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Karur Vysya Bank Ltd
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Ladies and gentlemen, good day, and welcome to the Q4 FY 2023 Earnings Conference Call of the Karur Vysya Bank. We have with us today the management team of KVB, represented by Mr. Ramesh Boddu, MD and CEO; Mr. Natarajan, President and Chief Operating Officer; Mr. Ramshankar, CFO; and Mr. Srinivasa Rao, Company Secretary and Compliance Officer. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Ramesh Boddu, MD and CEO, to take us through the highlights of the quarter gone by, after which we will open the floor for questions. Thank you, and over to you, sir.
Thank you. Thank you very much. Good evening to all of you. On behalf of our Karur Vysya Bank, I welcome you all to our bank's earnings call for the quarter 4 of financial year 2023. I am pleased to mention that bank has been consistently performing well during the 4 quarters of the year 2023, and the outcome numbers in terms of growth, profitability and asset quality are in tune with our guidance. You will be glad to note that bank has the exit quarter achieved 1.5% ROA 16% ROE, 4.37% NIM, less than 45% cost income with overall business growth of 16% and 4-digit net profit for the year and for the first time. We have declared 3-digit dividend subject to shareholder approval. I am sure you will not disagree if I say that the outcome was on account of our conscious efforts, which we are explaining to you in our earlier calls. All of you would have gone through our detailed presentation on our Q4 and full year of performance. I would like to share some of my thoughts on the performance of the bank during the quarter and our guidance for financial year '24. Net interest margin increased marginally by 1 basis point on a sequential basis during the quarter at 4.37%. Based on our historical pattern of renew of deposits, and fresh deposit acquisition, we expect that there will be a further increase in the cost of deposits to the extent of 40 to 50 basis points in the next 2 quarters, assuming no change in our deposit rates. As we already passed our interest rate hike to majority of the loan book under EBLR and MCLR, there may not be an equivalent increase in the yield on advances. Yields on investments have gone up by 39 basis points during the year, and it is estimated to go up by 25 basis points in the next 2 quarters. Considering all these factors and without taking into any policy rate changes, we expect a compression in our NIM in the next 2 quarters. And accordingly, we estimate that our NIM will be in the range of 4% in the next 2 quarters. We have achieved ROA of 1.5% in the exit quarter, and we expect that we will continue to maintain this during the year 2024. In spite of estimated lower margin, our estimated business growth, fee income, lower credit costs and recoveries in written-off accounts will support us to keep ROA at 1.5% levels. Our adjusted growth in advances for the year '23 was at 16%, and it could be noted that there was an inclusive growth across business segments led by MSME and agriculture. On account of various initiatives bank has taken, we expect to continue this trend in these segments supported by retail and corporate, and we expect a growth of 14% for the year 2024. Our deposit growth was at 12% during the year and term deposits and CASA deposits were grown by 15% and 6%, respectively. We expect 14% growth in deposits with higher growth share in CASA segment. As indicated earlier, bank has created consumer banking department by merging personal banking liabilities and personal banking assets. A sector senior and experienced officers have already joined to hedge CASA acquisition, corporate salary accounts, government business, third-party products, et cetera. The structure is in line with large private sector banks having sizable CASA book, we are in the process of recruiting down the level sales team and [indiscernible]. In the first phase, we have planned for 1,300 resources and of which 480 resources have already joined and another 820 resources are expected to join before September 2023. In view of this, we will be incurring an additional expenditure of about INR 61 crores, which is a full year cost. Though the cost of income -- cost-to-income ratio will go up marginally this year, and we expect that it will be helpful for the bank to scale up the CASA book to 40% over a period of 3 years and better growth in third-party product business. Our cost-to-income ratio for the quarter continues to be below 45%. And considering our business expansion plans, we expect that the ratio will be in the range of 45 to 50 for the year. Our slippages are under control and our gross slippages for the year, it was at 75 basis points and net slippage ratio for the quarter is at 0.06%. And for the year, it is negative. Our estimated slippages during the year 2024 will be in the range of 1% of our loan book. And we are confident that we will continue to keep the ratio of below 1% in view of our better underwriting, customer engagement, monitoring and collection process. During the year, we now recovered a sum of INR 208 crores from the technically written off book. For the quarter under review, we have provided a sum of INR 287 crores towards NPA migration, restructured accounts and standard assets. For balance sheet management and tax benefits, we have made certain prudential provisions and the -- on account of this, the credit cost is at an elevated level of 146 basis points. Our net NPA book now is at INR 468 crores and expected lower slippages and better collection system will support us to keep credit cost at 75 basis points for the year 2024. We continue to maintain net NPA at less than 1% of our loan book and gross NPA will be less than 2% at the end of year 2024. Our standard restructured loan book is further reduced to 1.5% of our loan book, and we hold a provision of 21% for the standard restructured book. Our CRR continues to be robust and is at 18.56% providing us a comfortable hydro for growth. Our liquidity is well managed, and our CD ratio is at 85%. Our digital systems are helping us to scale up our business volume with ease and better control. We continue to add many new features in our Delight app, which is our customer onboarding application. We have recruited Chief Digital Officer from the market and exploring other digital solutions, which shall support our growth and enhance customer experience. During the year, we opened 10 branches, and we propose to open around 235 to 40 branches. Besides in the coming year, besides opening a couple of digital banking units during the year 2024. Bank has recommended a dividend of 100%, subject to the approval of the shareholders. Other business performance highlights are given in our presentation. Let me conclude by saying that our performance has been consistently improving over a period of 8 quarters, and they repeat that the numbers are as per our guidance. A sector experienced executors are managing the business, support and control functions of the bank and the details are furnished in our presentation. We continue to outperform our past performance, and I'm grateful to all the investors, analysts and stakeholders for their confidence and continued support, which we will reciprocate through our better performance in the days to come. Now I'll be glad to respond to your questions. Thank you.
