CENTRALBK — earnings call
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Prepared remarks
CENTRAL BANK OF INDIA · MODERATOR:
MR. VIVEK WAHI – EXECUTIVE DIRECTOR – CENTRAL
BANK OF INDIA · MR. RAJEEV PURI – EXECUTIVE DIRECTOR –
MR. RAJEEV PURI – EXECUTIVE DIRECTOR –
CENTRAL BANK OF INDIA · MODERATOR:
MR. MUKUL DANDIGE – CHIEF FINANCIAL OFFICER -
Moderator · Conference Operator
MR. RAJU - ANTIQUE STOCK BROKING Central Bank of India Limited October 20, 2022
Thank you very much.
We will now begin for the question-and-answer-session.
Anyone who wishes to ask a question, may press star and one on your touchtone telephone.
If you wish to remove yourself from the question queue, you may press star and two.
Participants are requested to use handsets, while asking a question.
Ladies and gentlemen, we will wait for a moment while the question queue assembles.
We have a first question from the line of Sohail Halai from Antique Stock Broking.
Sohail Halai
Yes, and thank you for the opportunity and congratulations in terms of a good set of results and also coming out of the PCA.
So I think so a lot of events.
So heartiest congratulations to you, sir.
In terms of the questionnaires, basically there are a couple of questions.
So once that you are out of the PCA, how do you look at basically in terms of your risk appetite and growth?
I understand that you'll still continue to focus on RAM portfolio.
But if you could just share whether there would be any change in the trajectory in terms of the business that we are pursuing.
That's the first one, sir.
M.V. Rao
See, as far as coming out of PCA, we are not going to change our business model drastically and we will continue to hold the same line, that is 65/35, plus or minus 5%.
So that is a Central Bank of India Limited October 20, 2022 combination in the trade book what we have planned, and we are sticking to the same thing.
And as far as the risk appetite is concerned, we are more focused picking up the capital-light assets.
If you see my RWA, which is still at 65%, right now, so higher rated accounts and low risk- weighted assets only we are preferring because we have that pricing power, because of the CASA, we are at 51%.
So right at this moment, for this financial year, there is no change in our approach as far as our business is concerned.
Sohail Halai
Understood.
Sir, second question relates to in terms of asset quality.
We have seen a decline in slippages as well as your core credit cost, which you mentioned excluding the one-off has gone down to 90 basis points.
Just wanted to understand that we also have a significant amount of written-off pool.
This quarter also, we had a written of around INR 9,500 crores.
So sir, in your assessment for this year as well as next financial year, what is the kind of a credit cost that one should build and are you looking at basically recovery from written off account?
How do we build that are you seeing any large account that would get resolved during the quarter?
M.V. Rao
As far as the credit cost is concerned, our aim is to be below 1.25 always.
That our efforts will continue to be on that front regarding the credit cost, maintaining the credit cost and that is our floor level, what we have said, that is a sky level we are giving.
But this time, you have observed, it is only 0.92 and going forward, our efforts will be in the same direction and credit cost will continue to be below 1.
That is one part.
Coming to the written-off, that is actually gold mine we are building up now.
And this INR 9,000 crores is also fully provided.
That's why we have taken the consideration of writing off on technical front.
This is a gold mine and whatever the amount we recover, that actually adds to my bottom line.
As far as any major accounts getting resolved, we are not forcing anything for this December quarter.
Probably by March, some of the accounts may move to the NARCL.
If at all it happens, that will add to my bottom line.
Sohail Halai
But sir, any sense that you can give in terms of this recovery from write-off pool?
What could be the recoverability, whether it could be a 10%, 15%, 20%?
So any ballpark number that you have in mind that probably from this pool, this much will be recovered over a course of period?
M.V. Rao
No. For this March, I'm not having anything except if something comes out from the NARCL.
From our efforts, we are foreseeing that almost 2% to 3% of recovery by September of next year.
It is not in this financial year.
Sohail Halai
Understood.
Sir, last question from my side.
If I actually look at your other income breakup as well, so there is one thing other received that is PSLC and others.
We are basically in terms of Central Bank of India Limited October 20, 2022 have significant amount of priority sector lending but the PSLC fees is going down.
So any light on that?
Like what is happening?
We understand that the premium has also gone down.
If so, then why?
M.V. Rao
See, in the recent past, if you see the RBI circular, they have enhanced the coverage of priority sector.
