CSB Bank Limited (NSE: CSBBANK) Q3 2026 Earnings Call dated Jan. 28, 2026
Corporate Participants:
Pralay Mondal — Managing Director and Chief Executive Officer
Analysts:
Shivaji Thapliyal — Analyst
Parag Jariwala — Analyst
Natraj Sankaranarayan — Analyst
Akshat Agrawal — Analyst
Parth Gutka — Analyst
Ishmohit Arora — Analyst
Anusha Raheja — Analyst
Yash Dantewadia — Analyst
Vansh Solanki — Analyst
Presentation:
operator
Ladies and gentlemen, good day and welcome to CSP Bank’s Q3FY26 earnings conference call hosted by yes Securities. As a reminder, all participant lines will win the listen only mode. And there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call please signal an operator by pressing Star then zero on your touchstone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Shivaji Thapnyal from yes Securities. Thank you. And over to you Mr. Shivaji.
Shivaji Thapliyal — Analyst
Thank you Iqra. Good evening and a warm welcome to all those who have joined the call. The CSB bank management is represented by Mr. Pralay Mandal, Managing Director and CEO. Mr. B.K. devakara, Executive Director and Mr. Satish Kundeva, Chief Financial Officer. We specifically thank the management of CSV bank for giving YES securities the opportunity to host their result call. The management will first be making some opening remarks after which we will throw the floor open for questions. I now invite the management to make their opening remarks over to you.
Pralay Mondal — Managing Director and Chief Executive Officer
Thank you Shivaji. And good evening to everybody who’s in the call. Thank you for joining this CSB Q3 call. Analyst call. Let me start with a little bit of a background of the global scenario because obviously there are lots happening there. And then we’ll come to space C and the specifics quickly. So on the global trade scenario by and large it remained the same. And in fact the trade negotiations have deteriorated since last quarter on the US side. But of course we had some good news coming from the EU front. And hopefully that will neutralize some of the impacts which is happening.
It has created volatility in the financial markets impacting currency and equity flows into many countries. And the issues related to the Fed chairmanship, control over Greenland and unrest in Iran have all added to the uncertainties and heightened the global risk. And this has resulted in unilateral appreciation of commodities in the last quarter as well. Indian growth forecast has been revised upwards by economists and multilateral agencies like IMFA as well has the similar kind of an opinion. The inflation is expected to remain below the lower threshold of RBI which is below 4%. And despite the expectations of it moving up a little bit now from its current level, the deposit growth continues to lack credit growth quarter after quarter.
The CD ratio of banking system is above 80% now stretching the deposit rate. The continuous lag in deposit growth has impacted the banking sector named significantly. The banking system is likely to continue to face deposit stress which will keep the deposit rates higher and prevent NIMS from improving immediately. Coming to CSV specifics and more relevant to us on the profitability side we ended the quarter at 153 crores, kind of a flat compared to last year’s same quarter. Operating profit of the bank grew by 32% on a yoy basis for Q3 and stood at 292 crores.
NII grew 21% yoy and stood at 453 crores. Other income grew by 26% yoy constituting 19% of total income for Q3 FY26 cost to income ratio was around 60% and lower both on sequential as well as YOY indices. NIM for the quarter was highest for the current fiscal and stood at 3.86 percentage supported by marginal reduction in funding costs. ROA for the quarter ended at 1.22 percentage. Contingency provision are held intact and bank is continuing with accelerated provision policy which will enable the bank to move quickly towards the ECL as and when it is implemented.
On the liability front the funding base continues to improve. The deposit registered a robust growth of 21% yoyo much faster than the industry level. CASA grew by 3%. YOY and CASA ratio was around 20.5%. Sufficient liquidity buffers are being maintained. On the liquidity front we had a reasonably gold efficient liquidity risk management while CD ratio stood at 92%. Average LCA for the quarter was 114% and NSFR ratio was 118%. On the asset side the growth of advances registered the yoy of 29% again almost double the system and yields on advances in Q3 stood around 10.82%.
In terms of asset quality matrices there was a slight deterioration. GNP and NNP ratios although within guidance because our guidance has always been below 2% and 1% respectively were slightly elevated though for the quarter at 1.96% and 0.67% respectively. PCN now stands at 66.32%. Bank is holding a provisioning buffer of around 193 crores over and above the regulatory requirements. On the capital side we continue to have a robust capital with 19.41 TR1 ratio and as on sorry the overall capital was 19.41 TR1 ratio as on 3112 Sura at 17.66. Percentage proportion of risk weighted assets continued to be lower compared to the industry shareholder value creation side book value per share was at 269.
EPS for the quarter is 34.91 and ROE for the quarter is 13.38. On the distribution side we have a network of 846 launches, 818 ATMs 25. In conclusion, we continue to outperform the industry growth trends in respect of both deposits and advances. We could grow our deposit portfolio by 21% and advances by 29% as against average industry level which is almost half at this level. Both our gold loan and wholesale banking particles contributed significantly to our advances growth registering a growth of more than 40% each. We continue to be cautious in terms of unsecured book and have reduced our exposure there in view of systematic uncertainties.
We are exercising vigil while growing the BLG portfolio which is SME portfolio where quality and pricing are of utmost importance in line with the regulatory prescriptions. We have allowed the loan against security which is primarily gold to degrow which is the repleisure business and negatively impacting the overall growth. In the retail portfolio our operating profit is robust with 32% growth on Q3 and over Q3, FY25 and 5% sequentially quarter on quarter. The strong operating performance can be attributed to NII growth of 21%, other income 26% and disciplined cost management. More than 95% of the income is constituted by core fee income because this time non core like PSLC and Treasury income were almost next to nothing.
Our net profit for the current quarter is almost flat compared to Q3. We have conducted a detailed analysis of the underlying causes of a slightly higher provision requirement including certain technical factors which we can take during the call when there are questions. Collective actions have been identified and we are pretty confident that we are on track on both GNP and NP as well and credit cost site eventually over the next one or two quarters for CIR improved as I said before and all regulatory ratios are maintained at comfortable levels. As we enter the scale phase the strategic focus is clearly to building a diversified franchise, take driven expansion, granular customer franchise and right execution.
