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Ladies and gentlemen, good day, and welcome to City Union Bank Q3 FY '24 Earnings Conference Call hosted by AMBIT Capital Private Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Prabal Gandhi from AMBIT Capital. Thank you, and over to you, Mr. Gandhi.

Thank you, [ Yousuf ]. On behalf of AMBIT Capital, I once again welcome you all for City Union's Third Quarter Call. On the management side, we have Dr. N. Kamakodi, MD and CEO; and Mr. J. Sadagopan, CFO. Without further ado, I hand over the call to Dr. Kamakodi for his opening remarks, post which we can open the floor for Q&A. Thank you, and over to you, sir.

Good evening, everyone. Hearty welcome to all of you for this conference call to discuss the unaudited financial results of City Union Bank for the third quarter ended 31st December 2023. Board approved the results today, and I assume you all have received the copies of the results and the presentation. During the past 3 con calls, we had shared with you all the following expectations for the financial year '23, '24. We are aiming at 12 to 15 percentage growth for the year -- financial year '24, and the growth skewed towards year-end. We are working hard to achieve double-digit advance growth. We are working to accelerate proper implementation of the digital lending process initiated with the help of BCG, and we have already rolled out first phase of the automated loan underwriting process. It may take a few quarters to show benefits in our bottom line. Despite headwinds in the margin, base figures and growth, we expect we should be closing financial year '24 with a decent PAT growth, substantial reduction in NPA, improved coverage ratio and ROA close to our long-term average of 1.5%. Our recoveries more than the slippages, we expect the same to continue for remaining quarters, and our slippages will be back to the pre-COVID level. We will strengthen the leadership team to make organization future-ready with the digital, retail, et cetera, so that they will become the growth engine for the future and quarter. We are here -- we are, by and large, progressing on these lines, except the growth, which is also we have just started seeing a positive trend. With the implementation of the digital process, we have started seeing things turning positive in a phased manner. While most of our peers are achieving mid-teens growth in advances aided by growth in retail consumption lending, unsecured lending, personal lending, et cetera. As discussed earlier, we are not active in those areas. Post pandemic, the growth was settling during mid-financial year '22. When we compare December '22 with December '21, we had a terminal advance growth of 12 percentage and daily average advanced growth for the month of December to December was 14 percentage. Post-COVID, our concentration remained on gold loans, and we had grown by 34 percentage in gold loan segment in the same period. After regulatory observation on KCC agri loan in December '22, we had to degrow the KCC gold loan amounting to about INR 4,000 crores, starting from January 2023 by completely stopping new KCC loan, which stood at INR 229 crores as of 31st December 2023 from INR 4,000 crores as we discussed. During the corresponding period, our non-agri gold loan grew by 28 percentage or INR 1,200 crores. You may also remember about divergence issue last year. Because of these disturbances, our daily average advance growth started reducing from 12 to 14 percentage in December '22 to 3 to 4 percentage till September '23. We also started introduction of the digital lending processes. Now only we are seeing things settling. For the last 2 months from November, we are able to see INR 400-odd crore monthly credit growth turning up, which should translate into restoring 12 to 14 percentage annualized growth going forward. We hope that introduction and settling of digital lending processes should also support this growth. All other factors have settled well. The recoveries in NPA are increasing over and above the slippages resulting in reduction in the gross NPA, net NPA and the provision requirements. Hence, we are able to see decent PAT growth because of reduced credit cards, even though there are headwinds in growth and operating profit for us. Our PAT has grown by 16 percentage in Q3 financial year '24 and stood at INR 253 crores compared to INR 218 crore in Q3 financial year '23. The ROA for Q3 financial year '24 was 1.49 percentage compared to 1.34 percentage in Q3 financial year '23 and 1.52 for 9 months financial year '24, which is our long-term average. The PAT for 9 months financial year '24 is INR 761 crores and we hope to cross 4-digit PAT figure for financial year '24 as said during our earlier con calls for the first time. Our annualized slippage ratio for Q3 has come down to 1.7 percentage in Q3 financial year '24 from the peak of 5.56 percentage annualized in Q4 financial year '20. It has also reduced from 2.06 percentage in Q2 financial year '24, showing sequential decrease and coming closer to pre-COVID level. The slippage for Q3 financial year '24 is INR 187 crores while total recoveries made is INR 289 crores, comprising of INR 224 crores from live NPA accounts and INR 65 crores from the technically written-off accounts. As said in our last con call, live recovery has surpassed the live slippage in the current quarter as well. We expect this trend to continue in the coming quarters also. The gross NPA declined to 4.47 percentage in Q3 financial year '24 as compared to 4.66 percentage in Q2 financial year '24 and 4.91 percentage in Q1 financial year '24 showing sequential decrease. The net NPA declined to INR 941 crores as on 31st December 2023 and is at 2.19 percentage for Q3 financial year '24 compared to 2.67 percentage in Q3 financial year '23. The net NPA is also decreasing trend in the current financial year, that is, 2.51 percentage in Q1 FY '24, 2.34% in Q2 FY '24 and 2.19 percentage in Q3 financial year '24. Our yield on advances for Q3 financial year '24 stood at 9.62 percentage compared to 9.16 percentage in the corresponding quarter last year. If we factor onetime interest reversal of around INR 25 crores from the -- for the nonperforming FITL loans, that is funded interest term loans, the yield would have been 9.83 percentage for Q3 financial year '24. Our NIM for the current quarter is at 3.5 percentage and for 9 months financial year '24 is at 3.63 percentage. If we factor the above one-off item, our net interest margin for the third quarter would have been 3.67 percentage for the Q3 financial year '24 and 3.69 percentage for the 9 months financial year '24. Our cost-to-income ratio for Q3 financial year '24 is at 48.64 percentage and the same is at 45.65 percentage for 9 months financial year '24. As said in our earlier con call, the cost-to-income ratio will be at elevated level due to the costs involved in the automation process, and it will come back to the 40 to 45 percentage range post completion of the same. So far, we have opened 20 branches in this financial year, taking our total number of branches to 772. By the financial year-end -- financial year 2024, we are planning to open our 800th branch. The process of shorter -- the strengthening the leadership term is in advanced stage. The first set of senior team members are joining in February, that is this month soon. They will be contributing to strengthen our capabilities in digital lending, retail, data analytics, et cetera. Before the next quarter results, most of them would have joined our bank. The details, we will be in a position to share with you in the next annual con call. To sum up, we should be achieving the 4-digit PAT for financial year '24 for the first time. Our NPA slippages have come down significantly and the live NPA recoveries have surpassed live slippages. Hence, going forward, we are on the right track of getting back to pre-COVID level of NPAs. Our performance level is by and large as per our numbers shared, except of our growth. For the past 2 months, we are seeing positive growth as per our expectation. And we expect the same will get better and better. The digital lending process is going as per the schedule, which will help in achieving the improved credit growth in the coming quarters. And ROAs are back to 1.5 percentage, which used to be our long-term average. And our net interest margin is also stable. Overall, with this opening remarks, I leave the forum for questions. We will -- over to you all.

