CENTRALBK — earnings call
The transcript as filed. Every paragraph is addressable: its link names the page and the position it sits at in the call.
Prepared remarks
Moderator · Conference Operator
MR. SOHAIL HALAI, ANTIQUE STOCK BROKING Central Bank of India November 6th, 2020
Ladies and gentlemen, good day and welcome to the Central Bank of
Thank you.
Reminder to the participants.
Anyone who wishes to ask a question may press “*” and “1” at this time, the next question is from the line of Miss Mahrukh Adajania from Elara Capital.
Please go ahead.
Mahrukh Adajania
Good Evening Sir.
What is the extent of restructuring Bank is expecting and the number of proposals the Bank has received so far?
Pallav Mohapatra
One Time Restructuring is RBI’s scheme of restructuring in which account will not be downgraded after restructuring.
As per RBI circular, we have assessed the eligible corporate accounts at ₹ 7500 crore, however we have received very few proposals.
It is observed that borrowers are less interested in the scheme as indicated from low inflow of proposals.
For this purpose we have created a portal in which borrower can apply for restructuring.
For personal loans last date of restructuring is 31st December 2020 and for MSME and corporates last date is 31st March 2021.
Looking to the loan applications received, we may presume that people are not interested in the scheme.
One reason is maybe that, after restructuring their loan will be reported as restructured to Credit Information Companies and it may impact their credit scores.
Corporates which have no option left but to avail the scheme will come forward for availment.
So far the number of application in sole banking and consortium are very low.
Mahrukh Adajania
What is the status of ₹ 7500 crore corporate loans eligible for one time restructuring as quoted in your reply and among these how much are consortium accounts?
Pallav Mohapatra
As informed, these are our internally assessed figures as per eligibility norms prescribed by Reserve Bank of India in its circular and include all categories i.e. sole banking, multiple banking and consortium accounts, however number of applications is very low.
With regard to consortium Central Bank of India November 6th, 2020 accounts inter creditor agreement will be signed only after restructuring invoked by the company.
Mahrukh Adajania
There is Government’s ex-gratia scheme about refund of difference of compound interest and simple interest charged for moratorium period.
Does borrower need to apply for such refund ?
Pallav Mohapatra
On account of ex-gratia scheme, it is automatic and to be completed by us only.
Refund exercise of ex-gratia payment is completed at our end.
Bank has paid approx. ₹ 40 crore in the scheme and the same will be reimbursed by Government of India.
We have to submit statutory auditor’s certificate of payment to State Bank of India which is nodal bank appointed by Government of India.
This will be reimbursed by 15th of December 2020.
Mahrukh Adajania
Kindly give guidance on increase on credit cost during the Sept quarter.
Pallav Mohapatra
Credit cost of the bank has increased from 1.16% as of June 20 to 1.98% as of September 2020.
This increase is on account of increase in net additional provisioning of ₹ 856 crore against previous quarter figure of ₹ 496 crore.
It may also be noted that this increase is on account of gross NPA provisioning increase from ₹ 691 crore of Q1FY21 to ₹ 1555 crore of Q2FY21.
Out of ₹ 1555 crore provision, ageing provision is ₹ 1191 crore out of which ₹ 801 crore is due to shifting of accounts from doubtful asset 2 to doubtful assets 3 category.
In spite of this, due to cash recovery and upgradation, provision of ₹ 699 crore in Q2 against ₹ 195 crore in Q1, was written back.
Moderator · Conference Operator
Thank you.
The next question is from the line of Mr. Anirvan Sarkar from Principal AMC, please go ahead.
Anirvan Sarkar
What about future strategy of bank for net interest margin and is there any asset mix change proposed?
Pallav Mohapatra
Net Interest Margin increased from 2.82% to 3.35% on YoY basis due to lower cost of funds.
Our Bank’s objective is to increase net interest margin by lowering cost of funds.
Our cost of deposit has sharply reduced mainly due to CASA deposits.
We will also maintain the same in remaining quarters of this financial year.
Our strategy is to increase advances in better rated accounts and conserve capital.
We will change our asset mix according to requirements in view to reduce the risk weight along with objective of net interest margin optimization.
Central Bank of India November 6th, 2020
Anirvan Sarkar
What about long term target in advances?
Pallav Mohapatra
For current financial year, we are expecting 8.92% growth in advances and 8.50% growth in deposits.
Major growth in advances will be in retail by 11.71%, in MSME by 13.17% and in agriculture by 7.83%.
We have proposed higher growth in MSME segment due to ECGLS scheme in which guarantee is given by the government.
