Jammu & Kashmir Bank Limited (J&KBANK) Q1 FY23 Earnings Concall Transcript

Jammu & Kashmir Bank Limited (NSE:J&KBANK) Q1 FY23 Earnings Concall dated Aug. 11, 2022

Corporate Participants:

Pratik D Punjabi — General Manager and Chief Financial Officer

Baldev Prakash — Managing Director and Chief Executive Officer

Analysts:

Manish Ostwal — Nirmal Bang Securities — Analyst

Unidentified Speaker —

Vaibhav Badjatya — Honesty and Integrity Investment — Analyst

Sonaal Kohli — Bowhead Investment Advisors — Analyst

Renish Bhuva — ICICI Securities — Analyst

Presentation:

Operator

Ladies and gentlemen, good day, and welcome to the J&K Bank Q1 FY ’23 Earnings Conference Call hosted by ICICI Securities. [Operator Instructions]

I now hand the conference over to Renish Bhuva. Thank you, and over to you.

Renish Bhuva — ICICI Securities — Analyst

Yeah, hi, hi, Mike. First of all, apology for slight delay. Good morning, everyone. Welcome to J&K Bank Q1 FY ’23 earnings conference call. From the management team we have with us today, Mr. Baldev Prakash, MD and CEO, and the entire senior management team.

I will now request Mr. Baldev sir to take us through the brief highlights of Q1 FY ’23 results and then we will open the floor for Q&A. Over to you, sir.

Baldev Prakash — Managing Director and Chief Executive Officer

Thank you, Renish. A very good morning and warm welcome to all our participants. Despite the continuing geopolitical strife and inflationary pressures, the onset of the year has been some positive developments as well. The economic growth is witnessing some uptick, especially in the services sector owing to easing of pandemic woes. Other sectors also held firm despite the adverse headwinds. While uncertainty still looms, most economists predict a better future.

The three recent rate hikes totaling 140 basis points by Reserve Bank of India due to elevated inflation, which remains above the tolerance level of 6%, resulted in MTM losses for most of the banks during quarter one when the yields surged to as high as 7.5% for 10-year benchmark. However, the rate hike was well anticipated and already discounted, and as such, did not bring much selling pressure in the capital market. In our home turf, that is J&K & Ladakh, an accelerated level of activity is being observed. The mainstay of the economy, that is tourism is witnessing an unprecedented growth with over 10 million tourists visiting J&K during the first seven months from January to July of this year.

The large tourist influx is causing revival of tourism and related activities like hotels, restaurants, taxi shikara operators, houseboats, handicrafts and resulting in creation of employment for significant populace. Building of infrastructure, that is road, rail links, tunnels, etc., for maintaining [Technical Issues] in the Union Territory.

Renish Bhuva — ICICI Securities — Analyst

Sorry to interrupt you, sir. We were unable to hear the last part of your sentence. If you could just repeat that once again.

Baldev Prakash — Managing Director and Chief Executive Officer

Yeah. So building of infrastructure that is roads, rail links, tunnels for maintaining all-weather connectivity [Technical Issues].

Renish Bhuva — ICICI Securities — Analyst

This is the operator here. So can you hear us at the management end. Ladies and gentlemen, please wait for a moment as we check with the management. [Technical Issues] Ladies and gentlemen, we have the management reconnected now. Sir, you may go ahead.

Baldev Prakash — Managing Director and Chief Executive Officer

Yes. Thank you so much. And I’ll start it again, because I think I missed — earlier I missed the — almost the entire part of the presentation. A very good morning and warm welcome to all the participants. Despite the continued geopolitical strife and inflationary pressures, the onset of the year has seen some positive developments as well. The economic growth is witnessing some uptick, especially in the services sector owing to easing of pandemic woes.

Other sectors also held firm despite the adverse headwinds. While uncertainty still looms, most economists predict a better future. The recent — the three recent rate hikes totaling 140 basis points by RBI due to elevated inflation, which remains above the tolerance level of 6% resulted in MTM losses for most of the banks during quarter one when the yields surged to as high as 7.5% for 10-year benchmark. However, the rate hike was well anticipated and already discounted, and as such, did not bring much selling pressure in the capital market.

At our home turf, that is J&K Ladakh, an accelerated level of activity is being observed. The mainstay of the economy is tourism, which is witnessing an unprecedented growth with over 10 million tourists visiting J&K during the first seven months that’s from January to July of this year. The large tourist influx is causing revival of tourism and related activities like hotels, restaurants, taxi shikara operators, houseboats, handicrafts and resulting in creation of employment for significant populace.

