State Bank of India
NSE:SBIN
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State Bank of India
Earnings Call Analysis
Q2-2024 Analysis
State Bank of India
The bank's total exposure under COVID resolution plans stands at INR 20,854 crores, and the restructuring book is doing well, with 20% exposure in the SMA1 and SMA2 categories, backed by sufficient provisions. Capital adequacy has increased by 77 basis points year-over-year to 14.28%, and the CET1 ratio is up by 41 basis points to 9.94%, which could effectively reach 15.32% once profits are recorded. The digital platform YONO has been pivotal for customer acquisition and cross-selling, contributing INR 190 crore in fee income through the sale of third-party products. Digital registrations have also surged to nearly 25 lakh in the second quarter of financial year '24, with the 'YONO for every Indian' initiative broadening its reach. The advances business through analytical leads has grown by 38% year-over-year in the first half of the financial year '24.
Margins are expected to remain stable or experience a minimal compression of 3 to 5 basis points in the next 2 to 3 quarters, mainly due to the impact of deposit cost increases. Despite aggressive festive offers, the full impact of MCLR is almost fully captured, with a little room remaining for its increase. On the operational expenditure front, the sensitivity to a 1% increase in the wage agreement is significant, translating to roughly INR 100 crores per month. Once the wage revision is complete, this is expected to settle into a monthly increase in the wage bill of around INR 400 crores.
Investments have risen to about INR 17 trillion, with growth aligning with risk appetite particularly in the price offered for lending. The SME portfolio has seen healthy growth, as forecasted, reaching INR 3.88 trillion and expected to hit the INR 4 trillion target soon. The growth in this segment has been strategic, focusing on products that meet the bank's risk criteria.
The personal loan book is showing strong asset quality with well-controlled delinquencies, even as SBI Card, the subsidiary, notes a modest increase in stress levels due to different underwriting principles. The corporate loan growth is optimistic, with improved availment and a robust pipeline expected to translate into sanctioned growth and disbursements. The bank aims for growth in the low double-digit numbers, while international book growth remains cautious with a focus on stable geographies.
The bank's ROA has been around 1.2% for the last two quarters, dipping to 1% in the most recent quarter due to wage revision provisions of INR 3,400 crores. This is seen as a one-off occurrence. The target is to achieve and maintain a 1.2% ROA, with expectations to maintain overseas margin stability at current levels for the foreseeable future.
The bank has observed a reduction in SME NPAs from 6% in quarter 3 of financial year '23 to 4.41%, attributing this improvement to pragmatic limit setting and cash flow management alongside strategic vendor and distributor finance. This multipronged approach aims to further reduce NPA levels towards around 3-3.5%.
The bank extends gratitude for the continued support and emphasizes its commitment to delivering sustainable long-term returns to investors. The management is open for questions and further engagement with the investor community.
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Good evening, ladies and gentlemen. My name is Sanjay Kapoor, and I'm the General Manager of Performance Planning and Review Department of the bank. On the occasion of the declaration of quarter 2 financial year '24 results of the bank, it gives me immense pleasure to welcome the analysts, investors and our colleagues for an in-person meeting. I also extend a warm welcome to the analysts, investors and colleagues, who have joined this presentation through our live webcast.
We have with us on the stage our Chairman, Dinesh Khara, at the center. Our Managing Director, International Banking, Global Markets and Technology, Shri C.S. Setty; Our Managing Director, Risk, Compliance and Stressed Assets Resolution Group, Shri Ashwini Kumar Tiwari; our Managing Director, Retail Business and Operations; Shri Alok Kumar Choudhary; our Deputy Managing Directors -- our Deputy Managing Director of Finance, Smt. Saloni Narayan; our Deputy Managing Directors, heading various verticals and Managing Directors of our subsidiaries are seated in the first row of the hall. We are also joined by the Chief General Managers of different verticals business groups.
To carry forward the proceedings, I request our Chairman, sir, to give a brief summary of the bank's Q2 FY '24 performance and the strategic initiatives undertaken. We shall thereafter straightaway go to the question-and-answer session. However, before I hand it over to the Chairman, sir, I would like to read out the safe harbor statement.
Certain statements in these slides are forward-looking statements. These statements are based on management's current expectations and are subject to uncertainty and changes in circumstances. Actual outcomes may differ materially from those included in these statements due to a variety of factors.
Thank you. Now I would request Chairman, sir, to make his opening remarks.
Thank you very much. Good evening, friends. Thank you for joining this analyst meet post announcement of quarter 2 financial year '24 results of the bank. Let me first and foremost, start with a brief description of the present global economic scenario. The global growth remains weighed down by tight financial conditions, uncertainty about the policy trajectory, high debt distress and geopolitical tensions which have been further accentuated by the conflict in Middle East, labor markets in major advanced economies continue to remain tight, prompting central banks to maintain higher for longer stance.
