South Indian Bank Ltd (SOUTHBANK) Q4 FY23 Earnings Concall Transcript

South Indian Bank Ltd (NSE:SOUTHBANK) Q4 FY23 Earnings Concall dated May. 12, 2023.

Corporate Participnts:

Sreesankar R — Senior Advisor

Murali Ramakrishnan — Managing Director and Chief Executive Officer

Salim Gangadharan — Chairman

Analysts:

Nilesh Jethani — BOI Mutual Fund — Analyst

Prashant Kumar — Sunidhi Securities and Finance Limited — Analyst

Umang Shah — Kotak Mutual Fund — Analyst

Pujan Shah — Congruence Advisors — Analyst

Srijan Sinha — Future Generally Life Insurance — Analyst

Sheel Shah — Sameeksha Capital — Analyst

Pallavi Deshpande — Sameeksha Capital — Analyst

Jay — ICICI Securities — Analyst

Rakesh Kumar — B&K Securities — Analyst

Arjun Bhatia — — Analyst

Presentation:

Operator

Ladies and gentlemen, good day and welcome to the South Indian Bank Q4 FY ’23 Earnings Conference Call hosted by InCred Equities. [Operator Instructions]

I now hand the conference over to Mr. Sreesankar R from InCred Equities. Thank you, and over to you.

Sreesankar R — Senior Advisor

Thank you. We have great pleasure in hosting the fourth quarter earnings call of South Indian Bank. In line with what guidance that South Indian Bank has been getting and from what we have seen over the last so many quarters, Company has come out with an excellent results and congratulations to the management for that.

We have represented South Indian Bank. Mr. Salim Gangadharan, the Chairman; Mr. Murali Ramakrishnan, the Managing Director and CEO; Mr. Thomas Joseph, EVP and Chief Business Officer; Mr. Anto Georg, CGM and Head HR and Operations; Mr. Sanchay Sinha, SGM and Country Head; and Ms. Chithra, Senior General Manager and CFO along with other senior executives participating in the call.

Without much ado, I hand over this call to Mr. Murali Ramakrishnan, the Managing Director and CEO of South Indian Bank. Over to you, sir.

Murali Ramakrishnan — Managing Director and Chief Executive Officer

Thank you. Good morning — good afternoon, everyone. South Indian Bank Limited Q4 FY ’23 earnings conference call. We are joined by my colleagues, Mr. Thomas Joseph, Mr. Anto George, Mr. Sanchay Sinha, Ms. Chithra, Mr. Sony, Ms. Biji and Mr. Senthil Kumar. And also, we have our Chief Credit Officer, Minu, also on the call and our Treasury Head, Vinod and our Head of Policy and Monitoring, Nehru. All of them are the — forming the senior management team of the Bank.

During this financial year, performance of the Bank was an all-round one, with key ratios and numbers showing a significant improvement from the past few years. This overall improvement in the performance was brought by managing both asset and liability portfolio with equal importance. While quality and profitability has focused massive side, pricing of liability portfolio was also done in an appropriate manner. Both hardening of interest rates and tight liquidity in the market had impacted the sector. Our — in our case, cost of deposit has been more or less stable with a very small hike in fourth quarter. Increase in the yield on investment portfolio also helped in the May increase.

Let me start with the key highlights of performance. For the year ended March ’23, Bank achieved its best-ever performance in the following areas: highest-ever business of INR1,63,743 crores in the history of the Bank, highest-ever net profit of INR775 crores in the history of the Bank, highest-ever net interest income of INR3,012 crore in the history of the Bank, highest-ever CRAR of 17.25% and Tier 1 ratio of 14.74% as at March 31, 2023, highest-ever PCR including write-off of 76.78%, highest NIM of 3.3% in the last 17 years, highest return on assets of 0.72% in the last nine years, and highest return of equity of 11.61% in the last nine years.

Let me now take you through the financial performance of the Bank for this year. Net profit for the year stood at INR775 crores as against a profit of INR45 crores during the last financial year. Operating profit for the year increased by 21% from INR1,248 crores in FY ’22 to INR1,507 crores in FY ’23. CASA amount increased year-on-year from INR29,601 crores to INR30,227 crores as of March 23. CASA ratio stands at 32.98% as against 33.21% year-on year. There is a marginal dip in CASA from 33.21% to 32.98%.

Cumulative NIM for the year improved to 3.3% against 2.621% on an year-on-year basis. PCR, including write-off, improved by 723 bps year-on-year to reach 76.78% in FY ’23 against 69.55% during FY ’22. PCR, excluding write-off, improved by 1,385 bps year-on-year to reach 65.12% in FY ’23 against 51.27% during FY ’22. I wish to reiterate that. PCR, excluding write-off, improved by 1,385 bps year-on-year to reach 65.12% in FY ’23 against 51.27% during FY ’22.

Overall gross NPA reduced from 5.9% to 5.14% on year-on-year basis, net NPA reduced from 2.97% to 1.86% on a year-on-year basis. I’m happy to share that net NPA has come down below 2% and they stood at 1.86% for the year-end. Significant improvement in ROA at 0.72% for FY ’23 as against 0.04% during FY ’22 and ROE at 11.61% against 0.77%. Recovery and upgradation NPA accounts increased from INR1,464 crores in FY ’22 to INR1,814 crores in FY ’23.

Continuing our focus on collections, our SMA2 portfolio has come down by 37% on year-on-year basis from INR892 crores to INR559 crores. There is a new book of INR41,566 crores from October ’20, with better underwriting reflecting GNPA close to 0.09% and SMA2 book at 0.12%. I again wish to read this because this is one of the hallmark of how we’ve built our Bank. There is a new book of INR41,566 crores from October 2020 with better underwriting reflecting in GNPA close to 0.09% and SMA2 book at 0.12%.

With regard to status of sale of assets to ARCs, we carry balance SR of INR1,413 crores and provision of INR1,247 crores, which is a net SR value outstanding is only INR165.98 crores. And for this year for the full-year based on aging provision, we have only INR15 crores, which is getting maturity this year.

Let me now take you through the performance of the Bank for the quarter. Total deposits stood at INR91,651 crores. Gross advances stood at INR70,092 crores. CASA stood at INR30,227 crores. Bank declared a net profit of INR334 crores as against a profit of INR272 crores during the corresponding period of the previous year. Operating profit for the fourth quarter increased by 95% from INR288 crores [Phonetic] in FY ’22 to INR562 crores in FY ’23.

NIM for the quarter improved to 3.67% against 2.8% on a quarter-on-quarter basis. This is again something which I want to emphasize. NIM for the quarter improved to 3.67% against 2.8% on quarter-on-quarter basis. Regarding abbreviation NPA accounts increased from INR451 crores in Q4 FY ’22 to INR725 crores in Q4 FY ’23. Significant improvement in ROA at 1.26% as against 0.4% and ROE at 20.29% against 6.56% on Q-on-Q basis. This is again a significant improvement, which I want to register ROA and ROE, which are significant profitability parameters. I’m very happy to share that our ROA for this quarter is at 1.26%. This was 0.4% for the last year for the same quarter and ROE at 20.29% for this quarter against 6.56%. ROE at 20.29% against 6.56% on QonQ basis.

Let me now take you through other operation [Technical Issues]. The total business of the Bank increased by 8% and stands at [Technical Issues] backed by total disbursements of INR54,801 crores during the financial year ended March ’23. The details of disbursements are as follows: corporate INR31,344 crores predominantly A and above rated corporates, gold INR11,378 crores, business segment INR7,386 crores, other retail INR4,693 crores, which includes housing loan of INR875 crores, PL of INR1,377 crores and other retails of INR2,441 crores.

The share of A and above rated large corporates has improved from 89% as of March 31, 2022 to 96% as of March 31, 2023. We have nil slippages and SMA2 in our new corporate book. We continue to grow our gold loan business. Our disbursement year-on-year was at INR11,378 crores with an average LTV of 78.03% and a ticket size of about INR1.55 lakhs. Gold loan book grew by 28% year-on-year to reach INR13,808 crores.

Personal loan is another segment where we see good traction, since the launch of pre-approved PL in December ’21. As on March ’23, our PL book had crossed INR1,820 crores. Credit card is another growth area, which we launched during FY ’22. As at March ’23, we had issued 2,05,723 credit cards with monthly average rents of INR23,480. So, total book as of March ’23 stood at INR796 crores. As far as SME is concerned, we are seeing good uptick in disbursement month on month over the past few quarters. We are cautiously growing the segment with average monthly disbursement of more that INR615 crores for the financial year ended March ’23 as against an average of INR250 crores for the corresponding period last year.

Coming to liability portfolio. Our core deposits grew by 5% year-on-year to INR89,614 crores. Bulk deposits declined by 47% to INR2,037 crores, in line with our strategy. NRI deposits continue to be our strength and now stands at INR28,159 crores, contributed 31% of our total deposits. Low-cost NRI deposit stands at INR9,155 crores. The Bank saw a robust growth of 16% year-on-year in our NRI remittance business. Our investment book was at INR26,014 crores, split into HTM of INR19,688 crores and AFS and HFT of INR6,326 crores. Last year Q4, the M Duration of the investment book was at 2.91, which we cautiously reduced to 2.48 as of March ’23.

