Bank of Baroda Ltd (BANKBARODA) Q4 FY23 Earnings Concall Transcript

Bank of Baroda Ltd (NSE:BANKBARODA) Q4 FY23 Earnings Concall dated May. 16, 2023.

Corporate Participants:

Sanjiv Chadha — Managing Director & Chief Executive Officer

Debadatta Chand — Executive Director

Joydeep Dutta Roy — Executive Director

Ajay Kumar Khurana — Executive Director

Lalit Tyagi — Executive Director

Ian Desouza — Chief Financial Officer

Unidentified Speaker —

Analysts:

Unidentified Participant — — Analyst

Nitin Aggarwal — Motilal Oswal — Analyst

Presentation:

Operator

Good afternoon, everyone and welcome to the Analyst Meet for Bank of Baroda’s Financial Results for the Quarter and Year Ended 31st March 2023. Thank you all for joining us. We have with us Mr. Sanjiv Chadha, the Managing Director and CEO of Bank of Baroda and he is joined by the Bank’s Executive Directors and the Chief Financial Officer. We have a few opening introductory remarks by Mr. Chadha and we have a short presentation, followed by the Q&A session. Over to you, sir.

Sanjiv Chadha — Managing Director & Chief Executive Officer

Thanks very much, Feroza. So let me just begin by introducing my colleagues you will be familiar, but let me do that. On my right, we have Mr. Ajay Khurana, Executive Director in-charge of Retail Banking for us. On his right is Mr. Lalit Tyagi, in-charge of International Banking and all our platform functions like risk compliance and audit. To my left, Mr. Debadatta Chand, who is Executive Director in-charge of Corporate and Treasury and also who is our Managing Director Designate. To his left, we have Joydeep Dutta Roy, who is ED in-charge of digital, IT and all our subsidiaries and to my extreme left, Ian Desouza, who most of you know, our Chief Financial Officer. Thank you.

Operator

Can we have the PPT, please?

Sanjiv Chadha — Managing Director & Chief Executive Officer

So thank you very much for joining us this afternoon. I think it’s after a long time, we have been able to get together, without the pleasure of all of you having to rush to another meeting, so thanks again for that. So we’ll just start the presentation by just small focus on the growth numbers, I’m completely aware that you received these number at the beginning of the quarter. But just to put in perspective, the profitability piece that we’ve declared today.

So we have been guiding right through this period that from our perspective in order of priority, we believe that the most important thing is underwriting standards and credit quality. Once we ensure that we try to protect our margins or improve them and if it is possible after that to actually go for growth. We had also guided at the beginning of the year that finally after many, many years. We believe it is possible for us to have margins and also to grow at a reasonable pace.

So we are really therefore very satisfied with the kind of growth figures we have seen after a long period. What is equally encouraging again is that this growth that we see has come from almost all business segments. First of all, between domestic and international, domestic has grown by more than 16%, which is faster than the industry, while International has grown by 30%. As some of you might recall, we have been discussing that, this robust growth in international was partly because of the fact that margins were depressed in corporate lending the last year and therefore we found better margin in the international book. Nevertheless, the growth has now moderated from about 40% to 30% and we believe that as we go-ahead, as opportunities in domestic market improve, the growth in the international book should be pretty much in-line with the overall growth as we go-forward.

Equally importantly, if you look at the segmental growth, it is driven largely by retail. So organic retail continues to grow at a very robust pace by about 27%. This again is part of our board mandated strategy, which requires us to have a larger proportion of our balance sheet in retail. So this year itself we have increased the percentage of retail loans by about 2 percentage points. We expect to continue to do that as we move forward. We have been guiding that if our growth is x, we would want our retail go to be 1.5x, corporate about 0.7x for that over a period of time we can achieve this portfolio, composite and change that we would want to do.

But what is equally satisfying is that corporate which had been under pressure in terms of margin, therefore, we chose not to grow that very aggressively. This year has turned up with smart growth about 13% and going ahead we believe that corporate will be contributing more to the growth and also while ensuring that margins are intact or improve. Within retail, the sustainability of this growth is largely predicated upon the fact that this growth is coming from large number of business segments, which are largely unrelated. So you have growth from home loans, which is about 19%, which is the slowest of these segments, but the others are growing even faster which means auto loans, education loans, personal loans, all of these are growing much faster, which means that as we move ahead, we can be a little more confident about sustaining this pace of growth, which is also something is indicated by the disbursement momentum, which is again gathering pace.

The challenge for this year of course, next slide, has been more by way of deposit growth I think for all banks. And there also I think for us it has been a relatively benign outcome. The gap between deposit growth and advances growth is possibly one of the least for us. So overall deposit growth is 15%, loan growth is 19% and if you look at the lower quadrant, you will find that the credit deposit ratio and particularly the domestic rate deposit ratio, which really is key because international goes very often gets funded by instruments like medium-term notes.

So the domestic credit deposit ratio is just about 75%, so there’s a lot of room which is still there in terms of growth and we are under no pressure whatsoever in terms of liquidity as we move ahead.

Within the deposit growth, CASA growth is about 8% and domestic term deposit growth is 17% and this is something which is pretty much par for the course because as the differential between the saving rate, which is about 2.75 odd percent for us, so 28% [Phonetic] for us and the term deposit rate which have moved north of 7%, as it expands, I think we would expect that more and more customers who have been maintaining savings account deposits would like to move them to term deposits to the extent possible.

In terms of, next slide please. Yeah, so in terms of the how we compare with the industry, you’ll again find that we compare fairly well with the industry. So our growth is better than both industry and scheduled commercial banks by a fairly significant margin. When we talk about industry, we have a set of eight banks, public and private sector who have declared results so far. So it’s about 4 percentage points higher. Similarly advances growth again is higher than both industry, the set of eight banks, as well as SEBs by a significant margin. So we have been gaining market share, while keeping our margin impact or improving, in fact, margins have been improving as you’ll see in the next slide.

So if you look at margins again, we have had improvement in both yields, as well as having a reasonably tight lid on cost of deposits. So NIMs for this quarter, actually domestic NIMs was something like 3.6%, which is a record for us and overall NIMs exiting this quarter were 3.5%. For the full-year, it was about 3.31%. So given the fact that the exiting quarter NIM is significantly higher than the overall for the full-year, we believe that we can be fairly positive about maintaining our year end net interest margin into the new year also as we go ahead.

