City Union Bank Ltd (NSE: CUB) Q2 2025 Earnings Call dated Oct. 21, 2024
Corporate Participants:
N. Kamakodi — Managing Director and Chief Executive Officer
R Vijay Anandh — Executive Director
Analysts:
Prabal Gandhi — Analyst
Mona Khetan — Analyst
M.B. Mahesh — Analyst
Abhijit — Analyst
Jai Mundhra — ICICI Securities
Bunty Chawla — Analyst
Rakesh Kumar — Analyst
Aviral Jain — Analyst
Presentation:
Operator
Ladies and gentlemen, good day and welcome to the City Union Bank Limited Q2 FY’25 Conference Call hosted by Ambit Capital Private Limited. [Operator Instructions] Please note that this conference is being recorded.
I will now hand the conference over to Mr. Prabal Gandhi from Ambit Capital. Thank you, and over to you, sir.
Prabal Gandhi — Analyst
Thank you, Neha. I once again welcome everyone for the City Union Bank second quarter earnings call. We have with us Mr. N. Kamakodi, MD and CEO; Mr. R Vijay Anandh, Executive Director; and Mr. J. Sadagopan, CFO.
Without further ado, I’ll hand over the call to Dr.Kamakodi for his opening remarks, and post which we can open the floor for Q&A. Thank you, and over to you, sir.
N. Kamakodi — Managing Director and Chief Executive Officer
Good evening, everyone. Hearty welcome to all of you for this conference call to discuss the unaudited financial results of City Union Bank for the second quarter half year ended 30th September 2024. The Board approved the results today, and I hope you all have received the copies of the results and the presentation.
At the outset, our bank is completing 120th year of operation this year. I take this opportunity to salute all our predecessors who have laid the foundation for our growth, and also thank our staff, our customers and investor community at large who have shown great sights in our bank. The debt of incorporation was 31st October 1904.
In our Q4 financial year ’24 and Q1 financial year ’23 con-calls, we have shared with you all our expectations for our current financial year as below. With all the new digital initiatives supported by strengthened top senior level management, we could see visibility on growth front going forward. We are also looking for other avenues for growth and putting our best effort to reach the industry level growth as soon as possible in credit.
Post MSMA, digital lending model will be expanded to secured retail lending such as housing, lab — micro lab. In our last con-call, we had also stated that we are building capacity as well as human resources in order to support our retail credit.
On asset quality front, we will continue with the trend of reduced slippages, coupled with the improved recovery for the current year. Our ROA, back at our long-term average of 1.5 and it should continue. Since we are taking the cost upfront, our cost income ratio will be slightly higher in the current year. And once the benefits of digital lending and other initiatives transpire into growth, the CIR will start coming down. The reduced slippages and improved recoveries will help to maintain our PAT growth. These are all the points I shared with you all during Q4 financial year ’24 and the Q1 financial year ’25 con-calls, as the expectations for the financial year ’24-’25.
For the current quarter and the current half year ended on 30th September 2024, we are almost on track on our — the points which we — expectations which we shared with you all. We had registered a 12 percentage advance growth for Q2 financial year ’25 year-on-year, and our advance increased to INR48,722 crores from INR43,688 crore in Q2 financial year ’24. You may observe, we restarted our growth at the beginning of 2022 post COVID, and reached the 14 percentage growth for the December 2022, compared to the previous year 31st December 2021.
The calendar year ’23 was not good for us as we had to unwind our KCC gold portfolio among other things, and growth for December 2023 slipped to 2 percentage compared to December 2022. We restarted in January 2024 and reached double-digit growth for June 2024. Also on a sequential basis, that is compared to 30th of June 2024, our advances have increased by more than INR2,100 crore or 5 percentage growth in Q2, and we had achieved the double-digit growth consecutively in the last two quarters.
We had been — we had seen considerable improvement in our efficiency levels of credit sourcing along with the digital transformation has resulted in reasonable credit growth. Our plans in pipeline like retail vertical and other avenues in advances will support us in terms of our credit growth once the — they are all taking a shape. Actually, if you speak, the current credit growth is achieved only with our traditional business clients like MSME, Gold loan, etc. Actual incremental credit growth from the retail and all are yet to start. So whatever growth we have achieved so far, this 12 percentage, is basically from our core business, which we had done in the past.
