CSB Bank Limited (CSBBANK) Q4 FY23 Earnings Concall Transcript

CSB Bank Limited (NSE:CSBBANK) Q4 FY23 Earnings Concall dated Apr. 28, 2023.

Corporate Participants:

Pralay Mondal — Managing Director and Chief Executive Officer

B K Divakara — Chief Financial Officer

Analysts:

Chirag Gandhi — Axis Capital — Analyst

Jaiprakash Toshniwal — LIC Mutual — Analyst

Pruthul Shah — Anubhuti Advisors — Analyst

Samraat Jadhav — Prosperity Wealth Advisor — Analyst

Shrish Vaze — Moneylife Advisory Services — Analyst

Mona Khetan — Dolat Capital — Analyst

Sheel Shah — Sameeksha Capital — Analyst

Pallavi Deshpande — Sameeksha Capital — Analyst

Presentation:

Operator

Ladies and gentlemen, good evening and welcome to the CSB Bank Q4 FY 2023 Earnings Conference Call, hosted by Axis Capital Limited. As a reminder, all participant lines will be in the listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes. [Operator Instructions] I now hand the conference over to Mr. Chirag Gandhi from Axis Capital.

Thank you, over to you.

Chirag Gandhi — Axis Capital — Analyst

Thank you Ryan. Good evening and hello everyone. On behalf of Axis Capital, I would like to welcome you all to Q4 FY 2023 earnings call of CSB Bank. From the management, we have with us Mr. Pralay Monal, MD and CEO, along with him we also have Mr. B K Divakara, Chief Financial Officer. Now, I would request MD sir to begin with by giving his opening remarks and then we can open the floor for Q&A.

Thank you and over to you sir.

Pralay Mondal — Managing Director and Chief Executive Officer

Thank you Chirag and thank you everybody for joining the Q4 and annual results call of CSI Bank. So, to start with I’ll give you a very brief — our understanding of the global scenario and then the domestic scenario as well. So on the global economic activity, we can see — while it remains robust and — high inflation levels, tight financial conditions and looming geopolitical uncertainties. Amidst the slow growth and easing of enough inflation, the global slowdown impact is turning out to be less severe than expected, so-far, at least that’s what it looks, but we have to wait-and-watch.

These conditions are expected to prevail for a while and inflation rates — or until inflation rates moderate significantly. Both IMF and the World Bank have projected world output, year-on year growth rates of less than 3% in 2023 and marginally above 3% in 2024 and market is expecting 25 bps Fed rate hike in May 23 and then take a call to pass, provided there are no major bitter surprises inviting action beyond May. On the domestic side of course, global challenges kept aside, Indian economy continues to be looked as a bright spot, both locally as well as from some global commentary. Domestic growth was burnt in Q4 of FY 2023, RBI has revised the inflation projection to lower levels and to a tactical rate decision in the last [Indecipherable] accommodation to ensure a progressive alignment of inflation within the target while supporting the growth. The latest MPC announcements, inflation for FY 2024 is projected at 5.2% and GDP at 6.5% at the current inflation [Indecipherable] is within the target, no rate hikes are expected in the short-term until and unless there are any surprises on the [Indecipherable] releases.

The 10-year G-Sec that’s launched from a band of 7.35 to 7.4 in March, we on 7.1 to 7.15 levels right now after the policy announcements. Liquidity that was in a slight deficit mode, went to a surplus around INR2,00,000 crore and it has normalized a little bit more now. The cumulative impact of monetary action taken in FY 2023, is still unfolding and the real rate of transaction is getting spilled FY 2024. As for the [Indecipherable] statistics the banking system deposits around 10% this quarter and [Indecipherable] around 16% for the year.

So, and reading an article by Nomura that next year that growth is expected — I mean, while nominal GDP will be around 10% to 12%, but credit growth is also not expected, much higher than that. So, on that backdrop, let me just get to the specifics of this quarter and this year’s performance. So overall the performance on both top-line and bottom-line was reasonably good on a quarterly and financial year basis. Highlights of our performance I’ll just quickly talk about the key highlights. Improved profitability. Net profit of INR547 crores up by around 19% from last FY.

For the quarter ended 31/3/23, the net profit is at INR156.34 crores, which is up 20% versus Q4 of last year. Provisioning buffer of around INR170 crores over and above the regulatory permits could maintain the NIM above 5% person for the quarters and FY 2023 around 5.38% and 5.48% respectively. ROE improved Y-o-Y from 1.9% to 2.06% for FY 2023. On the liability side, I think that team put up a good show; deposits grew by 21% year-on year as against industry growth of around 10%.

CASA ratio improved marginally Q-on-Q from 31.44% to 32.18%. Percentage on a year-on-year basis, there was slight negative growth impact. Asset growth of 31% Y-o-Y and 12% quarter-on-quarter. Industry has grown about 16% Y-o-Y. Gold portfolio registered a growth of 48% Y-o-Y and 10% Q-o-Q. Yield on advances for Q4 FY 2023 is at 11.17% with an improvement of 15 bps from Q3 FY 2023. Yield on assets for FY2023 is 10.92% and it was 11.21% in FY 22. Improved asset quality metrics is also another key highlights. So pretty well in all key indicators like GNPA at 1.26% and NNPA at 35 basis points or 0.35% and PCR 92% which is with the write off included.

And contingency provisions accounted in the books is higher than NNPA continuing with the accelerated NNPA provision, higher than the RBI requirements and funding provisions. We have fully provided the asset portfolio in-line with RBI guidelines and on the capital in-spite of a growth of almost 30% the CRAR is above 25%, it’s around 27.10%. Low proportion of risk-weighted assets, competitive intensity has helped us in this and on the shareholder value-creation book-value per share has reached INR176, EPS INR31.55, ROE 20.35%.