Building of infrastructure, rail, roads, and tunnels for maintaining all-weather connectivity with the rest of the country is also capitalizing economic development in the Union Territory. Spurred by the center’s industrial package of INR28,400 crores providing capital interest subsidy plus other incentives and supplemented by the enabling industrial policy of the UT, the government has received investment proposals of over INR50,000 crores from large domestic and global investors and industrialists. Out of these proposals, the government has already allotted industrial land for projects worth INR36,000 [Phonetic] crores.

The industrial development is expected to create 4 lakh employment opportunities in the Union Territory. The other major sector of the J&K economy, that is agriculture or more precisely the commercial horticulture is also expected to do better this year owing to favorable weather conditions, availability of large number of controlled atmosphere stores for post-harvest stage, better logistics availability for transportation to various mandis of the country. The anticipated surge in economic development in the Bank’s backyard is bound to create a fast-moving cycle for investments, finance and savings.

The Bank with its outreach, familiarity, brand acceptance is poised to be the major beneficiary of this hyper-development phase. The government employees and pensioners of J&K & Ladakh remain a substantial and focused customer segment for the Bank, contributing significantly to the deposit and loan book of the Bank. The Bank besides maintaining salary and pension accounts of this segment provides a bouquet of customized personal loan products with lowest delinquency. In the rest of the country, owing to our small size and limited presence, we have to play selectively — selective markets and selective segments to increase our share of the pie. This shall mostly be achieved through collaborations, tie-ups with reputed builders for home loans, engagement of direct selling agents, collaborative models with FinTechs and large ticket lending to PSUs and good-rated corporates to increase volumes.

We are looking at increasing the contribution from Rest of India to the Bank’s overall loan book to about 40% in the short to medium term and take it to 50% level in the longer-term. This shall ensure diversification of our credit portfolio, mitigation of concentration risk and reduce our reliance on one region. The Bank shall reposition itself as a pan-India player with a regional dominance. Capitalizing on the emerging opportunities, realizing the corporate objectives, maintaining the customer-centric approach and taking on the competition require a well reinforced institutional framework, capacity and capability and infrastructure.

We too have taken a number of transformative and strategic initiatives, augmenting capital base, organizational restructuring, succession planning, capacity building, business process re-engineering, etc., to succeed in this highly competitive arena. Last year, we augmented our capital Tier 1 and Tier 2 both by fresh infusion of INR1,100 crores and total plow-back of profit of INR500 crores. This year also we are planning to raise up to INR2,000 crores in tranches, Tier 2 of INR1,500 crores and CET-1 of INR500 crores. The Tier 2 issuance may be in the second and third quarter while the CET-1 raise may happen in the latter part of the financial year.

Internal accruals are also expected to be at a higher level this fiscal. Let me inform all the stakeholders that during this quarter, the June quarter, the Bank migrated to the latest version of core banking solution, that is Finacle 10, to pave way for other major initiatives on BPR, data analytics, CRM, FinTech engagement, intelligent decision support system, etc. With this migration, the Bank has joined the league of top banks using the upgraded version, which offers multiple additional functionalities, including API integration with more security features. As has been the experience of other banks during such migration, we too encountered some intermittent disruptions during the process which had some bearing on the business and customer service temporarily. The new version has mostly stabilized now and the Bank is ready to fully leverage the system and realize the embedded benefits.

Now quickly on to the numbers for Q1. The Bank has clocked a Y-o-Y growth of 6% in deposits and 8% in advances. J&K UT, which contributes 88% of deposits, 72% of advances and 82% of overall business of the Bank has registered 6% growth in deposits and 10% in advances. Growth recorded in Ladakh UT is impressive with deposits growing by 11% and advances at 19% over the last year. Rest of India continues to record positive growth in advances for second consecutive quarter, albeit moderated on account of some large NPAs amounting to about INR250 [Phonetic] crores getting adjusted during the quarter.

The Bank continues to maintain CASA of over 55%, and consequently, the cost of deposits remained at 3.6% compared to 3.67% Q1 last year and 3.58% in March quarter. NIM is also maintained at a healthy level of 3.46%, in line with our guidance. The overall operating results have registered marked improvement. Net interest income increased — increasing by 7% on Y-o-Y and 6% on a Q-o-Q basis. Operating income up by 4% on Y-o-Y and 6% on Q-o-Q with PAT growth of 59% on Y-o-Y and 48% on sequential basis. Employee expenditure was bound to come down on sequential basis owing to the one-off provision made in last quarter.