Thank you very much. We will now begin the question-and-answer session. [Operator Instructions] The first question is from the line of Amaan Konkola from SBI Life.
Congratulation on the sort of number. We have 50% of our loan book in MCL. Can you share breakup of recent period in terms of 3 months, 6 months in year?
Yes, as I already indicated, 47% of our book is in MCL and the EBR book is 37%. And in the case of the MCLR, the -- Last time we have made the changes in the month of March. By March, we have gained the MCL and out of that next 6 months, I think, completely will be repricing will happen. I can understand Major the working capital loans, which are linked to MCLR. So, on an ongoing basis, depending upon the renewal when it comes, it will be happening. So that way, we cannot talk about a bucket that way because the cost of deposits at all are there, we are passing on to them. So, still somewhere antrum is available for the MCLR loans to be repriced, whereas BLR has already been passed on. So that way, we will take care of that. Next 4 months, at least I can say, because last year from more or less October onwards, the MCLR spike started, so next 3, 4 months, the renewals of 1 year what will happen, we will be getting the benefit for the next 3, 4 months.
Okay. Sir, next as pre-deposit any pricing will happen faster than the loan sale and for the net interest margin will be 4% plus. So like going forward, we'll be able to maintain net interest margin of 4% low even after 2 quarters as well.
But the visibility, first of all, Amaan, if you look at it, absolutely, the dynamic world. Now the deposit and what rate it comes, you will not be knowing now. So based on the past trend, you cannot say that the deposit will go into a putter bucket. So, depending upon the scheme, what all is there, they'll be going. So that's why what we thought is the visibility is there for the next 2 quarters, we thought wherever some losers are there in respect to the lowering. Likewise, MCLR and other ABR wherever some concessions are there, where we can with this sort of homework we can do for improving the yield. Likewise, on the cost of deposit, where you have no control because the renewals will be happening. Fresh deposits also will be happening. So conservatively, we thought that our endeavor is to maintain that 4%. Maybe once the second quarter is over, we'll have a better clarity and visibility then we will guide you.
Yes, sir. And in terms of like growth, I just want to understand like whether in commenting market competitive intensity have increased much higher than the rest of India. So is that market becoming more competitive because it's more repetitive. So what thought on that?
I agree. But you understand we have been here for the 107 years. So that's where our footprint and base is here. And not only Tamil Nadu, we are based out of -- our footprint is there other states also. So currently, what all is there, the customer connect what we have and how our people are able to attract the business and all. So more or less, every segment, we are able to do that. One more thing what I found is, so last year was also more or less a competitive year. So many of the verticals, if I see, the disbursements have gone up by 40% to 50% over the previous year. So last year was also competitor. So that way, we are fine-tuning our product, other things also. So, with that, we feel that we'll be able to continue our tempo and that is the reason the indication what we have given that 14% loan growth. So not only Tamil Nadu, other areas, what we have, so we will be able to grow. That's what we see.
[indiscernible] [Operator Instructions] The next question is from the line of M.B. Mahesh from Kotak Securities.
Great numbers. Just 3 questions from my side. One is what would be the income from written-off accounts for the quarter, sir?
Quarter is INR 100 crore. The total here is INR 208 crores and INR 100 crores or has come during this quarter.
Okay. And what will be the outstanding stock of technical written-off?
No. But Mahesh, my point is the technical breaking off. Let's say, if you look at it, may not be a good indicator. The reason is it may look like a turns on or something like that. But the problem is majority of the old corporate accounts were under consortium, which are there with NCLT, we're getting 5%, 10%. So that is still uncertain how much we will be getting there. So that's why if you look at it, overall, the realizable portfolio we can think of is around INR 1,500 crores portfolio, there we can do some startup and excise and we'll push it. The rest of them. So it depends upon various other factors and on. So because corporate is there. So many of them there may not be able to get that. So we'll focus on that in the next 2 years also on at least one is, I'll assure you, for the last 2 years, we have given enough effort on wherever we have a security by effort securities, surface and or all these things. So majority of them are in different stages and people are coming forward for the OTS also. So that way, this year also, we feel that this progress water will continue under the write-off for this 25% also.
So just to clarify, this INR 1,500 crores of possible recovery pool that is sitting there, you could say that you could hit a number closer to INR 200 crores again for next year?
Yes, yes, definitely. That is possible.
Okay. And my last question is INR 110 crores for provisions for restructured accounts. Any specific reasons for it?
Nothing like that. Actually, you see. So earlier, when we were looking at our past on an average 15% to 20%, we were actually delinquency that year. So what we thought is a good year that way. So it is better we make up that way. So that effect all unforeseen eventuality, we take a hit also. So we will not worry about that because now the restructured book has become a miniscule portion of our total book at 1.5%. Out of the dispersion also the pits, you should not bother us at all. With that intentionally, we have kept it.
Perfect. And in this INR 976 crores of outstanding restructured, what is the outstanding provision sitting now, including this 1 you made this quarter?
21%. 21%, we have provided out of this.
So, about approximately INR 200 crores?
That's exactly correct.
The next question is from the line of Jaii Mundhra from ICICI Securities.
Sir, just to clarify, this INR 200 crores restructuring provision is INR 76 crores, right? So net of provision, the number is even lesser, right?
Very correct. Very correct.
Sure. Secondly, sir, on your loan mix on your 14% loan growth, do you envisage any subsector to grow at a slightly faster pace? Or do you think the loan mix will more or less be similar?