In retail, our Bank wants to mainly increase lending in Housing loan and Gold loan segment.
During this financial year, we had run Monsoon Retail Campaign in which we had performed well and expecting 1.5 times more business in the current Retail Mahotsav Campaign vis-a-vis the Monsoon Retail Campaign.
In case of Agriculture advances, we are shifting our focus from Kisan Credit Card to Agri Term Loan which was announced as a part of Atmanirbhar Bharat and in which CGTMSE cover is extended.
This will also help us in capital conservation.
We are also focusing on agriculture warehousing and farmer produce organisation.
Anirvan Sarkar
Can you elaborate about customer paying capacity while opting moratorium e.g. if any customer opted moratorium and paid 2 months instalments and then stopped paying, however his account will remain standard as per moratorium guidelines.
Kindly comment.
Pallav Mohapatra
In case if any borrower opts moratorium and pays 2 months instalments then moratorium will be considered for four months only.
Anirvan Sarkar
What if borrower requests for moratorium of 6 months considering 2 months advance payment of instalments after 6 months?
Pallav Mohapatra
So far such kind of case has not been observed.
However, looking to the genuineness of the customers need the same can be considered.
Moratorium of instalment is better than deferral of interest since in case of deferral of interest, term loan is to be repaid in 6 months by 31st March 2021, will be additional burden on the cash flow of the borrower.
However in case of moratorium it will be back ended.
Anirvan Sarkar
What percentages of customers who have paid earlier and later were not able to pay and were not able to downgrade?
Central Bank of India November 6th, 2020
Pallav Mohapatra
There is no specific data about the customers that have paid first 2 instalments and then requested moratorium.
I am having data of borrowers who have not paid EMI after moratorium and have not been downgraded due to Hon’ble Supreme Court order.
This kind of customer base is very nominal.
After August 2020, i.e. end of moratorium, 2.34% borrowers in Sept 2020 and 2.15% borrowers in Oct 2020 have not paid instalments and not been downgraded due to SC order.
Excluding Agriculture it is 3.82% for Sept 2020 and 3.80% for Oct 2020.
Borrowers are trying to pay their debts with positive behavioural changes towards their repayment.
Anirvan Sarkar
Can you disclose that how much exposure could have slipped to NPA in absence of Supreme Court order?
Pallav Mohapatra
There is no disclosure made in financial statements regarding such exposure.
We have made disclosures regarding accounts which have availed moratorium benefit to keep account standard and additional provisioning has accordingly been made.
As on 31.03.2020, there was around ₹ 3300 crore of slippages to NPA, where Bank took benefit of moratorium with additional provisioning of ₹ 305 crore but it came down to ₹ 903 crore and we are working hard to reduce the same.
In absence of SC order ₹ 903 crore would have been slipped to NPA as on 30.09.2020.
Our team is trying hard to reduce it to the extent possible by Dec.
2020.
Anirvan Sarkar
Central Bank of India’s ₹ 21671.80 crore NPAs are in NCLT and is there any visibility on recovery?
Pallav Mohapatra
We have provided 100% provisioning in the RBI’s 1st list, 94.44% in RBI’s 2nd list and 96.50% in other accounts, aggregating to 96.13% of total NCLT accounts.
If the Bank recovers any amount above 3.87%, it will contribute to profit of the Bank.
Moderator · Conference Operator
Thank you.
The next question is from the line of Rahul Nair from SBI Mutual Fund, please go ahead.
Rahul Nair
I want to know PCA status of the Bank.
Pallav Mohapatra
RBI had imposed Prompt Corrective Action (PCA) on the basis of 3 parameters i.e. liquidity ratio, capital adequacy ratio and asset quality ratio.
As on 30.09.2020, our Bank is complying with all benchmarks including Net Non-Performing Asset Ratio (NNPA) below 6%.
Central Bank of India November 6th, 2020 However Reserve Bank of India may keep us under watch for some quarters.
However in my opinion PCA status will not affect us significantly.
In PCA there are some prescriptions e.g. advances below investment grade are not allowed, no new branches in metro and urban centres, manpower strength should be less than as of March 17 etc. Such restrictions do not affect core working and is contributing towards betterment of customer service and better-quality advances.
Rahul Nair
Bank has raised capital of ₹ 255 crore during last quarter.
Is Bank comfortable in current capitalisation or Bank is looking to raise more capital?
Pallav Mohapatra
We have raised to ₹ 255 crore through Qualified Institutions Placement (QIP) and our objective is to raise further capital through FPO as soon as market prices stabilize.
Moderator · Conference Operator
Thank you.