Our deposits had grown by 9 percentage and stood at INR57,369 crores for Q2 ’25 as compared to INR52,714 crores for Q2 financial year ’24. In Q2 financial year ’25, our deposits has increased by INR2,512 crores or 5 percentage growth in the current quarter. So the average CD ratio for Q2 financial year ’25 stood at 84 percentage. Cost of deposits stood at 5.73 percentage for H1 financial year ’25, which is almost similar to the last quarter, that is Q1 financial year ’25.
On asset quality front, as we stated earlier, the trend of recoveries over and above the slippages is continuing. For Q2 financial year ’25, the total slippages is INR176 crores, while the total recovery is INR265 crores, consisting of INR201 crores from live NPA account and INR64 [Phonetic] crore from the technically written-off accounts, resulting in the, lets say, the slippages falling below the recovery.
For the half year ended financial year ’25, our total slippages was INR354 crores as against INR607 crores in the first-half last financial year. On the other hand, our total recoveries in H1 financial year ’25 is INR501 crore, consisting of INR393 crores from live NPA accounts and INR108 crore from technically written-off account. As a result, our grass NPA percentage has sequentially decreased from 4.66 percentage on, let’s say, last year 30th September, 4.47 percentage in Q3, let’s say that is December 2023, 3.99 percentage for the 31st March 2024, and 3.88 percentage in, lets say, 30th of June 2024, and now further reduced to 3.54 percentage for the current quarter 30th September 2024.
Similarly, our net NPA number had reduced to INR775 crores and net NPA to 1.62 percentage in Q2 financial year ’25, from 2.34 percentage in the, let’s say, same period, lets say, Q2 financial year ’24. Sequentially also, it has decreased from 1.87 percentage on 30th of June 2024 to 1.62 percentage, that is 25 basis point reduction in the net NPA percentage for the third quarter currently.
We conveyed that expected slippage in the financial year ’25 would be about INR800 crores during Q4 financial year ’24 con-call. We are on-track. As per the trend, we should be reaching between 1 percentage to 1.25 percentage net NPA for the year end. We understand that we are outliers in the provision coverage ratio. We will explore the possibilities of increasing the provision coverage ratio also this year.
Our interest income had grown by 10 percentage in Q2 financial year ’25, and increased to INR1,434 crore from INR1,304 crore in Q2 financial year ’24. Our yield on advances — our yield on advances stood at 9.81 percentage for Q2 financial year ’25, against 9.77 percentage for the same period last year. Our net interest margin for Q2 financial year ’23 had improved to 3.67 percentage as compared to 3.54 percentage in Q1 financial year ’25. And for H1 financial year ’25, it stood at 3.60 percentage. It looks like the interest rate reduction cycle is sometime away. As discussed in the earlier call, the margin should be at 3.6 percentage plus or minus 10 basis points as we discussed during multiple times in the past. Our cost-to-income ratio for Q2 financial year ’25 had reduced to 47 percentage — 41.06 percentage as compared to 49.34 percentage in the Q1 financial year ’25, and 51 percentage in the, let’s say, Q4 2024, showing a sequential increase — showing a sequential decrease.
During the earlier calls, we had said that we will see reduction in the operating profit, but we will manage the PAT with the help of, lets say, reduce the credit cost. After six quarters or so, we have started seeing operating profit also showing a, let’s say, a growth, as business has started showing, let’s say, growth which is also getting converted into, let’s say, improved operating profit cycle.
So coming to the cost-to-income ratio once again, the cost-income ratio reduced in the current quarter due to reasons like…
Operator
Ladies and gentlemen, we have lost the management line connection. Please stay connected while we reconnect them. Thank you. [Technical Issues]
Ladies and gentlemen, thank you for patiently holding. We have the management line back on call.
N. Kamakodi — Managing Director and Chief Executive Officer
Once again, like you could see the — coming back to the cost-to-income ratio once again, we saw the cost- to-income ratio for the Q2 coming down to 47.06 percentage from 49.34 percentage in the Q1 financial year ’25. It was 51.26% in the Q4 financial year ’24. Basically, like we said the, like say, the cost-to-income ratio will start coming down from the 50 percentage and we are seeing some traction. But this time the impact was more because we could see the loan processing charges significantly improving from INR23 crore in the first quarter to INR38 crores in the second-half, which also contributed for the reduction in the cost-to-income ratio.
