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Ladies and gentlemen, good day, and welcome to City Union Bank Q4 FY '24 Earnings Conference Call, hosted by AMBIT Capital. [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, sir.

Thank you, Sagar. Good evening, everyone, and thank you for joining the call. We have with us Dr. N. Kamakodi, Managing Director and Chief Executive Officer; Mr. R. Vijay, Executive President; and Mr. J. Sadagopan, Chief Financial Officer, to discuss fourth quarter earnings of City Union Bank. Without taking much time, I'll hand over the dais to Dr. N. Kamakodi for his opening remarks, and then 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 audited financial results of City Union Bank for the fourth quarter and year ended 31st March 2024. The Board approved the results today, and I'm sure you all have received the copies of the results and the presentation. I'm happy to announce that we have achieved 2 historical landmarks in this current financial year. We crossed INR 1 lakh crore of total business, and we also crossed INR 1,000 crores of PAT. Board has recommended a dividend of 150 percentage including 50 percentage special dividend for 120th year. Before getting into the financial results, I would like to inform you about the key changes in our Board and senior management position. Our nonexecutive part-time Chairman, Mr. M. Narayanan had retired from the Board on 3rd May 2024. He had served in our Board for 8 years in various capacities. With effect from May 4, 2024, Shri G. Mahalingam, our Director has taken charge as the Nonexecutive Chairman. Shri G. Mahalingam had over 3 decades of career with RBI reaching the position of Executive Director and also had a 5-year stint with SEBI as whole-time member. He joined our Board as an independent director on July 2022. On senior management side, Shri. R. Vijay Anandh has joined our bank as Executive President in March 2024. He is having more than 25 years of banking experience, covering retail banking, risk management, portfolio analysis, credit appraisals, recoveries, legal, collections and the due diligence. The Board has recommended his appointment as full-time director, which is under the consideration of RBI and about 10 executives in the rank of AGM and above have joined our bank recently to strengthen the senior and the top management. They will be strengthening our capabilities in retail, analytics, credit, operations, et cetera. In our Q4 2023 last year results call, we had said the following things for financial year '24. We said though there could be headwinds in margin as well as base figure growth, we expect that we should be closing the financial year '24 with a decent PAT growth, substantial reduction in the net NPA, improved coverage ratio and ROA close to our long-term average of 1.5 percentage. Our performance for the financial year '24 is by and large as per the forecast we shared with you during the last year. Further to that, during our Q3 con call, we had shared with you the following things that we should be achieving our 4-digit PAT growth -- PAT for our financial year '24 for the first time. Our NPA slippages had come down significantly and live NPA recoveries had surpassed the live slippages and hence, going forward, we are on the right track in getting back to our pre-COVID level slippages. The -- we also said that the digital lending process was going as per the schedule. The implementation was going as per the schedule, which will help us in achieving improved credit growth in the coming quarters. We also said the ROAs are back to 1.5 percentage plus, which used to be our long-term average and net interest margin is also stable. Overall, our performance in Q4 is as per the expectation. Also the whole financial year is as per the expectations we shared with you all during the earlier conference calls. We had crossed our 4-digit PAT figure for the first time in our history for the whole year, financial year '23-'24. Our PAT stood at INR 1,016 crores registering an 8 percentage growth compared to the last year. For Q4 financial year '24, we had recorded a PAT of INR 255 crores with a growth of 17 percentage compared to the Q4 financial year '23. We had crossed 1 lakh -- landmark of INR 1 lakh crore business, and our total business stood at INR 1,02,138 crores as on 31st March 2024. Our deposits stood at INR 55,657 crores, registering a 6 percentage growth, and our advances also improved by 6 percentage, INR 46,481 crores, on quarter-on-quarter basis compared to our Q3. During our last con call, we had detailed discussion about the degrowth of KCC loan and other issues leading to the reduction in the daily average advances growth and all. With improved credit growth in the last quarter, the daily average advance growth is showing improvement. And we're getting back on track in the -- we expect that as we move forward. The total slippage for FY, financial year, '24 is INR 1,013 crores as against INR 1,276 crores in the financial year '23. The total recoveries made is INR 1,031 crores, comprising of INR 816 crores from live NPA accounts and INR 215 crores from the technically written-off accounts. For the current year -- current quarter, the total slippage is INR 219 crores while the total recoveries is INR 275 crores, comprising of INR 233 crores from live NPA accounts and INR 42 crores from the technically written-off accounts. As said in the last con call, the live recovery has surpassed the live slippage in the current quarter as well. The trend of recoveries over and above the slippages had helped us to reduce our gross and net NPA numbers. The gross NPA declined to 3.99 percentage in -- as on 31st March 2024, compared to 4.47 percentage as on Q3 financial '24 and 4.91 percentage as on, let's say, Q1 financial year '24, showing sequential decrease. The net NPA declined to 1.97 percentage as on 31st March 2024, compared to 2.95 percentage on the corresponding debt on the last year. Our gross and net NPA had reduced for 3 consecutive quarters, and our net NPA had come below the 2 percentage mark. Also, our net credit cost has significantly decreased to 0.24 percentage for the financial year '24 compared to 0.90 percentage in the financial year '23. Overall, SMA 2 numbers to the total advances as on 31st March 2024, also stands at 2.08 percentage, including restructure and ECLGS like accounts also. As we have onboarded 6 insurance companies covering life, general and nonlife insurance companies during the financial year 2023, our insurance income contribution has also doubled and stood at INR 55 crores in the financial year '24 compared to about INR 27 crores in the financial year '23. We expect a significant growth in the current financial year also. ROA for financial year '24 stood at 1.52 percentage for financial year '23-'24 against 1.46 percentage last year. Our yield on advances for our Q4 financial year '24 stands at 9.83 percentage compared to 9.31 percentage in the corresponding quarter last year. The full financial year, our yield on advances is at 9.72 percentage against 9.23 percentage in financial year 2022-'23. And our NIM in the current quarter is 3.66 percentage and for the financial year, '23/'24 is at 3.65 percentage. Our cost-to-income ratio for Q4 financial year '24 is 51.26 percentage and the same is at 47.06 percentage for the financial year '23-'24, which is as per our, let's say, the guidance number for the current financial year. As we are taking some cost upfront and the cost-to-income ratio will be slightly elevated like what we have now till the returns start coming for the investments we make. So there could be a few quarters when we have to, let's say, go through this before we're actually seeing the cost-to-income ratio coming down in the declining path. As stated in our last call, we have opened our 800th branch in Ayodhya. We're planning to open about 50 to 75 branches during the current financial year. The digital lending implementation for MSME is reaching the last leg and should be through before the mid-June. Along with the MSME, digital lending model is being expanded to secured retail lending such as housing, LAP, micro LAP and all. Currently, we are doing that, and they should be completed before the end of Q1. With all the new digital initiatives together with the strengthened top and senior level management, we could see visibility on growth front going forward, and we will update you about our growth projection as and -- let's say, as we progress into the coming quarters in the current financial year. On asset quality front, we'll be continuing with the trend of reduced slippages coupled with the improved recovery for the current financial year also. We have restored our ROA to long-term average of 1.5 percentage plus, and it should continue. Our net interest margin continued to be stable and around the current level, maybe at the best 5 to 10 basis points this way or that way. We will be -- we will see the benefits of these digital lending processes in the coming quarters. Since we are taking the -- as I explained earlier, cost upfront our cost-to-income ratio will be slightly higher like now. And we should start seeing them coming down as we see the full benefits of the digital lending and also other initiatives that transpire growth to income and the cost-to-income ratio will also start to, let's say, coming down as we move forward into the future quarters. So to sum up, overall, things have very much come back on track. The -- we should be able to see improvement in, let's say, from the current level in every parameter as we move forward. By and large, things are taking a place -- shape at this point of time. With this brief background, I leave the, let's say, questions -- let's say, the open for question-and-answer session. Over to you all.

