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THE KARUR VYSYA BANK LIMITED (KARURVYSYA) Q2 FY23 Earnings Concall Transcript

THE KARUR VYSYA BANK LIMITED (NSE:KARURVYSYA) Q2 FY23 Earnings Concall dated Oct. 21, 2022

Corporate Participants:

B. Ramesh BabuManaging Director and Chief Executive Officer

Analysts:

Renish BhuvaICICI Securities — Analyst

Jai MundhraB&K Securities — Analyst

J NatarajanKarur Vysya Bank — Analyst

M.B. MaheshKotak Securities — Analyst

Anand DamaEmkay Global — Analyst

Sharad JithurCent Wealth Management — Analyst

Presentation:

Operator

Ladies and, gentlemen, good day and welcome to the Q2 FY ’22-23 Earnings Conference Call of the Karur Vysya Bank. We have with us today the management team of KVB represented by Mr. Ramesh Babu, MD and CEO; Mr. Natarajan, President and Chief Operating Officer; Mr. Ram Shankar, CFO; And Mr. Srinivasa Rao, Company Secretary and Compliance Officer. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. B. Ramesh Babu, MD and CEO to take us through the highlights of the quarter gone by, after which we will open the floor for questions. Thank you and over to you, sir.

B. Ramesh BabuManaging Director and Chief Executive Officer

Thank you, Aman. Good evening to all of you. Welcome to our Bank’s earning call for quarter two of the financial year 2023. Trust that you, your colleagues, and family members are keeping well and in good health. My Diwali greetings and wishes to each and every one of you. All of you would have gone through our presentation, reflecting our performance during quarter two. I am pleased to share that our performance in terms of growth, profitability, and asset quality are on the right trajectory and higher than the indications given during our previous interactions.

I am delighted to share some of the key highlights of our performance during quarter two, which is reflected in the business numbers. We have indicated an estimated loan book growth of 15% for the current year, we achieved a year-on-year growth of 16% during quarter two and the fact that growth is inclusive across all business verticals, which augurs well for the bank. We expect that trend to continue in the current quarter considering the busy season, fairly good monsoon and structural changes implemented over a period of time, which have now started yielding favorable results.

Our total deposits grew a tad lower at 13% year-on-year as against expected growth 15% in tune with the policy rate hikes and the need to mobilize stable term deposits we have increased term deposit rates by 70 basis points on 16th August and 1st September for one-year maturity. The rates are competitive and comparable with other players, thereby enabling us to achieve a 13% growth in this segment, which was 4% for the first quarter. So the legacy business team is in place and our active in the market to source stable term deposits. Going ahead we will focus on this segment to improve our stable deposit base.

Demand deposits continued to grow by 15% over last year. Savings Bank segment grew at 11%, while customer onboarding continues to grow. There was some outflow too as few high-value customers appear to have taken advantage of the spike in yields in other investment segments. We are monitoring this very closely and targeting to achieve 15% growth. Savings Bank account interest rate remain unchanged during the quarter. We continue to keep our NIM over 3.75% levels and for quarter two, it was 4.07%.

Our cost of deposits remains flat at 4.08% over last quarter, in spite of hike in time deposit rates during quarter one of the current financial year and the increase in cost is compensated by growth in low-cost demand deposits. The effect of two interest rate hikes on term deposit, which I spoke about earlier will have an impact in the coming quarters. I reiterate that we continue to focus on low-cost deposits so as to offset the impact of hike in term deposit rates and aim to keep the increase in funding costs at minimum level considering positive yield movements in advances, which I’ll explain next and investments, we are confident of maintaining a NIM north of 3.8%. Yield on advances has moved up from 8.27% to 8.55% sequentially.

During quarter two MCLR rate went up by 15 basis points and EBR-R by 50 basis points, followed by another 55 basis points, which will be effective 1st October. On account of these hikes yield on advances will continue to move upward in the coming quarters. As indicated earlier 85% of, our loan book is under variable interest rates, of which 52% is linked to MCLR and 33% is linked to EBR-R. Remaining 15% loan book constitutes fix interest rate loans covering deposit loans, auto loans, staff loans etc.

Non-interest income has increased by 48% over September ’21, mainly due to increase in fee income as well as write-back of MTM depreciation on investment to the extent of INR13 crores. Employee expenses remained flat both sequentially as well as previous year due to lower AS-15 provisions. We expect that it will move up by 10% in the coming quarter considering the DA increase and increase in number of employees besides AS-15 cost, if any. Employee count stood at 7,393 as of September 30th as against 7,262 at the end of first-quarter. During the quarter we have added 295 officers exclusively in the sales.

Operating expenses have gone up by 17% over September 2021, mainly on account of increased scale of operations. However, it is within our budgeted level. Increase in net revenue by 26% and operating expenses by 4% aided the reduction in the cost-to-income ratio at 46%, lower than 56%, last year and 50% for the last quarter. We have been indicating that our cost-to-income ratio would be kept at reasonable levels and now this is made possible because of our conscious effort in keeping the denominator growing and the numerator at the required levels. We will continue to focus on this ratio and maintain it around 50% levels.