Similarly, compared to last year, let’s say, interest receivable from the income tax refund, last year’s first-half was — it was about INR9 crore, which increased to about, lets say, about INR40 crores in the, let’s say, first-half. So as suggested in the earlier con-call, we should start seeing the cost-to-income ratio moderating between 48 percentage to 50 percentage going forward and then showing a continuous decline.
Our ROA for the first-half is at 1.55 percentage compared to 1.34 percentage in the corresponding period last year corresponding period. As stated in the earlier con-call, the ROA is stable for the past, let’s say, for the few quarters. And we should be able to, let’s say, things stabilizing and probably inching up going forward. Overall, SMA-2 to the advances currently stands at 2.03 percentage. As we have been discussing in the past, let’s say, we are seeing the number, let’s say, coming down.
So we had achieved a PAT growth of 8 percentage, that its current PAT for the H1 stands at INR550 crore against the INR508 crore for this H1. And there is some, lets say, base effect because the year before last we had a very high, lets say, profit in the, let’s say, PAT in the second-half. So which is getting maintained. But overall, you could see a significant increase, let’s say, from Q1 to Q4 also and we are able to see things stabilizing going forward.
As per the latest LCR guideline, our LCR is calculated at 121 percentage for the 30th September 2024. We had taken steps both on liability side and the asset front, like going for some non-callable deposits, converting some foreign currency deposits on maturity into, like liquid securities and things like that.
So to sum up, our efforts so far had helped us to push our advance growth rate towards the industry growth rate. We will — and as I told earlier, the growth so far has come purely from our traditional MSME and gold, agricultural and all. The new retail vertical and all, we are in the process of building that. And once they come into the picture, they should be helping us to get some more incremental advance growth. The — we are confident to restore our credit growth on par with the industry level sooner and go beyond.
Our growth has started showing visibility on achieving our, particularly, lets say, better NII growth and operating profit growth also. So both NII and operating profit, let’s say, growth was muted or even we saw few quarters of subdued NII and operating profit in the last few quarters. Now we have started seeing the visibility in terms of seeing both NII and operating profit to grow so that this will be helping us to, let’s say, have, let’s say, a stable profitability as we move forward.
We will reach between 1 percentage to 1.25 percentage net NPA by the year end is our current visibility, and we are exploring the possibilities of improving the coverage ratio as we will be in a position to get a clarity as we move into the second half fully. We expect our margins, cost-to-income ratio, NPA slippages to stay stable around the numbers communicated to you in the earlier con-calls. And finally, we are seeing better visibility on growth numbers from our conventional areas and new avenues will definitely help us to add extra growth numbers, which will be available going for in the future.
So basically, this is what I wanted to communicate. With this, I will probably take a break and I open to you for questions.
Questions and Answers:
Operator
Thank you very much. We will now begin the question-and-answer session. [Operator Instructions] The first question is from the line of Mona Khetan from Dolat Capital. Please go ahead.
Mona Khetan
Yeah, hi, sir, good evening, and congratulations on a good set of numbers. So my first question is around the new retail product initiatives. So have many of these products already been introduced? And I mean, from a full-year perspective, if you could guide what sort of growth we are expecting?
N. Kamakodi
See, as told in the earlier call, like say, the things are being now put, like say, the systems have taken in a shape, writing the policies, training the people, having the people in place. All these things are now taking a shape. And as explained in the last quarter, some amount of contribution to the business will start coming from the fourth quarter onwards. The significant contribution you will start seeing in the next financial year.
As of now, like as I told, we are — we have started taking expenditure on that front, but the business and income is, like say, is yet to start. So the preparatory works are underway.
Mona Khetan
Sure. And, sir, for full year for the entire book, what sort of growth we expect for FY ’25?
N. Kamakodi
Yeah. This question was asked again and again in the last two con-call also, I refrained from giving number. So you have started now — when I gave that number and all, let’s say, I did not have anything to support and now you have started seeing the improved credit growth both in the first-half and second-half and numbers are framing up. And we are taking all our steps to ensure that we touch the, not less than industrial growth rate and probably, let’s say, a small growth over and above that before the year end is what we are trying to expect.
Mona Khetan
Okay. Okay. My second question is on this NBFC book that you have. So if I look at the last quarter — last two quarters, the growth in this book — the book has grown by over 15% sequentially, the book where you lend to NBFC. Now I understand this is a very competitive segment. So what is helping this growth, if you could throw some light around it?