Next slide, yeah. So if you were to again have the — how much have we really bettered the industry in terms of margins. So industry has improved margins by about 4 basis-points for the quarter, some banks did have a bit of a slippage. For us, they have improved by 16 basis points during the current quarter. Similarly NI expansion has outstripped the industry both in the quarter, as well as in the full-year.

In terms of profitability as a consequence of both growth and margin expansion, we have had a very robust increase in the quarter Y-o-Y growth, which is about 34%. Operating profit again has gone up very smartly during the quarter with a concomitant increase in profit before tax and profit-after-tax. So profit-after-tax at INR4,700 plus crores plus is again record for us.

Moving to the annual numbers, you will find that this quarter was not too much of an outlier, in probably almost every quarter, we have been able to have a significant improvement as we have moved ahead with NII for the full-year moving up by 27% and operating profit by 20%. I think this operating profit 20% is significant, because while we had been reporting profitability increases it was mostly driven by credit cost coming down. Now, we see the operating metrics also kick-in. This is a function of both cost as well as revenues as we’ll see as we move ahead.

For the full-year the profit has come out at about INR14,000 crores, which again is the highest-ever by a very, very big margin for us. Now how do we compare in terms of profitability vis-a-vis industry, there again whether we look at NII growth, opex, credit cost, PAT everything I think has worked out well for us. What I would particularly like to draw your attention to is the operating cost increase. I think this really is become the competitive strength of the bank. I think there is, of course, this year’s business environment was very favorable, credit costs have been trending downwards. But what was key difference for us was that while most again competing banks have increased both revenues and costs in tandem, we have been able to contain our costs. In fact, the number that you see, 13% vis-a-vis 19.6% understates the difference between us and other banks. This is because that this number — our number is inflated a) by the wage increase, which fully kicked-in in this particular quarter and there were certain other one-offs which Ian will take you through as we move along.

But again to reemphasize, we believe that the key competitive strength for us as we go through the cycle is a) that we are growing faster than competitors and b) by a very large margins our cost growth is very well-contained. In terms of improving asset quality, this is something that we have seen even as we had gone through the COVID cycle. The gross net NPAs continue to trend downwards, provision coverage ratio is very high, slippage ratio we had guided between 1% to 1.25% I believe, so we had the lower-end of the range and the credit cost of course has come down significantly below where we expected to at about 0.5%.

I think the next slide is again something which is important because it gives you something of a insight into what are we likely to see as we move ahead. So if you see the SMA figure, this used to be as high as 2% then been stabilized about 0.4%, 4.48% and this quarter this figure has come down 2.32%, which means that the improving trend when it comes to credit quality in terms of future prognosis continues and this is again driven largely by collection efficiency now stabilizing at a very high level.

So as a consequence of all this, the capital position is very, very healthy. What I would want to draw your attention to is the fact that this year was exceptional in terms of the asset growth that we saw. Despite that asset growth, despite our earmarking, 20% of our profits as dividend. We have ended the year with a capital adequacy ratio and a CET1 ratio higher than what we started the year at. So if we were to now look at any circumstance in next few years, I think we might probably again, we agree that this year’s credit growth was probably highest which we are likely to see.

So assuming a moderated credit growth and profitability, which again seems to be strong. We are likely to be self-sufficient in terms of generating funds for our growth as we move ahead and the CET1 ratio, equally importantly has actually moved up by 1 percentage point despite the dividend payment that we have done.

The next couple of slides are on again, how we are doing in terms of digital. I think this has been the key enabler, which has allowed us to attain the twin objectives, a) to have growth which is better than industry and b) to have costs which are lower than industry and the lower cost in particular have been enabled by digital. Today, we have a physical footprint, which is substantially less as compared to what was two or three years back.

In terms of manpower on rolls, it is also lower. But nevertheless, we are able to have industry beat the growth and that’s largely because a growing proportion of work is getting done through digital. It is through digital that we are able to reach our customers, today BoB has got 30 million active customers and we have done, I think our team has done a great job in terms of the penetration, but I think in terms of the leveraging of that penetration to get better cross-sell, better revenue opportunities, we are just about scratching the surface. So I think there’s a lot of upside which is left as far as leveraging the digital footprint is concerned.

Equally importantly I think in terms of something that we have the metric that we see, for instance, the best proxy for a state through process digital loan is the e-sign and we are number-one there. So we’re the fourth largest bank, but counting all banks public and private sector, we are number-one in terms of e-signs, lot of again positives when it comes to the digital story of the bank.

So that’s in terms of opening remarks. Thank you very much and now open to questions.

Questions and Answers:

Operator

Thank you. [Operator Instructions] Yeah, I think the question yeah.

Unidentified Participant — — Analyst

Complements to you Chadha shahab and the entire team here for the fantastic results of Bank of Baroda. I think it is befitting to congratulate and complement you even personally also I think you will be presenting the results of this quarter as your last results of Bank of Baroda. And you have done a fantastic job, sir, not only made the bank very, very strong, the balance sheet very strong, but even the business growth in this environment where bearing from a some small public sector banks others could not reach this kind of credit growth and this kind of asset quality. So, my compliments to you. Sir, now the question comes, number one is that, on the treasury front like I think, I think, especially in this quarter, our treasury income is INR297 crores as against INR1,142 crore. So going-forward now when the things are easing out, I mean the rates are also softening or rather stable, where do we see the profitability coming and the treasury contributing to this profit more, so some color on that, our book HTM and AFS book and what do we see in the coming quarter the treasury performing, how do we see it, this is one. If you — yeah, yes sir. Second is sir on the employees cost, it is increasing in every bank because of the wage revision and also the pension, additional pension. So going forward now, here it is I think INR3,000 crore in this quarter as against INR2,520 crore as far as salary is concerned and total employees cost also increased by about INR500 crores. So whether it is stabilized now at this like can we take that every quarter it will be around INR3,800 crore or some more provisioning is to come because the you of course you control the cost overall, you said as compared to the business, but it’s still in absolute terms it is increasing and similarly the other expenses also, which is from INR2,800 crore to INR3,100 crore. So whether going-forward it stabilize? Now third one is on the slippages, which is more or less under control, but in this quarter increased a little bit. So and slippages and vis-a-vis the recovery also. So on the NCLT now when the things are progressing though, of course we again read there is some problem with the government guarantee and some issues are still there. So with the NARCL and NCLT, so some color on the going-forward on the recoveries and credit growth sustainability. So these are the few observations and some questions, sir, in this round.