Operating profit of the Bank has been consistently increasing over past five quarters and increased by 56% over last year and 19% over last quarter. And this is on account of combined effect of higher growth, enhancing profitability, and lower slippages. Our annualized gross profit to assets now works out to 2.64% and we will continue to improve or maintain this upward trend. We have made a provision of INR206 crores towards our delinquent loan book, mainly for aging of underlying assets and also to further improve our coverage ratio.

Credit cost for the quarter works out to 0.33% and for the half year it is around 0.56%. We have given a guidance of 1% credit cost on our estimated loan book this year and during quarter two we have front-loaded our provision requirements for balance sheet management and also for better tax planning. Net profit of the Bank has risen to INR250 crores, which is the highest-ever number achieved in a quarter, registering an increase of 52% over last year and 11% sequentially. We expect that this uptrend will continue during the next two quarters.

Return on assets has been consistently growing during the seven quarters and for the current quarter it is at 1.16% as against 1.09% during the previous quarter and 0.86% during the corresponding previous period. We have indicated an ROA of 1.2% for the exit quarter of the current year and we expect that we would comfortably surpass this number for the March quarter of the current year. Our CRAR continues to be at the comfortable level and is at 18.31% and liquidity coverage ratio is maintained at a prudent level of about 100%. Gross slippages were at INR131 crores during this quarter, which works out to less than 1% of our loan book on an annualized basis, which is in line with our guidance.

Our recoveries, upgrades, how surpassed slippages during the quarter, resulting in negative net slippages to the tune of INR74 crores during the quarter and this is the fifth quarter in succession wherein we were able to maintain this trend of negative net slippages. Technical write-off of INR176 crores have been undertaken during the quarter, which was done for balance sheet management. Recovery from this segment are showing an uptick and we hope to improve on this front during the remaining part of the year. There was no slowdown sale to ARPs during the quarter. SMA 30+ balances at the end of the quarter continue to be below 1%, INR411 crores, which includes jewel loan balance of INR41 crore also.

Due to lower slippages, recoveries and technical write-off gross NPA has come down to 3.97%, our plan is to reduce it to below 3% level by March ’23. Our net NPA level has further reduced to 1.36% and it is our endeavor to bring it to below 1% level by March 23. The overall standard restructured book is at INR1,231 crore as of 30th September 2022, as aganist INR1,640 crore at the end of March ’22. There has been a reduction of INR409 crores, which is by way of closures, repayments, upgradation, and movement to NPA. 5% of the restructured book as of 31st March, 2022, moved to NPA up to September ’22.

We hold a provision of INR114 crores towards standard restructured book, further details are available in Slide 29 of our presentation. We continue to improve our digital offering to customers for better customer satisfaction and onboarding. We have successfully implemented digital onboarding of customers for opening of current accounts across the Bank and are in the process of implementing the same for savings bank. Our digital lending system is working well and enables us to scale-up our operations, enhances efficiency besides quality onboarding of customers. We have enabled payment of customs duty to I-GATE portal, GST and income tax and other direct taxes through digital channel by interfacing with respective government authorities and the Reserve Bank of India.

Our core lending business with two leading NBFCs is doing well and we are in the process of rolling out the service to two more NBFCs this quarter. We have tied-up with a couple of fintechs for customer onboarding and we are working with three more fintechs, likely to be rolled-out in this financial year. Our performance in business growth, profitability and asset quality has been consistently improving over the seven quarters. There are certain challenges we foresee and we have taken steps to ensure that this growth trend continues and interruptions through the following measures.

Firstly, with the need to strengthen our liability business, particularly to take CASA mix to 40% of our total deposit and increase our stable term deposits we have created a consumer banking department by merging the personal banking liability and personal banking assets business of the bank. For effective management, we have recruited separate sales heads for the verticals and also regional level sales heads in the market and the team have started functioning from Chennai. The team is led by Head Consumer Banking, who has vast experience in this line of activity. The team will oversee retail acquisition, assets, retail acquisition of liability, institutional and government business, task and third-party products.

We have opened an exclusive retail branch in Hyderabad, which will mainly cater to consumer banking segment with focus on retail loans and retail deposits and no commercial banking activity will be undertaken there. We plan to open 18 more branches during the current year predominantly to source retail liabilities and assets and one digital banking unit Bank always considers MSME sector as a core focus sector of the bank. In the past the lending business was exclusively managed at branches and the bank has established 15 business banking units across the country to manage commercial lending business, that is a ticket size of INR5 crores and up to INR25 crores and nine corporate banking units to manage commercial business ticket size of INR25 crore and above. Business up to INR5 crore is managed in the branches.

Further Bank has setup in non-branch distribution unit, NEO in Mumbai. And this unit has 14 centers across the country covering 40 locations and managing MSME business, focused commercial mortgages, lease rental discount, and dropline overdraft. Business is sourced through channel partners, connectors and DSTs. With these changes Bank has started achieving, A, double-digit growth and during quarter two Bank has achieved an inclusive growth of 15% in the loan book.

