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CSB Bank Ltd
NSE:CSBBANK
CSB Bank Ltd
NSE:CSBBANK
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Ladies and gentlemen, good day, and welcome to CSB Bank's Q3 FY '25 Earnings Conference Call hosted by YES Securities. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Shivaji Thapliyal from YES Securities. Thank you, and over to you, sir.
Thank you, Sejal. Good evening, and a warm welcome to all those, who have joined the call. The CSB Bank management is represented by Mr. Pralay Mondal, Managing Director and CEO; Mr. B. K. Divakara, Executive Director; and Mr. Satish Gundewar, Chief Financial Officer. We specifically thank the management of CSB Bank for giving YES Securities the opportunity to host their results call. The management will first be making some opening remarks. After which, we will throw the floor open for questions.
I now invite the management to make their opening remarks.
Pralay, over to you.
Thank you, Shivaji, and good evening to everybody on this call. This is regarding the Q3 performance of CSB Bank. But before that, widely on the economic scenario, especially because the world is a volatile place right now, especially in terms of financials.
So just a quick summary of what we think is the global scenario. So after the U.S. elections, markets globally have reacted to a stronger dollar and probable sanction on U.S. imports contributing to inflation. Concomitant sell-off has happened in Indian equities by FCIs. The resultant depreciation of the INR along with RBI's effort to contain volatility has caused a rupee liquidity deficit. The RBI has already taken necessary steps to address this, including a 50 bps CRR cut in 2 phases earlier and the announcement of OMO long-term VRRs and INR swaps yesterday to inject durable liquidity to the system. RBI has also revised its growth estimate in the last few weeks to 6.6%.
While the MFI space shows signs of overrating, rural and government consumption are picking up. Pooling inflation at 5.22% in December gives the RBI and the Ministry of Finance room to take further steps to inject liquidity and boost economic growth.
Under the circumstances, the chances of the RBI cutting the repo rate are evenly balanced. With the new U.S. President and dollar index at an all-time high, we expect pressure on emerging market equities and currencies to continue to for some more time. However, with the recent steps taken by RBI and its intent to address liquidity issues, we expect liquidity to improve this quarter along with the continued softening of yields.
On CSB, specifically for this quarter, key highlights. On the profitability front, net profit of INR 152 crores for the quarter, marginally up Y-o-Y and Q-o-Q improvement is around 10%. Operating profit of the bank is INR 221 crores with a growth of 13% and 10% of Y-o-Y and Q-o-Q basis. Other income registered a 75% growth on a Y-o-Y basis and 10% on sequential quarter basis.
Other income constituted 19% of the total income, which is a significant improvement compared to how the bank used to look 40 years back. Cost-to-income ratio marginally improved compared to Q2 level to 62.9%, it was 65% plus last quarter. NIM could be sustained above 4%, both on a quarterly and on YTD basis despite the tight liquidity conditions and higher interest rate costs living large in the system, NIM for the quarter stood at 4.11%.
ROA stood at 1.52%. Bank is holding the contingency provisions intact and is continuing with the accelerated loan provisioning policy. I'll talk about it a little bit more when the questions come on the contingency provision. On the liabilities front, we all know that the markets are going through a difficult situation on the liabilities because of that negative liquidity. We had a robust deposit growth of 22% Y-o-Y amid a slow-paced industry growth of around 10%. CASA grew by 7% Y-o-Y and CASA ratio stands at 24.07%. We complemented our funding with FCI borrowings and refinance based on cost considerations, which helped us also in maintaining LCR at a comfortable level.
We ended our LCR somewhere around 130-odd percent, but average LCR is around 119%, which was marginally higher than last quarter. On the asset growth, net advances growth of 26% Y-o-Y, which is more than 2x of the industry growth, which is somewhere around 12%. Gold portfolio registered a growth of 36% Y-o-Y. Other retail by 32%. SME growth was 29%. And I think on the corporate side also we are starting to pick up pretty well.
Though it recorded a growth of overall 30% on the corporate book, but reason it has shown only 5% is because of the liquidation of the DA portfolio and few exits we opted for as part of our coverage strategy and risk appetite. But if you take out the DA portfolio exit and some of the exits which we took deliberately, the fresh disbursements on the corporate book, which would be seen in the next quarter and next year, that will show up in the top line and the growth as well has been significant on the corporate side as well.
So what it means is between retail, wholesale, corporate and SME, all are showing organic growth pretty well. On the asset quality metrics, slippages has been contained effectively and recorded a lower NPA ratio sequentially over September quarter.
GNPA and NNPA ratios for the quarter was at 1.58% and 0.64% against 1.68% and 0.69 percentage for Q2, which is a sequential improvement. PCR now stands at 60.12 percentage without PWO, which is slightly marginal improvement over last quarter. And eventually, we want to take it up to 70% at some stage.
Bank is holding a provision buffer additional of around INR 181 crores over and above the regulatory requirements. And this is where I would say that we continue to hold INR 105 crores of what we originally had provisioned for COVID, which later on, we moved into contingency provision. And in spite of fact, a fairly large chunk of that was due to 1 account we had provisioned, that account is now exited, still we hold that against the other accounts as a provision. So this is the kind of conservative policy, which we do. And that provision was INR 34 crores.
So effectively, in spite of the exiting of that account, the INR 34 crores, we continue to hold in contingency provision. On a capital base, CRAR, 21.08%, Tier 1 ratio of 19.73%. Of course, this will improve when the profits come in at the end of fourth quarter. Low promotion of risk-weighted assets compared to industry marginally higher than 40%. Shareholder value creation side, book value per share is INR 236. EPS for the quarter is INR 34.68. ROE is 15.28 percentage. So you can see most of the guided parameters rather than NIM we have sort of achieved this quarter on almost all the ratios.