The International Monetary Fund in its October '23 update of the World Economic Outlook, kept the global growth forecast unchanged at 3% in the year 2023, same as in its July '23 update. Growth in '24 is, however, projected to moderate to 2.9%. As a stronger-than-expected momentum in the U.S. is likely to be more than offset by weaker-than-expected growth in the Euro area and China.
Against this backdrop, the outlook for domestic activity is brightening on account of the sustained buoyancy in services, consumer and business optimism, public spending on infrastructure and the underlying strength of the financial sector's balance sheet even as cooperations deleverage and post strong bottom lines.
Consumer confidence has improved with uptick in most of the macroeconomic conditions. Overall, credit ratio of ICRA assigned ratings was 2.0 in April, August '23, indicating improved credit quality of India Inc. Rating upgrades were strong in the hotels, auto components, financials and transport and infrastructure sector.
Growth is expected to gain momentum through the rest of the year, especially from the impetus of festival spending. High-frequency indicators showing acceleration increase in quarter ending September '23. GST revenue remains robust as monthly GST threshold has now increased to INR 1.66 trillion in April, October '23 as compared to INR 1.5 trillion in financial year '23.
On the external front, the current account deficit is modest with sufficient foreign exchange reserves, providing a strong buffer that is insulating the economy from global spillovers as well as from the slowdown in external demand. While recognizing global risk and the volatility in financial markets, that entail, real GDP growth is expected at 6.5% in financial year '24.
On the banking front, the bank credit growth remained strong in the first half of financial year '24 in tandem with the economic activity. Credit extended via the scheduled commercial banks rose by 19.3% Y-o-Y as on October 6, '23, over and above the growth of 16.7% a year ago. As demand for credit continues, we expect credit and deposit may grow by 16% to 17% in '24.
In the above economic backdrop, let me now highlight a few key aspects of the bank's performance in the half year and the second quarter of '24. I'm pleased to announce that we have posted quarterly net profit of INR 14,330 crores, which has increased by 8.03% Y-o-Y. Operating profit for the second quarter of financial year '24 is at INR 19,417 crores, which has moderated by about 8.07% Y-o-Y. ROE for the first half of financial year '24 stands at 1.10% and has improved by 34 basis points over the corresponding period last year.
However, the ROE for the second quarter of financial year '24 has moderated by 3 basis points on a Y-o-Y basis to 1.01. ROE for the first half of financial year '24 has improved by 649 basis points to 22.57% Y-o-Y, and perhaps it is the highest ROE in the industry. Most other core profitability metrics have also improved during the current year.
Net interest income for the second quarter financial year '24 increased by 12.27% Y-o-Y on the back of improvement in yield and the continuing credit offtake. Domestic NIM for the first half of financial '24 is at 3.45%, and it has increased by 6 basis points on a Y-o-Y basis. Domestic NIM for the second quarter of financial year '24 is at 3.43%, and it has declined by 12 basis points Y-o-Y on account of increase in cost of deposit during the quarter.
We expect NIMs to be stable around this level by the year-end. Noninterest income has increased by 21.59% Y-o-Y, mainly due to increase in fee income by 10% and profit on sale of investment during the quarter. Operating expenses have increased by 34.60% Y-o-Y, mainly on account of additional provision made for the ensuing wage revision.
Earlier, the provision for wage revision were made at the rate of 10% with effect from November '22, which we have now increased to 14% with back dated effect from November '22, due to which additional provision of INR 3,417 crores have been made in the second quarter. As a result, the operating profit has been impacted and has come down.
On the business front, the credit growth has been robust across all segments. Domestic advances grew by 13.21%, mainly driven by SME advances, which grew by 22.75%; retail personal advances, which grew by 15.68%; and Agri advances, which grew by 14.76%. Corporate segment advances grew only by 6.62%.
Recently, there have been concerns on the growth of unsecured loan portfolio in the banking industry. However, I wish to state that excess credit has been one of the safest product lines of the bank as it is given to corporate salary account customers, whose salaries are visible to us. Out of the total portfolio of excess credit nearly 82.6% of the customers are either employed in armed forces or are government employees and nearly 12% are employed with reputed corporate, including public sector entities, et cetera.
The portfolio of excess credit stands at INR 3.2 trillion as on September '23, with a gross NPA ratio of 0.69%. It is actually constituting 25% of the total retail personnel portfolio of INR 12.43 trillion. We also have a strong analytics-driven collection mechanism using contact centers for the pre-delinquency outbound voice recording calls and also loan account management system for calling by the branches. As a result, as I mentioned, that the gross NPA of the portfolio is only at 0.69%, indicating the resilience of the portfolio in terms of the asset quality.