[Operator Instructions] The first question is from the line of Rajesh Mangal Agarwal from Rajesh Mangal & Company.

Sir, what is your projection estimation for this gross NPA, net NPA and ROA for financial year '24-'25?

Sir. We -- like if you had a chance to go through the last 3 years of our slippages per se, things are -- let's say, last year, it was close to INR 1,300 crores and about INR 250 crores to INR 300 crores reduction in the slippages has happened for the financial year '24-'25. We expect the, let's say, similar reduction in the slippage, maybe about INR 700 crores to INR 800 crores slippage we could be having for the current financial year. Going by this trend, our -- let's say, our current expectations on [indiscernible], our closing year net NPA -- let's say, even if you had a chance to go through our even pre-COVID level, we always used to maintain about 1.5 to 1.75 percentage net NPA was our, perhaps 4, 5 years of numbers even during the pre-COVID. We expect towards the end of the current year, we should be having between maybe around 1 to 1.25 or 1.25 percentage plus or minus should be our net NPA percentage for the current year. Other, let's say, gross NPAs and other things since they are all depending upon how much technical write-off you do. And other things, I think these 2 numbers will give you a broader idea on what you expect.

Okay. And what about the ROA, sir?

It should -- we are working to improve from whatever we have achieved so far to the next level.

[Operator Instructions] The next question is from the line of Manish Shah from Investor.

Sir, I wanted to ask about the growth, sir. Sir, what kind of growth are you seeing in this current year? Because last -- I think in the last 3, 4 quarters, you had mentioned that you will be coming back to that growth of 12% to 15%. Now as you have expanded the employees and all other costs, now when you are seeing that growth will come back, sir.

See, we wanted to put everything and wanted to achieve the figure of 12 to 15 years in the financial year, '24-'25 itself. Things did not go as per our plan. But we are putting our best effort to ensure that we are able to achieve those -- I mean, more than what we promised. That's why I specifically did not give any number for the current year. What we are currently doing is that on one year -- last year, if you had a chance to look into, during the COVID years and all, the improvement in the gold loan gave us a lot of boost. We had to go for some amount of degrowth and stable numbers, which also, let's say, multiple headwinds are there. Now as you said, we have already put people in place, both at the grassroot level and also on the management level. We have also, let's say, almost, let's say, established the sales vertical for, let's say, our core advances growth, which we had not done in the past. We have also started building the team for the retail vertical to start with the secured retail starting from the housing loan, LAP and things like that, as we discussed. We already have -- we are in the last leg of putting the digital lending process across all these segments, I mentioned over here. And all these things put together, they should be helping us to accelerate the growth to the next level. We are, let's say, working to put the pieces together. I will let's say commit you or I will give you a proper guidance or whatever, once we are showing a double-digit growth of the credit, which should happen in the coming quarters when we will be giving you the exact numbers. But the only thing is what we are assuring you is that we are putting in place required ingredients for growth both on our core MSME sector and also on the secured retail to start with, along with the -- your both feet on street and also on the middle and senior management, which should give us, let's say, decent growth as we progress. Unsecured retail front will start after we put in place all these things. Once we reach that, then we'll start them in a small way as we discussed in the previous quarters.

Sir, another question was about the other income and fee income. Sir, do you see that going up? And another thing was that how confident you were last in the last con call compared to this con call about the loan growth, which you are talking? Are you more confident in this con call compared to the last con call?