Before I end my opening remarks I want to say that we had a fantastic experience on the migration of the core banking with 52 surround systems and many other systems. On the transaction banking side all of that is getting in place so we are getting ready technologically to launch the bank effective FY27 on the scale phase and we are fully geared up to that on an overall basis, I think almost on all parameters except for the slippages and NPA ratios which we’ll explain over the call as and when questions come. Almost every parameter we have improved significantly over the last two quarters and as we are talking we are confident that Q4 and Q1 will also will see significant upgrades and betterment on the NPA ratio as well.
So with that I hand it over to you for the questions.
Questions and Answers:
operator
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on the Touchstone telephone. If you wish to remove yourself from the question queue you may press star and two participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Parag Jadivala from White Oak Capital. Please go ahead.
Parag Jariwala
Yeah, thank you. So Karla, I have two questions. One with respect to if you look at your businessman on the slide number 17 retail and BNC the most been down considerably. Plus you know if you look at even during the quarter the acts of low X of gold, the loan group. So you know we’ve been talking about, you know, scaling up the non gold business. What has, I mean was it a collaborated decision? Because gold was growing very fast during the quarter so we decided to you know, slightly keep other segment under check for what exactly was the thought process here.
So that is number one secondly of the slippage of around 200 crore, can you give us some more granular detail with respect to you know, how many accounts are there, what led to this technical slippage? And you also said in your opening demand that you expect upgrades and recoveries in the following quarters. So what gives you that confidence that you know you’ll be able to normalize these accounts in coming quarters. Thank you.
Pralay Mondal
Thanks Bharag for your questions. So I will respond to the first question first which is business mix and growth in gold. So if you look at it now two businesses are growing very well for us. One is wholesale side of the business and in wholesale also previously used to do primarily NBFC and financial markets but now we are doing all the businesses. In fact financial markets is a mix. We are keeping it lower and hence we are not growing that much on the financial markets because we already had a large portfolio. Still around 35 to 40% of the portfolio is financial markets.
But corporate banking and mid Market which is the commercial banking. Both these businesses have started doing extremely well for us. And in terms of quality, in terms of pedigree of these businesses, it’s very good quality. And we are expanding the teams across the country, northwest, southwest, everywhere. And we have been in a very quick time very good wholesale banking team. And with the kind of pedigree we have, not only in the management team but also in the board and also our chairman for MCB credit committee is Deepak Mahesh who anything above 50 crores goes through his and the committee’s supervision.
So we are pretty confident that business is going pretty well. Coming to the gold, of course we can always say that price is going up for the gold. At the same time our LTV is constantly coming down. While the quarter end LTV was I think around 63, 64% now it has become gone well below 60% right now. So overall LTV so we are not taking the price risk. On the, on the gold side even tonnage has grown slightly marginally compared to last last year. So to that extent that’s. And also the other thing which has happened in gold is a new segment which you’re focusing on which is helping us because what has happened this year is the replayer business which used to be classifying under retail used to be having gold as a collateral.
That business based on regulatory guidance, effective 1st of April, we cannot do that business anymore. So what we did is since we can’t do it anymore, we have started running down and it’s almost come to a tickle of around 700 odd crores there. It used to be 2,400 or 2300 crores around that and that is what has brought down the retail. Retail as such has not degraded. We have degree unsecured and MFI because of obvious reasons, because there are stress in that portfolio and we saw it prior so we didn’t expand that portfolio and hence we actually got saved in that portfolio.
Whatever slippages are happening there right now is on a very small base and the tail is only left for that. But otherwise I think retail, everything else has done the way it was happening. The real part of detail will happen only when the liability franchise starts speaking up. We are waiting for the core system migration to happen. Now we are launching the product and retail assets will happen in parallel to retail liability because it’s two sides of the same coin. That’s how we will build the granular retail over a period of time. Meanwhile, we are doing okay on CVCE Healthcare Lab.
All these businesses on the retail side, on your second question, on slippage, yes. Around 197 crores. Is the slippage out of that? A large part is on the SME side. Our retail is starting to come, you know, it has become flat in terms of slippage or NCL and it is starting going to come down next quarter because the portfolio itself is kind of eroding. So we are not adding and hence on the unsecured size, which is somewhere around 2.3, 2.4% of our overall portfolio, so the denominator itself is reducing. So even if delinquency percentages are high, eventually it will not be that material in another quarter or two.
So to that extent retail we are getting into a safe zone just because the portfolio size is not that much. And some of the other business on retail is doing well in terms of quality of the portfolio as well. In fact, one account we slipped in CV and one account on acf. Both of them we have sort of corrected. So, so we are doing okay there. We had a challenge on SME because of two reasons. One is I think the segments which we are operating in SME and certain locations because of the kind of uncertainties, global uncertainties, etc.
I think there is some uncertainty on the business which is happening. But the good news is that most of these are not very old, vintage legacy customers. So to that extent most of the collateral, valuation, etc. Is pretty good and well managed. So and these are all well collateralized. So to that extent slippages because of business challenges which they are facing. The intent is not wrong. So we are confident that we are able to, will be able to upgrade most of these accounts. As we are talking actually four or five accounts we are planning to upgrade in the last quarter but for some reason here and there it got moved into this quarter.
But we are confident these 4, 5 accounts will definitely get upgraded this quarter. As we’re talking till yesterday we have already upgraded 30 crores of this SME business and we don’t see fresh SME because we don’t even have SME2 account in any business at this point of time, other than gold and all that, which does not lead to final losses. So we think that we will have a positive surprise in terms of what we do in terms of slippages this quarter leading to npa and that will also help us in getting our PCR provision coverage ratio better.