On the investments we are making major investments into branches so we plan to open at least 100 more branches in FY 2024, working on technology enhancements, lending systems, liability systems, payments, channels core system. I mean there’s a host of that is going on in the technology side and the major investment this year — I mean this year our major investment will be on technology, distribution, people and channels. And also, we will become truly pan-India bank because more than 60% of our branches, incremental branches this year will be North and West regions.

In conclusion, the success of our organization has four elements in it. Vision, aspiration, passion and execution. Our vision for 2030, which is the Sustain, Build and Scale 2030 strategy which is well imbibed within each and every CSBian and they are translating into reality. The entire team is aspiring for this to happen and working passionately towards it. The achievements in the year-one have boosted our confidence as far as the resolution is concerned as we embark into the most [Indecipherable] of SBS 2030.

In FY 2024 we are planning a lot of investments especially in the technology space, which I just talked about where payback period will be closely tracked. We know that it will be an exciting journey and the synergistic approach we’re taking within the bank will continue to expand our footprint pan-India and we will ramp of [Indecipherable] and we hope to have an even better year for us. With that, I hand over the conference — in case Mr. Divakara, you want to a few points, post which we will hand over the conference back for questions.

B K Divakara — Chief Financial Officer

Nothing specific from my side Pralay, you have elaborately covered it. So during question/answer session, if anything needs to be clarified I will chip-in.

Pralay Mondal — Managing Director and Chief Executive Officer

Sure, thank you. So we can get with the Q&A.

Questions and Answers:

Operator

[Operator Instructions] Our first question comes from the line of Jaiprakash Toshniwal from LIC Mutual Fund. Please go-ahead.

Jaiprakash Toshniwal — LIC Mutual — Analyst

Hello good evening, sir. Thank you for taking my question. Two questions, one, first on, if you can comment on any more HR hiring which you are looking or which you have done in this quarter on the senior leadership side?

Pralay Mondal — Managing Director and Chief Executive Officer

So, we are almost 70% done on the senior leadership side and we when I say senior leadership now we are no longer looking at on the CXL level because CXL level almost 80% is done, we are looking at CX Plus one and CX Plus 2 as well and we have significantly enhanced that side of the leadership strength out there. We are also doing a lot of hiring on the front-end as well and every product vertical and every business vertical and support vertical. So, we are enhancing everything because the way we are planning our growth next year and for the next seven years till 2030, we are not looking at a single or two or three products, we are looking at whole service franchise and for which the only way to do is to create the right verticalization, so that there is a clear focus on this and then integrate the verticalization through a common kind of a platform.

So, because of that, we are significantly — we have actually significantly higher lot of senior people in the last six months and we’ll continue to have more headings there. So last year overall, our number of people we hired was around 2,200, this year which is around 46% or 47% growth in terms of manpower. Next year, we are looking at even higher growth in terms of absolute numbers. And in terms of percentage growth, it should be almost similar what we believe this year. So, we will continue to invest into our human capital franchise.

Jaiprakash Toshniwal — LIC Mutual — Analyst

Great sir. Thanks. And on the SME loan book side, we have seen a sequential improvement this quarter, is it more to do a market or function or is it more to that you have the system, teams in-place, and now there will be a sequential uptick at least on the SME portfolio side?

Pralay Mondal — Managing Director and Chief Executive Officer

Sure, great question. I told before again I’m repeating that. One is, we took last year as an opportunity, because I felt in the past three quarters somehow, at least from our risk appetite the pricing of the risk was not happening in the market and given we are a bank with a NIM of 5% plus and given that our risk appetite is very, very low so we didn’t want to significantly expand the business when pricing of the risk was not to our appetite.

However, we saw that changing in the Q4 of this year — of last year, last FY. So if you see our QoQ growth is around 10% on SME last quarter, and we hope that we will continue the momentum going into next year unless the market scenario changes. At the same time, we also exited a lot of accounts last year. Some, we exited because we didn’t like the business and some we exited because the kind of rates which they were asking we didn’t want to participate there.

But in terms of absolute growth in limit setting etc, we did a pretty good job in Q4 so we are happy that, that momentum is starting to pick-up now. Also we are going pan-India in terms of our SME growth, in terms of franchise and one of our main models will be to work with every branch and we are launching our current account and the team by which they’ve beaten the SME, the current team and we have also launched transaction banking and we have got a very senior resource who is heading the transaction banking.

So between these three triangulation we’ll ensure that our SME business starts picking-up this year now. So this will be our growth engine for the next seven years.

Jaiprakash Toshniwal — LIC Mutual — Analyst

Great sir. Just last question on data keeping sir, your CAR increased to 27% on a Q-on-Q basis, while the profit is kind of same as Q3 and we also have the risk RWA to total asset has increased in, so if you can help us to understand the reason behind CAR increase?

Pralay Mondal — Managing Director and Chief Executive Officer

I think Mr. Divakara will be able to answer the question, better let me try and then I’ll hand over to him. I think one is our — some of the baking of which also comes in also risk-weighted assets, as is also low because the gold portfolio has grown faster and hence our risk-weighted assets to that extent is doing well, but let Mr. Divakara answer this.

B K Divakara — Chief Financial Officer

Yeah, apart from that also, so as per RBI guidelines now for taking advantage of this external rating, we need to incorporate bank’s name, so somewhere else in some of these cases, though they have promised to include our bank’s name they couldn’t do it, so with the result about almost INR1,000 crore of risk-weighted assets have gone up on account of non-inclusion of bank’s name in this external rating exercise. But otherwise, by and large, this rate is in line with movement in credit enhancement, so apart from that this is also one of the major reasons why despite having shown a higher profit growth, the capital adequacy has not moved in tandem with this profit growth.

So maybe that is going to be corrected this year, this is what we have been told at the time of next Annual exercise of this external rating, they said they have promised to include our bank’s name. In quite a few cases, they couldn’t do this so that’s why we couldn’t get advantage of AA or AAA.