The first slippages stood at INR343 crores for Q4 FY ’23, which was within the overall guidance. The overall restructured book standards INR1,516 crores as of 31st March as against INR2,417 crores during March ’22. Of which, business segment is INR786 crores, personal segment is INR279 crores, corporate is INR398 crores, agri is INR53 crores. This is the breakup of this restructured book which we’re holding which is INR1,516 crores as of March-end 2023.

The Bank holds standard asset provision, including standard restructured and FITL of INR534 crores. As per our guidance, we are able to bring down the GNPA closer to 5% and net NPA below 2% in FY ’23. Net interest income for the quarter increased by 43% year-on year to INR857 crores. Our core fee income increased by 10% year-on-year to INR158 crores. Treasury profit for the quarter was at INR30 crores, excluding the provisional investments. Overall, provisions decreased by 50% year-on-year to INR39 crores in Q4 FY ’23. The restriction in provisions was mainly due to — sorry, the reduction in provisions was mainly due to lower slippages and better recoveries. We are hopeful that the momentum in disbursement and collections will continue in the coming quarters to achieve the desired targets.

So with this, we open the floor for questions. Thank you.

Questions and Answers:

Operator

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from the line of Nilesh Jethani from BOI Mutual Fund. Please go ahead.

Nilesh Jethani — BOI Mutual Fund — Analyst

Yeah, hi. Good afternoon gentlemen, and thanks for the opportunity, and congrats for the great set of numbers. Sir, my first question was on the yield and the NIM side. So wanted to understand from the near-term as well as from a medium to long-term basis, when I see your book, corporate portion is increasing. Despite that, we are able to achieve higher NIMs, as well as [indecipherable] also. So in the corporate side, also typically AAA and AA are gaining share. So what is driving this incremental NIMs? Wanted to understand that. And from a long-term basis, as you had pointed earlier in your con calls that you are not a person who would basically follow a X percentage from corporate or X percentage on our retail. Going forward, how to see this NIMs panning out, if corporate share increases by a larger extent going forward?

Murali Ramakrishnan — Managing Director and Chief Executive Officer

I’m hearing a lot of cross talk. I don’t know whether it is — Sreesankar, can you take care of that? I think I have not — there is some crosswalk happening. [Technical Issues] Sreesankar, are you there?

Sreesankar R — Senior Advisor

Yes, sir. I’m there. You can go ahead.

Murali Ramakrishnan — Managing Director and Chief Executive Officer

Yeah. To answer the question, basically, yes, you are right that typically large well-rated corporates demand very fine pricing. There is no taking away of that. So therefore, if you look at the competition of the book, we of course have well — I mean, our disbursements have come from all segments. I mean if you look at — I read out the breakup of the disbursements we have done. So it’s across all products, we have done a good business. Obviously, in the book growth, probably, you may not have seen growth in SME, primarily due to the run downs which are also in excess of the disbursements they do and also due to the fact that we do some forced exits the compounds, which we don’t want to keep it in our book.

But with regard to NIM. It’s a combination of the products which we are currently growing. So if you look at the products which are growing, gold is growing well for us, PL is growing well for us, credit card is growing well for us. SME, we have done the highest 107%, and we have also in corporate, we have — though we have onboarded well-rated corporates, there is a continuous effort from the team to improve the NIM, which we get out of the corporate segment.

As I’ve discussed in the past, the reason behind chasing good corporate is to ensure that we not only get credit income for the transactions which we do, but through the relationship, we do get lots of other related businesses like vendor financing, dealer financing, retail funding to the corporate employees, etc. So overall, we — when we look at our corporate exposure, we look at not just the credit income, but we look at the ROE coming from the entire corporate relationship.

So — and since these corporates are well-rated cooperation, the — obviously, it helps us in very less capital provisioning allocated to this. And therefore, ROE for this book is pretty good. That is on one side. And other side, if you look at — since retail book is growing there particularly unsecured, which is still today 3% off my books, I have good runway to grow the book. Therefore, to give you guidance on NIM, our incremental NIM for the Q4 was 3.67%, whereas the bank NIM as of March end was 3.3% as against my guidance of 3.2%.

Next year, our target is to reach 3.5% for the Bank, and which I’m sure we’ll be able to reasonably manage, given the fact that our incremental NIM is well above 3.5% now. But we expect that some amount of repricing will happen in the liability side, though we have done a little bit of repricing in Q4, which we started doing in Q3 and we have done little more in Q4. So, we are very tightly managing our ALCO, I mean asset and liability match and ensuring that we don’t over-price our liabilities at the same time, we are not losing any of our customers.

And on the asset side, we are continuously engaging to pass on the increase in cost, as you must have seen, there is almost 2.5% increase in the repo rate over the last year 12 months. And constant effort has been put in by every business team to pass on this increase in interest rates across the various customers. So with this combination of managing our tight asset and liability and ensuring that the pricing is reasonably done across all segments and with the anticipated growth, which we are hoping to do of 10% to 12% to 13% growth in asset, I’m sure that with the focus on quality continuing, we’ll be able to meet up with the requirement on NIM. That’s the — anything else I’ve left out, please ask again

Nilesh Jethani — BOI Mutual Fund — Analyst

To follow-up on this, as I said, the repricing liability has started. So wanted to understand on the asset side as well as liability side, what portion is repriced on your rates and what percentage is yet to be repriced? Any color on that?

Murali Ramakrishnan — Managing Director and Chief Executive Officer

Yeah, just hold on for a second. So our weighted average residual maturity of our fixed deposit as of March ended 1.24 years and weighted average original maturity was 2.17 years. So, we are obviously continuously repricing the deposits which are coming from maturity. And we are also very, very clear that we don’t want to, across the board, increase deposit rates. We are looking at where it makes sense for us to increase the deposit rates. And weighted average cost of term deposits outstanding as of 31st March is 6.24%.

Nilesh Jethani — BOI Mutual Fund — Analyst

What percentage would be repriced to this number? The 1.2 years is weighted average duration. We are already since September or maybe the rates has started a steep increase, so probably six months down the line. So 60%, 70% is repriced on your rates. Is the understanding right?

Murali Ramakrishnan — Managing Director and Chief Executive Officer

You can’t really put it as a 60%, 70% because we have started actually repricing probably from November onwards — November, December onwards. So, I can probably in the investor presentation, we have shown our deposit rates have moved up. Maybe you can refer to that, but just to quickly touch upon that, I’ll tell you. See, we will continuously de-growing our bulk deposits, which used to get with INR10,874 crores, which came down — I mean in ’19, ’20 that the standard INR2,037 crores as of 2023.

And as far as the deposit rate is concerned — just hold on for a second, let me take that out. Yeah, our cost of deposit as of Q4, FY ’22 was 4.54% last year fourth quarter. This year first quarter, it was 4.35%. Second quarter, it was 4.23%. Third quarter, it was 4.27% and fourth quarter, it was 4.55%. So, if you look at the delta between the Q3 to Q2, delta is 4 basis points and between Q4 to Q3, the delta is 28 basis points. So you can see that the overall increase is happening probably from the month of as you said from the month of October, November. So probably, we can say that 50% of our roughly — 64%, I just got the data. 64% of our deposit are fee based.

Nilesh Jethani — BOI Mutual Fund — Analyst

Got it, sir. And one last question from my side on the cost to income. If I see the quarterly trends, the cost to income has been very volatile. So wanted to understand from a steady state basis, what are we aspiring to as far as the costs are concern going forward in absolute terms and where do you see this cost to income stabilizing probably from a one year down the line?

Murali Ramakrishnan — Managing Director and Chief Executive Officer

Frankly, cost income, you must have seen the volatility, only because of the extraordinary INR312 crores of provisioning which you had to do because of SRs in Q3. Otherwise, it’s been a [Technical Issues]. See, we are currently at about 60%. Cost to income ratio for us, it’s about 60%. It’s a continuous effort. I think this probably will start improving once we — our treasury also starts contributing lot more than what it is doing today. And with the fact that overall NIM is also going to go up and provisioning hopefully will continue to see the rate it is, then you will probably see this coming down. Aspirationally, we would want to be reaching 55% because currently we’re at 60%, probably we would want to reach 55% at least by December quarter, and then we will aim to reach below 50% by next June quarter around that time.

Nilesh Jethani — BOI Mutual Fund — Analyst

That’s great, sir. Thank you so much for replying for my questions.

Murali Ramakrishnan — Managing Director and Chief Executive Officer

Thank you so much.

Operator

Thank you. Our next question comes from the line of Prashant Kumar with Sunidhi Securities and Finance. Please go ahead.

Prashant Kumar — Sunidhi Securities and Finance Limited — Analyst

Thanks for the opportunity. Sir, my question is on provisioning side. The banks are very low provision coverage raise of like 30% or even lower level. And from there, a [Indecipherable] improvement in that is around [Indecipherable]. So I just wanted to [Technical Issues], which is not percentage in PCR like floating provision, standard asset provision or provision against [Technical Issues].