The next question is from the line of Mr. Amit Mishra from Indus Equity, please go ahead.
Amit Mishra
Can you comment on your housing loan portfolio including asset quality and growth expectation?
Pallav Mohapatra
As on 30th September 2020, our Housing Loan portfolio is ₹ 26587 crore i.e. 56.70 % of total retail advances and retail advances constitutes 26.45% of total advances.
15% of total advances are housing loan portfolio as on the last date of 2nd quarter.
We are having 3.40% NPA in housing loan segment and the main reason for NPA is due to some residential projects such as Amrapali etc. We have established CCPBs to ease processing of loan which is on end to end basis.
We are offering a rate of interest @ 6.85% p.a. against 6.90% p.a. offered by India's largest lender.
We are offering rate of interest on the basis of CIC score and balance scorecard approach.
We are offering 6.85 % p.a. to low risk customer, 7.10% p.a. to medium risk and 7.25% to high risk customer.
Through this pricing, we will be able to canvas quality advances which will reduce our credit cost and the growth will be on sustainable basis.
In retail we are focusing on housing loan and gold loan with best rate of interests.
Amit Mishra
Kindly comment on risk profiling of retail customers?
Pallav Mohapatra
In retail segment, 36.29% customers availed moratorium in April, which came down to 28.96% in June and further increased to 33.98% in August 2020.
In retail, there are only 1.25% customers, who didn't pay Central Bank of India November 6th, 2020 their instalments in loan accounts on account of Supreme Court order by Sept 2020.
It means that our retail loan portfolio is reasonably good enough.
Amit Mishra
With reference to the yesterday’s RBI notification, is there any partnership with NBFC under co-lending?
Pallav Mohapatra
We have such partnership with one NBFC.
We are exploring such possibilities but there are some practical difficulties in these partnerships e.g. SARFAESI definition is different for NBFC.
However we are trying to establish some partnerships while addressing such difficulties.
Moderator · Conference Operator
Thank you.
The next question is from the line of Mr. Ashok Ajmera from Ajcon Global Services Limited, please go ahead.
Ashok Ajmera
Congratulation Sir, on reporting a reasonably good profit of ₹ 161 crore along with good CASA and operating profits.
I have some questions for you.
Can you give some details about Gross Non Performing Assets and Net Non-Performing Assets against the advances growth proposed.
Pallav Mohapatra
With the approval of Board, we have set a target of 11.65% GNPA as on 31st March 2021.
To bring down Gross Non Performing assets, we are using tools such as One Time Restructuring, Non Discretionary Non Discriminatory scheme etc. We are also focusing on sale of some big accounts to investors/ARCs.
Our focus is mainly on upgradation of NPA accounts with positive mind set.
Ashok Ajmera
In Financials of Q2FY21, ₹ 907 crores mentioned as recovery including sale to ARC.
How much amount pertains to sale to ARC ?
Pallav Mohapatra
ARC sale in first two quarters is very small.
In both quarters approx. ₹ 37.50 crore is sale to ARC.
In Q3, we are expecting good sale to ARCs.
We are receiving inquiries from investors and ARCs.
Ashok Ajmera
Bank has made a provision of ₹ 221 crore in Sept 20 quarter and ₹ 282 crore in June quarter on investment along with security erosion of ₹ 122 crore.
How Bank is dealing with these?
Pallav Mohapatra
Provision on investment mainly belongs to one account i.e. Suzlon.
In the restructuring, total advances were divided into sustainable and unsustainable debt, unsustainable debt was converted into equity like instrument and as it was non performing investment, provisioning was done accordingly.
Central Bank of India November 6th, 2020 In respect of security erosion, it pertains to small accounts.
Ashok Ajmera
In financials, there are provisions for taxation of ₹ 374 crore for half year ending on Sept 2020 against the profit of ₹ 296 core.
Since it is unusual, Kindly comment.
Pallav Mohapatra
Mr. Mukul Dandige, CFO will answer this question.
Mukul Dandige
While provisioning for taxation, Bank has to consider several factors such as level of operating profits, terminal benefits, non performing asset provisions, deferred tax asset etc. After consideration of all above factors provision for taxation is made.
Pallav Mohapatra
Kindly note that provisioning on bad debts is not admissible as deduction as per income tax which leads to higher tax liability.
Ashok Ajmera
As per analyst PPT, corporate SMA-0 as on 30th September 2020 is ₹ 2390 crore and out of which ₹ 903 crore is standard asset as on 31st October 2020.
What about the remaining asset and are you comfortable with these figures?