However, the non-employee opex has also significantly come down by 12% compared to the previous quarter. The result being that cost-to-income ratio which was hovering well above 70% level for three consecutive quarters has moderated to below this threshold. And our endeavor shall be to bring it down to about 60% by the year end and to industry average in the next one year to two years. On the asset quality side, the gross NPA ratio has improved when compared to June ’21 level, but it has worsened on sequential basis.

The Finacle 10 migration issue has played some spoilsport affecting upgrade of NPAs. However, post stabilization of the system, there has been significant improvement in the NPA numbers. Pertinently, last year, the Bank had technically written off NPAs aggregating to INR760 [Phonetic] crores during quarter two, which had brought down the gross NPA figure. During June quarter, three large advances aggregating to around INR250 [Phonetic] crores got adjusted and a good number of NPAs are expected to get resolved in the near-term. The Bank continues to maintain provision coverage ratio in excess of 80%. The credit cost for the quarter was well below 1%. Capital adequacy ratio is above 13% without reckoning the quarterly PAT, reckoning whereof would result in improvement of 20 basis points in CRAR. On the treasury operations front, we were able to stave off MTM losses as we had in anticipation of hardening of yields, maintaining a fairly small trading book and the investments under the AFS category were mainly in T-Bills under SLR and Certificate of Deposits under non-SLR.

We were on the positive side of the curve and still have adequate short-term surplus that can be deployed at better yields. Yield on investments has improved by eight basis points sequentially. We maintained our guidance on growth and profitability as communicated during my previous interaction with you. We acknowledge your guidance, support and trust and we expect it to continue in the coming days.

I will be glad to have your questions now. Thank you very much.

Questions and Answers:

 

Operator

We will now begin the question-and-answer session. [Operator Instructions]

Baldev Prakash — Managing Director and Chief Executive Officer

Hello? Hello?

Operator

Yes, sir, we can hear you.

Baldev Prakash — Managing Director and Chief Executive Officer

Can you add the other number also on this call that 101, so that we’re able to hear the questions you’re raising.

Operator

Sure. We will connect the second number also, just give us a moment.

Baldev Prakash — Managing Director and Chief Executive Officer

Yeah. If you connect that also — because we will be getting with the voice clear from the investors and we’ll walk it for a while.

Operator

Sure. Give us a moment. Ladies and gentlemen, we have the management connected. We will begin with the question-and-answer session right away. We have the first question from the line of Manish Ostwal from Nirmal Bang Securities. Please go ahead.

Manish Ostwal — Nirmal Bang Securities — Analyst

Yes, sir. Thank you for the opportunity. I have two questions, first on the asset quality and second on the opex. So on asset quality, sir, we have seen the increase in NPA both, especially in the J&K book. So you commented in the press release that due to migration to the system, we have seen some increase in NPA. So first, how is the progress on the recovery of these NPA? And you maintained the 6% gross NPA guidance. So given the quarter one trajectory, do you see a material risk to that number to achieve?

Baldev Prakash — Managing Director and Chief Executive Officer

Yeah. Manish, thank you very much. See on 30 of June, our March ’22 figure of NPA was 1,100 — INR11,117 crores. And 30 of June, we were — we had an increase from INR11,117 crores to INR11,545 crores. And on 31st of July, this figure has come down to INR11,159 crores. That means almost up to the March level. So this was a basically temporary phenomena of three days when the system was not available and the teams at the branches were not able to do the transactions in the account. So this was only a temporary thing, and we are confident that we will be able to maintain the guidance of 6%.

Manish Ostwal — Nirmal Bang Securities — Analyst

Sure. Second, sir, on the operating expenses side, we have seen the 23% decline on quarter-to-quarter basis, and the main decline component is employee cost. So what has been done in this during the quarter and how the operating cost look like going ahead?

Baldev Prakash — Managing Director and Chief Executive Officer

Yeah. As I have discussed in my briefing also, there are a number of steps which have been taken on to ensure that the cost ratio remains around 65% and then by the end of this year to around 60%. Basically, one is that all the investments which were related to employee benefits have been deployed effectively, more profitably in line with the market returns. And then various other steps have been taken like wherever the branches were having more space, and the employee strength was less, so that space has been released.