Murali Ramakrishnan — Managing Director and Chief Executive Officer

Sorry, your voice is not very too very clear, but your question is on PCR excluding write-off has improved from — to 65%. So your question is on how much provision are we holding on standard assets etc. Is that the question?

Prashant Kumar — Sunidhi Securities and Finance Limited — Analyst

Sir on — I just wanted to know buffer provisioning, which is not included in like, yeah, on — like provision on the standard asset — yeah or — provision on standard asset or floating provisions.

Murali Ramakrishnan — Managing Director and Chief Executive Officer

Okay. No, we are — actually we are — see, frankly, we are in the process of improving our PCR. As we said, we wanted to reach a milestone of 70%, excluding provision coverage ratio. Therefore, to some extent, we have been pro rating in order to improve our overall ratio. So this time also, we have provided extra INR25 crores to improve our PCR to 65%. The plan is to take it to 70% in the coming year. And hopefully, we want to aspirationally reach to 70% plus by the end of this year.

Prashant Kumar — Sunidhi Securities and Finance Limited — Analyst

Thank you so much.

Murali Ramakrishnan — Managing Director and Chief Executive Officer

Yeah.

Operator

Thank you. [Operator Instructions] Our next question comes from the line of Umang Shah from Kotak Mutual Fund. Please go ahead.

Umang Shah — Kotak Mutual Fund — Analyst

Yeah, good afternoon. Thanks for taking my question, and congratulations on a very good quarter. Sir, I have got three questions. One is, I just wanted to understand what makes us so confident to improve our margins for next year? Now I understand mathematically, given that our incremental spreads and margins are higher compared to our own book spreads margins. But I believe next year, the ask for liability growth will also inch up, right, given the fact that our LDRs have significantly expanded in FY ’23, which means that we will have to start focusing on deposit growth in a much focused way. So how should we look at this whole equation about expanding margins and probably looking at deposit growth, which will be similar to our loan growth guidance of about 10%, 12%?

Murali Ramakrishnan — Managing Director and Chief Executive Officer

Yeah. Let me first start by saying that we are — the way we manage liquidity, the manages — the way we manage liability is basically based on two guidance ratios. One is our CD ratio. The other one is LCR. And we also want to be sure that we have enough liquidity to meet up with our growth requirements. As I am telling you, our growth — advances growth, which we’re planning to do for the coming year, is around 12% kind of growth, 12% to 13% kind of growth. And we also — you must have seen the proportion of our corporate book also carries to some extent a portion of our short-term loan, which is about currently on an average, it’s about 12% to 15%. So this is something which keep coming back, because these are all done at 90 days and 30 days and 60 days kind of thing for a well-rated corporates. And we are continuously writing on to the increase in interest rates by whenever it comes for renewal again. So that is something which will keep our liquidity in a good position.

And I’m fairly sure that the NIM will go up due to the fact that our — we still have other products which are firing now like SME will be definitely turning around this year for growth. And we are also looking at home loan to grow this year. We are looking at personal loan to be grown this year. We are looking at credit card to be grown this year. We are also planning to launch some of the retail products like commercial vehicle, construction equipment, loan against shares and we’re also looking at — we have started actually — already started auto loan for open market. And all these businesses when we can source these businesses digitally and whenever digital fulfillment, that is clearly scope for us to charge reasonable rates, which are not unfair to the customer and not unfair to the bank.

So I believe that given the fact that our unsecured is still about 3% of our book and there is good roof space available, I think we will continuously grow all the businesses depending on where the quality is coming from with a very tight focus on how we manage our liquidity, our ratios and our CD ratio. It is — I’m not saying it’s going to be easy, but I feel that since the rates have started moving up, every quarter this question has been asked. And we have been continuously communicating that we are managing it very, very closely. And it is in my radar and we hold at least two to three ALCOs every month to have a very tight leash on this. We have continued to do that. I think — so it will take efforts, but then it’s worth taking that effort to ensure that our NIMs are reaching the level which we are committing. So we are currently at 3.3%. We would — we are looking at surpassing 3.5% for the coming year.

Umang Shah — Kotak Mutual Fund — Analyst

Understood. That’s helpful. Sir, the other question was on our other income, even that has been fairly strong. Is there any element of cross-sell income into this, or what is leading to this healthy growth?

Murali Ramakrishnan — Managing Director and Chief Executive Officer

Other income — of course, cross-sell is definitely one of the important components for us because we — as you know, that bank — now we are permitted to have more than bank of partners also. So we are continuously increasing our insurance cross-sell income, especially in life, we have done very well and we are also now we have started seeing good traction happening even in general insurance. This is on one side.

Second is, you know that we have — now the retail products have picking up, we have a good scope to charge fee because some — on the SME also, we have started charging a processing fee etc., which is with the disbursements going up in those products, certainly we also can look at some of the cross-sell opportunities available there.

And apart from all this, other — our income is — the other income is the technology-related income. And there, we are talking about the ATM and other commissions, which we get. That also is one of the components. In fact, we have given a detailed breakup in our investor presentation. You can probably have a look at them. So definitely, insurance commission is one and the sale of investment is one.

Credit card income. And that’s again something which has been clubbed into non-interest income. That again, as you know, we have a very good tie-up with FPL, who is our credit card co-branding partner. And there, we are seeing a good traction happening. We’ve issued more than 2 lakhs cards now. And this is only expected to grow further in the coming year. So since all these are recurring income and recurring nature of income, we believe that we’ll be able to continue to sustain this.

One other component here is the amount required some return of accounts that we are combining under non-interest income with the collection actually doing quite well. We have collected and upgraded INR1,800 crores this year. And we hope that for the coming year, this year also we are setting up a similar target, though we are — I’m giving a guidance of INR1,500 crore slippage for the full year. We expect the collections to continue to be doing well this year too. So with all this, we believe that it’s a sustainable income, which appear in non-interest income.

Umang Shah — Kotak Mutual Fund — Analyst

Perfect. And sir, the last question from my end was on the ROE guidance. So clearly, we are kind of overshooting on our ROE guidance, right? So on a overall bank level, given that our fourth quarter exit ROEs were about 1.26%, should we assume that in FY ’24 itself 1% plus ROE? Earlier, we had guided for touching that 1% plus ROE number sometime in FY ’25. But do you really think that it’s possible to kind of exceed that in FY ’24 itself?

Murali Ramakrishnan — Managing Director and Chief Executive Officer

Yeah, that’s the plan. We — in our original vision plan, we said that we will reach 1% ROE by FY ’24 — March ’24. Our endeavor will be to reach that. And obviously, though we said that the entire goalpost we have more than one year, but with respect ROA and ROE, we would want to reach that milestone. Of course, it is going to take a lot of efforts from our team, but we will definitely endeavor to each 1% ROE by March ’24.

Umang Shah — Kotak Mutual Fund — Analyst

Got it. Great. Thank you so much, and wish you good luck, sir. Thanks.

Murali Ramakrishnan — Managing Director and Chief Executive Officer

Thank you so much. Thank you.

Operator

Thank you. Our next question from the line of Pujan Shah from Congruence Advisors. Please go ahead.

Pujan Shah — Congruence Advisors — Analyst

Yeah. Hi sir. In this quarter, we have seen that there is some branch expansion, as well as we have seen that there is a de-growth in the employee number. So are we restructuring the employ structuring and how it is going on because some of the branch expansion is there and as well as employees decreasing? I’m not getting that point.

Murali Ramakrishnan — Managing Director and Chief Executive Officer

Yeah, no, the branch expansion, see frankly, we have not gone about as a strategy to expand our branch network. What we are trying to do is, we are doing some kind of reorganizing some of the branches which are probably very close to each other, especially in places like Kerala and Tamil Nadu where we are predominantly present. There are branches which are very close to each other, and therefore the customer segment can very well be met with — the needs of the customer can be very well met with one branch. So wherever we are doing such consolidation, the license gets released and the license we are using it for places where we’re not represented today. So to that extent, we are seeing some 15 to 20 branches getting opened in unrepresented areas like we have done it in Ahmedabad. We have done it in Calcutta. We have done it in Chennai. We have done it in few other places. Where we’re not represented today, we are trying and opening branches, so that it helps us to beef up our business. So this is on the branch opening.

So as a strategy, we haven’t really done spending out that we would want to open 100 branches or 200 branches in a year. That probably will start doing once we completely get our digital action in place, and see how the traction is happening in digital. Once you get a good understanding of that, we will then see the need for having a brick-and-mortar office anywhere in the country. And that probably when we will spell out how much — how many branches do we want to open.

With regard to employees, see our — probably the number which you are seeing as coming down in my view is also due to some of the part-time employees who are associated with the bank. We count them as employees. And as — after their part-time gets over, they move out of the road. To that extent, this number can be a little volatile, but as a philosophy, we are continuously growing in all our businesses. We are continuously recruiting people. We are recruiting people at all levels, and we are also recruiting people at senior levels to fill up some of the skill sets, which we need for the kind of business which you want embark on.