Jaiprakash Toshniwal — LIC Mutual — Analyst

Sorry to interrupt sir, but just because of the Q3 to Q4, is a 200 basis-point increase in CAR while our RWA to total assets has also increased from 38% to 40%, so using INR1,000 crore is because the CAR should be up more than the current number, that’s what you’re saying? I didn’t get this answer.

B K Divakara — Chief Financial Officer

Yeah, because that is March 31st of the deadline for this exercise to be completed. That impact was felt in this quarter only not in earlier quarter, that is one of the reasons. So, otherwise even credit growth have happened so Q4 growth was quite sharp this quarter. So these are the two main reasons.

Jaiprakash Toshniwal — LIC Mutual — Analyst

Okay.

Pralay Mondal — Managing Director and Chief Executive Officer

I think Mr. Divakara the question he is asking is that in-spite of the fact that risk-weighted assets has gone up, why — how is it that we have been able to show a sharp uptick in our CAR [Indecipherable]. I think because of primarily the profit growth and the balance sheet growth right?

B K Divakara — Chief Financial Officer

Profit will be reckoned only at the year end. So, first three quarters though we have been making profit, we couldn’t get that benefit. For capital adequacy purposes that gets accounted only in Q4. So, only when the annual published results are announced.

Jaiprakash Toshniwal — LIC Mutual — Analyst

Got it sir. Thank you. I’ll come back in the queue. Thank you.

Operator

Thank you. Our next question comes from the line of Prathul Shah from Anubhuti Advisors. Please go-ahead.

Pruthul Shah — Anubhuti Advisors — Analyst

Yes. Thank you for the opportunity and congrats on great set of numbers. My question is with respect to the loan book distribution based on interest-rate methodoloy. So what is the proportion of loan book, which is repo-linked, MCLR-linked and fixed-rate if you can give a number?

Pralay Mondal — Managing Director and Chief Executive Officer

Mr. Divakara, you will have that specific number? I know broadly, but about if you have the specific numbers, you can give, otherwise, I will give the broad numbers.

B K Divakara — Chief Financial Officer

Rate of interest is 58% because predominantly so we are into this gold loan — 58% is fixed rate of loans. MCLR 27% and repo increase 11%.

Pralay Mondal — Managing Director and Chief Executive Officer

So, broadly, the way it is, the corporate book is primarily MCLR linked that SME is primarily repo rate linked and the gold loan is mostly fixed-rate and on retail it’s a mix of both fixed as well as variable-rate, but it broadly mirrors the portfolio mix in the bank.

Pruthul Shah — Anubhuti Advisors — Analyst

Okay, got it, sir. And one another question with respect to cost of borrowing so Q-o-Q, if we see the cost of borrowings has gone up in this quarter. So what was the main reason for it? Whether it was to — and also our cred deposit ratio has gone up this quarter. So is it that because we are getting opportunity in case of advances, we are borrowing at a higher-rate is this understanding correct with respect to cost of borrowing then CD ratio both?

Pralay Mondal — Managing Director and Chief Executive Officer

So I’ll give you my perspective on a macro and kind of a high-level then Mr. Divakara can dissect the numbers. So we are very clear that the scenario where we are in on the global banking scenario and we cannot be completely insulated from what is happening globally and in a way, now we also heard that from RBI Governor speech which was published in media today is the liquidity management and the capital management is of top priority of the banking because that insulates the banks from any kind of unnecessary risk. So, while none of that is hitting the Indian shores today, but I think one needs to be prudent. So from that perspective on the capital side, we are very well-protected because we have one of the highest CRAR ratios in the banking ecosystem. On the liquidity side, I was very clear that we are looking at growth.

Strategically, I’m saying, we are looking at growth for the next seven years and when you are looking at growth and I’ve said this before that I’m willing to sacrifice margins for growth okay because ultimately, we are building a large franchise and we leverage this franchise over the next decade two decades, so given that perspective, few basis-points here and there I don’t want to lose my sleep on that. So given that perspective, we are very clear that we will focus on ensuring that our LCR, our liquidity and our ability to grow the asset side is not constrained by any kind of a liquidity risk or any kind of a liquidity availability. So given that perspective, we have grown our deposits twice the system which is 21% 10%, that’s number-one.

And even with all that, if you look at our CD ratio is, if you look at all the private sector banks we are well within that range — actually on the lower-end of that range and I think we’re 83% if I remember the number correctly, and on the — I think 83% to 84% I think somewhere. And in-spite of doing all that, and in spite of the fact our broad comfort is between around 5% on NIM, we have been able to retain the NIM at a very, very healthy rate. So, at this name and with this growth and with this level of LCR, I’m quite comfortable in having a few basis points going up on the cost of borrowing or cost of deposits I have no issues with that and the good news is that we are seeing that 10-year G-Sec is tapering down and hopefully the rate cycle is coming almost close to peak. So given that I think our strategy is playing out very, very well. The other thing which we have done very tactically is we have not kind of taken long-term deposits or long-term CDs. We have kept our this thing pretty short-term. And to that extent, whatever is there, we are not going to get bound by heart-break for too long a time once the interest-rate starts getting flat to starts coming down.

So overall, strategically we’re going this way and I’m pretty confident that we should be able to be closer to 5%, 5% plus for some more time and given the perspective we are quite happy in building some buffer in the liability side. So that’s broadly the strategy perspective, the bank has.

Pruthul Shah — Anubhuti Advisors — Analyst

Okay sir. And also one thing that this quarter gone, RBI has increased the repo rate, but we have reduced our MCLR in the same quarter. So what’s the strategy there, if you can you comment on that part?

Pralay Mondal — Managing Director and Chief Executive Officer

I’ll request Mr. Divakara to answer this, before that I just wanted to add one more point, in my previous response that we have also tactically brought down for example a CD last year and 31/3/2022 it was INR520 crores this year we ended with only INR96 crores of CD 2023 March, so which means that most of the liability side of the business you’re are seeing are mostly deposit focused and hence core franchise. So with that, Mr. Divakara, you would like to answer that question on repo rate and MCLR?