So other than slippages, if you look at line by line, all the components up to PPOP level, the bank has done very well, much better than what we did last quarter or last quarter. So in Q2 you remember that we had neemofs 3.51 and the expectation was that it will constantly slide down like that. I had said that no, we will go up and a lot of people doubted that commentary. But we have eventually shown in two quarters from 3.51 we went to 3.81 and now up to 3.86 in our scenario where NIMIN under pressure in the ecosystem, which means that we are in control and you know what you’re talking.
Having said that, I think NIMS sort of will not move beyond this. So we will be somewhere between 3.7 to 3.9 in that range. I don’t see it crossing 4 right now given where we are today. I mean given the overall ecosystem deposit challenges and liquidity challenges which are in there in the market. But similarly, I’m saying that on the slippages side and the NPS side we are pretty confident that between Q4 and Q1 now we’ll sort of be back to where we used to be before in two, three quarters back. So that’s broadly what my response to your response to your questions.
Parag Jariwala
Yeah, thanks Pralai for the detailed reply. Just one or two question. I mean these are how many accounts you said that you know, maybe four to seven accounts will be able to upgrade, but total slippages are around how many accounts and is it fair to say that large part of these accounts are mainly to do with tariffs or they are, they must be in textile footwear or in such kind of a industry. Is that a fair investment?
Pralay Mondal
So I mean number of accounts sometimes is irrelevant because sometimes these are very small amounts also. But relevant number will be around 10, 11 accounts. Okay. In SME site retail, I’m not talking about retail is a portfolio level, but I’m talking about SME and then wholesale. We don’t have slippages. We have only 14 crore something on the wholesale side. So which is also going to get regularized this quarter. So I think around 1112 accounts on the SME side out of that we are confident that around 40, 50% of this will do it this quarter. Some will move to next quarter and not that everything will get reversed.
So not everything will get upgraded, but a fair bit will get upgraded because some of these are technically moved into this quarter unfortunately, which we also didn’t expect, but it happened. And proof of that is that we already has upgraded two accounts amounting to 30 crores.
Parag Jariwala
Sure. Just one thing if I can Squeeze in. You know, there was a 1:1 or 2 delegate account in first quarter of FY26 as well. I mean, is that account now upgraded or still? We are.
Pralay Mondal
Yeah. So that was not. Yeah, I know. That was not in SME. That was in. That was a legacy wholesale account, if I remember. One on one, we discussed this and it is in the process. So we are expecting results in Q1 of FY27, because now it is coming to a level where more or less, we are sanguine that we’ll get something out of it in Q1, FY27, because we went to the entire legal duty and all of this road. So hopefully we’ll be able to get it in Q1. The full thing cannot be recovered, but some fair bit of recovery will happen in Q1 27.
Parag Jariwala
Perfect. Thanks for the detail again.
Pralay Mondal
Yeah.
operator
Thank you. The next question is from the line of Nataj Shankar from DSP Mutual Fund. Please go ahead.
Natraj Sankaranarayan
Yeah, just a contextual question. In this journey, before we scale from 27 onwards, that we talk about, how do we manage these bumps? How do we, you know, are the systems robust enough to, you know, to weather this entire journey? At this stage, we are having bumps. So just wanted to contextually understand the risk processes first. And second, you talked about SMEs and stuff like that. Could you just take two parts of that question? One, the overall context of the SMEs, what you’re observing in general, which pockets in general, you’re seeing some bit of stress coming out.
And secondly, within your cohorts, how are you placed within that? Thanks.
Pralay Mondal
Sure. So now, just to contextualize, when you’re talking about bumps, we have two bumps. One is NIM going to 3.51 and one is, sorry, this gross NPA GNP are going to 1.97. Okay. Now, both of these are well within the range, which especially that GNP have always said will be below.2. So in spite of the bump, we are below the. Below the range where we had guided in terms of this thing. But that’s not where we want to be. So there is. So there is no major kind of roadblocks for us for our 2030 journey, is what I wanted to say.
And ify27 onwards, we’ll see the scale phase. So from that perspective and neem, we have already said that we have gone back to where we wanted to be, closer to 4%. So really, if you look at most of our ratios, there are not too many bumps. And those bumps are also within the range which you have guided to a great extent coming to the SME and rest. I think I explained enough to parag in his question in terms of the slippage and the NPA question. So there’s no point repeating that on the question. On the question of SME, yes, one of the things we will see that we have grown SME year on year, 20% last year we grew almost by 30%.
One of the reasons we are going slower because we acknowledged in the beginning itself is one good thing we have done is whether it was unsecured detail, whether it is MFI and whether it is an SME. Now whenever we have seen and read the scenario, we had slowed down the business. So we don’t keep accelerating the business and increasing the denominator. So this year and by the end of this year when we close, we will grow even slower than 20% on a year on year basis in SME. And that is a deliberate kind of strategy which you worked out.
Having said that, SME is our growth engine and once a little bit of these issues get sorted out we will be back to growth oriented SME business from FY27 onwards as quickly as a Q1. FY27. So and of course SME we all know that there are certain segments which has been little stressed because of not stressed but they had some issues because of the exports, because of the global challenges, etc. Which hopefully with the new deal coming in things will look better. But that will take some time to settle down. It’s. It’s only a conversation right now or sign off after that.
This will happen. But you know, sentiment is very important. Sentiment starts getting positive once people sees hope because it’s not about hope. And given that perspective, but what I can tell you is that most of our SME customers a very highly collateralized and more importantly intent is very good. So there is nothing wrong intent. None of these guys are putting their business back and diversifying or kind of siphoning of the money here and there. That also happens in semic businesses. These two primary problems happen in my learning. I’ve seen SME. One is quickly moving out of the business or collateralized which is not properly collateralized on both discounts.