Sanjiv Chadha — Managing Director & Chief Executive Officer

So I think that pretty much covers the full presentation. Thank you very much for the questions. So I’ll just make a general remark and then I’ll hand over to my colleagues to answer specifically in terms of treasury, employee costs, slippages, NARCL and the rest of it. The general remark again I would make is only this, that we have tried to construct business and our balance sheet which can absorb certain one-offs which might be there because of the environment. This year the one-off was on account of the treasury losses because of the fact that rate increases which normally happen over a 12 month period, pretty much got compressed in the first quarter and the results that you see are despite those treasury losses, right?

So, I think as we move ahead and if interest rates were cycle was to reverse which seems to be likely I think that is an additional upside, which is available to the banks. But as far as we are concerned, we would want to make sure that we plan again for the future without accounting for these positive one-offs, you might want to take to our negative one-offs, but the positive one-offs and what you don’t normally account for when you plan for your future. Now coming to the specifics, I’ll again hand over to my colleagues, treasury first, Chand, [Foreign Speech].

Debadatta Chand — Executive Director

If you look at treasury, there are three components, which is charged to the PL, one is the interest income on the investment and then the trading profit and third is the depreciation. If you look at the current financial year that we have declared, the increase in interest income is almost INR5,000 crore and which is 25% increase as compared to a book increase of roughly around 15%. The trading profit is something around INR1,100 crore and the depreciation provided is something around INR900 crore.

So as a bank what we look into different scenario is to, how do I optimize all three components, right? So the moment you submit of, the depreciation is only the negative item out grow these two positive item. As a bank, the only — last time also we articulated that can I create a what you can say a delta vis-a-vis the book increase and precisely we have done that in this year. The interest income increase is so substantial even if there is a dip in terms of trading properties vis-a-vis last year, the income is far more than the dip in the trading profit, right? So that is what actually we are going to optimize and earlier also in one of the conversation, we articulated that we do have a higher FRB book, right. So that gives me a substantial upside in our interest scenario.

So going forward also two, three scenario can happen, if interest rate goes down, then the trading profit would go up, but the interest income again would take slightly ability. If the other scenario, the same would continue. So broadly the contribution out of treasury would continue with the same. And our strategy would be to how do I optimize the, I mean combined contribution vis-a-vis the book increase and that has to be higher than the book increase, the reward that stands recurring.

Sanjiv Chadha — Managing Director & Chief Executive Officer

So employee cost, I think, Joydeep and again this year [Indecipherable].

Joydeep Dutta Roy — Executive Director

So on the employee cost, I think, while there has been an increase in the last quarter, largely that’s because of the wage revision, that kicks off every five years, probably for bank. So we have started taking provisions for that in this quarter, in the last quarter and little in the December quarter also. So that is a new thing which has got added. Secondly, there is as far as the service commitments depending on the increase in the operating profit, employees are eligible for a performance-linked incentive some days in the year. So that again has been factored in this time in this quarter’s results.

So both these are new things which have got added in this quarter because of which you would probably see a little bit of increase in the employee expenses of the staff cost for this quarter, but for the year if you the 11.5% increase that you see, if you net of these two being the one-off expenses or the expenses that have come this quarter itself, the increase is only 5%, so that way we are very, very well-contained as far as the employee cost increases are concerned and we see that being able to be maintained. And going-forward, since now we have started the provisions on the wage increase etc and PLI also has been taken into account, so that’s also baked in for the future for the coming year also, so any abnormal increase etc won’t happen now. So from that etc that part has also been covered.

Sanjiv Chadha — Managing Director & Chief Executive Officer

Slippages, Khurana, [Foreign Speech].

Ajay Kumar Khurana — Executive Director

Regarding slippages and recovery, if you’ve seen our overall full whole year 10,100 is our total recovery, as against 8,100 our total slippages. And in fact, the recovery in return of account is also increased substantially around 27% from last year. So going forward, the trend is going to remain the same, our recovery will be that is what is the guidance recovery will be more than the slippages. And also the recovery in return of account also will be almost the similar amounts.

And as far as NCLT and NACL is concerned, NACL as of now, our — there is no account, we got got settled in our bank in 2022, 2023. So 2023, 2024, there are five, six accounts which are under process. The process which includes even the other ARC is also because of the sell in method it has to run-through. So we are not sure that how many accounts are going to actually going to NACL as of now, which is the status.

Operator

We’ll take the next question, yeah, at the back there is.

Nitin Aggarwal — Motilal Oswal — Analyst

Yeah. Hi sir, this is Nitin Aggarwal from Motilal Oswal. Sir, few questions, one is around the loan growth, you talked about that FY 2024 can be relatively moderate in terms of growth, but FY 2023 we have already grown like 5% higher than the system. So, do you want to talk about as to what levels of growth are you looking at in FY 2024?

Sanjiv Chadha — Managing Director & Chief Executive Officer

So our sense is that the system growth might be about 12% to 13%. We would want to make sure that if it is possible, keeping the other two metrics of underwriting standard in margins in perspective, we want might want to grow a bit faster than the system. So I think if the system is 12%, 13%, we might be 13%, 14% there or thereabouts, that’s what we are as of now putting in our projections.

Nitin Aggarwal — Motilal Oswal — Analyst

Right, sir. And secondly on margins, is it fair to say that margins has peaked out this quarter and you can see the trajectory reversing from Q1?

Sanjiv Chadha — Managing Director & Chief Executive Officer

So I think what you’re saying is probably correct, although, let me also confess that this quarter the margin surprised me on the upside. But our sense is that, we have the overall about 3.31% for the full-year. And we have an exiting margin of 3.53%. So even allowing for some moderation, I think we should be able to protect our margins as for the full-year margins are concerned.

