremental growth other than our existing customers, normal growth, so only balance transfer is possible because there is not much new projects coming up. And the only way is now we have to take over the account -- good accounts from the other banks and NBFC. That is what we are trying to target. And if you see comparative studies, for example, the previous years and now, definitely the numbers -- the sourcing numbers have increased, both in small business as well as the business banking. Only thing is like our MD has already mentioned that the unavailed limits and this -- the cautious people, they don't reduce the limit. This type of things is not -- growth did not reflect that. But having said that, very good sanctions are made during the past 6 months period. So if you take the availment from these things would be 40% to 50%. We are confident that this quarter being the busy business, particularly on the textile, the cotton, the season started, and chillies season will be starting and other trading activities, definitely, the availments will be more. So whatever the availment from the existing sanction, we are expecting that there should be a sizable growth increase will be there. So going forward, the growth has been our mantra. Every week, we have been continuously see that how we can push the growth. We have implemented lot of new strategies, and we have put lot of people in the market. So that all these things will gradually upgrade our -- the growth from the single digit to at least 10% to 12% in the coming quarters.
Understood, sir. Secondly, sir, if you can share the outstanding provisions against restructured loans, I think some INR 1,600 crores is the restructuring standard loans, how much is the provisions that we are carrying against this?
INR 146 crores is the overall provision we are keeping it for restructuring book.
And is there any other pool of provisions? So this is INR 146 crores is pertaining to restructured and then you have PCR, which we have increased in this quarter. And there is no other contingent provision, right, by whatever names?
No, we don't have any other contingent provision. Yes, this INR 146 crores is the standard restructuring book, Jai.
Correct, correct. Okay. And last few questions, sir. On NARCL, right, I think this now -- that bank has already been -- I mean it is now implemented. How much of the assets have you earmarked, which you could transfer in the near-term? And what would be the resultant impact on -- what could be the provision write-back there? Because I believe all this could be like 100% provided.
See, as per the initial indications, a couple of months back, when RBI called for the details, I think 9 to 10 accounts are in the list. But if you notice, a couple of days back, the SBI Chairman in the press, he was mentioning that they will be taking only 15 accounts for this financial year. We are trying to get the details of this 15 accounts. And I don't think any large accounts will be there. I think this quarter, based on our indications from the bank, I don't think much progress will happen this quarter, maybe in the next financial year first quarter, there are opportunities are there.
Okay. So maybe the -- if you were to go by that INR 80,000 first tranche, forget about the last 7 days development where in there are 2, 3 tranches. But this 9, 10 accounts, what would be your kind of a gross exposure and expected cash recovery?
So actually, as per the initial indication, I'm not sure about the final accounts. Our 7 or 8 accounts are put together INR 600 crores to INR 700 crores is our book balance. And these are all -- majority of the books already fully written off. Because one of the primary condition for this is, we also provide 100%. Some of the accounts has technically written off, some of the accounts where we have 100% provided. So in that way, if it is materializes, this will be INR 500 crores, INR 600 crores where first we have to work out what is the ratio and all, everything will go to the cash only.
Okay. Understood. But ballpark number cannot be more than INR 100 crores, right? I mean, INR 600 crores, INR 700 crores it cannot be...
So now all the realizable value and all these things, we are yet to get from them. So once they worked out what would be the percentage. Basically, 15% is a cash component and 85% is the SR component. And they have to value what is the value they are transferring that is the -- we have to work out.
Understood, understood, sir. And on your collection efficiency, if I see the slides that we have given very good details on collection efficiency. I mean it is better in December versus November and versus, let us say, October. Does the trend continue in January? Or there is some intent because of Omicron, et cetera?
No, there is no change in the trend, it continues. That's what it's also reflecting in our SMA 30+ book. It is 1 of the -- it is the lowest number we have achieved. And as far in January also, the trend continue. We don't see any big change here in the collection numbers, Jai.