Yes, definitely, the figures themselves would have spoken to you. Let's say, much of the growth for the current year had happened in the fourth quarter. which is, let's say, if you look into the, let's say, sequentially in Q1, Q2, Q3 and all, the growth that has happened in Q4 is substantially more than them, and they have given us sufficient confidence to take things for fast forward. Yes, Q1 -- yes, I will complete. Q1 probably, we will be having a lull as in the past. But this year, we hope things should not be as lull as we had it in the earlier years and all, which the base effect itself should give us extra growth on that path. So we are definitely much more confident. And answering your question on the other income, for us, the other income -- the components of the other incomes usually come from the core fee income of your commission, exchange, brokerage, fees, insurance income and things like that. You have a write-back of written-off assets collection. You have profit booked from the treasury and other miscellaneous income. Now there is a headwind in the treasury income because of the interest rate movement and also changes in the, let's say, regulatory qualities on the let's say, Treasury, and the way you treat the HTM, how you, let's say, vouch the -- let's say, the treatment of Treasury itself has changed, that will have some amount of headwind. But ultimate to the ROA, they will not be making much of difference. The write-off of -- write-back of written-off recovery is definitely moving in a good thing. And as I told you, we could see significant growth in the insurance income and all compared to what we traditionally used to have, particularly from the multiple relationships that we have moved into. So we have headrooms, particularly in the Treasury front because of changes in the regulatory policies and also because of the part of interest rate cycle we are in. This is where we are.

Compare to last year, can you see that this year, our profit will grow by at least by 10%, 15%, possible?

For that only, we are working hard.

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

So I have a couple of questions. The first one is on the cost-to-income ratio. Now sequentially, it moved up from 48-odd percent to 51.2%. And in your opening remarks, you said that this is going to remain high for some time until the benefits of investments start flowing through. So how should we think about it? I mean should we assume that the exit rate, which is 51%, that is going to be the rate for at least FY '25. And then in FY '26, it starts tapering down. Is that how we should think about it?

See, the -- you may perhaps take 2 quarters to see income from the, let's say, new costs, which you have incurred. So some amount of moderation we should be seeing in the second half. So at overall level, you had a year as a whole about 47-odd percentage for the financial year overall. So the financial year '24-'25, we should be finishing somewhere in between the, let's say, the final quarter, 41 percentage and the 47 percentage whatever we had for the whole year is something which we see. So once the, let's say, income starts coming from these investments, this moderation should start.

So the first half is going to be around the exit rate. The second half is going to see some benefit. So net-net, you expect the overall year to be between 47% and 51% is what you're saying.

It is what which we foresee and keeping that in mind, we are also putting our best effort to achieve in this range.

Okay. And second question is, you obviously have refrained from giving any growth guidance at this point. And you mentioned that the ROAs are back to the steady state level of 1.5%. So my question to you is, given that cost ratios are going to be higher for a full year basis this year, are we going to maintain our ROAs at this level? And if yes, is that going to be driven by lower credit costs? Or do we have other levers to protect our ROAs at 1.5% odd level?

Exactly, as I told -- replied for one of the questions and given it's in the remarks, our endeavor is to improve the annual -- there could be quarterly operations as always. Our best efforts are, let's say, to ensure and see that the improvement in the ROA is seen as we progress even though we have higher level of cost-to-income ratio compared to our, let's say, at about 50, 51 percentage compared to whatever we had -- last year, we had only, I think, 38 to 40 percentage and all also we had in the earlier years. So some amount of increase in the cost-to-income ratio, we are taking now, including the let's say, the project for implementation of the digital lending and all going for incremental manpower and things like that, is with the expectation to achieve the let's say, improve the ROA. And once the productivity level comes back to the required level, there will be moderation in the cost-to-income ratio.

Sir, just to sort of clarify, for the full year, our ROA was 1.52%. So you are saying that for the financial year FY '25, it should only improve from this level despite the higher cost-to-income ratio. Is that correct?

This is what we are working for.

Okay. Understood. Understood. And just last question. You mentioned that your ROAs are back to a steady state level of 1.5%. But I see that your return on equity is about 13-odd percent and, historically, we have operated at return on equities higher than that. So how should we think about that going forward? Is this the yield in the new paradigm?

Yes. Now let's say, we look at the level in the sense that the higher -- the lower ROE is more because of the higher capital we are maintaining at this point of time. The -- let's say, once the growth engine kicks off and when we improve the ROAs, ROEs also need to automatically improve from the current level. The -- you have, let's say, 2 choices when you have a lower growth rate whether you give the excess dividend or you conserve the capital for the future growth. So we took the second option. Let's say, all our endeavor and all our focus is working step-by-step to ensure we get back to that, let's say, improved ROE along with improved ROA also.

Okay. And just last question from my side. So 2024 was obviously a year of repair wherein credit cost was one of the key parameters that we were working on. But now that they are sort of stabilizing, is it fair to say that 2025 is going to be a -- FY '25 is going to be a year of consolidation rather than growth, and growth and improvement in ROE and cost to income is more a second half FY '25 or FY '26 story and on the whole FY '25 remains a year of consolidation.

No, it is actually the other way. So '23 , let's say, '22-'23 and '23-'24 had been a year of consolidation when we did much of our repair. The repair process is, by and large, complete. And we are in the last leg of that. And we should be seeing the growth phase fixing in the financial year, '24-'25 as we move forward.

The next question is from the line of Mona Khetan from Dolat Capital.

So firstly, on this digital process, just wanted to double check. So essentially, all our MSME loans today up to INR 5 crores are digitally dispersed with that 48 hours or thereabout?

Yes. And we are in the process of, let's say, taking it to INR 7.5 crores, which is the RBI limit for the retail lending. Let's say, the -- maybe the 24 to 48 hours are at the best, we should be in a position to give that in 48 hours. You are right.

Got it. And secondly, on the margins. So last year, if you look at the overall margins at 3.6% or thereabout, it's way lower than what we have seen historically. And here on, while we are expecting asset quality to largely normalize, which means that the impact of interest reversals may not be there. I mean do you still expect that margins will remain at current levels? And does that imply that our overall yields are settling at much lower levels versus historically?

See, actually, as we have demonstrated in the earlier interest rate cycles, our margins used to expand in the increasing interest rate scenario and start coming down once it settles and in the decreasing interest rate scenario also. Now let's say, the reduction in the interest rate cycle is expected -- I mean, it was expected earlier, but the consensus is that it may get delayed by a couple of quarters or whatever it is. Expecting that decreasing interest rate scenario, let's say, we are under -- since the delay in reduction is also expected, we feel the interest rate will be, by and large, around the same number in the current year.