[Operator Instructions] The first question is from the line of Mona Khetan from Dolat Capital.

So my first question is on growth. So if I got it right from your opening remarks, you're saying that guidance for FY '24 has been maintained at 12% to 14%.

No, I don't think we will be able to cross double digit. We are -- hopefully, we should be getting closer to the double digit.

Okay. Got that. And secondly, you mentioned about this FITL impact, which hurt your yields in Q3. So could you just elaborate a bit what exactly has happened here? And how that has resulted in interest reversal?

See, the FITL is, let's say, the facility which was given to the loan when the restructuring was done during the COVID. This 25 -- I mean, the FITL is nothing but, let's say, for you are giving funded interest term loans as the part of the restructuring package. And this INR 25 crores reversal is from the interest income of those FITL given to those borrowers, and this is the portion of the interest for those restructured loans, which turned into NPA. So that INR 25 crores, let's say, on one side, like for -- this is the reversal from the interest income.

Got that, got that. Okay. Because of some restructured book turning into NPA. Got it, sir. I'll come back in the queue.

The next question is from the line of Mohit Jain from Tara Capital Partners.

I have a further question on the growth guidance that you're talking about. I think you said we will be somewhere in near to double digit. So that means that we have to effectively get a growth rate of 8% to 9% in this quarter, which seems very difficult and which seems very optimistic considering the fact that past 3 quarters, it has been a negative growth to a very low single-digit growth of 2% to 3%. So what makes us optimistic about achieving that 9% -- or 8%, 9% growth also? And how has been the progress in the month of January so as to get in comfort on this number?

See, the -- you are right in the sense that if you had tried to see our fourth quarter growth in the past, so we typically used to have about INR 2,200 crores to INR 2,400 crores, say, for example, our highest was in '21, '22 fourth quarter when we had INR 2,768 crores. And we had earlier 2 years lower, but before that and all about INR 2,428 crores and INR 2,311 crores and things like that. The -- as you said, the point is that it is really -- it may look optimistic only and I will not be in a position to assure everything. But what I can definitely tell you is that 2, 3 things which are, let's say, happening now, which has to support us. One is that whatever unwinding of KCC book on gold loan as discussed, it is by and large over. So we should be seeing some amount of growth back in the gold loan. The first phase of automated lending for less than INR 3 crores is by and large through, which would also support. See, basically, now as we had discussed in the past, let's say, there were -- during the COVID and also when we had, let's say, multiple headwinds, let's say, from various quarters, we are setting one piece after the other back on track and we are able to do that without basically compromising on the overall ROA and PAT. So the -- so our levers now currently are -- which are favorable are the NPA slippages and recovery. With that, we are managing our profitability growth. At the same time, the challenges in the growth are getting addressed one after the other. We are trying our best to have everything together. I mean we have to see that in that way only. And we are putting our best effort to achieve all these pieces together. And as of now, like we will see as it comes. But we are able to see, particularly for the last 2 months, the average, let's say, credit growth and all is coming back to about 1 percentage per month and things like that, which should accelerate because in these last 2 quarters, the complete unwinding of gold loan was not over. So keeping all these things into account, we are working. We are trying to pass this period without ensuring -- I mean, to ensure the profitability and the return metrics are properly maintained. At the same time, before we exhaust these levers, growth is also back when we should start seeing the NII growth and operating profit growth.