Distribution, we have a network currently of 807 branches and 777 ATMs as on 31/12/24. We have added 34 new branches during the FY and part of the branch rationalization, March 6 branches during the year. The rest of the branch expansion as planned will happen this quarter.
In conclusion, I'd like to say that we had a decent quarter, both from deposit and advance book perspective, registering a growth of almost 2x over the industry in both sides. Though the advanced growth outpaced the deposit growth, the gap was effectively bridged through diversified funding sources such as FCI borrowings, refinance, et cetera.
We are well placed in terms of liquidity, capital ratios and have sufficient room for further growth. Coming to profitability, while our NII growth is relatively flat, the operating profit grew reasonably well, both on a Y-o-Y and sequential basis. Other income recorded a robust growth of 75% on a Y-o-Y basis and other income to total income has improved by 5% to 19% -- from 5% 2 years back to 19% now.
Net profit recorded a growth of 10%. The proactive decisions taken in terms of slowing down the growth in unsecured loans, MFI, et cetera, is helping us with minimal impact compared to the industry. I'm sure there will be some questions on this later on. I'll delve into it details. our NPA ratios are lower on a sequential quarter basis.
We have been generally able to hold on to our guidance on growth ratios and asset quality, as I said before, and this can be taken as an indication that our compounding execution story is playing out as far as this 2030 vision. In the current quarter, the credit growth will be largely dependent on how the liability growth evolves. Our -- for smaller players like us, where the deposit franchise is yet to be fully built, and we are working on that. The deposit mobilization at reasonable cost will have to be over managed, and we have clear plans there.
On the tech transformation side, this will be a big year for us. I'm talking about FY '26, will be a big year because post FY '26, we'll almost have nothing left in terms of transformation bank from a very average tech capacity to a probably best-in-class tech capacity in next financial year and there's a lot of work happening on that front. Last time, our CIO, Rajesh had given a briefing on this on the call. So if you have any questions, we'll be happy to answer on that front, but we are completely on track in terms of what we want to do.
Our CBS migration, along with OGL OFSAA and some of the other pieces, which we are putting together will be -- is expected to be completed in Q1 FY '26, stabilized by Q2 FY '26 and leverage from FY -- Q3 FY '26 onwards. So this is a big, big development for us, and we are all excited to look forward to that.
Our distribution strategy is working well once the products and processes stabilize for CBS migration, the distribution will look at leveraging more opportunities leading to granular growth, helping the bank to deliver consistently in line with the stakeholder expectations. As we talked, we have also started planning our retail assets franchise because that is the 1 franchise, which we deliberately didn't pick up so far. A, because we saw the markets not seeing some stress. B is because we are not fully ready in terms of liability acquisition, the entire systems and processes have to be in place. So now that we have visibility of the tech pace -- tech transformation in the next 6 to 9 months, we have started our retail assets transformation journey now, which will be visible in the next 1 year, and we can talk about it as we go through the call.
With that, I hand over the call back to the coordinator. Thank you.
[Operator Instructions]
The first question is from the line of Suraj Das from Sundaram Mutual Fund.
Congratulations on the...
Sorry to interrupt Mr. Suraj. I would request you to please use your handset.
Yes. Is it better?
Yes, sir.
Yes. Congratulations on a good set of numbers. A couple of questions. Sir, on the yield side, so on a Q-o-Q basis, if I see your yield has fallen by around 15 to 20 basis points, and this is despite the growth being higher on a Q-o-Q basis on the noncorporate segment, on gold loan and your retail loans, and your gold loan yield is anyway much higher than your overall blended yield. Sir, what is causing this fall in yield on an overall basis, if you can explain?
Yes. Thank you, Suraj, for your question. You are right that the growth in gold loan has been 36%, which is higher than the bank growth, which is 26%. At the same time, we grew on retail as well as in SME, reasonably close to either 30% or higher than 30%.
And what I said, I think the critical part is that wholesale, if you take out the DA portfolio and take out the LCBD and that 1 or 2 accounts which we exited, which are on a very high yielding basis, then they have grown by 30%, okay?
So what it means is that what we are putting on now are a low risk and hence, necessarily not very high-yielding business, especially in a cycle like this where we want to be careful. And even on the -- if you look at the details of our assets book, our degrowth has happened in 3, 4 products, which are all high-yielding products. Two-wheelers, we have degrown. Personal loans, we have degrown. Basically unsecured have degrown big time. MFI, we have degrown and agri, we have degrown. All these businesses are somewhere anything between 12% to 16% kind of a yield, okay, or maybe even higher in certain places.
So given that perspective, we decided to derisk our portfolio around a year back, and that is accelerating as we are going, leading to some of the high-yielding portfolios moving out. In wholesale itself, 1 account itself which moved out was more than INR 200 crores, which was yielding us close to 13%. It was not an NPA, we are earning well. But as a derisking strategy, we have moved that portfolio out, okay?
So when you look at all this, the prudent call, which you're taking is, be it retail, be it gold, be it SME or be -- even SME, our yields have remained kind of similar as it was before. So we are playing in that range between wholesale to the highest yielding 90%, 95% of our incremental portfolio is between 8% to 12% - 8% to less than 12% because gold our business is less than 12%.
So that's a conscious strategy, saying that yield maximization or NIM maximization in an environment where there's enough risk in the system is not prudent. And anyway, based on our Board guidance, we are looking at businesses, which are long-term franchise building and just not NIM accretive. So that's the reason we have done this.
But yield has gone down slightly across all the products almost all the products we had lowered it than before. But more importantly, the NIM compression has also happened because of higher cost of funds and also because of that penal interest, which we lost around 25 basis points, that continues every quarter, right?
