City Union Bank Ltd

NSE:CUB

Q1-2026 Earnings Call

[Operator]

Ladies and gentlemen, good day, and welcome to City Union Bank Limited Q1 FY '26 Earnings Conference Call hosted by AMBIT Capital. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. Jignesh Shial from AMBIT Capital Private Limited. Thank you, and over to you, sir.

[Jignesh Shial, analyst]

Yes. Thank you, Amshal, and good evening, everyone. On behalf of AMBIT Capital, I would like to thank the management of City Union Bank for allowing us the opportunity to host Q1 FY '26 earnings call.

We have along with us Mr. R. Vijay Anandh, Executive Director; Mr. V. Ramesh, Executive Director; and Mr. J. Sadagopan, the CFO.

I'll now hand it over to -- now I'll hand over to Mr. R. Vijay Anandh, Executive Director of City Union Bank for opening remarks. Over to you, sir.

[R. Anandh, executive]

Thanks. Thanks, Jignesh. Good evening, everyone. Hearty welcome to all of you for this con call to discuss the unaudited financial results of City Union Bank for the first quarter of FY 2026. The Board approved the results today, and I hope you all have received the copies of results and the presentation.

First of all, we are very happy to share that for the first time in the history, we have crossed INR 300 crores PAT. I hope all of you have received the notice of ensuing Annual General Meeting to be held on 13th August 2025, which will happen face-to-face at Kumbakonam after 6 years, along with a virtual mode as well. On behalf of the Board, I invite you all to participate in the AGM.

One of our directors, Shri N. Subramanian, had retired from the Board with effect from 19th June 2025 after completing 8 years tenure. During Q4 FY '25 con call, we have stated the expectations for FY '26 as follows: We did achieve double-digit credit growth in all the quarters of FY '25, and we stated that we will be back to double-digit growth.

With our efforts, our deposit growth is also back on track, and we said that we will align with the credit growth. We have reached our long-term average number with respect to credit growth, PAT, ROE and NIM levels. We said that the positive momentum will continue.

We also committed that NIM will be in the range of 3.5% in FY '25-'26. Largely, we are in line with the expectations conveyed on the last quarter call, no surprises. During last financial year, we have seen positive credit growth in the first quarter of the year, first time in the previous 10 years. With that momentum in growth, we have achieved double-digit growth in all the 4 quarters of FY '25.

For Q1 FY '26, we have achieved 16% credit growth quarter-on-quarter, the highest credit growth in June to June, and our advances have increased from INR 46,548 crores to INR 54,020 crores in Q1. As stated in our earlier calls, with improved efficiency level aided by the digital lending process, we have restored our consistent credit growth, and we hope that the current trend will continue.

Deposits. Our deposits stood at INR 65,734 crores for Q1 FY '26 as compared to INR 54,857 crores in Q1 FY '25, registering a growth of 20%. During our last con call, we have stated that concentrated efforts were given to deposit front to support our credit growth. With our efforts, our deposit growth surpassed our expected levels for Q1 FY '26. The average CASA increased by 6% from INR 15,757 crores in Q4 last year to INR 16,478 crores in Q1 of FY '26.

Asset quality. On asset quality front, for the current quarter, the total slippages is around INR 196 crores, while the total recoveries is INR 187 crores, consisting of INR 143 crores from live NPA accounts and INR 44 crores from technically written-off accounts. It is almost equal, and we are confident of maintaining recoveries more than slippages for the year as a whole.

Our gross NPA percentage had reduced to 2.99% in Q1 FY '26. Both gross NPA and net NPA in both percentage and absolute terms is reducing quarter-by-quarter for the last 9 quarters continuously. For the past 8 quarters, our GNPA has shown sequential decrease starting from Q2 FY '24, where it stood at 4.66%. Compared to Q1 of FY '25, the GNPA has reduced from 3.88%, which is 89 bps reduction. Similarly, our net NPA number has reduced to INR 635 crores. Our net NPA in terms of percentage is 1.2% for Q1 FY '26.

In Q1 FY '25, our net NPA was 1.87%, which is a reduction of 67 bps on Y-o-Y basis. Overall, our SMA 2 to total advances stands at 1.59% in Q1 FY '26 as compared to 2.22% in the similar period last year. Our SMA 2 slippage numbers have shown substantial improvement in the last financial year. It is stable in the current quarter as well.

