Central Bank of India (CENTRALBK) Q1 FY23 Earnings Concall Transcript

Central Bank of India (NSE:CENTRALBK) Q1 FY23 Earnings Concall dated Jul. 25, 2022

Corporate Participants:

Mukul N. Dandige — Chief Financial Officer

M V Rao — Managing Director & Chief Executive Officer

Vivek Wahi — Executive Director

Analysts:

Ashok Ajmera — Ajcon Global Services Limited — Analyst

Anirvan Sarkar — Max Life Insurance Company Limited — Analyst

Amit Mishra — Indus Equity Partners — Analyst

Vidhi Shah — Antique Stock Broking Limited — Analyst

Unidentified Speaker —

Sushil C Choksey — Indus Equity Advisors — Analyst

Sohail Halai — Antique Stock Broking Limited — Analyst

Presentation:

Operator

Ladies and gentlemen, good day and welcome to Central Bank of India Earnings Conference Call for the Q1 FY 2023 hosted by Antique Stock Broking Limited. As a reminder, all participants’ lines will be in listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes. [Operator Instructions] Please note this conference is being recorded.

I’d now like to hand the conference over to Mr. Sohail Halai from Antique Stock Broking Limited. Thank you and over to you, sir.

Sohail Halai — Antique Stock Broking Limited — Analyst

Thanks, Vikram. Good afternoon, everyone. I welcome you all to Central Bank of India’s first quarter FY ’23 earnings call. And thanks Rao, sir and the management team of Central Bank of India to provide us this opportunity to host the call. Today we have with us senior management team from Central Bank of India led by Mr. MV Rao, MD and CEO; Mr. Alok Srivastava, Executive Director; Mr. Vivek Wahi, Executive Director; Mr. Rajeev Puri, Executive Director; and Mr. Mukul Dandige, CFO.

Now without further delay, I hand over the call to Rao sir for his opening remarks. Post which, we can open the floor for Q&A. Over to you, Rao sir.

M V Rao — Managing Director & Chief Executive Officer

Very good afternoon to all of you and thank you for participating in this con call. I’m very happy to share with all of you that this is the fifth straight quarter the bank is making net profit and our balanced approach has kept the bank in the orbit of controlled growth path. Just I will be sharing the highlights and again I will come to the specifics for any clarification that is required. As far as our total business is concerned now, it stands at INR5.37 lakh crores registering a growth of 6.04%. And then gross advances is — now stands at INR1.94 lakh crore with a growth of 11% and RAM advances now it is at INR1.27 lakh crore. And the guidance what we have given earlier our balanced approach, we are maintaining 65:35 composition, that is RAM is 65% and 35% is corporate. Though we have given a range of 65% to 70% and 30% to 35%, now we are maintaining 65:35 in this June quarter. Our net NPA now it has come down to 3.93%. If you compare with the previous June, it was 5.09%.

And then slippage ratio and credit cost, I will come when — details when I will be presenting. CRAR we are comfortable at 13.33%. And PCR, that is provision coverage ratio, has now gone up to 86.61%. And now in the small details, a quick wrap-up. This network what we have customer touch points is 18,171 with brick and mortar branches is 4,528 and our ATMs 2,999 and BC outlets 10,644. So among this liability part, total deposits was at INR3.42 lakh crores, in which CASA is INR1.74 lakh crores, that is 51.15%. And then total advances INR1.94 lakh crore, in this RAM is INR1.27 lakh crore and corporate is INR66,963 crores. So we have an improved CD ratio when compared with the previous June, which was earlier 52.9. Now we have reached to 57.04. And coming to the credit RWA because though we have INR1,94,648 crores, our total credit RWA that is risk-weighted assets is INR1,24,259 crores. That is 63.84% of the total advances. That means we can evaluate the good rated portfolio in our credit book.

And our loan book is also very much diversified; 28% is under retail and 19% with agriculture loans, 18% with MSME among the RAM itself. Corporate credit I told you 35%. Total stands at INR1.94 lakh crores. And the sanction and disbursements. Now with the changes in our structures what we did in the previous year and some processes we have changed, there is appreciable increase in our sanctions and disbursements. In the previous June quarter it was earlier INR8,031 crores for the total disbursements — total sanction, this time it has moved up to INR20,154 crores. And in similar way in disbursements earlier in the June quarter we could able to do INR6,066 crore, this June quarter we could able to disburse INR11,210 crore. So, there is an appreciable increase in our sanctions and disbursements. And going with the RWAs that is just 63.84%. That gives you insights into the quality of the portfolio what we are enhancing.