And relating to medical benefits also, now the staff who are — the dependable list of the staff is being verified, so that there is no extra expenditure on LFC and medical bills. So these are the few steps which have been taken which have resulted in better cost-to-income ratio mainly on account of staff expenses. Yeah.

Unidentified Speaker —

And Manish, one thing, because you are talking of Q-over-Q, we’re talking of sequential numbers. So we had already told you last time also that there was a one-off expansion we had provided for the — this superannuation of our leave salary and medical allowances. So that had — we had a expense of INR271 crores, that was a one-time one-off expenditure in the Q4 of last year, that had actually taken the employee costs very high. That — because that has already been amortized in the previous quarter, we had already given the guidance also that going forward, this cost won’t be there and there will be moderation in the employee cost on account of that, and the moderation that you are seeing is on account of that also.

Manish Ostwal — Nirmal Bang Securities — Analyst

Right, sir. And given the commentary on — your initial comments about the state — J&K State, we expect the asset quality, especially J&K State to improve coming quarters. And for that, all the best to the J&K team. Thank you.

Baldev Prakash — Managing Director and Chief Executive Officer

Thank you, Manish.

Operator

Thank you. We have the next question from the line of Vaibhav from Honesty and Integrity Investment. Please go ahead.

Vaibhav Badjatya — Honesty and Integrity Investment — Analyst

Yeah, thanks, thanks for providing the opportunity. Good to see finally top management in place after a long time. So in terms of our, you know, in last con call also, you have highlighted that the major cost to income drag is coming from outside J&K. And also you have highlighted that outside J&K, we are going to focus on retail, MSME, SME portfolio. So just want to understand what has driven your choice that we want to be in retail, MSME and SME kind of portfolio among the entire range of products portfolio that is available including corporate.. So what has driven that preference?

Baldev Prakash — Managing Director and Chief Executive Officer

Yeah. Vaibhav, one is that as we have our experience working in the Rest of India portfolio, in the previous year, I think we have to be little careful in selection of the borrowers there in that territory. So that is the experience is driving that. And another thing is that since I have been working in Mumbai for quite a long time, and I have experience of working with the corporates also in the retail segments, particularly in Maharashtra, I personally have worked a lot in Mumbai as well as in Pune markets and Nagpur markets also. So that is giving the confidence of diversification in home loan.

So these are the basically two areas where we think that we are confident of booking the quality business, and we are not going all hope for executing the business. We are only looking for the good-rated companies and the government PSUs. And our growth basically in the last one quarter has been on account of these major corporates only, who are very good-rated or the public sector units.

Vaibhav Badjatya — Honesty and Integrity Investment — Analyst

Right. Yeah, I understand the corporate part of it, but from the last con call, I got a impression that you will be more focused on retail, SME and MSME in outside J&K portfolio?

Baldev Prakash — Managing Director and Chief Executive Officer

Retail, we — our focus will be more on housing segment. Retail, we will be growing in housing. We have created the marketing team. We have revamped the scheme also, the structure also, and the DSA structure had been in place now. We are hopeful that housing will be an area in the retail, which we are going to have — be aggressive in the Rest of India book.

Vaibhav Badjatya — Honesty and Integrity Investment — Analyst

Right, right. I understand historical problems with J&K, what has happened in the, you know, outside J&K State when we lend to large corporates. But I think the key issue is the credit discipline, whether it’s corporate, whether it’s retail, whether it’s SME, across every bank irrespective of the product you choose, if the credit discipline is not there, it will lead to problems later. So what have we done to improve that in the Bank, and what are we planning to do, so that our discipline is up to mark?

Baldev Prakash — Managing Director and Chief Executive Officer

Yes. Vaibhav, you will be happy to know that in the last three months, the credit — this — the — how the credit dispenses will happen in the Bank has been totally revamped. Now as per the industry standard, we have the teams of relationship managers and credit support officers. Earlier, the system was that the credit portfolio, small, small branches, everybody is handling a small number of accounts. But instead of that, we have created now the big branches, only the 15 branches pan-India, and those branches have been provided with the trained staff, senior people as well as two or three support staff, that is CSOs.

And this will be finally reporting to the credit head at the General Manager Office in Rest of India also, Jammu division also, and Srinagar division also. So this has been done with well thought of strategy and based on my experience in my earlier assignments also. And I am sure that with the trained team, the training has been — specialized training has been arranged for these people.

