Lionheart Holdings Q1 FY2023 Earnings Call

Ladies and gentlemen, good day, and welcome to City Union Bank 1Q FY '23 Post Results Analyst Conference Call hosted by AMBIT Capital. Please note that this conference is being recorded. I now hand the conference over to Mr. Pratik Matkar from AMBIT Capital. Thank you, and over to you, sir.

Good evening, everyone, and welcome to 1Q FY '23 Earnings Call of City Union Bank. On this call, we have Dr. N. Kamakodi, MD and CEO; and Mr. V. Ramesh, CFO of the bank. Thank you, sir, for giving us the opportunity to host this call. I will now request Dr. N. Kamakodi, sir, to take us through the opening remarks, and then we will open the floor for questions and answers. Over to you, sir.

Hello? Can you hear me? Okay. So sorry about that. 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 first quarter ended 30th of June 2022. The Board approved the results today, and I assume you all have received the copies of the results and presentation. I hope all of you have received our AGM notices as well as the annual report for the financial year 2022 through email. I take this opportunity to invite you all for participating in the Annual General Meeting to be held on 18th of August 2022 through virtual mode. On the management side, we have a new director on our Board. Shri Gurumoorthy Mahalingam was co-opted as an additional director on the Board of our bank, effective from 6th of July 2022. He is a career regulator in the financial sector, having worked for 34 years in RBI, holding the position of Executive Director at the time of retirement, and 5 years in SEBI as a whole-time Board member. He holds a Master's degree in Statistics and Operations from IIT Kanpur and an MBA in International Banking from the U.K. He has extensive experience in banking regulation and supervision as well as in market regulation and operations. In fact, he was handling the Reserve Bank of India's treasury when he was Executive Director. His appointment to the Board will be beneficial to the bank, particularly in governance, regulatory matters, finance, foreign exchange, treasury, etc. Coming to the performance, the first quarter ended well in almost all parameters, be it growth or NPA, both on slippage and recovery. In every parameter, the performance is satisfactory. Even in treasury, the depreciation is well within our control. Going forward, the environment is getting better and better, and confidence for pushing the growth is increasing. We are starting to push the growth pedal towards achieving 15% to 18% for the year end. That is mid-to high single-digit, I mean, double-digit compared to low to middle double-digit, what we discussed during the earlier calls. Growth should be slowly accelerating, and growth will be back-ended. We shared with you all during the earlier conference calls all the expectations for financial year '23. We had said that we would be pushing our growth pedal and will be achieving low to middle double-digit credit growth for financial year '23. We said that we expected that overall slippages will be in the range of 2% to 2.5% on an annualized basis. The slippage should come down and recoveries should improve from the financial year '22, resulting in gross and net NPA significantly reducing by the year-end of financial year '22/'23. Net interest margin to stay around 3.85% to 4%. Working towards ROA level to reach 1.5%. In fact, even in the middle of financial year '20, we said we should be getting our ROA back to 1.8% levels towards the second half of financial year '22/'23. We are almost already there. The cost-to-income ratio may hover between 42% to 45% in the absence of treasury income. This is what we shared with you all regarding our expectations for the financial year '22/'23 in the earlier calls. If you look into the highlights of the financial performance for the first quarter 2023, they are as follows. Almost on all parameters, progress is as per the expectations we shared. Deposits recorded a growth of 9% from INR 44,606 crores to INR 48,772 crores year-on-year. Credit grew by 12% from INR 36,395 crores to INR 40,934 crores year-on-year. Business grew by 11% and stood at INR 89,706 crores as on 30th June 2022. CASA recorded a growth of 25% to INR 15,387 from INR 12,299 crores year-on-year. CASA percentage to deposits improved to 32% on 30th June 2023 vis-à-vis 28% on 30th June 2022. Net profit improved by 30% from INR 173 crores to INR 225 crores between 30th June 2021 and 30th June 2022. ROA stands improved to 1.46% for the quarter ended 30th June 2023 against 1.29% for the corresponding period last year. Net interest margin for the first quarter is 3.95% on a daily average basis. Gross NPA is at 4.65% and net NPA at 2.89% on 30th June 2022. Both sequentially got reduced from even 31st March. As we stated in our last few calls, the credit growth is back on track. We had grown by 12% for the first quarter compared to the corresponding period last year. Now the environment looks okay for pushing the growth pedal. We are looking forward to take the growth rate to 15% to 18%, that is mid-to high double-digit for financial year '23, and the growth will be more in the second half as usual. While the fear of the Ukraine war is, by and large, subdued and subsided, let us hope for the best in the Taiwan-China conflict as well. During our last few calls, we had been providing you updates about the status of our exposure to airline company SpiceJet. We wish to provide the latest developments on the same. The management of SpiceJet has come forward to settle their dues in a phased manner. They have been servicing their interest dues regularly, and interest has been paid up to July 2022. They have requested us to renew their existing facility, and terms and conditions for such a renewal has been mutually agreed upon. As per the agreed terms and conditions, SpiceJet had immediately paid INR 3 crores dues in July 2022 and pledged INR 2 crore shares with us as collateral owned by the promoter of SpiceJet. The market value is more than almost around INR 90 crores currently. Further, they have agreed to pay an additional INR 12 crores before the end of August 2022 and agreed to settle the balance dues in a phased manner before June 2023. The account is renewed with a limit of INR 97 crores since the renewal plan is agreed upon. The account has now moved out of the SMA status. Until the third quarter of financial year '22, we had made a provision of INR 85 crores. We further made a contingent provision of INR 12 crores in the first quarter of 2023, thereby making a provision of INR 97 crores against the current outstanding of INR 97 crores here. Slippage during the first quarter financial year '23 is INR 270 crores against INR 482 crores in the corresponding period last year. The annualized slippage ratio for the first quarter is 2.64% compared to 3.1% for the financial year 2021/'22, showing a sequential decrease. In Q1 financial year '23, we recorded a total recovery upgrades of INR 252 crores, comprising INR 160 crores from live accounts and INR 92 crores from the technically written-off accounts compared to INR 100 crores, comprising INR 82 crores from the live accounts and INR 80 crores from technically written-off accounts during the first quarter in the last financial year. In other words, the gap between the slippage and recovery has narrowed down to INR 20 crores in the current quarter. The current quarter recovery is closer to our last quarter, that is the fourth quarter financial year '22 recovery, which was the highest in our history. We expect that this trend will continue in the coming quarters also. The overall outstanding balance of the borrowers who availed ECLGS loans as on 30th June 2022 is INR 13,687 crores, and ECLGS balance is INR 2,500 crores, and the allied accounts balance is about INR 11,186 crores. The SMA 1 and the SMA 2 portion from the ECLGS portfolio as on 30th June 2022 was at INR 499.88 crores and INR 222.73 crores, respectively. As of 30th June 2022, about INR 2,963 crores of accounts accounting to INR 2,033.7 crores remain in a restructured category, out of which an amount of INR 1,175 crores outstanding 58% of the restructured books where repayment has already started. For the remaining INR 858 crores, repayment is yet to start. But of those accounts where the repayment has not started, still in the moratorium period, about 62% of the exposure have already paid their monthly installments for more than 3 months even before the start of repayment. 24% of the exposure have already paid their monthly installments for 1 or 2 months before the start of repayment, leaving only 14% of the exposure amounting to INR 120 crores are yet to start the repayment and are availing the moratorium. The outstanding exposure under SMA 2 here is INR 197 crores out of said restructured advances of INR 2,033 crores. Repeatedly, whenever I met investors, I got repeated calls expressing concern over the restructured portfolio, comparing it to our own experience of restructured advances way back in 2008 after the Lehman crisis. Overall, the conditions have been encouraging, with no undue concern. Currently, the SMA 2 number is INR 820 crores, which includes accounts from the ECLGS restructure and regular advances, representing only 2% of the total advances. I want to emphasize that this 2% consists of contributions from all accounts, including both restructured and normal accounts, and is quite low compared to our projections. In our last call, we mentioned that we do not expect any significant contribution from the domestic treasury profit side due to unfavorable yield movements. For Q4 of financial year '22, we had a trading profit of only INR 11 lakhs, and in the current quarter, it was just INR 51 lakhs. The recent changes in monetary policy have returned policy rates to pre-COVID levels, resulting in upward yield movements. We may not have a favorable income stream from the domestic treasury operations during this financial year as stated in our earlier calls. The lack of treasury profit will be compensated to some extent by the improved recoveries, as we continue to say. By proper management of duration, we expect minimum mark-to-market provision for AFS/HFT going forward. The MTM provision made for our