And in co-lending, you may be aware that now we are having the first-mover advantage and then total outstanding as on June 30 stands at INR2,342 crores. And as far as the mandated targets are concerned in priority sector, agriculture, weaker section, advances; we’re well above the mandated targets and we have also a decent amount in our PSLC sales. And regarding the SMA, this will be the most interesting part for all of you. In June we used to have INR16,000 crores — June ’21 and it has slightly dipped in March INR14,924 crores that is around INR15,000 crores. Now we are at INR13,700 crores. Even in this if you see the bifurcations of above INR5 crores and below INR5 crores, above INR5 crores were comfortably placed that is the total amount is only INR1,200 crores where SMA 0 is INR700 crores and INR300 crores in SMA 1 and INR200 crores in SMA 2. As far as the up to INR5 crores, there is a number which is around INR12,500 crores, which is less than March ’22.

And we are well-equipped to deal with this portfolio as we have the expertise and also lot of reach at the ground level with the retail and MSME borrowers. And coming to the NPA classification. Total net NPA is 3.93%. In retail it is 1.53% and agriculture 9%, MSME 5%, and corporate is 2.3%. And this the gross NPA that is still at 14.90%. Going forward we were — in the previous one we were expecting some accounts will be taken over by the NARCL, but still there are issues to be sorted out. I think it may take some more time. Meanwhile for the next quarter, we are figuring out how we can reduce the gross NPA. It may not have the impact on any of the issues as far as the bank functioning is concerned. And most importantly our net NPA which was 5.09% in June ’21, now it is at 3.93%. So, there is a lot of improvement in this and going forward we will be sticking to our earlier guidance of 3.5%.

And when you come to the NPA movement, the closing balance — opening balance was INR28,156 crores, closing was INR29,002 crores. That is there is an increase in the gross NPA because of the three major accounts in the corporate; that is the Future Group three accounts and one Bajaj Hindustan. These accounts they were turned in to NPA, that’s why there is a increase in the gross NPA. Coming to the slippage ratio where I will be spending one minute extra for giving a picture how this has come. Overall it is 1.29 and if can drill down to the specifics. In agriculture — in total there is INR2,100 crores of slippage was there, of which INR1,020 crores are from the corporate portfolio, the accounts which I already shared with you. And in agriculture INR326 crores was slippage that is 1% and in retail INR217 crores slipped into NPA that is 0.43% and in MSME it was INR530 crores that is 1.8%. So overall in corporate it was 2.03. So overall, it is 1.29% slippage ratio.

And the way SMAs are being controlled in the RAM portfolio and restructured portfolio, for September quarter we are confident that it will be below 1.25%. And capital ratios, that’s what I have shared, we are comfortable with capital ratios. Coming to the financials that is total income, interest income and interest expenses and NII. That is almost June ’21 INR2,127 crores, now it is at INR2,142 crores. Only a small 0.71 growth is there. You are aware that interest income from the treasury coupon interest has also come down and that is the effect here. And provisions if you come to the Slide Number 29, NPA provisions. Here you can see very well that INR959 crores that is the net additional NPA provision we did and INR826 crores was the provision write-back that was there but we never utilized it. We have pumped in again to strengthen our balance sheet so that the balance sheet even for September, whatever the things that are required to be done, we have front-loaded those provisions. That’s why we have not used this INR826 crores of write-back in our provision for any — for other requirements.

So, this gives you a fair idea how this balance sheet is strengthened for the future and our philosophy of balanced approach with controlled growth that we are going to achieve in the quarters ahead. And regarding the indicators, cost of deposit is 3.85% and then yield on investments is 6.13%, cost of funds 3.90%, yield on funds 7.44%, and NIM is at 2.88% and return on assets has inched up to 0.27% and ROE is also gone up to 0.98% and book value per share is INR27.71, credit cost is at 2.07. This is the precise reason how these provisions were built. Even though my slippage is less, but provisions are built up. That’s why credit cost appears to be high. But going forward, this will be moderated. And coming to the investment book. This is one of the portfolio, which was managed really well in the bank. Even if you compare with other peer banks, you will feel the difference how investment book is maintained at our end because we have a portfolio of INR1,41,000 crores.

Now my ED, Mr Vivek Wahi, he will explain you about the investment portfolio.

Vivek Wahi — Executive Director

Yes, sir. Investment portfolio has shown a good improvement over last year-on-year as well as quarter-on-quarter also. Our modified duration has been — only on SLR book the modified duration is 1.29, which was 1.31 in March. And our PV01 on SLR portion is 3.03, which was 4.30 in March and which was in June ’21 it was 6.79. So, there has been a very good improvement in these numbers as far as treasury is concerned. Overall provisioning is also very little. In SLR book as well as in our non-SLR corporate bond book, the provisioning is less than what was in March. It was only a little bit provisioning more on the equity portfolio and SR portfolio. We have done very nominal additional provision of around INR125 crores. So, this is a good number, sir, as compared to peer banks.