B K Divakara — Chief Financial Officer

The marginal cost — MCLR has been reduced by few basis-points because it has been computed as per RBI guidelines so this operating costs slightly it has come down. So based on that formula only it has been worked it out, but it is not that quite steep. So, it’s only by a few basis points only it has come down and that has been passed down to the customers because our MCLR is already very-high so we thought as and when some opportunities are there to pass-on the benefit to the customers, why can’t we do that, so based on that it has been done.

Pruthul Shah — Anubhuti Advisors — Analyst

Okay, got it, sir. Thank you. I’ll get back-in the queue.

Operator

Thank you. Our next question comes from the line of Samraat Jadhav from Prosperity Wealth Advisor. Please go-ahead.

Samraat Jadhav — Prosperity Wealth Advisor — Analyst

Yeah, am I audible?

Pralay Mondal — Managing Director and Chief Executive Officer

Yes Samraat.

Samraat Jadhav — Prosperity Wealth Advisor — Analyst

So two questions, one is, we had an impact in NIM quarter-on-quarter based on first quarter FY2023 it was a good increase and then we had a drop in last quarter. So what could be the reason behind that?

Pralay Mondal — Managing Director and Chief Executive Officer

So as I said before that, in general, I’m not saying guidance but in general in my — all my previous analyst calls, I’ve said that we are quite happy to have our NIM closer to 5%, but we’ll focus on growth because NIM by itself doesn’t mean anything which you have got the growth, which is double than the system. But the NIM also is a function of the mix of businesses, the cost of funds and various other things right. So to that extent I think we are on a year-on year basis, look at NIM, it’s looking okay, maybe on a quarterly basis, it was slightly tapered down from that perspective, so I think it’s 5.38% [Multiple Speakers] For the quarter, it has been slightly down, but when you look at Q1 vis-a-vis Q4, we are pretty much okay out there.

And when you look at Q4 last year vis-a-vis this year, Q1, we are almost similar, so I think this will play in this range between 5% to 5.5% and we hope to retain at this kind of a level. So we should not have a problem with this, but we are quite happy being in this range. Too high a NIM is not sustainable when you’re growing a franchise punches consistently.

Samraat Jadhav — Prosperity Wealth Advisor — Analyst

True, and you also said in your remarks that you have a target of opening 100 new branches. So that would be for the full financial year?

Pralay Mondal — Managing Director and Chief Executive Officer

Yeah, for the full financial year so I’ll tell you strategically what the thinking is that we are going to start focusing on building the CASA franchise now okay, I’m sure some question will come on CASA at some stage so let me just upfront it and hence the CASA franchise will not be built on gold loan focused branches so we are expanding significantly in North almost 50% 60% of our new branch openings, almost 60% of our new branch openings this year will be North and West along with that we are building products, which will help us in-building the CASA.

CASA has not always grown by just focusing on liability so we will start retail assets, we are starting payments we are starting SME in a big way. We have been building transaction banking, we are focusing on current accounts in a way both savings and current and nothing backed float and that remains in the account depending on other transactions or usages. So to that extent, we have to start building and we have significantly grown our new acquisition this year and we want to get significantly more new acquisition next year, so we are building a fairly large team to get new customers to the Bank and new customers to the bank only helps when we have the right products and services and the technology to on-board them and cross-sell other products.

So this entire journey is a three-four five year kind of a journey and we are starting it this year and significant investment on technology is going to help us in scaling this from FY 2025, so our CASA journey is in a way, we are kind of teeing off this year and this will see larger-scale over a period of time and hence, as we see FY 2024 we should see similar kind of a CASA ratio as we are while we continue to grow at a similar kind of a pace next year both on deposits and on advances. So that’s broadly what we are kind of strategically thinking of.

So on the branches, I’d say that, yes, we will have 100 branches minimum and out of that 60% will be in North and West, and these are not necessarily gold loan branches.

Samraat Jadhav — Prosperity Wealth Advisor — Analyst

Okay, great, that’s it, thank you and best of luck for the next one year. Thank you very much.

Operator

Thank you. Our next question comes from the line of Shrish Vaze from Moneylife Advisory Services. Please go-ahead.

Shrish Vaze — Moneylife Advisory Services — Analyst

All right. Thank you sir for taking my question. My first question is regarding our gold loan originations. Can you provide me with the split of what percentage of our gold loans are we currently sourcing in-house and what percentage are through externally through direct assignment, securitization other means? Thank you.

Pralay Mondal — Managing Director and Chief Executive Officer

So this is an easy one, so the gold loan portfolio what you’re seeing has nothing on direct assignment that portfolio is reported separately and that comes under the wholesale banking business which we should through some of the NBFCs. But gold loan business which you are seeing are all organically in-house customers within the bank.

Shrish Vaze — Moneylife Advisory Services — Analyst

Got it, thanks sir. My second question is around our treasury strategy. So I can see that we have a duration of about 4.57, so I just wanted to understand how are you thinking about the duration strategy going-forward, like, are we going to be increasing the duration of our treasury portfolio like if we have a view on our interest rates or are we going to be conservative and sort of holding low duration securities for now? Thank you.

Pralay Mondal — Managing Director and Chief Executive Officer

So thanks for the question, so I will give a partial answer and then Mr. Divakara can add to that, so obviously in overall global scenario the way things are playing out, increasing the duration may not be the right kind of a risk strategy or even from optically may not look the right thing to do. So, we will obviously watch things out because treasury strategy can change depending on how the macro changes globally and in India. So what I saying now may change after a quarter, after six months or after a year, but right now, that way we’re seeing and there are. I mean, as you know that the yields have softened a little bit in India.

So from that perspective, I think we can tactically move some portfolio and books from not only profit, but also reduce the duration of the portfolio, so I think we will use those tactical opportunities to ensure definitely we don’t increase the duration of the portfolio. Mr. Divakara, you want to add anything to that?