Right. And this -- and also, sir, on Slide 14, we have given the digital loans and the origination. From last quarter, I think there seems to be some moderation in the momentum that the sourcing has declined, Slide 14. And then disbursement has also been flattish kind of a thing. Is that to do with what is happening here because we have a decent fintech partnership and few new programs, et cetera, all put together. So what is the reason for slowdown here?
I understand. The September one is slightly defective. The reason is, so first quarter, we had to take a beating on account of the second wave. So that way, that accumulated what all part of the first quarter also have come into the second quarter that way. But whereas this third quarter, if we look at it standalone, we had to do it. So that way, this number, if you look at it, the disbursement amount, if you look at it, more or less same so INR 575, INR 581 crores. So the trend is continuing. So the backlog of first quarter what all have come that is the reason. Second quarter looks slightly on a higher side.
Great. Understood, sir. And last clarification, sir, from my side. With SMA 1, 2 numbers that we are showing, this is for entire bank, right? It is not for commercial or corporate book?
Yes. Whole bank.
[Operator Instructions] The next question is from the line of Vikas Sharda from NTAsset.
Two questions. One is that you mentioned that you would target, say, FY '23 less than 5% gross NPA. So would be good to understand, I mean, what assumptions you are building into that? And how should -- how do you plan to achieve that? And second is that, you achieved basically 10% ROA this quarter. So I mean, going forward, what kind of ROAs are you looking at? And do you think that now double digits is a new normal for you?
First thing, GNPA when you said, actually, our planning is for actually putting in labor and -- in a harder way to recover only, okay? So on one side, this enable us -- these sort of things will come up. I'm not disputing. But whatever it is, next year, we have an elaborate plan for recovering the -- particularly by auctioning assets what all are there. Many times, last year also, when we tried, some courts are not working are actually these COVID wave. So with all these things coming to this thing and all so we want to push this particular vertical very critically for the next year so that we will get maximum for an organic reduction in the GNPA. In addition to that inorganic maybe getting and all, they're not disputing, but our efforts will be towards the organic reduction. So coming to ROAs concerned. So again, because we have been on this path continuously because the first meeting when I had with the analysts and all, the ROA of discussion has started. So with that, we have been -- in every vertical we have been working on those lines. So we are confident that because every lever is working now, so we'll be able to move forward and these double-digit under ROA, it will improve further and all. Our motive is also the same.
Okay. Clear. Perfect. And how sure about this the gross NPA target, I mean?
Sure. This you see, we need to aspire for a number. So if you do not even aspire, entire team, they do not have any goal to reach. So that is the reason if you talk about 5%, the entire team will be geared up to move towards that. Even if a 5.2%, 5.3%, but first of all, we need to aim for 5%. Otherwise, if I say 6%, it will be easier, or I cannot say 4%, which will be difficult.
Vikas, a simple point I'll tell you. See, currently, our gross NPA number is INR 3,800 crores. The simple working is what we have done is we have listed out the accounts, which are the accounts that are probable chance in the next years. So like that we have working out some INR 800 crores, INR 900 crores worth of accounts we have listed. And then we are aspiring that. Okay, this INR 800 crores account we can push and if we reduce by INR 3,000 crores or less than INR 3,000 crores and increasing the advances. So naturally, the number will come to 5%. So that's why only it is predicted with some our clear Maramatics.
Likewise, the NCLT cases, which are in advanced stage. Likewise, retail, around INR 1,400 crore portfolio is there under NPA. So we are trying different means to get money out of that. So that way, for each of the segments, we are trying in a different way to get some money out of that.
The next question is from the line of Mahesh M. B. from Kotak Securities.
Just one question to add on to the previous one. In the same slide on the vertical-wise NPS, you've also given provisions this time. Can I think that the provisions on the corporate book is about 60-odd percent, how are you seeing this number going forward?
Corporate book, yes.
You have a number of INR 1 264 crores and the total NPA...
You want to know what is the provision amount? What is that you want? Can you just repeat the question, please, Mahesh?
Sir, in a sense, as per your assessment, you have reached a credit cost today, which is a little less than 1%.