So this is broadly I would want to answer this. As such, these numbers shouldn’t really bothering, because this is due to the fact that some of these part-time employees moving out of the books.

Pujan Shah — Congruence Advisors — Analyst

Okay, sir. And my second question would be on the more than INR100 crore book. So as we have seen that, we have grown almost double in the INR100 crores order book. So — and we also know that we are building AAA-plus corporate book and above that. So all — every front-end will be competing with this stuff. So are we sacrificing some yield on that some for the short-term, because we are yielding there employees and all other upselling and cross-selling their employees with the better yield? So are we seeing any trajectory of sacrificing on yield on short-term basis, which can be highly improvement on the upselling basis? So am I understanding the strategy correct?

Murali Ramakrishnan — Managing Director and Chief Executive Officer

Your understanding is partially correct. To the fact that what you’re saying is actually factual that high well-written corporates typically demand very fine gauge [Phonetic]. To that extent, probably people might be thinking that we are there compromising on risk. This — I don’t think one should look at as a compromise, one should look at as building the basic quality of the book should have AAA and AAs. Therefore, this is a need for any institution to build a strong fundamental. Therefore, I would probably continue to be focusing on building the fundamentals, which are well-rated corporate should be forming part of our book. In fact, if you recall the history of the bank in way back in 2015 and before, we have had concentration risk in terms of higher exposures to corporates, but in some of them, where on — not probably very well-rated corporates. But now, we are very consciously choosing the corporate who we want to deal with and we are ensuring that we lend money to those corporates, which are very well very rated and which our track record of performing well even in adverse situations.

That is Number 1. Number 2, when we are looking at corporates, we are obviously as we said earlier in one of the answers that we are not just looking at the credit-related income of the corporate, we are looking at the what are all the benefits we can get. And some of this relationship probably will start with a short-term exposure to corporates and some of them probably would be even outside of consortium, because this is how corporates also sort of hit arbitrage their interest opportunities. Therefore, the moment you start engaging with the customer, the customer gets to understand you and you understand the customer. That’s when we’ll be pitching in for being part of their consortium. And I’m happy to say that we have had some success in this area too, where we are now becoming part of the consortium.

And another important thing is, whenever such corporates want to raise money, today, we do get up opportunity to bid for those — these, which probably wasn’t there earlier because these corporates were not looking at South Indian Bank as one of their banking partner. So this is the aspect on how we are looking at the corporate as a whole. But having said that, I must share with you that corporate NIMs, if I were to look at corporate banking NIM alone, this is one of the few businesses where we’re actually seeing delta NIM going up much better than delta of other businesses. So, let me reiterate what I’m saying. Yes, you are right that corporate NIMs will be generally low.

So we were also at a lower level than we are trying to get traction into these corporates. So it was at about 1.5% to 1.8% kind of NIM, which we were experiencing about 12 to 13 months back, but very conscious effort has been made by the team in deepening their relationship with all these corporates and with the hardening of rates happening in the market, in every quarter-end, the delta increase has happened in the NIM in the corporate book is really price-worthy because if you look at the delta though other base could be high for a personal loan or they could be high for a SME, but the delta which we can get from compared to those I think we have got a much better delta in corporate. This is basically to say that our traction is — our strategy is working quite well. We are not compromising on yield at all. We are getting into a relationship with them, and we are using that relationship to better our NIMs across them.

I mean, having said that, corporate book as you — as it stands today, it’s at about 95% of them are A rated and above. As we probably see, our competency getting built in our teams. We will start — probably start looking at a BBB plus kind of corporates also going forward. And we have not really touched too much of mid corporates. That’s one area where we will start focusing. So there always would really help us to build the overall profitability coming out of the corporate business. And the quality of this book is impeccably clean. We don’t even have any account of in SMA2 are in NPA in the newly built corporate book.

Pujan Shah — Congruence Advisors — Analyst

Okay, sir. Any timeline when we start for BBB on that type of content because…

Murali Ramakrishnan — Managing Director and Chief Executive Officer

No. There is no timeline. We are already sourcing. It is fact that we would look for a benchmark of quality. If it meets with our quality, we onboard them. If it doesn’t, we are not going to be sweating to go and chase BBB and wanted to show some BBB composition. But if it’s good, we’ll definitely lend them.

Pujan Shah — Congruence Advisors — Analyst

And sir, one last question. We are adding a data science team. So who is heading that team? And how’s it been evolving? How many people have been engaged into this team?

Murali Ramakrishnan — Managing Director and Chief Executive Officer

Yeah. I don’t think I would want to name a person who is heading it, but just to suffice to say that the person who is getting has got more than 20-plus years of experience in data science, data analytics and he is — this is a fairly large team, large team in the sense that large for a bank of this size. And we are engaged in [indecipherable] analytic, asset analytics, collection analytics. And in fact, we are also — in some areas, we are also engaging with some of the outsourcing partners who have expertise in certain area. And we are making use of them also by various short-term assignments.

So this is a — this business — this division is adding a lot of value because using this, we are actually getting lot more insights about the way we are improving the quality of our liability customers. We want to improve our quality of our asset customers. What kind of — some of the credit to analytics, which we are doing day bit to figure out who are the customers who are going to keep the funds with us, who are the customers who are planning to take out funds, who are the likely — what is the next likely product for such customers, how collection can be enhanced, collection efficiency can be enhanced by to predictive analytics on, who will require a physical follow, who’d acquired just a telephonic follow-up. I mean, all these are in insides which we are continuously getting from this team doing extensive analytics. I think we’ll continue to — we are still, I would say, 40% of that I would want this division to be. We have started now using lot of — developing lot of vintage cost to do the reviews are various portfolio. As it becomes a full-fledged division, I’m sure all our reviews and all our static or growing business will be borne out from the insights which you will get from the data analytics team.

Pujan Shah — Congruence Advisors — Analyst

Okay. Thank you so much, sir.

Murali Ramakrishnan — Managing Director and Chief Executive Officer

Thank you.

Operator

Thank you. Our next question comes from the line of Srijan Sinha from Future Generali Life Insurance. Please go ahead.

Srijan Sinha — Future Generally Life Insurance — Analyst

Yes, sir. I have three quick questions. One is on tax. This quarter and in fact this year itself, tax rate has been on the higher side for most of the quarter. So what explains that?

Murali Ramakrishnan — Managing Director and Chief Executive Officer

See, we are continuing to — we have not gone in for the lower corporate tax. So as you see, the effective tax rate for this year was 30%, which includes max rate of 16%. See basically, we still have some of our old MAT credits available. And we are continuously making — I mean wherever we need to proceed on [Indecipherable] to recover those, we are continuing to take the [Indecipherable] you must have seen some of the quarters where you have got some positives coming out of that. So our endeavor is to exhaust that we switch over to the alternate tax ratio.

Srijan Sinha — Future Generally Life Insurance — Analyst

And FY ’24, we expect our effective tax rate to be closer to…

Murali Ramakrishnan — Managing Director and Chief Executive Officer

May be FY ’25, maybe. Not during this year.

Srijan Sinha — Future Generally Life Insurance — Analyst

Okay. And my second question is on other income. Was there any one lumpy account in — I mean in terms of recoveries from written-off accounts in the other income? And how would they quantum be?

Murali Ramakrishnan — Managing Director and Chief Executive Officer

See, lumpy account meaning, if you’re talking about amount written-off since recovered, which is what probably you are referring to lumpy. See, we must remember that — you must remember that we still carry a GNPA for close to INR3,400 crores, INR3,500 crores plus kind of GNPA or GNPA still at about 5.2%. So there are accounts — big accounts which are still lying there and where there are constant efforts being put in and say, you know that it’s all based on how soon the legal process has happened. So while we are not counting on any of them to fructify in our estimation of our profitability or profits are any of those, however, if it happens, yes, it’s a good sign for us, good thing for us because that would be additional thing which probably will come as a surprise to our stakeholders. In some quarters, you get the benefit. Some quarters, you may not get the benefit. So, we are not really counting on them to really project our profitability.

Srijan Sinha — Future Generally Life Insurance — Analyst

No. Sir, my question was more with respect to Q4. Have you seen any large recoveries taking place in…

Murali Ramakrishnan — Managing Director and Chief Executive Officer

Yeah. We had a recovery from Sintex. That was one of the large accounts.

Srijan Sinha — Future Generally Life Insurance — Analyst

And how big would that be?

Murali Ramakrishnan — Managing Director and Chief Executive Officer

We got — we had recovered about INR128 crores or something like that.

Srijan Sinha — Future Generally Life Insurance — Analyst

Okay, fair enough. Sir, my third question is on your capital adequacy. Given the fact that you have declared a dividend this year, is that a signal that you’re not likely to hit the market in FY ’24 and you are adequately capitalized?