M V Rao — Managing Director & Chief Executive Officer

And further to add in from our subsidiaries, Canbank Home finance and Canbank Financial Services, both are in profit mode and including my RRB and all my subsidiaries and RRBs are doing well. And as far as the Canbank Home Finance is concerned, now we are revamping the entire Canbank Home Finance. Now its headquarter from Bhopal, we have shifted to Mumbai and lot of work is being done and we expect lot of value addition from my NBFC.

This is from our side. And if any specifics or any clarifications are required, it’s welcome. Thank you.

Questions and Answers:

 

Operator

Thank you very much, sir. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] We have first question from the line of Ashok Ajmera with Ajcon Global. Please go ahead.

Ashok Ajmera — Ajcon Global Services Limited — Analyst

Good evening, sir. Good afternoon, sir. Rao sahib and all the EDs. Comparatively a good result barring that there is — the net profit has come down as compared to the March quarter. What I see, sir, here is one expenditure item on the employees. So, will you comment that why the employee cost has increased so much as compared to the March quarter, sir?

Mukul N. Dandige — Chief Financial Officer

In March if we see, there was I mean a reduction in employee cost because of the reversal in the actuarial valuation for the terminal benefits. If you compare June to June, my employee cost is almost the same. There is no increase in the employee cost. It is only because we got a reversal of around INR680 crores in the terminal benefits in the actuarial valuation, that is why March was I mean an outlier quarter we can say.

Ashok Ajmera — Ajcon Global Services Limited — Analyst

So which means that on an annualized basis, we can say that the employee cost will be INR4,400 crore or INR4,500 crore as compared to INR3,900 crores in the last full year, isn’t it? So INR400 crores, INR500 crores increase in the whole year?

Mukul N. Dandige — Chief Financial Officer

Right. We can say that whatever is the employee cost during this quarter, it will be four times during the financial year. Again the same thing, I mean the actuarial valuations if they come in March that we are eligible for some reversals, then to that extent the employee cost will again come down.

Ashok Ajmera — Ajcon Global Services Limited — Analyst

Okay, sir. My compliments to Wahi sir, for investment portfolio. He has really been handled very well because we are seeing lot of pressure in the investment portfolio. Even Bank of Maharashtra has come out with the result, it was the first bank where also there was a pressure. Whereas you have given if you see the segment wise income, the INR540 crore from the treasury income as compared to INR393 crore in the last quarter. So sir, going forward how are we placed, sir? Your modified duration is of course 1.29 in SLR, but there can be losses in the AFS and other portfolio which you are holding. Secondly, you provided something in the equity also. So going forward for the next three quarters or maybe one or two quarters, what do you see, sir? How do you see the future in the — from the investment income point of view or the total treasury operations point of view, sir?

M V Rao — Managing Director & Chief Executive Officer

See, now 10-year is hovering around 7.38% or 7.40% level. So, it is expected that the yield should not be crossing it in this financial year. For up to March ’23, we do not expect the yield to go beyond it because last time also when the 10-year in 2018, it reached — briefly touched 8 point something levels for couple of days so it again went back below it. So even if it goes up to 8, so that means another 60 basis point hit. So 60 basis point in terms of our portfolio, if we can really say, it will not be more than — max more than around INR150 crores to INR200 crores. So, our investment size that can be surely taken care of by our interest income or by our yields. So, we do not really foresee any major hiccups in our investment book going forward. Of course we do not predict — we do not have a view beyond 8%, which is unlikely to go. So, that is the reason. We are not growing our book in a big way non-SLR only for this purpose that it is a rising yield scenario. So once the yields touch around 7.70%, 7.75% level, then we will look to invest something in non-SLR also. So, that is the thing, sir. That is the way forward.

Ashok Ajmera — Ajcon Global Services Limited — Analyst

And the trading profit also will offset some of the losses I believe?

Vivek Wahi — Executive Director

Yes, sir. Definitely trading profit will not be much in next two to three quarters, but of course we expect that to be compensated by our interest income.

Ashok Ajmera — Ajcon Global Services Limited — Analyst

Okay. Sir, on the recovery front and on the slippage front, you said that the three major accounts including Bajaj Hindustan, the slippage was 1.29%. But again I think going forward, what do you see the similar kind of accounts are going to come in the future or what is our total slippage target for the whole year as well as the recovery from the written-off accounts? And coupled with that, the NARCL now I think should materialize in this quarter. So, can you comment on all these three points connected with the recovery and asset quality, sir?