Q1 financial year '23 with respect to government securities stood at INR 30.41 crores, against which we had already held a provision of INR 5.61 crores in the financial year 2022. During Q1 financial year '23, we have made additional provision requirements of INR 42.50 crores, which includes INR 25 crores towards the G-secs, INR 14 crores towards the residual provisioning for the security receipts (SR), and INR 3.5 crores towards the shifting of securities from AFS to HTM in April. Out of INR 30.41 crores MTM loss, an amount of INR 4 crores will be released by the fourth quarter financial year '23 and another sum of INR 14 crores will be released to financial year '23/'24 because of the maturity of corresponding short-dated securities, resulting in the receipt of face value, and the MTM provisions are notional losses booked between book value and the market value. These securities were held at a discount in our books compared to the face value. When the maturity time comes, we will be able to recover the face value. Also, we wish to mention that even though the MTM losses as of June '22 stood at INR 30 crores, the requirements came down to INR 24 crores as of 5th August mainly because of the dip in 10-year YTM from 7.30% to 7.45% during June 2022. The cost-to-income ratio for the first quarter '23 was at 39.78% for the first quarter as against 40.60% for the corresponding period last year. Due to the expected poor profit from treasury, the cost-to-income ratio for the current year is expected to be slightly elevated and may touch 42% to 45% as we had said in the earlier quarters. The capital adequacy of the bank stood at 20.48% for the 30th of June compared to 19.58% for the corresponding period last year. We have not diluted any capital or issued any pressure because of the QIP or similar actions in the last 8 years. The last time we raised funds was during July 2014 through QIP route to the tune of INR 350 crores. After which, we have not gone for any capital raising through QIP as well. We are asking for shareholders' permission in every AGM, but we have not used it for the past 8 years. Higher capital adequacy is mainly because of the growth from gold loans, which carry 0 risk weight. As our ROE is comfortable, our retained earnings have taken care of the growth. For the first quarter 2023, we have earned an insurance income of INR 2 crores against INR 1 crore in the corresponding period last year. As you might have seen in various print media as well as social media, we had joined hands with 6 partners for doing bancassurance business, including Tata AIA and Bajaj Allianz for life insurance. We already have an alliance with LIC of India, Shriram General Insurance, and Royal General Insurance for general insurance business and Care Health and Aditya Birla Health for the health insurance business. After the tie-up, we could see an increased contribution from the insurance income going forward. We had not opened any new branches in the first quarter of financial year '23. But as stated in our earlier call, we are planning to open another 50 to 75 branches across different states in India for the current financial year towards the year-end. This will be towards maybe the end of the third quarter and fourth quarter. The operating profit for Q1 '23 was at INR 447 crores compared to INR 381 crores for the corresponding period last year, showing a growth of 17%. Total provision made during Q1 '23 was at INR 222 crores against INR 208 crores in Q1 '22. The net profit for the first quarter of 2023 was at INR 225 crores against INR 173 crores for the corresponding period last year. During our last quarter call, we had stated that we had crossed INR 200 crores PAT in a quarter for the first time in our history. We exceeded that in this quarter. Net interest margin stood at 3.95% in the first quarter of financial year 2023, compared to 3.86% for the corresponding period last year. The NIM for financial year '23 should stay around the current level, plus or minus 10 to 15 basis points, as we have been sharing with you all in the earlier quarters. In our previous calls, we had shared our expectation that contribution from improved recovery management coupled with reduced slippage will help us achieve our ROA of 1.5% plus, which is the pre-COVID level. By the second half of this financial year, we are almost there with 1.46% ROA in the current quarter itself. On the SR front, the total outstanding as of 30th June 2022 is INR 82 crores, of which SR to the tune of INR 78 crores will be crossing 8-year time limit towards the end of financial year '22/'23. As of 31st March 2022, we held a provision of INR 64 crores. As a prudent measure, we have made additional provisions to the tune of INR 14 crore in the first quarter of financial year '23, thereby making full provision of INR 78 crores for those accounts which had crossed 8-year timeline for the current year. We are one of the oldest private sector banks in India, which leads to a general perception among the investor community and market at large that we are not making enough efforts in technological and digital fronts. We have been