We are doing okay. So we will see I think earliest by Q1 next year and latest by Q2 next year. I think we should be back in the growth orientation on the SME business as well. Meanwhile, asset growth is not a problem for us because growing by 25% plus growth in asset is not a problem. Of course, how do we fund that in terms of deposit is something we have to figure it out. So we know how to grow at 20%. But beyond that, how do you grow? We have to see on the deposit side.
Natraj Sankaranarayan
And just one last quick follow up on the deposit angle. You talked about system stabilization and stuff like that. Glad that it is going well. When would you actually start seeing that? What would it take for that to actually fall through in place? The deposit growth we’re talking about?
Pralay Mondal
Yes. So we are looking at three levers on deposit growth. Okay. One is a long haul which is creating retail products, creating casa, creating retail customer acquisition at every branch level granular for which you need the right products in the systems and the customer service modules. Okay. So far in the marvel system we could never do that. But now we have the best in the latest system. So we are quickly going to build products. This will take anything between 12 to 18 months. Having said that, obviously this is a journey. It’s not that it will wait for 18 months.
This will continue. We will continue to see some improvements over every quarter. More importantly, what we have done is we are making both all the businesses accountable for self funding. So whether it is wholesale business and that much I can tell you that last year so far, wholesale, SME, retail, all of them contributed towards the liability growth. In terms of quantum, of course SME was lower, wholesale was also lower, side retail was larger. But in terms of percentage, all of them are growing equally well. And we have kind of mandated the teams that you have to do so much percentage of your business to self funding on this thing through OPDT and other routes, etc.
I mean owner promoters, SME owners or on the corporate side. So different kind of funding, but we will get those fundings as well. Task so we have to address separate vertical for task which is the trust associations and all that. So given that we are using various modes, but beyond deposits also and beyond CASA and the customer acquisition, we are also doing okay on the FCI borrowings and refinance that also has grown for us last one year. And we are looking at all sources of funding to fund our growth. So else here we are pretty confident last quarter we ended at 114% and we should be able to do this year end this year with above 110%.
Natraj Sankaranarayan
Thanks.
operator
Thank you. The next question is from the line of Akshat Agrawal from Smith Institutional Research. Please go ahead.
Akshat Agrawal
Good evening sir. Thanks for the opportunity. In terms of OPEC, in terms of OPEX, other OPEX declined 22%. QQ is it because of technology investment coming out of the base and was there any headcount reduction? And TTI is at 60% now. So do we think we can maintain this level going forward? Forward.
Pralay Mondal
Yeah. Yeah. Do you have any other questions? I will answer this.
Akshat Agrawal
I have other questions sir, so I can ask now or I can just come back after you.
Pralay Mondal
Let me respond to this first. So what had happened this quarter is of course as a bank when deposit costs are going up and yields are falling, one has to be conscious of cost management. So we put special cost management practices in the bank. Having said that, none of that shows up so quickly and it’s not the technology reason because technology costs have gone up. It has not come down because technology is capex going to OPEX and then AMC and all of that starts kicking in. So as a percentage technology cost I’ve always said we’ll be doing 89% of OPEX.
So that will not come down. What specifically happened this quarter is in fact we did a detailed analysis of the PSL’s income because the PSL’s income is a part of our fees. And after doing an analysis of last two, three years trend, we saw the best time to what is the best time to book income and what is the best time to buy pslc. What we need, for example, we need msf. So we bought it at the right time which was last quarter and this quarter we didn’t buy anything. And when you buy SMF it goes into your cost line.
Okay. Similarly last quarter we had a good PSL income. Again in Q4 we’ll have a good PSL income because as per our analytical tools which has told us is which time to book and which time to sell PSL or which time to buy psl. Okay, so based on that last quarter we bought a lot of PSLC on the MSF side which hit our cost line and this year it was zero. Similarly on the income side also we have PSLC was effectively zero this quarter. Last time we had a good income. So these are one off and these are not really franchise businesses.
These are very tactical play and what it means is while next quarter again we will have a good PSLC income on the fee side but on the cost side again PSLC will may go up little bit leading to cost income going slightly above 60%. We may not go back to where we were but it will probably go up quarter on quarter a little bit more. So these are one off tactical kind of this thing. And overall had we sold PSLC and bought pslc also we would have shown better profits but we said no, we’ll keep it for next quarter because we know that next quarter it will be a better income.
Lastly we while that’s not your question but on the fees we obviously like everybody else we didn’t have treasury income this quarter because obviously the bond deals where it is. So. And we are not even factoring enough treasury yield, sorry, treasury income in fourth quarter. If it happens, it’s a bonus. Right now we are not factored that that in.
Akshat Agrawal
Right, sir. So with the benefit of scale for the as far as costs are concerned, are we going to see it something like on the second half next year or is it like maybe from FY28 onwards because okay, so this technology stack cost which would have started coming off at some point, right? Because for last two, three years it was elevated because you were doing a lot of technology investments aside from the BAU tech cost. Right. Like 8 to 9 or 10% odd for every bank which, which they do. Right. So is it, is it not coming off now that incremental costs because the tech stacking stack cost for the whole, whole investment for the technology.
I mean shouldn’t it come off at some point in next one or two quarters?
Pralay Mondal
No, it doesn’t. The accounting doesn’t work like that unfortunately. So the take cost eventually will probably be slightly lesser than what it is today. Right now it is slightly limited because at one go we had to make full transformation. But because it is a capex of X game, finally it will flow through along with amc. On the AMC also the OPEX starts going up. So to that extent I think a better way of looking at it is that 80 10% of our overall OPEX will be technology. Maybe it will go from go down by one odd percentage.
That will not be material in terms of overall pnl. But what the reason and even if it goes down, the real cost that will now incur in terms of customer acquisition. Because one of the reasons why our CASA or our granular deposits has not been great so far is because we didn’t have the products and the systems to get those customers in. Now that the system is their products will be there and then the cross sell of retail assets also will happen to those customers. All this will play out in the next two years or so, two, three years.