Yes, if you can look at our past performance, where our corporate used to be 30%, 35% and all. Finally, in this quarter, it has come down to 21%. -- earlier it used to be 22. So that way, our first of all, the first focus would be on the MSME Commercial Banking group because where our yields are better in many places, about 9.5%, 10% also will get the yields send out. So after that, we are focusing on our retail segment because retail mortgages are doing well. deal loans also we are going to focus. And third thing is agriculture. Agriculture because there are 2 advantages, one. One is the gold loan and other degree also, we are focusing on that. Last year was a bad year as far as the PLSC is concerned. Otherwise, you are making some money out of the PSLC also in addition to taking care of our own PSLC. So in the order of preferreds, if you look at it, commercial followed by retail and agriculture and then corporate.
Right. Okay. And sir, your OpEx growth, right? So you have a staff cost for FY '23 at around INR 1,000 crores. You said that we are adding a few people, 1,300 people in the stock, and hence, you would have an extra INR 60 crores, INR 61 crore OpEx number for next year. But how should one look at the OpEx growth for next year? I mean, one part is, of course, slightly higher because of the proposed staff addition. But in general, as loan growth is, let's say, 14%, how should one look at the OpEx growth?
So OpEx, they in fact, generally, our OpEx is -- OpEx is in the range of 2.3 to 2.4. So here, maybe it will be in that range, slightly elevated here and there, but we had to see a bigger picture. What we are planning is these return streets, we are going to engage. We are going to work on the CASA as well as a third party also. So what are we are going to spend more or less to the extent what we are spending, we'll be getting on the income side also. So it may look, OpEx is on a higher side, but our focus is on the fee to income also it affects also how to grow. So overall, after doing all these adjustments, we thought that 1.5% ROAA, we'll be able to manage with this increased cost also.
Sure. And lastly, sir, on your credit cost guidance of 75 basis points. Isn't it -- I mean you already have a net NPA, which is let's say, 75 basis points and you have a 20% coverage on restructured. And even in this quarter, you have seen almost negative or negligible stages or negative slippages including [indiscernible], so your credit cost guidance, is it more conservative? Or you think basis, look at the portfolio, the credit cost, incremental credit cost can be much lower than what you are suggesting.
No, I agree, Jai. You see we are in the first quarter. Then during the whole year, what will happen, at least we will not be able to estimate at this stage. Though, our endeavor receive or 0.56 is our SMA. We would like to have a tighter control on that. But still, you may have to provide for comfort standards, migration as such, these sort of things will be there. And with this, -- we thought that at the MAX, it may go up to 0.75, -- it may not go also. It may not go also. So that's why we took it saying that maybe after 6 months, we'll have a better clarity. We may give a revised guidance for this. But this was for the whole year, very not announced, if it all comes up also, we want to factor them. That's the reason we are doing 0.75.
And lastly, sir, related to this, you must be doing a parallel run to the ECL framework, right, every 6 months? Is there any -- I mean, what could be the pro forma provisioning under ADS versus the rent? Is there any meaningful difference?
CFO will respond yes.
It's not a major difference we find fully from what we are submitting to we'll be able to manage with the water provisions what we make. We don't see any big change in the year in the new system comes in.
So, there is no material onetime transition provision needed, right? Is that what you see?
My point is the guidelines itself, they are not out on what basis you need to do. The back of the envelope when the risk management and those people, they have done that. They are all saying that the existing provisioning has been made would be relatively sufficient. There will not be any big shock, which bank will not be able to absorb, but that was the understanding we have. So now it unfolds as and when some sort of the guidelines come up and all, we'll be able to know that. But currently, that is not a major issue, which is going to impact the bank.
Sure, sure, sir. And the SME number that we disclose is the total loans, right including...
Correct.
The next question is from the line of Pranav Tendulkar from Rare Enterprises.
Sir, I just have 2 questions. So one is that you have actually highlighted that you are investing more in the people for cross-selling and [indiscernible]. So also, can you just highlight what are the targets to cross-sell various products that we have in our bouquet? And how are we tracking how many branches are actually enabled to sell all the products in our booking?
I agree. So it on Street, when we are taking the different sets of people are coming, maybe for the trade and ForEx, corporate salary, other accounts, that way each one, depending upon the profile of the customers whom they are going to market, partially the CASA. The feet-on-street what we are acquiring is for the CASA and the real focus will be majority on that. The products which we are going to focus are the life insurance, general insurance and the mutual fund. These 3 would be the major products. Now currently, enablement is concerned, we have already partnership with many of the partners in each of the life, general insurance everywhere partnerships are there. So recently, we have entered into an arrangement with SBA like also to add bucket our total portfolio. So now every branch of the bank is equipped to handle that not that a Patel branch can do it. We are going to utilize our analytics also in this process, what can be done, the next best product, what can we offer, and this pitot also will be on the job. Together, we want to give a focus on this. But one thing I'll tell you, the [indiscernible] actually will be coming into the field and was probably from up to September in the process. The recruitment prop is going on. But those whoever have already come there are converted from the existing lot, they are on the job, and we will be monitoring on the third-party income.
Right, sir. Sir, last question from my side. So sir, 2 years ago, there was a competition increasing in our core competence market, which is SMME South. So how is competition panning out right now?