B K Divakara — Chief Financial Officer

M-duration of AFS portfolio is 0.37%, it’s only on account of this HTM so we don’t have anything in HFT also so only in HTM it is at 5.61%, so overall it looks 4.57 but AFS M-duration is hardly 0.37%, so we don’t envisage any issues on the this.

Pralay Mondal — Managing Director and Chief Executive Officer

Yeah. But what I understand the question, what you’re saying. So I’ll tell you what. I had done when this issue happened etc, and this is for the entire banking ecosystem. So even when you are in HTM you can say that hypothetically what happens if I’m not saying that is going to happen, but I’m just saying what happens if you do a hypothetical calculation of our M2M on a HTM portfolio as well and we do all the calculations and we see what are the risks, what are this thing, and what are the challenges etc.

So given that perspective I think what Mr. Divakara is saying is right. At the same time, there will be tactical opportunities just say that you can move one-time from HTM to AFS and a) book some profit b) reduce the duration and things like that. So we’ll look at those technical opportunity but overall broadly things don’t change, because we are not into majorly trading and we as Mr. Divakara just said that we don’t keep too much of AFS in our portfolio so that’s our strategy, it’s not a major — we are not majorly trading into this kind of portfolio. But duration I don’t see how it will significantly go from here.

Shrish Vaze — Moneylife Advisory Services — Analyst

Got it, thanks I’ll go back in the queue.

Operator

Thank you. Our next question comes from the line of Mona Khetan from Dolat Capital. Please go-ahead.

Mona Khetan — Dolat Capital — Analyst

Yeah, hi sir, good evening. Sir my first question is on the cost of deposit, we saw this rise of 55 bps Q-on-Q rising cost of deposits this quarter. So one I just wanted to understand what exactly led to this. And two, assuming that there is no interest-rate and three what sort of rise in cost of funds per quarter could one sort of anticipate, broadly speaking?

Pralay Mondal — Managing Director and Chief Executive Officer

Thanks Mona for the question. In a way I partially answered this question already that we wanted to ensure that we have enough buffer and dry gun powder in the system to grow not only for last year and last quarter, but on a sustainable basis, especially when our NIM and other things are looking very good. So I don’t — somewhere you have to ensure you take a call. So given that perspective, we have ensured that our LCR and our CD ratio and our liquidity is extremely strong.

Having said that, when so much of entries has happened on the repo rate, at some point of time somewhere some entries will happen on the cost of funds also. I’m sorry — on the cost because it’s also and that has happened this quarter, because if you see, for us this never happened in the whole year right. This is only in one quarter, which has happened last year we ended at 5.29 last quarter we ended at 5.24, where RBI will tell us that you are not transmitting this thing to the customers. So, we also have a way of looking at that, that’s little more on the lighter side.

But having said that, ideally what we did tactically, we said that a) we will keep it little more shorter-term, okay. We will not — because we knew that there is a reasonable likelihood of G-Sec flattening out and hence, we didn’t take too much of a longer call and that takes me to the second part of your question, which is what would be the outlook ahead for the next few quarters or next year. I think outlook ahead is reasonably flattish from here and we don’t see too much of growth — first of all, marginal growth can happen, but I don’t see anything, which will impact on NIM to that extent, which eventually actually impacts your P&L positively or negatively. So that is not [Indecipherable] the NIM and the cost of deposits at this point of time.

Mona Khetan — Dolat Capital — Analyst

Okay, so when I look at your — I see that most of the rises come from higher term deposit, now when I look at your quoted rate or card rates, they have not necessarily increased over the quarter. So is it like a lot of wholesale term deposits coming at higher-cost, short-term or something like that?

Pralay Mondal — Managing Director and Chief Executive Officer

So — see, you know how much business happens in a tight liquidity situation on card rates, okay. We all know that and we were at least, I can tell you that we were lower than some of the larger brands, where we are quoting events, but nothing is really wholesale as such our — most of these are retail by RBI terminology, these are wholesale because these are more than INR2 crores but these are actually mostly retail customers, except for one or two maybe wholesale customers were there, but mostly these are retail customers.

The way we know — means retail branch banking source them basically from that perspective, but there could be slightly larger ticket size. Secondly, none of these businesses which we did I was very clear that we’re not going to compete is South, the banks, which are giving very-high rates we are not competing there. I said that only when the top three largest banks — the top three largest private sector banks, there I said that either we’ll match or we will not do the business. So to that extent, this is mirroring what the larger part of the market was and not some of the players, which we’re giving because we didn’t participate there.

And thirdly, the benchmark rate — the card rates generally you want to do it very carefully, because you have existing book you have existing, for example, savings book [Indecipherable] and all of that stuff, so you know-how this entire thing plays out. So one handle the card read very carefully otherwise, the cost of funds can go very, very high. So that’s a very standard practice across all bank so we have followed that, but yes to some extent special rates, if you can ask special rates have gone up last quarter, a little bit for the entire ecosystem and the industry and that is true for us also. But we have not given crazy rates in the market to buy business. We have not done a single deal, which is higher than any of the large three largest private sector banks or at that’s what — they are doing businesses

Mona Khetan — Dolat Capital — Analyst

Got it. So, I mean the kind of rise we are seeing in this quarter, it’s not something that will be sort of replicated in the subsequent quarters, maybe 20 bps per quarter or something?

Pralay Mondal — Managing Director and Chief Executive Officer

See, I cannot announced do that kind of splitting up here at this juncture, it’s almost like crystal ball gazing, but what I can tell you is that I am not worried on this, I’m going to protect my name to a great extent and — I’m not at all worried about NIM and I don’t see cost of deposits, really — I mean, maximum one or two quarters here, a little bit few basis-points here and there can happen but eventually it will actually start tapering down after that, because we have not taken a long-term funding. So that was done tactically as ALCO decision and that is exactly how it is playing out right now.

