THE KARUR VYSYA BANK LIMITED (KARURVYSYA) Q1 2023 Earnings Call Transcript

THE KARUR VYSYA BANK LIMITED  ( NSE : KARURVYSYA) Q1 2023 Earnings Call dated Jul. 25, 2022.

Corporate Participants:

B. Ramesh Babu — Managing Director and Chief Executive Officer

J Natarajan — President and Chief Operating Officer

Analysts:

Prashant Poddar — ADIA — Analyst

Renish Patel — ICICI — Analyst

M.B. Mahesh — Kotak Securities — Analyst

Bhavik Dave — Nippon India Mutual Fund — Analyst

Jay Mundra — B&K Securities — Analyst

Ramshankar R — Chief Financial Officer

Dikshit Shankar — Emkay Global — Analyst

Praful Kumar — Dymon Asia — Analyst

Prashant Kumar — Sunidhi Securities — Analyst

Abhishek Tandon — Bowhead India — Analyst

Prepared Remarks:

Operator

Ladies and gentlemen, good day, and welcome to the Q1, FY ’22-’23 Earnings Conference Call of the Karur Vysya Bank. We have with us today the management team of KVB represented by the MD and CEO, Mr. Ramesh Babu; President and Chief Operating Officer, Mr. Natarajan; CFO, Mr. Ramshankar; Company Secretary and Compliance Officer, Mr. Srinivasa Rao. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. B. Ramesh Babu, MD and CEO, to take us through the highlights of the quarter gone by. After which, we will open the floor for questions. Thank you, and over to you sir.

B. Ramesh Babu — Managing Director and Chief Executive Officer

Thank you. Thank you, Misti. So good evening to all of you. Welcome to our bank’s earning call for quarter one of the financial year 2023. Trust that you, your colleagues and family members are keeping well and are in good health. I’m sure that you would have gone through our presentation on our quarter one performance and I’m glad to share that the results reflect the outcome of the plans, strategies and efforts put in by us. My brief on the performance highlights during the quarter and guidance for the remaining quarter for the current financial year is as follows.

As you’re aware, we have reported a consistent improvement in our performance during all four quarters of financial year ’22 in terms of growth, profitability and asset quality. I am pleased to report that the trend continues in quarter one also, and I’m confident that the same will continue, rather, we will aim for further improvement of the performance in the ensuing quarters.

Based on economic indicators, as well as the prevailing uncertain environment and geopolitical issues, at the beginning of the current financial year, we have cautiously estimated a business growth of around 12% on the deposits, as well as advances front. Considering the current trends, particularly on the demand for credit in certain specific sectors, as well as the growth witnessed during the first quarter, it is likely that the growth will be higher than 15% on advances and deposits for the year 2023.

We continue to hold our NIM at the north of 375 basis points, so it was 382 basis points during the current quarter, as against 355 [Phonetic] basis points last year and 379 bp during quarter four of 2022. Our consistent efforts to keep the cost on lower side coupled with improvement in yields on investments and advances during the quarter supported the improvement in the NIM.

During the quarter, we have increased our deposit rates for select maturity buckets by 50 basis points, which is likely to impact cost of funds going ahead. Nevertheless, we expect that our yields also will proportionately move up enabling us to manage NIM at 3.75% levels.

Net interest income has gone up by 17% year-on-year and sequentially by 5% on account of lower cost of funds and increase in yield on funds and further supported by growth.

Yield on investment has moved up from 5.36% at the end of first quarter of last year to 5.64% and sequentially improved by 11 basis points. As indicated earlier, it was a conscious call taken by the bank to keep the duration of AFS investments at a shorter level for quite some time. The securities now maturing are replaced by those with higher yield, as per current market trends.

Our yield on advances has remained flat at 8.27 [Phonetic]. About 30% of our loan book carries pricing linked to EBLR, so policy rate changes have been transmitted to working capital accounts concurrently and term loan accounts are repriced, as per the terms of the contract. MCLR has not been revised during the quarter. Factoring the deposit and other costs, it will be reviewed based on the market trends.

Non-interest income has marginally declined by INR4 crores over corresponding previous quarter. This is mainly due to higher depreciation on investments amounting to INR37 crores and lower investment trading income of INR4 crores, which has offset the improved fee-based and other income. We do not expect any significant depreciation on our AFS/SLR portfolio considering the low duration. Investment portfolio includes interest earning non-SLR bonds and debentures of INR1,507 crores, in tandem with the yield movement, there is likely to be some MTM losses in case of further hardening of interest rates.

Operating expenses have gone up by 10% in view of the increased scale of operations and higher business volumes. However, increase in revenue is to the tune of INR104 crores, while the increase in expenses is only to the extent of INR63 crores, enabling a lower cost to income ratio of 49.68%, which is lower than the previous quarter and previous year. We continue to focus on this and aim to keep the ratio at around 50 [Phonetic] levels.

Operating profit for the quarter increased to INR475 crores, up sequentially by 8% and 15% on year-on-year basis. This is on account of increased NIM and lower cost-to-income ratio.

Provision for NPA for the quarter was at INR140 crores, while net slippages were negative. The provision requirements in respect of migration aging needed to be undertaken and also to further improve the PCR. Overall, the credit cost including standard and restructured advances is 1.09%, as against 1.25% for the last year. Credit cost for the NPA is at 0.95%, and for the year 2023, we expect that it will be at about 1%.

Net profit has risen to INR229 crores for the quarter, which is more than double the previous quarter — previous year and also sequentially up by 7%. ROA for the quarter is at 1.09%, as against 0.57% during the first quarter of the previous year and 1.06% during last quarter. As indicated earlier, our estimated ROA will gradually move up, and for the whole year, it would be around 1.1% and for the exit quarter, it would be in the range of 1.15% to 1.2% subject to normal market conditions.

Our CRAR continues to be robust and is at 19.21% providing us a comfortable headroom for growth. Our liquidity is comfortable, and we continue to maintain LCR at around 200% levels.

I’ll now brief you on some aspects of our credit portfolio. First thing is, slippages and asset quality. Gross slippages were at INR139 [Phonetic] crores during this quarter, which works out to less than 1% of the loan book on an annualized basis. Our recoveries, as well as upgrades have surpassed the slippages during the quarter two resulting in a negative net slippage to the tune of INR21 crores.

