South Indian Bank Ltd (NSE: SOUTHBANK) Q1 2026 Earnings Call dated Jul. 18, 2025
Corporate Participants:
P R Seshadri — Managing Director and Chief Executive Officer
Dolphy Jose — Executive Director
Vinod Francis — Chief Financial Officer
Analysts:
Jay Mundra — Analyst
Jay Chahan — Analyst
Sneha Gandra — Analyst
Darshan Deora — Analyst
Rohan Mandora — Analyst
Subhanshi Rathi — Analyst
Himanshu Upadhyaya — Analyst
Raj Gopal Ramanantha — Analyst
Presentation:
Operator
Ladies and gentlemen, good day and welcome to the South Indian Bank Q1 FY ’26 Earnings Conference Call hosted by ICICI Securities Limited. As a reminder, all participant lines will be in the listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call? Please signal an operator by pressing star then zero on your touchstone phone. Please note that this conference is being recorded.
I now hand the conference over to Mr Jay Mundra from ICICI Securities. Thank you, and over to you, sir.
Jay Mundra — Analyst
Thank you. Yeah, hi, thanks, Vishaka. And thank you, everyone, and good evening, everyone for good evening, everyone, and thanks for joining this call of post-results Q1 FY ’26 post-results call of South Indian Bank. We have from the bank and senior management, including Mr PR Sheshadhri, MD CEO; Mr Dolphy Jose, Executive Director; Mr Ento George, Chief Operating Officer; Mr Jimmy Matthew, GM and Company Secretary; and Mr Vinod Francis, GM and CFO.
I’ll start — sir, I would hand over to MDCO, sir, for his opening comments, after which we’ll open the floor for Q&A. Thank you, and over to you, sir.
P R Seshadri — Managing Director and Chief Executive Officer
Thank you very much, Jay, and thank you for organizing this call. We really appreciate it. Good evening to everybody on the call and thank you very much for joining us for the South Indian Bank Limited Q1 FY ’26 earnings conference call. And as Jaya has said by a number of my colleagues, Mr, Mr Anto-George, Mr Francis, Mr Jimmy Matthews and a few other senior executives.
Let me start with key highlights of the financial performance for this quarter. The Bank declared a net profit of INR322 crores for the quarter, registering a growth of 10% compared to INR294 crores in Q1 FY ’25. Operating profit for the quarter increased by 32% from INR508 crores to INR672 crores. Total deposits grew by 9% to INR112 crores, INR112,922 crores from INR103,532 crores. Gross advances grew by 8% to INR89,198 crores from INR82,580 crores.
Total business for the bank has crossed the landmark figure of INR2 lakh crores and grew by 9% to 2 lakh. Our average advances for the quarter grew 6% percent. Our return on assets for the quarter was 1.01% with a return-on-equity at 12.41%. The capital adequacy of the bank as at the end-of-the quarter was 19.48% and Tier-1 ratio was 18.25%.
CASA grew very nicely at 9% year-on-year to INR36,204 crores against INR33,195 croress during the prior-period. Provision coverage ratio, excluding write-off improved by 988 basis-points Y-o-Y to reach 78.93% and provision coverage ratio, including write-off improved to 88.82%.
Overall gross NPA reduced by 135 basis-points from 4.5% to 3.15%. Net NPA reduced by 76 basis-points from 1.44% to 0.68%. The slippage for the quarter was 20 basis-points in the amount of INR182 crores.
So let me now take you through other operating and financial parameters of the bank. We continue to grow our gold loan business, which now stands at INR17,446 crores with an average LTV of 61.99%. This includes certain portfolios that we’ve acquired and an average ticket of about 1.9 lakhs. Our goal loan book grew 7% year-on-year. Home loan and auto loan book also grew quite considerably on a Y-on-Y basis, they grew 66% for home loans and 27% for auto loans.Now the home loan book as at the end of June 2025 is INR8,518 crores and auto loans is INR2,217 crores. So the personal loan book is at INR2,132 crores.
During this period, we built-out several new systems, processes, I rolled-out several new processes that enabled us to become more efficient in dealing with our customers and eased the method of doing business and enabled us to acquire customers more easily. So we are confident that we will continue to maintain momentum in disbursements and collections in the coming quarters to achieve the results that we desire.
With this, I’d like to open the floor for questions. Thank you.
Questions and Answers:
Operator
Thank you thank you. Thank you very much. We will now begin the question-and-answer session. Anyone who wishes to ask a question may press star and one on the touchstone telephone. If you wish to remove yourself from the question queue, you may press star and 2. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Jay Chahan from Asset Managers. Please go-ahead.