Inside, I agree, at that time, the position was relatively different because the code was there, other banks were unable to grow. There were no other opportunities at the time that people are watching on to those accounts. Now that the market is open and everyone has other opportunities. That set as a competition step we were facing at that time. Because at the time, partially, we are facing on 3 counts. One is on the pricing, a rock-bottom pricing quoting and taking. And second thing is the lower security coverage. And the third thing is undue enhancement. So we were looking at the quality of the portfolio if by doing this one, if you do it and all, we'll be having a problem tomorrow, we were leaving the accounts, but all those issues have come out. But even today, if that such of an undue enhancement where someone do not require, we are still not elevating that because there are today, tomorrow, it will be a problem. So that's sort of a cultural competition going on the pricing or these things have come down to a major extent because other banks also, they are facing the heat and have the cost of deposits, so that were off water pricing and all that issues have come down now.
The next question is from the line of Rakesh Kumar from Elara Capital.
A couple of things I missed out in between. So what is the growth guidance that we have set for FY '24, which is one. And second is in terms of -- I don't know whether you've answered this earlier. Any impact of EPL that you probably would have seen?
Yes, yes. And at both were answered, but it's good I'll repeat once again. So the advances what we thought is a 14% plus we wanted to grow. The same is the case with the deposits so that we'll be able to maintain the CD ratio of around 85%. As far ECL is concerned, our CFO has clarified the work is what our risk department does it. So they found out with the current framework, what all has been spelled out -- so our provisioning currently, Water is there, we'll be able to take care of this one, and there may not be any major shocks for us to absorb the ECL provisioning. So that's what -- but as and when these guidelines unfold from resultant of India. So we'll be looking at that. But one good thing that I can say, the transformation journey, what we have performed with this, that total clean up has happened now. We have sufficient merger to take care of these shocks, if it all comes up also. Has it been 2 years back, our portion would have been chatter totally. So now we are relatively much, much better to absorb the shock comfortably.
Sure. And just 2 more questions. In terms of margins, when I look at Q4, the reported number is 4.37, and we paid it increased 1 basis point sequentially. When I look at last presentation, it was 4.32%. Is that because of the base regimen that we have seen during the quarter?
Correct. Actually, early clarity here. based on the RV Massecar, on the financial statement presentation disclosures, interest are cured, but not due on done and deposits to be able to activate, and we had undertook that in the March quarter. The see, there's a small difference in the numbers that we reported in December on the rebase number.
Got it. So on the revised number that margins would have been 4.36 last quarter.
Correct.
And sir, if I look at your presentation Slide #15. So again, on advances, we have given that INR 6,000-odd crores and after right of INR 6,000-odd crores -- and then a similar number we have given us INR 64,400 crores?
Correct.
What exactly is the difference between the 2? Is that a previous castration and a new cost for data is that number?
No, no. This is only the what our technical write-off which we have done in the current year that we have added that to show the exact growth which growth because whatever growth we have done this year because of it rate of INR 200 miles, it appears at a lower sale. Just to show the current growth, what we have done this year, we have added back and it has advanced.
So that number is INR 66,000 crores, but if I look at INR 64,420 crores, what exactly is that number?
64,420, including -- Yes, INR 64,420 crores. The difference would be the technical write-off.
After technical write-off, it is INR 64,168 which is similar. But if I look at 2 columns, which is bearing INR 64,031 and there is INR 64,420. Just wanted to understand the difference between the 2.
You are right. You are right. We'll come back, Rakesh, on this number. Okay, please. all communication to you. Otherwise, what our intention is that INR 1,873 crores at all has been written off had we not done our growth is 16%, actually because 1 year is a good year, we will start of clearing up. Intention is to convey the message, but anyhow, CFO will clarify the point separately to you.
The next question is from the line of Rakesh Kumar from B&K Securities.
So first question was related to the SAAR deposit ended cost. So what is the SAAR deposit blended cost now for this quarter?
Deposit [indiscernible] Sales bank is a 2.5 not the because savings bank or average rate is 2.5%. And current account, we don't do anything.
No, no, one for a balances because there are different rates we pay for the different balances. So what is the blended cost that we have on, sir?
So our average cost for this 2.5%. For the deposit... For a product. The cost is 2.7% for the...
And how much it was in the previous quarter, sir?
The same range because we are not changing anything during this entire only year because, for example, Q1, it was 2.55. Now it is 4 is 2.57.
So last, I think we changed in January sometime, 28th of January or something?
No, that we have not only own bucket. For example, more than INR 100 crores, we have created a separate bucket. Otherwise, we have not changed anything in the layer category.
Before the previous Pranav asked for the -- on the difference on the fourth column, there is a INR 2 crores of technical let of what we've done in Q4 are that we have shown separately. The last 2 columns talks about the growth in quarter-on-quarter growth. The first column talks on the year-on-year growth. That is the reason...
Sir, secondly, sir, I wanted to understand the capital consumption pace that like because of the return ratio number, we were adding capital every year. So this year, we have seen some depletion in the capital -- core capital number. So is that due to kind of a selection of credit that we are doing? So what is the reason that we have seen pretty a price in a credit risk number. So if you can help us understand.
As you say, we have shown in the cable risk-weighted asset moment, has become 5%, that 1% cannot be considered and construed at a sharp price, okay? Earlier, when the over in our subsequent period, the focus was majority on the gold loans, where the capital risk weight was not there. So that was the reason the share has come down straight away in the graph. Now that across the board, all verticals are growing. So naturally, there is a slight growth in the credit risk-weighted assets. But one thing also we need to understand if it is too low, the risk reward ratio also will be low, you'll not be able to make money. So we need to strike a balance between the risk and what sort of pricing where we can manage so that we can optimize your yields and you can protect your name with that intention, keeping in view how to maintain asset quality, the yield and the top line growth, altogether, we are going ahead. But we need not think saying that there's a sharp spike in the risk-weighted assets, it is just 1%.
No, no, sir, I was referring only to the credit trust rate, sir. So if you look at...