Nitin Aggarwal — Motilal Oswal — Analyst

Right. And sir, overhead, if you can also talk about your international book yields and as well as the cost of deposits, overseas deposits because there is a very big change that is happening quarter-on-quarter on both the aspects. So where do you see this settling somewhere and what is really driving this is good move?

Sanjiv Chadha — Managing Director & Chief Executive Officer

So I think what, so when we look at our overseas book, we look at in two perspectives, one is of course in terms of how the overseas opportunities are in the context of domestic market. Last 1.5 years, the overseas opportunities were more attractive. So, we allocated more capital there. I think now possibly time has come when we’re looking at in-line growth. But as far as the profitability is concerned, the broad calculation that we have is, we have a net interest margin of 2% there right, but our operating costs there is less than 20%, which means you are left with 1.6% post operating cost, credit costs are negligible, right and we have seen this right through, we have tested our portfolio in terms of interest coverage, we are very confident of that.

So effectively speaking, you are ending up with the ROA, which is higher than the domestic book. So as the domestic conditions become more benign, there are more opportunities particularly on the corporate side, we believe that probably on the domestic side, the opportunities are going to be as good or better. So we would expect in line growth as far as the international book is concerned, but the international book for us is not margin-dilutive at all.

Nitin Aggarwal — Motilal Oswal — Analyst

Right. And sir lastly, we have been having a very strong asset quality, this quarter we reported a very sharp decline in provisioning. So did we not think to make some extra contingent provision this quarter, because you know that ECL requirement will be taking in some time and even the troubled airline and the other exposures are there. So did you not think about making some extra provisions?

Sanjiv Chadha — Managing Director & Chief Executive Officer

[Foreign Speech] but let me put it this way. I did, again I omitted to mention it. So this year we have, so we made a INR500 crore provision for the airline account, although it is a standard asset for us. So we normally do not discuss passive accounts, but in this case, there is a NCLT filing, so there is a permission to public domain. Apart from what is guaranteed by the government, our exposure is about INR13,100 crores and we hold again tangible, collateral security not primary security, primary security coverage is full. We have tangible collateral security and corporate guarantee, which is nearly about INR1000 crores. So we have made sure that we are more than well provided for any possible downside as far as that account is concerned. So we have taken your advice. Thank you very much.

Nitin Aggarwal — Motilal Oswal — Analyst

Thank you so much sir and do you also want to clarify the ECL provisioning requirement number also?

Sanjiv Chadha — Managing Director & Chief Executive Officer

So I think that’s something which is still in the realms of future RBI dispensation in terms of what you calculate, how do you allocate provisions, whether you can hold them and drop on them once requirements come in. So we shall wait for that. But let me just put it this way. So in our view, the normal cycle trade cost should be about 1% for us, right? As of now, we are below that. I believe that whatever ECL requirements might be there, we should be able to absorb them within this figure, so that the current trajectory of profitability that we have that remain in tact.

Nitin Aggarwal — Motilal Oswal — Analyst

Right sir. Thank you and wish you all the best sir.

Sanjiv Chadha — Managing Director & Chief Executive Officer

Thank you.

Operator

I think Sowrab had a question.

Unidentified Participant — — Analyst

Sir, just one question on the subsidiary business, there was some news that you are looking to do something with the credit card business, can you talk about that?

Sanjiv Chadha — Managing Director & Chief Executive Officer

So, Joydeep?

Joydeep Dutta Roy — Executive Director

So the credit card subsidiary, I think we have started a process to get in some investors. We’re looking at both strategic as well as financial investors who put that value to the company as it moves on it’s growth path and I think the company has been doing pretty well over the last one or two years as you would have seen and in the last year I think our credit card company was the — in terms of growth registered the highest-growth in the industry among all the credit card issuing banks, in terms of growth percentages. So it’s growth rate was somewhere around 76%, whereas industry average was maybe just around 14% or so, so that’s the growth that the company has shown.

And in terms of the investor process, I think we are in the midst of the process. We have got a fair amount of interest from the market. There have been some investors who have applied, we are going through the diligence process. Our diligence room has been — data room has been created where the financial and legal diligence etc are going on and after completion of that process we’ll probably be able to announce the investor. Thank you.

Operator

Thank you. We’ll take a couple of questions from Zoom, Mahrukh, you had a question.

Unidentified Participant — — Analyst

Yeah, hello, good evening, sir. Yeah, hello, good evening, sir.

Operator

Yes Mahrukh.

Unidentified Participant — — Analyst

Yeah, hi, good evening, sir. Sir, congratulations to you and your team on a very strong set of numbers. Sir, you said a couple of questions, firstly in terms of your personal loans, of course, that portfolio has done very well in terms of growth, but are there any niche segments or niche areas that you cater to, of course, I’m not looking for the — I am looking for the breakdown between salaried and non-salary, but even within that if there is any particular geography or any segment of customers that you would be targeting because this is a very competitive segment already.

Sanjiv Chadha — Managing Director & Chief Executive Officer

So thank you Mahrukh. Thank you for joining us. So I think for us, this is still a portfolio which is in its infancy. So, the bank had invested again in a data lake some years back, now we are able to put all that data to use to identify the right customer and also to determine what is the kind of exposure we might want to take on that customer. So it is pretty much driven by data analytics, which takes into account everything, including again the profile in terms of employment, the kind of transactions that you have etc.

For the moment again, we are fairly satisfied with how this portfolio is performing. I think if you’d look at the analyst presentation, you will find one data point, which might be useful, that if we look at our NPAs in the home loan segment they are about 1.5% currently as we speak. We do acknowledge that this is a growing portfolio not fully seasoned, but currently as we speak, the NPAs thereabout 0.89% or so.

For the moment, the portfolio is performing very well and our loans are limited only and only to our existing customers who have their account with us as we speak. As the account aggregator opportunities presents itself, we might want to go beyond our customer-base. But in terms of our own customer-base, to my mind, there are enough opportunities for growth in next few years. So for the moment in terms of customer profile, all of these are BoB customers and our choice is based upon the analytics that we derive from our data lake.

Unidentified Participant — — Analyst

Okay sir, thank you and I just had one more question, on this particular airline account, was just in SME category in the previous quarter because you talked about a stress group in the previous quarter.