providing updates regularly on our calls about the digital initiatives, but still, there is a perception about our bank that needs to be changed. We have added some 3 or 4 slides in our presentation. We are almost at par with the best of the banks in terms of digital initiatives. Customers of our bank have access to all almost all technology and digital services that our other bank customers are getting. Our digital banking is almost at par with the best in the industry. Yes, this is not happening just like that. We have been maintaining that right from the beginning. We were one of the first old private sector banks to adopt core banking solutions almost 2 decades back. We also started offering Internet banking and mobile banking services to our customers much ahead of almost all of our peers. We were the first bank in India to launch a robot for our customer service and to offer a multilingual interactive voice chatbot facility to our customers. We were the first to roll out interoperable cardless cash withdrawal, ICCW, in our ATMs and UPI 123 Pay, a UPI facility for all our basic phone users. We are one of the first few banks to introduce video-based KYC account opening for individuals as well as corporates. Over 90% of our new accounts are being opened through this video-based KYC facility that is through digital banking. In the last couple of quarters, we have introduced debit card-embedded wearables like smartwatches and keychains for contactless payments, again, the first bank in India to do that. To reiterate, we are not lagging behind any of the top class banks in the country in terms of digital initiatives, and we never shy away from adopting the latest technological developments in the banking industry. Almost all banking services, right from onboarding of new customers, are digitally enabled in our bank. Connected banking, digital signature to corporates in soft token to do their online transactions securely, WhatsApp banking, wealth management through net/mobile banking, and Digi Mall through net/mobile banking are some of the digital initiatives offered to our customers. Around 90% of our transactions are happening through non-branch channels, including digital channels. Once again, to repeat, we are almost on par with the best in class in terms of digital initiatives. We have discussed in detail about our tie-ups with the fintech companies in our presentation. For the digital initiatives, we have been continuously making investments and we are almost on par with the best in class on that. During the last call, we discussed in detail about tie-ups with 42CS to manage our credit card business. We have rolled out our own credit card, CUB Dhi Visa credit card, with technology assistance from 42CS. This new credit card will have all the features available in the industry. As discussed earlier, we don't expect to be aggressive in this line of activity, and there is no change in our risk appetite, but this will fill up one gap that was available in our product plan, which is now covered. We have introduced the facility of paying to contacts in our CUB UPI available in our All-In-One mobile banking app. This feature allows the customer to make the payment directly to the mobile bank through UPI instead of account number or VPA or QR. It is like sending an amount to a mobile number. There will be an icon in the home page of UPI called pay to contact. By clicking the same, the beneficiary name will be displayed. Customers can check the beneficiary name displayed and initiate the payment. So that is just an example. To sum up, for the financial year '22/'23, as we told in the last quarter itself, COVID is behind us. Over and above that, the growth is coming back, and credit growth for the current year will be mid-to high double-digit and loaded towards year-end. We hope we should be able to achieve, let's say, aim to upgrade our guidance from 12% to 15% to maybe 15% to 18% for the year as a whole, but the growth will be in the second half as usual. The expected overall slippages to closing advances should be in the range of 2% to 2.5%, which is also equal to the pre-COVID level. The slippages should come down and recoveries will improve, thereby resulting in gross and net NPA significantly reducing by year-end; the net interest margin to stay around 3.85% to 4%; ROA level to reach 1.5% for the year as a whole, and we're already almost there. The cost-to-income ratio may range from 42% to 45% without treasury income. Everything is looking quite positive now, even more so compared to our last call. We are optimistic that international factors like the war in Ukraine and the conflict between China and Taiwan will influence logistics, particularly oil prices and inflation, but their negative impacts will be largely managed. We are committed to fulfilling our expectations. Overall, the outlook is positive on almost all fronts as we discussed. Additionally, we have performed well in treasury operations due to our consistent risk management practices. With these opening remarks, I open the floor to questions. We will go for one-to-one answering of the questions. Over to you all.