Murali Ramakrishnan — Managing Director and Chief Executive Officer

No, let me put it this way. 17.25%, yes, we are very happy about the capital adequacy being 17.25% and Tier 1 at about 14% plus. But having said that, as you know, capital is something which we need to be constantly looking at, given the opportunities which can come in the market. Though we are articulating that we would want to grow our asset book by 12%, but if there is an opportunity coming which you want to tap, probably you would go for growing much more than what we are telling. In which case, we might need to look for capital opportunity also.

But having said that, are we in a dire need to raise capital immediately? The answer is no. But will we be looking at raising capital very carefully? The answer is yes. Any quarter we will definitely look at based on the internal accruals, which could generate in the quarter. We will — our capital infusion committed to [indecipherable] the Board will convene and we will discuss about how we are looking at the quarters going forward and what kind of things which we are looking at in terms of capital adequacy movement. And then, we will decide on quantum route and what kind of issue we want to have.

Having said that, there are couple of things which I also want to probably which I had covered in the earlier call also. There are some Tier 2 bonds etc., which we still carry. And whenever we feel that there is a requirement to pay them off, that again something which we would be contemplating as we move forward. And in which case, probably we might need to because today the dependence on Tier 2 definitely has come down. Our Tier 1 is still at a sufficient 14% plus and the overall capital adequacy was 17.25%. So as a dependence on trades to comes down, we will also probably want to pay that whichever can be paid back by the bank. That call also we will take as we go along.

Srijan Sinha — Future Generally Life Insurance — Analyst

Okay. And sir finally, where are we in terms of your succession planning? Also are you likely to hear the name of the [Technical Issues].

Murali Ramakrishnan — Managing Director and Chief Executive Officer

Sorry, I didn’t understand.

Srijan Sinha — Future Generally Life Insurance — Analyst

I mean, where are we in terms of your succession planning?

Murali Ramakrishnan — Managing Director and Chief Executive Officer

Okay. I would like my Chairman to answer this question, because he is also…

Salim Gangadharan — Chairman

The Board has appointed a search committee immediately after hearing some intention not to continue beyond September 2023. The search committee has already looked at the profile of few candidates, and we are in the process of narrowing down to a few and moving to the next direction. So once we finalize the successor, what we are planning is to move to Reserve Bank of India [Indecipherable] ahead of the interim vacancy for their approval. That is a regulatory requirement. We are also concurrently trying to have the RBI approval earlier and will be new MD and CEO to be concurrently running with Mr. Murali a few — one or two months, so that the new member will have a greater understanding of the bank, the financial, the policies, the people and the processes and the technology everything. So that the takeover of the new [Indecipherable] That is what we did with Mr. Murali Ramakrishnan as well in the past.

Srijan Sinha — Future Generally Life Insurance — Analyst

Okay. So most likely, we are going to see an internal candidate or…

Salim Gangadharan — Chairman

Anything more you want to know?

Srijan Sinha — Future Generally Life Insurance — Analyst

Yeah, I’m saying, most likely, it is going to be an internal candidate or an external candidate.

Salim Gangadharan — Chairman

We are not as straight to internal or external. We want the best man to be on [Indecipherable] and CEO.

Srijan Sinha — Future Generally Life Insurance — Analyst

Okay, fair enough. Thanks a lot.

Murali Ramakrishnan — Managing Director and Chief Executive Officer

Thank you.

Operator

Thank you. Our next question comes from the line of Sheel Shah from Sameeksha Capital. Please go ahead.

Sheel Shah — Sameeksha Capital — Analyst

Yeah. Thank you for the opportunity. On a PL side, are we are expecting any exits or additions at top management?

Murali Ramakrishnan — Managing Director and Chief Executive Officer

No. We have not had any exits in top management even in the past. So, we don’t expect any. All our senior executives today are banking veterans with more than 20 years of — 20 years plus experience.

Sheel Shah — Sameeksha Capital — Analyst

[Technical Issues] credit cost to retail for FY ’24?

Murali Ramakrishnan — Managing Director and Chief Executive Officer

Credit cards for FY ’24. We expect it around to — slippage is going to be INR1,500 crores for the full year. And I’m expecting my credit cards to be somewhere around 2%.

Sheel Shah — Sameeksha Capital — Analyst

Thank you.

Operator

Thank you. Our next question comes from the line of Pallavi Deshpande with Sameeksha Capital. Please go ahead.

Pallavi Deshpande — Sameeksha Capital — Analyst

Yes, sir. Thank you for taking my question. Just wanted to understand what would be the size of the written-off book because we have in this recovery, so what’s the total size of the written-off book?

Murali Ramakrishnan — Managing Director and Chief Executive Officer

Size of the written-off book. I think we may not have the ready data with us. We will probably get back to you on that. Currently, we don’t have. We will get back to you.

Pallavi Deshpande — Sameeksha Capital — Analyst

And sir, you mentioned earlier about on the digital plan, right. Once you have that, all — the trend place you can be more aggressive on the bonds. So when do we expect to have this digital piece will be in place?

Murali Ramakrishnan — Managing Director and Chief Executive Officer

Yeah, see. Let me first finish your question, we don’t want to be aggressive in anything. We want to be sensible, even if we are doing in digital, we will be doing a sensible business because never do we want to compromise on quality. That is one. Second, see it’s not that we are going to start by announcing a particular date. Actually, if you look at the infrastructure needed for digital business, first, it’s the platform. So we already have retail platform, which is now commissioned now. Now we have started actually on-boarding home loan, LAP cases and PL using the LAP platform. So now this has been rolled out in four zones now — four regions now. Probably, we will then now scale it up to the entire country. And with that, what we expect to see is the turnaround time will become faster. And we also feel that the — because of our lead sourcing also linked to the platform, we will be able to source digital’s — we can probably source digitally across the country for any of this product. So that’s infrastructure just needed for that, which is well in place now.

As for the SME is concerned, we already gone in for a platform and that platform is likely to be commissioned by — likely to be commissioned by first quarter end or maybe early second quarter. And the advantages that for both these — both our home loan, personal loan, as well as for SME, our — BRE is already available. Our sales model is already available. So it’s just a question of hooking the credit model entity platform, and we can seamlessly do the transaction. So SME, we will start completely digital — doing digital fulfillment maybe starting from second quarter onwards, once it gets commissioned. Obviously, once it gets commissioned, we will probably roll out in two regions to start with. I understand how it’s behaving, and then we’ll roll it out for the country. So this is how we have plans towards digital.

So when I talk about a brick-and-mortar, that’s when I say digital that we would want to probably onboard some of these products to see how the traction is happening. And we’ll also want to increase the products which we can do the digital, especially Nucleus we have — we can start doing our LAP business also through digital. We will also want to do auto finance business for which we need a credit model to be built in place. We have just initiated that. Once that comes into place, we will probably start offering even auto through digital platform.

Pallavi Deshpande — Sameeksha Capital — Analyst

This doesn’t have anything to do with fintech side, or any partnerships with fintechs also this would be there our own sourcing.

Murali Ramakrishnan — Managing Director and Chief Executive Officer

This platform, we have bought it for our own think. It’s not a tie-up with anybody as of now. But of course, you have fintechs for linked to credit card relationship because fintech where the entire fulfillment happens digitally. And it is happening digitally, because we have a tie-up with FPL.

Pallavi Deshpande — Sameeksha Capital — Analyst

Great. Thank you so much.

Murali Ramakrishnan — Managing Director and Chief Executive Officer

Thank you.

Operator

Thank you. Our next question comes from the line of Jay with ICICI Securities. Please go ahead.

Jay — ICICI Securities — Analyst

Yeah. Hi. Good evening. Good afternoon, sir, and thanks for the opportunity. Sir, I was just referring to your guidance on credit cost. So I was just wondering that how does this tie-up with your ambition of 1% ROE. This year, we have credit cost in exit loans provisions that around INR400 crores. And then next year, you are saying that 2% kind of a credit cost is possible, then how will you achieve the 1% ROE ambition?

Murali Ramakrishnan — Managing Director and Chief Executive Officer

See, I’ll tell you, this year, if you look at my provisioning cost, it’s about INR627 crores for this full year, okay? And this is based purely on loan loss provisioning. Then we have some provisioning write back from their restructured at FITL book. And then, there is a — so added — with both added together, we are at about INR503 crores. Then there is a provision for SR, which we did last time as a one-off provisioning which we did, which was INR312 crores. Overall SR towards SR we provide for INR374 crores.

So, cumulatively, we have provided for FY ’23 INR877 crores. So this INR877 crores on a base of INR70,092 [Phonetic] works out to credit cost of 1.22% for FY ’22, FY ’23. If you look at a similar breakup for this year, our endeavor is to as against INR877 crores which I talked about. I would probably try to restrict it to INR650 crores. That’s my plan. Probably, I love positive surprise there. But probably, the outer limit I would want to commit it to INR650 crores. So when we are trying to grow the book to INR82,500 crores, this is the stated asset growth which you want to have. Probably, we are looking at a credit cost of 0.75% kind of level for the coming year. This is based on the provisioning.