Sanjiv Chadha — Managing Director & Chief Executive Officer

So I think to the best of my knowledge, there were no irregularities in the past. So, but the fact is that I think all of us are aware that this sector has been under stress. There are some airlines which again are either backed by a large group or again are market leaders, so there were some vulnerabilities that we were aware of, but I think the current challenges have come in some ways from circumstances which actually go beyond our market. I think the company has gone on record talk in terms of engine availability and those kind of issues.

Unidentified Participant — — Analyst

Okay sir, thanks a lot. Thank you.

Operator

Thanks, Mahrukh. Rakesh Kumar, if you can please unmute yourself.

Unidentified Participant — — Analyst

Yeah, hi, sir, can you — can you hear me, sir?

Sanjiv Chadha — Managing Director & Chief Executive Officer

Yeah, very clearly. Thank you very much.

Unidentified Participant — — Analyst

Thank you sir. Sir, just couple of questions, one is relating to couple of notes of accounts are there. And just to reconfirm, what is the total standard stressed account number that has 10,000 crores approximately?

Sanjiv Chadha — Managing Director & Chief Executive Officer

Yeah, I think, Khurana, [Foreign Speech].

Ajay Kumar Khurana — Executive Director

Yeah, INR11,000 crores.

Unidentified Participant — — Analyst

INR10,700 crore approximately?

Ajay Kumar Khurana — Executive Director

Yeah, it is INR11,000 crores.

Unidentified Participant — — Analyst

Okay. And the provision thereon is 10.7% sir? Provision out of standing on those standard accounts?

Ajay Kumar Khurana — Executive Director

No standard account provision total provision…

Unidentified Participant — — Analyst

Stressed standard account provision is 10% around 10.7%?

Ajay Kumar Khurana — Executive Director

See for the stressed — are you talking about restructured account or standard stressed account, SMA? [Speech Overlap] We do not provide anything.

Unidentified Participant — — Analyst

No stressed, restructured no numbers, what is there in the notes of accounts, couple of notes of accounts. So there the outstanding provision is 10.7%, just to reconfirm, sir.

Ajay Kumar Khurana — Executive Director

Total standard provision, total standard provision is INR5,800 crores.

Unidentified Participant — — Analyst

So excluding the provision for the standard account the provision?

Ajay Kumar Khurana — Executive Director

It is all inclusive, all inclusive account which are standard and provision is INR5,800 crores. Specifically for SMA, we do not provide any account wise, no provision is provided.

Unidentified Participant — — Analyst

Okay. And secondly, sir, referring to the notes of accounts number 15, there is a lot of reduction that we have seen from Q2. So similar notes of accounts, number 15 in Q2 and for Q4 there is a lot of reduction that we have seen in the exposure. So, do we see further reduction in that number, the stressed account number, which was on the resolution? And what is the impact of this reduction on the interest income line in this quarter?

Ajay Kumar Khurana — Executive Director

No, as far as restructure is concerned, restructure in our book is reducing. Last year, last quarter it was INR18,500 crores last quarter, this quarter, this is INR16,000 crores, last year it was INR18,500 crores, this year it is INR16,000 crores. So, and overall stress which was 4.67% other than NPA, it has been reduced to 2.97%.

Unidentified Participant — — Analyst

Correct sir. So we see that there is a lot of reduction in the provision also that we have seen. So is there any impact on the interest income line also of this reduction?

Ajay Kumar Khurana — Executive Director

No, interest income because provision is, here these are all standard accounts, interest is booked, no risk of any impact on interest income.

Unidentified Participant — — Analyst

Correct, correct, correct. Okay. Got it, sir. Got it, got it. And, sir, on this wage revision thing like total provision, our outstanding is only INR500 crores. So we have made an additional INR300 crore this quarter, that’s it?

Ajay Kumar Khurana — Executive Director

Yes.

Unidentified Participant — — Analyst

Okay, okay, sir okay. Thank you. Thank you so much sir. Thank you.

Operator

Thanks. Rakesh, who else has — I think right there.

Unidentified Participant — — Analyst

Hats off for a excellent performance to the whole team. Couple of things, in fact, you answered most of the questions, a few things on this wage revision which comes every five years, you mentioned you have made a provision of INR800 crores. What is the expected hike and when is the agreement going to happen, if you can give an indication itself?

Sanjiv Chadha — Managing Director & Chief Executive Officer

So, I think Lalit possibly.

Lalit Tyagi — Executive Director

So first question goes with the new ICD. So it goes like that, so there is one calculation, which goes into mind as what was the percentage in the last hike and what are the expectations going forward, that is one. The second one is that the provision which we have booked in this financial year is for the five five months only because of wage revision is due from 1st, November 2022. So going forward as the discussions progresses, we may build in the incremental provisioning as the discussion with the industry progresses. As of now, we believe that we are adequately provided in terms of the anticipated wage hike.

Unidentified Participant — — Analyst

What was the last increase five years?

Lalit Tyagi — Executive Director

It was, if I’m correctly wrong, 15%.

Unidentified Participant — — Analyst

Okay. Now inflation coming down, possibly it could be lower right?

Lalit Tyagi — Executive Director

It’s difficult to conjecture on that point, so it is —

Unidentified Participant — — Analyst

Sir, next is very excellent deposit growth, all beating 15.1%. What — do you expect in the coming year because sustainability is the key, advances is where is it okay and what is the cost trends for the deposit growth?

Sanjiv Chadha — Managing Director & Chief Executive Officer

So we are conscious that we might be coming towards the end of the rate increase cycle. So we have tried to make sure that the incremental deposits as such that they can again get repriced should the prospect cycle turn. So most of our deposit growth which has happened CASA apart has come from deposits with a maturity of 399 days, which is our flagship scheme where we offer the highest rates or lower which means that even if the interest cycle would change, we have not tied ourselves into a scenario where we might again find that loan yields are coming down and deposit yields are stuck. So we have enough flexibility built into the balance sheet.

Unidentified Participant — — Analyst

So the number for the deposit growth I heard some kind of indication.

Sanjiv Chadha — Managing Director & Chief Executive Officer

So I think for us, we would expect that again, as a general proposition, you would want to fund your loan growth entirely from deposit growth. This year also despite the fact that deposit growth was challenged, rupee to rupee our loans have been funded entirely by incremental deposits and that’s what we would want to continue, which is why you find that a domestic CD ratio despite the tightness in the market is just 75% and there is enough room for growth there.