You may have observed that the bank has been showing net negative slippages without taking write-off into account during the past four quarters. Technical write-off of INR303 crores during the quarter has been undertaken. There was no sale on SR basis during the quarter. Our estimated gross slippages for the year ahead will be in the range of 1% to 1.5%. And considering estimated lower slippages and possible recoveries from the existing NPA book, we aim to achieve negative net slippages in the coming quarter also.

SMA 30 plus balances at the end of quarter stood at INR579 crores, which is less than 1% of the loan book. SMA book includes Jewel loan book balance of INR48 crores. Due to lower slippages, recoveries and technical write-off, gross NPA has come down to 5.1% [Phonetic]. Our aim is to reduce it to below 5% level by 2023. Our net NPA level have further reduced to 1.91%, and it is our endeavor to keep this at below 1% levels.

Restructured book, our overall standard restructured book stood at INR1,525 crores, which is 2.56% of our loan book. This book consists of INR215 crores of working capital and INR1,310 crores of term loan portfolio. As of 30th June, about 63% of the term loans are in repayment demanded category, about 11% of the restructured book is in SMA 1 and 2, and we hold a provision of INR166 crores towards the standard restructured book. Further details are available in the Slide number 28 and 29 of our presentation.

Coming to the growth, during the quarter, bank has recorded 14% year-on-year growth in CASA and 11% in total deposits. Sequentially, we have achieved a deposit growth of 4%, about 92% of the term deposits are from the retail segment that is INR5 crores and below. Considering the need for building up deposits to meet our asset growth and to be competitive in the market, we have raised interest rates and term deposits on certain buckets and operating team is activated for aggressive mobilization of retail term deposits. We also continue to keep our focus on building good CASA base to reach 40%.

During the quarter, we made a fresh loan disbursement of INR4,200 crores, as against INR1,662 crores during first quarter of last year. Jewel loan disbursements are not included under this. We achieved an year-on-year growth of 14% and YTD growth of 4%, and we are working towards achieving a minimum growth of 15% during the year under the advances.

Retail loans under personal segment have grown by 11% year-on-year. This is predominantly on account of residential mortgages. As indicated earlier, we have made certain significant changes in our structure, and this will help us in building a sound retail book in the ensuing quarters.

Our agri loan book, which consists mainly of jewel loans grew by 15% year-on-year and sequentially by 4%, and we expect that this trend will continue. Our overall jewel loan book has grown by 13% and constitutes 25% of our loan book, LTV stands at 71%.

Commercial loan book has grown by 16% year-on-year and sequentially by 3%. We are focusing on this segment very closely to maintain the trend and to make use of the opportunities.

Corporate banking book has achieved a sequential growth of 4% and year-on-year growth of 13%. The growth reported is mainly on account of availments in existing working capital accounts supported by fresh disbursements to existing and new customers. We are planning for a growth of 12% in this segment during the quarter.

Let me conclude that, by saying, that our performance during the quarter is in line with expectations and business plans. The qualitative changes and transformation processes brought in during the past few years are helping us to scale up our business, improve asset quality and aid increased profitability. I am sure, our business numbers will continue this trend in the coming quarter.

Once again, I thank you all for taking time to join this call. I’ll be glad to respond to any question, which you may have. Thank you very much.

Questions and Answers:

Operator

Thank you very much, sir. We will now begin the question-and-answer session. [Operator Instructions] The first question is from the line of Prashant Poddar from ADIA. Please go ahead.

Prashant Poddar — ADIA — Analyst

Yeah. Good afternoon, everyone. Good evening, everyone, actually. So congratulations, sir, for a very strong performance in both balance sheet and profitability. Two questions. One is, if you could help us understand the investments you’re planning to make in strengthening the liability franchise, as well as the retail asset franchise. There were some changes restructuring related — you did some restructuring of retail business in the last quarter, if you could tell us the progress of that and how that is likely to help you improve your retail assets both in the future? So these are the two questions I have.

B. Ramesh Babu — Managing Director and Chief Executive Officer

The first one is, the retail — investment in retail. Thank you, first of all, Prashant. So you’re asking about the deposit franchise, how we are going to restructure and what is our approach, correct?

Prashant Poddar — ADIA — Analyst

Investment in — so you have talked about some branch additions as well last time, so [Speech Overlap], whatever, I mean any, what are you going to support them with — for getting deposits?

B. Ramesh Babu — Managing Director and Chief Executive Officer

Yeah. Thanks, Prashant, first of all. Yeah. Good evening. There is a multi-pronged approach we want to take for the deposits, one is, branch addition is one part. Last year itself we tried to open 15 branches because of the first quarter we had issues we could finally open 9 branches. And this year, we are trying to open and we are planning to open another 15 branches including the backlog also, we will try to cover it up and all as many branches as possible we’ll try. The main focus of these branches would be mobilizing the deposits and the smaller level, there are loans what all are available, the retail as well as the commercial also to do that and all.

But in addition to that, we are making some more efforts, actually internally, we are making some more efforts because we have got the approvals for the government, and we are trying to focus now on the institutional as well as task also. So we have capacity building also, we are doing and all. And that is the — that our focus will be on the CASA as well as the task. These sort of segments we will focus on that.

And we are focusing on our ATV segments because as you know, 106 years our bank’s legacy is there, up to last year, we did focus much on these term deposits because the credit growth was not that much and all even if you mobilize profusely, you may have to deploy them at a lower rates and all. So that is the reason now we have activated all our branches. Even if you look at our renewal percentage is also, it is more than 80% in respect of many of our branches. So that way, if you look at it, so we are focusing on that [Indecipherable].

And senior citizen is another segment, where the bank is pretty strong, and this we are going for that and the channel what all is there, feet on street, other channel, other than the brand channel, so we are strengthening that particular channel, currently that is there. And now we are further strengthening, and we are making it active by taking people from the market also. So that way, if you look at it, overall, we feel we will be able to manage.

