Indian Bank (INDIANB) Earnings Call Transcript

Welcome, everyone, to Indian Bank Third Quarter FY '22 Earnings Call. We have with us today Mr. S. L. Jain, who is the MD and CEO of Indian Bank, along with him, the top management is also there, including Mr. Shenoy, the Executive Director; Mr. Imran Siddiqui, Executive Director and Mr. Ashwani Kumar. First would request MD sir to brief on the key highlights of the third quarter FY '22 results and then provide the near-term to long-term outlook on the bank as such, post which we can do Q&A session. Over to the MD, sir.

Yes. Good evening, and welcome to all analysts and investors in our Q3 FY '20 earnings call. So first, I'll give the highlights of the last quarter. First is our operating profit has grown by 16% on a Y-o-Y basis to INR 3,288 crores from INR 2,846 crores, so for all operating profit. Our net profit has grown by 34% Y-o-Y to INR 690 crores from INR 514 crores. Our NII, net interest income has grown by 2% on Y-o-Y to INR 4,395 crores. As you know, on the December 20, there was a Supreme Court decision -- stay for declaring any account is NPA, and therefore, our income was booked in to -- and the provision was met. Sequentially, on a Q-o-Q basis, our NII has grown by 8%. And our cost of deposit has come down on yield on advances has increased, yield on investment has increased resulting improvement in our NIM from 2.89% of September to 3.03% in December. Likewise, in addition to increase in NII, there's a note there is a growth in non-interest income by 36% on a Y-o-o-Y basis. This is supported by a growth in fee income by 11%, growth in ForEx income by 32%, PSLC by 47%, recovery in bad debt 111% and operating expenses remained more or less subjected with an increase of around 2%. So our operating profit and net profit growth is based on growth in NII as well as growth in other income. As far as business is concerned, our business has grown by 6% and reach to INR 9.63 lakh crores in December as against INR 9.10 lakh crores in December 20. On a sequential basis, we have grown by 3%. So unrealized it is 12%. In our deposits, the total deposit has grown by 8%. This 8% has grown on the back of 10% low in CASA. So our saving deposit has grown by 9% and current by 15%. As a result, our CASA ratio has improved by 80 bps to around 41% to around 42%. Likewise, advances have grown by 3% from INR 389,000 crores to INR 4 lakh crores on a Y-o-Y, but sequentially, it has grown by 4%. And our RAM sector is growing 11%, and our RAM has reached to 61%. So RAM -- basically retail is growing by 13%, housing has grown by 11%, personal loan by 36%, Jewel loan by 43%, auto loan by 6% or other retail by 11%. So our retail Indian is growing at 13%. For Agriculture too, is growing at a rate of 14%. The Agriculture has grown on the back of Jewel loan, which is growing at 24%. So 13% Agriculture is increasing on the back of 24% Jewel loan where NPA is even 0.2% or so. And investment credit is grown by 30%. Agri allied by 72%. And whether it's SSG we are growing 16% with NPAs are less. So MSME is growing at 6%. As far as GNPA, GNPA has come down from 9.56% to 9.13%. That is a reproduction of bps on a Q-o-Q basis and NNPA has come down from 3.26% to 2.72%, and that is a 54 bps. Our PCR has improved from 83.32% to 85.49% so around 200 bps. Our cash recovery was higher at INR 1,096 crores, as against INR 744 in December and OCA recovery is INR 278 crores against INR 129 crores of the previous system. So both sides, there is a good progress. Our capital adequacy rate is 15.47%. Of course, this has come down from 15.88% because of the growth in -- mainly because of the growth in credit and there are INR 200 crores of Tier II bonds has gone for rediscounting. If you add a profit of the 9 months, it has increased by around 1 bp more so is again 15.47%, it is around that 16.45% or so. So this is the crust. And as far as our growth is concerned -- yes, our digital transactions are increasing net banking, 25%, 26%, mobile banking 25%, 26%. And even that 40% UPRE. And as a result, [indiscernible] overall digital transactions has increased by 64% to 76%. And our gross of -- cost to income ratio has again come down to 43%. And we are focusing on more and more digitization. We have recently started our tablet banking or we are -- we plan to open majority of the accounts to tablet. It will be easier for us to access the customers. We are also working with our technology partner for digitization of various journeys, the personal loan, housing auto loans, all we are working on that. And as far as growth for the full financial year is concerned, we are expecting that we will be in the range of 8% to 10% of the growth. The way we are going -- in the last 9 months, we have mentioned around INR 48,000 crores of a proposal which as last quarter is around INR 22,000 crores of the proposal and majority of the proposals are in term loan and so what happens, the slowly, slowly the disbursement will start and deliver good growth in the current quarter as well as in the time to come. So this is my initial remarks. Now we are open to question answers.