Under deposits, domestic deposit grew by 11.80%, driven by growth in current account deposits and term deposits. Savings bank deposits have shown a growth of 4.34% Y-o-Y. Our foreign offices have continued to perform well with the growth in advances of 8.11% Y-o-Y, as well as deposit at 14.57% Y-o-Y. Foreign office advances have crossed an important milestone of INR 5 lakh crores.
With regard to the asset quality, our gross NPA ratio has improved by 97 basis points Y-o-Y and stands at 2.55% and continues to be at its lowest level in more than 10 years. Our net NPA ratio has also improved by 16 basis points and stands at 0.64%.
Slippage ratio for the first half of financial year '24 has improved by 16 basis points Y-o-Y and stands at 0.70%. The consistently improving asset quality is also reflected in our credit cost, which stands at 0.22% and it has improved by 6 basis points Y-o-Y.
PCR, including AUCA improved by 39 basis points and stands at 91.93%. PCR for quarter 2 of financial year '24 has declined by 248 basis points to 75.45%. Herein, I would like to mention that our PCR for the corporate book has gone to 99.55%.
On the restructuring front, our total exposure under COVID resolution plan 1 and 2 stands at INR 20,854 crores as at the end of the second quarter of financial year '24. Restructuring book has behaved well where 20% of the current exposure falling under SMA 1 and SMA 2 category. We are holding sufficient additional provision against the restructured accounts. If you recall, we had kept the provision at about 30%, and we have got about INR 20,000 crores of book, and we are holding sufficient provision for this book. The bank remains very well capitalized, and we have sufficient headroom to take care of the normal business growth requirements.
Our capital adequacy ratio has improved by 77 basis points Y-o-Y and now it stands at 14.28%. CET1 ratio has also improved by 41 basis points to 9.94%, and both the ratios are well above the regulatory requirement. Herein, I would like to mention that we are not recorded the profit which we have done, which we have earned until now. And if at all, we'll add that also then our capital adequacy ratio will be at around 15.32%.
Digital continues to be an important customer acquisition engine for the bank across asset as well as the liability products during the quarter. We have sourced 61% of the savings account digitally through YONO. We are seeing increased traction in cross-selling business through YONO. This quarter, we have already earned about INR 190 crore worth of fee income through YONO on account of sale of third-party products, our subsidiary products.
We are seeing increased traction in cross-selling business through YONO. We have recently launched YONO for every Indian in which customers of other banks can now access and experience a seamless UPI journey on YONO.
Nearly 25 lakh registrations have been done during quarter 2 of financial year '24 since its launch on July 1, '23. Advances business through analytical leads has grown 38% Y-o-Y in the first half of financial year '24.
Our subsidiaries are also continuing to perform well and continue to create significant value for all the stakeholders and most importantly, for the customers. Most of our subsidiaries are leaders in their respective segments. We will continue to nurture them and see that they continue to create value for their own shareholders as well as the shareholders of SBI.
To conclude, I thank you all for your continued support to the bank being proxy to the Indian economy. We consider it as a privilege to be able to contribute towards the growth of our economy. We remain committed to rewarding your trust in us with sustainable returns over the long term. I wish everyone here the best of health and happiness in this festive season. My team and I are now open to taking questions. Thank you very much.
Thank you, Chairman, sir, for the presentation. We now invite questions from the audience. For the benefit of all, we request you to kindly mention your name and company before posing the questions. To accommodate all the questions -- I apologize. Sorry. So to accommodate all the questions, we request you to restrict your questions to maximum 2 at a time. Also kindly restrict your questions to the financial results only and no questions to be asked about specific accounts, please. In case you have additional questions, the same can be asked at the end. We now proceed with the question-and-answer session. And the first question is from here.
Yes, Mahrukh from Nuvama. So my first question is on margins. So where do you expect margins to stabilize given that everyone has come up with aggressive festive offers, including festive deposit rates. So where do you see domestic margin stabilizing for the next 2 to 3 quarters?
My expectation is that our margin should be around this level or maybe it might see compression for another 3 to 5 basis points.
So deposit cost has bottomed out or...
I expect the impact of the deposit cost only. But as far as the loan book is concerned, we have already offered the concession whatever we had to offer. And we are seeing decent traction when it comes to our sourcing and underwriting is concerned. So I think we will have -- the impact of the increase in the deposit rates only I expect that to have an impact of another 3 to 5 basis points on the margins.
And the full MCLR impact is now already captured?