Mukul N. Dandige — Chief Financial Officer

I will only add what our MD sir has told that my RAM portfolio, it will not be more than INR1,500 crore to INR1,800 crores slippage total during the year. And most of the accounts like Future and Bajaj Hindustan that have already been provided up to some extent or rather I can say up to the maximum extent and as far as other accounts, I don’t see any slippage. You can see that my SMA 2 in corporate is only INR100 crores and SMA 0 and SMA 1 placed in a very comfortable way. So that way, our slippage will not be much and recovery will be more than the slippage. That I can assure.

Ashok Ajmera — Ajcon Global Services Limited — Analyst

Sir, now coming to this — my last question in this round. One is that that RBI PCR regime, I think for last two quarters we have been hoping that you will come out of that and it will definitely help in performing better. So, is there any development on that? And secondly on the CRAR of 13.33%, are we comfortable for our future growth — credit growth and what are our plans on that, sir?

Vivek Wahi — Executive Director

As far as the PCR is concerned, already we made our representation to the RBI and we believe that it is under process now because all the benchmarks we are satisfying for the past five quarters. Today also we are mailing one more after this results. So, that will give much more comfort to the RBI regarding the sustainable performance of the bank. So, that will be the major parameters that they may take into account sustainability part. And coming to the other.

M V Rao — Managing Director & Chief Executive Officer

As far as C&I and credit growth is concerned, at least for this year we do not envisage any reason because we are still surplus liquidity of around INR40,000 crore. Going forward when PCR removed and we may be needing growth capital, we will definitely be exploring market for these things, but that will be only done only after when PCR is lifted.

Ashok Ajmera — Ajcon Global Services Limited — Analyst

Some of these targets are the cost to income ratio or the credit cost, which is credit cost is 2.07 maybe because of the higher provisioning in this quarter and also about the credit growth and business growth, some targets for the current year ’22-’23?

M V Rao — Managing Director & Chief Executive Officer

Right. ’22-’23 the guidance what we have given around 10% to 12% advances growth and that is already demonstrated for the June quarter where 11% growth was there. So regarding growth path, that’s what I say it’s a very balanced approach we are adopting. Even in the RAM also, I told you 65:35 and then even within that 65%, there is percentage allocation is there for agriculture, retail, and MSME. So in the balanced growth approach, we don’t foresee any type of issue.

Ashok Ajmera — Ajcon Global Services Limited — Analyst

And the credit cost target for ’22-’23?

M V Rao — Managing Director & Chief Executive Officer

That we have given 1.5 in the previous — 1.5 we have given. That we maintain, but our floor level is something below that. That at the end of the year we will be reaching, we are confident.

Ashok Ajmera — Ajcon Global Services Limited — Analyst

And sir, last question is on co lending sir. You are very bullish on co-lending and you said INR2,342 crore portfolio. What is our basically the spread over the normal lending through this co-lending and how is our experience so far because this entire business had been growing in only in the last two quarters major? So, would you like to comment something on that and what are your targets for co-lending for ’22-’23? Maybe I think last time we were discussing about INR5,000 crore or something.

M V Rao — Managing Director & Chief Executive Officer

See, we have internal target of much more than what we have discussed earlier. This INR10,000 crores is the one limit, INR5,000 crores we would like to reach by December. As far as the quality part is concerned, just I would like to share with you till now we have not — any account in SMA 1 and 2 till now. Whatever the little accounts that come into SMA 0, again they are moving back to the standard category within the seven to 10 days. That is with that, you can gauge into the quality part. And then the profitability of this portfolio, whatever the net rates what the agreed upon with each of the NBFC, that is separate for each NBFC, that as per our expectations that you saw there in that portfolio.

Ashok Ajmera — Ajcon Global Services Limited — Analyst

You can say generally about 100 basis point, 150 basis points more than the normal direct lending rate of the bank the net yield?

M V Rao — Managing Director & Chief Executive Officer

Definitely, sir.

Ashok Ajmera — Ajcon Global Services Limited — Analyst

Okay, sir. Thank you very much, sir, for giving me the opportunity and answering all my questions so patiently and so properly. Thank you. I’ll come back again If I get chance. Thank you.

Operator

Thank you. [Operator Instructions] We have next question from the line of Anirvan Sarkar with Max Life Insurance. Please go ahead, sir.

Anirvan Sarkar — Max Life Insurance Company Limited — Analyst

Yeah, hi. Thank you, sir.

Operator

I’m sorry to interrupt, sir. We’re not able to hear you, please use the handset.

Anirvan Sarkar — Max Life Insurance Company Limited — Analyst

Yeah. Is it any better now?

Operator

No sir, we can’t hear you

Anirvan Sarkar — Max Life Insurance Company Limited — Analyst

Yeah. Is it any better now?