Mona Khetan — Dolat Capital — Analyst

Sure. And secondly on the loan-to-deposit ratio, you mentioned you are at the lower-end of average for private bank at 84% or thereabout. So, can one assume that loan-deposit ratio can continue rise from here on or it has reached that level that it remain closer to where it is?

Pralay Mondal — Managing Director and Chief Executive Officer

So, I think it depends actually on our credit growth next year okay, so if we are at around, let’s say — if the market is at 10%, 12% percent and if we grow by grow by let’s say 22% 23% 25% then we should be able to retain this kind of CD ratio, but suppose we do a better job and grow the book faster then I don’t mind having a CD ratio because see 86%, 87% 88% CD ratio have lived within in my past in my previous organizations, it’s not a big deal. So as long as it remains below 90% for a good cause, not because we cannot mobilize liability, but because our credit growth has been faster, because all the cylinders are firing. I would not lose sleep on that as well, but we will never go above 90%.

Mona Khetan — Dolat Capital — Analyst

Got it. And on the fee income side, so we’ve seen a very strong uptick in fee income this quarter so. I mean, and the entire fiscal as well. So could fee income continue to grow at a higher pace than loan growth. Something we saw in this fiscal?

Pralay Mondal — Managing Director and Chief Executive Officer

This I can tell with definite conviction that it will grow much faster than the loan growth, okay. I will tell you why and this is something — and actually if you look at most of our operating metrics Mona, most of the operating metrics, if you follow my analyst calls in past or on our one on one meetings most of this trajectory is exactly moving in the same line, which I have talked about before and that’s what gives me and my management lot of satisfaction that it is moving exactly as predictable, each of the operating metrics.

So on this fee income let me tell you which I had told before that we had significantly lower fee income this year on treasury and on PSLC income. I think within the two, we did almost INR30 crores, INR31 crores lesser than last year, between the two, okay. In spite of that fact we have grown by 28% on the fee income, which is in-line with the credit growth. Next year the PSLC income will come back for reasons which I’ve explained before and we do have a very good PSL book this year as well and our momentum on the processing fees will only go up because with credit cards and retail assets and SME businesses coming in and transaction banking getting launched.

The granularity of the fee income is only going to improve significantly and our TPP business, trade, forex we are focusing a lot more on the NRI and trying to ensure that our — some of the remittance happens from the NRI booked directly through the Bank. So all of these will give us significantly higher traction on fee income. So I’m very bullish on the fee income, I said that sometime back, if you take ex-treasury and ex-PSLC our fee income is to be less than 5% of the total income. And I said that at some point of time by 2030, we should be somewhere around 17%, 18%.

In fact we’re ahead of that trajectory we have almost reached 13% 14% or something like that, or 15% I don’t know, so I think at least definitely I think in the next two years, we should be able to reach at least 15% of our — coming through the fee income of the other income which will be then we are in the same league as the big players, so I think we are well on-track on that front and this is something which is doing very well.

Mona Khetan — Dolat Capital — Analyst

Got it, and so if I look at this quarter, the 44% growth in the core fees, which is commission and processing fees, so just already included or what has this benefited from, is it the same thing, you mentioned card, trade, forex transaction fees?

Pralay Mondal — Managing Director and Chief Executive Officer

No, those have not yet come. So this has come primarily from gold, insurance, some debit card, credit card, here and there ATMs and all that. And so, mostly it is and liability fees of course, the standard liability fees which also has grown because as you add more customers this will grow to that extent, so I think we have done the basics right. Next year we’ll add-on few more cylinders to it and these basics, which you have done right, some of them will fire even better next year. So, I’m pretty confident that on the fee — definitely fee income will grow faster than that, next year will not have a negative growth on treasury and PSLC in both, we will have a positive growth. So if you all it up, there is a reasonably good traction we will see on the fee business.

Operator

Thank you. [Operator Instructions] Our next question comes from the line of Sheel Shah from Sameeksha Capital. Please go-ahead.

Sheel Shah — Sameeksha Capital — Analyst

Yeah, thank you. Thank you for the opportunity. So, we had a great year in terms of asset quality and we saw improvement each quarter, we had a negative cost for two years in a row and it is definitely outstanding, for FY 2024 can you please share the credit cost guidance and your thoughts on slippages for FY2024?

Pralay Mondal — Managing Director and Chief Executive Officer

So before that, let me just tell you what happened in FY 2023 and what is the good news in that. Other than recovery from production of books, production of accounts I think the other factor which is slippages is something which makes me very happy because the slippages has been pretty positive for us in the entire trajectory. So what it tells us that our risk management, our credit governance and all of that is working very well for us. So that’s number-one and hence, going ahead into next year and future we see that we have a good risk and credit governance which finally leads to credit cost, right.

Secondly on the credit cost, yes, we had continued to improve on our credit cost and we were more negative this year than last year as well. I think it is around 25 basis-points I think negative this year compared to I think 7 basis-points last year. But this, of course, this cannot continue forever as you grow your book, so what I have told in past, I’m telling again that our GNPA will be less than 2% and NPA will be less than 1% and our credit cost will be less than 40 basis-points and this I’m saying at least for the next three to four years on a on a CAGR basis.

So I will hold on to that. Having said that, obviously given the trajectory, we may not have a negative credit cost, but we may not reach that higher-end of this limit. I mean higher-end of this range so we should be doing reasonably well on operating costs next year as well. Three, four year guidance.

Sheel Shah — Sameeksha Capital — Analyst

Okay, thank you. Just one quick question, if you can just share your total investment fintech that we have done for the current year?

Pralay Mondal — Managing Director and Chief Executive Officer

Total investment?

Sheel Shah — Sameeksha Capital — Analyst

Tech investment.