It is, yes, almost fully captured. Though we still have some elbow room for increasing the MCLR, but that will be very judicious.
Okay, sir. Sir, my next question is on OpEx. So say, for every 1% increase in the wage agreement, what would be the sensitivity? So if you've provided 14% now and if it settles at 15%, what will be the additional cost?
Roughly about INR 100 crores.
INR 100 crores per month. Okay.
No, not per month. Per month, per month, yes.
You take 11 trailing months, it is INR 1100 crores.
Okay. But sir, if you remove the INR 3.4 billion that you mentioned from this quarter, then do you expect if rates remain stable as they are now, do you expect the provisions for wages to remain at the core level or...
No, no. See once all this backlog, which we have to provide for that will not be there. Then it will be actually -- once the wage revision happens, then it is a wage bill only. No additional provisions. So roughly about INR 400 crores is something which we expect, if at all. I mean, that will be the increase in the wage bill.
INR 400 crores.
For a quarter -- per month.
Per month. Okay, okay.
About INR 1,200 crores a quarter.
The next question is from -- can you please raise your hand? .
Sushil Choksey, Indus Equity. Sir, based on current economic environment and specifically business in India, how are we seeing traction on large projects at SBI?
Our -- when it comes to our -- we have got, I mean, proposals in pipeline of about INR 3.4 trillion, and about INR 1.4 trillion would be which is awaiting, I mean, which are pending for disbursement. So about INR 4.7 billion, INR 4.8 trillion is that kind of a book.
So I think with the kind of evolving situation, global situation, since all these projects are primarily going to cater to the domestic economy, I don't expect that it will have any significant impact. And because what we get to say in terms of the inflow of proposal, that is again the validation of what I am seeing.
Sir, but your growth in SME and retail is quite sustainable and growing on a better pace. Will your growth not outnumber your projection?
See, we have been indicating that we'll be growing at about -- around in the range of 14%. And I would like to surprise the market on the higher side. That's why my suggestions or recommendations are always a little conservative.
Sir, lastly, in the current week, your Business Standard appearance and Governor speech, and the Fed on Wednesday, the entire bond market globally is showing a different color than the concern. Middle East concern stays, but the bond market is clearly indicating that things may reverse where treasury and rates are concerned. What is your view? Have you changed your view post Wednesday? Or you still...
See, I think these one-offs when we form a view, it is not based upon the one-off events. It is based upon multiple events, which are happening across. Yes, of course, these are important events, which needs to be factored. But I think, if at all, we have to have a view, we will have to probably wait and watch a little more in terms of how the global economics -- economic situation unfolds, and its likely impact because Fed has said something.
So -- and also our IBM Gartner has also indicated something. But yes, of course, I think there are multiple other things which you have to keep in mind while having a view.
Can you please raise your hand.
Mahesh from Kotak. Just a few questions. One, if you could just kind of explain the movement of the balance sheet. There seems to be a bump up in investments this quarter, increase in borrowings. What explains, what have you been thinking on the balance sheet side?
No, investments have moved to about INR 17 trillion, and we have seen decent growth also. But when it comes to our credit deposit ratio on the domestic book front, it is somewhere around 64%. We are very mindful in terms of underwriting the risk, which is according to our risk appetite. And if at all, we don't want to get into any adventure. And that is one of the reasons why we are very conscious in terms of building up of our loan book.
And also, when I talk about that, I'm very mindful in terms of the price at which we can lend. If at all, the price does not offer us adequate risk return reward, then probably I would rather prefer to look into the investment book as compared to the loan book. So that is something which explains. Maybe you have something more to add?
Yes. I think on the investment book, the growth has been 8.2% quarter-on-quarter. It is mainly coming from the G-Secs and SDL's. So some of these liquidity what we normally have. As we keep saying that we have a policy of parking the excess liquidity in the SLR securities and we have substantial excess SLR, which helps us market borrowing. That's what you see that on one hand, the investments are growing, as well as we also participate in any liquidity management what we need to do.
So the question pertains to the fact that you raised borrowings as well on the other side, which I assume is far more expensive. So I'm just trying to understand what were you thinking when you were...
You are talking about the market borrowings or the borrowings in terms of the bonds...
Yes, the borrowings on the balance sheet.
Yes.
Nondeposit related, the borrowings, which is sitting there that also has gone up by about INR 1 lakh crores this quarter. But just trying to understand what have you been thinking on those 2 metrics? Because you raised deposits and borrowings and you've seen significant investments when your CD ratio is low. Just trying to understand what that...