Correct.
But there are some segments like corporate, where the NPL coverage ratio is still at about 65-odd percent. In your assessment, where does this go? Does this number have to grow up materially as you get into -- as these assets becomes older from an NPA bucket perspective and the aging provisions will be higher? Or you think you can control it at these levels?
Mahesh, the current percentage is 68.8%, utmost 69% provision we hold. And all the historical legacy accounts, all these things are, by and large, it's fully provided, except 1 or 2 accounts, that also over a period of time, I think adjusted. So what we believe that going forward, this number will not -- there will not be any large requirement from this number. I'm talking about regulatory provisions. So for a prudent provision, all these things, yes, that is a different issue. On the IRAC terms, if you ask, there is no need for providing much provision, except some sort of aging provisions where the recent NPA account. Otherwise, the old historical legacy account, all these things, these are all completely provided.
Okay. Sir, in your sense, if I had to just take this forward if the net reduction is, let's say, the recoveries and upgrades is higher than slippages. Do you think the extra credit costs could meaningfully decline as well?
Ideally, we do think like that Mr. Mahesh. We sincerely hope for that. So that is the reason we are working on these lines. You would have seen that last 3 quarters, continuously how we are able to bring it because we started controlling from the SMA itself. Earlier, we were focusing on the NPA. Now SMA itself when we start working, and it is working well more or less. So we are also aiming in the same way.
Okay. Perfect. That's nice to hear. One last question, sir. On the OpEx front, currently, if you look at the numbers, we are doing about -- approximately about INR 470 crores to INR 480 crores for the last couple of quarters. Can this number hold on to these rents for at least another year? Or you think that you may have to spend a lot more than this?
You see, ideally, you may have to invest something in suppose, IT, so you had to grow continuously. Or sometimes the commissions for the acquisition and all, you may had to pay. So what we'll do is, to the extend possible, which are controllable, we'll try to control. But trying to have a -- too much of trying to have a control on this and focus is on the containing the expenses rather than on the business, so it may actually deviate the focus. So that is the reason. We are planning that we need to grow much better in the income side so that overall, the ratios are better. But whereas expense are concerned, once the income grows, automatically, percentages also will go up, not an issue, everything will be improved. So expenses are concerned. So we are well aware, and we are trying to contain every head wherever not warranted, we are trying to reduce it. Even right from the rental, rental also, many places, it has been renegotiated, it has been brought down in the COVID, likewise ATMs. Everywhere, every head of people are seeing what can be renegotiated, what can be brought down.
If I may -- this is Ramesh Murthy here, CFO. In our department, in finance, every single line is questioned, scrutinized. And we go back to the departments, which are incurring these costs, so how can we bring down. So there is a tight control, which is being managed on the expenses.
Perfect, sir. Now I'm just trying to understand if the margin levers are not quite limited from here onwards and if the balance sheet is going to grow, let's say, a little 10%. So the reason on ROAs for next year essentially comes only on credit cost, looking at the combination that we have now?
Credit cost as well as the business also.
Yes. Perfect.
But, Mahesh, you have seen the NIM during the past 6 quarters how this NIM has translated, particularly on the cost side, -- and there is a lot of focus is given on the acquisition, in the CASA, the deepening. So we continue to penetrate the market, increase our -- the CASA segment. In that way, we're trying to retain the -- whatever benefits we already accrued on the cost of deposit side. On the lending, on the yield side also, for example, we have very low duration. Going forward, all our almost INR 2,000 crores worth of investments, which are maturing in the next year, it will all reprice for a better price. So that benefits also will accrue. Not only on this credit cost, but general growth as well as on the other profitability, we are very confident.
The next question is from the line of Prashant Poddar from ADIA.
Am I clear?
Yes, please. Clear.