Sir, just one thing. Actually, in Q2 also, we had some guidance of a double digit, I think, 10% to 14%. And in between, there were some media article, which said that the growth is going to come down to a very low single digit of 1% or 2%. But I think the company clarifies that we are sticking back to the original guidance. And I think that clarification came somewhere in the mid of December. So if -- in December, it was being said that 12% to 14% is the original to which we are sticking. And off these last 2 months, you are saying 1% is the growth rate in last month, it is happening. So could you give the overall guidance, sir?

See, the point which when I started, I said I compiled all the points which were given in the earlier con calls. So first con call, we had -- we expected 12 to 14 percentage and then we had to moderate it to, let's say, double digit. And some of the things, whatever we expected, although they are directionally positive, we are yet to get the full grip and all. Now we are seeing some amount of positive steps, particularly from all directions wherever we had a negative impact. And we are putting our best effort to take it forward. So till that -- before we achieve the, let's say, growth, fortunately, our other levers are working even though we had, let's say, headwinds in terms of the growth. Other levers, particularly on the, let's say, the other quality front is helping us. That is why we are able to manage our PAT growth and moving forward. So the point is that until we get the full grip on the growth, we have sufficient, let's say, oil in the cylinders for the credit cost. So we will -- let's say, we are also waiting on putting our best effort. That's why I say these are all the things we told we are giving our best effort. Let us see how things move forward.

Okay. Okay, sir. And sir, just one follow-up [Audio Gap] you're targeting?

Mohit, sorry, we lost your audio. Can you repeat your question once again?

Yes, hello. Can you hear me?

Mohit, can you hear us?

Hello, can you hear me?

Yes, we can hear you now.

Yes. What is the deposit growth that we are targeting for the year?

We will have the deposit growth matching the, let's say, credit growth. We are not going very aggressive in deposit growth. We are balancing them. So we -- once we, let's say, stabilize all -- because we have our credit deposit ratio around 80 to 83 percentage and also since our own capital adequacy is above 20 percentage, we have adequate -- let's say, the deposit growth will not hamper the advances growth anytime sooner. So we are -- we will manage -- we'll start working out on the deposit growth once we are able to fix this.

[Operator Instructions] The next question is from the line of Franklin Moraes from Equentis Wealth Advisory.

So could you please maybe elaborate on this Y-o-Y growth? I was not very clear because at the start, you mentioned 12% to 15%, so does that hold true?

No. See, the -- to start with, I recollected what and all we discussed during the earlier 3 conference calls. At the beginning, we expected the growth rate to be between 12 and 14 percentage, and we thought it should be at least double digit. And now, perhaps we told, we are not giving you any expected number and all. So we are putting our best effort to, let's say, get as close as possible to the double-digit growth. The things which are, let's say, go positive for us is the gold loan degrowth of INR 4,000 crores in KCC segment, which happened last year. That book is almost [ unknown. ] And then the first stage of digital lending process has started. And we also have started seeing about, let's say, INR 400-odd crore growth in the last couple of months. So the things have to progressively get better and better, is what I have told for the future.

Yes. And so how long will it take for you to come back to that 12% to 15% guidance?

Probably, we will give you some -- let's say, the exact number once we get the total grip in the fourth quarter when we meet during the next con call.

Okay. Sir, and also, you had guided on lower NPAs by March '24. So does that hold true? And is there any visibility beyond that as well?

Yes. As of now, let's say, as I told you, the -- in fact, we told in the earlier con calls, we get the benefit of about not less than -- for both last year and also for this year, not less than about INR 200 crore benefit, let's say, compared to the previous year in credit cost because of the lower slippages, vis-a-vis the recovery and all. We are able to see that point visible for a few more quarters at least. Now as I told in the earlier con call and all, we used to operate, let's say, in the past and all normally about 6 to 8 percentage SMA 2 of which about 1/3 -- about 2 percentage will become NPA and all. But now post this, let's say, the cleanup which happened because of the -- across all fronts, we are able to see the -- now the slippages have come back -- come to less than 2 percentage and also the SMA 2 numbers and all, it was in 2-ish percentage, perhaps lowest to whatever we have dealt in the past. So these numbers are giving us confidence that the -- both, let's say, the lower slippages and higher recoveries, which are happening, we'll be able to protect our PAT growth and also lowering of our NPA as we move forward.

Yes. So what I was trying to understand is this improvement, is it -- last only for 1 quarter, wherein we see better recoveries and upgrades? Or could there be more?

Yes, at least for not less done 3, 4 quarters.