While we are hearing from multiple financial institutions about building stress in asset quality front, we are closely monitoring the situation. And so far, we have not seen any sudden spike in the stress as of now.

PCR. In FY '25, we increased our PCR without technical write-off to 60% to bring it closer to the industry level. For Q1 FY '26, PCR without TW had improved to 61%, which had improved from 53% last year. Similarly, PCR with TW stood at 79% for Q1 FY '26, which has improved from 73% last year.

Interest income. Our interest income had grown by 16% in Q1 FY '26 and increased to INR 1,605 crores from INR 1,389 crores in Q1 FY '25. Our yield on advances stood at 9.81% for the current quarter as against 9.59% in Q1 FY '25. Our NIM for Q1 FY '26 stood at 3.54%.

During this quarter, the bank has passed the benefit to customers in line with the repo rate cuts. During the last call, we said though there will be fluctuations in the annual leave, we will be around 3.5%. That expectation continues. Even though the rate reduction was front-ended and happened much earlier than expected, we continue with our expectations. As suggested earlier, there will be a minor impact in Q2 as bulk of deposit repricing happens in Q3, but annual expectations continues to be around 3.5% as discussed in the last quarter con call.

On liability side, we have reduced the ROA on term deposits during April in tune with the industry levels and the slab of SP account undergone changes in the month of June, which will give reductions in overall cost going forward. The cost of deposits stood at 5.95% in Q1 FY '26 as compared to 6.02% for Q4 FY '25.

Other income. The total other income for the year has increased by 27% from INR 192 crores in Q1 FY '25 to INR 244 crores in Q1 FY '26. The major contribution for this growth is from treasury profit of INR 64 crores. For the current quarter, our operating profit had grown by 21% and stood at INR 451 crores compared to INR 373 crores in the corresponding period last year.

We have achieved a PAT growth of 16%, and our PAT stood at INR 306 crores for Q1 FY '26 as against INR 264 crores in Q1 FY '25. We have crossed the INR 300 crore mark, as I said earlier, in PAT for the first time in our history.

Cost to income. Our cost-to-income ratio for Q1 FY '26 stood at 48.12% as compared to 48.21% in Q4 FY '25. As we have discussed earlier, our CIR will be in the range of 48% to 50% for the next few quarters.

ROA. As per the expectations we shared, the ROA is at our long-term average and stood at 1.55% in Q1 FY '26 compared to 1.51% in the corresponding period last year. Our ROAs were over 1.5% consistently for the last 5 quarters.

To sum up, with our best efforts, we have accelerated to mid-teens. We will continue to explore various avenues of advanced growth in addition to our core strength of MSME. With the growth engine up and running, we could see visibility in achieving mid-teen growth at least 2% to 3% over and above that of the industry.

Our deposit growth is also back on track and aligning with the credit growth, expecting NIM in the range of 3.5% for the year FY '25-'26, as discussed in the last con call. ROA is expected to remain at our current level of 1.5% plus. We will achieve our PAT growth with the help of better asset quality. Our cost-to-income ratio will continue to be in the range of 48% to 50% for the financial year '26.

Thanks a lot. Open to questions.

[Operator]

[Operator Instructions] The first question is from the line of Anand Dama from Emkay Global.

[Anand Dama, analyst]

Growth has been trending very well at about 16% Y-o-Y, whereas you said that you would want to grow 2% to 3% above the system. So that's more of just a statement and you would continue to grow at more than 15% -- 15% to 16% range? Or you believe that this growth run rate will actually come down during the year?

[R. Anandh, executive]

Sir, we will continue to grow at the same level what we are growing, subject to the market conditions are conducive. And our overall numbers of SMA 0, 1, 2 on track, as I said in the call, as I said in my note. So till that time, we don't see any risk. We will continue to grow at the same pace.

[Anand Dama, analyst]

So do you really see any macro disruption or any asset quality risk on the SMA space to say that there will be some risk on the growth front in the next 6 to 9 months?

[R. Anandh, executive]

While we could hear this from other financiers, as of now, we have not seen this. Our metrics are holding. Hence, from our side, we don't see that risk as of today.

[Anand Dama, analyst]

Great. Sir, secondly, if you can talk about your retail strategy, how are you stacking up now, one? And secondly, on your gold loan front, the agri gold loan portfolio on a quarter-on-quarter basis is largely flattish. So is it because of the PSL guidelines that you have slowed down the growth in that segment? Or this is just a seasonal...