The banks which were purchasing earlier because, of this flexibility in the priority sector definition, now they don't require that much because of the enhancing the bucket of the priority sector.
So even in that, we could able to sold 4,650 and almost INR 200 crores, we could be able to realize from that.
Going forward, I don't think we are much more depending on this revenue stream as such on the PSLC.
We also understand that much more activities are also raising the cap in the priority sector is pushing the rates down in the PSLC certificate space.
Sohail Halai
So sir, will your strategy change towards PSL because we will do less of PSL, something like that, priority sector lending?
Because here, even though credit costs would be higher...
M.V. Rao
No. It is not a lesser PSLC, because of enhancing the coverage, even INR 100 crores portfolio also in some of the activities, it comes under priority sector.
There, I'm not having any limit of further charging ROA.
So it's not any hindrance for us in any way.
Moderator · Conference Operator
Thank you.
We have a question from the line of Ashok Ajmera from Ajcon Global Services Limited. .
Ashok Kumar Ajmera
Yes, congratulations to you Rao Sir and the entire team for the fantastic set of numbers in this quarter two.
And also coming out finally from the PCA framework which will give you at least some leverage, some flexibility, even though you are not changing your business model because of that.
Sir, having said that, I've got a couple of observations and questions and complements to you for maintaining very good NIM, but the concern on the cost to income and the credit cost remains which you have explained to some extent.
I would like to have a little more details of it that how would it come down?
While some specific questions are there, so that if you look at the sanction pipeline in the corporate credit, the sanctions and disbursement, if you see, as against INR 11,248 crore of sanctions, the disbursement is about INR 3,173 crores only, so only about 30% of the sanction.
So whereas in other segments, it's not so.
So what is holding on?
Is it that the corporates are not drawing the limits or there is an issue with some documentation or procedure completion?
So why that the disbursement is so low as compared to the sanctions in this particular quarter?
This is my first question.
Secondly, sir, on Note 13, the fraud amount in this quarter of INR 54 crores, out of which borrower fraud is around INR 47.48 crores and the provision during the quarter of INR 2.3 Central Bank of India Limited October 20, 2022 crores, which means the bank holds full provision.
So is it the full provision as per RBI norms or it's a 100% provision?
M.V. Rao
It is 100%.
Yes, as per RBI, if any fraud is identified, that can be amortized for the next two or three quarters within that financial year.
That option were not exercised.
Because we have enough resources, we have provided fully.
Ashok Kumar Ajmera
So the provision is only INR 2.3 crores, whereas the fraud during the quarter is INR 54 crores.
The note 13 says. if you read it out.
Moderator · Conference Operator
Thank you.
Reminder to participants to press star and one to ask a question.
We have our next question from the line of Prabal from Ambit Capital.
Prabal
Congrats on the good numbers.
Sir, I want to make your sense on the growth in the deposits.
So across all the banks and systems, we are seeing deposit growth slowing down.
Even for us, the deposit growth has slowed down.
What is the reason behind this?
M.V. Rao
As far as our bank is concerned, since our CD ratio in the previous year was 52%, we never focused more on increasing my liability portfolio.
That's why if you see the differential rate of term deposits, ours is one of the lowest rate of interest on the term deposit.
That's why that growth is almost negative in the term deposit.
As far as the CASA is concerned in SB and Central Bank of India Limited October 20, 2022 current there is a growth.
And this time also, now we have reached 57.64% CD ratio.
And we have enough lendable resources.
But to be in the market, in the previous ALCO meeting, we have studied other banks' deposit rates.
And to protect our turf on the deposit side, we have also enhanced our rate of interest in certain buckets.
Prabal
Right.
So you believe that despite having -- not only for us, so many persons and on us, we have quite a good cushion on the buffer side with respect to deposits.
But just to prevent the market share now in an environment where deposits not coming so easy, we are going to raise rates across buckets.
M.V. Rao
No, that's why in some of the buckets, we have increased.
If you see my reach, that is the network.
We have 69% of my network is in the rural and semi-urban, where in more stuff in these areas, this is agnostic to the rate of interest.
That we will continue to hold on to the deposits there even then.
Because of other players are increasing, that's what I told you, to protect our own turf, we have increased the rate of interest in certain buckets after doing the analysis and whatever the data we have and historical runoff in the different periods, that we have taken into account and enhances rate of interest that will be continue towards the percentage.
Prabal
Very clear.