Operator

Yes, yes. Please go ahead.

Anirvan Sarkar — Max Life Insurance Company Limited — Analyst

Yeah. Thank you. Thanks for the opportunity. Just one question. So as we — our loan book growth has been more tilted towards the corporate book and I believe there are good corporate opportunities at the moment, which we are looking to grow in. But just want to know what does this imply for our margins going ahead and would you like to guide towards the same where should we see margins heading to in the next one or two years?

M V Rao — Managing Director & Chief Executive Officer

One or two years will be little long to predict. But as far as our planning for corporate side, yes, there are opportunities that are coming and for RAM also we have. That’s what I was saying that ours is a balanced growth approach. We are not peddling or accelerating on any of these four segments; retail, agriculture, MSME, and corporate; and we are only picking up good quality assets where that capital cost should be less for me that’s why I could able to maintain my RWA to the extent of 64%. Going forward I don’t see that we are going to maintain 64% of RWA. It may still go up to 70%, but there is a trade-off between these rated advances and yield what I am expecting. I’m comfortable if I’m reaching 2. — minimum that is a floor of 2.75% NIM in my transaction.

Anirvan Sarkar — Max Life Insurance Company Limited — Analyst

Sure, sir. And also wanted to understand the source of this corporate growth so is this more of inflation led working capital demand or are you seeing capex slowly pick up? What’s the nature of growth that we’re seeing?

M V Rao — Managing Director & Chief Executive Officer

Nature of growth as far as the corporate side is concerned, you know that because of the push on the infra side, there is a demand on the infra sector including roads and also other areas, cement like that, steel. And then we are very cognizant of the fact of the previous lessons and where to go and where to trade-off with the quality and pricing. So, very cautiously we’re treading on that part.

Anirvan Sarkar — Max Life Insurance Company Limited — Analyst

Right. Sure, sir. Thank you. And I will come back in the queue if I have more questions.

Operator

Thank you. [Operator Instructions] We have next question from the line of Amit Mishra from Indus Equity Advisors. Please go ahead, Mr. Mishra.

Amit Mishra — Indus Equity Partners — Analyst

Good afternoon, sir. Thanks for the opportunity. My first question is on PCA since we are in the PCA right now so what kind of lending restrictions we have currently and we are expecting any kind [Technical Issues] restrictions in growth? Thank you.

M V Rao — Managing Director & Chief Executive Officer

Some disturbance was there, but what I understand from you is what are the restrictions that we have in lending because of it. There was only one aspect that was there as a restriction is not to increase the unsecured credit portfolio because in 2017 when PCA was imposed, my unsecured portfolio was 7.3 something. That percentage we should not breach subsequently, that we are maintaining. But as per the RBI guidelines, any bank can go up to 15% of unsecured portfolio. So if at all the leverage is not there, probably we would have used some tools in such a way that our gross NPA should have come down by using certain flexibility in the unsecured portfolio. That could not happen. We are waiting for the PCA to lift so that gross NPAs can also be brought down below the — below 10%.

Amit Mishra — Indus Equity Partners — Analyst

My question is on margin where I maybe missed. What are guidance for margin for full year?

M V Rao — Managing Director & Chief Executive Officer

2.75%.

Amit Mishra — Indus Equity Partners — Analyst

2.75%. Okay. Thank you, sir

Operator

Thank you. [Operator Instructions] We have next question from the line of Vidhi from Antique Stock Broking. Please go ahead.

Vidhi Shah — Antique Stock Broking Limited — Analyst

Hello. Sir, can you please give the breakup of slippages for the quarter?

M V Rao — Managing Director & Chief Executive Officer

Ma’am, in this quarter around INR2,100 crores were slipped to NPA in which INR1,020 crores is from the corporate portfolio and INR217 crores is from the retail and INR326 crores is from the agriculture and INR530 crores is from MSME. In percentage terms; retail 0.43%, in agriculture it is 1%, 1.8% is MSME, 2.03% is corporate; but overall is 1.29%.

Vidhi Shah — Antique Stock Broking Limited — Analyst

Okay. And sir, for the — on the restructuring book, for what portion of the book has the billing started?

M V Rao — Managing Director & Chief Executive Officer

Please come back.

Unidentified Speaker —

What payment started in the restructured book?

M V Rao — Managing Director & Chief Executive Officer

Restructured, almost in all the accounts it started now. There is no moratorium, no account is under moratorium right now.

Vidhi Shah — Antique Stock Broking Limited — Analyst

But I’m trying to understand majority of the book, when the repayments will be seen like from which quarter or which month the majority of the repayments will be seen or it’s already started?

