Central Bank of India (CENTRALBK) Earnings Call Transcript

We are going to maintain 3% guidance which we have given to the market. And for that -- to maintain that you know rate hit 125 basis points was cut. And as we are having more than 60% loan book linked with repo immediate this was transferred to the customer. But the deposit repricing rightly said by you comes with lag. And by Q1 next year, most of those deposits will be repriced. But even after that, that pressure on margin is there. But for maintaining that, we have already diversified. As I told you in my earlier answers, CASA mobilization, we have started very strategically. And also REM advances where we are having particularly MSME and agriculture, good margin we are having. So we are focusing on those by actually opening agri-intensive and MSME-intensive branches in their cluster focusing upon high yielding agriculture, infra, finance, also godown construction side and the opportunity available in this segment where things are actually really emerging, we are entering into those segments where good margins we are expecting because on a consistent basis, on a weekly basis, we are conducting rate approval committees meeting also. Disbursements are also happening. So average credit part, which play a very important role to us actually interest management, income management. So with all these diversification, we are sure that our margins would be maintained and NIM will be successfully maintained at least up to 3%.

Okay, sir. Sir, one last thing, just wanted to understand because you highlighted that the overall the MSME growth has not been as much as you envisaged to, but what we are hearing is that during the Q3 towards the fag end, in the month of December the overall demand in the MSME has improvement. Has that been the case and if you can just throw some light on the overall demand commission for MSME side growth.

I understand you want to know that whether the demand has gone up in Q3 under MSME, right?

Yes, and [indiscernible]. I mean that gives me the confidence that in Q4 MSME would be good.

So basically, MSME, [Foreign Language] MSME is only how best we are able to finance, how best we are able to find out. So as sir has pointed out that with the outreach programs that we had started in start of Q3, now in Q4 also we'll continue and along with that, improved product offerings are there. So with that, we definitely expect that the Q4 growth would be better.

We are actually -- I will supplement what Mukulji has told. We have identified 225 MSME-intensive branches. And those branches are in the clusters, active clusters of the different activities. And we are -- we have also designed specific products for them, which is very, very competitive and supportive. Apart from that, advisory services like handholding, providing them training to the entrepreneurs and also our own people who are hosted in those branches also we are providing them specialized training that is going on actually. In this quarter, we'll get benefit of all these initiatives which we have taken in MSME financing. In that way, I can tell you that current quarter, Q4 actually we will have good performance under MSME.

Yes. Next question comes from the line of Ashlesh Sonje from Kotak Securities.

Two questions to begin with. Firstly, your borrowings have gone up quite sharply Q-o-Q. What is the reason for that? And what is the cost of these incremental borrowings?

See, even though, I mean, securities are liquid securities in which we have invested, but since they are carrying better coupon. So what we are doing is we are borrowing against those securities at around 5.15%, 5.20% types. And those funds we are utilizing towards, I mean, funding. And that is why you see our CD ratio has gone up to 72%.

Got it. Sir, and there was a fairly large recovery from TW accounts in this quarter. Was there any lumpy account here?

So the major recovery has happened in some accounts, the highest being in Go Airlines with INR 515 crores. Thereafter, we have received INR 90.79 crores in one account called ALM Industries, INR 80.37 crores in ALM Food Products, INR 52.32 crores in Al Nafees like that we have many accounts. And I can tell you that recovery in accounts above INR 1 crore is INR 890.56 crores and the remaining is in the below INR 1 crore category.

INR 30 crores is below. Total is INR 1,021 crores.

Understood, sir. Sir, you -- just a couple more questions. You gave some number that roughly about INR 18,000 crores, INR 19,000 crores of term deposits get repriced -- you said every quarter or every month?

Month. Because we have INR 233,000 crores kind of time deposit book.

Understood. Sir, and lastly, can you share guidance on the yield on advances and cost of deposits in the next few quarters?

Current yield on advances is 8.15%. And hopefully, we'll maintain this 8.15% in Q4. And another -- what was the...

Cost should come down...

Cost income will come down. It would come down.

Our next question comes from the line of Sushil Choksey from Indus Equity Advisors.

Congratulations to team Central Bank and management for the excellent performance and lots of guidance in the press as well as in the presentation and Q&A. Sir, my first question is, in the interview and the commentary right now, you said your growth path is on a very positive track. You were expecting 72% CD ratio at March '26, whereas you've already reached '26 numbers in this quarter. You've already indicated the loan growth number based on what you're expecting to -- you have sanctioned and what is the kind of disbursement likely to happen? Second thing, can you indicate what kind of ROE -- NIM you already guided you will achieve 3%, ROE, ROA -- and is your balance in RAM, which you indicated again in the interviews, would be much better compared to where we stand today in terms of corporate book is growing and RAM would stabilize?