No, no. I think see, one thing is that we can't raise deposits when we need to fund the credit, right? As Mr. Khara keeps saying, deposit is a franchise, we continue to raise the deposits. And when the deposits are raised, there are 2 alternatives. One is that you fund the credit growth, alternatively, you put in investments. So -- and whenever we put in the gated securities, obviously, those securities are used for raising any liquidity. That's where you see the borrowings also on the other side. I hope I'm...
Sure, I'll take it offline. Second question is on the provisioning line. Again, there's reversal on standard assets as well as other provisions. If you could just tell us what's happened in these 2 lines?
Yes, we have been adopting a policy for the past almost 2 years plus where we have started providing for any kind of a likelihood of the stress, which might emerge on our loan book. And that is something which you have when we are sure that those stress are no more there on insight, we have reversed provisions, which we had created for the standard sets. That's about INR 1,200-odd crores.
Okay. And last question, sir. On the SME side, you have started seeing pretty good healthy growth in that. It's now clocking about 20%. What are you thinking on that particular portfolio?
See, I think somewhere in the year '20, we had given the guidance that we will try to achieve move up in the SME book from INR 3 trillion to INR 4 trillion. So we are somewhere there, only INR 3.88 trillion, we are already there by '24, we had indicated. So I think we should be in a position to reach out to this level. And this growth has been built up in a very, very clear and conscious manner and into the identifiable products, which are in line with our risk appetite, so that is something which we have done.
And we feel that we should be in a position to sustain this kind of a growth trajectory going forward having built up our infrastructure relating to SME lending. We have significantly beefed up our infrastructure for SME lending, we have improved the loan management system. We have brought in the algorithm relating to the lending to SME.
We have introduced a new product preapproved business loan, where we are witnessing almost about 1,800 kind of a growth every quarter. So this is something -- these are some of the initiatives which we have done. And that 1,000 preapproved business loan is all analytics driven depending upon our understanding of the customer and their transactions. So I think we have taken multiple such steps, which will help us in ramping up our SME book.
Just to clarify, the yields on the SME loans is similar to the Express credit, if I were to just compare these 2 products?
It should be slightly lower, but I think it is -- it is slightly lower. But then, of course, it continues to be a much better yielding product comparing -- considering the fact that these days some of the banks are willing to lend to some of the corporates at less than the SDL rate also.
Prakhar here from Jefferies. Congratulations on a very good set of numbers, especially in the backdrop. Sir just wanted to get some more clarity on the funding cost part. I just wanted to know, is it possible to give some sense on whether -- what percentage of your term deposits have actually moved to the new rates? Because for the last couple of months, banks have not raised term deposits materially. So probably the incremental rate has been set. Where are we from that on the P&L side?
Even we have not also increased the interest rate for quite some time. But whatever repricing has happened, I think perhaps it will all be fully panned out by the next quarter, whatever little is left out.
Okay, okay. Understood. And despite that, the margins will hold up? So just want to...
That's the reason why I was saying that maybe we might see compression of another 3 to 5 basis points.
So if I may just ask, sir, where is the offset in your view coming? Is it mostly the LDR? Or we are yet to see some repricing on the loan side because...
I think LDR will be the one. We expect to improve the LDR, and that will help us in shoring up the -- repricing of loan, whichever -- whatever will come now for the renewal at this stage, MCLR-based loans, which will come for the renewal now.
This is Nitin Aggarwal from Motilal. Sir, 1 question on the unsecured piece of the book. Like in the press meet, you talked about that the trends on asset quality are going very strong on a personal loan book. But if I look at your subsidiary cards, they have been talking about some rise in stress levels. So how do you look at the divergence in these 2 segments of unsecured? And do you think that this gap will narrow?
See, the point is that subsidiary has got a very different underwriting principle and the book is very different for them. As far as we are concerned, we are giving unsecured loans to those who are maintaining salary accounts with us. So we have got a very clear visibility in terms of the fund flow for such entities with such customers. And that is something which is helping us in terms of mitigating the risk in the unsecured book. .
When it comes to our subsidiary, SBI Card, they do look at some of the customers very independently because that's a separate entity, and there are certain restrictions as far as RBI is concerned in terms of sharing the customer database with our entities also.
And that is one of the reasons why almost about 50% of their book is something which comes from State Bank, and the remaining 50% is from the market. And as it is when it comes to credit card business, that's on a very different line. It's unsecured business. It's very high-yielding business also. And to that extent, they have got an ability to absorb a little higher delinquencies also but their collection mechanisms are also very different as compared to what we really practice.
So I think to that extent, it's a very different model, which they follow. And the kind of model which we follow is very different. As we have low risk appetite, we have got much lesser yield on such book also. But nevertheless, our delinquencies are well within control.