[R. Anandh, executive]

I will try to answer the retail first before we go to the gold loans. So our -- broadly, our retail strategy is on track. We said that LAP, HL, affordable and micro LAP, yes, the retail engine has started giving us the good numbers from both branch as well as from the DSA side. We did around INR 825 crores for the last quarter, combining all these 3. And hence, our retail, whatever we have planned is taken off well.

With respect to gold loan book, our gold loan agricultural portfolio is INR 76,198 million. If you see the presentation, Page 15, Slide #30, if you see Slide #30, there are details, on Page #15.

[Anand Dama, analyst]

I saw that, but that was largely flat on a quarter-on-quarter basis. Just wondering whether this will remain different for a while because of the impact of PSL guidelines or this should pick up?

[R. Anandh, executive]

This is seasonal. Agri is a seasonal business fluctuation. So this will move basis the seasonality.

[Anand Dama, analyst]

Okay. And in terms of margin, you guided for a 2.5% margin for full year. How will you see your...

[R. Anandh, executive]

3.5%.

[Anand Dama, analyst]

3.5%. So how do you see your cost moving? Any cuts that you have done on the TD front or anything on the SA front that you have done or you're planning to do that?

[R. Anandh, executive]

I will give you the broad math. My advances have brought down the yield by INR 135 crores. My reduction in deposit rate has given me INR 64 crores. This means I have INR 135 crores on left side and INR 64 crores of deposits on the right side, which is giving me a net impact of INR 71 crores. If you recall, my NIM used to be around 3.6% earlier. So this INR 71 crore impact will give me a 11, 12 bps reduction. So we will be around 3.48%, 3.49%. Hence, we are confident of maintaining this 3.5%. That was the math behind this commitment. And also, just to add, our repricing is happening on deposits in the month of Q2. Hence, we should have this 3.5% on track.

[Anand Dama, analyst]

Okay. And sir, I think RBI audit was on. Any observations over there from RBI side this time around?

[R. Anandh, executive]

It's currently happening, sir. RBI audit is currently happening for us.

[Operator]

The next question is from the line of Mona Khetan from Dolat Capital.

[Mona Khetan, analyst]

Congratulations on a good set of numbers. So firstly, on the margin front, so of the 100 bps of repo cut that has happened, how much is reflected in the yield reduction currently? Or how much is factored in the margin?

[R. Anandh, executive]

We have passed the repo rate cut to everyone, to all the customers. So we are at 9.93% in Q4 '24-'25, 9.93% has moved to 9.81% '25-'26 Q1, from 9.93% we moved to 9.81%.

[Mona Khetan, analyst]

Right. So of the 100 bps, is the first 50 bps fully reflected and the next 50 bps yet to reflect in the yield in the subsequent quarters?

[R. Anandh, executive]

We have done it in June. So we are more or less there in this.

[Mona Khetan, analyst]

Okay. So the second 50...

[R. Anandh, executive]

That's the math I gave it in the first question. So my advances repricing has brought down INR 135 crores to me. My deposit repricing has given me a gain of INR 64 crores. So INR 135 crores minus INR 64 crores is INR 71 crores is my net impact. And over and above that, I will have the Q2 repricing happening for my deposits. So broadly, we were in the range of 3.6%. This should give me a 3.5% margin for us.

[Mona Khetan, analyst]

Got it. But I'm just trying to understand, despite having a large share of EBLR loans, why is the yield reduction very limited? I mean, what is helping you here?

[R. Anandh, executive]

So before I give that, if you have given the final pricing earlier, reduction will be low to that extent, number one. Number two, to answer your question, our EBLR is currently at 48%, fixed is 30% and MCLR is 70%. So our EBLR is only 48% of my book as we speak today.

[Mona Khetan, analyst]

Okay. Got it. And just secondly, on the SMA 2, you mentioned what is the current number? I missed that. And what was it last quarter?

[R. Anandh, executive]

One second. SMA 2 to total advances at 1.59% in Q1 FY '26 as compared to 2.22% earlier.

[Mona Khetan, analyst]

In Q4?

[R. Anandh, executive]

In Q1.

[Mona Khetan, analyst]

And what was the same in Q4?