Pallav Mohapatra
Usually interest is applied on last day of month and repaid on succeeding day i.e. first day of next month and in such cases, accounts were reported as SMA-0 due to application of interest.
Out of ₹ 2390 crore, ₹ 903 crore is upgraded and around ₹ 1000 crore belongs to Future group which moved to SMA-1.
We are comfortable with these figures.
Ashok Ajmera
After moratorium, interest deferrals to be accumulated and to be repaid in next 6 months till 31st March 2021.
How many have opted to pay this by 31st March 2021.
Pallav Mohapatra
Right now, I don't have figures of borrowers who opted for payment on 31st March 2021.
However as per details available with me, other than agriculture, deferment of interest is ₹ 85.52 crore and for agriculture, it is ₹ 424.58 crore and since moratorium ended on 31st August 2020, 2.34% customers in September 2020 and 2.15% in October 2020 didn't pay their interest deferrals.
Moderator · Conference Operator
Thank you.
The next question is from the line of Miss Sneha Ganatra from Shubhkam Ventures, please go ahead.
Sneha Ganatra
What are the additional employee costs considered by bank on account of wage revision?
Central Bank of India November 6th, 2020
Pallav Mohapatra
On account of wage revision, we have already provided to employee cost of around ₹ 885 crore as per last discussion in IBA meeting.
Sneha Ganatra
What is your outlook on treasury?
Pallav Mohapatra
At present safest investments are G-Sec and T-Bills.
T-bills yield is around 3.35% and G-sec is 5.60%.
State Development Loan (SDL) is providing higher returns but having longer tenor & higher modified duration.
SDL’s are not liquid and in interest rate change scenario, it can take reverse direction.
Bank has to take appropriate decision regarding how to invest and where to invest to maximize return.
Sneha Ganatra
Is there any further recoveries in NCLT accounts post covid?
Pallav Mohapatra
Recovery percentage in RBI 2nd list is lower than that in the 1st list.
Liquidation cases are continuously increasing in NCLT cases.
If any investor wants to acquire business through quasi judicial process, he will follow NCLT procedure.
In case borrower/investor opts for out of NCLT settlement, banks will get higher recoveries.
Sneha Ganatra
Is there any plan to sell any subsidiary?
Pallav Mohapatra
Yes, we are under process of the same and transaction is concluded but yet to made public.
We will disclose the details as per statutory requirements.
Sneha Ganatra
Government is planning to sell stake in PSBs and discussion going on with government.
Kindly Comment.
Pallav Mohapatra
No Comments.
Sneha Ganatra
What is the outlook on credit cost in second half of FY21?
Pallav Mohapatra
In the September quarter, the provisioning is higher mainly because of movement of NPA from doubtful assets 2 to doubtful assets 3 category.
This resulted in provisioning increasing from 40% to 100%.
If any extra ordinary event does not happen in Q3 and Q4, there will be no substantial additional provisioning.
Sneha Ganatra
What is the outlook on slippages numbers?
Would it be higher than first half?
Pallav Mohapatra
We are putting all out efforts to minimise the slippages.
We are open with restructuring wherever the same has been invoked by borrower Central Bank of India November 6th, 2020 and there is no other option available with the Bank, for example Airline Sector.
Sneha Ganatra
What is the bank strategy in retail demand?
Pallav Mohapatra
After opening up of economy post Covid era, people are evincing interest for housing loans.
Also we are receiving many loan applications for takeover of housing loans as our interest rate is one of the lowest.
Sneha Ganatra
What is the collection efficiency of the bank?
Pallav Mohapatra
This question should be discussed after end of December quarter after taking moratorium and Supreme Court orders effect on loan portfolio.
Moderator · Conference Operator
Thank you.
The next question is from the line of Mr. Sushil Choksey from Indus Equity, please go ahead.
Sushil Choksey
Congratulation Sir for good profit of September quarter.
What will be the margin outlook driven by growth trajectory of CASA ?
Pallav Mohapatra
We are expecting net interest margin on yearly basis at 3.00% to 3.05%.
Sushil Choksey
As per your analyst presentation, your recovery is good, in which sense I should read this?
Pallav Mohapatra
In quarter 3, we are focusing for recovery in big accounts.
We have kept lower targets in first and second quarter looking to the pandemic.
If we will not able to make resolution, sale to ARC, recovery or upgradation in some big 5 to 10 accounts, it will be difficult for us to achieve targets of gross NPA to ₹ 21848 crore.
We are focusing on that and the same will be achieved.
Sushil Choksey
It is observed that the CASA support is mainly from semi urban branches.
How we are taking initiatives for CASA and cross selling?