So while, part of that, we are getting as the penal charges, but that's more or less the reason. And in spite of the fact we have managed a 4.11% NIM at this stage where things are not the most positive in the environment. I think we are quite happy with this risk averse kind of a strategy which have played out.
Sure, sir. And sir, on the gold loan piece, in terms of reporting numbers, have you changed any classification because last time PPT versus this time PPT, I think in terms of numbers of the gold loan vertical and retail, I think there has been some reclassification in terms of numbers, both on an AUM and disbursement numbers. So I mean, has there been a reclassification and if yes, then if you can explain that also?
No, there has been no change compared to last quarter. I don't remember which quarter, but there is some change which we have done 2, 3 quarters back, where because of regulatory and other reasons, we had moved some of the businesses around INR 1,500 crores, if I remember it correctly, from gold loan to loan against securities, and we disclosed that in the call as well as in our conversations.
So that we did not because we wanted to move from this side to that side, but because of some regulatory reasons, we didn't classify them as gold loan. But the collateral security is gold, but they are classified as loan against security, which was INR 1,500 crores. But nothing changed this quarter. It happened, I think, last quarter itself.
Okay, sure. No, I was actually looking at Slide 17, which is the disbursement number. I think last quarter in the gold loan vertical, you mentioned INR 6,944 crores, the disbursement. But this quarter, I think 2Q FY '25 number has been reclassified, to INR 5,752 crores. So second quarter number, I am saying.
Second quarter number has changed compared to last time, is it?
Yes. Yes.
That could be that loan against share, which we would have -- in the book, we would have changed it. But in the disbursement, we might not have changed it last time. This we would have changed it this time when it came to, but nothing has changed between Q2 and Q3.
So maybe last quarter, the disbursement number of loan against security, we have kept it under gold loan, but in the book, we moved it into portfolio, but we probably followed it last time and the other thing, but nothing has changed this time.
Sure. And sir, is that the also reason that of this number of accounts in the gold loan business has also fallen from earlier reported number of around 7 lakhs to now 4.8 lakhs. Is that the reason also?
Quite possible. And so I told you that it's around INR 1,500 crores, which has moved into retail from the -- because of loan against security, it could be the reason, yes.
Understood, sir. And last 2 questions, sir. One, just a clarification. This CRAR number does not include the interim PAT, right?
So CRAR number, because of the 3 quarters, it is a limited review by the statutory auditors and actual statutory audit, which is signed off is at the end of the year. So once -- after fourth quarter, the profit number will get added into the CRAR.
Understood. And the last clarification is sir, in the contingency provision that you were talking about is INR 100-odd crores. Is that included in the PCR or that is over and above PCR?
No, no, no. Contingency provision is not in this year.
Sure, sir.
I mean if we could have easily moved that INR 34 crores into...
Due to no response from the current participant, we'll move on to the next participant. The next question is from the line of Sonal from Prescient Capital Investment Advisory LLP.
This is Sonal Minhas. Am I audible?
Yes, yes, absolutely, Sonal.
I wanted to understand the behavior of customers in an increasing gold price scenario. So typically, as these products -- the gold product is low in tenure, what happens for loans, which basically reached the termination in a increasing gold scenario? Do typically customers prepay the loan and they take a new loan for a higher cover? And how did you handle LTV for these kind of loans? Just trying to understand that as we speak, yes.
No, I think it's a great question. So there is no one answer to this. There are all kinds of behaviors. In a retail scenario, not everybody does so much of calculation and does things like that. Typically, what happens in a gold price rising scenario, some part of the LTV starts coming down. The reason that LTV starts coming down and as we are talking that when it was gold price was low came down and then it went up, our LTV has moved down from 74% to 70%.
And that itself proves that, obviously, not all customers does that because LTV is going down because gold loan price is going up. At the same time, there will be some customers who will do this price which they will take -- want to take benefit of the LTV and hence, can close and open a loan. There are a few customers like that. And we have no problem with that because once they're opening, we'll get a processing fee again, okay?
And they are willing to give that because they are getting a higher LTV. And even if we say no to it, they will go to the next branch and do it of another bank. So we don't have a choice, we have to do this. The third one is there is a third category also where they sell the gold, okay? Now they take it away.
And the reason for that is that they see the maximization, which they can do and they don't see the price going down or whatever they're in their limited views what they see. So during -- so when I see a sudden spike in gold price, I sometimes see that we lose some customers or we -- some takeout happens from the portfolio itself. So all kinds of 3 things happens. So not necessarily when gold price goes up, business goes up immediately, it goes up after a while.
Initially sometimes it falls as well, which means that some customers exits. The fourth type of customers who are on the higher LTV, we exit them also taking this opportunity. Suppose somebody is in an 85%, 90% bracket, then we say there's a great opportunity and then we also exit them saying that pay it and go so that we can bring down our LTV. So a combination of 4,5 things happen. It's a very dynamic scenario. So -- but in general, with gold prices going up, LTV comes down.
So what would be your BT out equivalent like in current quarter or in general, when gold prices are up, like what would the number be?
What number?
BT out.
I don't have that number. And sometimes we'll not even know BT because -- it's not like a BT where people will come and take it out like that. They will just take the gold and go. Where he's going, what is he doing? Whether he's going to another bank or he's selling it, we don't know or he's consuming, we don't know. So -- but generally, in both scenarios, our renewals are similar, okay? So we have not done that kind of analysis of how much BT out because it is very difficult to do that. It's a very typical business, right? We don't know which one is BT and which one is taken out.
Got it, sir. And any guidance on LTV as we speak because the -- just as a precaution because the gold prices are inching up and the outlook is weak. So any guidance on LTV?