If you look at it, our overall — the growth of the deposits in the first quarter on an year-on-year basis is also 11%, even the current account, as well savings bank also, it is more or less much, much better than what we were doing last year. So that way what we feel, so with the existing setup and the additional measures what we are going to take, so we will be able to meet the requirement what all is required for the credit growth.

And one more thing also Mr. Prasanth, I just — I want to say one more thing, sorry. The BC partnerships also we are actively working on that. Already one BC, business correspondent, so we have worked with the [Phonetic] technical and technology integration has been completed, and we are in dialog with a few more because that will be a light-touch model and all, we need not open a full-fledged branches. The BC will have their outlet. And their main activity is to mobilize their deposits. So that way, BC also simultaneously we’re working on that.

Prashant Poddar — ADIA — Analyst

This is good to hear, sir. Thank you. And on the asset side, if you could help us understand, the retail asset?

B. Ramesh Babu — Managing Director and Chief Executive Officer

Yeah. Yeah. So yeah…

Prashant Poddar — ADIA — Analyst

You have done some restructuring, the progress of…

B. Ramesh Babu — Managing Director and Chief Executive Officer

No, you want to know about restructuring or asset growth?

Prashant Poddar — ADIA — Analyst

No sir, you talked about the restructuring, so what is the progress of that? Is the team integrated now and [Speech Overlap].

B. Ramesh Babu — Managing Director and Chief Executive Officer

[Speech Overlap]. What we are trying to do is, so we have created a channel for the NEO, for a few other products, which are going. So what we are planning actually is NEO is a channel with feet on street. Currently, the home loans, these sort of things and all are being handled by the branches. So now, we are planning to have NEO team also used for this purpose.

Currently, when they are using the LAP, and the same customers, they have the requirements of the home loans with other banks and all, so that way the feet on street currently available with them. We are going to use them also for mobilizing the home loan structure. So that way, home loans will be another focus area, mortgages and home loans, we’ll try to do.

Another focus area would be the gold loan. So internally, we are making some more — restructuring, we are trying to do it and all, gold loan will be another focus area because there the yields will be better, as well as NPA is low, and already many of our branches, they know how to do it and all. So some more strengthening we are doing and market-related practice we are trying to bring. So that way, these mortgages, as well as gold loans will be the whole areas, which are going to take the retail segment forward.

Prashant Poddar — ADIA — Analyst

Okay. If I can just add one more question, sir, related to is this. So you’ve been entering into certain partnerships in the last few years. If you can tell us about some of the relevant partnerships, which are kind of contributing currently to the growth? And any incremental partnerships that you have entered into, not exploring, but entered into? Yeah, that’s all from my side sir. Thank you.

B. Ramesh Babu — Managing Director and Chief Executive Officer

Yeah. Yeah. No issue. No, one thing is, last time also, we were discussing on the gold loan front, the Rupeek, with them we have entered into an arrangement. So with the few districts already we have covered and all, now the momentum started getting and all, around INR150 crores something like that, we have got it. Now further fine tuning, the commercials all these things we are finalizing. With that, we are going to take it to the next level, that is with the Rupeek.

Likewise, the Cholamandalam what we have entered, so for the vehicle financing these sort of things and all, so this is working well and all. We started getting lot of traction into that one and all, and we are in dialog with a few more people. So once we work on that, we would like to do it under the MSME segment. So for these of co-lending and partnerships.

On the one side, Amazon is working well. It’s going on pretty well that way. There is not an issue. And Razorpay also we have entered, so that also started giving some sort of numbers and all. So that way every — instead of entering an arrangement for the sake of entering, so we are seeing the value wherever it makes sense because it requires an investment on our part, the technology also, so selectively we are entering and all. So we are in dialog with few of the players for the liabilities also, digital players, who can support us and all. So that way, whichever way, assets or liabilities, we are in discussions with the players and all, so we’ll take it forward, Prashant.

Prashant Poddar — ADIA — Analyst

Thank you, sir. Thank you and all the best.

B. Ramesh Babu — Managing Director and Chief Executive Officer

Thank you.

Operator

Thank you. The next question is from the line of Renish Patel from ICICI. Please go ahead.

Renish Patel — ICICI — Analyst

Yeah. Hi, sir.

B. Ramesh Babu — Managing Director and Chief Executive Officer

Hi, Renish.

Renish Patel — ICICI — Analyst

Congrats on great set of numbers. Hi sir. Good evening, sir.

B. Ramesh Babu — Managing Director and Chief Executive Officer

Good evening.

Renish Patel — ICICI — Analyst

[Indecipherable] a couple of questions.

Operator

Mr. Patel, your audio is not clearly audible. If the — if you can take the phone on handset mode please.

Renish Patel — ICICI — Analyst

Is it better now.

Operator

Yes, sir.

B. Ramesh Babu — Managing Director and Chief Executive Officer

It’s better, better.

Renish Patel — ICICI — Analyst

Yeah. Yeah. Sir, so a couple of questions. So one was on the restructured book, okay. So as per our presentation, our NPA in restructured book is close to INR360 crores. And when we look at the demand portion, it is almost 63% of the total restructured book, which works around, let’s say, almost 40% of the book has already slipped into NPA. So when we are projecting this 1% — 1.5% kind of slippages, are we refactoring slippages from restructured book as well, right sir?

J Natarajan — President and Chief Operating Officer

Yeah. Actually see, you are right, see, we are including whatever restructured book also. For example, if you see our SMA 1 and 2 that is 30 [Phonetic] plus. It is still less than 1%. So it includes all the restructured assets. But basically, the restructured assets whatever you have mentioned, predominantly it’s all MSME. So the predominantly MSME we started restructuring two years before. So that is why the delinquent level is slightly higher there.

Otherwise it was, for example, if you see the corporate side, we don’t see any issue there because all the restructuring is more predominantly on account of DCCO. So the projects are going on well. We don’t see any problems there. So only thing is the MSME is a little bit challenging, and we are putting our best efforts in clearing it. But one point, you have to see that, all the whatever loans, these are all completely 100% collaterally secured.

Renish Patel — ICICI — Analyst

Got it, sir. And sir…

B. Ramesh Babu — Managing Director and Chief Executive Officer

Renish, one more point just I want to share with you. I think now that the further restructuring, COVID, these things have — are not there. Now the inflow will not be there. So that way, over a period of time, the denominator will start coming down. Whereas the what all flow, forward flow will be there into NPA, the numerator will be going.