We are now in the process of creating emerging small business centers under small business group to exclusively focus on MSME business, that is for less than INR5 crore exposure. We have recruited a senior executive, who has vast experience in this line of activity. He is forming his own team and this team will source business through direct sales channels, aggregators and partnerships beside DSAs and DSPs and scale-up the business using Bank’s digital lending platform.

We are planning to establish new centers in few potential locations during the current financial year. Let me conclude by reiterating that, we did well during quarter two and our performance is in-line with expectations, business plans, and guidance. We have demonstrated a consistent satisfactory performance during the past several quarters in different challenging environments and this is well reflected in ROA moving gradually from 0.19% in third-quarter of December ’20 to 1.16% in quarter two of the current year. We are confident and hopeful of maintaining rather improving our performance during the next two quarters.

Once again I thank you all for taking time to join this call, I’ll be glad to respond to any questions, which you may have. Over to Mr. Aman.

Questions and Answers:

Operator

[Operator Instructions] Our first question is from the line of Renish Bhuva from ICICI Securities. Please go ahead.

Renish BhuvaICICI Securities — Analyst

Yeah, hi, sir.

B. Ramesh BabuManaging Director and Chief Executive Officer

Hi.

Renish BhuvaICICI Securities — Analyst

Nice set of numbers. Sir, my question is around our deposit franchise, okay, so in our PPT we do share the ticket size-wise deposit breakup, and when we look at the deposit base above INR5 crore of ticket size. So that bucket has actually doubled in last four quarters. So, it used to be 5% of the total deposit, which has been increased to 10% of total deposits now, which essentially hinting at incremental deposit is largely coming from the above INR5 crore ticket size. So can you throw some more light on this? I mean, this is the strategic move or how one should look at this trend?

B. Ramesh BabuManaging Director and Chief Executive Officer

Yeah, thanks, Renish, thanks for the compliments. And one thing I’ll just tell you, suppose if you look at last two years when the credit growth was not that much was there and all. So even if you take these deposits also the bulk deposits of our customers, I’m talking about all these bulk deposits, they are all our customers for tickets. So we were discouraging them saying that we are not interested in these deposits. In the process they all have gone to other banks. So now what we thought is even if at that time we will take it also we will have to place it in a reverse repo so which will be counterproductive.

So now that the deposit franchise is required the trade growth has picked up. So we have reconnected ourselves with our customers and told them in the process what our maturities are happening with other banks and all, they are winning back to us, because earlier they were dealing with us only. In between we only told them we cannot accept at this stage and now we do not want to pile up the deposits. So that way the deposits our customers we are getting it back. It is literally home coming for them.

Renish BhuvaICICI Securities — Analyst

Okay, got it. Got it. So this is a bit of a let’s say a balance sheet management kind of a drive.

B. Ramesh BabuManaging Director and Chief Executive Officer

Correct. And not only that, the relationship in a sense that when the deposit market has hotenend up and all then there’ll be fewer bankers and all they’ll be wining. In the process, I maybe lose the total customer over a period of time. So now if get this, so at least they will be might fold forever that’s the point.

Renish BhuvaICICI Securities — Analyst

Got it, got it. And sir secondly, on the margin side of course for this quarter it’s 4% and as you rightly mentioned in your opening remarks that second half the pace of increasing cost of deposit will be slightly higher than the asset yield expansion. So how one should look at the second half of ’23 NIM trajectory? I mean, should it be a downward trajectory or it should sustain at where it is currently?

B. Ramesh BabuManaging Director and Chief Executive Officer

Now Renish you would have heard that what all the guidance they have given we said that 3.8% plus we will maintain, because something will be transitory. But for the sake of clarity, I’ll give you the full picture. Now when we talk about our MCLR book, MCLR book comprises of the working capital loans. So working capital will be over a period of one year, they get repriced. So this is the peak period next six months and all this working capital account gets repriced. At that time the new MCLR rate will be passed on to them. Currently, all this portion is passing through the old rates. With EBR-R is concerned straight away we are able to pass at 33%. 52% is the process going on now. So that way there is a possibility of the yields going up on the advances front also.

So that way deposits also if the cost goes up this, the yields what all are going up as well as the deposit cost going up we were able to maintain, but whatever it is, it is transitory. So we still mentally have a feeling saying that we need to maintain 3.8% and above.

Renish BhuvaICICI Securities — Analyst

Got it, got it. Because first-half we are already higher than that. So…

B. Ramesh BabuManaging Director and Chief Executive Officer

Absolutely, absolutely, that’s why we want to be frank. So as long as we could get the benefit of it we will take it, not an issue. But — so this cannot be a permanent feature. So we need to look at it that’s it.

Renish BhuvaICICI Securities — Analyst

Got it. And — I mean is it fair to assume that, let’s say, if we want to compromise a 10, 20 basis point of margins to chase higher growth, are we open to that?