I mean whether outlook is weak or not is deferrable because whenever I read various things, almost 70%, 80% people says that gold prices still can go up internationally. But that's forever the debate. I mean, we are not into that business of predicting gold price. So what we do is, since the tenure of the loan is low, generally, tenure of the loan is low. So this LTV management through prices does not happen that much. But generally, I can say that we hover anything between 68% to 75%. And 75% also because part of our business is also agri portfolio. That's why there we can go up to 85% as per approved Board policy. So given that, it goes closer to 75%. And generally, it remains between 70% to 75%. In that range, it plays out.
I understand that sir. I'll come back in the queue. I have 3 more questions.
The next question is from the line of Shreepal Doshi from Equirus Securities.
My question was on LTV only. So why -- so what is our disbursement LTV in gold -- in retail gold and in agri gold loans?
Sorry, what is your question?
You want the break up between agri and normal gold loan, is it?
No, what is our disbursement LTV in agri, gold loan and in retail gold loan?
Your voice is not very clear. I can't hear you properly.
Mr. Doshi, I would request to please use your handset.
Sir, my question is what is our disbursement LTV in agri gold loan and in retail gold loan?
LTV -- see, as per regulatory norms, LTV in retail gold loans has to be below 75%. And agri, there is no this thing like that from a regulatory perspective, but generally, as per our internal guidelines, we try to keep it within 85%. And when we say LTV, we include the bullet interest or interest included in this. And hence, that is a conservative LTV calculation we do. How much for this thing on an average, it is well below 70%, obviously, for normal and agri will be somewhere around 75% to 85%.
Got it. And sir, just one more question here within the gold I mean portfolio only, there is a sharp decline in number of loan accounts. So just wanted to understand what is the ticket size that we are focusing on in the retail and in agri loans. Is there a thought process on ticket size? Or we are open to taking any sort of ticket size?
So typically, what has happened is now I've understood the previous person's question also. So if you look at it, we -- this sharp decline is between Q3 FY '24 and Q3 FY '25, okay? So this is -- it's not quarter-on-quarter decline. I said already that in previous quarters, we had moved INR 1,500 crores from the gold loan portfolio to loan against security portfolio because of some regulatory and other reasons, okay?
So because of that movement, those INR 1,500 crores corresponding accounts would have moved from gold loan to this thing. Though the collateral is gold, but it is classified on the loan against security, which has moved under retail, which we disclosed last quarter as well. So this also answers the previous because I didn't have the number in front of me. So we didn't make a mistake last quarter. It is basically year-on-year degrowth, okay? And year-on-year degrowth happened last quarter, because we moved our chunky portfolio of INR 1,500 crores from gold loan to loan against security for -- because we didn't want to take the benefits of gold loan under that. We moved them under loan against security.
Got it. Got it. This is helpful. Sir, just one last part. So in gold, what would be the average ticket size for retail products and for the agri gold loan?
I think our gold loan ticket size is somewhere between INR 1 lakh to INR 2 lakhs, okay? And I think ticket sizes are almost similar. Slightly lower, but it will between INR 1 lakh to 2 lakh average.
Yes. Got it. Sir, just one last question. As a policy or as a strategy in the gold finances, do we try to maintain 75% LTV throughout the loan tenure or only at the time of disbursement, we keep the upper cap of 75% and then we do not really track it during the tenure of the gold loan?
No, no, no. Gold loan is a very complex business to run on a day-to-day basis. So it's not like that. So before that, let me answer the other question, what is just came to me I forgot it. But on the -- the ticket size which you talked about, I suddenly remembered that now as per RBI regulation, okay? Agri gold loan cannot be below INR 2 lakhs, okay? Because you cannot take any more agri gold loan with security below INR 2 lakhs, previously, this used to be INR 1.5 lakhs. And hence, previously agri gold loan could not be below INR 1.5 lakhs. Now it cannot be less than INR 2 lakhs. So anything below INR 2 lakhs we are taking under general category and above INR 2 lakhs, we are taking under agri gold loan. So agri gold loan has to be necessarily above INR 2 lakhs as per regulation.
Coming to your question on LTV management, yes, while it is done at the time, but RBI regulation is that it has to be through the tenure, okay? And hence, we have to keep monitoring it. And whenever it is going above 75% or above whatever limits are set by RBI at any point of time, we have to go back to the customers and either take more gold or take more money to reduce the LTV. That's done diligently in the bank. Having said that, we -- that's why we keep some buffer in the system so that we don't have to keep going for INR 100 per head INR 100. So we manage it accordingly, but the rule is that you have to be through the whole tenure of the book, you have to be keeping above -- below 75% for normal gold loan. For agri, there is no such this thing.
Got it. So that is only for the retail gold loan not for the agri gold loan.
LTV norm.
Yes, yes, right. Let just a follow-up there. So we would have a bullet repayment option for agri whereas for retail gold loan, it will be typically EMI structure, right?
Bullet repayment has nothing to do with agri or non-agri. We can have bullet repayment on both because we are calculating the bullet repayment on the -- for the LTV calculation itself. And for our internal reasons, we generally like to keep it within 85% because that's our own way of managing risk. So given that, we keep the bullet repayment within that 75% or 85% whatever we call it.
The next question is from the line of Mona Khetan from Dolat Capital.
So firstly, on the corporate book, so now that I believe the [indiscernible] corporate book is merely bandwidth. I was just looking for some color on the book, like there is our average ticket size on this book? And what would be the average yield? And also maybe how many exposures are above INR 100 crores at this point? And where would you like to maintain the average ticket size in the corporate book?
So our -- what we have given in public domain is or this thing, we can share that broadly, our -- on a segment just give me a minute. So we vary between 9% to 9.5%, generally the average, depending on which quarter we are talking of, okay? .