The first question is from Rohan Mandora from Equirus Securities.

I just wanted to understand, when we are increasing the guidance. So what gives us the confidence in being able to increase the guidance?

Your voice is not clear. Can you come closer to the mic and speak?

Sir, is this better?

Okay. Better.

Yes. So sir, I was saying on your loan growth guidance, we have increased it to 15% to 18% from 12% to 15%. In this quarter, overall growth on the loans was slightly soft on a sequential basis. So what gives you the confidence in being able to increase the guidance on loan growth? What has changed in this one quarter, if you could highlight things around that?

See, it is basically that, as we had been discussing with you all during the earlier quarters, we had not pressed the growth pedal at all as we felt there were a lot of uncertainties. Even though the impact of COVID was over, there were also uncertainties because of the oil price and inflation, and we were taking a guarded approach. After looking into the performance of our book and discussions with the customers, it is giving us sufficient comfort that we can now go for slightly accelerated growth. That's why we have increased the guidance from 12% to 15% to 15% to 18%. If in the next couple of quarters, things look better, we will definitely press the growth pedal to see. But as of now, it looks as if we can press the growth pedal towards the third and fourth quarters to achieve within 15% to 18% growth for the year as a whole. This is based on our comfort with both the environment and the conviction that we will start pushing for growth.

And sir, we have seen good trends in the treasury where we have not booked any losses for the current quarter as well. At what level of yields are we protected, and when could there be a possibility of MTM ahead?

Basically, as I explained during the treasury segment, our duration is very low in our AFS book, and all the short-dated securities we are keeping will mature in the next 18 to 24 months. So we are holding the security at a discount compared to the face value, which is causing a difference between the market value and our book value for which we are taking the notional provisioning. When the maturity of these securities happens, that is going to be the reversal of these books. Honestly, the overall impact from the movement of treasury yield will cause some small provisioning but we are largely protected because of the yield movement. We learned hard lessons a couple of decades back during 2004 because of the yield movement, and that has been properly embedded into our treasury policy. That's why with this comfort and confidence, I tell you this.

Sure, sir. Lastly, just 2 questions on recovery part. One, the recovery from return of assets this quarter, is there any large accounts? Or is it more granular? And second, the provision reversals that will happen with SpiceJet, will it be used to increase the PCR? Or will it be consumed against normal NPA incrementally?

Yes, basically, one recovery from a reasonably big account of about INR 40 crores to INR 45 crores out of this INR 90-odd crores recovery. But we feel the overall number, let's say, the live plus technically written-off accounts will stay around the same region as we move forward. As for your question on SpiceJet, we will evaluate towards the end of the current year, depending upon the recovery and related factors. We have taken this provision as a contingency, considering this particular account. We will make a decision on how to deal with that towards the end of the current year when substantial recovery should have come from this account.

The next question is from the line of Madanagopal Ramu from Sundaram Mutual.

Sir, my first question is on the numbers you gave on the restructured book. Broadly, if I understood correctly, except for 15% of the book, most others have started to pay. Is that understanding right?

Yes.

Okay. And what is the sense on this 15% book, sir? Is there a chance of slipping here? How do we see recovery here?

See, the due date for this book has not yet started. Some accounts have another 2 to 3 months to go. They want to utilize this period. That’s why I stated our expected slippage percentage to closing advances for the current year should be around 2% to 2.5%, similar to pre-COVID levels, which will include the ECLGS, restructured advances, and other normal regular advances as well. So there is no need to go for a half-splitting of individual components.

Great. Nice to hear that. Secondly, you mentioned digital initiatives, which is good to see. There are two things that banks are trying to achieve: customer service, which we are doing well, and the ability to cross-sell and bring in new customers using digital initiatives. What is happening on that front? With all the digital initiatives that you are taking, do you think reasonable contribution from cross-selling and new products can add to our loans in the future?

Basically, it’s how we look at this, starting from customer onboarding to transactions, as you mentioned, we have partly taken care of that. We have been making continuous initiatives in terms of data analytics. Those efforts are also happening in parallel and are contributing to cross-selling and all. That said, the initiatives on analytics are also happening.

Okay. But at this point, it's too early to consider any significant contribution in terms of loan growth or any big fee income growth coming from the cross-selling opportunities?

Definitely, it will be there. The contribution from analytics will be lower for SMEs than for personal loans. Our focus is on SMA loans and all. The cross-selling opportunity for our existing customers helps us improve risk management in credit sanctioning, which is also happening in parallel. The contribution is going to be across all parameters, including growth, risk management, fraud prevention, and cross-sell.