In terms of percentage, if you look at it, maybe two years back and now, it looks the percentage is high, but if you look at it overall the movement is there. So that is quite reasonable, initially itself, one and a half years back, when we were doing the restructuring, we gave an indication, the overall NPA can come around up to 15% to 20% it can come up and all. So that is the reason, we are working. But whatever it is, as our President has mentioned, it is within the ambit of the total SMA 30 [Phonetic] plus which is 1%. We are working that way.

Renish Patel — ICICI — Analyst

Got it, sir. And sir in current quarter of 1.4 [Phonetic] billion of slippages, how much has flown from the restructured book?

B. Ramesh Babu — Managing Director and Chief Executive Officer

Yeah. INR61 crores, in fact you have seen — suppose if you look at our Page number 29, so we have shown that. The slippages during the period is INR61 crores. Out of INR139 crores what all slippage is there during the quarter, INR61 crores has come from restructured book.

Renish Patel — ICICI — Analyst

Got it. And sir, again, maybe kind of a follow-up what Prashant was asking on the retail — the restructuring side. I think sir, NEO, we have been talking since long about having this as separate channel. So in terms of the business contribution, as on June quarter, sir, what percentage of disbursements are coming from the NEO channels?

B. Ramesh Babu — Managing Director and Chief Executive Officer

I can say, on an average, the monthly growth is around INR125 crores we can expect. That’s what is a run rate going on. Now we are looking at a few more areas, which are actually deeper hinterland, so where you need not have a branch and all, but the feet on street can go and do it and all. So that way rather than focusing on the metro center, if you go deeper into the semi-urban and tier two, tier three, the business opportunities are much better. So we are going into that one. So INR125 crores, that range we are going, so we will see how to scale it up.

Renish Patel — ICICI — Analyst

Okay. But sir, in terms of the contribution, any ballpark number would you like to highlight?

B. Ramesh Babu — Managing Director and Chief Executive Officer

So contribution, you mean to say that — which way you are saying that?

Renish Patel — ICICI — Analyst

So let’s say, if we are disbursing INR100 a month, how much of that is coming from this NEO channel?

B. Ramesh Babu — Managing Director and Chief Executive Officer

No that’s what. If you look at it, suppose the overall growth what all you see, if I say INR125 crores, for a quarter if you look at it, it is coming to — INR375 crores is coming from NEO.

Renish Patel — ICICI — Analyst

No sir, can you please repeat that, sir. I missed that.

B. Ramesh Babu — Managing Director and Chief Executive Officer

No. In the quarter, what all advances growth is there, so we can say INR375 crores because INR125 crores [Phonetic] is the run rate for the NEO, if I say per month the growth. So INR375 crores suppose overall for whole year, if you look at it, around INR1,500 crores will come from the NEO channel.

Renish Patel — ICICI — Analyst

Got it sir. Okay. Got it. This is helpful, sir. Thank you.

B. Ramesh Babu — Managing Director and Chief Executive Officer

Thank you, Renish. Thank you.

Operator

Thank you. The next question is from the line of Mahesh M.B. from Kotak Securities. Please go ahead.

M.B. Mahesh — Kotak Securities — Analyst

Hey, good evening, sir.

B. Ramesh Babu — Managing Director and Chief Executive Officer

Good evening, Mahesh ji.

M.B. Mahesh — Kotak Securities — Analyst

Yes, sir. How are you, sir?

B. Ramesh Babu — Managing Director and Chief Executive Officer

Fine. Thank you. Yeah.

M.B. Mahesh — Kotak Securities — Analyst

Sir just one question, one is on the, if you look at your portfolio in terms of yield repricing on the loan side, could you just tell us how does it work in the next couple of quarters?

B. Ramesh Babu — Managing Director and Chief Executive Officer

Yeah. If you look at it in the inaugural this thing, I was mentioning, so this repo is concerned working capital, straight away we have passed it. And within the — already one month is already over, next two months, so majority of the other EBLR link, so we will be passing it on. So that way, there should not be any issue. Here and there, wherever the customers there, the value of the customer, these things and all, we may give a concession and all, but otherwise EBLR is concerned, not an issue.

But if you look at our cost of funds currently at 4.09 [Phonetic], which is the lowest actually, in the bank also, if you look at it last 10 years, these sort of lowest cost of funds we didn’t find. So with these cost of funds and the other costs remaining more or less stagnant or under control, the MCLR side, we will not be able to increase it immediately. So once we have already increased the rate of interest by 50 basis points for the other deposits making it more market related compared to peers and all, our rates are relatively attractive. So with these things, once it kicks in and the cost of deposits goes up and all, then automatically will translate into MCLR.

If overall, if you look at our credit book, 85% is under floating rate. Suppose under the 30%, 31% is under EBLR, so rest of the 55% is under MCLR. The movement we start increasing the MCLR, automatically there, also the working capital will get immediately repriced and term loans also will get repriced over a period of time.

J Natarajan — President and Chief Operating Officer

Yeah. Mahesh only one, with reference to your point, we already indicated 30% of our loan book is from EBR. So if you drill it down further, 33% of our EBR book is towards working capital, so this already is all passed onto them. So out of the remaining 67% term loan portion, 56% is reset is already done. So what is left out is only 44% of the term loan component of the EBR, let’s say [Phonetic], roughly around INR5,400 crores. So you expect another maximum four months to five months, all these things will be replaced.

M.B. Mahesh — Kotak Securities — Analyst

Okay. And on the cost side, how does that, in your sense that these margins that you’ve reported today, is it fair to say that you have at least the tailwind for at least another two quarters, three quarters before it starts coming back to where it is today?

B. Ramesh Babu — Managing Director and Chief Executive Officer

Yeah. Absolutely, because the reason is, the increase in the cost of deposit is, it will not — totally will not reflect. So over a period of time, it gets reflected. But whereas the MCLR as well as the EBLR what all we are changing, working capital we are able to get them straight. And within three months, term loan also is coming. So that way, we will have the benefit for few quarters definitely.