3, 4, quarters.

The next question is from the line of Rajkumar Vaidyanathan, individual investor.

I have a couple of questions. The first question is on the recent floods in Tamil Nadu, so I just want to know what is the impact of that in terms of the stress. And the second question is...

Please repeat the first question.

Yes. The first question is on the recent floods in Tamil Nadu, the state where your bank has a significant presence. I just want to know what is the impact in the current quarter? Or do you expect any stress in the upcoming quarter?

Very insignificant. In Thoothukudi floods, let's say, like at operating level, about 3, 4 branches could not function for about 2, 3 days and even water came in our couple of branches and all. Those sort of operational issues were there. Even in Chennai flood maybe there's, let's say, the extra couple of days of holidays were there. Apart from that, there was not much of impact. We don't expect any significant impact because of floods so far, which is material.

Okay. And sir, the second question is with -- I think we have seen the bond yields have started softening. So I just want to know what -- do we expect any uplift to the bottom line in the upcoming quarters?

Please repeat the question. Repeat the question, please?

No, I'm talking about the 10-year G-Sec bond yields have started softening today. After the budget, we see that the significant drop in all these, so just want to know what would be the impact or how much uplift we will get in the upcoming quarters?

So the -- let's say, both -- you will have some profit booking activities since the yields have increased significantly. The drop which has been seen today is only maybe 10, 15 percentage of the increase in yield that has happened in the last year or so. So if this trend continues, we may have, but I'm not sure to what extent this trend will continue, number one. Number two, from 1st of April 2024, the rules of, let's say, holding an HTM, the profit booking concepts and all are changing. If the yield decrease in the next year, I mean, in the -- under the current rule, you can book profit in the HTM up to 5 percentage. If it crosses 5 percentage, you have to disclose the mark-to-market. But under the new rule, you cannot make any sell beyond 5 percentage at all. So the -- yes, that's the, let's say, thing in that. So the profit opportunity, whatever you are seeing, as of now, let's say, the -- maybe like -- I won't say it will be very significant and all to book it. But if this trend continues, the profit booking opportunities will be there in the fourth quarter, but it cannot continue for the next quarter.

Next question is from the line of [ Arul Selvan, Independent Advisors Private Limited ].

Yes. Great. I just wanted to understand a little bit more about the changes that have been implemented to bring about digital lending. You were talking about the project that was advised by BCG, right? Could you just give us a little bit more color on what kind of changes have been -- what kind of initiatives have been taken by the bank so far?

See the -- as I told you, the first phase of the project is over. In that, let's say, all the, let's say, facilities, which are less than INR 3 crores, now the turnaround time for the customers could be as low as one day, probably 70, 80 percentage of the things, the turnaround time for giving in-principle sanction can happen within, let's say, 48 hours or so. Earlier, this entire process used to take weeks, if not months, number one. So this is going to make the customers to receive our decision for facilities, which are less than INR 3 crores. It may be, let's say, considered as good as, let's say, instantaneous. Now we have started our project of, let's say, enhancing this to INR 3 crores to INR 5 crores. So the INR 3 crores to INR 5 crores, let's say, the testing has already -- let's say, the parallel working has already started. Now what we are having is that we are both processing them manually and also through the system. So we will be going ahead with that for about 1 month, let's say, comparing the results of the both. And whatever tweaking that needs to be done on the parameters and all will be done in the due course. So by, let's say, in the next 1 month or so if everything works well, we will be in a position to give the in-principle sanction for all the, what you call, let's say, facilities less than INR 5 crores. The decision -- if all the data input and the supporting documents are given by the customers and uploaded, we will be able to give most of the cases on the same day, and maybe 80, 90 percentage of the cases in the next 48 hours. So this is for the turnaround time and the customer experience. And the second thing, what is happening is that, let's say, said, this will help us, let's say, based upon the past track record, let's say, NPA performances, lots of API integrations and all. Many of the parameters, which will be influencing an account -- the probability of default and all are now captured and the system will give the decisions based on the, let's say, these API integrations and parameter testing and all, and it will give a better measurement of probability of default. And -- let's say, it will be -- let's say, give a decision whether those proposals can be accepted as it is or which needs a manual checking or which should not be accepted at all, which is expected to continuously reduce the, let's say, probability of default of the portfolio, which will be -- you will take, let's say, a few quarters for that to stabilize. Overall, one, it is going to, number one, reduce the turnaround time and make the, let's say, customer experience much better. Number two, it will be, let's say, making the measurement of probability of default better and the decision -- aiding the decision-making in a much better manner. Third thing is that this will open up a lot of surplus capacity in both credit to sales and also processing and all, which will increase our capacity to meet more customers to source more and also to make our -- I mean, credit processing centers to take a better decision to render more quality work. So the customer experience part is immediate. It could be felt to be the customized immediately. So we have already started giving it for less than INR 3 crores. So in the next few weeks, it will be increased to INR 5 crores. And then, it will be increased up to INR 7.5 crores, which is given as the threshold for the retail by the regulator. So this is basically the crux of that entire thing, which is basically all the checking that had to be done manually and all, even our internal parameter, external parameters, those things get now automated and the turnaround time from, let's say, weeks, it gets reduced to hours.