Right, sir. And sir, the other question is on the loan growth, wherein you are indicating for a 14% plus loan growth. And so how do you specifically look at the corporate growth and the international growth wherein we have seen a good pickup this quarter? So these 2 segments, if you can share some color.
See, corporate loan, I expect, as I was sharing that we have got the undisbursed portion of some of the sanctioned loans, unavailed limits of the term loans. In the term loans, we have seen the availment has improved by almost about 100 basis points in this quarter as compared to previous quarter. And also when it comes to the utilization of the working capital also, it has improved in this quarter.
I think going forward, we will have a situation where this will probably -- availment will improve further. And also the part of the pipeline, which is there for INR 3.4 trillion and odd, which is there for the proposals which are under process. We will get to see some sanctions getting converted into -- I mean some such proposals getting converted into sanctions and some of them getting availed also. So I expect that this corporate growth should see some improvement going forward. Ideally, I would like to see it somewhere at least in the lower 2-digit numbers.
Right sir. And the international book?
International book, we will be somewhere around this number only. We don't want to go very aggressive on international book because different geographies are behaving differently, and that is the reason why we want to confine ourselves to some of the stable geographies like U.S. and Middle East and Japan, where we have grown in this quarter also.
If you recall, last quarter, we had not grown in the international book. Essentially, we are trying to understand how the global situation is going to evolve. Now we have got some clarity. And with that in mind, we will be growing in these markets.
That side.
This is Jai Mundhra from ICICI Securities. Sir a question on your ROA, right? So for the last 2 quarters, we did 1.2% ROA. This quarter, we have done 1% ROA. And I can see that this wage revision provision enhancement that we have done, INR 3,400 crores, this turns out to be around 24 basis points of an ROA pretax, right? So of course, this is likely to be a one-off and unlikely to reoccur. So the question is, are you a 1.2% ROA bank? Or you are -- or are you a 1% ROA bank? I mean, in the sense -- I mean, so yes, so that is the question.
No, my effort is that it should be a 1.2% ROA bank. Budgeting has been done around that kind of a number only, and that is how we are. When it comes to our monitoring on ground, this is something which we are doing.
And secondly, sir, when you say margins could decline by 3 to 5 basis points, this is domestic only or this is global? Because your overseas margin have been at very, very high level and could be more volatile versus domestic.
Actually, the overseas book, if you at all you look at the interest rate and overseas, that is all on the higher side now. So I think this 3 to 5 basis point compression in margin is essentially, I was looking at the domestic book only. But I think overseas, I expect that we should be in a position to maintain these kind of margins in the overseas book, at least in the foreseeable future.
Hello, sir, Hardik here from Goldman. Congratulations on good set of numbers. My first question is on the competitive intensity in the mortgages. How is it? And how do you expect it to trend going forward?
This market is quite competitive. There's no doubt about it. But when we look at our sanctions and disbursements, we are seeing healthy trend. It's about 20% increase, 25% increase on a sequential basis.
So I think we will continue to see that kind of a traction because we have invested well in terms of our ability to source, process, disburse and also control and follow-up. So we -- last year, we added almost 150 CPCs across the country. So this is something which is going to really work well, I think, and we expect that we will have a decent growth in this going forward.
Okay. And sir, second question is on the SME book. Can you give some more color around what is the average ticket size? What are the sectors that you're lending to within SME?
In case of SME, we have grown almost by 57% in working capital, which essentially means that the units which we have sanctioned loans they are utilizing more and more working capital because of enhanced scale of operations, demand fulfillment also.
In case of term loan, we have grown by around 25%. But the growth also comes from supply chain finance where we have grown by almost 29.44%. Growth is also coming from the CGTMSE loans because in CGTMSE loans also we have improved our processes, and that is leading to growth. And the best part in this entire SME transformation is that we have around say 2,000 relationship managers spread across almost all the districts of the country, wherever you have SME concentration. There are almost 900 branches which are essentially doing SME, nothing else. Of course, the related SME work, maybe current account and some of the ForEx business.
And the processing cells, we have 2 types of processing cells even in many places. One processing cell is entirely for all kinds of loans, which will come. And one processing cell has also been specifically, say, established only for the supply chain business. And we went into transformation know as Project Pratham, which also led to a lot of BRE's, business rules engines getting established.
So I think both on the product side as well as process plus use of the different partners, fintech partners, et cetera. This is all leading to growth. And the most important point is what the Chairman has said that he has mandated INR 4 trillion kind of SME growth.
So we just electrified the entire workforce in the country to do this SME business because you understand the SME has been our business since times immemorial, and we need to have a right foot place in the entire SME ecosystem in the country. Hope it satisfies.
And what would be the utilization levels in those working capital which has enhanced the growth?