M.B. Mahesh — Kotak Securities — Analyst

And you don’t think spreads have come off because of competition in the market, it’s kind of holding up, as in you don’t have…

B. Ramesh Babu — Managing Director and Chief Executive Officer

No. Now the competition has come down, absolutely that way. So the number of accounts, which others are taking have come down drastically because our pricing is also quite market related. And last year during COVID what all pressure we were facing and all, that currently we are not facing at all.

M.B. Mahesh — Kotak Securities — Analyst

Okay. Perfect. Thanks [Indecipherable]. And the second question is on your — so you kind of indicated your gross NPAs will be below 5% this year, we are already at 5.2%, you don’t seem to have a very large book in terms of stress portfolios. Is it — you think this number is extremely conservative here?

B. Ramesh Babu — Managing Director and Chief Executive Officer

No, it may be a much better, in fact, you see how we were there at 3.3% odd in net NPA and within two quarters, we have moved to 1.92%, okay. So the three-pronged approach we are actually trying: one is the growth; and second thing is aggressively we are working on the NPA reduction; and third thing is the provisioning prudentially what all is required.

But when I am talking about the gross NPA reduction, there are many big accounts, which are stuck with consortium, NCLT courts and all, so these more or less at the fag end, if it clicks as it is we’ll be able to get it, otherwise also we’ll start working and all 5.5% — below 5% is, I’ll tell you even 4.2% is also below 5%. So that way, the — our focus is to clean up this one and all.

Once and for all, we want to get out of this. That’s the reason I told, net NPA also, we are actually aiming to come to around 1% by ’23, so that we can put all these to an end. In future, what all we are earning as a PPOP, it should straight flow into that profit, all these leakages, different holes and all should not be there. So that way, entire cleaning up operation is there and business growth is on one side is there. This is our plan of action.

M.B. Mahesh — Kotak Securities — Analyst

Perfect, sir, and thanks a lot for this.

B. Ramesh Babu — Managing Director and Chief Executive Officer

Thank you.

Operator

Thank you. The next question is from the line of Bhavik Dave from Nippon India Mutual Fund. Please go ahead.

Bhavik Dave — Nippon India Mutual Fund — Analyst

Hi, good evening, sir.

B. Ramesh Babu — Managing Director and Chief Executive Officer

Good evening, Bhavik.

Bhavik Dave — Nippon India Mutual Fund — Analyst

And thank you for the opportunity. Sir, similar question to what Mahesh was asking in terms of these upper credit growth guidance of 15% and we’ve been talking about maintaining this 4.75% [Phonetic] margin. Both these can be achieved in tandem, right, like because you mentioned to the previous participant that growth is not a challenge considering the competitive intensity has come off and drawdowns or balance transfers that we’re taking from our book has reduced substantially. Is that a fair thought to have?

B. Ramesh Babu — Managing Director and Chief Executive Officer

Absolutely, fair. Absolutely. What you said is correct. Both will have to go in tandem. Suppose for the sake of growth, if you start compromising on the NIM, the purpose will be defeated. So that’s why intention is, if we grow only in a particular segment, so then the question of compression on the NIM comes up and all, but we want to grow under each of the segment, that’s the reason the introductory remarks we were giving, vertical wise, we have given the guidance and all. So under the vertical also, whichever are the products, where you are going to yield better and with a lighter capital hit and all, so we are focusing on those lines. That way, these two will go in tandem, 15% as well as 3.75% [Phonetic].

Bhavik Dave — Nippon India Mutual Fund — Analyst

Understood. And the second question is on the ROA trajectory that you are looking for 1.15%, 1.2% exit. Sir we already reached 1.12% for the quarter, right and we have been maintaining [Speech Overlap]?

B. Ramesh Babu — Managing Director and Chief Executive Officer

No, 1.09%.

Bhavik Dave — Nippon India Mutual Fund — Analyst

Yeah. 1.09%. So my point is, the incremental that will come of whatever 6 basis points, 7 basis point or 10 basis point that you are expecting, will come from lower provisioning or any other levers that you think is possible?

And second question is sir, what is the kind of ROA that we will aim for, right, like 1.1%, 1.2% is what we’ve achieved and historically we’ve been like way higher than that considering the kind of business that you’ve been running. Do you think that a higher margin, sorry, higher ROA is also possible maybe in FY ’24-’25 with the kind of balance sheet that you are running or do you think 1.2% is…

B. Ramesh Babu — Managing Director and Chief Executive Officer

Sorry Bhavik, it got disconnected when you were at 1.1%, 1.2%, it got disconnected, we are back on the line again.

Bhavik Dave — Nippon India Mutual Fund — Analyst

Yeah. Sorry. So what I was trying to understand is like we’ve almost reached, where we want to, what would be the next target for us, as a management team, can we go above 1.2% ROA, considering some levers on fees or maybe operating leverage via opex with growth coming back. Is there any chance of improving above 1.2%. I understand 1.2% is a reasonably good number, but is it possible to improve from there as well?

B. Ramesh Babu — Managing Director and Chief Executive Officer

Bhavik [Indecipherable] because you have been tracking our bank, you know very well last year, before last year, 0.3%, 0.35% and all ROA was there. This — reaching this 1% itself was a dream. So we were indicating that ’23 March, we will reach. But concerted effort has been made on every lever of ROA to reach this 1.09%. Now, our intention is to see on a sustained basis this 1.09%, 1.1% and 1.2% reaching. So let us cross the bridge this year, but we are equally interested in seeing that. Another question, what you’re asking is, so to tinker the provisioning what all [Technical Issues].

Operator

Sir we request all participants to please stay connected, while we reconnect the management. [Technical Issues] Ladies and gentlemen, the line for the management is reconnected. Over to you, sir.

B. Ramesh Babu — Managing Director and Chief Executive Officer

Sorry, Bhavik. Bhavik, the second point you were asking is, by tinkering the provisioning, are we going to make the ROA? No intention is not that at all. So all of them will have to go in tandem, the cleaning of the balance sheet, provisioning, PCR, as well as the net NPA reduction, ROA, everything it has to come from the growth as well as other income. Ideally, they must support and intention is also to grow from that and not to have cutting the corner from other side.