And on the rest of the questions that you're asking is very much detailed. We generally don't share that level of detail of how many customers are above INR 100 crores and this thing. And given that perspective that our overall book itself is so small, it's not that too many customers will be above INR 100 crores and INR 200 crores, okay? But we don't have that data in the public domain, so we are not able to share it.
Sure. But some color on average ticket size will really help or the range of your ticket sizes?
Okay. I'll tell you -- so I can give you a roundabout answer on this. So our norms within the bank is that anything above INR 50 crores goes to our management committee and for better-rated companies, above INR 75 crores goes to management committee, okay? And most of our corporate loans goes to management committee, okay? Then rest you can deduct.
Got it. Got it. Secondly, on the fees side, so again, this quarter, we have seen a very strong growth as you highlighted. Sir, just want to understand how much of it is retail granular fees? And is there some component of corporate fee as well in this thing? And where would this ratio remain on the fee side? And could this sort of growth trend continue on the fee side for the first half this year?
So you have seen that our fee growth has continued and has been consistent. We are now around 19% to 20% of our overall income is coming through fees. Now that's also a ratio because NII has also come down, it has gone up. So -- but that's a ratio still.
On the growth, yes, we grew by 70%. The core fee, the way we define the core fee, which is scalable, granular and scalable is around 15% of that. And another 4% it depends on things like PSLC commission, some one-off here and there, et cetera. So 4% is onetime. It's not even onetime. Every quarter we'll get it, but it's not business linked kind of fee. It's not granular kind of a fee. So on that, I can tell you that 15% is very clearly granular fees, which I have a compounding growth story. Broad hedge processing fee commission upon bank assurance and this thing and some credit card-related fees, and some -- and on the noncore side, some PSLC commission, these are the broad larger lines, which are there. Trade for TFX is also there. So there is no chunky corporate fee as such out there. Mostly, it is granular and mostly scalable, which we'll see in fourth quarter also, our fee business will be good.
So this entire INR 200 crores, there is no corporate component, but there's only 4% of the fee that's probably onetime.
Not onetime. They will -- like PSLC commission on one of those income, which is the largest income in that 4%, but that PSLC can come every quarter also. We can consider them as core fee. PSLC is not your business fee. That's why..
Got it. And just finally, on the gold loan book. So any impact on the growth that you are anticipating in view of alignment with RBI norms in the ensuring quarters?
I have responded to the same question last time, so I'll repeat what I said. 30th September circular, we had done so much of work on our gold loan portfolio last 1 or 2 years that we would have implemented that 30th circular in the next 7 days itself, okay? Because we are almost ready on all the points, which have been communicated there.
Only one part of that is a continuous process, which is how many audits you are doing, what are the operational efficiencies you are creating, what controls we are building on a day-to-day basis, that's a continuous process. Other than that, we are ready with everything. And as on December, we have also communicated to RBI, as per their guidance or as per that circular about our compliance to all the points, which they have given, okay? So if it has not impacted us last quarter, I don't see that circular will impact us this quarter or in future. So we are quite comfortable with that.
Sure. And what would be the risk weight on agri gold loan versus retail gold loan? Is there any difference?
Actually, there is hardly any risk weight on gold loan business. So I don't know the difference, but there will be hardly -- materiality will not be there at all.
But what are the risk weights against gold loan just to refresh on gold loan?
Mona, overall the RWA consumption on gold is very minimal because there's a set up under value of the gold after doing a haircut. So after we do a haircut, that is compared to the outstanding and only whatever is beginning balance of that is risk weighted. Now in the overall portfolio also, we always maintain an LTV of 75%. So after doing haircut also, there is no exposure generally, which is in excess of the collateral that we are holding after the haircut also. But the overall portfolio level also, the RWAs are very low, the capital convention is very minimal on gold loan.
Okay. And sir when I look at the -- on Slide 16, there is a sharp decline in number of gold loan accounts, even as the gold book has grown from 5.2 lakhs to 3.9 lakhs.
Answered this before. Mona in the previous -- I don't know you might have joined a little late. So let me quickly answer this. You would remember that last -- this is last year same time to this year the same time Y-o-Y decline in number of accounts. The reason is, if you remember, last quarter, we had showed that INR 1,500 crores, roughly INR 1,500 crores of portfolio moved from gold loan business to LAS, loan against security for some regulatory compliance reasons. And then we don't classify them under gold loan, neither we take benefits of gold loan under that, including the risk weights and things like that. So because of that reason, those accounts also moved from gold loan to retail. That's the difference. That happened last quarter.
Yes, sir, I get that. So that number was about 7 lakhs. The earlier you posted gold loan account, which has come down in the new reporting to 5 lakhs. So even adjusted for that, the number of gold accounts were actually fallen year-on-year. So how do I read this? It's based on the new reporting, both these numbers a year ago as well as this quarter number?
I'm not looking it.
So last quarter when you have seen the slide on the gold loan included that LAS portfolio, whereas now we have recategorized the LAS portfolio included in this slide that, that portfolio has been removed from there.
Sir, I totally get that. I'm referring to today's, this quarter's presentation, where you have given last year's number, which is at 5.2 lakhs number of accounts and this quarter quarter, which is Q3 is falling to 4.9 lakh accounts. So I'm assuming both these as per the new reporting adjusted for the last...
This is exactly what I explained to the previous person also. Q3 FY '23 and Q4 FY '25 is 1-year gap, right? And this happened last quarter. So obviously, it will show on a year-on-year basis decrease.
No, sir. So if I look at last Q3 FY '24 presentation, sorry, just let me finish this. If I look at Q3 FY '24 presentation, this number was above 7 lakh accounts. So it has anyways come down based on your new reporting because you've also reclassified the loan book.
At the same time last year presentation, Mona, if you look that would have included the LAS portfolio. Now we have removed the LAS portfolio from both the periods.
Right, right. So I'm just trying to understand why the decline in number of accounts?