Okay. So the margin guidance of stable NIM in FY '25, assumes that this year, there may not be any decline in headline rates.

Yes. That is the -- we expect that could happen only in the fourth quarter or so, and the impact of that in the current financial year will be limited, is the assumption with which we are giving you this number.

Got it. But what I'm trying to also understand is when we look at historical margins versus today, if I look at, say, 7, 8 years of, plus 8 years of margins of yours versus today, they are probably settling at much lower levels. So is it fair to say that because of competitive intensity, we are seeing it overall yield through cycle settling at lower levels versus earlier?

I have explained this in, let's say, multiple con calls, let me explain one more time. See if you had a chance to look into our, let's say, last 50 quarters or so, at least for about 35 to 40 quarters, it used to settle between 3.4% and 3.7%. It was above 4 percentage for a handful of -- maybe about 8 to 10 quarters or so. But our long-term average had been between 3.4% and 3.7% only. When we had that increase -- I mean, actually, the -- therefore, our current net interest margin is, by and large, around our long-term average of, say, 52 -- 50 quarters or so. But just adding to you, we, in fact, I think last year in the -- either in the fourth quarter of financial year '23, or first quarter of financial year '24, in fact, we discussed. We -- in fact, we were, let's say, because of so many, let's say, developments, which were happening here on multiple fronts, we were, let's say, delaying, let's say, what you call to rate of -- passing on the rate of interest in, let's say, 2 rate hikes, which was, let's say, in fact, it was not done in the way it should have been, which probably, let's say, had an impact of about 15, 20 basis points or something like that, which is also a reason, which happened in the thing. And like as you said, because of, let's say, some interest rate reversals that happened, it also impacted. So taking into consideration everything we say the margin is by and large, reaching a stable level.

Got it, sir. And just one final clarification. So when I look at your gold book, Agri or otherwise, what percentage of this would be via the cash disbursal route as well?

See that issue doesn't come for a bank...

I understand. I'm just trying to understand, is it a substantial part when you look at your gold area.

It will be as per the -- what you call -- I think the -- across the board, cash dispersal can be about INR 40,000 to INR 50,000. See every gold loan account will be linked with the savings bank account, so the credit will be given in the savings bank account. They can immediately take the cash through the ATM instantly.

Okay. So from your end, the disbursal is all digital. Nothing is on the cash side.

Yes. Ultimately, maybe after 5 minutes, they will be converting it as the cash.

Right. But then it's digital from your side for most -- for almost 100% of your customers.

Almost. Almost.

The next question is from the line of Rohan Mandora from Equirus Securities.

Sir, just wanted to understand on the digital initiatives, among the retail products that we are planning to launch the home loan, LAP and auto loans. So what all segments would cover, it will be primarily focused on salaried or self-employed. Plus in the earlier discussion, you talked about a 48-hour disbursement tax for loans up to 7.5%. So is it from a new lead that gets generated, so once it is logged into the system till the disbursement we are talking about or it's post sanction. And if it's end-to-end, then like if you would just run through the process in terms of underwriting what all we are doing in the digital persistence.

See the first initial -- I mean, we made an internal calculation and evaluation, we could see about INR 7,000 crores of, let's say, the products like housing loan or LAP or other vehicle loans and all, our own customers have taken from the, let's say, other financial institutions and all, which will be the first segment which we tap. The second stage, it will be like our existing depositors and our existing customers who are going for a new loan on both housing loans and the LAP and the sort of retail loan, we will be -- they will be the next in line. The third segment will be for, let's say, new customers whom we are talking, and there will also be like appointment of what you call the DSAs and things like that and all, those things will start on a stage-by-stage basis. So it will be a combination of both salaried and self-employed depending upon the location and depending upon the -- yes, depending upon the product and the segmentation, which we do -- which we take based on the expected LGDs and things like that.

Sure. And sir, for the SME, MSME segment, like are we currently digitally underwriting as well?

Yes. Almost API integrations are over. That is the main purpose of the digitization per se. So many of the checks, which used to be happening through the manual and all have been connected to the digital process system.

Got it. And sir, what is the total quantum of technology-linked expenses that we are planning for FY '25 and '26.

See, already for the, let's say, last year, let's say, almost, you can say, 3 percentage cost-to-income ratio, incremental thing have come because of this investment in the, let's say, digital lending processes on both the software and other improved AMCs and other things for the technology side.

Sure. So this was less than 6% of total OpEx?

No, no. We already have, let's say, the investment there and this is additional investment in this increased cost-to-income ratio.

Sure. So on total OpEx level, what was be the total technology investment?

Yes. Leaving out the, what you call your -- what is your capital investment and what is your revenue investment and all, close to, let's say, INR 200 crores expenditure every year happens at an average for the last 2, 3 years on the technology thing, which work out to about 20 percentage of your PAT.

And sir, on the growth between Tamil Nadu and outside of Tamil Nadu, if you can share the loan and deposit growth numbers for FY '24, within Tamil Nadu and outside of Tamil Nadu?

The composition is there in the presentation. It's in the, let's say, Slide #43 where we have the percentage of the branches and percentage of the business is already given. As of now, our by and large, let's say, whatever growth we are achieving in the Tamil Nadu is at par with the overall average growth we are seeing.

Sure. Okay. So Tamil Nadu and outside Tamil Nadu, it's similar growth?

By and large, yes.

Sure, sure. And sir, lastly, what will be the quantum of loans linked to EBLR for us? Right now as of 4Q end?

55, 45.

55% linked to EBLR. Sure sir.

The next question is from the line of Sri Karthik Velamakanni from Investec.

Sir, the change in employee expenses for the quarter, is it a reflection of the new people that is hired in the top management? And is this the new run rate that we'll have to focus on?