Bhavik Dave — Nippon India Mutual Fund — Analyst

Perfect. Very well understood. And we will continue to grow at 15% odd with this environment or the credit growth stays, right, that is [Speech Overlap].

B. Ramesh Babu — Managing Director and Chief Executive Officer

Yeah. Absolutely, absolutely. We are optimistic. So we are pushing the entire team on those lines only.

Bhavik Dave — Nippon India Mutual Fund — Analyst

Perfect. That — this is very helpful. Thank you so much.

B. Ramesh Babu — Managing Director and Chief Executive Officer

Thank you, Bhavik.

Operator

Thank you. The next question is from the line of Jay from B&K Securities. Please go ahead.

Jay Mundra — B&K Securities — Analyst

Yeah. Hi sir, good evening, and thanks for the opportunity and congrats on a good set of numbers. Most of the questions have been answered. Just one question, sir, on your yield transmission. So I think during the call, you had mentioned that 50% of the book is EBLR, of which working capital you have already passed on the rate hike. So just wanted to understand sir, when you pass on the hike to the borrower, is there a renegotiation on the effective rate to him or he — by default he would be paying 40 basis point higher or can he come back and renegotiate the rate, how does it work actually?

B. Ramesh Babu — Managing Director and Chief Executive Officer

No I’ll be very practical with you, Jay. Thank you, first of all. So ideally, to the extent possible, we are straight away passing on the 40%, 50% [Phonetic], what all 90% [Phonetic] and all we are passing on. But there are few…

Jay Mundra — B&K Securities — Analyst

Sorry.

Operator

Members of the management, if you can confirm your presence.

Jay Mundra — B&K Securities — Analyst

Hello.

Operator

[Technical Issues] Ladies and gentlemen, the line for the management is reconnected. Thank you, and over to you. We have Jay online with his questions.

B. Ramesh Babu — Managing Director and Chief Executive Officer

Yeah. Extremely sorry Jay, the line got disconnected once again. So regarding the yield transmission what I say. So the working capital is concerned, straight away, we could pass it on, not a problem, transmitted. And the term loan is concerned, so there are few cases, where depending upon the relationship, AAA accounts are there, some sort of negotiation was there. Otherwise, we are taking the total relationship value into account, few cases we would have agreed. But I can say that majority of the cases we could pass it on.

Jay Mundra — B&K Securities — Analyst

Right. So the — by default, there is a transmission [Speech Overlap]?

J Natarajan — President and Chief Operating Officer

Yes, yes, absolutely.

B. Ramesh Babu — Managing Director and Chief Executive Officer

Yes, yes, sources [Phonetic] by exception only. Exception as they will come up to MD level for giving these sort of things and all, we’ll evaluate what overall for this we are getting and all, all these things we will see. Otherwise in the routinely should not — the designation [Phonetic] is not given at the lower level.

Jay Mundra — B&K Securities — Analyst

Understood. Great. And sir, on your restructuring, out of your INR1,500 crores [Phonetic] restructuring standard account, what is your sense of the default here over the next 12 months, 18 months?

J Natarajan — President and Chief Operating Officer

See actually, Jay, already we have indicated, based on our experience and also study is roughly 20% we are expecting predominantly on the MSME and other sectors, not on the corporate.

Jay Mundra — B&K Securities — Analyst

Okay.

B. Ramesh Babu — Managing Director and Chief Executive Officer

One — Jay, one more point what I’m saying, this percentage what we talk now is, it is because dynamic. The reason is, so the denominator will be coming down. There are many repayments are coming. If you look at this one also, there are INR26 crores [Phonetic] being closed and all, recovery is INR45 crores is there, with all these things, denominator will be coming down. So that way, we overall feel that from the original number, the overall, the NPA, the slippages, hello…

Jay Mundra — B&K Securities — Analyst

Yeah, sir. I can hear you.

B. Ramesh Babu — Managing Director and Chief Executive Officer

And slippages will be around 20% on the overall number, that way we can say. So tomorrow suppose it become 30%, the denominator comes down to INR1,000 crores, it maybe 30% also.

Jay Mundra — B&K Securities — Analyst

No, that is okay sir. But, let’s say, your restructuring at the peak was around this level only, right, INR1,600 [Phonetic] something?

B. Ramesh Babu — Managing Director and Chief Executive Officer

Yeah. Correct INR1,800 crores [Phonetic] it was there and all, so it is correct, correct. True. True. But now the [Speech Overlap].

Jay Mundra — B&K Securities — Analyst

[Indecipherable].

B. Ramesh Babu — Managing Director and Chief Executive Officer

Yeah, agreed. But in between the inflow was there, from April onwards, there is no inflow. There’ll be — only outflow will be there, repayments and recoveries will be there and all. So that way, anyhow we have a different model and closer monitoring of these accounts separately unlike we did bundle it with rest of the accounts.

Jay Mundra — B&K Securities — Analyst

And your corporate restructuring, you have a fair visibility, right, that these are viable account, right, because usually there is an issue on [Phonetic] the corporate level?

B. Ramesh Babu — Managing Director and Chief Executive Officer

Correct. I’ll tell you many of the accounts because of the DCCO extension, they have come and landed here, but the repayments have not yet started, whereas there, if you are continuously monitoring them and all, they are on track. So that way, we do not foresee any big hit coming from the corporate segment into the restructuring NPA.

Jay Mundra — B&K Securities — Analyst

Understood, sir. And last question, sir, on your opex because the common trend from the bank so far in the last one quarter, two quarter has been there is the sharp increase in the operating expenses in staff and particularly non-staff. How are you looking at your bank in terms of opex growth for the let’s say, next 12 months, 18 months?

B. Ramesh Babu — Managing Director and Chief Executive Officer

Yeah, our CFO is there. Yeah.

Ramshankar R — Chief Financial Officer

Jay on the opex front, one thing what you have to see is the last year because of COVID the base was low, okay. That is the one reason. If you compare, this year, it seems on a higher side. Other point is also, certain things actually because of this COVID thing, we are like RINs were renegotiated and deferred. Moreover, the certain expenses because of the growth in business, it has to be — cannot be avoided, for example…

B. Ramesh Babu — Managing Director and Chief Executive Officer

The marketing expenses.