So given that I’ve always said that our cost to income will start the glide path will be FY28 onwards is not the same first time I’m saying and once it starts sliding down, it will be pretty Fast in terms of cost to income I think we should be able to go to 50% by FY30.
Akshat Agrawal
Right sir. So my next question is on NIMS. So yield on advances declined this quarter. So it is coming from higher wholesale mix at lower yield MCL revision and some repo rate impact and wouldn’t hire gold proportion with incremental higher yield at 11.83 versus 11.77% kind of offset most impact on yield on advances.
Pralay Mondal
So I mean you are answering most of the questions rightly so if you look at it because of the deport decrease almost 125 basis happens in the last one a little more than a year. So all of that has flown through the SME business. Right. And some of the other businesses which are in retail side also which is linked to bplr. The MCLR of course is linked to wholesale business and that is gradually going down. So you are right in terms of mix and our almost 60% and above is fixed rate loans including gold loans.
So to that extent that’s exactly what I said that when the point was 3.51 and we will keep going down on NIM etc I said it will not happen like that. But yes, instantly SME went down and then we have to work on repricing on the new businesses etc. And also we didn’t grow that much in the SME new business because we were little circumspect of the segments we are in at that point of time given the global challenges etc. But now I think things are settling down and hopefully we should be able to settle down the NIM at a similar level where we are right now.
Akshat Agrawal
Right sir. So on the cost of borrowing the cost of funds came down but cost of deposits like was just down 2bps. So is incremental borrowing cost versus the book borrowing cost, is it still, you know you’re seeing benefit there going forward or is it already in most of it?
Pralay Mondal
See borrowing cost it is linked to so far, so far has not really come down that much unfortunately. Hopefully it will come down over a period of time. But definitely borrowing cost has come down marginally compared to where we had taken in between. Also what happened is this hedging cost went up. So incremental borrowings, the net landed cost was slightly higher than what we had first estimated because the hedging cost went up. It went close to 3% actually for a one year hedging and things like that. So it’s a combination of all of this. But yes, borrowing cost didn’t come down that much, but it came down marginally.
All of this helped us in managing the cost of funds. I think it was a few basis points lower than last quarter and that has helped us in maintaining the nim.
Akshat Agrawal
Right, sir. And sir, on the asset quality, is this incremental flow from any new accounts? I mean is it, I mean is it all in this quarter and you’re just expecting recoveries or is there we can expect some more accounts to slip off on the SME? And what kind of coverage do you have? You did say that it was well qualitarized, but if we can give some color on the overall coverage, including collateral on the SME account.
Pralay Mondal
So if you’re talking about SME, we are very well collateralized, around almost 80% and above is collateralized. But obviously if you look at corporate banking will not be well collateralized. But we don’t even have a SMA account in corporate banking, for example. Okay. And we don’t expect it to have. So as I said before, I’m repeating probably the same thing and it’s worth repeating because this quarter only one question is slippages, why it is high. Everything else is looking positive, right. For the bank. So. So the point is that yes, it happened A because certain challenges were there in the ecosystem with the customers. Okay. None of them has left their businesses and gone. They are all working on it. They are paying us little bit in spite of the fact they are in npa. They are paying us and some of them are getting upgraded this quarter. One I said already upgraded. Two accounts upgraded to 30 crores. And I think we’ll positively surprise the way we show our upgrades and recoveries this quarter and Q1 as well. Yes, many of them are not early mortality but these are not like 10 years old accounts.
These are all last three, four years accounts. So we know those customers, we cannot disown them also because we acquired those customers and hence the responsibility is squarely on the relationship managers and the businesses to get the money back where we have. But so far we have not seen people running away with the money. They are trying very hard to get their businesses back on track. And happy to report that things are looking a lot better. Unfortunately, three, four accounts we wanted to upgrade last quarter for some technical reasons didn’t happen in the last week.
Otherwise I was expecting, I was not even expecting to have these discussions on this call frankly. But I think we are pretty much confident that we should be able to upgrade them this quarter itself.
Akshat Agrawal
Right sir, and just.
operator
Sorry to interrupt Akshay please rejoin the queue for more questions.
Akshat Agrawal
Okay, thank you very much.
Pralay Mondal
So Akshay, in short, I’m telling you it’s business as usual for us. We are not so worried on this leakage, frankly, internally in the bank.
operator
Thank you. The next question is from the line of Parth Am Kutka from 361 Capital. Please go ahead.
Parth Gutka
Yeah, hi. Thanks a lot for the opportunity. So when I look at your slide. 17, you know the mix between bulk. Deposit and retail deposit, large part of the growth within the quarter has come from bulk deposits. Now with no bulk deposits or CD. Rates going up at least by 10. To 20 bips in, in December end. And and January. You know, should we. Expect the cost of funds to be sort of flattish from here on? That’s my question one and second is some of the peers have raised the term deposit rates that the retail term deposit rate. So are we also considering anything like that? Thanks. Yeah, those were my two questions.
Pralay Mondal
Sure. So on your deposit, this thing makes, as you rightly said, that our bulk deposit percentage is slightly higher than the ecosystem from the market. If I remember the number correctly, we are around 46, 47% of the overall deposits. And that’s high. Right. So, but only thing is the overall balance sheet size is so small, the day the retail journey starts taking off, this will drastically change in a very quick period of time. That’s number one. Number two, on your specific question, whether this is going to impact our cost of funds or it will remain stable, the answer is that we didn’t lock in long term deposits anywhere.
Every bulk deposit is one year or below. What it means is in a falling interest rate as and when the liquidity situation becomes little better in the ecosystem and we have more certainty on that, we will probably see bulk deposit rates falling faster than the retail deposit rates. Okay. And hence in the short run it will help us. In the long run. Obviously nothing to beat good quality retail franchise. So we are on that building plant. If you had that option, we would have used that option more. But right now we are building that so we don’t have that option.