M V Rao — Managing Director & Chief Executive Officer

No, already started. Even in that slippages if I can drill down and give you the further breakup. In agriculture see total INR326 crores was slipped, among that, INR30 crores is from the restructured portfolio. Likewise in MSME, it was INR213 crores; retail it is INR26 crores. In all the accounts that repayment has started

Vidhi Shah — Antique Stock Broking Limited — Analyst

Understood. Okay. And sir, lastly on the fees income, what engagements are we doing to ensure that we see good momentum in this line item, which can help improve our operating performance?

M V Rao — Managing Director & Chief Executive Officer

As far as our government business is concerned, that is one area I would like to just touch upon and if we compare with the previous June, there is some INR13 crores, it has gone up to INR18 crores. Now you are also aware that in five ministries, our Central Bank is the accredited back. Now we’re going back to them and exploring further avenue. And in the states — in Madhya Pradesh we are the state SLBC convener. Almost in eight of the government departments we have placed our specially purchased and designed software for the government business. That has taken a lot of traction and we are expecting a lot of revenues from that particular business. That is government business. And as far as our LCBG DDR consent, again the old things that were there we are again contacting and there is a appreciable increase in our revenue from that line item also. And as far as other fee-based income, bancassurance yes, there is an increase and now we will be onboarding our customers for the banassurance in the digital mode. We are very, very particular on that aspect regarding spending resources for mobilizing the bancassurance business. We want that these particular bancassurance products should be a self-servicing one through my digital means. That’s how we are focusing.

Vidhi Shah — Antique Stock Broking Limited — Analyst

Any other further companies are we planning to onboard for the bancassurance business?

M V Rao — Managing Director & Chief Executive Officer

Right now, it’s not. For the existing one only, we are again taking up because this digital onboarding has to happen. Once that gets stabilized, then we may think of to increase the channel.

Vidhi Shah — Antique Stock Broking Limited — Analyst

Understood. Okay, Thank you so much.

Operator

Thank you. [Operator Instructions] We have next question from the line of Sushil Choksey from Indus Equity Advisors. Please go ahead.

Sushil C Choksey — Indus Equity Advisors — Analyst

Good evening, sir.

Operator

Sir, I’m sorry to interrupt, you’re not very clearly audible. Please use the handset, sir. Thank you.

Sushil C Choksey — Indus Equity Advisors — Analyst

Congratulation on a stable result and good fortunes, Mr. Wahi and team has done wonderful with the current CD ratio. My question pertains to growth. Our guidance is very visible, but with our CASA almost matching advances, are we in a position to enhance our market share specifically in the retail business, which is the priority of the current management team?

M V Rao — Managing Director & Chief Executive Officer

That’s what I was sharing that we will be focusing on the balanced approach in the growth. In the retail 28% of my portfolio is in retail and that we will continue to maintain that, and then agriculture 19%, MSME 18% because I want to have 65%, 70% and 30%, 35% combination in my credit book. So, there will be a balance. It’s not that we will be accelerating on certain segments like retail or MSME, it’s not like that and balanced growth will be emphasizing and we will be ensuring that.

Sushil C Choksey — Indus Equity Advisors — Analyst

No, sir. My question was little different. With 50% CASA and the size of the deposit what we have, within the cross selling within our banking customer needs; the housing loans, the auto loans, maybe some secured other loans, education, various other parameters; as lot of initiatives have been taken at the bank for digitization, co lending, various other things. Is it possible that what is visible to us in the number which are printed in the Q1 and by the year we end, we have a different picture in terms of our market share on those aspects?

M V Rao — Managing Director & Chief Executive Officer

Yeah, definitely, sir. Definitely market share will improve, but to what extent, we are not calculating in that way. What we are doing right now is in my overall portfolio is INR1.94 lakh crore. Okay. Once the PCA move happens, then I will get some flexibility on the unsecured portion where I will be eyeing more to reduce my gross NPA so that earning assets will move up. So in that rebalancing of the credit corporate book itself, my yield will go up. So whatever this agriculture, retail, MSME, and also CASA which is the main strength for me; that I will be leveraging not on one level because we have the product profitability review internally and certain products from the retail side and certain products in the MSME and certain areas in agriculture like what I would like to say is KCC, we are not accelerating. We are moving more on the investment agriculture credit in processing, agri processing, and horticulture and FPO. In those lines, we are moving.

Sushil C Choksey — Indus Equity Advisors — Analyst

Okay. Sir, second thing is based on current PCA and various other provisions, possibly you are not able to hire lot of talent which you may be thinking for digital or retail. Is it possible that the Reserve Bank of India may permit you on that aspect?