Better to do one thing, let us check it offline. We are not able to understand the exact thing. So what she is saying, I've understood her question. What she's saying is understand what it is. And that would be other reason, let's figure it out. What she's saying is that last year, Q3, this 5.22 was 7, okay? I don't know. I don't have the number yet. She might tell that number. So she's saying if you have corrected that, that would have been corrected from here and here, both, okay? So let's find out what is the reason. We don't know actually, Mona. I'll check this out. It could be that our ticket sizes we have Mona whatever we have to check that out okay?
The next question is from the line of Shivaji Thapliyal from YES Securities.
Yes. My question is, again, on the gold loan market as such. So this RBI advisory that we had seen as of September. And I just wanted to understand what is the early feedback in terms of -- is there any market share shift going on maybe from NBFCs to the regional banks because this RBI advisory is kind of targeted or maybe it is affecting NBFCs more because there are the ones which have not so far properly followed -- fallen in mind in terms of the processes? Or it's -- what is your trading of the gold loan market as such?
Thanks, Shivaji. So before that, let me just try and address Mona's question once, because I think I got the response. So what could have happened is, you're right that there has been drop. The reason could be that because RBI 30th September circular, I think, covered that less than INR 2 lakhs accounts cannot be gold loan anymore because you cannot hold collateral against that.
So because of that, we could have exited, but it doesn't -- it didn't impact. See, what typically happens is such small ticket may not impact your overall portfolio or some of those customers could have brought in larger value and come under this thing.
So because of that, some numbers would have exited because we couldn't have classified them under gold loan or agri gold loan anymore. And if we didn't give it as agri gold loan, they would have exited us because he will not get the LTV what he wants.
So given that perspective, there could have been some exits because of that. That's what I'm guessing, but we will do a more detailed analysis of this question. But this looks to be the most obvious reason because we did exit a lot of accounts from a LTV -- from our INR 2 lakh below INR 2 lakh collateral perspective. And this happened this quarter. So it could be that number.
Now coming to your question, Shivaji, see, we do our business. So we don't really necessarily try to capture market share based on some regulatory reasons or some arbitrage here, some are existing. So we just follow our execution and our market share is not that big that if there is a impact like that in the market, we'll get a lot of business and of this thing. So frankly speaking, the answer is I don't know, okay?
But what we know is our business has not been impacted because we were ready with most of the measures which were taken and we have engaged with various measures, which we've taken in our various supervisory reviews and everything like that. So from that perspective, we are pretty comfortable that these measures which have been prescribed as of 30th September has not impacted us overall as a business, which we show in the fourth quarter. For example, what Mona was asking that some accounts could have exited because they are small ticket accounts, which are classified as agri, they may have exited. But that won't have impacted the portfolio because on the portfolio size, we have grown.
So like that, some small little impacts would be there. But otherwise, broadly, I don't think positive or negative, we don't look at it. We just focus on our execution and in the process of what business comes down. So we don't try to find that gap in the market and try to address that. Those are too much strategic thinking. We just focus on execution.
The next question is from the line of Mr. Parag Shah from Knightstone Capital.
Am I audible?
Yes, Parag.
Yes. So my question was on the tech side. So I understand that the tech transformation is going to take something like 2, 3 years. But in this phase, how will the cost to income look like? So while this transformation happens, the OpEx has been already incurred or will it be incurred over the next 2, 3 years linearly? So how will the cost to income look like over the next 2, 3 years, while this transformation is taking place?
Yes, no, great question. So typically, the way it happens on this transformation whatever can be taken as CapEx is taken as CapEx. Not everything can be CapEx, not is OpEx also. So typically, our tech spend has been somewhere around 8% to 9% of our overall OpEx. And we believe that some of this CapEx when they move to OpEx along with that comes AMC also, which comes as an additional OpEx. When you do that calculation, we'd look at the TCO and we look at it, how it impacts our cost to income over the next 5 years because CapEx generally will do it for 5 years.
So given that perspective, we are seeing that it will remain in that range of anything between 8% to 10% of our overall OpEx. Because when it moves to CapEx to OpEx, AMC comes and it all neutralizes. So finally, we have to keep tech investments planned between 8% to 10%. We are somewhere around 9% right now.
Got it. And this will be -- this will remain in the 8% to 10% range until FY '27, I am presuming?
Probably forever, we don't know.
Okay. Got it. And next question was on the retail side. So you said that you have degrown or been conservative in the unsecured part. So which side of the segment you are looking to grow? Like is it LAP or affordable housing or are you looking to grow in the unsecured as and when the scenario changes?
See, the way we are doing right now is to see we are not growing that much in retail except for few strategic businesses like in CBC on strategic segments we are doing where you don't get that kind of a yield, but we want to be playing in that space. So CBC is growing. LAP is growing because that's a segment which will continue to grow forever, if you have -- it's like SME business, right?
So wherever we have visibility of the end dues, end customer, collateral, everything, we do those businesses more aggressively. We try to do business throughout in-house channel. We don't believe too much into DSA businesses. Though there are some DSA businesses doing in LAP, but we will gradually decrease it over a period of time.
But the road map in the long run is not product-centric. Road map on the long term is we will have all businesses and all products will have and based on the liability franchise and the customer acquisition they build in and around the branches, we very cross-sell and build customer acquisition and customer cross-sell and customer deepening as a part of the wallet share. That is the way we want to build our retail asset business very, very clearly because we don't need retail asset business to grow to build our 25%, 30% growth.
But we want -- but our liability franchise will not grow if we do not give them payments products, if we do not build wealth businesses, if we do not build retail assets businesses, that's why the entire bouquet of products has to be there, that's the way we do. Growth will come from LAP, CV, CE and as we grow auto inventory funding because we want to have a visibility of the end use and the end collateral.