Under that you find a table there, you will find a table we have shown that credit risk rate asset how in our board. It has moved from 53% to 54%. That's 1%. Graph in shows.
No, no. I'm saying, sir, only about the credit risk rate, sir, which has increased from INR 34,000 to INR 41,000.
Understand generally that 100% retail of the general credit, for example, whatever the MSME loan, we are doing it. So that increase is INR 7,000 crores is reflecting our growth in the MSME and the corporates and the other retail.
The next question is from the line of [indiscernible].
I just had a couple of questions. One is FY '23 has been an exceptional year for the banking industry in terms of we call high-margin and credit cost, you think at FY '24, although you have given a specific guidance, what are the miling worries that you see going ahead, which was pretty much not there in FY '23? That is my first question. And the second question is deposit has been a challenge for the system, and it has been a challenge for you also. You are we the organization, adding feet on street. But are these the answer to the deposits challenge? And how confident are you about your deposit guidance of 14%. These are my 2 questions.
Thank you, Madam. In fact, one thing I just need to say, for the banking industry, '22, '23, maybe an except full year. But for us, it's all the more exceptional. The reason is the baggage what we were carrying in the earlier years. So last 2 to 3 years, the journey what we had to perform. A lot of cleanup has to happen in addition to other things also. So the baggage also we could clear and we are in a decent position now. So the worry is if you look at it, as it is, if you look at 3 broad parameters, if you look at it, business growth, profitability and asset quality. So I talk about asset quality. So we have formed the collection teams and centralized and the vertical head has come last year. So from then onwards, we started seeing a lot of improvement in our SMA 1 and 2. So then we started focusing on the SME 0, which flows into SMA, 30 plus. So that way, we have got a fair control on what the asset quality because these only will flow into this one. And the next thing is that corporate used to be a big pain for us at a point of time. So under that now the corporate SME has come down to the miniscule. So that way, the bigger worry what we used to have has gone out. Now what all we are acquiring now. So what we did in the year 2019, we have gone for a loan origination system with chips and balances with the tie-up with many other agencies firth surrogate data to check what we are doing is correct or wrong. So what we do on an ongoing basis, we will do an analysis of pre-2019, what all accounts have been underwritten and post '19. So when we see, particularly the commercial banking and the retail, if you look at it, pre-2019, the stress may go up to 4%, 5% odd. And subsequently, what all we have booked with all checks and balances. So this is more or less around 0.5, 0.6. At this level, it is there. Maybe in the process, we may not have grown so well because we are not open to floodgates. But what are acquired, we are reasonably confident that has only helped us during the COVID period without having much [indiscernible]. So with all these things in mind, so the asset quality should not be a major problem for the bank. Now coming to the business growth. So we thought that having brought the momentum vertical-wise for each vertical contributing. We thought that each vertical will be able to contribute 14%. That should not be an issue, but provided the market and economy also support. Then the question comes, the worry part is the cost of deposits were absolutely some sort of visibility we can have for the next 6 months. And beyond that, we do not know how it pans out, whether the rate of it moves out and on. So now there is a limit also beyond that you may not be able to pass on the yield to the advances on the pricing. So how much you'll be able to pass on how we are going to maintain the NIMs at this 4%? This is one of the worries which we need to keep in mind. But we are looking at other factors like fee to assets and how to improve the NII also by improving the yield. These things, we started working address [Technical Difficulty] issue of cost of deposits and NIM. Now coming to the deposits. I agree with you. There's a see competition in the market. And last year also, though we were trying our level best for the CASA. So many of our customers, other banks were willing them for shifting them into the time deposit at higher rate. Then after 3 months, we were realized of losing the relationship. It is better. We only convert them into time deposits, though it involves additional cost for us, but we try to do that. Now the people that we [indiscernible] everything, what we have told them, these are the people actually in the field. So currently, Water is not there, even if they add a grain of gain to the game, overall, it will be a gain and that -- so the fee income as well as the CASA, which is what our intention. So currently, first set of people who have come, if you look at it, their performance is reasonably okay, but we need to test the water for the other 6 months. So we are hopeful that so with the initiative, what we have [Technical Difficulty] at the deposit growth, what all we have planned will work.
This is the operator, yes. Sir, we could experience audio loss from your connection. [Audio Gap]
In fact, can you just tell me which of the points you have missed because I thought that I understood that intermittently, the call got missed. If you can tell me, which is a point I missed out of my what are clarifications I have provided, I am willing to clarify that once again.
I think, I mean, it was just part of the engine, which were not audible, but I could make a sense of what you are trying to convey. So if I understood you correctly from all the initiatives that you have taken, deposit growth and at what cost, you mean silos as we look to FY '24. Is that what you wanted to convey?
No, I just want to clarify here. Deposit cost at what cost support if you are acquiring the CASA and if you add this cost for the acquisition also if you add, it may be slightly costlier. That is the reason what we are working is those people whom we are acquired now, they will be focusing on a third-party also that income also they'll be generating. And there will also be some other business. So, we want to make that vertical water we are creating self-sustaining and profitable on its own within a 1 year. So that way initially on miler can be lead lag. Otherwise, some subsequent years onwards, it will be working on its own.
1Okay. Okay. And sir, just one last question. The unionized employees and the cost, et cetera, has been a kind of issue with the private set bank like yours. So, if you could just clarify, going forward in the next couple of years, what is your take on the employee cost increase, what kind of increase should be captured in?