And with this, I think we will be able to focus more granularly on — in the corporate credit, as well as this will also give a boost to our retail, because those branches which were having one or two big accounts and were only focused on serving credit accounts, those accounts have been shifted to now they have been centralized, and the rest of the branches will be focused only on the retail growth. So that has been our strategy. I am very confident that this strategy will give results.

Vaibhav Badjatya — Honesty and Integrity Investment — Analyst

Got it. And any kind of rationalization on the cost trend that you are looking in outside J&K portfolio to improve the cost-to-income ratio in that part of the business? Any kind of reduction in staff or something like that? Is that perceived?

Baldev Prakash — Managing Director and Chief Executive Officer

No, as of now, there is no reduction of stuff. There is no this thing. We are not curtailing the presence also. In fact, in the last quarter, we have operationalized three cluster offices, one in Lucknow, another in Chandigarh, and the latest one on the 2nd of this July — 2nd of August, we have operationalized our cluster office at Bangalore. So this is basically to focus on the retail segments in those territories, because these territories offer a good scope of business.

Vaibhav Badjatya — Honesty and Integrity Investment — Analyst

Okay. Okay, that’s it from my side, sir. Thank you.

Baldev Prakash — Managing Director and Chief Executive Officer

Thank you, Vaibhav.

Operator

Thank you. We have the next question from the line of Sonaal from Bowhead. Please go ahead.

Sonaal Kohli — Bowhead Investment Advisors — Analyst

Thank you, sir, for this opportunity. I wanted to know what would be your employee costs for the full year, FY ’23?

Baldev Prakash — Managing Director and Chief Executive Officer

Yeah, Sonaal, good morning. I’ll request my CFO, Mr. Pratik, to please take up this question.

Pratik D Punjabi — General Manager and Chief Financial Officer

Yeah. Greetings of the day, Mr. Sonaal. The employee cost for the full year is in the range of INR2,600 crores for the full year.

Sonaal Kohli — Bowhead Investment Advisors — Analyst

Okay. Thank you. My second question would be what was your SMA-1, SMA-2 for this quarter?

Pratik D Punjabi — General Manager and Chief Financial Officer

Yes. As far as total SMA is concerned — yeah, just a moment.

Unidentified Speaker —

Yeah, Sonaal, the SMA numbers as of 30 June, these were in the SMA-2, we had INR1,124 crores.

Sonaal Kohli — Bowhead Investment Advisors — Analyst

SMA-2, you’re saying?

Unidentified Speaker —

SMA-2, INR1,442 crores and SMA-1 was INR3,800 crores.

Sonaal Kohli — Bowhead Investment Advisors — Analyst

INR3,800 crores.

Unidentified Speaker —

Yeah, INR3,800 crores, SMA-1, INR1,440 crores, SMA-2.

Sonaal Kohli — Bowhead Investment Advisors — Analyst

And can you give me the same numbers for 31st March as well, please?

Unidentified Speaker —

March, we’ve actually given in the last call also the numbers. So you can write to us and we can mail you the numbers, the previous numbers as well.

Sonaal Kohli — Bowhead Investment Advisors — Analyst

But from what I recall, you didn’t give the numbers in the last quarterly call.

Unidentified Speaker —

So we can give the numbers, and these have come down significantly from that.

Sonaal Kohli — Bowhead Investment Advisors — Analyst

Okay. So SMA-2, INR1,440 crores, SMA-1, INR3,800 crores.

Unidentified Speaker —

Yeah, yeah.

Sonaal Kohli — Bowhead Investment Advisors — Analyst

And what I understand there is no major overlap between the restructured book and SMA, it’s a small overlap only?

Unidentified Speaker —

They are small.

Baldev Prakash — Managing Director and Chief Executive Officer

Small, small.

Unidentified Speaker —

Restructured book, we have around INR3,000 crores.

Sonaal Kohli — Bowhead Investment Advisors — Analyst

Hello? Hello?

Operator

Yes, we can hear you. Give us a moment, let’s recheck with the management. [Technical Issues] Ladies and gentlemen, we have the management reconnected. Sir, you may go ahead.

Baldev Prakash — Managing Director and Chief Executive Officer

Yeah. There were some questions from Sonaal, in case he is there, we can reply to that, sir.

Operator

Mr. Sonaal, you can go ahead with your question.