Jay Chahan
Good afternoon. Thank you for the opportunity. So my first question is on the cost of any balance. The Bank has done a commendable job of maintaining a flat operating expenses largely through 5% reduction of headcount over the last year. In the Q3 call, you mentioned that you are closing in on the limit of how much you could cut without impacting the impacting business, given that most attrition has been in your customer-facing roles, how do you plan to balance the need for continued cost discipline with the imperative to invest in sales capacity need to drive the high-yield loan growth that is central to bank strategy
P R Seshadri
A very, very good question so we have been reasonably disciplined in managing our costs to which I want to thank all my colleagues here on this call as well and a significant portion of the cost management has come in by way of you know not replacing employee attrition. We have reached I think a limit to how far this can be taken.
So we are now contemplating renewed hiring, but we are confident that renewed hiring will also come with meaningful revenue growth for the simple reason that over the last 18, 20 months, we’ve been able to build-out new systems and new processes with which we have made the process of acquiring and onboarding new customers six months.
Given all of that, we think that as we go in and hire more people, especially on the customer forefacing areas, we can get them productive relatively quickly and therefore contribute to earnings you know more aggressively. In addition, the format of hiring that we’ve chosen is going to be slightly different from what we would normally do where the economics are a little bit more favorable and that’s the route that we are taking as of this moment and we are hoping that will work-out and that will give us the incremental headcount that is necessary for us to actually get this much growth as well.
Jay Chahan
Understood. Understood, sir. Thank you on that very well explained answer. I have just one more question where you management has rolled-out an impressive suit of digital lending, right, like the GSE power and the lab power over the past year. However, the core SME — MSME loan book has remained largely start ending in Q1 at INR9,700 crores, similar to the start of Last year. Could you elaborate like on the leases adoption and utilization rates of this new platforms at the branch level and more strategically, what are the key learnings on this technology-led approach?
P R Seshadri
So the adoption has been reasonably good. So our first product that we put out was GSP power that now is very you know all our people in all our branches are reasonably convergent with it. And subsequent products came in later. So Lab Power came in September of 2024 and the rest of the products came in quick succession thereafter. So the good news is that finding adoption is not that much of a problem.
We have early adopters and then we have slightly later adopters, but by and large, that’s not proving to be the challenge that we initially thought. What we are trying to do is to try and get increased traction on products that they have already adopted and have got to know reasonably well and that’s where we are having conversations with our people.
Our branch productivity, the way we measure it using our branch value addition metric are trending very nicely. So our — again, Q4 of FY ’24, our branch productivity has increased 60% of the way we measure it. So if that trend-line were to continue and improve further, I think you will see that the complexion of the portfolio that we have also changes with time.
The point that you made saying that, look, our MSME portfolio hasn’t really budged in-spite of all of this is a valid one. But I think as we go through this quarter, you will see that change happening.
Let me just hand this over to Dolphy, my colleague to weigh-in on whether the MSME business, how it is going to do going-forward since spending a lot of time looking at it.
Dolphy Jose
Thank you, Shesh. I’m glad you brought that up. And so this is the first-quarter in several years in both our NBG and ECG, which is currently stand for our MSG business group and ECG stands for our emerging corporate portfolio.
Jay Chahan
Okay.
Dolphy Jose
This has — this has turned decisively positive in net accretion in this first-quarter and the earlier drag was largely due to negative cleanup and cautious as now transition into a positive cadence mode, right? So we are seeing a strong demand on the MSME across the mid-market, emerging corporate segment.
And very visibly seeing in our portfolio mix today in overall advances, a lot of growth has come from outside of the state of Kerala. And in fact, our overall advance is 30% is still in the state of Kerala and 70% comes from outside of. And for the MSME, specifically around 61% of our overall MSE MSME business comes from outside of.
The turnaround is not just numeric, it’s a strategic shift towards you know, reshaping our overall portfolio mix. And this is — we are proceeding towards improving the blended and deepening our customer franchisees in the coming quarters.
So on the MSME segment per se, what does we do differently, to have better representation outside of the state of life what we did consciously and we split our MSME businesses into two zones particularly, one which is south and where we have a separate regional person who manages South excluding Kerala, specifically which covers four states other than Kerala and we have rest of India as another zone.
So this has given us a lot of getting the right person behind the right talent behind the win is what we take and that is working perfectly well. And the positive cadence is actually coming from those geographies where we thought we should represent ourselves better. So that is clearly visible.
We’ve also done further for overall advances, we have typically two verticals which we run today, which is one is the branch channel, which is our largest franchisee, which takes to the customer all our products except the corporate banking as a product. And we have non-branch channels.
So we have these two verticals primarily which looks at our advances business separately and evaluated in measured separately. In our non-branch, we have two channels, of course, the DSA and the alternative channel and the digital electricity channel, which also includes core lending and core origination and participants. This is how we are proceeding and the attrition is very visible and it’s a positive pulse and we intend to move forward in this direction. Thank you.