B. Ramesh BabuManaging Director and Chief Executive Officer

Yeah, is open to that, but the only issue I understand, so suppose we are currently at 16%, suppose if we are growing at 20% simultaneously you need to grow deposits also at 20%, 22%. Suppose the systemic liquidity is not there at that level, if you press accelerator button on the advances engine at one point we are unable to dispense that sort of trade and all it will be hampering us in the market. So that’s where we need to go in a calibrated way how much you can mobilize the deposits how much you need to work and all. So now all verticals earlier, a particular vertical was doing and all others were piggybacking on that.

Now the question is every vertical you are able to find a double-digit growth. So that we’re pressing them and taking it forward should not be a much issue. So that’s why we’ll look at both how is the liquidity position, how is the growth and all accordingly we’ll take it forward.

Renish BhuvaICICI Securities — Analyst

Got it, sir. Got it. That’s it, sir. Thank you, sir, and all the best.

B. Ramesh BabuManaging Director and Chief Executive Officer

Thank you. Thank you, Renish. Thank you.

Operator

[Operator Instructions] The next question is from the line of Jai Mundhra from B&K Securities. Please go ahead. Jay Mundra, your line is unmuted, requestion you to please unmute your line and proceed with the question.

Jai MundhraB&K Securities — Analyst

Yeah, hi. Am I audible now.

B. Ramesh BabuManaging Director and Chief Executive Officer

Yeah, audible, Jay, please go ahead.

Jai MundhraB&K Securities — Analyst

Great. Sir, thanks for the opportunity and congratulations on great set of numbers, sir. I have few questions. So first is, sir, you had said that we have started adding branches and we have started adding manpower also and of course, there is a pickup in business volume. So just wanted to check, sir, how should one look at the opex growth in the say coming quarters and coming years?

B. Ramesh BabuManaging Director and Chief Executive Officer

Yeah, Jay, in fact, we need to see because opex what all we have factored that budgeting and all, so that will be within that, because if we do not open the branches and these things at this stage, particularly for the liability we want to recruit the people. So this is an investment we need to make, so we may be reaping the benefits with a lag of six months or so, but that investment is very much-needed. But when we are doing this ROA tree and calculations and all, so we have factored all these things into our account. So correspondingly the increase the income also has to be there so that the ratios are not vitiated and overall what all we have committed on the ROA front also will come up and all. So both the organic growth will have to happen and ratios we committed also will have to be there, that’s what we are planning.

Jai MundhraB&K Securities — Analyst

Right. So, sir, the opex growth for the — let’s say, should be lesser than loan growth, right, is that is what is implied?

B. Ramesh BabuManaging Director and Chief Executive Officer

Agreed. But quesiton is support the loan growth will happen currently. Opex growth something, which is the capital expenditure if we do not do it now. So you may have to branch and all these things and expenses and all current rent and all. So you will not be able to get the benefit of the six months. So that’s where there can be an overlap in the opex to some extent, likewise, we are recruiting many people for the liabilities now. So from day one, they may not be able to do it and all even if they mobilize the deposits also that need to be deployed. So this will take some time and all that’s why we thought that an overlap of six months was that the position is relatively better we can think of spending on this for the future.

Jai MundhraB&K Securities — Analyst

Right. No, no I don’t doubt that sir, I was just asking that would opex growth be similar to loan growth or it could be let us say lower than loan growth of, let’s say, 15%?

J NatarajanKarur Vysya Bank — Analyst

Whatever currently the six months of this opex growth is as per our estimated lines. And again 18 branches which we are proposed to open these are all not in a metro centers, but all in Tier 2 and Tier 3 centers. And we don’t think any substantial cost will be added in the operating cost. But we — in our working, while budgeting for this year profitability and fit [Phonetic] we already taken this 18 branches and are well within that budget whatever we have planned. So coming back to your question about whether it is equivalent to 15% or 16%, we are also expecting on the same lines.

Jai MundhraB&K Securities — Analyst

Right, sure. Second question is, sir, on your savings account rate. So I think now you are probably the lowest in the lower bucket at 2.25% and our highest is 3.25%.

J NatarajanKarur Vysya Bank — Analyst

Correct.

Jai MundhraB&K Securities — Analyst

The last few months other banks have raised the savings account rate, we have also done on term deposit side, but any thoughts on revising the SAR rate upward?

B. Ramesh BabuManaging Director and Chief Executive Officer

Jay, in fact many times, two to three times we did a homework on either the reduction or increase the savings plans, increase will be getting huge inflows or reduction outflows are happening. So two to three times when we saw it is not that elastic and that’s why it’s not straight away linked to the rate and all, the marginally here and there were changes there. So — but if you change the rate on the whole portfolio it undergoes change that’s why we are tracking continuously ALM level we are looking at it and all, as and when it is required and all we will change the rate.

J NatarajanKarur Vysya Bank — Analyst

In addition to that, Jay, we have specific product called the Rainbow where there is sweep facilities available. So we have directly linked with the deposit rates in case the customer demands probably we can link that account to that so that in that way we don’t think that it is essential for us to review this savings plan.

B. Ramesh BabuManaging Director and Chief Executive Officer

Auto sweep is there overnight the money will go into the time deposits.