M V Rao — Managing Director & Chief Executive Officer

There is no bar as far as my spending is concerned and the technology upgradations are concerned. And just I would like to share with you this year, it is a maximum recruitment that has taken place in the bank. This is around 2,600 where specialists — IT specialists, risk management, CAs, and engineers we have recruited. Why? Because on the digital onboarding, now we have embarked on the digital transformation project where already we have shortlisted McKenzie as our partner and we will be moving ahead. And for that, this entire people and the specialized category will be deployed in that particular project for our digital transformation. So as far as spending part on the IT is concerned, there is no restriction and as such we do not have any resource crunch also on that.

Sushil C Choksey — Indus Equity Advisors — Analyst

Sir, I didn’t mean an IT or resource. I’m talking from human resource because you were taking lot of pains in last 15 months for getting Central Bank on par on technology with any private or public sector bank. That’s what my question is.

M V Rao — Managing Director & Chief Executive Officer

Yeah. That’s why we are — almost HR, we have recruited a lot of IT specialists now.

Sushil C Choksey — Indus Equity Advisors — Analyst

Sir, this project will take what 6 months, 12 months to see the result?

M V Rao — Managing Director & Chief Executive Officer

It is a 18-month, what you call, journey. In this 18 months, in first three months you may not be seeing any visible fruits and then what we are eyeing is 4.5 months onwards, then we will be seeing the results.

Sushil C Choksey — Indus Equity Advisors — Analyst

Sir, are you seeing any sensible contribution coming from your subsidiaries that Cent Home or Central Financial Services or the subsidiary banks?

M V Rao — Managing Director & Chief Executive Officer

Central Financial as far as concerned, we are reworking the way how it can contribute us or how it can supplement our efforts in terms of certain outsourcing activities. As far as the Cent Home is concerned, now it is totally revamped and then it may take another three months further for you to see the difference in their functioning and also in the numbers. New technology is already put in place. I think next month we will be seeing that technology adaptation in the new platform.

Sushil C Choksey — Indus Equity Advisors — Analyst

Sir, second thing as I sense from the marketplace that Central Bank housing loans are the cheapest currently compared to your peers of any competitor. Are we seeing after this rate hike cycle, which has started that on month-on-month our market share or our business size on housing loans would be far better than what we were standing at?

M V Rao — Managing Director & Chief Executive Officer

Yeah, it’s inching up exactly. It is moving up.

Sushil C Choksey — Indus Equity Advisors — Analyst

Is it possible that we see INR1,000 crore plus on a monthly basis?

M V Rao — Managing Director & Chief Executive Officer

Monthly INR1,000 crores, it may be happening in October, November.

Sushil C Choksey — Indus Equity Advisors — Analyst

Okay, sir. Thank you and all the best. I’ll return back to the queue.

Operator

Thank you. [Operator Instructions] We have next question from the line of Ashok Ajmera with Ajcon Global. Please go ahead.

Ashok Ajmera — Ajcon Global Services Limited — Analyst

Yes, sir. Thank you very much for giving me the opportunity for the second time. Sir, I have some question on this ARC sale and NARCL. Now so NARCL will help in bringing the gross NPA little bit down. So, any specific number for the ARC sale either in this quarter or going forward in the next three quarters or maybe one or two quarters? In NARCL, what is the actual number of accounts which are identified in this INR50,000 crore and how much amount finally it is going to go?

M V Rao — Managing Director & Chief Executive Officer

As far as our NARCL is concerned, still it is work in progress. We are not getting any concrete accounts for references because NARCL also senses account wise NDA signing. Still it is a work in progress. Going forward I think if at all something materializes in this quarter, it is a great boon for the bank.

Ashok Ajmera — Ajcon Global Services Limited — Analyst

And on the ARC — other ARC sale?

M V Rao — Managing Director & Chief Executive Officer

Other ARC, we have to evaluate in the sense just we are waiting for some of the restrictions to go, then we will have certain freedom to think and plan. But as such if the way things are there as on today if it continues, definitely we will be thinking to bring certain accounts for ARC sales.

Ashok Ajmera — Ajcon Global Services Limited — Analyst

Sir, this case of again Cent Bank Home Finance, yes, of course in this quarter you have shown a profit of INR8.5 crore compared to INR1.41 crore in June ’21 and you are saying that activity being like digitalized. So what will be the — basically your plans for — you also have in the bank also housing loan and this is also a housing finance company. So, how are you basically strategizing so that both bank also get benefit and your housing finance company also get the benefit or look for the market which the bank is not there or bank look for — or company look forward [Indecipherable] Secondly, the capital and reserves I think this is INR143 crores to INR170 crores, the increase of INR27 crores, this is all due to the profit of the last one year or some capital also had been infused into it?