N. Kamakodi
See, the, basically like we have — the current level of in NBFC, like as you see, between the 30th June and let’s say, so our incremental NBFC book for the 30th September is about INR315 crores., year-on-year growth on that front is about, like say, INR500 crores and you have some repayment also happening in that portfolio. And we have not compromised that yield on that, like say, it is closer to the average 9 to 9. — the average yield of the portfolio is just under the — our average yield of 9.7 [Phonetic] is the average yield and the portfolio yield is also closer to that.
Mona Khetan
Sure, sir, got it. Thank you. I’ll come back-in the queue.
Operator
Thank you. [Operator Instructions] The next question is from the line of M.B. Mahesh from Kotak Securities Limited. Please go ahead.
M.B. Mahesh
Good afternoon, sir. Sir…
N. Kamakodi
Yeah. Good afternoon, Mahesh. Yeah, go ahead.
M.B. Mahesh
So just this yield yield on advances which improved this quarter, if you can just kind of highlight what’s happened there?
N. Kamakodi
Basically, we looked into the yield of gold loan portfolio, which we created in the last three, four months, which was about 20 percentage of our portfolio. And also like, as we had been discussing, like we could — last year when the rate of interest increasing cycle was happening, we could not transmit a portion of that. So keeping that in the mind, we are closely looking into the books which is coming for the renewal, and we are able to, like say, see some amount of, like say, transmission in that also. So that has helped us to see some amount of, like say, a few basis point improvement in the yield.
M.B. Mahesh
And this will continue through the rest of the year, given that not everything would have repriced?
N. Kamakodi
Yeah, till probably the decreasing interest-rate cycle starts, we will have — we will be in a position to go for this, let’s say, a review of the rates and take a call, include with our expectation of overall strategic in trend, particularly on the net interest margin.
M.B. Mahesh
Sure. Second question on this recovery from written-off, about INR95 crores has come in the current quarter. Sustainability at these levels?
N. Kamakodi
See, the — by and large the total recovery numbers will be, like say, plus or minus INR20 crore INR25 crores. We don’t — when we take effort, we don’t differentiate between which is live and which is technically written-off and all. So the — what happen — I mean the efforts for both the technically written-off account and the live accounts are the same. So we recover live account, it will reduce in the, what do you call provision. If the recovery happens in the technically written-off account, it will be the other income. So how — the balance, it is very difficult to exactly predict how it will happen.
M.B. Mahesh
In the sense, the environment for recovery still looks to be fairly healthy?
N. Kamakodi
Absolutely. Absolutely. Absolutely.
M.B. Mahesh
And last question, sir. You had indicated that net NPA will come down to about 1.2 by the end of the year, is it?
N. Kamakodi
Yeah, for the financial year.
M.B. Mahesh
And if you don’t reach that number, you will have to take — you intend to make a higher provision? Should we look at that way?
N. Kamakodi
See, with the visibility, whatever we are getting in terms of the slippage and the recovery, we are giving this. And like say, you cannot make a clear cut thing, whether like how it will happen and all such things, we have to wait and see how it happens. So similarly like, per the — like increasing the provision coverage ratio or having the net NPA and all are finally, like say, like if you reduce the, like say, increase the provision, the net NPA will decrease and final profit will be there. If the — I mean this trade-off, we have to take a call on an ongoing basis. That is based upon the current level of policies, whatever we had been looking into, based upon the trend in recoveries and the visibility in slippages, this is what we are expecting at this moment of time. Any change in the expectation, we will communicate in the subsequent con-calls.
M.B. Mahesh
Perfect,. Thank you.
Operator
Thank you. The next question is from the line of Abhijit from Axis Mutual Fund. Please go ahead.
Abhijit
Thank you for taking my question. Sir, first question is on deposit growth. How do you see liability situation for City Union Bank, and the cost of deposits?
N. Kamakodi
See, the — like it’s stable as we could match the credit growth with the deposit growth. The, like say, there were, like say, some 33 days with about 7.5 percentage rate of interest and all, we had to introduce the scheme and all. So we could see the…
Operator
Ladies and gentlemen, we have lost the management line connection. Please stay connected while we reconnect them. Thank you. [Technical Issues] Ladies and gentlemen, thank you for patiently holding. We have the management line back on the call. Yeah, sir.