Pralay Mondal — Managing Director and Chief Executive Officer

Tech investment. So, what we have done is we have built a structure and architecture and clarity on what we want to do on technology this year in FY23, the leadership team is in-place, the structure in-place and we have clarity what we want to do. The easiest way to say what we’re doing in technology is almost 70% 80% of what is there in the bank won’t be there after two years, okay, whether it is a core system, whether it’s the LMS, whether it is finance, whether it is the corporate-net banking, whether it is the entire API integration, I can go — lead management system the entire project management system. I mean, whatever vendor architecture. So we got full slightly this year, how much we started investing this year, but the big investments are coming in the next two years.

So in terms of capex, most of the capex will be through in the next two years in the bank, which obviously on accounting principles will flow-through over X plus 3 times plus four, this is and hence it’s not that everything will hit the P&L but maximum investments in terms of capex will happen in the next few years in the bank, and after that, obviously, we will continue to do bits and pieces here and there and that’s where the major investment will come in FY 2024 and FY 2025 and we’ll try and see if we can execute it right, lot of that will get front-ended in FY204 itself. This is a big, this is a big investment for us and this is a big strategy for us next year.

Sheel Shah — Sameeksha Capital — Analyst

Okay, can you just quantify it?

Pralay Mondal — Managing Director and Chief Executive Officer

I mean, it’s a difficult number to give, but what I can tell you is that in terms of — because I’ve told you before I can repeat it that our whatever our annual price — hopefully, we should be able to invest that kind of money in capex, obviously, it will get appreciation over 3, 4, 5 years.

Sheel Shah — Sameeksha Capital — Analyst

Thank you.

Operator

Thank you. We take our next question from the line of Shrish Vaze from Moneylife Advisory Services. Please go-ahead.

Shrish Vaze — Moneylife Advisory Services — Analyst

Yeah, thank you sir. I just had one small question regarding regulatory treatment of our bank. So in terms of RBI classification we are classified as an old private sector bank when we are trying to kind of transform the business towards the new private sector banks so just wanted to understand from a regulatory perspective, does that have any material impact on us that were classified as an old private sector vis a vis competitors who are new private sector banks?

Thank you.

Pralay Mondal — Managing Director and Chief Executive Officer

Frankly I have not thought through this year since you have asked this question. I have to now think about it, but from a regulatory — from a license perspective, whatever I understand is we can almost do everything what large new private sector banks can do. If there is any restriction anywhere not that I’m aware of. Mr. Divakara would you know anything?

B K Divakara — Chief Financial Officer

No. I don’t think so, any restrictions are there, we can do all business they are doing as of now.

Pralay Mondal — Managing Director and Chief Executive Officer

But I’ll check this out. This has never crossed my mind actually, because we have not actually faced hurdle in doing anything so far. So I I’ve worked in two, three large private second banks before — three large private sector banks before our two large and one medium and whatever I have done I so-far nothing I have been told not to go here actually. But let me let me take a clarification on this.

Shrish Vaze — Moneylife Advisory Services — Analyst

Got it. Thank you sir.

Operator

Thank you. Our next question comes from the line of Mona Khetan from Dolat Capital. Please go-ahead.

Mona Khetan — Dolat Capital — Analyst

Yeah hi sir. I just had two additional questions. So firstly on the — you mentioned that this plan of big investments this fiscal. So on the opex to assets we had to opex to assets 3.5% this fiscal. So, could this continue to be at similar levels or will the other opex growth of 28% over the last two years, moderate given the high.

Pralay Mondal — Managing Director and Chief Executive Officer

So, very good question Mona and this is something which I have been telling to all investors, including investor calls in past that, we will significantly increase our investments primarily four parts, one is distribution, one is people and leadership including customer acquisition, mostly in technology for the next two years and fourth is building channels including digital and partnerships and things like that. So these four investments will do come what may. So given that perspective, yes opex will go up because this is not cost — this is investment and each of these investments has a clear payback period and I’ve said that by FY2030 as we call it, our cost-to-income kind of our target is somewhere between 40% to 45%.

Having said that, I said, in the short-run, our cost-to-income target is between six 55% to 60%, we have retained within that this year, next we probably will be at the tipping point out there maybe few basis [Foreign Speech], but from next year onwards, again we’ll be in the range, within 50 to 60 and it will gradually start tapering down every year to 43% by FY 30, so that’s my plan and it will exactly play-out that way.

Mona Khetan — Dolat Capital — Analyst

Okay, got it. And just finally on the retail growth, we’ve seen a very strong growth in other retail, so where-is this coming from, if you could share some details around it?

Pralay Mondal — Managing Director and Chief Executive Officer

It’s coming from a low-base Mona. So we had our digital growth has not yet started frankly, okay. So what you are seeing is primarily because we have started nibbling bits and pieces here and there, because I’m very clear with the team that we will not grow retail till we have our systems in-place, till we have the right to ask the right business from the right partners and till we get our branch distribution on retail cross-sell well and till we get our liability franchise, where we have the acquisition machinery like a machine to which we can cross-sell. So frankly speaking, none of those things will take-off till FY 2025, FY 2025 we will start seeing some green shoots out there. Right now it is basically low-base and we are doing with some pieces here and there that is showing it up, but you will see. So what I told before, I said that by FY 2030, we will have 20% in gold, 30% retail, 20% SME and 30% wholesale and other businesses including securitization and everything, okay. So, if you have to go to 30% retail, where are we in retail. I mean we have to go there, right. So you will see a significant scale-up in retail between FY 2027 and FY 2030 and between FY 2025, for the first time we’ll start seeing the real growth happening. What you seeing is basically on a low-base we have started bits and pieces everywhere that is what is showing including agri, microfinance, little bit of a PL, some of the home loans, some of these labs, some of the businesses here and there, so these are all showing up little bit bits and pieces, but this is not the real [Foreign Speech] will start only post FY 2025 after our system processes are in-place.

Because, I have done this business enough to tell that we should not scale this business unless all our — all our machineries are ready and by that will be actually picking-up a faster pace than doing it now and then taking two steps or one-step back, and I will not do that in retail will only go – allowed only once we are fully ready and this growth you’re seeing is basically because of low base.