Unidentified Participant — — Analyst

On this headline account, which we mentioned, we have been very ultra conservative, in fact you gave the number and being a standard account and in fact the industry is doing well. Now looking at a worst-case scenario, what the company says there is a lot of collateral as you mentioned, corporate guarantee of course difficult to implement, but this collaterals and land, what will happen is, what you provided ultimately it will come off in write-backs and recoveries led to profit in the coming year, right? This collaterals they have what is the timeframe it takes to monetize this collateral because they are talking about land primary land in prime areas like Worli, plus extra you maybe having specific known to you. What is the timeframe to monetize this thing particularly the real estate cycle is very good now.

Sanjiv Chadha — Managing Director & Chief Executive Officer

Yeah, so I think that’s a hypothetical question, but from our perspective we just try to make sure that whatever is the downside since you have room to make provisions you do that, if this account had not been there, we probably might have made a general provision anyway. So it’s really again, so why our credit cost at 0.53% today it is because whatever you would anticipate for the future you took care of it in the past. So that’s what we would continue to do, but in terms of specific recovery cycle I think that might be possibly a full detail discussion for this quorum.

Unidentified Participant — — Analyst

Okay. Now lastly on a very important subject of ECL which was raised, now some other banks are — it’s a very sweet spot in the cycle with very low-credit cost, it’s the best time to make provisioning and RBI is making us ready for it, although, they had prepared us several years back and asking regular financial models from us compared [Indecipherable] IFRS 9. Now other banks like Bank of India, Can Bank, Union Bank have given us a number to ponder. Now, if you can also be transparent and share the number based on the models you have been reporting, although we know we are the best bank compared to all the banks and we have been doing accelerated provisions including some account we mentioned this is a very — this is excluding provision, but number given the number, so what we have prepared for that transparency we expect from you?

Sanjiv Chadha — Managing Director & Chief Executive Officer

[Foreign Speech].

Ian Desouza — Chief Financial Officer

So we believe it’s a bit premature to come out with a crystallized number because the regulations itself I had discussion with RBI as you are aware, there is a discussion paper out, banks have responded to the discussion paper, but I’d like to make two, three points and attempt to answer your question on a different way. One is, if you look at our overall financial from our asset quality perspective, you would see our NPAs have been steadily declining there about 0.89% is the NNPA ratio. So the unprovided NPAs are very low.

Secondly, in terms of our provision coverage is around 92% and thirdly, the stress book, which is the SMA crilic 1 and 2, where your ECL will actually hit you is at all-time lows at 0.37 basis-points. The other thing in terms of restructured book is around just standard restructured book around 1.5, so these are all elements where your ECL will push and create pressure. So all these elements I think are working well and should track better. And having said that, maybe our number, it’s an estimate right now would be in the range of 1% to 1.5% of loan book at this juncture.

Unidentified Participant — — Analyst

Okay, okay, now this is really very good, one point on this, I’ll just add, you’re having consultation with RBI on that, there are lots of talks which are coming on IFRS 9, ECL and the secular based system. Now we are moving forward from a secular basis system to a principle based system, but we should have clearly one secular basis somebody is working very well or that IFRS 9 ECL, but if there is a thought process of a hybrid system which has not been implemented anywhere in the world, so there should be one system I feel if you do that it will help in uniformity across the system and wishing you all the best.

Operator

Thank you, sir. There is a second row, there is a…

Unidentified Participant — — Analyst

Yeah, this is Sharath Chandra Investment Advisor. Thank you for giving me the opportunity to ask this question. Good that this year has been extraordinarily well, your deposit growth has grown at 15%, your bulk deposit rates I don’t know whatever they are, you have been able to grow at 65%. Credit, obviously you have been able to match the industry, you show comparison about industry and how your growth has been better. Now looking as a shareholder in with a longer-term perspective in the last 10 years, a full decade your return-on-equity has been single, low-single digit. This is the first time that you’ve shown 15% return-on-equity, which is a expectation because as a risk capital holder, I expect a higher-rate of return vis-a-vis my fixed deposit rate. So I would like to ask you why are you running after growth because bulk deposit at 65% growth is basically to match your credit growth, why don’t you just be more you know choosier about what things I learned and what thing I’ll not learn. And can you tell me that has the Board discussed and probably the management team has discussed, is return-on-equity which you have in mind because if that is not in mind, this is a good period and so that’s why you have made good money. And so that’s why the stock price has gone up and it’s first time trading at more than one times price-to-book. So and if you can tell me if there is a target which you have set-in, what are the cultural and structural changes which has happened in the last couple of years in the Bank that I’ll be confident that you’ll be able to maintain that double-digit return-on-equity. Thank you very much and all the best. I mean apologies if I’ve been slightly blunt.

Sanjiv Chadha — Managing Director & Chief Executive Officer

No no, not at all, I think most welcome. So, I think in terms of the mandate from the board and also what we have been guiding, the mandate from the Board is that we might we would want to insulate the bank from the cyclical development that we have seen, which was, as you said, responsible for extended period where returns were sub par. And if you were to go back and see what produced those sub-par returns. It was largely the corporate credit cycle. So today, the corporate credit cycle is very good. It is working in our favor, but there’s no doubt it will change again. So as a bank what you can do is, you prepare for the next cycle by making sure that you are less dependent on corporate loans as compared to what you were.

So our corporate loan book used to be 47%, 48% of our book, to date is down to 43%. So we believe that before the next cycle comes if we can have a more balanced portfolio then the kind of challenges that we saw the last-time around, they are likely to be addressed. So that’s number-one.

Number two, again, in terms of growth, we actually I started again my opening remarks by saying that for us priority number-one is underwriting standards. Number two, margins, number three, growth. And we do not chase growth, which is why in the corporate book last year we had a growth of only 5%, because the conditions were not conducive to having growth with margins. Third, we never take growth target for the year, but also in my opening remarks I mentioned that we will like to grow at industry or better, right, so maybe 1 or 2 percentage points more than that.