N. Kamakodi
So basically, yeah to continue with your answer on deposits, we don’t see any, like say, tension over there. We were able to match the deposit growth in tune with the credit growth and we see — we should be a — the current cost, whatever that has been absorbed should continue for the second-half of the year also by and large.
Abhijit
Sure, sir, what is the LCR as of September end?
N. Kamakodi
121 [Phonetic] or something which I gave during the call.
Abhijit
Sure, sure. Sir, just one observation. In the sectoral deployment of loans, the loans break up. The loans to the trade, retail trade and wholesale trade, that continues to reduce every quarter. What is the issue here?
N. Kamakodi
See, the trader segment, if they get the MSME certification, it gets repriced, I mean recalibrated as the MSME I think. It depends upon the Udyam registration. The explanation is given in the Slide number 31 at the bottom. So if you are, like say, add both by and large, they will be the same. Some of the traders because of the Udyam certification, they get reclassified.
Abhijit
Got it, sir. Got it. Thank you. Those are my questions.
Operator
Thank you. The next question is from the line of Jai Mundhra from ICICI Securities Limited. Please go ahead.
Jai Mundhra
Hi, good evening, sir, and thanks for the opportunity. Just a few questions. First is on gold loan, sir. So this quarter, I mean the last two quarters we have seen a very strong growth in the gold loan book. Earlier we had this commentary that we would like to keep it little bit calibrated because you want to grow more of MSME and others. And has anything changed in terms of competition? There were few players which were, you know, going under a tough period, and is that what has helped you? And you also mentioned that we have increased the yield on the gold book. So if you can share some color there?
N. Kamakodi
Yeah. See, basically like, this is one segment, I mean, as I have been saying in the two, three con-call earlier, you started seeing sudden spurt in the unsecured retail consumption loan, particularly for the last four to six quarters. As you all know, like say, we had not, I mean, we are not very gango [Phonetic] about the unsecured consumption part per se. So we — this is one segment, there is a requirement in the market and which we are not — we can’t stay away from that. This is point number one.
Point number two, when we get into the reducing interest rate cycle, you need a portion of your loan book, which is in the — what do you call your fixed interest rate and short-term, and this exactly fit into that thing. So we, like say, did some fine tuning on that front, like say, converting the floating rate for gold loan into fixed rate and also fine tuning the rates depending upon the requirement. And it is now turning out to be that, like say, it is helping us to not to go to the riskier segment of unsecured retail at this point of time. At the same time, going towards achieving the targeted growth rate which we missed last year. At the same time, it is giving the stability in the yield and also, like say, in all these matrices it is favorable. And so — and since the demand is also there, like say, we are continuing with this segment.
Jai Mundhra
Right. Okay. Secondly, sir, if you can share this loan mix by benchmark as to how much is NCLR, how much is fixed rate and how much is repo?
N. Kamakodi
50 is the EBLR, about 30 is the –30, 35 if your MCLR, remaining issuer [Indecipherable]
Jai Mundhra
So even sir, gold loan is also not the entire 25% of the gold loan is fixed, right?
N. Kamakodi
No, incrementally when they get renewed and the fresh are getting converted. So whatever you entered before taking this call, they will come for review whenever — only when they completed the one year or the due date for renewal.
Jai Mundhra
So then as of now they are floating, right?
N. Kamakodi
Yeah. Since now about 25 percentage, 30 percentage of them of the gold loan has now got converted. So hopefully since the rate reduction cycle is also getting postponed, we may be in a position to see maybe half of portfolio or even 50 percentage, 60 percentage of the portfolio getting converted from the floating rate to the fixed-rate, which will give stability to the yield when the decreasing interest rate cycle actually starts.
Jai Mundhra
Right. And secondly, sir, on the launch of — on the new retail products that we were, I mean that we — that we plan to ramp up. In the last six months there has been lot of change in the macro environment, right, especially in unsecured and maybe lower ticket sized loans. Is there any rethinking in terms of priority in terms of ramp up of those products, especially lag on unsecured business loan and unsecured [Indecipherable]
N. Kamakodi
Yeah, right from the beginning when we started, we were very clear about the two things. One, we are not entering into the unsecured in a big way. Our entire start in the — what do you call, retail is going to be on the secured retail lending portfolio per se. And let’s say, four to five years down the line, it will be about 4 percentage to 5 percentage of the portfolio. The focus will be mainly on the secured lending space. So we are continuing with that.