Jay Chahan
Got it, sir. Thank you so much for a very detailed answer. So that’s it from my side. And thank you so much.
Operator
Thank you. The next question is from the line of Sneha Gandra from Star Union. Please go-ahead.
Sneha Gandra
Hello. Couple of questions, sir from my side. First is the recently the new additional steps which have been taken on the MSME on the corporate side. How do you expect that the overall operating leverage to benefit and how do you see that the overall ROA numbers to be kicking-in? And what are the strategy on the plant expansion side? And one more question is on the — how do you see the overall credit cost and any internal target of set to maintain your
P R Seshadri
Yeah, I couldn’t hear you very well. So I will try and-answer the portion that I heard reasonably well. So the last question was how do I see credit costs? So credit costs were elevated for this quarter as we continue to build incremental provisions to bring down our overall net NPA numbers, whereas the net slippage, the slippage for us for the quarter was came in very low at only 20 basis-points.
So on an annualized basis, our slippage was 80 basis-points. Our previous quarter sequentially previous quarter slippage is 24 basis-points, so annualized 96 basis-points. So we have now consistently been lesser than 100 basis-points. So we expect in the remaining nine — remaining 3/4 to not have to provisions in the same measure as we’ve done this quarter and therefore help the P&L appropriately. I mean, therefore at given the fact that our net NPA number is at 68 basis-points, which is perfectly respectable, the pressure on us to continue to provide a incrementally to what is required under IRAC reduces that much. And therefore, credit cost should trend down very considerably as we go-forward unless there is an eventuality that we are not able to foresee at this point in time.
Now you were talking about operating leverage from an operating leverage point-of-view, this quarter, we again have positive operating leverage. Our revenues grew 13%, expenses were flat and therefore pre-provisioning operating profit grew 32%. So as we go-forward, we think that there is going to be some amount of pressure on the expense front as we hire incremental people to bolster our sales forces. But at the same time, we want to front-load it with as much revenue as-is possible.
So we continue to think that we will have positive operating leverage as we go through this year. We are, you know, reasonably keen on ensuring that we end this year also with where the rate of growth of revenue is higher than the rate of growth of expense. And that’s aim that we have. We hope that we are able to achieve it and which in-turn will enable us to have reasonable buoyancy at the pre-provisioning operating profit level.
We are a little challenged from the perspective of of NIMs because the interest-rate regime has been quite unfavourable as the external benchmarks have reduced the our cost of money hasn’t moved in sync and that has not yet fully flown through our P&L . So that is a key monitorable. We need to manage that aggressively. And the way we are trying to address that is to see if we can grow our higher yield books a little bit more aggressively than we were in the past and try and restore this as quickly as it’s possible. But having said that, in the near-term, those challenges will continue to add to remain. So we are cognizant of it and we will try and manage it the best we can. The first part of your question is not audible expansion. Yeah. Branch expansion. As of this moment, we are not — we are not considering branch expansion. We want to wait for a more appropriate point in time when our revenue expense mix is a little bit more favorable before we start expanding branches. I mean, when we do, our branches will be more in Peninsula India, Maharashtra, Gujarat and the national capital region. And so we — at this immediate juncture, we’re not looking at any branch expansion. We just want to our branches more so that we can get greater throughput from our branches.
Sneha Gandra
Any number you would like to assign out credit cost as well as deposit cost which we are targeting.
P R Seshadri
So our — we will grow credit at north of 12% for this year. So deposit growth will be in accordance with credit growth. What do you think,?
Dolphy Jose
Deposit growth has been so-far and I think we’ll continue that kind of growth cadence for sure. So I don’t think it’s an issue. Also on the deposit side, we should know that we are pretty well-poised on the NR segment and around 30% plus of our total deposit base is coming from NR. And that’s predominantly TAR and that’s low-cost deposit which we have in favor of us.
So we have also taken a lot of new initiatives to increase this base and continue to pursue the — in our deposit base and that we will see progressive impact on our deposit base in. So if you summarize,
P R Seshadri
Yeah, go-ahead, sorry.
Sneha Gandra
Hello.
P R Seshadri
Yeah, please go-ahead.
Sneha Gandra
Yeah. Sir, one more question. How do you see the overall ROE growth panning out over this fiscal year as well as on the next fiscal year considering that the credit growth.
Operator
I think there is lot of disturbance on your line.
Sneha Gandra
Okay. Okay. Sir, one last question, how do you see the overall return ratios to be moving on for this fiscal as well as the next fiscal, any target for that to maintain an?
P R Seshadri
So return of assets for this fiscal, I mean, as long as we net slippages remain in these levels, we should be able to accommodate and we should be able to return ROAs in the 100 basis-points neighborhood. As the environment becomes a little bit more benign, i.e., our cost of funding reduces in-line with the repo rate cuts that have taken place, the return on assets will improve in the coming year. And we think that at that point in time, we’ll be closer to about 115 basis-points or thereabouts.