And if you continue to grow it much faster, based on the industry almost at twice the pace, then we don’t have a choice but to fund this through these various routes. So we have very tactically handled it with a lesser tenor so that we are not locked into this. And thirdly, your question was on the. What is the other question? Ah, no, no. You said cost of funds. I think we should be going down by few weeks here and there. But as you rightly said the third question was about retail deposit cost going up in the market, rates going up.
Not only retail even holds even bulk deposit rates which was coming down is not coming down anymore you know because primarily because of the liquidity issues which are there in the market right now. So that can change and if it changes bulk deposit rates will come down faster than retail. And because retail you lock in for a slightly longer period in the short term that will help us. But I think if the liquidity situation don’t change I don’t see how cost of funds will change drastically from here. It all depends on liquidity and the market.
operator
Thank you. The next question is from the line of ishmohit from SOS IC Research. Please go ahead.
Ishmohit Arora
Hi sir. So my question was lead to our return on equity. I think in the past we have. Always Talked about that 15% is a Lakshman. I think the quarter four is always our quarter where our ROE is bumped up. But this time first nine months our ROE is close to 13. So are we confident of maintaining those 15 guidelines?
Pralay Mondal
Yeah, we’ll try to touch the Lakshman Raka but let’s see. But we’ll definitely be better than where we are right now. Right.
Ishmohit Arora
And the second question was related to. The credit cost items. I think in the past we have. Also spoken about like credit cost being. Close to 50bps and I think they scored as you know multi quarter high in credit cost because of one of. Reasons that we had. Do we see the credit cost also falling down as we go into Q4 and Q3? Are we expecting the credit cost normalize from it?
Pralay Mondal
Our endeavor is to do that. I think we should do a lot better than where we are today. I cannot make a forward looking statement on a call like this but I’m pretty confident of our overall GNP and NPN credit costs going at from where we are.
Ishmohit Arora
But will it be like fair to. Understand that this quarter marks the peak. Of the credit cost not getting?
Pralay Mondal
Yes, yes, absolutely, absolutely. Like I said 351 was tough. And name this peak in credit cost.
Ishmohit Arora
Thanks for wishing you all the best.
Pralay Mondal
Thank you.
operator
Thank you. The next question is from the line of Anusha Raheja from Dalal in brochure. Please go ahead.
Anusha Raheja
Yeah, thanks for taking my question. So one thing on the flip it side given the fact that the macro, global macro is still uncertain how are we confident that this Q3 slippages you know will not continue in Q4 and going forward and secondly what is the broader call in terms of advances growth that you anticipating in NY27 and any internal target for ROA ROE for FY27.
Pralay Mondal
So on the growth we as I said before already we will be growing asset group somewhere 25% and above. Okay. And whatever it takes to fund that growth will do it through the funding route. Part of that will be deposit and hence deposit has to grow by 20% and above. Coming to the slippage and quality of potential question. See, we know exactly where our customers stand and we know every case in details. And because we slowed down our businesses this year, we don’t even. In fact we are monitoring our SMA portfolio also very well for especially for SME.
So we know exactly what can happen. Right. So and because our disbursements has been significantly lower this year compared to last year on their. We have full control on that. The good thing about our bank is we take proactive actions and don’t keep doing things when we see there is a challenge in the market. Having said that this is not like a microfinance or unsecured loan where the challenge continues for a while. I think things will start getting better. So hopefully only once we are confident that things are comfortable we will start growing this portfolio because we have the entire machinery to grow this portfolio.
It is a very, very strategic call not to grow this given overall market scenario in our markets coming and hence in short to tell that we are not only confident of the slippage and npa, we are also confident of the SMA book which we have at this point of time.
Anusha Raheja
Okay. So. And any our ROA ROE targets, you know, for FY27.
Pralay Mondal
Yeah, yeah. I mean targets are always. I’ve always said that we want to be somewhere around 1.5 and other way somewhere around 15%. That will be our endeavor to cross that. This, this year we should be coming close to that and next year we should cross that.
Anusha Raheja
Okay, one last thing on the slippage side, sort of197.197 because that slipped this quarter. What could be any rough estimate what quantum can get upgraded in Q4.
Pralay Mondal
I mean that we can’t comment on this but if you. But we are pretty confident that we’ll do well there, you know because we know how many accounts will upgrade and what will happen. But we can’t really comment on that right now. But it will be, it will be good.
Anusha Raheja
Okay, thank you. Thank you so much.
Pralay Mondal
Thank you.
operator
Thank you. The next question is from the line of Shivaji Thapleyal from yes, securities. Please go Ahead.
Shivaji Thapliyal
Yes, thank you for the opportunity. Just one question from my side. So just to understand the underlying, you know, asset quality a little better, you know, could you help us all understand what could be the exposure, you know, to some of these, you know, sectors which are, you know, potentially impacted by tariffs. I mean you know, the textile sector in you know, Tamil Nadu or elsewhere in South India or some of these other sectors like fisheries etc, shrimps and so on. So any, you know, sense of what that portfolio is or is it not sensible to look at it from that lens and you know, just only it is better to look at it from an account specific perspective.
Any thoughts around that?
Pralay Mondal
Basically Shivaji, what happens is we are not a very large bank. When you’re a large bank you have to look at the systemic issues. For us a much more prudent way of looking at it, every account basis. But we cannot overlook the overall ecosystem also. So for us it’s a combination of both. But we are more focused on every account level, every customer level, what is going on in his life, how his cash flow is coming, how is expanding business if he was diversifying some money when there, how he’s getting it back to the core business and all of that stuff.
So that, that’s what we are focused on right now and all of that is looking positive. Now having said that on the macro we did a detailed analysis, our risk department did a detailed analysis offer exposure to some of these affected kind of industries in the SMS side, SME side and they had come out with stress testing formula that what could be the potential challenge, etc. And we figured out that it’s not something which is earth shattering and not all of that will play out also. And all of that is also playing out, not all of that.