Okay. Okay. That's great to hear. I was actually trying to understand whether this would impact -- this should have some sort of an impact on the core quality of the underwriting team. Would it aid the team or would it have no difference? Is there -- I'm trying to understand if the automation also includes a component, which affects the quality of the underwriting. Does that remain the same?

No, no. Absolutely, you have multiple impacts. One, as I said, let's say, the quality of turnaround time for the customer, number one. Number two, the quality of decision-making will be much better because the actual probability of default under the health of the proposal, the points which cannot be seen by the naked eyes in the manual processes and all are now easily now, let's say, added to the automation because of a lot of API integrations and things like that. So the quality of decision-making will improve. And the slippages will drastically come down as we move forward, which has already been visible from the, let's say, some of the banks which have gone into this path. So you are going to have a betterment in the tax, and you are also going to have your system getting more capacity to, let's say, process more proposal and source more proposal, let's say, to get the better growth with the same amount of capacity and also reduced slippages because of the better measurement of risk using the automated advanced tools.

Okay. That was very helpful, sir. My last question here is regarding the kind of segments in which you're planning on using these digital process. I know you've said as of now, it's below INR 3 crores. But is there any specific segments that you're specifically using right now?

See, basically, now we have the, let's say, the first -- the immediate requirement, our core bread winner is the, let's say, MSME loans, that was the first product to go online for less than INR 3 crores, then non-MSME loans for less than INR 3 crores, then MSME and non-MSME for less than INR 5 crores, then to INR 7 crores -- INR 7.5 crores. Then the -- we also need to build up strength for, let's say, secured retail products like loan against properties, housing loans and maybe over a period of time for the unsecured portion also. As we have told in the last con call, over the next 5 years or so, we may be having some amount of -- a small amount of unsecured portfolio in our portfolio and all, for which things have to start in a small way where you need the sort of automation and all, but as of now, on the immediate future, you don't have got any major changes in the overall composition. So we are introducing these digital lending processes, let's say, for all the exposures less than INR 7.5 crores, in those segments where we are -- which are our breadwinners currently.

Next question is from the line of Karthik from [ Pinpoint ] Asset Management.

Sir, just wanted to get a sense on how is the underlying demand for credit in your core segment, which is MSME, because you had mentioned in Q2 that finally, after several quarters, we are starting to see underlying credit demand improving. And clearly, the fact that loan growth has been sluggish in this quarter means that you are still getting your system ready in order to disburse. So just wanted to get a sense on how much of this sluggish loan growth is a function of your readiness and how much of it is on account of sluggish credit demand?

See the -- basically, like we are seeing -- the things are getting better and better. Let's say, where and all, we are seeing betterment and where and all we are not seeing. I will just give you in 2, 3 sentences. Let's say, one item where we are seeing significant, let's say, request from the MSME borrowers is, let's say, for example, the introduction of, let's say, solar now -- we used to have a lot of requests for windmill in the past. Now for renewable energy, solar, it is going very high. If you look into the, let's say, whether there is a capacity expansion in the -- whether request -- a lot of requests are coming for the capacity expansion in the usual MSME front. It has improved, but I will not say that it has reached the peak level or something extraordinary. So it was very dull, but now we have started seeing things improving on that direction also. One of the things which is now, let's say, not working so well is that the textile export sector from our part, which used to be a significant portion of maybe 15, 20 percentage of the overall capacity here. There is a sluggishness over there. And hence, that particular sector is also now made available to the domestic. And also, you had the cotton prices moving up and down and all, some sort of, let's say -- it was a moderate level of incremental growth, and there is also some amount of reduction in the cash credit utilization and all. But nevertheless, overall, let's say, activity level and all are not gloomy. They are improving, let's say, stage by stage in a phased manner and the proposals, which have started coming and all, let's say, during the COVID, we had literally, shut us from onboarding of the new customers on credit and all. But the things -- the credit proposal requests and other things have, let's say, started getting back to the pre-COVID level, and it is showing improvement. At the same time, we had our own issues, which we have discussed at length and all. So all the issues are settling down. So we feel there has to be a firm upward tick as we move forward.

Sir, leave aside the next quarter, because I think not one of the few banks that has the luxury of a comfortable LDR and your deposit growth is exceeding loan growth. So if you were to look out, say, the next 12 or 18 months, that this entire BCG implementation will be up and running and the operating environment for some of the MSMEs that you are alluding to will improve. What kind of credit growth do you think in this new system or the new City Union that they are trying to build, the legacy that you're trying to lead behind? What kind of loan growth do you think this will support? Would you like to throw a number or...