Yes. So just a clarification. As you've explained in detail, we have to congratulate you for being able to maintain margins in this tough environment where you don't do much unsecured loan. So to be able to grow 10% with relatively weak CASA franchise, honestly, it's a pretty good job. What advantage you have though is the smaller balance sheet than many larger peers, right? So we would hope that we will be able to explore and identify some other customer segments, some white spaces where you can get your deals without much risk to the credit cost. So one thing we have -- 2 things we have seen improved operating expenses now kind of stabilizing and the credit cost -- actually credit cost being close to 0 actually. It's all old costs. So we don't want to lose that in this year in case of growth. So we appreciate if you go out in your comfort but would be -- I mean, given the balance sheet size, hopefully, you are able to explore segments where you can do...
The impact, we are extended between the call got disconnected. And you were mentioning about these margins and all, CASA and all. At that time, the call got disconnected. Extremely sorry. Can you please repeat, please?
No. So I was saying, sir, that we don't want you to lose your credit cost and -- credit cost success. So it is only that we were saying that the balance sheet is small. So maybe you will be able to explore areas which aren't very high credit costs that gives you your desired use? So I have -- that was just a suggestion. I have one last question, which is on the tool of NPA that you have on the balance sheet plus the return of accounts that you have. Put together, what would be the size of commercial and retail assets? It is corporate, I don't think there is much hope of recovery. So I just want to understand what is the tool of NPA plus written off in commercial and retail, which is mostly secured, both of them?
Correct. Written off, if you look at it, majority of the portfolio is corporate, okay? The retail portfolio as well as commercial, it is a pretty small portfolio, wherever they are collateralized, so definitely, we are going forward, and we are trying to get the court orders and all, disposal these things. So that is not an issue. But the rest of the cases where the consortium member, we are a member of the consortium bank, they written-off. So NCLT, all these cases are there, so many ifs and buts are there, that is why we have absolutely no control straightaway to any number for the written off is concerned. So coming to the rest of the portfolio, even other NPA also, so as I said earlier, we have given some focus first because if you look at our collateral, we have a slide also. Except INR 922 crores, majority of portfolio is more or less collateralized. So the collateral realization, it had some semester problems for the last 1, 1.5 years due to COVID because courts were not actually functioning and they're not giving, even if we approach them also...
[indiscernible] spoke about that.
So that's the reason. That is -- because these are rest of the cases. So we'll be focusing on that. We'll be able to recover, not a problem. Corporate only is not in our hands, for the time being.
And these cash recoveries are recognized in other income, right?
Yes, yes. Correct.
Or upgradation would be -- would reduce your slippages, right?
Slippage, yes. The provision reversal will be there for the upgradation. So whereas cash recoveries, and as per written-off, we'll go to other income.
So looking at this pool, would you be expecting almost negligible slippages -- net slippages even in the next year? I think you answered that question partly as an earlier question, but would you be expecting that -- would you have in your assumptions what kind of recovery you could have from the current, which will help you reduce your gross slippages next year?
That's what, we have mentioned in the indication in the guidance initially the net NPA as well as the gross NPA. So we'll try to work towards that. So it has to be 2-pronged approach. One is the fresh additions have to come down and the second we have to recover, both we have to do it and all. So it's a 2-pronged approach.
The next question is from the line of Pranav Tendolkar from Rare Enterprises.
Sir, I have these 2 questions. First of all, the adjusting retail and self-employed customer franchise, what was the materials affect your capital cost cross selling? And in terms of key products as well as varied interest products? Would you like to highlight some of the major effect are coming out well? So that is one. And second is, when you say GNPA 5% usage, we are also thinking that PCR at 65%, right? So the [indiscernible] proportionately lower?
What's your second question, GNPA 5%...
GNPA, you have in this year will be 5%. And PCR at the end of [indiscernible] will also be committed to what it is about 65%, 66%, right?
So regarding the first question is concerned, self-employed. That's why I was earlier mentioning saying that. So routinely doing will be difficult. That is the reason we are using our analytics started extensively. And then started seeing and what sort of products can be actually targeted to which sort of customers. So that way they have done the customer profiling and self-employed, salaried, that way they have given it and which we have taken it and all, now branches are focusing on that. So that is the reason we could see some sort of a momentum, and we will improve it further. Now earlier, just like that our teams were doing it. Now it is more focused through analytics, what all is there. That way we are doing, that way the conversion rate is relatively better compared to earlier. Second one is...