Sneha Gandra
Okay. Okay. Got it. Thank you so much and all the best.
P R Seshadri
Thank you.
Operator
Thank you. Thank you. The next question is from the line of Darshan Deora from Invest Group. Please go-ahead.
Darshan Deora
Yeah. Thank you for the opportunity. So is it fair to say that in this quarter we had some treasury income which we sort of have used to increase our PCR is that is that a fair assumption
P R Seshadri
Can you hear me
Darshan Deora
Yes I can hear you now
P R Seshadri
Okay no it’s a right assertion. We had INR256 crores worth of treasury income during the quarter and we use that opportunity to ensure that whatever incremental provisioning we need to make so that our books are completely clean is done.
Darshan Deora
Got it, got it. So that’s a good — that’s a good initiative. The second question I had was generally speaking, you know, as MD sir has outlined very eloquently on earlier occasions, you know the need for moving more into high-yielding loan products. But obviously, this quarter when you just look at the numbers, I mean, I know you spoke about looking at it qualitatively, but just quantitatively, the MSE numbers don’t look very encouraging and just as investors, I guess, would like to see more progress there.
But the second question I had was regarding the home loans. We seem to have been getting reasonable growth on the home loan side. Is this a mix of prime and affordable or is it primarily prime home loans, which I would assume would be fairly finely priced, right.
P R Seshadri
Yeah, this is prime home loan. I mean, we’ve just about started with the affordable home loan vertical and that’s probably about a couple of months old and we still yet to see some good attrition there. But to answer your question, yes, this is dominantly primary.
Darshan Deora
So what would be the average — the average yield on these home loans.
P R Seshadri
So our average yield is at around 8.3% to 8.5%. It ranges there that’s ball ballpark as but I can say on 8.4%, we can keep it as our average yield?
Darshan Deora
So just in terms of the overall strategy of moving towards more high-yielding products, I mean, I know the home loans bring with it some other benefits, right, like probably more savings balances by the — by the customers, but you know, just want to know-how that sort of fits into our overall goal of increasing the overall use on the book.
P R Seshadri
Yeah. So good question. I would like to answer this specifically because this is what is the current challenge, not in a very isolated way that it’s specific or unique to our bank. But this issue, I think across fraternity, I think this is what the issue is. Now you’re right about home loan. I mean, sometimes we do have debates on the economics of home loan, how is it going to really shape up unless I can double down or triple down the volume, which will actually give me the NII effect.
So having said that, I would like to correct you here, it’s not higher yield, but better yield business is what we want to get into because the underlying is that we don’t want to compromise quality for sure. So better yielding is where we want to progressively move forward and that would be primarily the MSME LAP and we are looking at gold loan pretty seriously to scale it up. And these are primarily two secured and in fact, gold is 100% liquid collateral secured and all of that. And we post the complete clarity on the on the — from the regulator side on the policy and for gold loans, I think we are very much geared up to scale it to the next level.
So gold loan, and MSME retail, I mean these are — and MSME retail, we have done a lot of progress in the sense we have backed it up with product with processes for the MSME retail segment. And I think we are doing very positive progress there. So I think that’s what our primary focus is going to be. And this will help us to reshape our portfolio mix.
Dolphy Jose
Some of this is not entirely visible, largely because our NSME book has two components. One is the high-yield bit and the other is a low-yield business which is largely healthy back.
Darshan Deora
And sir, your voice is breaking up. I’m not able to hear you clearly.
P R Seshadri
Can you just hear me now?
Darshan Deora
Yeah, I feel better now. Yeah, yeah, yeah.
P R Seshadri
Our MSME business has two components. One is the high-yield component, which is where we do the ODCC and other such facilities. And the other is an LC banked bill component. So where we are discounting bills drawn by other drawn on other institutions that has very low capital charge, but it has very tight spreads.
So where you’re seeing declining balances is on the LC-back build side, whereas in the core areas that where we want growth, we have had reasonable growth in the first-quarter, which is a change from the past . In the past, this portfolio, we were struggling to get growth. So we have got in the areas that we do want growth, we have got it in the first-quarter and we are reasonably confident that it will continue as we go into Q2 and Q3. We do have large chunks of our portfolio which are low-yield but low-risk. So as our marketing capabilities and sales capabilities and our processing capabilities improve, we have to cycle out of these low-risk, low-yield businesses into higher yield and but manageable risk businesses. And that’s when the NIMs will start growing. It’s unfortunate that the repo reduction has happened when it did because structurally, this would have been — as we get into this quarter and the following quarter, that’s when we would have been able to see some amount of movement in that direction. But unfortunately, all of that is going to now get a little impacted by the changes in the benchmarks and the issues arising therefore. So I guess that answers your question.