M V Rao — Managing Director & Chief Executive Officer

It is only flowing back the profit so that is number one. Number two is regarding the housing portfolio of the bank and our subsidiary. Let me tell you cake is too large. When I was in Canara Bank, this was also the repetitive question for the Canara Bank and CanFin Homes. I think it’s too large. No issues for any of us. There is no overlapping.

Unidentified Speaker —

There’s a consultant and branch expansion. And we operate on totally arm’s length basis.

Ashok Ajmera — Ajcon Global Services Limited — Analyst

And the scale of operation before so competitiveness should be there in both?

M V Rao — Managing Director & Chief Executive Officer

Yeah, definitely the competitiveness will be there. And I don’t think we are competitor to each other. It is only the complementings of an effort if they get some of the leads which are big enough and where they could not handle. Those things also now we are putting some mechanism to refer it to the parent bank.

Ashok Ajmera — Ajcon Global Services Limited — Analyst

This associated company — the associated banks which are there like Indo Zambia Bank, the profit for this quarter itself are INR66 crores and we have 20% share in it. So whether they declare any dividend or something or…?

M V Rao — Managing Director & Chief Executive Officer

Whatever the dividend that we have received from Indo Zambia Bank already surpassed our investment.

Ashok Ajmera — Ajcon Global Services Limited — Analyst

Okay. So it means on annualized basis, this is a bank of almost about INR300 crore of the profit?

M V Rao — Managing Director & Chief Executive Officer

Yeah, correct.

Ashok Ajmera — Ajcon Global Services Limited — Analyst

And similarly your other two investments are also doing well. Now, sir, coming back to the — like there was one question already on the income side like non-interest income increased — increasing and third-party and like on that. Can you elaborate little more that how we plan to increase our non-interest income, which is the main — like it gets directly added to the bottom line of the bank so your third-party products, also that 3-in-1 account or even fees for the government business and services. So what is our actual planning on that and how do you see where do we stand in this current year ’22-’23 on that front?

M V Rao — Managing Director & Chief Executive Officer

As far as really you gave me the good lead about the 3-in-1. That 3-in-1 is almost done now and probably on our Founder’s Day that is August 9, our bank will be launching that product 3-in-1. The entire technology integration is done and now some of our internal staff is doing the transactions to see the stability and scalability and that will be finally rolled out on August 9. That will be additional source for us to increase our fee-based income. And as I told you earlier, government business now traction has picked up and then the separate package what we have developed for the government institutions, a lot of [Indecipherable] interest and we are deploying there and it is only a matter of time to reap the benefits. And as far as bancassurance is concerned, earlier I had shared with you that as a bank I do not want to put my manpower and resources further in this channel. But definitely, as you know, my customers should have that opportunity to invest, but it will be purely on the digital channel. That’s why we have renewed our existing contracts with our existing partners for one year with the condition that they will be bringing everything on the digital channel. Once that gets stabilized, then we will be in a position to scale up and also add multiple partners as per the regulatory — within the regulatory ambit.

Ashok Ajmera — Ajcon Global Services Limited — Analyst

So congratulation in advance for August 9 Foundation Day. I hope we will be invited for that if there is any physical function.

M V Rao — Managing Director & Chief Executive Officer

Yeah, yeah, definitely.

Ashok Ajmera — Ajcon Global Services Limited — Analyst

My last question is on NBFC front, sir. Co-lending is okay, but for the onward lending or pool buying on that. How are you play — I mean what are your views? I mean on whether we can expand little more through the NBFC onward lending business than what we have today?

M V Rao — Managing Director & Chief Executive Officer

Yeah. See, but here as far as the NBFC funding is concerned for onward lending, I’m not including pool buyout or this co lending so only purely for NBFC funding for their on-lending programs, we have fixed internal target of 12%. I do not want to scale up my portfolio on the NBFCs beyond 12%. So, we are almost at 11.8 something. So, we would like to maintain that 12%. Once this trade book grows, then there will be opportunity for me to add further NBFCs in my portfolio.

Ashok Ajmera — Ajcon Global Services Limited — Analyst

Okay. All right, sir. Thank you, sir, and all the best.

Operator

Thank you very much, sir. Ladies and gentlemen, that was the last question. And now I hand over the conference Mr. Rao for closing comments. Over to you, sir.

M V Rao — Managing Director & Chief Executive Officer

Once again I thank all the participants for investing their time and energy in knowing our future plans. And let me assure you that the bank is well positioned. And then our way of approach is a balanced controlled growth approach and then this is going to yield and add value to my bank and all the stakeholders will also be get benefited in due course. Thank you. Thank you very much.

Sohail Halai — Antique Stock Broking Limited — Analyst

Thank you, Rao sir, for giving us this opportunity to host the call and for a very detailed insight. Thanks a lot, sir.

Operator

[Operator Closing Remarks]