Pallav Mohapatra
Our 49% of CASA is contributed by rural and semi urban branches which is a good thing.
We can enhance our income by offering additional facilities to the customers for example digital products, cross sell etc. We are now preparing ourselves for sale of mutual funds, insurance etc. We are trying to market these products using analytics provided by Project Disha.
Through this we will target rural and semi urban customers with variety of cross sell products.
For mutual funds, we are planning to come up with RFP to include the same in our cross sell Central Bank of India November 6th, 2020 business.
We are also going to start 3 in 1 account for urban account holders for more cross selling.
Sushil Choksey
You are having vast experience in card business.
How are you going to capitalise the same in the bank?
Pallav Mohapatra
Our Bank was not having required expertise in card business and the option available with Bank is either to hire experts from market or go with any company existing in the card business.
We chose second option with a view to reduce cost and create source of non-interest income to the Bank.
Also by this way, our existing customers can be better serviced.
Sushil Choksey
Do you think that your retail advances can become 35% of total advances?
Pallav Mohapatra
In next financial year, we are targeting to achieve retail advances level at 35% of total advances.
Sushil Choksey
Can you comment on the reason of focusing on treasury?
Pallav Mohapatra
As per the present scenario, treasury business has become complicated and that's why it requires more attention.
We are managing our treasury business with changing industry scenario e.g. we have reduced our modified duration from 5% to 2.50% in first quarter of this financial year.
During the same period we also earned trading profit despite being affected by various external factors.
Moderator · Conference Operator
Thank you, Ladies and gentlemen, there has been no further questions, I would now like to hand the conference call to Sohail Halai for closing comments?
Sohail Halai
Thank you Mohapatra Sir for giving us this opportunity of hosting a conference call and sharing your insights about the bank and environment.
All the Best for future quarters and anything that you would like to add closing comments.
Pallav Mohapatra
Thank you for discussion.
I am concerned about the Price to Earnings Ratio of the Bank.
While we are having very strong CASA deposit, Government support, high investment grade loan book, good recovery and upgradation, transparent practices, our Price to Earnings ratio is low.
Also we are doing well in these tough times by reporting trading profits and interest incomes, however share price is not responding Central Bank of India November 6th, 2020 according to it.
Through this concall, I urge all stakeholders to take note of it and have positive look at Central Bank of India.
Sohail Halai
Sir, probably the market conditions are not good but we are improving CASA and a lot of good things happening.
I am sure that analyst community will take up that.
Moderator · Conference Operator
Thank you.
On behalf of Antique Stock Broking Limited, that concludes this conference.
Thank you for joining us and you may now disconnect your lines.
Questions and answers
DEPUTY GENERAL MANAGER / · Research Analyst
COMPANY SECRETARY aH Tdi, Tth] ire, gr€ -400 021 . graft : 2202 6428, 6638 7777 . fa : (91 -22) 2204 4336 jH gdi, rfu qf¢, gq€ -400 021 . gFafl : 2202 6428, 6638 7777 . fa : (91 -22) 2204 4336 Chander Mukhi, Nariman Point, Mumbai -400 021.
Main Speaker(s)
Sr. No. Name Phone Company
HOST
Management Central Bank of India
Sohail Halai Antique Stock Broking Ltd Akash Jain Ajcon Global Services Limited Amit Mishra Indus Equity Amrit Kaur Axis Bank Anirvan Sarkar Principal AMC Ashok Ajmera Ajcon Global Services LTD Aspi Bhesania AB & Co Karan Gupta India Ratings & Research Keshav Kanoria ITI Capital Mahrukh Adajania Elara Mayank Citigroup Nitin Bansal Tata AIA Life Prabal Gandhi Antique Stock broking Praful Kumar Dave Brickwork Ratings India Private Limited Prithvish Uppal Dolat capital Rahul Nair SBI Mutual Fund Rebecca bloomberg Richa Individual Investor Riddhi Mehta Prabhudas Liladher Rupali Zade ResearchBytes Sam Roy Real Team Samiksha Karnavat ICRA Ltd Sneha Ganatra Subhkam Ventures SriKarthik Velamakanni Investec Sushll Choksey Indus Equity Advisors pvt ltd Suyash Rane Individual Investor Aries Financial Advisors Management Of Central Bank of India Participants List Total 29 Participants including the Speakers.
Central Bank of India Q2 FY21 Results Conference Call November 06 , 2020 17:00 Hrs India Time Chorus Call India Confidential 06-11-2020 Page 1 Vipul Aries Financial Advisors “Central Bank of India Q2 of FY’21 Earnings Conference Call” November 6th, 2020