See, it is because of 2 things. Let's say, earlier, we had what you call quarterly adjustment of dearness allowance. As we are moving into the CTC era, the -- what you call your DA adjustment was once done in for July, August, September quarter and now currently in the January, February, March also. This, plus the new employee additions are also together take care of this expenditure.

Got it. The second question is, the sequential credit growth is actually slightly better than what in general we've seen for the last few quarters. I know Q4 cannot be extrapolated for all the quarters, but why -- I'm just curious as to why you've refrained from giving any guidance because the asset quality issues are behind us, a lot of the operational issues are now stabilizing. So what is sort of stopping you from giving any guidance at all?

It's only because of one thing. Last year, we gave and we didn't achieve, so we didn't -- we don't want to cut a sorry figure. We will give, let's say, show the numbers, and then we will give you the, what you call, expectations.

Got it. Last question, what is our current LCR ratio? Or where are we sitting there in terms of a liquidity position?

See, we are at about 200 percentage plus and -- which is, I think, will be published shortly in that Pillar 3 disclosures and things like that. And there are certain, let's say, this is how we have a methodology of calculating the LCR right from the beginning of the introduction. And now, let's say, when we try to get why it is, let's say, different -- for different banks of the world in a varying level despite having a similar CASA percentage and things like that, looks like there are divergent practices across banks and -- which we are trying to -- let's -- it's going like this. Some banks are, let's say, treating all term deposits, let's say, liquid -- I mean retail. I mean there are multiple levels of things are there. We are now looking out for the, let's say, clarification and things like that. But as per the current, let's say, formula, which we had been practicing over a period of multiple years and which we passed multiple audits and inspections, our current numbers are once again 200 plus.

You're basically saying if you were to match it with some of the peer banks, it could be higher than 200 plus?

I don't know whether we have to match with them or they have to match with us, we don't know. What we have understood is that there are divergent practices, which are happening across multiple banks, which we are trying to get a grip.

The next question is from the line of Palak Shah from Elara Capital.

Yes. I have 2 questions on deposit growth this quarter has been 6% Q-o-Q. So what led to this growth? And how do we look at deposit growth going ahead? Also, my second question was the credit deposit ratio came in at 81%. What is the comfortable level of CD ratio?

See, on growth front, we have, like I answered in the earlier calls, let's say, you are definitely able to see substantial improvement in the Q4. Q1 normally you'll be having a lull, but much better than -- we should be having much better than what we had in the previous first quarters and all. But the exact number, whatever -- and we ask -- we have put in the people, the processes and all on track, the things should improve as we move forward. But the exact number, I'm refraining from committing because once we see numbers firming up, then we will be giving it to you. We are comfortable with the current CD ratio.

The next question is from the line of Rakesh Kumar from B&K Securities.

Quite good set of numbers with stable margin and negative net figures number. Sir, one question I had with respect to the recovery that we do on the technically return of loan. The pace, if we see on a year-on-year basis, it's a bit volatile. So if you can give some guidance that how this recovery pace is going to be in the next fiscal year, yes, that would be helpful, sir.

See, the fundamental item is, the recovery department honestly speaking, they don't care whether it is a written-off account or a live account. Their targets are, by and large, for the total number of -- total quantum of recovery. Whether if you, let's say, collect a return of account, you will be getting that in the other income and if you recover a live NPA, you will be getting benefit in the below the line by reduction of the, what you call, credit card, reduction in the provisioning. So holistically, we have, let's say, by and large, the total recovery in the current year is, let's say, comparable with the last year recovery. This year, probably, definitely, there will be improvement in the overall recovery. It is very difficult to exactly fix how much will be from the live and how much will be from the technically written-off account at the beginning of the first year itself. So that's why we, let's say, this is what we can say at this point of time. As you have seen, we had about INR 1,300 crores total recovery during the last year as a whole. We are working to improve that number beyond whatever we have achieved it during the last year. But how much will be from the live, how much will be from the technical written-off, I mean we have to leave it to the almighty. You might have, let's say, seen this year -- you may have -- let's say, there is a substantial reduction in the, let's say, rate of recovery this year. That's why you have your, what you call, operating profit level dent. At the same time, there is a substantial improvement in the live recovery and, hence, the credit cost has come down from 90 basis points to 24 basis points, ultimately contributing favorably for your overall ROA.

Understood sir. Sir, one question was with regards to the MCLR progression that happened during February '23 to November '23 in the past. So I was just looking at other regional bank in the same Tamil Nadu, regional private bank, so their cost of fund progression increase was broadly in line with what happened to our bank. But MCLR increase, there was a divergent trend that we saw during that period. So how do we like see now the MCLR increase from here on. So obviously, it will be based on the marginal cost. But at that time, we had a quite divergent trend actually, that time with other regional private bank. So how we are like thinking about that because that dented the margin trajectory for us as compared to the other bank quite a lot. So can we recoup that dent? Is there a possibility? And have you thought about it. So just some clarity if you can provide, sir?

Yes. See, ultimately, you look into the final yield on advances. By and large, those numbers are converging. Where the issue is even though there is, let's say, MCLR, let's say, the -- everything is getting adjusted in the risk premium, which is the function of final expectation of the ROE and things like that. The problem with us was like, let's say, about 1.5 years back, let's say, we -- in transmission of rates, we -- let's say, we should have done something more. We could not do that because we had issues with the gold loan. There are multiple issues which were haunting us at that point of time and we were, let's say, slightly behind in transmission of that rate, which created the -- some amount of dent, as I discussed with you earlier.

And sir, just last question to clarify, the EBLR, MCLR breakup is 55%, 45%. Correct, sir?

Yes.

The next question is from the line of M.B. Mahesh from Kotak Securities.

Three questions. One, on the loan book, has there been a reclassification in this quarter?

Yes. some reclassification based on the changes in the definition. See the main issue was, let's say, the MSME classification after the digital, it has been made 100 percentage in relation with the Udyam classification.