Utilization levels only in SME space. Another -- because, see SME loans would be -- SME loans would be generally up to INR 50 crores because more than INR 50 crores SME loans as we classify in our portfolio is very little.
So there we don't have that kind of data that for INR 20 crore loan or INR 15 crore loan, what is the utilization. That utilization percentage is we generally monitor for the corporate credit loans, where we have around 56% kind of utilization in the corporate loans.
Sir, my question again is related to SME. But not on the growth front, I just want to understand any signs of stress that you see in the SME segment? How are the NPA's trending in the Mudra and the non-Mudra loans specifically?
You see in case of SME, we have done analysis of 500 SME, NPA is mostly a function of less than INR 50 lakh. INR 50 lakh loans is basically the section which gives the highest -- more than 70% of the NPA.
So there, as most of these SME borrowers would be micro kind of borrowers. So they are exposed to more kind of vagaries of the market. As such, we find that they may be prone to stress many times, but we also see that many of them get pulled back. Like you see the slippages of last quarter, almost INR 1,200 crores of slippages has been pulled back.
So it's a kind of pull and push business. The market vagaries put them into stress, but our support and also the discipline of the SME borrowers put them back into SME. So from that perspective, I don't think any sector-wise we have. But in case of restructuring, we found that mostly it is the retail shops, transport operators, those were more...
We're seeing the reduction in SME NPA. It used to be about 6% in the quarter 3 of financial year '23. And from there, it has come down to somewhere around now at about 4.41%. So that is -- again, part of it we need to address the underwriting. But at the same time, our connect on the ground is something which works well. And we have to be pragmatic in terms of how we assess their limits and how we ensure that their cash flows are taken care of.
So -- but at the same time, I must also mention in the SME space, it was a very clear effort on our part when we got into the space once again that we should try and build up this book through vendor finance, distributor finance where we have got a clear visibility. And that is one of the reason why from September '22, the NPA level at 6.03%, we are now at 4.41%.
So it's a very careful selection and also ESG is something which also worked well. Apart from that, we are taking shelter in the CGTMSE whatever comforts are available for the banking system, we are availing all of them. But I would say that it's a multipronged strategy, which has worked to ensure that we bring it at about 4.4%. But ideally speaking, we would like to see it somewhere around 3%, 3.5% only.
So just to add a bit of data. We -- the risk-mitigated products which we have, that is around 35.23%, where we have either CGTMSE or maybe asset-backed loan or securities there. So we're trying to move more into risk-mitigated products, so the incidence of NPA is quite less.
Sir, secondly, on the savings deposit side, System-wide, we have seen typically dips into the first quarter, rises again second quarter, this time around trends have been different, and we are seeing actually a dip in the second quarter across banks in terms of savings deposits. I mean obviously, the growth is there, but it is much less.
Yes, of course. You have to -- see the point is that the trend which you are indicating is normally in the normal situations. When the inflationary conditions are there, invariably, the trend is that people try to move the deposit where they can have the inflation neutral returns or if at all, they should get the positive returns. That is the effort on the part of the people. And that is one of the reasons why perhaps you would have seen more traction in the mutual fund space also because those who are yield chasers, they will look at all possible options.
So that is something which is seen. But nevertheless, we have also witnessed because some of the savings accounts are also opened by the government entities. And as you are aware that the government has now moved to the just-in-time funding of these accounts. That is also one of the reasons why you would have seen the kind of growth which is there and savings account is muted. But nevertheless, as far as we are concerned, we are now trying to build up our CASA focus with more emphasis on CAR.
And when I talk about CAR, it is we were having a huge dependence on the government deposits in the current account, but we started derisking ourselves and we got into the trade commerce industry. And we have now witnessed the growth on a Y-o-Y basis, which is about 8% plus in current account and which is much better than our competitors also.
So that is something which we have seen. And also when it comes to savings bank deposit, and whenever we have seen that in these kind of times, people normally go for mops kind of a situation where the money can move from savings bank to term deposit depending upon the threshold that the customer offers. Having said that, I must also mention that we have opened almost about 30 lakh plus savings -- 40 lakh plus savings bank accounts during the quarter and almost about 1.40 lakhs corporate salary package accounts.
So I think when it comes to our effort to really open the accounts, there is no slowness which we have observed, almost about 30,000 accounts are getting opened through YONO on a daily basis, which actually represent about 61% of the accounts which we are opening in the bank.
So that is how it is all stacked up. So I think the fact of the life and moreover since we have to be very mindful in terms of our cost of deposits, we don't think that there's any need for any increase in interest rate for the savings deposit, that's how we look at this whole subject.