Jai MundhraB&K Securities — Analyst

Right, right. Sure, understood, sir. And sir, you also mentioned on the asset quality side that now we intend to bring GNPA below 3% and net NPA below 1% by March. And we continue to have slippages — net slippages at negative level, right? So I mean it looks like that trend should continue and hence even if you were to reduce your GNPA from current 4% to below 3%, which is like 1% reduction. This would be aided by negligible net slippages, right? This is the — and hence there will not be too much pressure on the credit cost, is that what is being implied?

B. Ramesh BabuManaging Director and Chief Executive Officer

Yeah, yeah absolutely, you are right. So agreed our endeavor is to keep the net slippages negative, but — so it may happen here and there some quarter, but whatever it is, overall what you said is correct in the sense that this net slippages they will not have much bearing on the provisioning because the recoveries what all are having. So the provision what we released there majority will take care of the gross slippages what all are coming, because the — many of the slippages — old slippages are there it can be in substandard or doubtful one, two, three. So that’s why the provision what all gets released if some — an account has become NPA now, substract 15% it will be able to take care of that. But whatever it is, we are trying to have a tighter control even on the slippages that’s why if you can see it our corporate SMA 30+ as at the end of September is 0. That is 0.

So likewise, if you look at it we are trying to have a control on the slippages and focus is more happening on the recoveries thanks to the post-COVID environment, the ports are working and all auctions are happening and all that’s we are able to do that. But we said overall the positioning is like that only because so for this balance sheet management once we complete this provisioning and all later maybe on a self-sustained basis the recoveries as well as the slippages.

Jai MundhraB&K Securities — Analyst

Excellent, sir. And last question, sir, from my side is if you can share the few details of the lateral hires that we have done in the last few quarters? I think you had mentioned that we have hired a new person who is setting up his team, which area and we had hired I think national CASA head, and if you can highlight few of the lateral hires that we have done?

B. Ramesh BabuManaging Director and Chief Executive Officer

Fine, fine. Yeah because what we thought was in the month of March itself, we were foreseeing the demand what it comes up for the deposits and then onwards we started counting and one of the big private banks, whoever is there and all from there we have got one CASA national head and he’ll be station in Chennai. And along with him the regional sales head also and others also we are recruiting them and all, these people they have feet on-street literally the feet-on-street what all the mobilization that business development associates all these people who look after the liabilities team, this team will separately handle.

Currently, these — from here and there what the branches are doing the focus is not that there. So that way this national head CASA who has come from the private bank he will be holding this responsibility and all he will take it forward. In addition to that, we have taken another national head for the government business as well as task also. So she is also having a good experience and all we have taken from another private bank there also and that’s where now that we are well-equipped to handle the government business integration these things are over now and all. So there can be many opportunities for us both for the government account as well as the customers who have this payments and all who are dealing with other banks and all.

So they will handle not only the government business and task business what all is there also, a separate strategy is being worked out. So that way these two wings separately. In addition to that one more person also from another bank we have recruited he is head of the third party that is the cross-sell. So he be incharge of taking care of all our products how methodically we need to do it, he has an earlier experience working in an insurance company, in a bank also. So with the blended exposure what he has, so he’ll be able to bring out some sort of practical solutions for us and there also we are creating a structure for doing this one. So all these things will go under the liabilities consumer banking wing.

So, Jay, as I said these things initially when we are spending it may involve some cost and taking the people, but six months of period, over a period of time once we start getting our raw material engine they’ll be continuously pumping. And if you are growing on the advances front, we should not actually stay in a darkness that is the intention so we are making all these adjustments and all so that once this new setup what we have created, so mainly to focus on the liabilities acquisition. The branches will be focusing on the term deposits with the connection what all is there and all.

Likewise, the new acquisitions what all have happened and all deepening also will be taken care of that way total focus we are giving you on this vertical, how to take it forward that.

Jai MundhraB&K Securities — Analyst

Excellent, sir. Yeah, thank you, sir. All the very best in festivity.

Operator

Thank you.

B. Ramesh BabuManaging Director and Chief Executive Officer

One more — Jay, please, one more thing. One more thing just another initiative also what we are taking we will tell you, though it is not connected to the liabilities, Bank is focused on the MSME because you would have seen that our percentage of the total advances, 32%, 33% advance that is one of the areas, which will give a yield of 10% and the book is totally secured by the entire collaterals are there. So what we thought this for the branches where the locations are there where we are doing, there are many locations where we do not have a presence, but still position is there. Likewise, few market-related products are required. So that is the reason we have again recruited from another private sector bank an SME head for my inaugural speech I was mentioning Emerging Small Business Group what they will do more or less on the lines of a NEO.

So they will have their own feet-on-street relationship manager, underwriting team and the connectors as well as DSAs. So these people will be mobilizing from the market below INR5 crore business now currently above INR5 crores, we have a relationship banking through business banking. Now we are bringing it down to the below INR5 crore also, there’s a lot of scope available that way the brand channel what all is there they’ll be mobilizing, but this channel also we need to grow and mobilize good business in that.