Okay. So that has reduced the MSME exposure and you have put that in other loans as well.

Yes.

Okay. And to answer a previous question, this quarter, we saw for the first time you have acquired loans in the current quarter of about INR 500 crores.

Which one?

If I look at the notes to account and #12, we've not seen...

Yes. Can you repeat the question?

#12, historically, we have never seen you acquiring loans this aggressively. Just trying to check as to in this...

What loan?

In notes to account, #12. You have acquired about INR 500 crores...

See, it should be INR 500 million or so.

Sorry, INR 500 million. Okay. Is this something which you've started new on this issue? Or is it business as usual disclosure.

No, no. See the 1 or 2 small deals we tried, maybe it could be one of them.

Okay. Just 2 other clarifications. One is on the changes in management that you had indicated earlier, can you just kind of highlight it once more what all have you done and what all will you be doing from here onwards?

See, basically, we -- let's say, if you look into the growth of the, let's say, banking sector and particularly even the regional banks, bulk of the -- significant portion of the incremental growth has happened through the retail, both secured and unsecured. Our policy so far has been that we are -- we were focusing only for the creation of business assets. So we had to make some fundamental changes in the way since the banking sector is changing with a firm view for the future. So, let's say, we have to -- we also need to build the skill sets, particularly be it in terms of the digital lending, be it in terms of the, what you call, retail, let's say, housing loans or LAP and other things, which will be, in future, are expected to be having a very important contribution in the growth and some of the, let's say, you need to also add skill sets in terms of the analytics, you need to add in terms of changes in the way, even in terms of accessing the information to the credit processing and all the things, which are changing, we felt the need of having, let's say, these sort of skill sets. And that's why you might have also seen, let's say, RBI said every bank should be having, let's say, another whole-time director. So we took all these things into our consideration, and we have, let's say, got a new person who has worked in this environment of digital lending processes for MSMEs, retail secured, retail unsecured and all these things. So that the new, let's say, capacities built in the, let's say, in our bank considering the future. So that's why -- and as you know, we never had the concept of sales at all in our DNA. For the first time, we have built the sales vertical for even the core businesses. sales vertical for the retail and all, for which we have identified the people at the senior level and building the team at the feet on street and all are in the processes partly complete. And it's expected to take some time before they also start giving you the results. So the process is on. This is the thing which is going over there. Unfortunately, we had one credit head, one Mr. Mahesh, your namesake. Unfortunately, he had to leave us because of some family consideration when he had to relocate to another city. But nevertheless, we have, as I told in the call, about 10 executives we have taken in various, what you call, cadres covering various skill sets. So the persons who will be in-charge of the MSME sales vertical has already joined. The person in-charge of retail sales vertical is in the process of joining. He's in the, what you call, the notice period with his -- serving his notice period with his earlier employer. The person who will be looking into the, let's say, analytics, we already have a DGM in-charge of the analytics with us. One more expert in analytics is expected to join. Other establishment in the, let's say, at various places on the field, the credit to meet the people and all to strengthen the sales process and all have already joined. So these are all the things which we -- as we spoke during the earlier con call, things are being set up, which would be giving the results sooner.

Just to clarify, Mr. Vijay Anandh has now moved to the Board. And will there be more people join -- will there be another person also joining the Board sometime soon?

See, Mr. Vijay Anandh, the approval has gone to RBI. He will join the Board immediately after getting the RBI's approval. Now he has joined as Executive President and the process of -- let's say, we are waiting for the RBI approval. The -- let's say, the Board is contemplating having, let's say, the one more whole-time Director and all. It is yet to take the call. And once the call is taken, the further process for RBI approval and all will start.

The next follow-up question is from the line of Rohan Mandora from Equirus Securities.

Just wanted to reconfirm the previous question on the query that you answered. Mr. Mahesh, who is heading the Head of Credit, he has left the bank. I think he had just joined in March '24. So I just wanted to understand that.

No, he joined our bank and he relocated from -- I mean, he was working in Mumbai and he came to Chennai. Now for family reasons, let's say, he had to relocate back to another city. So the -- today, only the -- I don't know whether the notification to the stock exchange is out because he conveyed and the Committee of Board, let's say, when I left for the con call, he was sitting with the -- I mean, just before that, they also wanted to check that. And once decision is taken, it will be communicated to the market.

Sure, sure. So, okay. So he's been with the bank for 2 months or so okay.

Yes, he didn't expect that. But unfortunately, like his family priorities had to take precedence.

Got it. Sir, second was that recently there was this government notification to make payments to MSME is 45 days. So just wanted to understand what would be the impact on the credit demand for our customer segments for the bank? Will we see a decline in requirement of working capital from the segment incrementally?

Definitely, the thing is we could see in the mixed way, the smaller entities returned the money and that utilization was coming down. And the larger industries where, let's say, a few of them, they were -- their utilization improved because they had to make payment to the MSME. And I think things have, by and large, settled. On a holistic basis, we had a reduction of utilization because of this. Even though we have not quantified the exact quantum that is definitely a reduction of utilization because many of them received their payment. But I think by and large, the things have stabilized on this.

Sure sir. And recently, like there is a lot of discussion around gold loans from the changes in terms of processes and other things from the regulator. So does it impact us in any way in terms of the way we process the gold loans?

No, not exactly. But anyway, we have taken clue from whatever, let's say, the concerns and all are expressed having multiple audits and all to ensure that things are safe. If you had a chance to look into in the -- let's say, in the last 10 years, the total amount we lost because of the purity of gold miscalculation and all, I don't think there will be more than even INR 1 crore or so. It's very negligible, even if you take a 10 years together.

Sure, sir. And then lastly, as the 1st of April, what would be our AFS reserve based on new guidance on investment book?

The difference in valuation was about INR 20 crore, understand.

So INR 20 crores positive contribution?

Yes, it is.

The next follow up question is from the line of Rajesh Mangal Agarwal from Rajesh Mangal & Company.