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

So my first question is on the OpEx side. If I look at your cost-to-asset ratio, pre-COVID, it averaged around 2.1% or so. Last fiscal, it was 1.9% in FY '22. You've highlighted that per branch, employee requirement has come down. But at the same time, there will be employee additions during this year to support growth. So given this backdrop, what sort of cost to assets could we expect from a steady-state perspective for this fiscal and going forward?

See, we don't have a specific target for these metrics. Employee costs depend on factors like the opening of new branches. We have previously indicated we would open about 50 to 75 new branches this year, so these numbers will vary. You need to make your own intelligent assumptions for cost-to-assets in the longer term.

Sure. Got it. But broadly trying to understand whether cost to assets could decline because of the benefit of lower requirements per branch. Or could it come back to pre-COVID levels over time as things normalize?

It will be somewhere in between.

Okay. Got it. Secondly, on the restructured book, it has come down from INR 2,200 crores to about INR 2,000 crores, a decline of INR 200 crores. Just wanted to understand how much of this could have slipped and how much of this could have been repaid?

In Q1, NPA slippage from the restructured book is about INR 57 crores.

Cumulatively, how much would it be, including, say, last quarter? Or would this be broadly the number?

The same number during the fourth quarter was INR 44 crores.

Okay, sir. Got it. So about INR 100 crores or so have slipped so far.

The next question is from the line of Renish Hareshbhai Bhuva from ICICI Securities.

Congrats on a great set of numbers. My first question is on employee count. We have been seeing the total employee base declining quarter-by-quarter. Do you feel we need to ramp up the employee base in the next two quarters or does the existing infrastructure support the expected growth?

Definitely, there is going to be an increase in headcount, considering both the new branches we need to open and the incremental growth opportunity we anticipate.

The last one-year rationalization was more of attrition, and we did not hire back? How should one look at it?

Exactly. That's how about 8% to 10% attrition, we did not ramp up.

Got it, sir. Last question on the ECLGS book. If I remember correctly, last quarter, we had SMA 1 and 2 in this portfolio at 1.5% in SMA 1 and 0.5% in SMA 2. Could you tell us the corresponding number for this quarter?

The total SMA 2 number for the retail portion currently is INR 222 crores.

Okay, INR 222 crores?

Yes.

And we have disbursed almost INR 26.5 billion, right?

Overall, the SMA 2 exposure includes all borrowers, including the ECLGS loans.

Got it, sir. You mentioned the SMA 2 number for the entire book at 2%. The same number was 1.4% last quarter. Is there any seasonal aspect to this?

Those numbers will fluctuate and increase around year-end. That fluctuation is not material.

So one should not look too much into this number?

Don't read too much into it, absolutely.

The next question is from the line of Jai Mundhra from B&K Securities.

Sir, on yield, could you share the proportion of EBLR and MCLR book as of this quarter?

Yes, about 65% of our loan book is in EBLR and 25% in MCLR. The balance includes fixed and NPA loans.

Sorry, how much was in EBLR? I missed that.

65% is on EBLR.

So even last quarter, it was a similar number. And then, sir, EBLR would have moved up. You would have also passed or at least started to see some impact?

No. Not all the increase in the rate has been passed on. We have maintained some cushion on other parameters, around half of that might have gotten transferred.

Right, so some of it would be transferred. If I look at yield on advances, it seems to have declined by 2 basis points quarter-on-quarter.

The impact will be more visible in the second quarter.

Correct. So there could be some lead/lag as you mentioned. But I just wanted to understand that you would not have reduced the MCLR?

No, no. There was no reduction in MCLR. The yield decline was mainly because we considered reductions in some portfolios for which we had not given reductions in the past.

Understood. And, out of the 65% EBLR, what could be the split of repo and links?

Almost everything is repo only.

Okay. Understood. And then, is it safe to assume that at least the initial 90 basis points increase would mostly be effective by, say, beginning August?

No. Overall, out of that 90 basis points, at the maximum, about 40 basis points would have been transmitted.

Understood. The second question is, sir, on your treasury. You mentioned that the domestic treasury contribution is some INR 51 lakhs, but we have done fairly well on the treasury gains. You had mentioned that this is integrated treasury. Can you elaborate more on the profit generation that is outside of domestic treasury?