And only where we know the customer well we'll do businesses like a little more like auto, then your personal loans and all of this. So that's a long-term plan of the bank. And even if we do this right, because the acquisition will be so huge FY '27 onwards, that cross-sell there itself will build our retail assets portfolio, which is on the -- not on the productive asset side, but on consumption asset side.
That will go on the existing customers based on a newer acquisition rate. That's a clear road map and clear strategy laid out. We are starting to build our strategy both on credit collections, products, processes, technology, everything on the retail asset side. That story has just started now. So it will take a year for us, and we will take off once the entire tech transformation happens when our liability side of the -- customer acquisition side of the story starts picking up, and then the retail assets really grow.
Great. That was helpful. Sorry for repeating the question, but again, on the cost to income side. So you said that you will continue to incur around 8% to 10% OpEx. So like how will the cost to income trajectory go below 50%, like it's not clear to me. Can you just explain that?
On that calculation. I'll explain. So I think if you have to run an efficient bank and if you have to actually bring down your cost to income, you have to incur 8% to 10% of your technology cost because you have to automate everything. Because people, productivity, all of that stuff will happen only when we are making the person productivity through on-the-go mobility on his hand, better customer service. Why should the customer come to us and ask for more products or why really build more balances. We have 3 other options in his hand, in his wallet, right? So only which can happen provided I'm able to give a better service, I'm able to cross-sell better, I'm able to on-the-go understand what the customer needs, I'm able to do better analytics, I'm having a better turnaround time. All of that stuff will require that kind of this thing.
So actually investment in technology prudently will help us in having a multiplier effect on productivity, which will reduce the cost to income. What it effectively means business per employee will go up, okay? Productivity per employee will go up. All of that stuff will go up, and we'll have more happier and more -- at a customer level, profitability will be much higher.
So that's the way we want to build up the franchise. This is a classical method where we are taking names, larger banks and more successful banks have done it. So we are not doing anything so special. We are just following the best practices in India as well as globally. I think 8% to 10% technology spend prudently is a great strategy by reducing. So if you have more products per customer, okay, whether it's on the wholesale side or on the retail side or on the SME side, automatically, your OpEx -- I mean operating expense comes down because of cost of servicing and cost of manpower comes down, right? So that's the way we also want to build the franchise.
Got it. And just to put this another way, so are there any onetime expense which you have taken this year or are going to take next year?
Not that I'm aware of. Most of our heavy lifting is sort of done now. Now you will see trickling on the CapEx to OpEx would only primarily. There's no onetime expense. All our leadership is in place right now. So we don't have any more leadership to be hired in the bank right now at a senior level. So most of the heavy lifting has been done, now they have to deliver.
The next question is from the line of Sarvesh Gupta from Maximal Capital.
Sir, just wanted to better understand your medium-term sort of an ROA. So the way I look at it is that right now, you're very heavily focused into gold loans. And there, you are incurring minimal credit cost. So credit cost is like 0.1% or 0.9% or something like that.
So now as you grow and you increase your mix into other products where as of now, your yield is lower. So your yield is probably going to come down overall because your gold loans are at a high yield, your cost to income is sticky and looks like it will remain at the same level. And your credit cost is also probably going to increase as you grow into other products. So what are the levers you are seeing to increase this ROA, if at all, you have the aspiration of increasing or do we want to sort of -- do we feel that this can be maintained also?
Yes. So I'll try and explain this. So I think our ROA, what I've told is somewhere around 1.5% to 1.8% in that range. I think given the overall environmental challenge right now, we'll stick to somewhere around 1.5% to 1.6% at this point of time.
But eventually, what will happen is, it has come down and it will start going up FY '28 onwards, again, I'll tell you how. So at the same time, when gold loan eventually by 2030 is slated to be around 20%, okay, of the portfolio, which is around 45% right now. The reason it will happen is along with gold loan, which is low on loss, high on yield, okay? Operating cost is also very high.
One of the reasons our business per employee, which is 8%, which is one of the lowest in the industry is also this gold loan business. One of the reasons is that most of our business, gold loan is also apportioned to the branch cost, et cetera, because we are not doing some of the other businesses do et cetera.
The fact is that wholesale business, our group head in wholesale Manish tells me that he can do 2% ROA business, okay? So it is possible that every business -- when I was doing my retail asset business many, many years back, I used to do ROA business, which is much higher than 2%, okay?
So the reason the way it happens is that your 1 customer has to have multiple products, okay? So in wholesale, for example, you will get in a account or get into a relationship at maybe 8%, okay, or even lesser. But then you build the entire ecosystem banking there cross-sell and other flows, other businesses, collection accounts, so many other things and then the supply chain will get more business.
In the process over at the account level, we will get ROA. Similarly in a corporate salary business, which you don't do by the way here yet, but we'll launch that once our this thing is done. Corporate salary business, you don't make money through liability by the way. You make money through cross-sell on fees, on assets, cards and all of this stuff.
So the banking business is not about a single product business. Unfortunately, we have become a product company because we are 50% gold or 45% gold loan. But eventually, the journey -- the whole reason of investing this kind of this thing into technology and leadership and distribution and customer acquisition, all of this is to move from a kind of a single product, 2-product business to a multiproduct because then you have a bouquet of products to customers and the whole idea is to get better cross-sell, better penetration per customer, whether it is wholesale, SME or retail, and then get the ROA up.
Also let me tell you by end of FY '28, '29 once this thing has gone live, and these things is chugging along very well. That's the time we launch wealth business. And wealth business, you make a lot of money provided, you start addressing the medium to top end of the pyramid, okay?