Sir, in Slide #21, the CASA ratio seems to be 30%, which is too less than the industry. What is the reason, sir?

It is our long-term trend. In fact, it is -- it has improved by about 7, 8 percentage in the last 3, 4 years and all. This is our model.

So we want to maintain this CASA ratio around 30%?

We always strive to improve that, but like particularly most of the regional banks, this is where the ultimate numbers are there.

But sir, I think we should improve this to...

Yes, the aspirations are always there. But with that aspirations only, we improved by that 4, 5 percentage recently, let us see.

The next question is from the line of Manish Shah who is an individual investor.

Sir, my question was regarding this -- after controlling all the nonperforming assets and everything, I think from now on, maybe this year, maybe there may be more consolidation of the technological and digital initiatives. And maybe next year, we can go for growth? Or do you think that you are seeing already green shoots of growth in this year itself?

See, the -- as I answered in one of the earlier calls, all the consolidation and things were over in financial year, let's say, '22-'23 and '23-'24. Maybe a few -- maybe 5, 10 percentage extra job maybe there -- pending job maybe there on the front. But this year, let's say, sooner than later, we should start. Once all these, let's say, the extra verticals whatever we have stabilized, start delivering results, we should be able to see things getting better.

Sir, after all these digital initiatives, do you think that your fee and other income should grow much faster than the previous years?

I don't expect the, let's say, all the fee income will substantially improve because of this digitization. As far as the digitization is for improving the efficiency, improving the tax and probably calculating the risk in a more sophisticated manner so that the credit cost is controlled. So I don't think that you will be having substantial thing. But at the same time, as we discussed at the beginning, during my opening remarks, we have seen substantial growth in the, let's say, insurance in the last year. We expect that there would be some incremental growth happening in that area, particularly in the lines of fee income.

Sir, in the last quarter, our other income and all that are very much down. So what is the reason for that sir?

So as I explained, our other income basically will comprise of 4, let's say, inputs. One from the commission exchange fees and all the core fee income, including insurance. The second is your, what you call, treasury profit. Third one is the write-back of your written-off assets and all other miscellaneous income put together. We had improvement in the insurance income. But the treasury income is not favorable because of the interest rate environment. And going forward, there will be some headwinds because of the changes in the treatment of the treasury by the regulatory policies. So there is a reduction in the recovery because of the technically written-off accounts. But as I told you, we focus on, let's say, what is the total recovery. If the recovery comes because of the live NPA, it will support the credit cost front by reduced incremental provisioning. And if it is coming as the recovery of technically written-off NPA, it will come as the other income front. So the -- since we had dent both in the other income and in the write-back of written-off assets and also on the treasury, this dent is there.

Sir, for the current year, that is FY '24-'25 already 2 months have passed April and May. Sir, have you seen the benefits of the digital initiatives we've taken in the last 2, 3 years?

Yes, definitely. We even started seeing in the, let's say, February, March. Our first quarter normally used to be lull. Even in this lull period, let's say, the inflow sanctions and all are happening, much better than what we used to see in the earlier first quarter.

The next question is from the line of Jai Mundhra from ICICI Securities.

Sir, I wanted to check on loan growth, right? So few things there. We had actually a drag from KCC gold loan portfolio. Has that portfolio run down in full? And have we introduced a new product that serves the same purpose?

Yes, the -- it has come down to the bottom and the incremental growth rates have started -- we have started seeing in a small way on a daily basis now.

Okay. So we have already bought other the new variants, right?

See, the KCC, we have closed. The rundown of the KCC is complete. And we are now booking purely on both, let's say, Agri gold loan and non-Agri gold loan.

Okay. But because of this, sir, can we tap the lost opportunity? Or this is still -- or you still need to introduce a new product to tap that opportunity?

We -- as of now, we have decided to keep quiet and not to venture out there. So we will evaluate and when we go for that, we will consider all options and we don't want to get into, let's say, any problem in the future, and that's why we are waiting for things to come to our terms.

Okay. Secondly, sir, on growth side, right, so we now have a new team hired laterally and they have also hired senior people under them. If you could talk about, sir, that -- which products would this new team start from? Because as you said that your regional peers, they have done slightly more aggressive on retail secured, unsecured, which City Union, as a philosophy, has restricted to MSME segment. So if you have any growth road map with this new team or the incremental team would be focusing on maybe the products and any milestone that you have?

Yes. Basically, like we have already started with the secured retail product. Unsecured, we will be setting it in a small way to test that and which will also be there taken subsequently. Meanwhile, I will leave the mic to our Executive President, Vijay Anandh, who is spearheading these products.

So we will be largely focusing on retail secured, home loans, affordable home loans, loan against property and micro LAP to start with. And eventually, once we have set the process, we are there with a good PAT and we can go back to the market, then we will look at retail unsecured business. So this is a dedicated structure, which will run this business. This will also have liabilities process strategy, and we will also have a DSA sourcing for this.

And how ready are you to introduce these products secured or you have already launched those products.

So we will start our booking from Q2. Our policies are getting up, and we are also getting our systems in place. We have a couple of more things to cover in terms of legal and technical processes, and we wanted to do it digital for LAP and home loans so that we go back to the best [ PAT ] in the market. So eventually, we are looking at end of Q2 for launching.

End of Q2, that is calendar year or financial year, sorry, just to be...

Financial year.

Okay. Financial year. So from September onwards, you start booking these products, right?

Yes, we should start booking from September.

Right. And -- okay. So -- and as you said it is a mix of branch and non-branch DSA-led product. Is that...

That will have liability [indiscernible] strategy, which is a branch, and we will also have the DSA sourcing.

Right. Okay. Sure. That is very helpful. And yes, so that is good. And any internal sort of, I mean, it may be too early to ask, but if you have any internal milestone in terms of portfolio by maybe 1 year, 2 year what kind of a portfolio quantum you want to build out of these new products?