Before we start, I think people will have questions around what's the broad outlook on growth because that has been relatively weaker when we compare it with the other banks. I agree not making there is a corporate drag but your comments on that will be welcome.

So I told you will -- the year as a whole, we will grow between 8% to 10%. Of course, you are seeing that it is a 3% growth in a -- on a Y-o-Y basis. But you see the growth of Indian Bank of the last year, December '20 to March '21, vis-a-vis this quarter. So there's a good growth here, and we are hopeful that we'll be achieving this number. This is based on the corporate pensions we are having in it and the way we are growing in the retail system, retail 13%, 14% retail and Agri both are to it.

Sure. But if you look at the 10% growth, like we are talking about almost 7% to 8% kind of a quarter-on-quarter growth. That looks very high. So is that the right number that we're looking at?

You see, last time, we have grown -- last quarter, we have grade -- corporate credit we have around INR 3,000 crores. And you see bond also in investment also around INR 2,000 crores or INR 3,000 of crores. So keeping -- considering the proposals in hand and the sensors, we are hopeful that we will be able to achieve 8% to 10% growth.

Sure. Now I think we can start with the Q&A session, sir. Mr. Ajay Mehra, I think you are the first in the line.

Congratulations to you, Jain, [indiscernible] set up numbers. The bank is really doing well in the last 2, 3 quarters, especially this quarter have been very, very good on all the fronts. But yes, as the -- as Anand said, about little tension on the credit growth side. So you have broadly said that it is 8% to 10%. But when we have that this pipeline -- you see generally the proposals which are coming out from infra, NBFC, metal and food processing and other things. Can we know that in your kind of other industries you are seeing green shoots. And how are you going to match this higher credit only in this current quarter from January to March? And are you open for NBFC's A-rated plus for onward lending, whole lending, what is the road map for that? So my first question is basically on a little more in detail minutely on the credit side growth of the bank.

So sir, we are getting proposals from all sectors, which you grow 10 projects or a textile or a cement or a [indiscernible] chemical or steel. So all these sectors, we are getting proposals. So in addition to that, we talked about the coal lending, we have had an agreement with the 7 companies. So we have started discussing coal and -- coal lending as well. So we are growing in all and all sectors of proposals are there and we are open for everything.

Okay, sir. Having this answer on that. On the -- sir, we are seeing the pressure on the treasury income everywhere. I mean whether you take it the treasury interest, of course, interest rates going up a little bit. It will offset by the interest on the investment book. But the profitability is going down because of the hardening of the interest rates. So to reserve your profit or to grow your profit, are you totally looking at the credit side or even the noncredit income, like recovery from the return of accounts, on the fee front. So say, for example, I mean, how much the operating kind of operating profit we are expecting during this quarter or for the full year?

It is very difficult to say in number terms, growth in operating, but it's very difficult to say. But you said about the treasury income as the field is hardening. So this is basically a balance between your interest income on a trading profit, right? So you see in a quarter-on-quarter basis, INR 500-odd crores of the trading profit we had in September as against INR 200 crore. But what we have done -- we have reached our -- churned over other portfolio in investments. So -- but we were having around INR 22,000 crores of a principal outstanding because we were hoping that interest -- it will harden. Recently, but we have shifted some of this outstanding into HTM and AFS book. And basically, this is a high earning. So if I see my contribution of treasury -- of third quarter vis-a-vis second quarter, we are more or less at par. So going forward, also we were hitting the interest income -- more of interest income from the treasury. So that will take care of any MDA losses.