ROE is 14.47%, up by 151 basis points. And certainly, it will increase and so in this quarter also. And ROA will maintain above 1% as we have given guidance to the market. It is going to be above -- towards the RAM side, it is our priority and Central Bank of India is having a strength in this segment. Earlier also, you see based upon learnings from what we actually learned during PCA period and after that, corporate lending, we are very -- actually, I will say, very selective only AAA and due to lesser risk appetite. The RAM side, actually, really the way we have identified the potential centers, branches, active clusters, dedicated products and technology integrating with our business model. I am sure the guidance which we have given to RAM segment, 65-35 ratio plus/minus 5%, we have achieved this quarter also. In next quarter, I'm confident that it would be maintained. Anything else...

Sir, your commentary is very positive...

CD ratio also to answer your question, current quarter, we have reached to 72%. So certainly, as we aspire to improve our advances and deposit. So target advances is INR 340,000 crores and deposit INR [indiscernible] crores. I expect that CD ratio would be in the range of 73%, 73.5%. We will reach easily to that level.

Basically, speak less and achieve more. That's the mantra which you are guiding to Central Bank. That's what I figure out from your interviews and your commentary right now. I'm happy to hear that. Sir, PSU Bank is a flavor of the season right now in the capital market when times are challenging led by the world. You have excellent franchisee where brand image, the 115 years put into the bank's image, customer base in CASA is well supportive. You now have insurance arm. You are likely to spend a huge amount on technology, that number can be spelled out. What we will do is differentiated from the market and in our brand image to make our bank bigger and stronger, including your INR 10 lakh crore aspiration of '28, which seems very feasible and achievable based on the numbers what you're expecting for?

See, our -- really, we are blessed that we are 114-year old public sector bank and having very rich legacy and rich culture, we are proud of that. And also, we are having 34,000-plus employees and average age of employees is 38 years, and that makes a very good combination of senior experienced person and the young person. It makes a very good combination and aspirations which you are actually expecting from Central Bank of India regarding in terms of visibility and brand image, we have taken several steps in that direction, digital media also -- social media handles, channels and also several products, the digital products, adoption level are increasing for that purpose also, campaign we have started. Digital marketing officer, one new concept we have identified. And with the thorough branding, all the nodal officer and branches, regional office, zonal office and head office level, we are integrating them towards a structured way so that we can showcase our potential. While giving interview people still outside people understand that Central Bank of India is a traditional public sector bank. But once we discuss with them the features and capability of technology, which we have built upon, then they understand that is need. I understand there is a need to highlight all these things and market it properly. So very structured and strategic way we are planning to actually improve visibility of our bank. And in that direction, going to media, giving interviews, meeting with the investors, these are the part of our strategy. And also, we are having lead bank responsibilities at 53 places -- 53 districts. We are also identified them as potential brand ambassador of Central Bank of India. We are organizing their 2, 3 days training program where we are going to groom them for a better brand ambassador for Central Bank of India. In that way, we are leveraging all the opportunities and scope available in our organization to showcase our strength to the Indian banking ecosystem. Thank you.

Sir, second thing, you've spoken about core strength of not only management, employees and the technology which you're adopting. The consumer experience is likely to get better and the bank gets support. Second thing, I make out from your statement in the press article as well as in your commentary that the private sector CapEx is on a path of recovery compared to public sector. Can I take your replies as that our lending, which is happening today is more towards private sector compared to public sector entities?

See, we are having a very good customer base and our own clientele banking with us for fifth generation, fourth generation, likewise, we are meeting. And we are not a large player in corporate sector, looking to the potential players like larger bank and all. In that way, I don't find any challenge -- our growth -- because our base size is very low. The growth which we aspire, looking to our potential available in the Indian market, we are getting ample scope and ample proposals for actually financing and building our own book in those segments. There is absolutely no challenge we are finding or competing with private sector and all because we are having our own client base, and we are getting good proposal in those -- from those channels.

If I conclude my question, sir, we have -- we are only climbing up on all aspects, and we've hit the bottom in respect of margins, profits and we look up only quarter-on-quarter. Am I to assume that way would be a better way to take it?