In that process initially we want to start with somewhere in Coimbatore, Chennai and Hyderabad and Bangalore the four centers we have in mind most probably next month the team will start coming. Once they start coming and all we will start working on this by — maybe by the end of this financial year we will be able to open few centers for the emerging business. So that’s where we want to give some more filling to the commercial business also.

Jai MundhraB&K Securities — Analyst

Right. Understood, sir. Sir, just on this, so this is like wouldn’t there be an overlap between the business that branch solicit and this team will solicit, right? Because branches are also doing below INR5 crore business.

B. Ramesh BabuManaging Director and Chief Executive Officer

Yeah.

Jai MundhraB&K Securities — Analyst

This team will also do INR5 crore business and the centers that you mentioned you have a decent presence there, right, so there — wouldn’t there be an overlap kind of a thing?

B. Ramesh BabuManaging Director and Chief Executive Officer

Same thing we thought, Jay, when we were starting NEO. Then now the question is the market and pie is big even if both are working also there is enough scope. Now if you look at it NEO on an average of INR125 crores to INR150 crores on their own, they’re going and never branches and these people they felt them as a competitor. Suppose if we are not getting some other banks will get their business and all. So that way the setup with synergy has come in NEO, the same we want to replicate here also.

Jai MundhraB&K Securities — Analyst

Sure.

B. Ramesh BabuManaging Director and Chief Executive Officer

And one more also, NEO when we are doing the lab business, there is a lot of opportunity for providing working capital for them. Their working capital is with some other bank that we are yet to acquire. Suppose these sort of team comes up and all they can work in hand-in-hand with the NEO team and all. The working capital accounts of those banks also we can hit a target there.

Jai MundhraB&K Securities — Analyst

Right. Great, sir. Yeah. Thank you.

B. Ramesh BabuManaging Director and Chief Executive Officer

Thank you.

Operator

Thank you. Our next question is from the line of M.B. Mahesh from Kotak. Please go ahead.

M.B. MaheshKotak Securities — Analyst

Hey. Great, sir, and congratulations on a good results. I’ll just keep the questions short because there’s a bit of noise still in my background. The situation with respect to export slowdown in the area of Tirupur, Coimbatore, what is sense speaking to them and how are you reading into it? That’s it, thank you.

B. Ramesh BabuManaging Director and Chief Executive Officer

Yeah, thanks, Mr. Mahesh, thanks for the compliments. Now agreed we have an exposure of 8% in the textile and that has different levels are there, it can be home textiles with yarn spining all these things. So we are continuously gauging what is the position of that. So now agreed yarn currently the demand is the low in Tirupur and all. So over a period of time, it may pick up and all. But few points, if you look at it last two year that people were saying that these machinery manufacturers for the textile their order books were pretty full and all we were also expecting there’ll be good demand from our textile customers for the expansion. But incidentally, there are only two to three customers of ours who have come for the expansion, they didn’t go for expansion.

So the second thing is even if somebody has gone for the capex also they have come only for the sole these sort of things only and not for expansion. That way if we look at it, many of the exposures what we have the customer, they are seasoned, they are in the business for a long-time and all and they know the sort of ups and downs, how to manage. And they do not want to over leverage themselves also that is the reason when the position was good also they didn’t expand well. So that’s why if you look at it currently also the corporate including textiles when we talk about no account is under SMA 30+, but we are closely gauging the potential here and all, how we need to take it forward and we will see that.

M.B. MaheshKotak Securities — Analyst

Perfect, sir. Just one clarification on another point that you made, you started indicating that there will be higher opex starting from next quarter pertaining to DA, can you also clarify on that?

B. Ramesh BabuManaging Director and Chief Executive Officer

Yeah, agreed. If you look at our — what all we have budgeted for the staff expenses, we have initially indicated it can be around INR1,071 crores, INR1,100 crores. So we feel — so even if some sort of a spike is there in the DA on the other side what the benefit we get from the pension and all gratuity the sort of incremental contributions what we need to do both of them will get offset and all that way there cannot be — there may not be much spike in the staff cost is concerned. But even if here and there, 2024 [Phonetic] here and there is there, but the growth in the income side is much, much more than the growth in the expenses. So that way the ratios will not alter on account of this.

M.B. MaheshKotak Securities — Analyst

Okay, sir. Thanks a lot and best of luck and congratulation for what you have done.

B. Ramesh BabuManaging Director and Chief Executive Officer

Thank you very much. Thank you.

Operator

[Operator Instructions] The next question is from the line of Anand from Emkay Global. Please go ahead.

Anand DamaEmkay Global — Analyst

Yeah, thank you for the opportunity, and congratulations for good set of numbers. Sir, firstly, on your savings deposit you said that the person has come on the CASA front somewhere in March.

B. Ramesh BabuManaging Director and Chief Executive Officer

No, no. Continue…

Anand DamaEmkay Global — Analyst

But if you look at for the quarter seems to be down quarter-on-quarter. So how is it maybe playing because the numbers, certainly, I’m not talking what basically we have done on the ground. Number one. Number two is that you talked about the fintech partnerships. So what are these fintech partnerships doing basically, which field are they operating into? Are they into SME business, business banking or primarily into retail? And what is the overall contribution of the fintech partnerships on the asset side? And any plans to onboard any of these fintechs on the liability side? These are my questions.