Darshan Deora
Yes, yes, it does. And thank you for that explanation. Really appreciate it. Thank you.
Operator
Thank you. The next question is from the line of Mr Rohan Mandora from Equarius Securities. Please go-ahead.
Rohan Mandora
Good afternoon, sir. Thanks for the opportunity. So firstly, just wanted to understand what’s the outstanding AFS
P R Seshadri
I’ll ask our treasurer.
Vinod Francis
It’s close to around INR8 crores.
Rohan Mandora
Okay, sir. Second was on the — in this quarter, we have seen a healthy growth on the current deposits. I just want to understand what changed in this quarter and how sticky will this be? And secondly, on the term deposits also, we have seen a good sequential growth of 3%, 3.5%, plus we did some CDs, I think. So in a quarter where we knew that the deposit growth — deposit rates are going down was there any specific thought process behind raising the deposits more in this quarter and then waiting for maybe one or two months and then going on deposit growth because when we are ongoing retail deposits, the cost gets locked-in for almost 15 to 18 months.
P R Seshadri
So our peak rates are offered at 12 months and seven days. We don’t offer feek rates at the longer end-of-the curve. So deposits, when you have a customer franchise, therefore — and we are priced lower than our larger peers. So till — till this morning, we were priced 10 basis-points lower than our larger peer in the same geography. And only this morning our larger peer has reduced its pricing on deposits to our level.
So consistently over the last quarter, we were priced between 10 and 15 basis-points lower than competition and yet our time deposits grew. So that is because we have a decent liability franchise. We have some kind of relationship with our customers and they don’t mind placing money with us even if it is at a lower rate than some of the larger institutions in our neighborhood.
So the thing is, it’s not possible to turn these things on and off at-will. You have a relationship, you have to maintain those relationships and those deposits become available, you cannot deny those deposits. You can only price those deposits appropriately. So liquidity in the environment improved. We reduced our rates quite early. You can see that our cost of borrowing has been coming off nicely. But and in-spite of that deposits came in.
I think there was some amount of management action to say, hey, let’s focus on this a little bit because in the prior year, we had problems of availability and therefore, we didn’t want to be in a situation where deposit growth becomes a limiting factor on portfolio growth. So consequently, we are where we are. There is no particular reason why we’ve raised this.
On the current account and savings account side, we have a very good mix of retail customers, task customers and government customers. And some of the customers that we have cyclicality in their business and they tend to have current account and savings account growth that comes in Q1 and Q2, which is particularly visible during this year.
And the fact that rates in the environment had come off as well also helps in current account savings account growth because alternate methods of deploying the money become a little less attractive. So all of this come together — comes together to give us the outcomes that we got during the last quarter.
Rohan Mandora
Sure, sir. And sir, on the corporate book, the rating profile has tilted towards AAA, while we are trying to onboard customers which are higher-yielding to have NIM expansion, but the share of AAA is going up. So what’s the strategy there or thought process there? See on the corporate side, we are not going down th
P R Seshadri
E chain very aggressively, nor are we enhancing tenors. On the corporate side, we have a double disadvantage those. We are very rating sensitive in the sense that we prioritize a higher rating over lower rating. So we have a very large chunk of our book, either AAA or AA and also we prioritize shorter-duration.
So a very vast part of this book has very low duration, which is why the total disbursals are very-high. So those are — those give us flexibility and we are not tied-in for a long-duration loan with most of these corporates. But having said, it has the flip side of having significantly lower gains.
The idea was that as our ability to originate MSME and retail increases, at that point in time, it gives us the flexibility to dial down the corporate. Fortunately, we haven’t got the level of growth that we wanted, but it is, you know, the situation is becoming more-and-more encouraging as we speak. And we think that this temporary disadvantage that we have will turn into an advantage as we go-forward.I mean that’s the strategic intent in any case.
Rohan Mandora
And sir, lastly, on the 100 of repo has happened on a portfolio basis, blended impact, how much would we have already passed on and how much do we expect to pass in 2Q?
P R Seshadri
We passed on the entire 100 basis-points.
Rohan Mandora
So 100 basis-point has been passed on T plus 1?
P R Seshadri
Yes, T plus one.
Rohan Mandora
Sure. Okay. Thanks.
Operator
Thank you. The next question is from the line of Subhanshi Rathi from Anand Rathi. Please go-ahead.
Subhanshi Rathi
Hello, sir. My question would be what is the write-up pool for this quarter and income from this pool during the quarter?
P R Seshadri
Sorry, Subanshi, can you repeat that? We could very w we could hear you very well.
Subhanshi Rathi
Yeah, am I audible now?
P R Seshadri
Yes.
Subhanshi Rathi
So sir, could you please share the pool amount and the income that is recovered from this in this quarter?