So you try to make sure that you are not setting yourselves targets, where as you said by chasing your target to end up in a situation that you had not bargained for. And in terms of the changes that have happened in the bank, which should give us confidence for the future, I think first of all is the technology piece which I think where the bank over the last few years as it was at par or better than probably any other bank. And we had some metrics that we spoke about.

The second to my mind apart from technology and more importantly, applying that technology again to do business is really talent, that is what distinguishes one bank from the other. And I can say it without hesitation that this bank public and private sector included is the best example of a bank which is able to attract quality talent, retain it and use it to build businesses, particularly I think the biggest risk for any bank is the CEO, right even if I say it myself. And how do you mitigate that risk by making sure that people like the Chief Risk Officer again are experienced, they have industry standing and they can give advice without hesitation.

So today as we speak, our Chief Risk Officer is a market professional with enormous experience, our Chief Financial Officer again is a market professional with an enormous experience. So we are trying to build team, which can insulate our self from the cycle, but we welcome any feedback and we believe it will help us become better.

Unidentified Participant — — Analyst

[Indecipherable].

Sanjiv Chadha — Managing Director & Chief Executive Officer

So as you said, you give targets again and you get into the trap that you outlined for us, right, but we will try to make sure that we out perform the market. We bow to market conditions, but we believe in any market condition we can try to outperform the market.

Unidentified Participant — — Analyst

Thank you.

Operator

We will take a couple of questions, last couple of questions. Saket Kapoor is online, Saket if you can unmute yourself and ask your question.

Unidentified Participant — — Analyst

Yeah, [Foreign Speech].

Sanjiv Chadha — Managing Director & Chief Executive Officer

[Foreign Speech]

Unidentified Participant — — Analyst

Sir, you spoke about the net interest margin for the next year to be in the trajectory higher than what the average for this year was. So we are looking for a bank above 3.31 and it will be lower than 3.6 that we exited for this year that should be the number we should work for the next year?

Sanjiv Chadha — Managing Director & Chief Executive Officer

Yeah, so I think what you’re saying is correct. We believe that the 3.31 average NIM that we had, we should be able to protect that which means, we should end-up there or maybe a little better than that. And we do believe that the 3.53 exiting NIM that we saw gives us a little bit of room to again make sure that we can absorb moderating interest margin regime.

Unidentified Participant — — Analyst

Okay. And sir on the ROA front, sir, what should be the trajectory that we exited this year with are 1.34 annualized number and for the quarter 1.03 was for the year. So what should be the ROA trajectory?

Sanjiv Chadha — Managing Director & Chief Executive Officer

So, I think we have we had guided that we would want to hit a 16% ROE and a 1% ROA in 2023, 2024, we have hit that one year in advance. Now, we believe we should be consolidating around those levels, so I would believe that our guidance continues to be 1% and as a consequence, the ROE, which is as of now about 18%.

Unidentified Participant — — Analyst

Sir, come again sir, I missed the number, sir, what it should be 1…

Sanjiv Chadha — Managing Director & Chief Executive Officer

1% and between 16% to 18% ROE depending on what the capital basis is.

Unidentified Participant — — Analyst

Sir, now for your equity investors, sir I think so the dividend payout is also a significantly higher and thank you for the Board for declaring a dividend of INR5.50 per share, kudos to the team [Speech Overlap].

Sanjiv Chadha — Managing Director & Chief Executive Officer

I hope I’m speaking to a analyst, not a shareholder.

Unidentified Participant — — Analyst

Sir, I’m a shareholder, sir.

Sanjiv Chadha — Managing Director & Chief Executive Officer

Okay, both hopefully.

Unidentified Participant — — Analyst

Okay. Sir no sir, I’m a mere shareholder, but I’m trying to learn a bit the language and the terminologies, so, sir the midpoint as an investor I would like to understand, firstly, sir, what is in this current, in the current banking cycle from where from the NPA to the cleaning up extra site and now with the credit cycle and the higher interest regime, what should investors look forward in terms of they being investing in the equity of the in the bank that particularly Bank of Baroda in particular because these stock prices have not been the normal-course, we have not seen these prices for a very long-time. So how sustainable are your earnings, what is the quality of the number that will continue, so that investors can contain with remaining investor, hello? Am I correct sir? [Speech Overlap] You got the point and sir for the ECL point also sir, I would just like to understand sir, what should investors keep in mind when this ECL implementation is been spoken about. There is lot of if and buts about it, if you could just give for the benefit of investing community there some basic understanding of what this being all about, these are the only points.

Sanjiv Chadha — Managing Director & Chief Executive Officer

So thank you very much. I think from our perspective, we believe that as far as the banking environment is concerned, it is very benign and we should continue to see good returns from banks as we move ahead. Speaking of Bank of Baroda, I think while of course, we benefit from the broader conducive environment, as I mentioned in my opening remarks, there are some special circumstances which make BoB again particularly good investment and the key differentiator asset BoB is concerned, is on the cost side where we have been able to contain our costs far better as compared to our competitors.

So therefore I think there is a delta which is available to investors in BoB which should give them confidence as far as the future is concerned. As per ECL is concerned, to my mind, given where we are in the cycle and particularly the corporate credit cost cycle is likely to sustain for the next few quarters and years. I think this has got implication which are again very positive both in terms of the historical book to also in terms of ECL in terms of the historical record on which losses might be estimated.

So I think we should be able to continue to report decent profitability numbers, notwithstanding whatever guidelines come in from the RBI in terms of ECL.

Operator

Thank you. I’m sorry, we’ll have to close now, it is 04:30.

Sanjiv Chadha — Managing Director & Chief Executive Officer

I think we have one at the — head of the…

Operator

Okay. Yes, sir.

Unidentified Participant — — Analyst

Congratulations to team BoB for an excellent performance. Sir, we’ve done lot of transformation whether it was digitization, we won the and reaping rewards today. You highlighted that we have touching few number of customers from our existing base where all the loans are concerned. So if you can highlight little elaborate that 5%, 10% having reached the capabilities for hire. Second thing, lot of facilities which BoB started over number of years led to this transformation. So without getting into details, can it lead to a substantially higher income within Bank? Second thing, we are doing lot of digitalization where SME loans up 50, 100 crores are concerned and most of the PSU banks have lost their market share in last few years in that business segment. However re-energizing that BoB captures those loans back from private sector and our earnings getting better.