Sonaal Kohli — Bowhead Investment Advisors — Analyst

Sure, sure. Sir, in terms of your SMA-1, SMA-2 continues to be higher while you’re saying Jammu and Kashmir economy is booming. I think this would be one of the highest SMAs still in the country among all banks. So what gives you confidence that I mean, the asset quality whatever in case you’re saying in spite of such high SMA book? And in general, we are a MSME Bank, and across all banks, the SME stress has been increasing. So what are specific things which you’re saying in spite of the SMA and this general trend of SMEs under a lot of pressure across banks in India, which gives you confidence that in our Bank case, the NPAs will actually fall?

Pratik D Punjabi — General Manager and Chief Financial Officer

Yeah, Sonaal, see the trend which we see that in the month of March ’22, we had a SMA book of INR9,400 crores against INR3,800 crores this quarter. And SMA-2, the book was INR1,036 [Phonetic] crores — INR1,037 [Phonetic] crores, and now it is INR1,442 crores. Yes, I will agree that the PBT is at elevated level, but lot of follow-ups and a lot of monitoring which we have done on SMA. And right at the level of MD, CEO, we are monitoring these accounts and wherever actually we start to do, including the actions under SARFAESI, as well as the MIS, those actions are being taken. And I am sure that we are going to enforce the discipline among these borrowers. Yes, it is a journey, it will take some time.

Sonaal Kohli — Bowhead Investment Advisors — Analyst

But sir, the fact that SMA-2 is itself a large number and obviously people wouldn’t have such a large number in spite of the measures you have been taking unless there is some issue, right, or what is the flaw in my understanding?

Pratik D Punjabi — General Manager and Chief Financial Officer

Yeah, yeah. Sonaal, see the large number of shares in the government accounts, NPA loans, there if some salary of it can be sometimes gets delayed…

Sonaal Kohli — Bowhead Investment Advisors — Analyst

Sir, your voice is not audible.

Pratik D Punjabi — General Manager and Chief Financial Officer

Yeah, Sonaal, are you able to hear me now?

Sonaal Kohli — Bowhead Investment Advisors — Analyst

Yes, sir. If you could please speak a little slowly because there’s some disturbance in — we’re not able to get it clear.

Pratik D Punjabi — General Manager and Chief Financial Officer

So now see, we have done this book of government employees, that sometimes if the salary is delayed one or two months, that book keeps to SMA-1 or SMA-2 sometimes, but those accounts are always very good accounts, never ever the slippage ratio is hardly anything there, but it is because of the delay in salary, sometimes those books are behaving like this. But we are taking steps to see that one or two advance installments we are taking on those accounts also.

Sonaal Kohli — Bowhead Investment Advisors — Analyst

Okay. But from my understanding, at least in the past, that was relatively a small number. I don’t know about today, but in the past, the SMA because of…

Pratik D Punjabi — General Manager and Chief Financial Officer

Now the loan book is growing fast, Sonaal.

Sonaal Kohli — Bowhead Investment Advisors — Analyst

Okay. Sir, how much of your NPAs this quarter were from ECGLS books? And in your restructured book, how much of repayments have already started, of principal, the loans which were restructured?

Pratik D Punjabi — General Manager and Chief Financial Officer

So you’re saying out of restructured book, what was the NPA this quarter?

Sonaal Kohli — Bowhead Investment Advisors — Analyst

No, sir. Out of the — okay, out of the restructured book as well as from the ECGLS book. From the restructured book, I think you have given the NPAs. From the ECGLS book, how much NPAs did flow from that part of the book? And considering we have a large ECGLS book, what expectations from that and how much repayments have already started?

Pratik D Punjabi — General Manager and Chief Financial Officer

Yeah, in fact, I’ll give to my General Manager, Sonaal, for the figures.

Sonaal Kohli — Bowhead Investment Advisors — Analyst

Sure, sir.

Pratik D Punjabi — General Manager and Chief Financial Officer

Yeah.

Unidentified Speaker —

Good morning or good afternoon, sir.

Sonaal Kohli — Bowhead Investment Advisors — Analyst

Good afternoon, sir.

Unidentified Speaker —

Good afternoon. We have a total book of these GECL loans around INR2,400 crores — around INR2,300 crores. Hello?

Sonaal Kohli — Bowhead Investment Advisors — Analyst

Yes, sir.

Unidentified Speaker —

Hello? Yes, sir. We have a total loan book under GECL, it’s INR2,300 crores, out of which the outstanding as on 30 June, it was around INR1,800 crores. And the bucket wise moratorium for GECL as on 30 June is up to three months, it’s only INR1 crore, and 10 months, 12 months, it’s again INR1 crore, and 13 months to 24 months, it’s around INR69 crores to INR70 crores, and then above 24 months, it’s around [Indecipherable].