P R Seshadri
The total written-off stock and how much we — so amount — since recovered, amount written-off since recovered for the quarter was INR37 crores. So that is the income that has come from amounts written-off which has since been recovered. Yeah and what was the amount? The total written-off the total pool, the road just give us a minute, we’ll give you the number. It’s around INR2,400 crores. It’s INR2,400 crores approximately not in 40
Subhanshi Rathi
Okay, sir. Thank you.
Operator
Thank you. And the next question is from the line of Himanshu Upadhyaya from BugleRock. Please go-ahead.
Himanshu Upadhyaya
Yeah, hi. Good afternoon. My first question was on this branch value addition you gave region-wise, okay, in consolidated, okay. See, if you look at the branch value addition that region-wise, Over a period of time, there is a big difference which is coming between Kerala and outside Kerala, okay and what would be the reason for that? And if secondly, if most — we have a large chunk of branches in Kerala, okay. So how do our overall numbers improve over a period of time if we don’t see much of value addition happening at Kerala branches or some thoughts will be helpful on that.
P R Seshadri
I think you asked a very valid question. The reason for lower-value addition are meaningful the sense that the — our branches in Kerala tend to be staffed more and therefore the base level of value addition tends to be higher to start with. The opportunity space in Kerala is different from the opportunities faced in other markets. So some of the things that we can do in other markets where large manufacturing entities exist, let’s say you’re operating in a Tamilad in, for instance, large number of MSME units that you know luxury doesn’t exist in many parts of Kerna and therefore there is this you know difference that comes about.
So we are very conscious of this. We are tracking it. We are trying to get these numbers to go up. The drivers of productivity are also different. In, we have a lot of valuation on the liability side and whereas outside of Kerala, we get more value addition from the asset side of the book. And both of which are critical for us.
So we are very conscious. We are trying to you know, get all our regions to perform the way you know at the level so I trust that answers your question
Himanshu Upadhyaya
Second is a mean, okay. How fat are the tails, okay? So regions of branches which are doing extremely well and are much higher and some branches which may be near than 100 only. So are we seeing fat tails or you see the clustering is happening with the mean only? Because if the tails are not — yeah.
P R Seshadri
It’s a very good question. I’ll be honest with you. We can give you those details since all of which is available. I suspect that we will have a reasonable saying that but I am not — I don’t have the answer readily off-hand. But it’s a good question. We can come back to you subsequently with an answer as to how what the distribution of these numbers are, the mean of which is on the chart.
Himanshu Upadhyaya
And do you think that improvement would remain on the South and rest of India only majorly over next two years also or the trend will remain similar or do you think Kerala will start having in next one or two years since the improvement what we were expecting.
P R Seshadri
So I am confident that we will get you know growth value addition growth both in Kerala and other parts of India. So the rates of growth may be different, but I think the trend lines will be that definitely value addition will grow. And since we now have the tools to measure it, we and the incentive structures to support growth, we are reasonably confident that these numbers will show an upward movement as we go-forward.
Himanshu Upadhyaya
So and bran — we had this branch level incentive schemes, okay, where the branch gets — all employees get benefit based on how they try to distribute. So are we seeing that — so this branch value addition, is it happening or it is getting implemented in terms of incentives also or are we continuing with that scheme and branch value addition as the key driver or how is it?
P R Seshadri
Yes, it’s implemented and incentives are being paid and on a quarterly basis. That is helping us grow productivity. As you can see, I mean it’s a pretty significant 60% growth. Quarter one is actually normally a historically weak quarter for us. So because there are lots of transfers and all of that happens and it tends to be a difficult quarter.
In-spite of all of this, for the first time, we’ve had a bunch of positive outcomes in the first-quarter and which we see as a very, very positive situation. So the incentives at the branch level are being paid out quarter.
Himanshu Upadhyaya
Okay. And one last question. We have this call for you
Operator
To you, Mr Upadhya. May we request that you return to the question queue for follow-up questions.
Himanshu Upadhyaya
Okay. Thank you.
Operator
Yeah. Thank you. The next question is from the line of Mr Raj Gopal from Sadakush. Please go-ahead.
Raj Gopal Ramanantha
Am I audible?
P R Seshadri
Yes you are
Operator
Yes you are
Raj Gopal Ramanantha
Now this is aspirationally maybe in the next three years or so.
Operator
Sorry to interrupt you Mr Raj Gupal your is breaking actually.
Raj Gopal Ramanantha
Oh, just a minute. I’m sorry. Sorry.
Operator
No problem.
Raj Gopal Ramanantha
Is it better now?
Operator
Yes, it’s perfect.