Ramshankar R — Chief Financial Officer

The marketing [Phonetic] expenses, advertisement, which was — advertisement was literally not there in the last — in Q1 May, June. So those two, again, we need to start doing it.

B. Ramesh Babu — Managing Director and Chief Executive Officer

Likewise, the DSAs, feet on street, all these things because you cannot compromise on that now. If you compromise on that, it’ll stay badly on the business.

Ramshankar R — Chief Financial Officer

And one thing it offers accretion. This is what we did that should compensate the whatever any incremental cost, which we look at it.

B. Ramesh Babu — Managing Director and Chief Executive Officer

Yeah. Absolutely. You need to appreciate one more point, you see when we were struggling at the cost income ratio, everyone used to ask 54 [Phonetic], 55 [Phonetic] when are you going to come down to below 50 [Phonetic]. So we are happy that at least two quarters we are able to bring it down because all rounded we try to do both on the income side and expenses side 49.68 [Phonetic], we could bring it down. Our endeavor is to continue and to further improve this one.

Ramshankar R — Chief Financial Officer

One more point also, this number is after considering the depreciation of investments also, but if we [Phonetic] exclude, the number is 47.78 [Phonetic] further lower.

Jay Mundra — B&K Securities — Analyst

Right. No, so you are saying the call endeavor would be to maintain cost to income at current level, right, at 1Q level?

B. Ramesh Babu — Managing Director and Chief Executive Officer

Yeah. Absolutely. It’s correct.

Jay Mundra — B&K Securities — Analyst

Sure. Great, sir. Great, and all the best, sir.

B. Ramesh Babu — Managing Director and Chief Executive Officer

Thank you, Jay. Thank you.

Operator

Thank you. [Operator Instructions] The next question is from the line of Dikshit Shankar [Phonetic] from Emkay Global. Please go ahead.

Dikshit Shankar — Emkay Global — Analyst

Hi, sir. Thank you for the opportunity. So regarding this DCCO restructuring, so what’s the total amount of debt funds [Phonetic] that DCCO restructuring?

B. Ramesh Babu — Managing Director and Chief Executive Officer

INR169 crores something like that.

Dikshit Shankar — Emkay Global — Analyst

So INR169 crores, right?

B. Ramesh Babu — Managing Director and Chief Executive Officer

No, I’ll just check that number. In fact, I have hardly recollect, but I’ll have to see that. Any how before the call ends, we will let you know.

Dikshit Shankar — Emkay Global — Analyst

Okay. And in last call, you said that there are two big accounts, which have got the DCCO extension for the second time. It’s good that if you give that number too? How much this will come from the total of the restructuring book?

B. Ramesh Babu — Managing Director and Chief Executive Officer

Yeah. So on the corporate side, on account of DCCO, how much is there we will let you know. But one thing, what I can tell you, there are two to three big accounts, which are under the hospitality. So what is more or less completed and all, we do not expect any issues in those things and all. (Speech Overlap] and all, they will come out of the restructuring book.

Operator

Okay. Yeah. I got you. Thank you.

B. Ramesh Babu — Managing Director and Chief Executive Officer

Yeah. Anyhow next call, suppose next person is there, I’ll let you know these numbers, I have readily available with me. Thank you. The next question is from the line of Praful Kumar from Dymon Asia. Please go ahead.

Praful Kumar — Dymon Asia — Analyst

Good evening, sir. Congratulations on one of the best results in the industry.

B. Ramesh Babu — Managing Director and Chief Executive Officer

Thank you.

Praful Kumar — Dymon Asia — Analyst

Sir, couple of questions. First on the deposit side, now incrementally we are seeing systems growth, loan growth picking up, but deposits are slow to combine, in that background, you have done phenomenal work in terms of maintaining and growing deposits as well. How do you maintain and grow deposits, given the fact that your branch additions have been slow for the last one years, two years? That’s the first question.

B. Ramesh Babu — Managing Director and Chief Executive Officer

Yeah, please. I’ll respond.

Praful Kumar — Dymon Asia — Analyst

Second question is [Speech Overlap].

B. Ramesh Babu — Managing Director and Chief Executive Officer

Praful, no, no, let me complete this one. Let me complete, Praful. First of all, thanks for the complement. Now, as I was mentioning branch channel is one of the channels, as we were mentioning last year and before last year, we were going slow on the time deposit because if we raise the money at 5 [Phonetic], 5.5 [Phonetic] and all, the avenues were not there we were deploying the money in the reverse repo at 3.35 [Phonetic]. So we were having a negative carry straight up 2% on a time deposit. So we were lying low on the time deposit without pressing an accelerator button there. So now that it is back, so all our branches are activated, the existing customers, whomever they are there and all, the branches are going — on two fronts, they are working, one for the fresh deposits, and second thing is the renewal of the existing deposits, what all are happening, so this is one.

As I was mentioning that, senior citizens is one of our good fort, so we are approaching them. And that is the reason our rate of interest If you can look at it, compared to our peers, we have slightly kept a shade ago, so that we can get our deposits also. So that way on deposits, our branch channel will bring it.

And as I was mentioning, CASA also, CASA on the task institutional created a structure now and next one months or two months and all, we will create that structure for the feet on street rest of things. So that channel also will be developing these fresh connections and all. So branches will focus on the time deposit, CASA channel will focus, together we want to take it forward. That is the reason our intention is to progressively reach CASA 40% also, simultaneously having a growth in time deposits. If time deposit starts coming down, automatically CASA will be up, intention is not that. So both in tandem, we need to move, 40% for CASA and time deposit. So even if you look at it, the industry on an average grew in deposit by 8% and we grew at 11%. So we want to maintain that edge and all. We have activated our branches.

Praful Kumar — Dymon Asia — Analyst

Got it. That’s great. Sir, second question, given this backdrop that on deposits, you are incrementally gaining share. On the advisory side, you have done a lot of granularization on the corporate side as well, retail, you have done phenomenal work on the digital side. Now is there any visibility today that from 15% you can pedal up to 18% growth over next say two quarters to four quarters in terms of the pipeline building?