Sonaal Kohli — Bowhead Investment Advisors — Analyst

So, sir, I could not hear the first part of it. Your voice was cracking in between. The first part you said, when you were explaining this, INR800 crores. What is INR2,300 crores and what is INR800 crores?

Unidentified Speaker —

No, INR1,800 crores is the outstanding and INR2,300 crores was the total GECL sanction.

Sonaal Kohli — Bowhead Investment Advisors — Analyst

Okay. And has any part of the loan book started repaying by June quarter?

Unidentified Speaker —

Yes, yes, yes, yes.

Sonaal Kohli — Bowhead Investment Advisors — Analyst

How much repayments would you have got in the June quarter from this ECGLS book?

Unidentified Speaker —

Pardon me, sir.

Sonaal Kohli — Bowhead Investment Advisors — Analyst

How much repayments from the ECGLS have already started?

Unidentified Speaker —

We will give the details, sir. I have noted this question and we’ll send this, of course, the exact repayment we’ve received during June quarter.

Sonaal Kohli — Bowhead Investment Advisors — Analyst

Understood, sir. And sir, you gave a guidance of GNPAs falling to 6%. Is that because you will take some write-offs or you expect 2% reduction in the GNPAs due to recoveries, net recoveries?

Unidentified Speaker —

There are various things that we have taken into account. I’ll tell you, we’re expecting the gross NPA below, sir, 6%. So we’re — I’m seeing a recovery, total recovery of INR3,700 crores, INR3,800 crores. So cash recovery and through SARFESI sale of assets, sale of properties and our deposits facility to our customers, we’re expecting a recovery of INR450 crores. Sonaal, sir, am I — can you hear me?

Sonaal Kohli — Bowhead Investment Advisors — Analyst

Yes, sir, I can hear you.

Unidentified Speaker —

Compromise and settlements, which will recover around INR700 crores. Sale to ARC is one component, and we are expecting around INR800 crores. Then through NCLT route, we are expecting a recovery of around INR300 crores and upgradations of INR700 crores — INR1,700 crores, sorry.

Sonaal Kohli — Bowhead Investment Advisors — Analyst

Sir, just for the sake of clarity, because this number looks too large and the reduction looks too less compared to the numbers you’re giving. What is the gross slippages you’re expecting this year, and what is the net slippages you’re expecting this year?

Unidentified Speaker —

Pardon me, sir.

Sonaal Kohli — Bowhead Investment Advisors — Analyst

Sir, what are the gross slippages you’re expecting this year and what are the net slippages…

Unidentified Speaker —

Next three quarters, we’re expecting gross slippage of INR1,000 crores.

Sonaal Kohli — Bowhead Investment Advisors — Analyst

Gross slippage of INR1,000 crores, and the net slippage?

Unidentified Speaker —

It will be around — net slippage will be INR1,000 crores, net slippage, sorry. Net slippage will be INR1,000 crores.

Sonaal Kohli — Bowhead Investment Advisors — Analyst

Net slippage will be INR1,000 crores. And you said that you will be selling INR800 crores worth of assets from your book?

Unidentified Speaker —

Yes, sir, yes, sir, yes, sir. We have already sold INR200 crores in the first quarter — INR190 crores, and the rest, we are planning in the next three quarters.

Sonaal Kohli — Bowhead Investment Advisors — Analyst

So that will get to a INR1,000 crores reduction from your book?

Unidentified Speaker —

Yes.

Sonaal Kohli — Bowhead Investment Advisors — Analyst

And does this guidance also include any major write-off you are planning to take when you say you’re going to reduce the NPAs like?

Unidentified Speaker —

No, last year we had taken that effective write-offs around INR800 crores. That will be taken at the highest level by Board of Directors. So this year we have not done anything so far.

Sonaal Kohli — Bowhead Investment Advisors — Analyst

Sir, in this financial year, would you have further need of equity capital, and would the state government be willing to provide it?

Unidentified Speaker —

Just a moment. I’ll pass on the mic to our MD and CEO.

Baldev Prakash — Managing Director and Chief Executive Officer

Yeah, Sonaal, can you repeat the question?

Sonaal Kohli — Bowhead Investment Advisors — Analyst

Sir, would you need equity capital, not the bonds, the equity capital this year, this financial year?