My last question is, sir, on the recovery front. Number one is that the exposure, the national recovery infrastructure to the NARCL now has already become fully operational. In this quarter, they will take some account. So out of the INR 50,000 crores in the first range, how much is yours in that? And on the NCLT front, how much are already approved recovery cases? And what is there in the pipeline, which we can see in this quarter in the coming quarter from the NCLT and some of the OTS and non-NCLT recovery track, if you can give, sir?

What happens, initially 34 accounts have been identified to be transferred to NARCL. And in the first phase, 8 accounts of around 1900 [indiscernible] and RCM. What happened is 3 accounts, the resolution has come. So now the 5 accounts amounting to INR 1,200 crores will be transferred to NARCL first trench. And the second trench around 9 account of INR 1,300 crore will be transferred. So in all 34 accounts, it has been identified amounting to INR 5,500 crores to be transferred to NARCL. And as far as NCLT, NCLT is concerned as last time, we have a recovery of around INR 229 crores in the last quarter. So we are hopeful that this quarter also, we will be getting more recovery than this.

Next question we have from Mona Khetan.

So My first question is on the restructured book. So of this INR 20,000 crores of restructured book, how much you would have completed the moratorium period, if you could give some sense? And what sort of slippages do you expect over the medium term from this book?

We see our restructuring book, which is around INR 20,000 crores, right? In INR 20,000, INR 8,000 crores is retail, around INR 8,000 crores is SME, INR 16,000, INR -- 3,000 crores is in corporate and INR 1,000 crores in Agri. So a little bit stasis seen only in the MSME sector. Suppose, we are going through the ECLGS limits and all. But so far, around 3% of accounts is been stripped from that. So we are not worried on account of this, the time.

Okay. And how much would have, say, of this 20,000 book, how much would I say, completed moratorium so far?

So basically, we got 1 into maximum 24 months time we have given to these accounts, but we are not monitoring that way, but we are monitoring based on the SMA 0, 1.

Okay. Okay. So despite the moratorium across these accounts, there are still in stripping.

Yes, some of the accounts where the moratorium carries is over on interest recovery is not happening, we'll see that.

Okay. Okay. Sure. And secondly, on this corporate slippages were about INR 955 crores this quarter. So if you could give some color as to where it came from?

So out of INR 956 to account of around INR 400 crores, INR 400 crores, INR 385 crores is basically the 2 accounts, which were NPA in the previous year, but because of the court order, they were classified as standard assets. So which we were disclosing all along in our quarterly results of the 2 accounts Power Gen and the Delhi [indiscernible]. In these accounts since the stay has been bucketed is classified as NPA. The other half of this is -- this on account of the Jateswar government, we are expecting recovery very soon it will come. And third account is basically -- forth account is basically a road project of INR 70 crores where the termination payment will be we'll be receiving from [indiscernible].

Sure. And what sort of provisions do we hold against Srei Infra as of now? It was about 53% last year.

[indiscernible], we are 100% provision gathering.

Okay. Okay. So that was the main reason....

For this quarter, we have fully provided this.

Okay. Okay. Got it. And any exposure we have to the large retail chain?

Large retail, yes, we are having some exposure.

Okay. If you could share the quantum?

It May be around INR 900 crores.

Okay. And how much have you provided against it?

Around 15% or so we are -- as per the RBI guidance.

Sure. And just finally on the tax rate. So -- what sort of tax rate can we expect going forward? Because I think the guidance was around because of the accumulated losses that we continue to see reversals. But this time, I think it was some foreign branch related expense. So what sort of tax rate can we expect?

Well, our tax rate is -- continue to remain the same, what happens we have provided for certain liabilities. Of course, there is no cash out on account of this. These are the liabilities which are distributed. So we thought let us provide for that.