So ROA, the way I go about, you’ll see in our incremental ROA for the Q4 was well above 1%. And with the fact that the new products which we are going to add — which you are going to be sort of growing, not new products, sorry the businesses should be growing. We are going to see decent growth coming in all these products, which are generally high-yielding products like if you look at PL, we can grow. We have room for growth. We have credit card, there is clear room for growth. And we are — talking about a couple of credit card allied products which we can offer in credit card itself. Then we are looking at growing gold. We are looking at ramping up our auto loan and home loans. Obviously, we were going very slow on mortgages. Now with a little bit of comfort now, we can start looking at growing our mortgage business.

See, in all these businesses, I’m sure you know that NIMs in this business are upwards of 7% to 8% — available. Deliberately, we were not really growing them much in the past, because I wanted to get the credit equation right. I wanted to improve our PCR. I wanted to bring down the net NPA. Now it’s a bit of room available. We can certainly grow these businesses, again without forgetting quality as an underlying parameters. There is a little bit of maybe the correction in my number. Credit cost, I said 2%. Basically, it will be probably anywhere between 1% to 1.25%. 1.25% you can take it as a number.

Jay — ICICI Securities — Analyst

Right. So credit cost is unchanged. And then margins should hopefully rise. On your — the margin rise is predicated on your higher growth in the higher-yielding portfolio, which you will launch or you will accelerate the run rate. But these products are also high cost-intensive, right, credit cards, PL. And we will also have to put in some investment as you ramp-up these businesses. So, in your opex growth, how do you see the opex growth on for FY ’24?

Murali Ramakrishnan — Managing Director and Chief Executive Officer

See, credit card, as you know, we have a — the partnership with the co-branding partner. Therefore, today, the — our relationship — our agreement with them is basically on two counts. One is policy, which we prescribe. And second one is the funds which we provide to them. So with respect to every other investment, they’ve already done those investments and we have already started issuing cards and we are currently at about 2 lakh plus cards.

We were with a very conservative estimate. We expect the next year, even if it is as good as this year, you would expect the cost to be another 1.5 lakh cards to be issued in the coming years. So there if you look at it, based on the agreement which we have with them, we expect the ROE coming out of this product to be easily in terms of — easily in the tune of 3% kind of ROE.

All of the products, frankly, already, we have a digital — complete digital fulfillment in PL and we have already gone in for platform for retail. We already gone in for a platform for SME. So in any of these [Technical Issues] wanting to do, we already have invested. So therefore, in my view, the delta which we would come — which would come for ramping up the growth of these businesses, will have to come from these manpower cost probably which we have to little bit increase because some of these businesses require lot of outsourcing to be done. So DST cost, EMI cost will be there. Some of them in all the pre out which might — we might have to do to the dealership or the builders who are arrangement. Those could be the marginal cost which can come, but anyway, all these will be factored in our pricing. So I don’t really believe that we need to really go and setup something to really ramp up these businesses. We are already having the basic — I mean, fairly good infrastructure in place. It’s just a question of accelerating them.

Jay — ICICI Securities — Analyst

But sir, I was asking we have seen this. As you said that you will need to have sourcing – – higher sourcing cost for DSA and all these things, So what I was wanted to know is what could be the opex growth that we are building in because it could be a very opex intensive business that is these are new businesses?

Murali Ramakrishnan — Managing Director and Chief Executive Officer

See, we will have to take it as it comes. The way we go about any of these businesses is basically we draw a business plan, which clearly draw out the expenses, which clearly draw out the every line item and also we look at ROE coming out of that. And sir, all these businesses — each of these businesses serves certain purpose. So we will — I mean like the way we are — see, the advantage is that when we have corrected many of these, [Indecipherable] lots of corrections to be done then we can get them right I’m sure. When we are launching, we can get those equations right. And these businesses is not something which we are going to be doing for the first time. We understand this business very well and we put in place whatever reason they needed to be done. So I don’t think we need to unduly worry about phenomenal increase in opex costs. If it’s there, we will have to take correction and we’ll have to suitably tweak our strategy to ensure that — because these businesses serves certain purpose.

When you are looking at growing our personal loan, there are a lot of new to bank customers who might come in, that there is a cross-sell opportunity. When you are looking at credit cards, there are allied card products which we can offer PLCC and those kind of products which we can offer. And again, we can use this new to bank customers for cross-selling other products. So there are multiple benefits coming out of these business growth — have been growing these businesses. So we will definitely look at all those benefits also when we are factoring the ROE coming out of this business and the our ops cost which will be incurred for this [Phonetic] business.

Jay — ICICI Securities — Analyst

Sure, sir. And there was a — so there was an observation from last year annual report FY ’22 that for the FY ’22, we had not granted any thoughts to the management risk taker and control functions staff at which we need to value on the fair value. Sir, I wanted to check that for FY ’23, what is the status? Have we given ESOPs to let’s say the senior management, because there was no — there was no ESOPS to FY ’22. So just wanted to check what is the status for FY ’23?

Murali Ramakrishnan — Managing Director and Chief Executive Officer

Yeah, it’s a good question. So we are — what we have decided this year is that the variable which we’ll be paying for — which we have paid actually for all the employees for those employees who are certain band of salaries and above, we have given them 90% of the variable pay in the form of 10% of variable pay we are giving in the form of ESOPs. This is what we have done. And so, this year, probably you will see a change in the way we come out of annual — what we will be writing in our annual report because there is a plan to issue ESOPs, so the entire workforce, probably barring those who are sub staff and those kind of employees.

Jay — ICICI Securities — Analyst

Right. And last data keeping question, sir.

Murali Ramakrishnan — Managing Director and Chief Executive Officer

Currently drawing very low salary levels. I mean, relatively at a low salary levels. For them, it doesn’t make sense to give them as ESOP. That probably we will be giving them as — we have already given them as cash whatever it is.

Jay — ICICI Securities — Analyst

Great. And last data keeping question, sir. If you have the recovery and write-off number for fourth quarter separately and maybe for full year.

Murali Ramakrishnan — Managing Director and Chief Executive Officer

Recovery from write-off, I mean…

Jay — ICICI Securities — Analyst

No. So in the movement of NPA, how much has been the write-off in fourth quarter and full-year?

Murali Ramakrishnan — Managing Director and Chief Executive Officer

Just give me a minute. See, for Q4 — Q4, we had a slippage of INR343 crores, which is something I’m sure you would have noted it down. And our GNPA recovery in fourth quarter is INR451 crores. Just to give you for the previous quarters, it was INR234 crores in Q1, recovery I am talking about. INR234 crores in Q1, INR291 crores in Q2, INR319 crores in Q3 and INR451 crores in Q4.

Jay — ICICI Securities — Analyst

This does not include the recovery from TW, right? So this…

Murali Ramakrishnan — Managing Director and Chief Executive Officer

Write-off — just to give you write-off numbers, INR68 crores in Q1, INR22 crores in Q2, INR25 crores in Q3 and INR43 crores in Q4. So we started the year with a GNPA of INR3,648 crores which began INR3,799 crores at the end of Q1, which dropped to INR3,856 crores end of Q2 — sorry increased. And then, it was INR3,844 crores almost at the same level in Q3. We are currently closing at INR3,708 crores. This INR3,708 crores is 5.14% of my book. This we want to bring it down to 4.5% by next year.

Jay — ICICI Securities — Analyst

Okay. And any guidance on the net NPA, sir? I mean, we are slightly…

Murali Ramakrishnan — Managing Director and Chief Executive Officer

Yeah. Net NPA, we are currently at 1.86%. We are — we want to bring it below 1.5%.

Jay — ICICI Securities — Analyst

So sir, it looks like that we are estimating the recovery will further — will keep outpacing the slippages for ’24 as well, right, because you’re are saying that net NPA will also decline by 100 basis points without — with the same commensurate credit cost.

Murali Ramakrishnan — Managing Director and Chief Executive Officer

Correct. Yeah. That’s what we are hoping. Yes.

Jay — ICICI Securities — Analyst

Sure. Thank you, sir, and all the best.

Murali Ramakrishnan — Managing Director and Chief Executive Officer

Thank you.

Operator

Thank you. Our next question comes from the line of Rakesh Kumar with B&K Securities, Please go ahead.

Rakesh Kumar — B&K Securities — Analyst

Yeah. Hi. Thank you, sir. Just my first question is basically on the risk weight density like there has been quite a lot of fall that we have seen on a consistent basis. So like apart from the rise in the PCR and change in loan composition in favor of gold loan book, what else is helping risk weight density number to come down?

Murali Ramakrishnan — Managing Director and Chief Executive Officer

See, I would say that risk weight density has come down predominantly because we have chosen quality as the underlying factor across all businesses. So when you are actually turning your portfolio with high-quality assets, clearly your risk-weighted — risk density will be coming down. This was in 2017, 2018. I have the figures for the last six years. 2017, 2018, it was 58.15. Now, that has come down to 42.92. So, this has happened because of — clearly, because of the turning of the portfolio with better-rated — better quality of the portfolio across all segments. See I’m sure you must have noted down that in our INR40,000 crores of new book addition, we are talking about GNPA of only 0.09% and even SMA2 of only 0.12%. So clearly, the quality of the book is fairly good and hopefully that will sustain. And therefore with a very limited capital increase of only INR240 crores which we did in March ’21 quarter, we are able to bring down the overall risk density to plus 2.92%.