Sir, on the corporate side, so the growth that is coming here, is it more of the utilization of previous sanction limits or is it the new demand which is driving this one?
M.V. Rao
See, in the corporate side, majority in between is on the infrastructure and specifically on the road side.
There, disbursements that is distributed over a period of one to -- up to 370 to 400 days.
So immediate pickup will not be there.
The sanctions will be there and that withdrawal will be as per the progress.
So it's not that unutilized limits, but it is only the withdrawals that has to happen during the course of time.
Prabal
Sir actually my question was that is the demand because of the working capial or is it the term demand that we are seeing, if you have to…
M.V. Rao
It's not that only on the working capital side or on the term loan side.
But specifically, if we see that, I can put the figure of 60/40, 60 on the working capital side and 40 on the top loan side.
Prabal
And from your experience, you have to put a similar number let's say, few years back then what would this ratio has been?
M.V. Rao
I didn't get it.
What is that?
Moderator · Conference Operator
Thank you.
Ladies and gentlemen, to ask a question please press star and one on your phone now.
We have our next question from the line of Sumere Sushil Choksey from Indus Equity Advisors Private Limited.
Sumere Sushil Choksey
Sir, my conversations is on our results as good set numbers, as of you know, coming out of the PCA.
So I had a few questions, sir.
Firstly, given that we are out of PCA now, what would be our strategy for undertaking branch expansion?
Would we be more aggressive in opening more branches now?
M.V. Rao
For the physical branch expansion, we are not Gung ho on that.
And wherever little things that are required by the government, that may not be more than five to 10 in a year that we'll have to open.
But as far as the network is concerned, because we have already embarked on the digital journey and already we are in the process of bringing many more products on the digital line.
Further, since we have enhanced our BC reach, earlier it was used to be 3,800, now we have 12,000, now we will be moving up to 15,000 as far as the BCs are concerned.
So my customer touch points are moving up and the services which are being offered through BC outlet, we have enhanced from the earlier eight to nine services to the 38 services.
So we don't foresee that the presence of a physical branch is required, but banking services will be made available and we have the reach and also connect and the way we have tying up with the partners like in co-lending and other tiers, that is going to help us.
We are not going to increase the physical branch network.
Sumere Sushil Choksey
Understood.
Sir, in your presentation, which you provided, on Slide 16, if we see, your unrated book has increased by 61% roughly year-on-year, so close to INR 4,000 crores.
So can you share some light on the quality of borrowers in this portfolio?
M.V. Rao
See, unrated, if you correlate with the previous line of BB and below, what happened in this bank earlier, it was INR 5 crores was the limit, over and above each account has to be rated.
When we have traded other banks, some of the banks, up to 50, they are not insisting for the rating.
Majority of the banks, they have put the threshold level of INR 25 crores and above for the rating.
In that scenario, what we have seen is good accounts having the more than 100% collateral coverage and time-tested parties were moving away just because we are insisting for the rating.
Yes, for them, it is a cost also.
So we have also increased our cap from 5 to 25, that's why many of these accounts have moved to the unrated category.
Sumere Sushil Choksey
Sir, our co-lending book has seen some very robust growth.
So if you look at it in terms of this financial year-end, where could you see the numbers in terms of the book size ramping up purely on co-lending?
Central Bank of India Limited October 20, 2022
M.V. Rao
On co-lending, we are aiming around INR 7,500 crores.
That is the minimum floor we have kept for the '23 March.
Sumere Sushil Choksey
And sir, if we see what many other players in the banking industry are looking to do, they're cementing partnerships with a lot of fintech players to grow businesses in a mutually beneficial manner.
These entities at times tend to have expertise in terms of customer acquisition.
So are we looking to leverage this and enter into any partnerships as such?
M.V. Rao
Yes, that is happening from our side.
Sumere Sushil Choksey
Understood, sir.
And sir, so just as an add-on on this will shed some light on that.
Would we be looking to use these guys to source customers for ourselves and once we acquire them, provide further value upgrade products?
Is this something you're looking at as a strategy?
M.V. Rao
Yes, that we are looking at.
And then in already we have started with a nimble-footedness.
And then we are evaluating so that we are also getting the experience in handling these partners and also ultimate customers.
These things are already started at our end.
And once we get confidence in that, we will move aggressively.
Moderator · Conference Operator
Thank you Reminder to participants to press star and one to ask a question.
We have our next question from the line of Sushil Choksey from Indus Equity Advisors.