And there is a lot of money to be made there as well. Most of the retail banks, 20% of the customers contribute to 80% or 100% of the profit of those banks, okay? We are not existent out there. We will build those portfolio also by FY '29 onwards. We'll start building that. So there are many levers to create a ROA tree, and we have done it in the past. It's not that we have not done it. We know how to do it. But it's difficult to have a visibility right now because we are seeing CSB as a single product kind of a bank, which will not be after '27, '28.
And first, for building all these new lines of products and businesses, generally, I mean, for every business, it becomes a multiyear journey where you'll start with a more than 100% cost to income, and it will take some while for it to become profitable. So will that not impact your profitability as you want to develop into omni product and multichannel sort of a bank?
I'm glad you asked this question because this is exactly the mindset of a product company. When you -- I mean you can look at a product company, you can look at a franchise. When you look at a franchise, I'm not looking at a product profitability. I'm looking at a customer. I'm going to see what did I say in the beginning. My model is I'll give the customer what he wants. I'll not go to a DSA and tell him build our auto loan business for me. .
I'll not go to a dealership and say [indiscernible] or go to a DSA and say, we will build the personal loans business. That can never be profitable as per my experience goes for the same business which you're saving and in a cycle, we'll lose that business also. The way we will do it is that all products will be there. There will be a single channel, which we'll deliver to the customer. There will be other support teams, whether it is an asset team or it's a cards team or something else or a fees team which will help, but customers will be at the branch level to that branch -- so monitoring will be customer level profitability, not a product level profitability. As soon as they do that, then you are not investor. Unfortunately, many places have seen that people walk in silos. And in silos, these products don't -- takes time to breakeven. But the way they work with customer franchise, branches and channels, that's the day you don't incur those costs, which you otherwise incur.
So we will not incur that kind of a cost in these production businesses. We will -- everybody else will support the front end who is supporting the customer -- or servicing the customer. If we take that model, then there is -- that's a product-centric mindset to customer-centric mindset. That's the reason this model is very different. I have built this model on my excel sheet, and this is how we'll work. So I have no doubt about it that our growth will be faster FY '27, '28 onwards because liability will happen because of other cross-sell. Not -- liability also is not a different business. Liability happened because other things that are happening and has liabilities an outcome. That's the way we have to build the franchise.
And same thing, I mean, I'm talking about retail because I know that more, wholesale Manish, Shyam on the SME side, they also tell me the same thing on SME and wholesale as well. It's the same thing. More we leverage, more we penetrate the customer, and more money we'll make. So -- and even if 1 product doesn't make money, that doesn't matter. So that's the way we'll build, we'll build a franchise model. Today, unfortunately, we are a product bank. That's the reason why even a 1.5% ROA is looking difficult.
Understood. And finally, on your margins. So now if I look at last 12 months, obviously, now there are constraints on the CD ratio and hence, you had to take a lot of bulk deposits, which have probably hurt your NIM. So instead of growing at such a rapid clip to achieve the same result, thereby taking more risk and incurring higher operational cost. Would have -- would it be better to grow at a lower pace without taking bulk deposits because the end result in terms of absolute profitability would probably remain the same.
So no, let me answer that. Again, I'm glad you asked this question. It gives me an excuse to clarify our strategy again. Our strategy here not to maximize profits. Our strategy is not here to maximize NIMs, because 3 years down the line, 4 years down the line, nobody will remember what NIM was in FY '25, okay? What people will see is what is the franchise we are building, okay?
So if there's an opportunity to do a business, it has an opportunity to penetrate our corporate account, if there's a penetrate to build our market where I can acquire customers. If there is an opportunity to get into SME segment where I want to be. Should I stop doing that just because I don't have a liability franchise today. To me, the strategy -- our strategy is, the answer is not that. We have to fund that business, which we're building a long-term strategic franchise.
But do we want to do for business by going to a DSA and doing a personal loan business or some other business just to sort offline? Answer is no. Because for them, I agree with you that if I do that and then we take a high-cost funding, what are they doing? I mean we are going round and round around the circle. So given that, look at it this way, that after all these also, we have achieved a NIM of 4.11%, which is not so bad, okay? Now my entire stint in my -- one of the larger organizations I've worked in, it used to be 3.9% to 4.2% all my life, okay? So 4.11% is not a bad NIM. Look at our LCR still 130 period end and 119 average, okay? Our CD ratio, where a lot of large banks are struggling, our CD ratio is 86%, which is not so bad when we are sitting on a borrowing, which is 12% of our portfolio, okay?
Just think about it how much liquidity you are sitting on. Why we are sitting on it because we don't want to liquidity risk. And I don't want a situation where if Manish and Shyam tomorrow tells me that I want to do this business. I cannot say no, no, no, I can't support you from a liability perspective. I have to support it because he's building a franchise. We are building a franchise. And then once we build that, eventually, we'll make a lot of profits out of that based on the relationships which we are building.
So our strategy is a little different, we are not in the NIM maximization game. We are not in showing top line at this point of time. We are building a long-term franchise, which only we will kind of leverage FY '28, '29, '30 onwards. So our thinking and strategy is slightly larger than mindset. We don't want to play a niche strategy, which I've told many times. And this is not our new strategy saying that we'll maximize NIM, we will remain small, we'll do this. That can be also a strategy, but that's not our strategy.
Ladies and gentlemen, we will take this as the last question. I would now like to hand the conference over to the management for closing comments.
Thank you. Thank you, first of all YES Securities, Shivaji and team for hosting us. We had absolutely fabulous set of questions. And also some questions keeps me thinking on that gold loan, which I finally got an answer. So we may not be able to answer all the questions upfront, but I think we have been able to satisfactorily give a response to most of the questions. Thank you again for asking very good questions. And look forward to see you at the end of Q4 again. Thank you. Good evening to everybody.
Thank you.
Thank you. On behalf of YES Securities, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.