So to start that business, first, you need the, let’s say, a technology part and all, that is ready. You need the senior management team that is by and large ready. The preparation of the policies, writing down the operating manual and all are under progress. Field level staff recruitment are underway. So by the, let’s say, beginning of the fourth quarter, we should be having, like say, the executive team for that — field team for that policies and also the grassroot level people, everything will be ready by the, lets say, beginning of the fourth quarter. So some amount of minor initial progress will be seen in the fourth quarter, but actual, let’s say, a lineup of growth you will be seeing in the next year.
Jai Mundhra
So commercial launch is now in fourth quarter, right? And then the ramp up [Speech Overlap]
N. Kamakodi
Yeah, it’s a soft launch, it’s, like say, like it’s a — as you — in your sense, the commercial launch will see and even that commercial launch will be a slow and steady launch only. We will be seeing some amount of minor progress in the fourth quarter.
Jai Mundhra
Yes. So sir, assuming that is not a very meaningful proportion of the incremental growth, you are still confident that the traditional portfolio will drive growth similar to system level at least, right? That is the industry.
N. Kamakodi
Yeah. That’s what I told you. Whatever growth we have achieved at the 12 percentage is from the conventional business mix whatever we have been doing. So to achieve up to the industry level a closer suited, I don’t think we will be facing any challenges. And the secured retail, whatever we are discussing, it will be taking our growth rate beyond the industry level growth rate is what we expect.
Jai Mundhra
Right. And sir, on cost-to-income or maybe in other words, from incrementally now onwards, because sir we had a very low-base, right, in terms of cost-to-income or operating profit. As you said, the last three, four, five, six quarters we were continuously running a negative operating profit growth. And so at least for the next two — two quarters the base is low. But do you think that incrementally the revenue growth, NII plus other income should outpace the operating expenses or that is more of the base effect, right, because the operating profit was not growing actually?
N. Kamakodi
See, the — first and foremost thing is the net interest income. So — and as you have rightly observed, we are just entering into that segment where we see the growth rate in NII and the growth rate in operating profit is positive, where you get income more than the incremental expenditure.
Jai Mundhra
Right.
Operator
Thank you. The next question is from the line of Bunty Chawla from IDBI Bank. Please go ahead.
Bunty Chawla
Thank you, sir for giving the opportunity and congratulations on good set of numbers. Sir, as you have previously said, because of this digitization and all, we have improved — we are focusing on the improvement of TAT the on the traditional portfolio like MSME. So if you can share what is the status now and how much improvement is still behind us in next two quarters?
N. Kamakodi
Yeah.
Bunty Chawla
In terms of TAT.
N. Kamakodi
Yeah. See, basically at least 75% to 80% of the MSME lending less than, say, INR7.5 crore, we are able to make between three to four days, which is a very big improvement in our, let’s say, compared to whatever we had been doing in the past. So as I told you from, let’s say, from three weeks, the reduction to three days, which is a very big improvement which we have already seen. Some amount of, let’s say, productivity gains we expect from that is that like we have to continuously monitor the performance of the portfolio. We have always in any sort of these digital lending, we will be having the cases which are approved by the system green cases, rejected by the system, amber red cases and amber where some amount of manual, let’s say, intervention is needed.
We feel over the — we have currently about not less than about 50 percentage, 60 percentage of the cases are coming for the manual decision making with the input from the system level thing. So we will be increasingly in a position to increase the automated output, which will increase the productivity in the processing front. This will also help us, lets say, now only it is now getting set in the branches, the inflows have, lets say, the people have started making use of it, particularly from the branches and, lets say, MSME vertical per se in identifying the customers, putting them in the — let’s say, entering this data into the system and seeing the, let’s say, the results or output of the system.
So the one, as I told you, the improvement in the TAT is very much visible. Number two, some more improvement in the automation of the decision making can happen in the next six months or so, where we have to closely monitor the, let’s say, performance of the portfolio, maybe fine tune your scorecard depending upon the performance and improve the, let’s say, more of green and red and less of amber. It will take maybe not less than, lets say, six months or so. And like the acceptability of the system is improving, but yet lot of opening of the productivity at the branch level is still pending. So the, lets say, the future quarters, slowly the productivity from the branches should improve, which should improve the, let’s say, disbursement also is what we expect. That is the, let’s say, confidence which make me say that with these existing business lines we should be getting back to the systemic level growth rate without looking for the newer opportunities.