Too early, sir. We will definitely come back once we are ready with this. It's too early.

Sure. Sure. Okay. And lastly, from Kamakodi, sir, on OpEx, right, so while you talked about on cost to income. But sir, in your sense, we have done around 16%, 17% OpEx growth this year on a full year basis. How should one look at the OpEx growth for maybe FY '25, sir?

See, I mean that's why I told it in the -- I mean, gave it in terms of the cost-to-income ratio. Ultimately, let's say, what we are focusing and working out for is that like your fourth quarter was 51 percentage. Year as a whole was 47 percentage. So our focus is to see the overall cost-to-income ratio for the financial year '24, '25 at between 47% to 51% or whatever. And that could be quarterly operations per se.

The next question is from the line of Gaurav Jani from Prabhudas Lilladher.

So firstly, you did mention about senior level hires working with Mr. Anandh. So if you could just give a brief background about from where would they have been hired? I mean not all -- I mean not specifying for each and every one, but just brief background about all of them as in, from where they have been hired and what's their experience?

See, basically, like you might have clearly seen, the gaps, whatever we have let's say, be it in terms of the digital or be it in terms of the retail business. Bulk of that, let's say, expertise is with the new generation banks. So whenever any, let's say, traditional private sector bank want to have a team so the hiring has to be from the, let's say, new generation banks those who had experience in the new generation banks are the, let's say, foreign banks and things like that. And when we do that, we also need to be conscious about the cultural compatibility with the, let's say, our existing team. So the bank being, let's say, you have -- for those people who are working for the southern states, there will be from the South and those who are recruited for the North, they will be from their respective states like that, we have worked out, and that is how the hiring is taking place. This is where -- how we are proceeding.

Sure. Can you give us a few examples of these new-gen banks, sir, if you can, I mean...

So, for example, you had KVB, so they got a team from Kotak and, let's say, Axis and other banks. You might have also seen the bank like Karnataka Bank, who is also in the process of building that team. So this is how things are going.

Sure. Appreciate that, Secondly, sir, on margins. So we ended the full year at 3.65, right, for the full year? And you did mention that you're looking at about 5 to 10 basis points plus/minus. My only issue is, sir, I mean, given that you would focus on retail secured plus, plus unsecured and largely retail. So how do you sort of ensure that you know margins on products could get in -- also the fact that 55% is EBLR and we are looking at a declining interest and interest rate environment for the next 1 or 2 years?

Yes, it's a continuous process. We have to be very careful in the incremental asset mix, the product-wise mix, product-wise return, the risk metrics and all. The measurement whatever we had been doing in, let's say, more unstructured way in the past, the things have to get back -- get into a structured mode. And the proper backup things are definitely underway. Ultimately, everything has to boil down to your ROA.

Understood. Understood. Sir, last question, I mean, although you did mention that you didn't want to give guidance right now. But I'm sure we're confident of a double-digit growth at least, right, for FY '25, I mean maybe early or maybe mid-double digits, but you are confident of a double-digit growth, right?

Yes, that is precisely what we are working to get that as quick as possible. And then only we will be in a position to accelerate.

The next question is from the line of Prashant Kumar from Sunidhi Securities.

Yes. So just to recheck, as you mentioned, cost to income will increase and it will be around 47% to 51% for current financial year. So just to understand what has been changed in the basic business model. And as per last con call, as you mentioned, 43% to 45% of guidance, so even though earlier, it was around 40% to 41%, 42%. So it is significantly moved up. And as we are going into the retail assets, so obviously, the cost will be higher, but I think so the income growth also will be higher. So is it -- I mean, how it will work to control the cost and -- if you can give some clarity, right?

Yes. As we have discussed in the -- I mean, during the earlier questions, there are basically 2 things happening. One, we have made investments in the technology and the investment in the people and build the teams, sales verticals and things like that, which has not been there in the past. So we are taking the cost upfront and there will be some more time before we get the return, and that's why, to start with, there will be increase in the, what you call, cost-to-income ratio. And the cost-to-income ratio has to moderate and start coming down when this incremental expenditure starts giving you the income. That is point number 1. Point number 2, there are 2 developments, I mean, particularly, one development and one derived thing, which is also responsible for this aberration in the cost-to-income account. One is that the changes in the treatment of the treasury, let's say, you will not be able to book profit from the treasury as we had been doing it in the -- doing in the past. So that is one thing, which is going to have, let's say, some impact on the other income front. Similarly, on the other income front, if you have more recoveries from the technically written-off accounts, it will help you to save your cost-to-income ratio because it is getting accounted in your income. And if it is -- the recovery is happening from the live accounts they will be helping you to, let's say, share your credit cost. But the ultimate impact on the ROA will be same, whether you recover from the technical written-off account or you recover from your live account. So these 2 things are, let's say, contributing for the increased cost-to-income ratio. And you are right in suggesting that once this incremental investment starts giving results, there will -- there has to be definitely moderation in the cost-to-income ratio stage by stage.

Okay. Okay. So is it fair to assume that FY '26 will reflect, I mean, to earlier guidance around 43% to 45% range?

No. As I told in the past, it should be in the range of, let's say, 47% to 51%. I mean 47% is our annual current cost-to-income ratio for the current year, and 51% is the -- sorry, last quarter. So for the year 2024-'25 has to be somewhere in between.

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

Thank you all for, let's say, coming for this conference call. But just to sum up, things are definitely showing improvement. The growth in the fourth quarter is definitely encouraging. Going forward, as I told already, the -- let's say, incremental capacities are being created for the sales verticals and also in technology in terms of digital lending and things like that, they should definitely substantially improve things as we go forward. We hope the financial year '24-'25 has to be substantially better, and we should be seeing the numbers as we progress. If you have any number-related query or any specific numbers, as usual, you can get in touch with Mr. Jayaraman, whose number is there in the presentation or Mr. Ragu whose number is also there in the presentation. And thank you all for joining us today. Thank you.