Raj Gopal Ramanantha
Okay. So you did indicate that aspirationally, say, in next three years or so, you would want the bank to have an ROE of around 1.5%. But please help me understand how is this going to be possible given that your loans liquidate so quickly and I would — I would presume that your operating cost intensity is also slightly on the higher side because of this very reason, you need to keep originating a large quantum and an almost an equal quantum gets repaid in the same year. So if operational cost leverage doesn’t come through, it seems to be a very, very difficult task. Wouldn’t you agree?
P R Seshadri
It’s a very good question. And there is a germ of truth in it, but not — it’s not fully accurate. For the simple reason that the operational cost for us are largely human being costs. These are fixed costs and the huge churn that we see is on the corporate book. So the number of transactions aren’t that many. The value of each ticket is very large and therefore, they’re not very cost accretive.
Now the question that you ask saying that, hey, if you’re going to lend money in very short-duration, how are you going to get higher yields, that’s a very, very valid question. And for which the answer is that we have to cycle out of this and get into MSME, retail, affordable housing and personal loans, the higher yield products have to come. We have to get growth there so that we can then start slowly getting out of these corporate loans that we have, the shorter-duration corporate loans. And that is why we are saying that over a period of time, if we are able to do that, automatically spreads will improve and consequently, your return on assets will improve because costs will be by and large where we are at this point in time.
There may be some marginal increase, but we’ve proven that we can manage these costs reasonably well over the last two years and therefore, we should be able to get you outcomes that are favorable. So the transaction intensity in this product in the corporate side is not really that much of a problem and nor is it costing — costing us a great deal of money.
I mean, obviously it will be cheaper if we had fewer transactions, but it’s not structurally impairing us very dramatically. The bigger problem that we have is the slow pace of growth of our retail and MSME books. The higher-yielding books are not growing as fast as we would like. And the moment that growth starts coming through, which is what we think will happen over a three-year period, that is when we will see significant accretion to our P&L and that in-turn will drive increased return on assets.
Does that kind of answer your question?
Raj Gopal Ramanantha
It does, but I just have one final follow-up. And what is constraining this growth? Because, see, we have to all accept that as a system, we are no longer going back to the 20% 25% loan growth days, okay? So those days are gone. You had banks which had 50% 60% CD ratios, now banks like you also are operating at closer to around 78%, 80% CD ratios. So clearly, we Are not going to go back to those days where we are going to be hitting much, much higher levels of loan growth. So there — and what constraints are currently there for you? And realistically with this cost base, do you think this aspiration is achievable in a three-year period or maybe you think you might have to probably elongate this a goal to maybe say a five, seven-year period.
P R Seshadri
No, good question again. See, I mean, whatever be the systemic growth rate. So our growth rate, since we are a small player, our growth rate does not need to be tied to the systemic growth rate. The reason why we were not able to grow was internal to us, not external to us.
One of the issues that we had was that our systems and processes were non-industry standard and we were doing things differently and we were not doing them efficiently. So over the last 12, 15 months, we’ve been building out new systems, new journeys, new processes, which are, if not industry-standard, at least as good as the best-in the industry. I mean, we are trying to get them to a place where we do things as well as anybody else who is really competent in this subject can do it. And that is to my mind, gives us the right to actually grow reasonably well.
And since we have the raw powder, which is basically we have the liquidity, we have the distribution, we have 8 million customers. We have the right to actually, I think, grow a little bit perhaps faster than what other people are growing. And our historical impediments having been taken away, we think that we should be able to grow significantly faster than before. So even though the entire environment may not be growing that fast.
So you’re right, can we do it in three? Will it take longer than three? I don’t know. I mean on an excel spreadsheet, it is very easy to put numbers and come up with outcomes. As of this moment, we still think that a three-year time horizon, we should be able to change the internal dynamics of this placed in such a manner that we can get closer to 1.5 than we are — if not 1.5, we get to 1.4 or thereabouts over a three-year time horizon.
We have demonstrated that we are able to manage costs. So over the last 18 months or so, we haven’t really grown our costs very much. We have demonstrated that we can get revenue growth and even if under certain circumstances, the revenue growth is predicated on treasury revenues and so on and so forth.
So I think there is a reasonable amount of mindfulness in all of this. I think we have a shot at doing what we have set-out to do. It’s not easy by any means but nor is it completely far-fetched. So I think I don’t know if that answers your question.
Raj Gopal Ramanantha
It does to a degree. I would just want to wish you all the best, but I still believe it’s a tough ask. It’s a tough ask and I hope you and your entire team manage to come as close as possible to your aspirational. All the best.
P R Seshadri
Thank you.
Operator
Thank you very much. Thank you. The next question is from the line of Mr Jay Mundra. Please go-ahead.