Bunty Chawla
Thank you, sir. Secondly, on the PCR part, in your opening remarks, you have said we are an outlier, so we are focusing on improvement in the PCR. So any specific number we are targeting to achieve by end of FY ’25 or FY ’26 in terms of PCR?
N. Kamakodi
We have, absolutely, like say, fine PCR when you include the technically written-off portion also. But we get….
Operator
Ladies and gentlemen, we have lost the management line connection. Please stay connected while we reconnect them. Thank you. [Technical Issues] Ladies and gentlemen, thank you for patiently holding. We have the management line back on call.
N. Kamakodi
Yeah. Looks like it is getting cut every 15th minute, I mean precisely. Yeah. Did we complete the question or… Yes, sir, on PCR, sir. Yeah. On PCR, we are completely on track when you include the technically written-off portion. So we are getting repeatedly asked, your PCR coverage ratio is low, like we — when we take it purely on the, let’s say, live coverage. If we just leave probably like automatically, as you have seen significant reduction in the, lets say, net NPA percentages, that will automatically improve the coverage ratio also to some extent. So the — I don’t have any — I mean, as I clearly told you that I want to have between 1 percentage and 1.25 percentage on the net NPA ratio. I don’t have any number or anything with me. We will take a call as we, let’s say, get into the second half.
Bunty Chawla
Thank you, sir. Thank you very much.
Operator
Thank you. The next question is from the line of Rakesh Kumar from B&K Securities Limited. Please go ahead.
Rakesh Kumar
Yeah, hi. Thank you, sir. Thanks for the opportunity. Sir, one question was related to the restructured book. So the number has come down from INR929 crore to INR858 crore in the September quarter. So do we — do we have some write-back of provision because of that because we were holding around 14% provision on this, so would we have any write-back of provisions on this?
N. Kamakodi
See about four — how much — see, when we finalize the annual accounts in the last quarter, we will take a call on the surplus provisions, like post the, what you call completion of that two-year tenure on restructuring or whatever it is. We think that will — how much write-back will be there, how much of that will be provided for the NPA itself. So depending upon the regulations and the recovery happens in the restructured portfolio, that decision will be taken.
Rakesh Kumar
Got it. Got it, sir. And sir, ROA target, like this quarter we have done 1.6% [Phonetic]. So what would be the full-year target, sir for this year? So as we have, like we have stabilized 1.5 percentage plus the, like say the, we don’t have any specific target on that number. Got it. Got it. Sure, sir, sure, sir. Thanks, sir. Thanks a lot.
Operator
Thank you. The next question is from the line of Aviral Jain from Siguler Guff & Company. Please go ahead.
Aviral Jain
Thank you so much. Sir, if you could just give — elaborate more on the plans that you have been mentioning, first is on other retail products which are secured in nature such as housing, lab, vehicles. And then there was one more line of business regarding co-lending and lending to NBFC. So if you could just elaborate in the next two to three years plan as to how do you envisage that building up? I remember you had mentioned that this all put together would be 15% of the overall loan book at that time in three years’ time. So how is the progress on each of these initiatives?
N. Kamakodi
No, no. No, no. I don’t think we talked about 15 percentage number and all. It was very much less than 10% only. If I distinctly correct, maybe 7 percentage, 8 percentage of that half. Basically, like for co-lending and the onward lending, I mean direct lending to NBFC is continuing. Maybe like once we are able to see good growth in our conventional thing, we may have to slowly fine tune that depending upon the requirement. So the technology, whatever that is needed for the co-lending and all are already with us now. So those things like going forward, like how the other factor, like both secured retail and co-lending and all, now Vijay Anandh will give you some feedback.
R Vijay Anandh
So we will go with secured as planned for Q4 beginning. There is no change on lab, home loans and affordable and micro lab. The technology is ready and we just need feet on street, which should ideally be there in Q3. With respect to co-lending, we have technology. We will use it basis what are the numbers which we are building in our retail model, then we will take a call accordingly.
Aviral Jain
And this would be — the own sourced book would be through — by cross-selling to existing customers or within retail you would go out and look for sourcing customers outside the existing customer base of the bank?
R Vijay Anandh
We will have — we will have new to bank customers for retail also. We will also have new to bank customers. Predominantly, we will use our employee sourcing in South — our brand sourcing in South and this is our presence. For North and West, we may use third-party.