Having said that certain places where you do not analyze there it’s playing out. For example, if the same culture, the same person who’s supposed to do exports, he is not doing exports in a particular country and selling that goods within India cheaper then he becomes competitive and somebody else becomes impacted. So sometimes some of these formula don’t work that way and hence we have to see the bigger picture and say that leave the bigger picture aside and look at specific customers. So we have no count of customers where the challenges are, what the solutions are.
We have worked out the solutions and at least 50% of the cases we have visible solutions in our hand at this point of time. So we have been see ultimately banking is a business of focus and getting it right when there see if you do business There will be certain times, certain challenges will come. How to resolve that challenge gives the marks to the department or to the, to the institution. That’s what we are focusing on. And at the same time we didn’t believe that we should expand the manager and do this, do that. We withdrew from some of these markets and businesses right now but without losing the relationship so that whenever we want to go back, we can go back and do those businesses full fledged.
And sometimes when you hold hands of people, it’s very easy for us to just go and say that I’m auctioning a property. Then you lose those customers forever. So the intent part in SME site is very important to see. And when you support them, they remain your customer forever. Okay, so I think it’s a balancing act. It’s not one formula that works everywhere. I think overall we have got a hang of the whole thing and I don’t see any portfolio going any worse than where it is today.
Shivaji Thapliyal
So thank you for that. I mean just a quick follow up. I mean so no further, I mean material slippages of this quantum, you know, which can take cross slippage to 2 percentage levels should be emerging in the upcoming quarters basically. I mean whatever stress because of tariffs etc had to emerge as mostly those slippages have been created.
Pralay Mondal
Yeah, yeah. It has been played out. And even if there is a global stress, it will not impact us anymore because we have taken prudent calls on all those things. Okay. So at the cost of business, at the cost of business, we have taken prudent calls. So you know, I’ll be extremely surprised if in the next three years we see a 2% ever. Okay. In gross NP though we have given a guidance below 2% but will remain below 2 forever. And I think we, I told it in to one of the persons before that. I think we have.
This is the peak of our slippage and NPA in my view.
Shivaji Thapliyal
Understood. Thank you.
operator
Thank you. The next question is from the line of Yash Dante Varia from Dante Equities. Please go ahead.
Yash Dantewadia
I’m audible.
operator
Yes, you are audible. Please go ahead.
Yash Dantewadia
Yeah, I just have one clarification. I think with the recoveries you gave a number, I think 30 to 40 crores or did I hear that right?
Pralay Mondal
Yeah, 30 crores, not recovery upgrades.
Yash Dantewadia
Okay, perfect. And you said 80% of the NPAs are sort of accounted for, right? You have assets up to 80% of what you’ve learned, is that right?
Pralay Mondal
Collateralized. What do you meant was collateralized?
Yash Dantewadia
Yeah. So now since your gold portfolio.
Pralay Mondal
I’m only talking about SME, not wholesale. Wholesale high end corporates cannot have such high collateral.
Yash Dantewadia
Yeah, no, no, that’s understood. Coming back to your gold loan business, how do you see this kind of the momentum in the next one or two years like say the gold prices? Let’s assume that the gold prices sustain where they are currently. How do you see the gold portfolio growing as a percentage of your total book maybe one or two years forward?
Pralay Mondal
See the gold prices every day I get up and see the gold price, I myself get surprised. Okay, so obviously it is how long it is sustainable, we don’t know. So we cannot build our business model based on gold price going up or remaining at this level. We are also taking best case scenario where it will come down also. Okay. Based on that, all our projections are there. Okay. If it goes up, it’s an opportunity. Why not this thing? But that’s an opportunity also to improve the portfolio and bring down our LTV ratio. And hence as I said before, it’s well below 60% right now.
LTV ratio. So even if we do sensitive analysis, if it goes up by 5%, if it goes up by 10%, it goes up by 20%. What happens? That sensitive analysis also showing a very rosy picture. Okay, so and because these are short term loans, six months, one year, less than one year, unless one fine date falls by 50%, there is no challenge. Okay, that’s on the risk side. On the opportunity side, I think the biggest opportunity that is coming on the gold loan is not necessarily price but a segment which is opening up where it’s no longer just loan against gold jewelry of for consumption or something.
It is a 5, 7% segment which is opening up, which is for working capital. And their ticket sizes are much larger than what we have done in past. So we are creating a separate focus on that with specific service and focus area. And that is one business, irrespective of gold price going up or going down, that will keep going up because they have those collaterals and they will get it cheaper compared to if they go to take unsecured loan or they may not get also loans as such, so they are going to use it for their own capital requirements.
So that is one segment which is good. Second thing, I want to say that a lot of times we think that if prices have gone up, the portfolio has gone up in ratio prices. It’s not like that because ultimately propensity to consume is important, right? So people will take what they need for their, for their working capital, for their consumption, etc. So tomorrow, if the need remains the same and gold prices comes down, they top it up with more gold if they have. Okay, so it’s not a direct correlation between price and growth. There is a indirect correlation and hence obviously with gold price going up, gold portfolio is also going up for everybody.
And to that matter, our portfolio growth is much slower because we have been very careful in terms of LTV and other things. But not that if gold prices start going down, suddenly everybody’s portfolio growth will start coming down. It’s not like that. So I think it’s a combination of all of this. And anyway, in a long term scheme of things, we want the gold to be lesser in terms of business mix and it plays out well because we are not as a base case, we are not saying that gold price will.
Yash Dantewadia
Remain here, but we still haven’t shared a number. Maybe as a percentage of your total.
Pralay Mondal
Loan book, right now it is 50%. Right now it is 50, 51%. If the opportunity is there, it can go up also a little bit. But eventually by 2030 it will be between 25 to 30%.
Yash Dantewadia
So when you say 25 to 30% by 2030, which part of your loan book are you looking to scale to that extent to bring the 50 down to 35?
Pralay Mondal
Yeah. So wholesale will cross 30%. Wholesale will be a little more than 30%. SMA will be somewhere around 18 to 20%.