Mona Khetan — Dolat Capital — Analyst

Okay. So, the systems are expected to be in-place only by FY2025?

Pralay Mondal — Managing Director and Chief Executive Officer

No, the retail assets systems will replace all by FY 2024, okay, mid to-end, but then you know what happens is, based on my experience, I can tell you that once the systems are in-place, you need channel machinery to work, you need the process machinery to work also what we need is customers, right. So we are starting that entire sales machinery of customer acquisition and what we’ll do is, because we have digital access now unlike 20 years back so, onboarding of customers will happen with some retail assets businesses as well because of the digitized ecosystem. So all of that stuff will happen this year and that experience of cross-sell all said and done [Foreign Speech] Rajesh will deliver but we have to ensure that the culture of retail assets cross sell in the branches, so I’m getting the team to get activated towards that. With the sales team, they will have a separate strategy with the branch banking, they will have a separate strategy with the OCC, which is outbound contact center, they will have a separate strategy only these three machineries are working fine, then we will look at DSAs and dealerships and all that and start building their businesses, not the other way around, because we should go with strength and not looking for businesses, because our other businesses are not happening.

So that’s the way we build our businesses, so to that extent, yes, the short answer to your question is the systems will all be ready, only system which will not be ready this year will be core system. Core system will come in FY 2025 because that is something which we are not going to compromise will get the best of the best and hence that will take a little while, that will come by FY 2025 and then everything gets integrated around the core system.

Mona Khetan — Dolat Capital — Analyst

Sure, got it. Thank you. That was very helpful.

Pralay Mondal — Managing Director and Chief Executive Officer

Thank you Mona. Chirag any further questions?

Operator

Ladies and gentlemen due to time constraint, we take our last question from the line of Pallavi Deshpande from Sameeksha Capital. Please go-ahead.

Pallavi Deshpande — Sameeksha Capital — Analyst

Yes sir, thank you for taking my question. Just previously you mentioned about the special deposits. So what will be the share of that in the total deposits mix. And secondly on the NBFC side just seeing some exposure picking-up to that so what kind of NBFCs we see?

Pralay Mondal — Managing Director and Chief Executive Officer

See, typically — I don’t have that exact data, but I think we have always worked on our 30:70 kind of model, where 30 is last ticket — for us last ticket is very small-ticket also from a margin perspective, but whatever you can call a special rates, special deposits. Generally, it has been to 30:70, maybe it would have gone up little bit last quarter, but again it will come back to somewhere around 30:70, 35:65 because most of these are relatively, it is not more than a year or six months kind of thing. Also you must understand that we ran off our CD book completely almost right, which I told from fairly INR500 crore something we had, CD book we brought it down to INR95 crores, so INR594 to INR94 crores. So we ran-off, almost INR500 crore of CD book last year so given that I think we had that special dispensation in our way to build some book on a shorter-term basis, which we have done and hence we have buffer and CD and things like that and you know syndicates are coming down and things like that. So it will be a play of all of this, still entire CASA franchise, machinery fully picks up so I’m not so unduly worried on this percentage, but it may have gone up a little bit this quarter, compared to what we generally have around 30:70, but I’m giving a you a very broad picture. I exactly don’t have that in front of me.

Pallavi Deshpande — Sameeksha Capital — Analyst

And sir NBFC exposure that’s at 8.8% versus 7% in the third quarter so what’s are we seeing in that space?

Pralay Mondal — Managing Director and Chief Executive Officer

So Mr. Divakara you would like to answer that question after the I will top it up? I don’t think Mr. Divakara is able to answer this, and maybe he’s not able to connect. So I’ll answer this so what has happened is see when it comes to NBFCs, we always do at category of it plus A-plus category…

B K Divakara — Chief Financial Officer

Our advance of NBFCs are A rated and above, so out of this total 3,000 and odd exposures towards NBFC 94% is A and above type of accounts.

Pallavi Deshpande — Sameeksha Capital — Analyst

And sir, would this be primarily vehicle finance or the diversified financial?

Pralay Mondal — Managing Director and Chief Executive Officer

No, no it’s not vehicle finance, very, very highly-diversified, a lot of this is to do it with home loans and those kind of businesses. So these are highly-diversified. In fact, not too many is vehicle actually.

Pallavi Deshpande — Sameeksha Capital — Analyst

Right sir. And sir, lastly on the recoveries from written-off accounts what would the figure has been for this year I guess it would be part of the other income?

Pralay Mondal — Managing Director and Chief Executive Officer

Sorry, I didn’t get the question.

Pallavi Deshpande — Sameeksha Capital — Analyst

The recoveries from written-off accounts. How much of that has been this year versus last year like I’m not talking about the amount that’s included in that other income from this?

B K Divakara — Chief Financial Officer

Yes. Prudentially written-off recovery this year it is INR70 crores last year it is INR77 crores.

Pallavi Deshpande — Sameeksha Capital — Analyst

Right. So, how much out-of-this INR70 crores, would have been part of other income?

B K Divakara — Chief Financial Officer

It is netted off against the provisions to be.

Pralay Mondal — Managing Director and Chief Executive Officer

That is a new regulation, right. I think that’s new regulation Mr. Divakara.

Pallavi Deshpande — Sameeksha Capital — Analyst

Okay, all right, thank you sir. That’s all from my side.

Operator

Thank you, ladies and gentlemen we have reached the end of the question-and-answer session. I now hand the conference over to Mr. Pralay Mondal [Indecipherable] for closing comments.

Pralay Mondal — Managing Director and Chief Executive Officer

Thank you very much. I would really thank everybody to patiently listen to our commentary and ask very relevant set of questions. What I can commit is on behalf of the management that everybody is very excited to build the bank, based on the SBS 2030 vision. The first installment is delivered this year, but more excitement to come in the next few years, that much I can comment on behalf of the management. Thank you very much. [Operating Closing Remarks]