B. Ramesh BabuManaging Director and Chief Executive Officer

Thank you, Anandji, thanks for the compliments. No, no there is a small communication gap what you have understood. We started thinking and identified the problem from March onwards, but when we started scouting in the market for a good head it took some time, it took some time. So finally more or less in the month of June-July we are able to finalize. And the new head has come and reported in the last week of September. So that way he has just reported here and all and forming the team and all, so it works that way.

Now coming to the reduction in the CASA, the far balances what you mentioned is, so if you look at our YTD numbers are there first quarter of this year so we have got sizable inflows, which are chunky and bulky amounts have come. So it was there for some time and all and few of them which have gone out. That way overall, if you look at it, though, the new acquisition was there and the average ticket size was going up also because those lumpy accounts who are their balance and all including the government account for the payments and the schemes and all when it has gone out. So that way we’re able to find a marginal difference there. Otherwise, the inflow, new accounts opening, acquisition all these things are going on as it is. And now that the new CASA head has just reported end of September so the activity will start working in one or two quarters that you can find that.

So coming to fintechs question what you have asked, our President will respond.

J NatarajanKarur Vysya Bank — Analyst

Yeah. With regard to whatever the fintech tie-up currently we have it’s not a big business level, but it’s all completely tested and going on well. So what we are planning to do is now out of the three fintechs one is on the liability side and the initial working everything we are doing it. Basically, we will be concentrating on the Gen Z. So it’s a start-up and we like the product and we like their vision and we are working together with them to create the suitable infrastructure and process for that.

And second is — the second fintech is for the agri-related product, so where we felt that these fintechs are doing very well there and whatever gaps we have in our capability I think they’re in a position to observe that. So that is why we are working with them for this product. [indecipherable] we are not planning for any unsecured loan products and whatever we are doing it is by and large in liabilities for secured product.

Anand DamaEmkay Global — Analyst

Now, also what is the skin in the game for these fintechs, basically barring personal loans for you, are they into collections as well, do they — we have kind of FLD RME [Phonetic] with these fintech or not?

J NatarajanKarur Vysya Bank — Analyst

So currently as per the regulatory guideline whatever existing also we have discontinued the FLDG. And we have realigned our commercial within the compliance, within the guidelines of the RBI. And going-forward also we’ll go by that, but what we are currently looking for is on the liability side it’s an onboarding of new customers and also the good customer experience that we believe that the fintechs will be in a position to deliver. So based on that that will be good value for the bank over a period of time we’ll be in a portion to add more number of customers.

As regard to the agri-related business, definitely there will be the value in terms of loan.

B. Ramesh BabuManaging Director and Chief Executive Officer

Yeah, Anandji just to add — I want to add one point, you were touching about your point on the collections. So what we did in the last six months, so I can actually say three months, so we how actually from within the Bank we have identified a senior executive who has well experience in the collections as we made him as a collections head. And we brought the call center also under him as well as the feet-on-street what we are engaging the agencies also and the branches under him.

Now we are in a dialog with one of the fintechs, who have a sophisticated model for the collections also digitally. So our wing — our recovery wing is working with them and all if it suits well and if we find some value we will be able to get it and all we will partner with them.

Anand DamaEmkay Global — Analyst

Sure. And sir, third, if you look at the kind of profits that we are now running and I think Mahesh was also talking about some problems that we have in Tirupur. And secondly, if you look at the way the SMA could get dislocated if you can address [Phonetic] on that is it not prudent on our part that you need to make some prudent additional provisions rather than running down on the overall provisions, writing off loans and showing higher profit numbers. So any thoughts over there?

B. Ramesh BabuManaging Director and Chief Executive Officer

Point well taken, the question is we are looking at the SMA 30+, so 30+ suppose if any signs of the sort of weakness are there, we thought of doing it. So that way when we look at it, including these MSME portfolio, the overall estimate SMA 30+ is INR411 crore, which include INR40 crores of agriculture also. So hardly it is coming to around INR360 crore, INR370 crores of SMA on a book of INR62,000 crores. So we will look at that front. But first of all for the balance sheet purpose what all we are doing and there may not be much need for the provisioning also, we can think of doing all these things also, not an issue at all. So point is taken.

Anand DamaEmkay Global — Analyst

Sir but, I mean, the signs we’re really not sure of now, particularly when the markets are bouyant I think that will happen maybe six months down the line, 12 months down the line. And the way basically you stayed on CASA front to some extent, right, I think that — on that side also the signs will come later, but I think not to provide thoughts on now.

B. Ramesh BabuManaging Director and Chief Executive Officer

Fine, fine. Okay, I will note the point and I’ll examine that one Anandji. Yeah.