B. Ramesh Babu — Managing Director and Chief Executive Officer

No I’ll tell you, initially till last quarter, we were indicating a more or less 12%, because last one or two years, if you look at it or by one years or two years last three years, four years, the position was quite sluggish. So with this thing, I felt actually we need to grow progressively rather than growing at a breakneck speed because the issues what we had in corporate, we do not want to repeat in the retail. So that is the reason. Consciously looking at the environment, on our own, we have revised the guidance from 12% to 15%. So let us see how it works and all. It actually it is working and all, so no one need to ask, on our own, how we have improved 12% to 15%, the same way we will come forward, and all, we will see how much we can grow.

Praful Kumar — Dymon Asia — Analyst

No, that’s phenomenal, sir. I think Bhavik also asked a very relevant question that you have reached 1.1% [Phonetic] in terms of ROA and since you are generating enough and more, it’s a good time to build pipeline and look at the next level of ROA improvement [Speech Overlap).

B. Ramesh Babu — Managing Director and Chief Executive Officer

We are absolutely on the job [Phonetic]. We are on the job, and not only a particular vertical, we are trying to activate every vertical because what all contribution comes, a grain of gain is a gain.

Praful Kumar — Dymon Asia — Analyst

That’s well said, sir. Congratulations and all the best, sir.

B. Ramesh Babu — Managing Director and Chief Executive Officer

Thank you. Thank you very much.

Operator

Thank you. [Operator Instructions] The next question is from the line of Prashant Kumar from Sunidhi Securities. Please go ahead.

Prashant Kumar — Sunidhi Securities — Analyst

Hello.

B. Ramesh Babu — Managing Director and Chief Executive Officer

Hello, yeah, Prashant. Good evening.

Prashant Kumar — Sunidhi Securities — Analyst

Yes. Thanks for the opportunity, sir and on the profitability side you — obviously the bank had performed authentically [Phonetic]. Just on the balance sheet side, borrowing has increased around 150% year-on-year growth, and so just wanted to understand that if the deposit is not growing at that level that advances can, I mean the CD ratio can match. So why not we have cut investment at some point of — and we can manage because obviously the borrowing must be a higher level and investment may have given us a lower yield? Yeah. That’s it from my side.

J Natarajan — President and Chief Operating Officer

Yeah. See whatever investments, we are doing is absolutely is not from the borrowed funds. So whatever borrowed funds we are seeing on the end of the quarter or end of the year is on maybe a one day, two day is against government securities, repo borrowings we are doing later. By and large, our CD ratio is something around 83% to 84%.

If we are maintaining 84% CD ratio, naturally INR3,000 crores, INR4,000 crores surplus funds bank will be having it. That’s what the LCR is 264%. So that is what we are investing in the short dated securities and depending upon the yield, we are doing it. So in that way, over a period of time, probably that the credit demand picks up, these are all short dated securities, where easily we can come out from that investment, that is not an issue.

B. Ramesh Babu — Managing Director and Chief Executive Officer

Yeah. One more point just I want to share with you, it is a transitory that particular day if you look at it that number, the borrowings you maybe finding 2006-’11 [Phonetic], but currently, if you look at it, it is less than 500 [Phonetic].

Prashant Kumar — Sunidhi Securities — Analyst

Yeah, yes.

B. Ramesh Babu — Managing Director and Chief Executive Officer

Okay. So that way, as I said, it is a transitory number on the particular date, it has come up and all. So it’s the question of management of the funds actually, now it is below 500 [Phonetic].

J Natarajan — President and Chief Operating Officer

Again the balance amount on the borrowing, for example, refinance. We borrow from SIDBI refinance, we borrow from NABARD, so these are lower rates. So in addition to that, for example, precious metal, so whatever we’re — business we are doing it, it’s only a borrowing of the gold, a bullion. So in that way, that peer is not a very vanilla borrowing, it comprise of different combinations.

Prashant Kumar — Sunidhi Securities — Analyst

Okay. Okay. And — that’s it from my side. All answered. Thanks, again.

B. Ramesh Babu — Managing Director and Chief Executive Officer

Thank you.

Operator

Thank you. [Operator Instructions] The next question is from the line of Abhishek Tandon from Bowhead India. Please go ahead.

Abhishek Tandon — Bowhead India — Analyst

Good evening, sir. Thank you for the opportunity.

B. Ramesh Babu — Managing Director and Chief Executive Officer

Yeah. Hi, Abhishek.

Abhishek Tandon — Bowhead India — Analyst

Sir what would be the overlap between restructured and SMA loan book?

B. Ramesh Babu — Managing Director and Chief Executive Officer

Sorry, please you have to repeat it, because it’s not clear, please.

Abhishek Tandon — Bowhead India — Analyst

Okay. What would be overlap between restructured and the SMA book?

B. Ramesh Babu — Managing Director and Chief Executive Officer

Restructured [Foreign Speech] restructured, SMA book. No, overall, our SMA, you would have seen it, it is less than 1%. That includes restructured also. But restructured separately SMA — that includes restructured also.

Abhishek Tandon — Bowhead India — Analyst

Yeah. So that’s what I’m asking, so what would be the overlap, what would be the restructured book that’s also coming in the SMA part…

J Natarajan — President and Chief Operating Officer

Restructured book.

B. Ramesh Babu — Managing Director and Chief Executive Officer

One sec, we will give you. I think INR93 crores — how much is it. I think INR93 crores is there in that. Out of the INR500 crores odd, what we have told SMA 30 [Phonetic] plus, which includes some INR40 crores under the jewel loan and INR93 crores under the restructured book also SMA 30 [Phonetic] plus is there.

Abhishek Tandon — Bowhead India — Analyst

INR93 crores. Okay. Thank you so much, sir. That’s it from my side.

B. Ramesh Babu — Managing Director and Chief Executive Officer

Okay. Yeah. Thanks.

Operator

Thank you. [Operator Instructions] Ladies and gentlemen, we take that as the last question for today. I now hand the conference over to Mr. B. Ramesh Babu, MD and CEO for closing comments. Over to you, sir.

B. Ramesh Babu — Managing Director and Chief Executive Officer

No, no, thank you very much to every one of you, for the interest you’re having and for participating in the conference call. Thank you, and good day. Thank you.

Operator

[Operator Closing Remarks]

Duration: ?? minutes