See, this is one thing which we had been discussing for, let's say, multiple years. If you ask me clearly, my focus will be to, let's say, we have, let's say, from -- we used to operate at about 15, 16 percentage return on equity, which came down to 10 percentage during the, let's say, first year of COVID and improved steadily and currently, it is about a 13-odd percentage. My focus will be to, let's say -- in the next, let's say, 4 to 8 quarters to reach, let's say, growth rate of around, let's say, 16 to 17 percentage so that you increase your return on equity also around that level. So that -- for which we should be in a position to -- I mean, I will come back to your question on deposit later. So our product plough back profit should be in a position to take care of our growth, so that there is a sustainable growth rate is achieved and things are getting improved step by step, which we have demonstrated over a period of almost 2 decades. Coming to the deposits, we don't have any, let's say -- you have to -- what you have to assume is that the bottlenecks in deposits and bottlenecks in advances that used to happen alternately. And -- it's a cyclic thing. I mean, I don't think -- today, you feel the systemic deposit rate is low. Similarly, people say that the entire money is getting to the -- let's say, my SIP people are getting out of the deposit market and all, such things and all. It's the sort of -- if you ask the previous generation of -- I mean, my seniors and all, they used to say, let's say, about 25 years back and all, how much difficulty they had in mobilizing deposits. Nobody used to bother advance growth rate and the entire focus of the organization and each and every employee, people will be talking only about the deposit growth. This is something which will be happening on and off. It is now getting widely accepted that the average credit growth of the system will be between, let's say, around 15 percentage or so. Our, let's say, effort will be to, let's say, slightly exceed that and have, let's say, profitability metrics and return on equity and also the deposit growth rate. Matching that so that there will be a sustainable level of progress as we have done in the past, pre-COVID.

Next question is from the line of Rajat Jain, individual investor.

Actually, most of my questions have been answered. But just a couple of things. You said this cost to income has currently impacted due to this expense on account of BCG and digitization. So how long do we see that continuing for the next couple of quarters or so?

Yes, maximum.

Okay. And sir, since you spoke at length, spoke earlier about the implementation of the digital lending, INR 3 crores in the first phase, Phase 2 up to INR 5 crores and then going to INR 7.5 crores. So sir, if I look at in terms of number of loans, I mean, if I -- the number of loans which are up to INR 7.5 crores, which I presume would be a very large part of your loan book, right?

See, the -- yes, yes. Basically, how it works is that, let's say, the -- less than INR 7.5 crores roughly will work out about 60 to 70 percentage of our total loan book. But the numbers will change -- let's say, you will be having a significant number of proposals less than, let's say, INR 50 lakhs, INR 55 lakhs and things like that. You will not be able to, let's say, average it out by INR 7.5 crores or INR 5 crores and only this much number of proposals. That doesn't work that way.

Okay. So my point is that once you automate this process, I mean, you really create a lot of capacity, which would otherwise have been deployed in credit appraisal and site visits and so on and so forth, right, which would now be fully parameterized and automated.

Yes. Precisely, that was what I was telling.

But even with this new system, you will still have the site visit process and so on? Or you will fully go to the automated mode now?

See, the -- let's say, the -- we had a parallel run of, let's say, INR 3 crores -- less than INR 3 crores, both technical and also the, what you call, manual. Once we get a satisfactory thing, we are -- now we are moving on to the, let's say, decision-making through that. Parallelly, you will be having about maybe 15 to 20 percentage sampling that is continuously monitored to ensure that the system is not leaving any factor and all. So the -- on an ongoing basis, let's say, if you look into INR 5 crores to INR 7 crores, the digitization will be helping us with this decision. But I won't say that the entire outcome will be purely based on the 100 percentage automated. So it will be a combination of both input from the -- I mean the -- it will reduce the manual decision-making to a greater extent whenever the proposal is more than INR 5 crores and less than INR 7.5 crores. It will add a lot of value as we move forward in terms of, let's say, capacity creation and things like that and capacity to process more proposals and things like that.

Sir, just one last question. You said because the Kisan credit card and the gold loans came down from INR 4,000-odd crores, December '22 to about INR 250-odd crores this year. So if you take -- if you adjust for that, the growth in advances actually would have been -- what would the growth in advances have been had you not adjusted for those, that decrement?

Maybe, let's say -- for example, let's say, the -- at least -- even if we assume, let's say, 50 percentage of that if it had come for other products and all, at least another 5 percentage extra growth should have come for the calendar year '23.

Next question is from the line of Kunal from Emkay Global.

Sir, you had mentioned that there was a one-off item, which -- if you exclude that, your NIMs would have been 3.67% for Q3 FY '24. Can you please repeat that, what was the one-off thing?