Anand DamaEmkay Global — Analyst

Yeah, because what happens is that you are running a high-end profit number, showing good numbers, and if you don’t provide well possibly later point of time we might not be [Technical Issues] touch 1% ROA. Because this is what we are seeing across the cycle what happened one or two good years and then basically we fall down.

B. Ramesh BabuManaging Director and Chief Executive Officer

No, no agreed. Anandji but just one point what I want to say, now suppose even if ROA 0.16, 0.12 comes up also, if we look at our current net NPA is around INR800 crores. Suppose if by the end of this year if it comes to around below INR500 crores or INR400 crores whatever it is I’m saying that and all, if the requirement for the additional provisioning is not there then the question is many of the accounts, which are in advance stage of recovery they will be releasing the provision. And not only that because additional provision requirement in the normal-course is not required on the profit what they are generating also that plus this will be able to manage if at all the additional stress comes. But whatever it is, what you satisfied along with our risk management department will work on that and all what we need to see we will have a working on that.

Anand DamaEmkay Global — Analyst

Sure, sir. Thanks a lot.

B. Ramesh BabuManaging Director and Chief Executive Officer

Thank you.

Operator

Thank you. The next question is from the line of Sharad Jithur [Phonetic] from Cent Wealth Management. Please go ahead.

Sharad JithurCent Wealth Management — Analyst

Thanks for taking my question. And congratulations on a good set of numbers. So can you just please elaborate more on the write-offs during this quarter? That’s one question. And second question was about the moratorium portion of the restructured book and can you also please give some color on the steps over there? That is second. And my question on MSME was covered, but I would like to get more insights into that future steps on the — steps being taken by the Bank just such that would be a helpful for me. And thank you.

B. Ramesh BabuManaging Director and Chief Executive Officer

So suppose write-off if you look at it so this quarter we have written off INR576 crores. So that we have given in the presentation also if you can look at it that way. So these amounts anyhow fully provided that is the reason we are able to manage the balance sheet we have done that. So — but it is only a technical written-off that doesn’t mean that the focus will not be there. As far as the recovery department is concerned it is as good as a normal NPA only. Only for the balance sheet management, it has gone out and all, the same amount of attention that what we are doing for a normal NPA account. So this is the first part.

And second part is what, the restructuring.

J NatarajanKarur Vysya Bank — Analyst

I think, you’re talking about the moratorium on the restructured accounts, right?

Sharad JithurCent Wealth Management — Analyst

Yes, yes.

J NatarajanKarur Vysya Bank — Analyst

Okay. So for example in terms of count the 97% of our accounts already repayments started. For example, we have the restructured book of INR1,231 crores as on 30th September. And it was INR1,640 crores as of 31st March. And in terms of value 87% of our restructured loan book already repayment started. And whatever stress everything is included in the SMA 30+ that is one of the lowest in the Bank. So in that way we are not — now the entire restructured book is less than 2% and we are not that much concern on the recent book. But having said that, we have a complete track on these accounts and there will be a complete follow-up system is put in place and we are continuously monitoring these accounts.

B. Ramesh BabuManaging Director and Chief Executive Officer

Yeah, Sharad, one more point just want to add here, you see out of our restructured book 68% that is 37% [Phonetic] of the accounts there are no previous record of SMA because of the COVID at this time they wanted they took it, otherwise, before that it was not even SMA. So that way the quality of the accounts what all, how come are good. If you look at it also from March onwards the delinquencies and slippage is around 5%. So in addition to the normal provisioning, we have provided something more also for the restructuring and that is the INR1,200 crores, which comes to around 1.9% should not be a major issue for the Bank.

And second point also I’ll share with you, all these portfolio what all is there majority is backed by 100% collateral. So if at all something happens also the question of time of one year or two years and all, but you will be able to get back your money.

Sharad JithurCent Wealth Management — Analyst

Okay. Yeah, thank you very much. And my another question was on the MSME book and steps over there, that are there, steps being taken by the management to…

B. Ramesh BabuManaging Director and Chief Executive Officer

That’s what we were telling. Suppose SME is concerned is 32% if we look at it the SMA 30+ what we are disclosing it includes MSME also, including the even 0.66 and all which comes to around INR370 crores of INR411 crores, INR40 crores aggregated gold loan if you exclude it. So INR370 crore on a book of INR62,000 crores.

Sharad JithurCent Wealth Management — Analyst

Okay, fine. Yeah. Thank you very much, sir.

B. Ramesh BabuManaging Director and Chief Executive Officer

Okay, thank you.

Operator

Thank you. Ladies and gentlemen that would be our last question for today. I now hand the conference over to Mr. B. Ramesh Babu, MD and CEO for closing comments. Thank you and over to you, sir.

B. Ramesh BabuManaging Director and Chief Executive Officer

Thank you all gentlemen for taking out time, a long weekend is there, but despite that how much of interest should have to work around is is very well-known. The intricate questions what you have asked and suggestions what you have given and all. So we will continue and strive our effort to take it forward that way in every point what we have guided and all. So once again, a Happy Diwali to you and your family members. Take care, good day to all of you. Thank you.

Operator

[Operator Closing Remarks]

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