Jay Mundra
Yeah, hi, sir. Sir, just on — I mean, continuing from the previous question. So I wanted to check, we have introduced new products on — especially on MSME side, right? I can see there are lot of digitally-enabled products and I think systems, processes, most of that, we have seen a decent let’s say, traction or timeline, but still the MSME growth is still flattish. Look, what is your sense? I mean, when can we get, let’s say, a 10% growth in MSME? Is it like going to take within this fiscal year, can we get a 10% growth in MSME or that may take even longer duration? And what is stopping apart from, is there anything specific which is hindering this?
P R Seshadri
Let me ask all free-to answer that question, Jay
Dolphy Jose
Ajay in continuation to the previous question also, I would like to you know well elaborate it. I mean rather it was a very elaborate question where you know of course it’s going to be challenging and I think it’s going to be challenging for the entire fraternity. Let’s agree to that.
When we categorize banks, we have small banks, we have mid-sized banks and we have large banks. And on all these — all the three differentiated bankers has very specific strategic challenges for a small bank, there is XYZ as well challenge and a mid-size and a large one.
Where I would rather answer this question is in a comparable standard, where do I stand and what is my advantage and how am I going to leverage. If you — if I broadly say this is the scope where Anglo answers this question, I think I scan in a good scale. So being a small bank, we have certain agility, being a small bank with a good reliability base, we have that as an advantage.
If I want to go today, if anything is stable on an overly price managed situation, I can. I won’t let go of competition for pricing today because I have that advantage of low-cost liabilities. So whether I will publish my rates tomorrow and say that, yes, I am going to be at this price and if I have the cloud to pull and demand volume, I may not, but I will not let go any competition on pricing on the table.
So that is what my advantage is and I will continue to be a bank which want to consistently deliver double-digit numbers and I would concur with our growth guidance and probably try and do it better. And I think we are well-poised in a situation like this in compared to the other three differentiated bank sizes which I mentioned.
Your question on the MSME side, we are looking at close to about 15% to 18% growth in the MSME side, not 10%. And I think we are in a good stead. Yeah, our denominators are not that challenging that — so we can easily look at those double-digit numbers and go-forward. We have just started getting good accretion on the — outside of Kerala geographies and we have got our arms and legs there and we are really working hard on the distribution side.
We have also come out with certain hub-and-spoke models, specifically catering to geographies like Karnataga, Maharashtra, Gujarat, and Tamil Nadu, where we have a hub-and-spoke model on both distribution as well as on credit underwriting. So this is to basically go deep down and start acquiring on a field underwriting kind of a model where we can deep-dive, get into deeper buying and we intend to cater to the MSME segment far more — I won’t say aggressively, but better and deeper. So that’s the idea.
And the opportunity is at large. And as I told you, to get a double-digit 18% — I mean 15% to 18% kind of a growth consistently is not a large.
Jay Mundra
Sure. And lastly, sir, if you can give the breakup of your loan book by benchmark, I mean, how much is repo, table and MCLR? And a related question, how do you see the NIM progressing? We have seen 18 basis-point decline and you have already, let’s say, passed on whatever on a T plus one basis, when should the NIM bottom? I mean, does it bottom in Q2 or you think there is a chance that it may — it may still go down in Q3 or Q2 should be bottom and Q3 should be moving upward.
P R Seshadri
So let me try and-answer that. Roughly 40% of our book is either repo or, okay? And the rest is either NCLR or fixed-rate, roughly about 46%, 47%, almost 50% is fixed-rate. So our structure of our balance sheet is not that adverse. The — I think the bottoming out of all of this is going to happen in Q2 unless RBI changes the repo rate again in Q2 at some point in time. In which case the impact of that will carry-through into Q3.
There is no change the repricing on the existing deposit book will take place and actually the spreads will start widening again in Q3 going-forward unless there is a market disruption. Now in the Q1, There was complete madness on pricing, especially for large corporate transactions. I think there was a dearth of assets and banks were scrambling and offering, you know, pricing on assets which were significantly lower than the prior quarter. So now assuming that kind of scenario does not continue and assuming some kind of normality returns to the pricing sphere in the. So I think in Q3 onwards, you should see some normalization of all of this happening. So I don’t know, Jay, does that answer your question or is there anything else you need?
Jay Mundra
No, no. So I think — no, no, that answers yes. Thanks a lot, sir. Yeah. Thank you. I’m done.
Operator
Thank you. Ladies and gentlemen, that was the last question. I now hand the conference over to the management for closing comments.
P R Seshadri
We’d like to thank all of you for being here with us today. We really appreciate the time that you’ve spent with us and the penetrating questions that you’ve asked us. I think we’ve had a decent quarter during the year — during this — the first-quarter was difficult, but the outcomes have been reasonably good for us. We are hoping that the actions that we’ve taken thus far will help the bank grow from strength-to-strength as we go-forward. Thank you, ladies and gentlemen
Operator
Thank you, ladies and gentlemen. On behalf of ICICI Securities Limited, that concludes this conference. Thank you for joining us and you may now disconnect your lines