Yes. Bottom line will be maintained, as I showed you because there are -- because our composition of loan book, you are aware, it is more than 60% loan book is repo linked based. So we are more impacted. You must have seen in previous quarter, there was a reduction of 59 basis points, steepest actually impact. But we have initiated several steps to maintain by launching CASA campaign, by designing products and also designing the structure. Similarly, as I discussed with you and also diversifying different resources, cost curtailment with all these strategies, I can assure market that our profitability and all these things, we see a marked improvement in coming quarter and also coming...

I'll just squeeze in one last question. Central Bank future generally is very visible -- the Central Bank generally insurance arm, very visible in media as well as other places. Has it started rewarding where our investment is concerned?

See, such kind of business actually takes time to achieve breakeven and all. It is just first year. And they have given -- from insurance, we have got INR 42 crores. But what was the contribution of generally that means it is -- combined income is of insurance INR 42 crores. But a lot of hope is there because generally being a global company, having expertise in products and also delivery side and good services side and Central Bank of India having a country-wide presence and having good trust of public and customers in our franchisees, and we are under obligation to provide all the banking services and requirement of customers under one roof. In that way, this association is going to be complementary. And coming years, we will certainly get good benefit out of this association.

Congratulations and best wishes to Central Bank team for the year to come.

Our next question comes from the line of Tanya Kothari from AUM Capital Private Limited.

Congratulations to the management team on delivering another strong quarter with over [indiscernible] Y-o-Y growth in consolidated profit and further improvement is seen in asset quality. So my first question is going with 19.5% credit growth and the capital adequacy ratio is now trading towards was 15%. So at what growth rate do we start consuming capital meaningfully? And should we expect any equity dilution for any Tier 1 or Tier 2 capital in FY '26 and '27?

To meet our target -- desired target in Q4, this capital is enough sufficient to meet this growth target, whatever we are aspiring INR 340,000 crores is the credit advances target. Easily, we will achieve. There is no need of going to market for either for Tier 1 capital.

Okay. Sir, ROA is now around 1%, and you have given a target of 1%. Is this the peak zone for a PSU bank like yours? Or what are the key levers to sustain or improve ROA above 1% on recovery and credit cost [indiscernible] space?

ROA, we have given guidance, it would be above 1%. And certainly, the profitability side, which we are focusing upon this time also, you have seen INR 1,263 crores was the profit and net profit of the full year is going to be INR 4,000-plus crores. But that will -- I'm sure that with this ROA, we will maintain 1 or above 1, with the guidance we have given. As I have told answering different questions that CASA is our priority, REM is our priority and technology adoption is our priority. Cost reduction is priority. With all these initiatives and also future -- sorry, general insurance, you have seen from all these segments, we have scope to get a good return, whatever we have invested in all these initiatives and all. I am sure we will be able to maintain ROA 1% or above 1%.

One general question. There has been discussion in the market about potentially raising the foreign investment capital in PSU bank from current 20% but government has clarified it is not pursuing any increase in this time. So we are seeing around more than $6.5 billion inflow in private banks by the foreign institution. So my next question is how Central Bank is going to attract long-term investments from the foreign capital or institutions under the current ownership. Are we seeing any opening of or further increase in this cap in 20% in PSU banks?

See, as I told you, in current quarter, our capital is enough for growth. And all these things depends upon several approvals and several things. I will not like to comment on this aspect.

Our next question comes from the line of Ashlesh Sonje from Kotak Securities.

Two questions, sir. Can you share what is the blended yield on your corporate loan book? That is one. And secondly, you indicated earlier in the call that you expect to maintain your yield on advances around the current level. What gives you the hope that you can maintain it because the repo rate has been cut in December. So the EBLR book will get repriced as in the impact will be felt in the next quarter. What gives you the hope that you can maintain it?

This blended yield on corporate loan, I'll give you offline. As far as the yield on advances and our belief that we will be able to maintain 2 things. One is because the [indiscernible] ratio has improved. So definitely, that should help us because we were at 66% when rate cut was announced. And from 66%, we have now graduated to 72%. Going forward, we expect to be around 73%, 74%. So that in itself would help us ensure that our yield on advances remains more or less in the same line.

Our next question comes from the line of [Devanshu Gupta], from Eureka Stock and Share Broking Service Limited.

My question is like I have noticed that gross NPA ratio in agri and MSME sector remains elevated. So could you elaborate what is causing the stress within the sector?