Baldev Prakash — Managing Director and Chief Executive Officer

So, Sonaal, as I have discussed in my brief, INR1,500 crores we are trying to raise in Tier 2 and INR500 crores in Tier 1, CET-1 through FPS.

Sonaal Kohli — Bowhead Investment Advisors — Analyst

But this INR500 crores is through equity capital or through bonds?

Baldev Prakash — Managing Director and Chief Executive Officer

No, that will be through equity.

Sonaal Kohli — Bowhead Investment Advisors — Analyst

INR500 crores equity. And would the state government be providing or you will use the market?

Baldev Prakash — Managing Director and Chief Executive Officer

No, I think we have not approached the state government as of now. We are first trying to reach the market.

Sonaal Kohli — Bowhead Investment Advisors — Analyst

Oh I see. And sir, what was the kind of technical glitch we saw? Was it new software implementation or some issue with the existing software?

Baldev Prakash — Managing Director and Chief Executive Officer

No, this was actually that Finacle 10 migration, the first closing was there. So that’s one-time. We were not able to run various reports, the SLAC report which you file for SMEs and NPAs, that was not — the system was not able to run that report, and that report was finally generated on the 1st of July, instead of 28 June, 29 June, 30 June. So that was finally taken care. And then from — on the 3rd Monday, everything was normal. That’s how this NPA as on 31st of July was almost equal to the March level.

Sonaal Kohli — Bowhead Investment Advisors — Analyst

So, sir, I’m not able to follow. So the numbers which you reported are the numbers on the 1st of July, is it what you’re saying or 3rd of July?

Baldev Prakash — Managing Director and Chief Executive Officer

Yeah, yeah. I’ll repeat it again. See on 31st March ’22, the NPA of the Bank was INR11,117 crores, as on 30 June ’22, it was INR11,545 crores, and on 31st July, it was INR11,159 crores.

Sonaal Kohli — Bowhead Investment Advisors — Analyst

So I’m trying to understand, you said the software didn’t work on 30 June, so you could not compile the NPAs. So the NPAs we’re seeing, are they on 1st of July?

Baldev Prakash — Managing Director and Chief Executive Officer

Yes, the compilation also because the system was not available to the operating unit. So those customers who wanted to deposit money on their accounts on 28 June, 29 June, 30 June, they were not able to reach to the system. So because of that, those accounts which were upgraded on 3rd.

Sonaal Kohli — Bowhead Investment Advisors — Analyst

But sir, why would any sensible customer try to do these deposits only on the last three days of before becoming NPA in spite of monitoring?

Unidentified Speaker —

Sonaal, actually, you see when this interest application, especially in the government accounts, we have a running facility also that we have provided to them. It’s just like an OD or CC account provided to the government employees. So in that, what we do, we usually service the interest which is applied on every month end. So they keep amount available in their operative accounts and they have given a standing instruction. The mandate is with the bank to debit those accounts and transfer the interest amount to the CC accounts of these employees.

So, actually, what happens, there is a drop-line limit. When they approach the superannuation five years prior to that, the limit is actually brought down by 20% every year, so that it gets adjusted by the end of their service tenure of 60 years. So till that time we only service the interest part. The SMA is also actually a part of — a function of this thing that the interest actually may be served on the 1st that — this thing may be run on the 1st. And on this day, the SIs didn’t get executed, amount was available in their operative accounts.

So if you want the numbers also, we could give the numbers also how many accounts actually had the balance in the operative accounts, only the standing instructions couldn’t be executed. It’s not that only cash coming on the last date. It’s actually the system also there that we run these standing instructions as per that the interest is applied, that standing instruction is executed, so that the interest demand generated is satisfied.

Sonaal Kohli — Bowhead Investment Advisors — Analyst

Okay. I couldn’t fully grasp it, but maybe I’ll take it offline because that lead to other people waiting in the queue.

Unidentified Speaker —

Thank you.

Baldev Prakash — Managing Director and Chief Executive Officer

Yes, yes.

Operator

‘Thank you. [Operator Instructions] We have no further questions, sir. I would like to hand it over back to the management for closing comments.

Baldev Prakash — Managing Director and Chief Executive Officer

Yeah. So, thank you very much all the stakeholders and participants. And thank you very much ICICI for this call, and we wish you all the best.

Operator

[Operator Closing Remarks]

Baldev Prakash — Managing Director and Chief Executive Officer

Thank you.