You give some million -- 5 million customers out of the more approach...
We are unable to hear you properly, Pranav. Your voice is breaking, Pranav.
Yes, can you?
Yes. Better.
So I was saying that, can you share some metrics, for examply say, we...
Mr. Pranav Tendolkar, we cannot hear you, sir.
Hello, can you hear me?
Yes, yes. Please.
So I'm just saying that if you share some metrics, like say, we have X of customers and out of these many you are approached in a quarter, then it will be easy for us to also get a sense of your efforts? If something, something related to that is available? Or how many customers calls were made last year versus this year? Something like that, something to track, to understand the effect because the results are not in our hand, but at least efforts could give us some confidence related to future growth.
Pranav, I can tell you, see, during the past, almost, I can say, 4 or 5 quarters, what currently we are doing it, we have started the pre-approved programs. The pre-approved programs are not only for the personal loan, but also for the other auto loans and other loans. The existing customers continuously, now we are in touch. For even including the credit card, the first set of cards were given to our existing -- the customers. So like that considering the success of the pre-approved program, we are continuously launching this program to all our products to our existing customers. That is number one. See earlier in the past, many of our customers, they used to take an auto or home from the other banks. Today, we made it a point that the first choice should be with our bank. So in that way, that's what our MD has mentioned that the analytical department is continuously, they are pumping the data to the branches, approaching them, these are the customers where we can approach the home loan based on some algorithm. These are the customers where we can touch the -- for auto loan. So like that, these efforts already we have started and all our sales teams, they are continuously -- they are doing this job. So we'll see that. I think this is -- since it is giving a lot of results, now continuously, we are doing this excise.
And one more point also, Pranav. Because we started that recently, it requires refinement supposed once we approach them. happening, not happening once we know it and all, analytics is getting the feedback and all, they are refining. So that the more and more focused lead comes, the conversion will be much better. And otherwise, energy gets frittered away and you will not be able to get the result. So that is the reason these fine-tuning we are doing and all, and we are in the process.
Right. So is it safe to assume that FY '23 will be safe mid double-digit -- mid-teens loan book?
Yes, yes, definitely. Definitely, yes. We are aiming for that only, actually.
Right. Sir, and about PCR, what is the PCR target for FY '23?
So PCR, let me see because more or less 63%, 65% is there for a comfortable position, obviously, we can take it forward. We'll see that. In the meantime, recoveries also will be coming that also we can use it.
The next question is from the line of Suraj Das from B&K Securities.
Sir, if you can give the breakup for the NPA reduction in Q3, it is roughly around INR 300-odd crores. If you then read the breakup between the recovery, what is the upgrade and what is the write-off? That is my first question. And the second question, I'll ask after that.
INR 308 crores, anything which is better you have? INR 308 crores, Page #25, they have given the NPA reduction.
So actually, this for INR 308 crores, there is no write-off involved, Suraj. Only -- everything is either recovery or upgradation. So John will share with you how much is upgrade and how much is recovery.
Okay, sir. Fair enough. And my second and last question is, sir, this unamortized final income amount, which is a [indiscernible]. So is this amount netted off against the capital?
Yes. Netted off against the payment capital for CRAR accommodation.
Okay. So it has been netted off on against year end capital?
Right. Correct.
Ladies and gentlemen, this was the last question for today. I would now like to hand the conference over to Mr. B Ramesh Babu, MD and CEO for closing comments.
Yes, on behalf of the entire team, KVB, so I thank all the participants here for patiently asking questions, which shows your interest towards the bank and all. So we'll work further, and we'll take the bank forward to the higher levels. Thank you very much for participation. Thank you.
Thank you. On behalf of the Karur Vysya Bank, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.