See, agri and MSME, both NPA is approximately 5%. And still, if I compare with other players, it is actually not that much elevated side. Looking to the smaller ticket size and number of impact by several factors playing in the catchment area, this is the stress, but no any, I will say, the significant impact to our core asset quality or anything I can tell you in this segment. In agriculture, KCC is a major contributor to our slippage. And in MSME segment, government-sponsored scheme like Mudra and also some other ticket size, like general MSME scheme, we found some increased slippages. So we have corrected it through policy modification and all. In that way, we are conscious of this fact. And when we do retail business, certainly, there are more chances of slippages, particularly in this unorganized sector, if I say agriculture, MSME, there are such kind of slippages happen. But Central Bank of India has initiated integrated call center, fit on street things are there with technology propensity recovery models are in place. And with all these bot is there through which call centers are integrated. With all these integrated approach, we are maintaining good asset quality. And also one thing I would like to mention here, what we have implemented now, improvement in credit underwriting quality. We have implemented one technological solution. Any proposal of retail agriculture, MSME will first filter through this technology go/no-go app. And then only this will go to the loan origination system for processing. That initial level, selection level itself, we are screaming out any potential accounts which can become bad. What I can assure you that with all these technological intervention at entry level, credit underwriting level and also monitoring level, end-to-end, we have initiated several steps to keep our assets healthy, and we can handle a large number of assets at big scale also with all these technological capabilities enabled with human also in the loop. In that way, there is no such challenge to our asset quality in agriculture and MSME in coming quarters.

One follow-up question on CD ratio. Like it has improved to around 72%. And given that there is tight systemic liquidity condition and there are pressure on raising deposits like how much additional headroom does management see to like increase the CD ratio without raising the marginal cost of funds? And how is the bank like balancing growth with liability side sustainability?

See, the target which we have fixed for this quarter, March Q4 quarter, our CD ratio would be approximately 73% to 74%. And we don't find any major challenge towards resources side because you know our CD ratio is still 72%, still scope is there. And liquidity coverage ratio, if you can say, it is ƒ also. That also sufficient leverage we are having. And the initiatives which we have taken towards CASA mobilization campaign, [Agadh], which I already talked about with a structured approach towards product, process and technology and grooming people for taking it forward. So resources is not going to be a challenge. And the credit side already, I have answered your question that good proposals we are getting. So our CD ratio will certainly improve in Q4 and approximately, it would be 73% to 74%.

Okay. And last question, like as you mentioned that we have made like INR 375 crores provisioning -- ECL provisioning in this quarter. So could you share like what is the expected provision which we could see in the next few quarters?

ECL estimate -- we are having one of the highest provision coverage ratio, 96.89% you are seeing. So in that way, the asset quality is good, credit underwriting is good. Provision already done. You see net NPA only INR 1,414 crores. With that base, we are prepared to enter into the ECL. And already provision till now, we have done INR 1,525 crores, which includes INR 375 crores, which we did in this quarter. And total estimation is INR 4,200 crores. So more -- INR 2,675 crores more approximately, we have to make provision for achieving this target. By 1st April 2027, I am sure with the profitability we are going to make, very easily we'll migrate to ECL. We will not have much challenge in achieving this target.

Congratulations on the good set of numbers.

As there are no further questions from the participants, I would like to hand the conference over to the management for the closing comments. Thank you, and over to you, sir.

Thank you. And really, it was a good interaction. And again, as concluding remarks, I want to assure market the guidance which we have given to the market in this quarter, we will achieve that. And the kind of initiatives towards -- not only towards business numbers, but efficiency parameters are also our priority. In that side, customer service excellence is the mool mantra in that direction, providing handholding, training to our frontline officers is also one priority. In technology side also, several things are there. We are working towards improving adoption of these technological capabilities, which our bank has created. With that, we are having 34,000-plus centralized, and we are handholding them and credit deposit ratio is a big challenge for us. 1,000 credit officers are being prepared so that we have -- they are being groomed and trained. Similarly, 90 days focused credit training program, we are doing. And we are preparing our people, as I told, LDMs and also different set of officers, we are providing them, handholding them good training so that they can take this organization forward in all the terms in technology, process simplification, all these things we are doing. So with this, I can assure you the guidance which we have given to the market. So we are sure and confident that we will achieve that. Thanks for your support. And also, I am very happy that we got -- gave us the opportunity to place our strategy and numbers in front of you. Thank you. All the best.

Thank you so much, sir. On behalf of Antique Stockbroking Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.