Sure. Sir, lastly, on the capital front. I mean your stated stance is well known that you don't need to raise capital as such. But when you look at the optimal ratios, when you compare it with the peers globally as such, obviously, on a CET basis, basically, we are on a lower side.
We'll be raising the Tier 1. And also we will be ploughing back significantly higher number of profit as compared to what we did last year.
Sir, any working on what could be the bump-up that we might see in the CET1 because of the investment...
I think we have done some excise. And we expect that at the year-end, we should be somewhere around 15.32% as far as CAR is concerned and about 11% plus in the CET1.
Post the reclassification of investment?
Not the investment, flowing back of the profit.
Okay. That's it. But you'll have more, I think, something coming from the reclassification of investments, some results that are going to be created...
We have not analyzed all that.
So we have a few questions coming in through the online webcast. We'll request the Chairman sir to address these.
Yes, sure. I think if -- I will take up one by one. The first question has come from Rahul Jain. When do we expect to get full clarity of wage negotiation? And how did the provision guidance of 10% change to 14%?
The wage negotiation is still in process. And keeping in view of the progress in negotiation, it's our reasonable expectation that we should -- we might be having the wage negotiation around 14%. That is the reason why we have increased it to 14%.
The second question comes from Ram JS. Given the regulatory concern on unsecured loan, do you expect risk weighting to be increased for them? RBI has been talking to on this particular issue for quite some time. And it is our interpretation that RBI is worried about the smaller loan values of less than INR 50,000. Risk weight may go up. But as of now, there is no timeline.
Another question is from Mr. Praveen Kumar Nagpal. How does the bank plans to maintain its credit growth momentum in the second half of the financial year?
For credit growth, we have a good number of loans, which are already sanctioned and pending for disbursement. And we are seeing good traction in as far as our retail loan book is also concerned in terms of the sanctioning. So that is the reason why we feel that we should get to see the decent credit growth momentum. We have approximately 1.4 lakh, 1 lakhs proposal -- INR 1.41 trillion worth of proposals pending for disbursement. We expect them to get disbursed in the next 2 to 3 quarters and also proposals, which are under process or sanctioning are about INR 3.3 trillion.
Srigopal Agarwal, at what rate management is expecting loan growth?
We expect that we should be growing at about 12% to 14%. At least ideally, we will try to improve it even further.
How is the growth and quality of preapproved loans through YONO app looking like?
It's -- actually, I would say that it is perhaps one of the best. There's no cost of sourcing the business. And we are not only doing the preapproved personal loan, we are also doing preapproved business loan encouraged by the outcome which we saw in the personal loans.
And also we are going for extra home loan top-up, and as well as the real-time express credit. Digital loan portfolio generated till now is about almost INR 10,000 crores during the first half of the current financial year.
Why did the domestic NIM fall for this quarter? Domestic NIM on Q-o-Q basis has declined marginally from 3.47% to 3.43% due to increase in cost of deposit. And of course, we don't have any one-off, which we had in the previous quarters. On a Y-o-Y basis, the cumulative domestic NIM has actually improved from 3.39% to 3.45% and essentially attributed to the increased loan book and better yield on advances.
What percent of advanced portfolio is MCLR-linked? What part is fixed rate and what part is Repo linked?
The MCLR-linked is 38%. Fixed is 31%. And EBLR is 27%. And other, which also includes T-bill, is 14%. With that all the questions which have been received offline have been answered.
Thank you, sir. I trust all the questions have now been addressed.
Anybody has any more questions to ask? Yes.
So I have 2 questions. You just answered on risk weights, and you said we don't know the timeline of increase. You meant for below INR 50,000 or for all loans?
I think perhaps it is likely to be below INR 50,000 because perhaps RBI observations are also, they are more concerned about less than INR 50,000. And herein, I would like to mention that when we sanctioned, we don't sanction less than INR 50,000 at all. Whatever less than INR 50,000 is there, it is only on account of the repayment of the existing excess credit.
So I think essentially, they are trying to address the genuine concerns which they have from some of the players in the industry, which are into ETB and also into low-ticket personal loans.
And sir, just 1 last question. It was probably asked earlier. So you have -- you had good deposit growth, you had healthy loan growth, and you have a low domestic CD ratio also of 64%. So why have your borrowings increased when deposits and your CD ratio...
There, at times, these are the tactical decisions also.
No, we can explain offline. I think I told you that. Thank you. We'll be happy to respond to other questions in offline mode. Let me end the evening with thanking the Chairman, the top management team, the analysts, ladies and gentlemen. To round off this evening, we request you to join us for high tea, which is arranged just outside the hall. Thank you.
Thank you very much. Thanks to all of you. Thank you. .