Sanjiv Chadha — Managing Director & Chief Executive Officer

So thank you very much. So I think in terms of the capabilities in the bank and how what that — how that protected to better earnings and revenues. First of all I think, as you very correctly said, there have been lot of investments that happened in the bank not now, none in last three years, for the last five, seven years which actually are paying dividends now. Among them I would again like to highlight two, one was, again, the investment that we made in creating a data lake which we have been able to leverage now, if we had not made the investments then, there is no way we would have produced these results today.

Similarly, again investments, we talked in terms of the fact that in the physical footprint manpower we are efficient and able to pertain costs, that again was because the bank had the foresight and the management team then had the foresight to again invest in a shared services company, which again is taking a large part in terms of making sure that we are efficient and our expenses remain under control. In terms of the upside of what we’re doing, I’ll just give you the example that today as a proportion of our loan book unsecured loans are probably just about 2% or thereabout 3%, right, about [Indecipherable] as against the loan book which by 9 lakh crores.

Now the corresponding figure in SBI might be five, six times higher, because SBI was able to start that very many years before we did. So that is again an upside, which remains unexplored as far as we’re concerned. So there is still a long runway which is there in terms of again our reshuffling a book, making it better margins. So today we have a 3.6% domestic NIM, but that is despite the fact that a) the credit card business sits outside the bank and 2) the unsecured loan book is far lower as compared to some of the competing banks. So these are upsides which are still there for us to explore as we move forward.

Third is again what you alluded to in terms of technology, which has now been brought to bear, mostly on the retail book. But in terms of it’s having a transformative impact on MSME that is still to play out. We have started doing that but that is still again something which we are targeting relatively smaller micro MSME loans. Now for us to move that to the mid segment again is a enormous upside that is available to the bank.

Unidentified Participant — — Analyst

Sir, my next question is based on the global market outlook and domestic outlook which RBI and the government is saying, the interest-rate cycle you have already highlighted, do you anticipate that the loan book growth what we’ll see with election next year would be more front-ended in the current year first half rather than the second?

Sanjiv Chadha — Managing Director & Chief Executive Officer

So tough to say, maybe again, we have our Chief Economist, Madan there, he has been sitting quietly for a long-time. Maybe if you can ask him to give his views? Yeah, mic for Madan please.

Unidentified Speaker —

No, in fact for the current financial year, we are looking at overall credit growth being in a new region of around 11% to 13%, if you’re asking whether it’s going to be loaded into first-half or into second-half, is that the question? Yeah, we would tend to believe it will happen more during the second-half. The reason being that both in terms of the consumption cycle as well as the investment cycle, whatever turnaround is going to happen is going to happen more likely in the second-half. Okay. So that’s when we would see the demand for credit to really picking-up, if at all, I mean when we are talking in terms of one half being better in second half. So therefore it will be happening more into second half. This will be based on the assumption that when we are talking of consumption increasing because probably of a good monsoon that is a basic consumption which we are making, there will also be good rural demand coming in, so as your consumption increases, there’ll be higher capacity utilization, which in-turn will generate greater demand for investment that’s how bank credit would keep increasing.

So it will be more in the second half rather than the first-half.

Unidentified Participant — — Analyst

Sir, we have lot of news about our credit card, insurance and other-related services more IPOs, RRB also we’ve spoken about, anything we are likely to monetize partnership in the credit card I understood but the other wings?

Sanjiv Chadha — Managing Director & Chief Executive Officer

Joydeep?

Joydeep Dutta Roy — Executive Director

So I think on the life insurance subsidiary, we are on the path of an IPO, we have received the DRHP approval from SEBI in March. We have a one year run-rate day rate on the IPO, but, of course given the conditions in the market, etc we are again seeing what is the right time. So we will be taking our analysis of what is the right time to enter the market and then we’ll go for the IPO in the insurance side.

BFSL and Nainital Bank, I think the process are on for getting a partner into both these entities. And I think we should be shortly seeing some positive result there also. So that’s on the monetization side.

Unidentified Participant — — Analyst

Thank you very much and all the best for the years to come.

Sanjiv Chadha — Managing Director & Chief Executive Officer

Thank you very much.

Operator

Thank you. We’ll request our Chief Financial Officer…

Sanjiv Chadha — Managing Director & Chief Executive Officer

At the end one or I think we’ll…sorry.

Unidentified Participant — — Analyst

Sir, Ramesh Bhojwani from Mehta and Vakil, many thanks for taking my question although at the last hour. Two important things, one, today the wholesale price inflation has fallen to negative and the retail price inflation has come down to 4.9 and RBI on June is very likely to announce a rate reduction maybe 25 basis-point, if not 50 and if we have a good monsoon this reduction of rate cycle will continue going forward. In this situation, how is the bank looking at the overall rate cut scenario, number-one. And the second question is little elementary or little away from this. Sir, no bank has taken steps to reevaluate their assets, which are long-standing in their books, when they were made. Are we looking at evaluation of our assets?

Sanjiv Chadha — Managing Director & Chief Executive Officer

So I think the first question I’m not sure whether June is the time when there might be a cut maybe Madan can talk about that. But you’re right that we probably are again at that inflection point where the cycle is going to turn. And it’s a very relevant question, how are we as a bank prepared for that cycle. Now — so this is something we have been acutely conscious of when we were constructing our liability portfolio. So today, the major part of the incremental growth that we have seen in our liability book that has come from liabilities, which have tenors of 399 days and below, right, so which would mean that should the interest rate cycle change, we are very well insulated from any adverse impact on our book, right?

So the second part again was I’m sorry, just lost track?

Unidentified Participant — — Analyst

The revaluation of asset.

Sanjiv Chadha — Managing Director & Chief Executive Officer

Revaluation I think that’s something the CFO can along with it thank you, maybe he can address the question.

Ian Desouza — Chief Financial Officer

So like all the organization mentioned, we do have a policy for that and we do it once in three years. So coming to my closing remarks, thank you everyone for coming for in-person session. It’s not always easy to travel in Mumbai. Thank you for being here and look-forward to seeing you again in the next quarter. Thank you so much.