Aviral Jain
Which would mean DSAs?
R Vijay Anandh
Yeah.
Aviral Jain
Okay. And on co-lending, what sort of products would those be? I’m assuming these would be something that the bank would not be choosing to do in-house.
R Vijay Anandh
If at all we do co-lending, it will be only secured.
Aviral Jain
Okay, but this would be vehicle finance or [Speech Overlap]
R Vijay Anandh
And some sort of HL if required.
Aviral Jain
Sure, sir. at a steady-state, say, since you would start by Q4 FY ’25 next year, basis the cost base that has been built in for such initiatives, what sort of loan book would you be targeting so as to make it in terms of profitability neutral for the bank?
N. Kamakodi
Yeah, it would be about 2 percentage to 3 percentage in the financial year ’25, ’26. So we gave you that we should be having about 7 percentage, 8 percentage in the next three, four-year timeframe. It could be around, let’s say 2% — 2 odd percentage for the these sorts of other initiatives to support us.
I don’t know whether you remember another data which I came in the earlier con-calls, and let’s say, out of our INR25,000 crores to INR50,000 crores of whatever loan book we have, our customers have taken about INR7,000 odd crore worth of these products from the other financial institutions. So the deepening will be the, let’s say, a first action in making our existing customers to probably, let’s say, get that converted from other institution to us.
Aviral Jain
Sure. And while I understand that large portion could be new to — sorry, existing customers, but cost base to service retail would be high as given lower ticket prices. So I’m assuming this would — this would be at a higher interest rate than what the current core business is at from a spread perspective over the cost of funds.
R Vijay Anandh
So we will be on par with the market. So that’s the reason why I mentioned this in South I will not use my third-party sourcing, and North and West is going to be third-party sourcing. So my branch distribution in South should take care of my retail business, which comes with zero cost or very negligible cost. In North and West, we use a third-party, which would give me the blended average. So we — from the cost perspective, we ensure that we manage it tightly from the retail — for the retail products.
Aviral Jain
Sure.
R Vijay Anandh
Today, we have a 550 odd branches in South, which should give me a good retail business for the bank sourcing and fee trans fees floating. I don’t need to use my third-party majorly in South.
Aviral Jain
Sure. And what’s the fixed cost base addition that has been made for this initiative?
N. Kamakodi
I think the — in fact, I explained in the last con-call, let’s say, how much we made to a BCG and how much elbow room it is giving that amount of investment for us is what I gave you in a couple of, let’s say, quarters back. So you will be having around about INR30 crores, INR35 crores will be the — by and large the incremental business expenditure which is already to greater part is observed in the overall scheme of things. I even clearly explained that you will have loss in the first year. It will breakeven in the second year and the profitability and accretion to the ROA will come — start coming only from the third year. By and large we are on track for in that direction.
Aviral Jain
Got it. Thank you so much, sir. This really is helpful.
Operator
Thank you. [Operator Instructions] As there are no further questions from the participant, I now hand the conference over to the management for closing comments.
N. Kamakodi
Thank you all for taking this con-call. As we explained, we are able to get into the cycle where we have started seeing both operating profit and NII started taking a positive tenure. Growth has also firmed up with, let’s say, more than, let’s say, I mean, double-digit in the last couple of, let’s say, quarters. So, and this growth has come basically from our conventional, let’s say, businesses and without adding any, let’s say, business from the retail whatever we explained — as we explained. So, and the overall ROA of 1.3 percentage and all matrices have, let’s say, properly settled. So, overall we said that we should be having about INR800 crore because we had about INR1,200 crore NPA addition two years back, which got down to INR1,000 crore for the financial year ’24, and this year we said we’ll be having about less than around INR800 crore, or less than INR800 crore or sort of. So on all these things, whatever we said, we are on track and there is a good amount of improvement in the overall scheme of things.
The net NPA has also decreased about 25 basis points in this quarter. And the high percentage growth in deposits and the high percentage of growth in the credit has also happened in the second quarter. So all these things are giving enough confidence that, lets say, the things are on track and we should be able to have a, let’s say, better, let’s say, second-half.
With this, let’s say, I request all of you to — probably if you have any more questions, you can get in touch with us per the list, let’s say, contracts given in the reports in a short presentation. Once again, thank you all for participating, and let’s say, request your continued support going forward. Thank you all. Thank you.
Operator
[Operator Closing Remarks]