Rakesh Kumar — B&K Securities — Analyst

Correct, but this number is certainly best in the industry or among the best in the industry. So, on the contrary, like we have increase our PL and credit card composition in the last one year and then we have seen increasing the credit yield also by around 130 bps from June ’22 to March ’23, so basically there has been a reduction in the risk weight density and we are increasing some increase in the gold loan book also and the PL credit card book also. So just wanted to understand that rise in the yield — credit yield, has it come — how much has it come from the interest rate cycle and from the majors what we have taken in terms of changing the credit composition and rising the PCR? So if you can bifurcate the impact of these things on the credit yield, so just to understand that when the interest rate plateau, so where the yield can go to.

Murali Ramakrishnan — Managing Director and Chief Executive Officer

See, first, let me start by saying that when the bank was clearly going through a rate reduction cycle, you must have seen the bank getting hit with a very low NIM. So when the interest rates are rising, your ability to pass on the rates to your customers clearly depends on — it’s not that it’s going to be automatic, it’s going to be dependent on lot of hard work to be done by engaging with the customer to pass on the increased interest rates.

So to that extent, we have done that across all product segments. And you are right that with your competition, with your growth coming, let’s say from credit card or PL etc. where generally the cost — I mean the risk weight — riskiness of the business is on the higher side. But if we look at the quantum of the growth which will be coming from these businesses, still they are very low compared to the kind of growth which you would be seeing probably in other bulky products like corporate or SME.

So to that extent, like for example, PL which we started almost from a fairly low base, we are now after almost two years of, 2.5 years of running it, we are currently at about INR1,800 crores. But this INR1,800 crores of book addition, you might see that happening in the corporate book within two months up and down, both can happen. So when — the approach is that as you keep building your sustainable retail businesses again factoring quality into account, you will continue to ensure that you are pricing it correctly, your riskiness is taken care and your NIMs are on the rise and you are able to obviously make use of the customer base for cross-sell and other purposes.

Corporate and products like home loans serve us in bringing lot of stability to the overall asset base. And that helps you to probably manage some of these issues which are obviously dependent on the overall book. So if you were to ask me whether they are — if you need to breakup your yield into how much is coming from yield rate increase, I can tell you that rate increase doesn’t automatically guarantee that your NIM will increase. It all depends on how well you deal with the customer. So there are banks which would have passed on 1% increase, there are banks which have done 2% increase in rates, there are banks which may not have done even 0.5% increase in their overall lead. So it depends also on the composition of the book which you have. There are banks which are focusing on let’s say micro finance or consumer durable kind of product, where 2%, 3% here and there doesn’t make a difference at all.

That’s the reason why you are finding them going and raising liabilities at 7.9% interest in the market because their ability to pass on such rates are quite easy when they are dealing with customers who are willing to pay 23%, 25%, 26%. Whereas our product composition, our product suited even today are directed towards good quality customers that would be probably playing more in the prime segment that there you need to be carefully choosing your interest rate increase also and you need to suitably alter your product mix, so that you know why you are building certain product for and how does it help in your portfolio mix.

Rakesh Kumar — B&K Securities — Analyst

Got it, sir. Sir, just last question. If you can help us understand what is happening in the industry overall in a pan-India basis and for the — for our bank in terms of low cost NRI deposit and total NRI deposits. So I know that there is a difficult time, industry numbers are not showing growth, but just to understand what you feel about it.

Murali Ramakrishnan — Managing Director and Chief Executive Officer

Yeah, see, you are right. When NRI business — if you were to look at, there are three components in NRI business. One is, we are talking about the deposits. The other one is low cost deposits, which is basically CASA where you open your NRI accounts with us, the NRO accounts keeping balances. And third one is the remittance. So as far as we are — what we are actually witnessing is that given the overall increase in the repo rate announced by regulators, we saw the deposit rates across the board getting increased. And there are banks which have also increased their NRI deposit rates fairly aggressively. To that extent, we have seen that many of the NRI customers who are also holding fairly large chunks of money have shifted from the Bank A to Bank B by looking at the interest rates which are offered by the banks which are currently giving higher rates.

Whereas banks like us — I mean these bank probably which are increasing interest rates also probably have a good foreign currency portfolio in their portfolio. For example, some of them have got branches, some of them have got rep offices across the world. And therefore, there is enough scope for them to do ECB funding or do foreign currency funding. And given the fact that our offshore branches growing very well in the country, some of these banks who have got branches over there, they are able to pass those businesses where they can do foreign currency lending. And to that extent, we have the leverage to charge high rates — I mean, charge high rates for deposits. Whereas for bank like ours, which has got only a rep office in Dubai and where we are actually using this foreign currency funding basically to look at very limited opportunities which our customers might ask in foreign currency lending basically to arbitrage the rate opportunity — rate advantages they might get or else we need to use them for our rupee lending, in which case, it’s dependent on our swap cost and other things.

So we constantly — so what we are seeing as a trend is, many of them are moving their money from CASA into deposits. This is one thing which we saw. And the other thing which we saw is lot of remittances. Though remittances overall have gone up thanks to the depreciation in rupee, the conversion today for any earner in foreign currency will give you more rupee on hand. We have found that remittances have grown considerably, and we have also seen good increase in our own remittance growth. But earlier, this remittance money which used to come, used to stay in the account for a long period. Therefore, for your CASA, it was helping us to have a very low cost CASA. But now, we are finding that the alternate avenues available for money even, for example in rupee, deposit rates in India or the market opportunities — capital market opportunities etc., these monies are getting diverted into those fixed.

So as a trend what we are saying, one, remittance is increasing and we are also seeing that increase for us. Two, money is moving from deposits into — sorry, money is moving from low interest rate providers to high interest rate providers and money is moving from CASA into other investment opportunities. So as far as we are concerned, we are actually doing a slight trick in our strategy. Earlier we were looking at lot of [Indecipherable] better word I would say, low quality customers. We were looking at focusing on numbers in the past. So we have lots of low quality customers who are keeping fairly low balances with us etc. Now as a conscious strategy, we are now switching our profile of NRI customers also into people who can hold our well — net worth NRI customers. To that extent, probably we might start seeing our customer overall among [Indecipherable] customer in their accounts as well as the deposits they keep holding with us, probably you will start seeing some traction happening there.

And we have also started seeing that our remittance businesses, which is a good business for us. We have now started having more tie-ups with many of the exchange houses in Middle East, and we’ll — in our NRI customer base, today we have 80% of our customers are in Middle East and 20% are in rest of the world. And that ratio continues to hold. And we are continuing to see that with more and more tie-up happening, not only in Middle East, but also in other countries in Gulf as well as in other parts of the world like we have tied up with agency — some relationship in Canada, somebody in U.K. We have started having tie-ups with those entities also, which hopefully will get us more remittance coming in. So overall NRI business, which continues to be a very key contributor to us both in terms of our deposit as well as in terms of low cost CASA, and it’s also giving now fee income and it’s also giving good remittance now. So with all that, we believe that it’s continuing to play a very important role in our overall liability section.

Rakesh Kumar — B&K Securities — Analyst

Okay. Just one small thing, sir, clarification. So higher deposit credit or higher interest rate overall in the other countries from where we source the remittances. Is that also the reason which is an obstacle for the remittances here in India?

Murali Ramakrishnan — Managing Director and Chief Executive Officer

No, people — see, there are two, three different types of NRIs. One is NRIs who have gone there just to do work and their families back in India. These customers typically will keep sending money back because their family needs money in India, and their kids might be studying in India. So these are the people who will be banking on remittance and they will always be looking at rupee depreciation and want to take advantage of the low — I mean higher rupee which they get for every foreign currency they earn. This is one set of customer. Second set of customers are people who are high-net worth individuals who are either running business or working for a large — big corporates in the Middle East or any other place. Their earnings would be substantial. They will probably look for opportunities to deploy their funds in making more money, so they will be constantly looked at how well the capital market is doing in India or elsewhere. So today, given the opportunity, given the development, we can pretty much invest anywhere. So these are the people who will probably deploy some amount for Indian capital market, while they deploy substantial funds for wherever they can earn more money. So with the interest rate generally hardening in all other countries with inflation being the highest ever in those countries, there will always obviously opportunities for such people to deploy more and more money in markets where they can earn higher returns.

The third set of people are people who have no linkages to India at all though they are PIOs and Indian, but they may not have any linkage to India. Such customers — probably the large banks will be tapping them because these tax can still raise money in foreign currency and they hold foreign currency deposits in their branches. Therefore, such customers will opt those banks which are internationally well present. I used to work for ICICI [Phonetic] and we had — ICICI have substantial NRI deposit base in these countries.

And the reason — and they — and these banks can also deploy these funds, because in many of the geographies, they are permitted to do dollar funding, so they can raise money in dollar and deploy money in dollar. Whereas SIB, we don’t do any lending outside of India because we have only a rep office there, so our raise in foreign currency is primarily for the purpose of swapping them into rupee and we can provide reasonably competitive cost to some of the high end corporates who probably wants to make use of this swap costs to reduce their overall cost of borrowing.