Ma'am, in fact, for the last 4 years, if I look at it 3, 4 years, whoever we are taking, we are taking them on a CPC basis. So, we are not taking them on the IBA based and on. So that way -- so those who are coming there absolutely linked to their performance, their performance and all. So not only that, the existing team also, we need not think like unionized and all because the productivity of the people have gone up like anything. If you can look at our presentation in the last page, the business per employee and the I'll stop it per employee, how it has more the same set of people, it has moved. If you can look at it over 2017, our total staff strength was 8,000, now it is 7,700. After 5, 6 years, it be 300 down, the productivity has gone up by manifold. So if you look at the cost and also, more or less, we'll be able to manage this establishment costs, Water will verify them. And with that itself, it feel that 1.5 what we have conveyed. So we'll be able to achieve that.
Just one small housekeeping here. Of the 7,700, what percentage is IBA and what percentage is normal CDC, as you mentioned.
Around 90% for IBA only.
90% is still ideal, right? Okay. And given the retirement profile of this pit, how what would it be in maybe in the next 3, 4 years' time?
We had to see it because we also see thinking of that, we'll have to see that map because our current focus is how to get the productivity from the existing team rather than middle existing and not. So if you can get the best productivity from them and we are able to maintain our ROA, ROE, all these things and all. So we will try to see that then we can think of addressing that of the issues.
The next question is from the line of Krishnan ASV from HDFC Securities.
So my questions are more to do with cost of deposits on one hand. And just in terms of our current MCLR, what is the pricing that we have on MCLR? And where is the current blended book on your MCLR portfolio, which is 47% of your portfolio.
So what is it you want to know about cost of deposit?
Just in terms of -- for a 14% kind of growth that you're building in, given your CD ratio 85, right? Where is it that you expect your cost of deposits to settle over the next year? The reason I'm asking that is the -- I mean, obviously, we are in an environment where there is a crumble for deposits. For some banks, it is showing up disproportionately higher. So just wanted to understand in terms of what you are seeing in the market where you are looking for the deposit too.
Yes. I just -- first question, I'll respond and second one, our present will respond. First of all is on the cost of deposits. If you can recollect our guidance, what initially I have mentioned there. So we were thinking saying that with the back canal of box when we did it, the current renewal pattern for the existing deposit renewal and the fresh inflows at all are coming, which will land into which bucket. So we thought on an average around 40 to 50 basis points growth may come up in the cost of deposits. But simultaneously, I was also mentioning the losers, what are there in the prices of the loans. But also we are going to tighten up. So that is the reason we were indicating a NIM of 4%. But with the existing rates on deposits, we can expect around 40 to 50 basis points going up in the next 6 months to 8 months.
Understood. That's helpful on the MLCR.
Our present is going to respond, yes. Yes, as indicated earlier, so our MCLR book is something around the 4% the percentage. So based on the reset plus whatever we have arrived, and out of this INR 30,000 crores, almost 15 -- I mean, I can say 25% will reprice within the active 6 months period. That is after September. That's what the MCLR have done. So currently, we are charging the MCLR is 9.5%. And then if you take the blended rate, it will be something around 9% to 9.2%.
Understood. That's helpful. Just the other thing, I think this kind of resonates with one of your earlier questions as well. Just in terms of credit costs, with technical write-offs, you have a coverage of about 90% plus 92. 75 basis points again for FY '24 seems to be overshooting your -- I mean, so is that excessive conservatism at your end? Or is there any uncertainty in the MSME? I'm just trying to understand...
Absolutely, all of you will be very clear. entry, there is no uncertainty. We also do not have an iota of doubt about the quality of the credit. If it is there, it would have reflected comfortably in the SMA 30 plus. So the depreciation [indiscernible] need to have. It is more or less on a conservative basis, we have given. We do not have any sort of apprehension on our portfolio.
Krishinan, in addition to that -- see, there are certain tax benefits are available. If it is rural advances. Something like that, we need to provide the minimum quantum. And secondly, if you see, we have indicated 1% slippages for the entire year. So whatever wherever the new slippages are coming, we need to provide for that. But recovery is whatever it is coming. It will go to the technical rate of written-off account, so in that way only, we just estimated that number, not because of any specific stress we are seeing.
Correct. Absolutely. So that represent no one need to have because the others, we don't have any apprehension about that. Certain migration provisions we need to make. So all these things put together only we are doing it.
Got it. I might -- I mean if I could just squeeze in one more question. This is to do with how you read the environment for MSMEs right now, given the kind of seeds hiking pricing that MSMEs. How are MSMEs doing in terms of their own health today vis-a-vis what you might have seen a year back?
Yes, Krishnan, one thing we need to understand. The bank's pricing is one of the factors for the MSME in the whole scheme of things. Now suppose if he is going to get the business in is able to make money out of this, this pricing of 1% here and there doesn't make any sense. Whenever we deal with our MSMEs, they are dealing with NBFCs paying at 13%, 14%, 15% also that they are making money. So that way is 1% on account of that MSME is going to color. That's a myth. So this is not going to have. There are a few sectors which are doing well, and we focus on that where their margins are better and they are established. So that way, this pricing -- higher pricing on account of delinquency till date because last 6 months, 1 year, we have been passing on. So on account of these partially coming start of weakness in delinquency, which we didn't find because probate are profitable and making money this 1% doesn't make any difference for that.
And you're saying that the current economic environment allows them to absorb that?
Provided that's what the economy water is very runs well and all clear sectors they are doing well. If it runs well, they'll be able to absorb. And many of them, when they talk to them also, this 1% here and there, it is not a matter of big concern for them.
The next question is from the line of Anand Dama from Emkay Global.