Sushil Choksey
Congratulations on the performance.
M.V. Rao
Thank you.
Sushil Choksey
Specific note for stable CASA and treasury performance.
Sir, now we have reenergized ourselves coming out of all the hurdles.
And with the core strength of CASA and the reach which we have developed over the years, where do we see the outlook accelerating from here and not seeking only numbers from a performance point.
If I take a 12 to 18 month outlook, where do we figure in the stack where we either corporate or consumer or multiple digital or whatever required?
M.V. Rao
This is a very big catalog painting you are asking, but let me give you some glimpses of the big picture, what we have.
The co-lending partnership, collaboration, fintech, the area what we started in the previous year.
Now we are moving aggressively and probably in the total credit book of INR 2 lakh crores credit book.
In the similar percentage, we are eyeing not less than 10% from these lines for these next 18 months.
And then sourcing of the businesses and acquisition of the customers, it is main stay will be through the brick-and-mortar channels because we have larger presence in rural and semi-urban.
But for the urban and metro, with the differentiated customer acquisition, we will be moving on to the digital channels.
Central Bank of India Limited October 20, 2022 This is a broad way of only putting the things how customers will be acquired.
And as far as the businesses are concerned, we have the traditional businesses that we will continue to leverage.
And then new businesses, anyhow we have opened up one more vertical in the bank where General Manager is heading that emerging businesses, that he will be handling and that we'll be expanding further, but to put the numbers, that will be very naive and also very difficult at this moment.
Sushil Choksey
Sir, my next question was where we stand today where MCLR is concerned, housing market led by Mr. Puri and the retail team or MSME.
How do we foresee ourselves that we grow faster than the industry to capture the market share because of our strength in CASA and our MCLR is taken?
M.V. Rao
See, that is very much evident from our figures also what we have provided.
This Y-o-Y growth in housing is 22% for me.
So this is precisely because of the aggressiveness what we have on our housing portfolio.
Likewise, the portfolios where we see that have to move fast, always we leverage with our pricing.
Sushil Choksey
Sir, I understand that we have grown and we are doing far better than many of our competitive peers or many others, but enablers, because this is a very sensitive market and the market can sense that Central Bank can do a better efficient job than where we stand from the past.
So enabling those kind of prevailing situations which are in our favor, can we accelerate?
Or can we sense that in second half or time to come, our growth will be much ahead of what is visible as of today?
That's what my first question.
M.V. Rao
Yes, exactly.
That's why I have changed my forecast of credit growth.
Earlier we used to say 10% to 12%.
Now we have given 13% to 15% for this half year.
Moderator · Conference Operator
Thank you.
Ladies and gentlemen, to ask a question please press star and one on your phone We have a next question from the line of Nimish Maheshwari from RSPN Ventures.
Nimish Maheshwari
Congratulation on good set of numbers and I have two questions.
First is the write-off during this quarter is INR 9,500 crores technical write-off.
What does this include?
And how much recovery we expect moving on?
And another question is provision increased in this quarter.
So can you a little bit explain, in the upcoming scenario, what will be the trajectory in the provisioning?
M.V. Rao
See, as far as the write-off is concerned, all these accounts were provided with 100%.
Only those accounts who are picked up and we have gone for a technical write-down.
As far as the recovery in these technical written-off accounts, we don't foresee much recovery in this financial year.
If at all if it comes, it is only adding to the bottom line, that's all.
That is one part.
Second, coming to the provision is already what I explained regarding the credit cost part, where front loading of ageing provisions for the December quarter and part of March is also accounted for in our books for the September.
This is how this provisions the number -- specific thing you want here?
Nimish Maheshwari
That will moderate in the upcoming quarters?
M.V. Rao
Exactly.
That's what is going to happen.
Moderator · Conference Operator
Thank you sir.
Ladies and gentlemen, to ask a question please press star and one now.
As there are no more questions, I would now like to hand the conference over to Mr. Raju from Antique Stock Broking.
Please go ahead, sir.
Raju
Thank you sir for your detailed insight and giving us this opportunity to host the call.
Once again, thank you.
M.V. Rao
Thank you.
Thank you very much from our side.
And we all wish you a very Happy Dipawali to you and your team.
Moderator · Conference Operator
Thank you, sir.
On behalf of Antique Stock Broking, that concludes this conference.
Thank you for joining us, and you may now disconnect your lines.
Questions and answers
“Central Bank of India Limited