Rakesh Kumar — B&K Securities — Analyst

Many, many thanks for elaborate response anytime. Thank you.

Operator

Thank you. Our next question comes from the line of Arjun Bhatia from Bullhead Investment Advisors. Please go ahead.

Arjun Bhatia — — Analyst

Thank you sir for this opportunity. I had couple of questions. Firstly, a rate clarification for everyone’s benefit. We mentioned about marginal decline in NPA in 2024, and SME of your loan book is very low. At the same time, you’re pointing out to 1.2% credit cost or in an absolute terms about INR1,000 crores credit cost. Since you’ve shared three different numbers in the call and this number is prima [Indecipherable] very high to me based on whatever you said. Can you please reconfirm your team what is this number for everyone’s benefit?

Murali Ramakrishnan — Managing Director and Chief Executive Officer

No. I didn’t say INR1,000 crores as my credit cost. I said…

Arjun Bhatia — — Analyst

1.4% on…

Murali Ramakrishnan — Managing Director and Chief Executive Officer

INR750 crores is what I said. INR750 crores. Just to reiterate, I talked about — I gave you the breakup of what it was in — for this year and I also said what we are anticipating in the coming year.

Arjun Bhatia — — Analyst

So, the INR750 crore is the final number. Sir, now I have separate questions. This was for eveyone’s benefit. My two questions are, do you expect any segment to grow much faster out of agri or retail, SME or corporate or broadly more or less there have been in line? And in terms of total growth, can the 12% guidance you’re giving also be 15%?

Murali Ramakrishnan — Managing Director and Chief Executive Officer

See, one is, of course, to grow book across all segments basically to balance out your portfolio, but obviously growth in all these businesses will have to come depending on the opportunity which we get. If you’re finding that opportunities in SME is going to be better or corporate is going to be better. Clearly, we’ll be — so our criteria is basically quality. If it’s there, definitely we will acquire more and more customers for approval.

In our planned growth of let’s say 12%, 13% for the coming year, frankly, the mix of how we will grow this, do we have a target made for each of these businesses, but we will keep realigning our plan depending on how we see our overall growth in each of these business lines are happening and how it is impacting our overall NIM and our profitability. So that’s how I would put it. Clearly, the focus will be to grow retail more because we want to increase our base of portfolio, which will be stabilizing. And also, we want to ensure that we — our — I mean, corporate or SME, something which we will continue to have traction not only for earning credit income, but also for other cross-sell opportunity which can come. So that’s the broad reply I want to give.

Arjun Bhatia — — Analyst

So the second question is that in terms of the capital raise plans, is my understanding correct based on whatever you said in last one hour that there is no client to immediately raise capital, let’s say, next three months before Q1 results and not at this price. So you know, there is no urgency to raise capital in the next three months and at such current low price? And you didn’t answer my previous question. Can this 12% also inch up to 15%? So is it a range, or you think 12% will be a fairly aggressive target and 15% will be too tough a ask?

Murali Ramakrishnan — Managing Director and Chief Executive Officer

No, see — let me tell you the philosophy. If I say 20% and if I do 15%, you guys will be very unhappy. If I say 12% and if I do 15%, you will be very happy, right? This is the general philosophy. So I’m saying — obviously, all of us want to grow much more than what we are wanting to say, but at the same time, I don’t want either the team to come under pressure that we compromise on quality. At the same time, I don’t want them to be lean back and say, okay, it will be only 12% so let me do what I need to do.

So how we manage internally our teams clearly will decide on how much we are committing. Basically — suffice to say that GDP growth if it’s going to be 6%, nobody today also knows how much GDP growth is going to be. It’s anywhere from 7% we started with and 6.5%. Now we are talking about 6%. So idea is to grow at least two times the GDP growth is what I have in mind. This is how I’ve seen in my long career that if you’re chasing a growth which is two times GDP growth, you can reach that will be balance in your approach to sourcing good quality deals in lot of our businesses you do.

So, I am giving a guidance of lower double-digits, primarily to ensure that our underlying fundamentally block is quality. We don’t want that to be compromised at all. So I don’t want any of you to factor 15% and 20% and keep working out these numbers because if I wanted to chase [Phonetic] those numbers, probably banks like us probably might end up not doing — not having good quality book with us. So we would rather change good quality deals who have growth. At the same time, growth is needed for us to sustain the profitability, therefore I’m committing that it will be lower to double-digit growth. Therefore 12% is something which is reasonably one can take as a growth expectation.

Arjun Bhatia — — Analyst

Second question was on the capital raise.

Murali Ramakrishnan — Managing Director and Chief Executive Officer

Capital raise. The capital raise, as we said earlier, we would need to factor three, four things when we are planning to raise capital. One is, of course, the need for liquidity, the need for given the growth plans which we have. And at the — the things which I talked about in terms of Tier 2 commitments which today our dependance on Tier 2 is coming down. Therefore, we need to see how we can factor them in our plans to pay them off. That’s another factor which will come in. Third, of course, is the fact that people normally talk about in terms of dilution, whether by issuing equity will we be diluting too much. This was one of the concerns which was raised even when I was raising my first set of equity, where it was needed very badly by the bank. So we raised INR240 crores I could say at that point in time. That time also, there were questions around dilution, but clearly, the bank requirement was far more than the dilution which we talked about. But now obviously, we need to factor dilution also into account. Fourth thing is how well the market conditions raising capital and what is the root and how effective [Phonetic] the investors would be whether you want to go for equity issue or I mean, rights issue or — that also we will decide based on how well the market is — market traction is happening. So as we go along, we’ll take these decisions after we look at how much of the internal accruals is activated to the Bank’s capital.

Arjun Bhatia — — Analyst

Sir, my question was, is anything planned in next two, three months in the immediate very near-term at current price?

Murali Ramakrishnan — Managing Director and Chief Executive Officer

If it is planned, I would have definitely articulated to you now.

Arjun Bhatia — — Analyst

Understood, sir. Thank you so much.

Operator

Thank you. Ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to Mr. Salim Gangadharan, Chairman for closing comments.

Salim Gangadharan — Chairman

Yeah. First of all, good afternoon to all of you, and I was really impressed by the incisive and deeper questioning. Questions raised by all of you and it has given tremendous impact to me personally. And from our Board [Indecipherable], I’ll speak about because the numbers were rolled out by Mr. Murali Ramakrishnan, MD and CEO, and he clarified on many of the points. So, I’m not touching upon the financials of the Bank.

So what is the most rated from the outcome of the transformation process and the business strategy over the last 2.5 years is clearly demonstrated in the numbers, what the Board wanted, what board, including the MD and CEO, was explaining[Phonetics] for a significant strengthening of the financing transformation projects. So the numbers have clearly demonstrated that the objectives and the strategy of the Board and the senior management and the bank has been accomplished. That is the first observation.

Now the question comes is what is our future strategy. So the Board is convinced that the present strategy is paying off well and which has shown clearly the most stable, qualitative parameters and improvements in brief analysis as well as the growth numbers. So we wanted to pursue the same strategy going forward, even after change of the MD’s position. So there is no change at all.

In fact, I wanted to add you one point when — we at the search committee is evaluating the new candidates. One-off we have constructed their capacity great. One of the key parameter we are using to access the capacity and the quality of the person to come in is — one of the parameter, I’ll read out. The candidate should have convinced that the transformation journey over the past 2.5 years is right — in the right path towards sustaining growth and profitability. So this is a very significant factor we are assessing the quality of the person to come in. So there will not be any change in the strategy. All the systems and process efforts we will continue to pursue because it is paid off well. So the search committee is deep into the process. We have already evaluated several number of candidates, and we are now moving to the second round of evaluation. And once it is finalized, so we will be moving to the Reserve Bank of India well on time at least [Indecipherable].

So this is what I thought I’ll share with you. And for capital raise, we are closely watching the scenario. As MD has clarified to you that 17.25% capital as of March ’23 is visionary [Phonetic] in the short run. But given the dynamics of the risk profile of the assets we are focusing over the months, we are closely watching the risk metrics. And if necessary, we will be going to the market with capital. So there is an open mind on capital raise.

So thank you once again for joining this call and in raising very, very incisive and deep questions the MD and CEO. Yeah, then one more issue wanted to clarify, make it abundantly clear to all of you. Mr. Murali Ramakrishnan has personally opted not to extend his term beyond September 20 out of his personal reason. And the Board is very much — would have been very much happy to give him another term without any discussions. But he has decided to leave on its own accord and on personnel grounds. So, Board was extremely happy with the good work Mr. Murali has done for the past 2.5 years that clearly helped the Board and the Bank in achieving a quick turnaround in order — the matter of a turnaround of 2.5 years is a significant achievement for the bank, and we really appreciate his efforts. He and his team put the foot for the quick turnaround of this organization. Thank you very much once again.

Operator

[Operator Closing Remarks]