Yes, congratulations for a good set of numbers. Sir, I have a question on the cost. I think you said that this year, basically the cost ratio actually would go up primarily because you are expanding people on the ground and trying to get more business. Is there a deviation or basically recent that you're having for this year where you want to expand business and where you're basically investing more in the people? And if yes, how do we look at the cost-to-income ratio or cost taxation going forward after I think we've done the resetting FY '22?
Yes, I agree. So you're perfectly right because a few of the initiatives, what we have taken. So those things initially investment we had to make for the future. So in the process also, but earlier, you see Mr. Anand that our cost-to-income ratio used to be 50 to 54 and. But even then we have given a cautious guidance that our cost-to-income ratio will be in the range of 45% to 50%, it will not cross because rest of the levers on the income side also, we are working continuously. So going forward, we feel after the 24 these investments, what all we make and they start yielding the results. The cost income ratio can be in the range of around 45%. Our intention is to maintain that in the range of 45, that range.
Okay. Sure. And sir, secondly, is it possible for you to give the SMA book number, including the low-value accounts INR 5 crores? Everything at all, we have given that number, it includes even underpin also. So you would have seen that this SMA number actual number is lower than March '22, although book has grown, because on the current SMA number is INR 360 crores. Last year, it was INR 470. The advances have grown to 6,000, 56,000, but even then some has come down to 360, which includes every loan account, every vertical.
The next question is from the line of Chintan Shah from ICICI Securities.
Congratulations on good set of numbers. Sir, just one question. Actually, I joined the call a bit later. I'm not sort of missed this number, have you given any guidance for 24 -- guidance for FY '24?
Yes, yes, absolutely. So what we did, you see that cumulative for the whole year ROA has come to 1.27 for the exit quarter, it is 1.5. So last year also, the exit quarter is there. We have given a guidance we will try to maintain during the rest of the year. And that way, we finally landed 1.5. So for next year, the guidance given by us 1.5 plus, that's what we want to maintain for the whole year of the next year.
Sure, sir, sir. And sir, secondly, I just wanted to understand what would be total provisions on our entire book? And can you break it up into the CapEx provisions and reset provisions on any other provisions?
Yes. On the standard overall book will be having around 1% of the advance provisions.
Okay. That is the standard asset?
Yes.
I mean, as absolute terms, if you could just content total provision standard specific toward restructure any other continent provisions, what will the total pool of provisions on the book. Any number on that, on a INR 55,000 crores book?
It is around INR 60 crores, yes. INR 62. -- it cannot be Standard 330... Total purchase book is only... Other than increase only standard.
That NPA. Other than NPA, what is saying in INR 620 crores is the because entry are separately given 92% is the profit coverage you have given -- so that's why what we're saying around 1% of the standard assets we are maintaining as a provision.
Okay. And this includes INR 200 crores of restructuring as one, right?
Was restructured also restructured tandem Net structure.
Yes, Sure, sir. And sir, one last question on the retail portfolio. So our retail portfolio has grown roughly 16 percentage for the year. And if you look under that, other loans, which is roughly 10% of the retail portfolio, that has grown 34%. And while housing and housing loan has only grown 12%. So any color on what the other loan comprises and where is the growth coming from?
Yes, there are a few loans again is the time deposits, a few of them, they wanted alone and down there to kit. So that was the reason that growth has come up. And if it includes some staff loans, they comprise a small portion, but other loans comprised of majority deposit [Indiscernible.
The loan doesn't and deposit?
Correct. They have multiple products running its own product and the fixed product. It's a combination of all.
The next question is from the line of Sushil Choksey from Indus Equity.
Congratulations on stable results, sir. First is, sir, what is your likely estimate digital spend for transformation year?
Digital, you know that we have started the initiated near 2018. So most of the capital expenditure at the time we already spent. So currently, whatever we are doing is just to maintain the operating expenditure only we are doing it. Currently, we are not planning for any major capital investment, except for trade finance. Now recently, we have tied up with the company, and then we are now in the process of implementation. Otherwise, there is not much cost involved other than the operating. Another one also is corporate different banking also were working on that. These 2, and one thing I tell you, Sushil, we have -- there is a reason to have more focus on this particular area. So we have taken from the market, a Chief Digital Officer, who will be focusing on what are the investments we are making, what value we are going to get out at what the expectation of the customer, what others are doing to look at the whole came, we have just reported a month, 2 months back. And once we work, you'll come back to the plant based on that what all investments are required, we will do. But somehow, we said that the investment wade we have made, we need to get some more as out of that. That is the reason the first start at the effect to CDW get some value and simulate look at what investments we need to make. Maybe another 3 months and do well on that count. For your specific reference, for example, in the year 2021, we have invested around INR 50 crores, which includes all other IT. In the year '22, we have invested INR 43 crores. In this year, last year, we have invested INR 43 crores. So roughly INR 40 crores to INR 50 crores is our total IT spend. Standard average is 50%. Secondly, the rates internationally or domestically have peaked based on MPC or fad or whatever norm you want to take -- so what's your outlook on treasury, specifically for based on our current book based on RPD ratio? You have noticed our investment book alone, we are maintaining very low duration during the past 2 years. And now we are trying to replace our -- the low yielding security, which [indiscernible] security with the higher-yielding security. But is why if you noticed, last year, there is a substantial increase in the yield from 5. 1 to 5.80. So what we have guided is based on our initial estimates in the next 2 quarters, another 23 basis yields will go up based on our current book. So, we have around INR 2,000 crores plus SLA the duration we are keeping it very low. For example, if you take our AFS, it's only less than 1. Only in case of STM, it is at 3.2.
Okay. In view of the elections coming up next year and the global and domestic environment specifically textile, auto and Siri, some value-added farm produce and the MSME sector, which we are supporting, be it in domestic or manufacturing. Would you front end because the rates are high and expectation will be lower in the second half, accelerate your credit growth more in the first half or you would not look at it that way?