Okay. So once again, from next quarter, should we continue to see tax reversals on account of the last year?

Yes, right, right. This quarter, basically, we have made a full provision of sales.

Next question we have from Deepak. Please go ahead.

Sir, I just wanted to understand that in the previous call as well, we have spoken about credit cost of about 2% this year. And but already 9 months, I think we are at about 2.6%. So how do you want to see the outlook? Or are we revising our FY '20?

But see, what is our credit cost. Our credit cost is around 2.33%, right? So if you exclude the one biggest account where we have made 100% provisions. And these 2 accounts where we were already having this provision and lying in the standard of it. So if you net up these 2 items, it is around 1.6%, 1.65%. So barring these 2, we are still building that.

Okay. Okay. And as since you mentioned that one of these large accounts you've already fully provided. So over a year, they already is fully provided. So going forward from fourth quarter, do we expect this credit cost to normalize?

Yes. Credit cost will normalize.

Normalizing for a 2%, I mean 1.5%?

So it is very difficult to put numbers on the it but it should normalize.

Okay. Okay. And effort credit cost of below 2%, right? So we are on that?

Sir, I think he asked that basically whether a net credit -- I mean, your credit cost will remain below 2%?

It is very difficult to put numbers, but you say that 2.33% is our cost is. And if you exclude this number, it is 1.65%. And we are not met adding much of SMA 1 and SMA 2. So credit of course would come down.

Next question, we have from Gaurav.

So what I was asking is there are 3 categories of restructured accounts, so OTR-1, OTR-2 and then MSME related restructuring. -- put together, it is around INR 25,600 crores. Sir, net of overlaps between these 3 categories, what will be the ......

Yes, It is 25,000. If you are on you've added COVID 1, COVID 2 and MSME. MSME, majority of the accounts where we have restructured is already under stress. So there's a continuous stress on that. So majority of this MSME has been restructured in COVID 1 or COVID 2. So major part of it is over rated.

Okay. And sir, Air India, do we have exposure to Air India? And if yes, what is its status? Is it part of your SMA?

Air India, we have an exposure of around INR 225 crores, which has been fully repaid.

Okay. Sorry, INR 225 crores?

Yes, an amount is already gone.

And the future group?

Future group. Expose of INR 900 crores, yearend we are hitting 15% of it.

INR 500 crores, is it?

INR 900 crores.

Okay, INR 900 crores.

Next question we have from Rishikesh.

Okay. Sir, my first question is that I need to know like how much your carryforward losses are yet to reverse?

So carryforward losses are still there and we will review our position on 31st March '22. So it will be available for next quarter as well.

Okay. Okay. And sir, what loan book growth are we expecting for next year?

I told you that we're expecting around 8% to 10% of the loan growth in the current financial year. And next year similar trends would continue.

Okay, sure. And sir, fair to say our credit cost should be like much below 2% for FY '23?

Yes, keeping considering the 2 and this time, the large provision of this one account and some of -- and these 2 accounts, which were appreciably in a standard account. So next year or rates should come down so significantly.

Next question we have from Mr. Sushil Yes, please go ahead, sir.

Congratulations Jain for the stable numbers. I have 1 or 2 questions on the outlook. One is post this NARCL movement, how do you see your gross NPA and net NPA numbers?

Over gross NPA, which has come down from 9.56% to 9.13% right? And we are not seeing much of a problem in corporate book. And you see on agree there reserved part is covered by the Jewel loan. Likewise, in the Retail also, there is so much worry. So our gross NPA should continuously come down quarter after quarter which I think, I see.

How much of bad assets are we transferring to new assets with ARC. That's what I asked.

We are transferring around INR 1,200 crores of bad asset in Phase I. In Phase II, again, INR 1,300 crores. But you see this will keep on going because we are already decided INR 5,500 crores.

Now on digitization and what kind of initiatives have you taken which should benefit the Indian's talent of South India, specifically on that?