Yes. See, basically, whenever you are, let's say, the give -- what you call, restructuring facility -- during the COVID restructuring facility, there is something called as funded interest term loans, which is, let's say, unserviced interested during the, what you call, when the standstill class was there and repayment and all were not happening. They were all given as funded interest term loans. So funded interest term loans, let's say -- now whenever they turn NPAs, that interest portion of about INR 25 crores had been reversed from the interest income now. I mean in earlier cases, normally, what will happen is that if an NPA -- if an account becomes NPA, you will be making provision after the operating profit. But since this FITL portion is the unserviced interest portion, normally, if an account becomes NPA, you always have the interest recognition on an accrual basis. So if 90 days norms are, let's say, applied and if an account becomes NPA, the unpaid interest will get reversed. Here in that FITL portion when an, let's say, account becomes NPA, for other regular -- basically, this FITL portion is unserviced interest and hence, it has to be reversed from the, let's say, interest income, so -- which amounts to one-off item of INR 25 crores. If you add that, as I said, the net interest margin would have been higher.

Next question is from the line of Chintan Shah from ICICI Securities.

Sir, first question on the growth guidance. So if we look for FY '25, so like you mentioned, we are seeing a growth of 1% -- now around 1% per month. For FY '25, can we assume a growth rate in double digit like around 12% or 15% odd. Is that a reasonable assumption, FY '25?

See, it appears now -- as of now, like that. Similarly, it appeared like that in some of the earlier occasions, but some amount of deviations happened. So we are, let's say, having things look with some amount of positivity now. So let me commit the firm number as we get closer and have at least a couple of months or a couple of more quarters of firm performance and then let's just take it. So whatever I'm going to assume is that, okay. Now I'm having sufficient, let's say, oil in the cylinders to fire for the profitability and return growth from my asset quality and credit cost upfront. I will stabilize this with this, and we are putting our best efforts to maximize our growth rate and the situations are favorable on all these things. Once we get a firm put on the -- after we demonstrate for at least 1 or 2 quarters, I will commit you a firm number. But as of now, it appears that all the factors are, let's say, favorable for going towards that 1 percentage plus for every month, which totaled to 13 to 14 percentage and all. We should be in a position to accelerate further once the other materials are also settling, which we are putting our best efforts and hard effort to get that in that direction.

Sure, sir. Just to add on that, if we assume like 15% loan growth for '25, so correspondingly, we would also need a similar kind of deposit growth, right, to meet the demand -- loan growth demand. So -- and currently, for this year, our deposit growth is roughly around flat on a YTD basis. And despite that, the cost of deposits, they have seen a massive spike. So how do we make sure we'll be able to raise even deposits of around 15% of Y-o-Y growth and the cost of deposits, how would that be impacted? Then would that also see a spike continuing? Or will that be stable? Any thoughts on that?

See, the -- always, we had seen multiple cycles when you have the deposit growth and advanced growth, they don't match each other. That's why I was giving about how it happened and the things and our earlier experience and all. What I can definitely tell you is that, let's say, the deposit growth should not be an impediment for the advances growth as we move forward, is what I'm trying to say. I don't know whether you are -- I mean, you might have observed, we have about 87, 88 percentage of our deposits either from the CASA or from the pure retail deposits as per the definition of the RBI. So the -- we don't feel that we will be having the deposit growth as an impediment for the credit growth, which we have to work out and take it forward. And we are not -- let's say, we are managing the deposit growth so that there is no negative carry. And by and large, things are matching and managing. We should be able to have that, which we don't expect that to be an impediment.

Sure, sir. I just want to ask -- I was just trying to understand that. So assuming that we have a decent growth in FY '25, so then our margins should not be a [ dampener ] in any case, by way of yield on advances or by way of cost of deposits. If there is a spike in our cost of deposits or the decline in the yields, and again, the margins will be under pressure. So that should -- is that the case? Or can that be a case or not?

See, the issue is that like it will not be as material as you are expecting now. Some amount of, let's say, the -- if you have seen the things in the past, we have managed this movement of cost of deposits and our yield on advances in such a way that we are able to have a smoother thing. Ultimately, the ROA profile will not get affected. I mean, the -- let's say, whether the -- it will be moving in a band. Let's say, for example, we said we will be moving in a plus or minus 10 percentage band. And if you remove this one-off portion, we are very well within that, and we don't expect that -- I mean, as we have declared -- as we have explained always, the margins will expand during an interest rate -- increasing interest rate scenario, and there will be a, let's say, smaller contraction during the decreasing interest rate scenario till your term deposits are repriced. So some amount of minor, let's say, aberration will be there. But we have -- you might have seen that in the last 50 quarters of our bank, the net interest margin had been in a small band, which you might have seen, maybe above 4 percentage for about 3, 4 quarters, which was an aberration. Apart from that, the current level of whatever you are seeing, we don't see any major impact because of this.

And just one last question from my end. Just a data keeping question. Sir, what would be the total provision on the restructured portfolio, which we have of around INR 1,000 crores?

It should be about 10 percentage at an average INR 100 crores. It will be -- the exact numbers probably, you may call our, let's say, CFO, Jayaraman, that number should be that, 10 percentage is what is needed.

Sure, sir. And sir, we have made some contingent provisions during the quarter. So what would be that regarding any specific or it is a general practice you have been following?

It's a general thing, let's say, which we -- depending upon the situation at that point of time, we take a call.

Okay. And sir, COD actually, the cost of deposits during the quarter has seen a steep hike. So there are no one-offs to that, right? It's just normal 16 months COD...