Yash Dantewadia
Rest will be retail and under retail, which. So under retail I’m Assuming gold is 25% and other 20.
Pralay Mondal
No, no, no, no. Gold is not 25. Retail is separate. So, so let’s say gold, gold is 25, 30%. I said gold is 25. 5% is that special segment which will create for working capital which is collateral as gold. And we’ll focus on that separately. So adding these two, it will be between 25 to 30 SMEs. Let’s say between 18 to 20. Wholesale is around 31%. Rest will be retail, which is retail assets, which will be all other products like your auto, consumer vehicles, ACA commission, commercial equipment. So then your lab, all of this together, retail lab, all of this together will be rest of retail which will be on and mostly it will be done to the existing customers of the bank and hence building that liability franchise is very important which you’re focusing on.
Yash Dantewadia
I just have one last question. Exit ROE for this financial year. And the second question is next year you said you’ll be looking to do above 15%, right. So could you please.
Pralay Mondal
Yeah.
Yash Dantewadia
So could you please also give us some guidance for cost to income for.
Pralay Mondal
Next year, I think cost income will remain elevated somewhere around 60% for another year. After that it will start coming down sharply.
Yash Dantewadia
And the first question, the 15% ROE.
Pralay Mondal
For this I already said before now that next year we will try to, you know because if we say 15 is a Lakshman record and if we come close to that this year then next year obviously we have to cross that.
Yash Dantewadia
So are you telling me you’re confident of closing at 15 this year?
Pralay Mondal
No, that I didn’t say. I said coming close to that. I said.
Yash Dantewadia
Okay, perfect. Thank you so much.
Pralay Mondal
So we’ll be more than will be more than where we are today. But beyond that then almost. I’m discussing fourth quarter results and I cannot do that.
Yash Dantewadia
Of course, of course. Thank you so much. Thank you so much.
operator
Thank you. The next question is from the line of Arush Gupta from Angel one. Please go ahead. Arush, your line is unmuted. Please proceed with your question. Arush, can you hear us? As there are no response from the current participants. So we’ll move on to our next participant. We have a next question from the line of one Solanki from RSP and Ventures. Please go ahead.
Vansh Solanki
Hi, good evening. My most of the questions are answered only one question about the slippages that 197 curves of slippages we have in Q3 management just said 4 to 5 crores was about the whole cell. So can you just give a rough estimate about rest 190 days. How much from the retail segment and. How much from the FME segment?
Pralay Mondal
I think retailer similar to last quarter. Okay. And wholesale there is almost nothing. This is a very vintage customer. Etc. So because obviously wholesale we don’t do 3, 4 crores, 5 crores the business anymore. So so broadly and then retail there is. There’ll be some in car, some in personal loans, some in agree, some in mfi. So retail is sort of in the same range as last quarter. Like in crore. If we can say that, I don’t know. We don’t give those numbers as such. But I’m giving a flavor that a larger part is on the SME.
Retail is similar to last quarter and wholesale there is almost nothing. So. Okay. And just one suggestion from my side that you just mentioned that in last. Quarter you had the PSLC fees income as well as the expenses in last. Quarter and also you are about to. Happen in the quarter four also.
Vansh Solanki
So can you just give a little more bifurcation in your PPT that how much of these expenses are in compared to other expenses and other income. It will be more helpful, helpful to understand that how much is the, you know, granular income and how much is one outcome? It will be very helpful.
Pralay Mondal
We don’t give those details but all I can say is that our attempt is to have core core fee income somewhere around 14 to 15% and overall fee income somewhere around 19 to 20%. So code will be around 15, non code will be around 5.
Sometimes that non code will come from treasury, sometimes it will come from pslc, we don’t know. Okay. And core we are pretty confident of 15%. Core is without PSLC and without Treasury. This you can kind of from here.
Vansh Solanki
Okay. Okay, thank you. That’s from my side. And all the best for visit. Thank you very much.
operator
Thank you. The next question is from the line of Akshat Agrawal from Smith’s Institutional Research. Please go ahead.
Akshat Agrawal
Thanks for the opportunity. Again in terms of coverage which is down to 66% this quarter. So you, you plan to build it back to above 70, is it correct?
Pralay Mondal
Yeah, yeah, yeah. 100%. Yeah.
Akshat Agrawal
So this higher write offs will be, you know, next quarter we won’t see that kind of.
Pralay Mondal
Now once we start upgrading the account it will automatically come back.
Akshat Agrawal
Right sir. And in terms of the branches, which is now eight branches this quarter versus seven in the first half, are we going to accelerate in the fourth quarter or is there any change in the strategy on branches?
Pralay Mondal
I think we are adding some around 40, 50 branches every year. I think we’ll remain around that level itself. Right now we have to first leverage the branches. You know why we should invest is products and processes and sales machinery. Our next big investment into sales machinery which will create new acquisition of customers. We have enough branches with 840 branches. When I just see how much business is to do. So let us first leverage these branches first properly. But yes, we will continue to add 4050 branches every year.
Akshat Agrawal
Right sir, Just if I can squeeze in one more. In terms of fee income, was there any syndication fee?
Pralay Mondal
Nothing of negation. Okay.
Akshat Agrawal
So in terms of run rate from here it will slightly increase to PSLC income next quarter. But aside from gold.
Pralay Mondal
That’S the aim hopefully.
Akshat Agrawal
Yeah. Okay. Got it. Sir. Thanks very much for answering all my questions. All the best.
Pralay Mondal
Thank you very much.
operator
Thank you ladies and gentlemen. We’ll take this as the last question for today. I now hand the conference over to the management for closing comments.
Pralay Mondal
Thank you very much for everybody for joining the call. And I can tell you that mood within the bank is very positive and we hope that we will be able to do very well in Q4 and end the year. Well, thank you very much and see you in the end of Q4 results. Good evening.
operator
Thank you on behalf of yes Securities. That concludes this conference. Thank you all for joining us today. And you may now disconnect your lines.