See, basically, in terms of ForEx, we have made about INR 63 crores for the first quarter. The same was about INR 53 crores in the first quarter last year and about INR 59 crores in the fourth quarter.

So this ForEx gain, is this proprietary trading or is this done on behalf of the client and the bank earned a fee?

Yes. It is a small portion, but the majority of that is parts of integrated treasury operations where we buy dollars and invest while covering with forwards. Whenever you have arbitrage compared to yields, that becomes the foreign currency profit.

Got it. And just a small data point, sir, you mentioned INR 820 crores is SMA 2 only, right? This is SMA 1 plus 2 together?

No, no. See, the overall SMA 2 is at 2%.

Right. Okay. Any number for SMA 1, sir? It was about 5%, 6% roughly?

No. It's about 2.41% in SMA 1, which sequentially reduced from 2.79% on 31st March 2022. Comparatively, during the last year around the same period, it was 3.74% in SMA 1 and 3.34% in SMA 2.

The last question is around deposit. When you're looking to increase credit growth from 9% right now to 15%, 18%, the deposit side is also running, as of now, at 7%, 8%, 9% YoY. How do you see the competition in the retail deposit side?

As you might have seen, our CASA growth for the system is 25%. From 30th June 2021 to 30th June 2022, CASA grew at about 25%. We manage the rates of retail term deposits such that they don't grow too much to avoid needing to invest surplus in government securities, which would lead to depreciation. Therefore, we manage the ALM well. Even today, I can grow my loan book by about INR 2,000 crores to INR 2,500 crores without increasing a single rupee of deposits from our surplus liquidity position. We will have sufficient time to manage credit growth and take appropriate actions to increase deposits.

Right. So Sir, how are you seeing the listed deposit rate moving? How much would be the total deposit base based on broader yield movement?

RBI rates have clarified the direction for yield movement and deposit rate CASA movement. There will definitely be a lag factor. We expect the growth in deposit rates to follow the yield movement. By the end of the financial year, we expect for the incremental deposits to increase by around 40 to 50 basis points from the current level for the system.

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

My question is on liquidity. As your CD ratio reached around 84%, with the accelerated credit growth of 15% to 18%, will credit growth outpace deposit growth significantly? Are you going to finance that credit growth by redemption of investments? Could you give some color on balance sheet movement like deposit advance and investment mix for FY '23, and at what CD ratio would you be comfortable?

See, I have answered your questions earlier. I can go for another INR 3,000 crores of loan book increase without increasing my deposits even by a single rupee. This will come through surplus government securities and maturing overseas deposits. By using these surplus government securities, I can borrow by pledging that from the RBI. I can reach a CD ratio of about 90%, just like we have done in the past.

The next question is from the line of Abhilash Hiran, an individual investor.

Sir, can you tell what percentage of our business is coming from DSC and what is coming directly from customers?

We don’t have any DSC as a concept. The entire business comes directly from the customers to the bank, with no intermediaries involved.

Okay, can you explain what is the cost of setting up a branch in Tamil Nadu and outside Tamil Nadu?

It will be about, let's say, 23 lakhs per branch or so. It would be generally the same anywhere in the country.

Okay, irrespective of...

Yes. There could be changes because of location, urban or metro areas.

What is the general breakeven period after setting up a branch?

Branches in Tamil Nadu will break even in about 1.5 years or so, while other branches typically take about 2.5 to 3 years. You can average this to about 2 years.

Around the past decade or how many branches have the company closed and what are the reasons for that?

We have not closed a single branch in the past 7 years.

Thank you, sir, for your participation. You have covered everyone. You may go ahead with the closing comments.

Thank you all for attending the call and thanks for your wishes. We performed better than what we expected alongside the fourth quarter call. We hope for the financial year '22/'23, it's going to be much better on all parameters: growth, NPA numbers, and asset quality. Every factor looks like things are getting much better, and I will update you with the progress in subsequent calls. If you have any specific inquiries or data points, please get in touch with Mr. Jayaraman. Thank you for attending this call once again.

Thank you very much on behalf of AMBIT Capital. That concludes this conference. Thank you for joining us, and you may now disconnect your lines.