It is a normal thing. And almost to that proportion, the yield has also increased. If you take out this one-off thing, the similar amount of, let' say -- that's why the margins and all also have hold up.

Chintan, sorry to interrupt you, request to come back for a follow-up question. [Operator Instructions] The next question is from the line of [ Neel Mehta from Investor Capital ].

So post the divergence report by the RBI last year, have there been any subsequent comments in general on the bank systems or the way the business model is being done in the course of the RBI annual audit?

See, the -- whatever divergence we had was for the audit for the date 31st March 2022, which is over. Further, we had 31st March 2023, the -- there was no disclosure needed, which we said, I think, along with our second quarter results or so. And there was an observation on, let's say, recognition of, let's say, events happening post balance sheet date, which we disclosed during the first quarter result for the 30th June. All those issues are now behind us and no more thing is pending on that, and things have come back to the normalcy.

Got it, sir. And secondly, we are hearing the regulator commenting on the business models of banks increasing, especially the -- said that banks that have higher geographic concentration or product concentration that they have been giving these 2 sort of...

Pardon, please repeat the question?

Sir, we are seeing the RBI commenting increasingly on the business models of bank and considering our bank is geographically concentrated and in terms of product concentration also, we probably have [ 10 ] product that accounts for most of our book. Have we received any feedback from the regulator to sort of diversify our business, not just in terms of geography outside of Tamil Nadu, but also in terms of the product mix, which is currently heavily skewed towards MSME and trade loans?

We have not heard anything like what you are saying so far. But it is an ongoing exercise. Every year, all the -- all these things are looked into. And we receive feedback and we take required post correction on an ongoing basis. And it happens every year, it is not something now. This used to be sort of thing on concentration and all, that's why we have, let's say, the [indiscernible] exposure. What is that -- let's say, single largest exposure, how we are looking into, all these things are, let's say, scrutinized and commented always. And for which we have to continuously work to ensure that, let's say, everything is proper and taken care in a proper fashion.

So no specific directions from the RBI basically on this side?

No.

Next question is from the line of Punit from Macquarie Research.

Sir, just one data keeping on the digital transformation front, the thing we are working on BCG. I think you mentioned on the call it is done or it is going to start next month?

Which one?

On the digital transformation, saying that you're working with BCG when you are aligning your systems?

Yes, this is work in process. First phase of, let's say, proposals less than INR 3 crores is already online fully. Things have started for INR 3 crores to INR 5 crores. And once that settles, the INR 5 crores to INR 7.5 crores will start on stages.

So when do we expect the entire phases to complete?

It will go up to June.

Okay. Okay. got it. So one more thing on the KCC book, that is the agri gold loan book, it's around 13% of your book. You mentioned that you have stopped like there would not be any unwinding. I think the unwinding should have stopped a couple of quarters ago because we had mentioned that all our documents and classification is clear now and there is no issue from the regulator. So am I getting this understanding wrong or if you could elaborate on that, that why now we have been declining the book?

No, no. We have not restarted that product. So once we heard from them because, let's say, it is something like for which the interest subvention has to come from the Government of India. So there are, let's say, the points came during the discussion and all, which we had to do an audit. We have to submit to that, and there was some discrepancy about INR 30 crores, INR 40 crores or something like that discrepancy and all in overall income was there. So we observed all these things, and we did not restart that process. We are evaluating the -- once we get the comfort that we will be able to comply fully and all our processes are proper so that there will not be any issue in the future, we will be restarting that. So during that process, we had to unwind that entire portfolio.

Lastly, on the margin front, you said that the margins will be -- margins, if the restructured book has not been reversed, the FITL reversal that you have undertaken of INR 25 crores, it would have been around 3.63%, right?

Yes. That's what we told.

Next question is from the line of Sagar from Anand Rathi.

Just one thing from my side, if you could give out the SMA number, sir?

Which number?

SMA number, sir, SMA?

SMA 2 is about 2.3 percentage or something, 2.38%.

Okay. And SMA 1?

SMA 1 is 1.98%.

As there are no further questions, I will now hand the conference over to the management for closing comments.

Yes. Thank you all for attending, and things have started coming back on track. So we are able to, let's say, march towards probably a 4-digit profitability figure for the current year, perhaps for the first time in our history. So all the issues, whatever that came in our way during -- I mean, post COVID and financial year '22, '23 and all, all have been now, let's say, one by one is getting back on track. And the point whatever is for the growth, which we are trying to address and put our best efforts. Things have -- already we are able to see things coming -- turning positive step by step. And whatever remaining will also be getting solved over a period of time. If at all, you have any further question and all, as usual, you can get in touch with Mr. Raghuraman, who takes care of our investor relationship program or any person you have a contact and you are already being in touch with. So with these few words, I thank all of you and also thank AMBIT for arranging this conference. We hope all the issues are by and large over and we should see things getting better and better as we move forward and good days are ahead of us. Thank you all for the opportunity.