Right, sir? So what we have done in digitization, in liability side, we already launched our tablet banking and accounts started opening. So presently, we are opening [indiscernible] shortly we will open the current account -- so this is one part. In the lending side, we are 3, 4 things we have done. We have business intelligence units. So based on the account bearer, we are generating lease on daily basis and we these leads we are giving to our bids for mobilization of business. So this is one answer, we are capturing these retail accounts even MSME account. And even the agri account side that is one part. Second part is on our digitization. We want to do a number of journeys on digital. So that is why we came out with RFP and selected decision partner. And we now with our team is working from last, say, 15, 20 days. And we hope that in the first quarter, end of the first quarter will come out with our various products. And these all to come out in mobile. Of course digitization, though, our numbers are increasing but will further increase with these 2 initiatives, liability side will be taken care by the tablet and the lending side will be taken by these journeys. So we hope that there will be significant growth after June.

How much book have we created in co-lending so far?

So not much we have sanctioned around INR 500 crore of loan and the disbursement so far is around INR 200-odd crores.

This would be more than housing and gold loans or some other loans?

Must be housing loans. And now we have signed with the 7 companies that started picking up strategy.

Okay. What would you be forecasting over a period of time, how the partnership or what kind of AUM you'll achieve to all earning.

We have signed the 7 companies that we are open for other companies as well, slowly, slowly. So we will be growing, the momentum just started. So we have to understand slowly, slowly, maybe by the end of this quarter, we'll be able to tell you how we will go.

So if I have to see CASA number and Indian bank with a 1- or 2-year outlook, where would you figure out where we stand in percentage term 42%, 43% or more?

So you see in the 1 year, we have moved from 41% to 42%. And that is why we came out with the digital products. So we want to grow from 42% to 44% or 45% in 1.5 years' time. We have to grow it slowly, slowly. Maybe 2% in the year or so.

Sir, in your part of Southern India, auto, ancillaries and textile and related businesses like Forging and others are doing very well. Are we seeing any traction from the industry, which are predominantly majors coming out of Tamil Nadu and adjoining states?

We are getting proposals from all companies the textiles, right excited, we are getting the steel, we are getting from the cement companies. So we are getting proposals from our part -- in this part rather than in addition to this part from other parts as well. And you see we have sanctioned our INR 44,000 crores.

So you have unavailed credit of how much -- what is ...

Out of this recently sanctioned around INR 46,000 crore we have 16,000 is disbursed. So huge amount is line undisbursed. In addition to that, working capital utilization is around 70%. So there also is a scope.

So you are expecting a double-digit growth by March based on the current?

No, we are expecting around 8% to 10%.

That is on an annualized basis you are saying, right.

Over a Y-o-Y basis.

On quarter-on-quarter?

Quarter-on-quarter, which is -- we are at 3%. So that all will be growing more in this quarter. So that way, the percentage will be higher.

Next question, we have again from Gaurav.

Sir, I wanted to reclarify the restructured numbers. So MSME restructure is around INR 5,200 crores. right? And OTR 1 is INR 4,500 crore, and then OTR 2 is INR 15,800 crores. Sir, if you could please, in absolute terms clarify what is the net restructure number? And what is the overlap with the MSME restructure number?

I told you the MSME restructuring is close to INR 8,000 crores, right? So you see all the slides also there are INR 6,800 plus INR 1,300, add what sums to be INR 8,100 crores. And as far as overlapping is concerned, is -- we have done the restructuring of the accounts which were understand. And with COVID, the state is continuing some weather part of our restructuring, MSME in earlier guidelines in the part of COVID 1 or 2 restructuring.

Okay. Sir, MSME restructuring is INR 8,000 crores or INR 5200 crores? In you are filing it is INR 5284 crores, I think.

Which one?

MSME GST related restructuring.

No, which one? Total restructuring is INR 30,000 crores.

No, sir, I'm not referring to total. I'm referring to MSME GST-rated restructuring, which you have given on Page #7 of your financial filings, there's amount of ...