It's not like that actually. So we are actually planning actually, we need to see that by July ending, we are more or less at INR 14,000 crores business levels as of the end of March. So we thought saying that by end of July or just middle of August, whether we can cross that 1.5, that is INR 150,000 crores. That's what actually we are internally planning. So once we plan and get that. So as you said, it gets front-ended because the advance are going, correspondingly we note there. We need the deposits also for the 85% CD ratio. So we are on the job to frontend-loaded but the question is, we want to balance it in such a way that there is no dilution in the quality of the acquisition and simultaneously to grow. And before August, we are trying to do, this explains.
The next question is from the line of [indiscernible] from Sundram Alternates.
I just wanted to get a better color on the MSME book, what kind of industries are we lending to? And like -- which would be the top 3 or 4 industries or so type will be the case. And I want to understand like the other loans have actually grown faster rate year-on-year in comparison to all other books. Like are they predominantly credit cards? Like what kind of loans, et cetera, represent and on cost of funding for -- so I can -- I was able to see a lot of banks actually was trying to focus on time deposits. I just -- I understand that you have -- you spoke about this throughout the call, but I still want to understanding what kind of process entities like 40, 50 basis point increase in cost of deposits. So basically, like if all other times are focusing on in deposits because the rates are high and the competition is very forthcoming. So like, how do you -- how confident are you like a 40, 60 to 70 basis points I thought it could be even higher...
Understood. I'll just respond and [indiscernible] will add also. The first point, what you mentioned, the commercial majority are MSME is growing. So actually, the majority is coming from trade that is wholesale and retail trade, transport operators, commercial real estate and under manufacturing, the textile, food processing, construction, basic metal and metal products. These are the main sectors. Actually, we are growing there. So these things are good because we are reasonably confident and we have some sort of an expertise in the trade. So that business, a lot of business we are getting it. Now on food, a lot of scope is there. We are growing in that. Now coming to the unsecured, if you look at it, I can say that the personal loans in the retail sheet, what you are seeing, there is a row called personal loans, which is around INR 337 crores. That is the clean portion of the book. And the rest, if you do other loans and all other loans comprised of 2 portions. One is the loans given to the staff numbers. And second thing is again the time deposits. And these 2 are the main. Otherwise, there is no much unsecured sitting there. And you can look at another slide where they have shown the security and unsecured portion of under slide is here. You can find how much is a very miniscule portion of our unsecured portfolio. So that way the other loans need not be a factor to be worried because it's backed by either security or time deposit. Now coming to the cost of funds, what you are mentioning, 40 to 50, as I was mentioning earlier, so our ALM department, they did some sort of a homework based on the past renewals what were happening. And when the renewal is happening and which bucket they are growing and the current inflow of deposits model are coming, they are coming into which bucket and what is the rate of interest. Looking at all these things, we thought saying that there can be a spike as 40 to 50 basis points in the cost of depart. That was the worst thing we have done
Yes. See, Arvind, if you notice during this year, our yield on advances have gone up by 120 basis points, whereas our deposit cost has increased only 2 points because of the lag effect, it's an industry scenario. So what we are trying to work out is based on our historical data, very the renewal pattern on all these things. We estimate that in the next few quarters, there will be increase in the cost to the extent of 50 basis points based on the lag effect. And there will be some corresponding yield also because of the MCLR entire thing still are not passed on. Still, I can say some 30 to -- I mean 40% to 45% of our MCLR book on the respective due dates, we'll be passing it on. But we have conservatively, we estimate that the 50%, it may not be possible for us to completely pass onto the MCLR, but of course, we have other factors also, for example, I was mentioning about yield on investments. So yield on investment will support us by another 20, 25 basis points. So overall, we are just for conservatively, we are estimating it. And then we are trying to work out how to minimize this large effect.
Yes, but just one more question. Like so the numbers you have mentioned so 16 percentage is roughly picking. So all of the fixed book is repriced by now? Or it will be repriced in the next subsequent quarters...
MCLR will be 11% to 15% of our fit book. So fixed price mostly, for example, if you take a retail loan, vehicle loan, we take a fixed rate. So we don't change during the can of the loan. Likewise, and deposit loans on -- so you cannot change even the currency of the loan because the underlying time deposit, what all is there over and above where the markable there. So it will not under change even if they are exhausted to MCLR and email are changes.
No, I understand that. Like I was trying to understand like maybe in the first second quarters, if there is going to be -- I mean, there will be some maturities, right, in ebook also like…
Some maturities are there. The fresh acquisition model we are going to do will be at the current rate only.
Yes. I was trying to understand like what would be the impact of that? That's what I was saying.
Don't worry, there a small book of that one and all. Our real working and they're going on, but they're keeping all these things in mind only, we thought that the 40% to 50% and NIM of 4%, that's what we were indicating.
As there are no further questions from the participants, I now hand the conference over to Mr. Ramesh Boddu, MDM, CEO, closing comments.
Okay. Thank you very much. And first of all, perform thanks to each one of you for taking out time and showing interest in our bank. So just to conclude, so I just want to reassure that the transformation journey plan has been showing promising results. The loan book is improving to more SME and retail, granular corporate book with better asset quality. And with all these things and the benign asset quality granular because the structure has changes what we have brought out for a revamp of business model and a strong capital base with all these things, bank is well poised to go forward, and we will continue the journey the sales base and what all we have been guiding, we'll go ahead on the same line, and we will try to deliver that. Thank you once again to all of you. Thank you very much.
On behalf of the Karur Vysya Bank, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.