[R. Anandh, executive]

I can give that, one second, give me a minute. We have come down further. So we were almost in the same range, more or less. In fact, we have come down a little bit, which is very marginal.

[Operator]

The next question is from the line of [ Hardik ] from ICICI Securities.

[Unknown Analyst]

So Anandh, okay, how should we think -- look at your margins for the next quarter? Like just a 6 basis points margin decline this quarter and probably 50 basis points of repo rate cut should be -- for 2 months, it should be pending, right, to be reflected? So for the next quarter, how should we look at your margin?

[R. Anandh, executive]

Well, overall, we have said that we will be around 3.5% for the year. Next quarter, we should -- this quarter, Q2, we should be around 3.45% to 3.5%. That's the number which we are looking at. And probably in Q3, we will be around 3.55% and Q4, we should be around 3.55% to 3.6%.

[Unknown Analyst]

Okay. That's helpful. Sir, any -- was there any one-off in net interest income in this quarter?

[R. Anandh, executive]

Nothing, sir.

[Unknown Analyst]

Okay. And sir, just final question is, sir, how do you look at your PCR? I understand that you have increased it, but it's still at around 60%. So what is your PCR target for, let's say, like FY '26 or FY '27?

[R. Anandh, executive]

There will not be much. We will be around 61% now. We could move to 63%, 64% max because it's completely a secured business, whatever we are doing. We have negligible unsecured in our book. So probably 63% to 64%, we can look at.

[Operator]

The next question is from the line of Sonal Minhas from Prescient Cap Investment Advisors.

[Sonal Minhas, analyst]

I'm Sonal Minhas. I wanted to understand the reason for increasing the provisions in this particular quarter. Anything specific or this is just specific to Q1 provisions being on the higher side?

[R. Anandh, executive]

No, we did... Actually, the provision towards bad debt got reduced from INR 78 crores to INR 70 crores for the current quarter, while the tax provision remains in the range of INR 75 crores. We made INR 145 crores for the current quarter.

[Sonal Minhas, analyst]

Okay. So nothing to read on the bad debts in terms of provisions...

[R. Anandh, executive]

No, sir.

[Sonal Minhas, analyst]

Got it, sir. Okay. Sir, second, I wanted to understand the segmentation of the advances growth. Is this incremental growth of -- from early teens to mid-teens largely attributable to the new verticals you've entered? Or this is largely working capital cash and credit loans that has basically seen a higher rate of growth. So what can you attribute the higher...

[R. Anandh, executive]

I think I did give my number on retail. We did around only INR 825 crores in retail. And mostly, it is the MSME growth, what we used to do before under JL and MSME. So our heart remains same. The JL is around INR 700 crores. Retail is around INR 825 crores and [Foreign Language] everything is MSME.

[Operator]

The next question is from the line of Parth Gupta from B&K Securities.

[Parth Gupta, analyst]

Sir, my first question is, what is the credit cost guidance for FY '26? Now this is in the light of -- because we are hearing that southern regions, there are some delinquencies coming up in micro LAP and LAP portfolio and both within secured and unsecured. So can you just throw some light on that? What are we hearing on the ground? Yes, sir?

[R. Anandh, executive]

Sir, we have just launched retail, you would be aware, and this is our second full quarter. And it is too early for us to comment anything on the delinquency because as of now, we are not seeing anything. And to answer your question for the credit cost for the year, we should be somewhere between 0.2% to 0.25%.

[Operator]

[Operator Instructions] The next question is from the line of Himanshu Taluja from Aditya Birla Sun Life AMC.

[Himanshu Taluja, analyst]

Congrats on a good set of numbers. Sir, can you just throw some perspective on your -- on the MSME segment from a -- are you seeing any signs of stress in the segment? And anything to read from a Southern because we got to hear from some of the con calls that probably some of the Southern states are showing some bit of the higher delinquency trends. Can you put some perspective around that would be very helpful.

[R. Anandh, executive]

Sir, if you talk about MSME, we are completely secured. We don't give any unsecured MSME, number one. Number two, as of now, our SMA 0, 1, 2 as we speak, is currently holding, and we don't see any issues as of today. So whatever the commitment I'm giving is basis today's number. And as I said, SMA 2 1.59% of my advances, which has come down from 2.22%. And even from Q4, it is more or less flat or marginally down. So we don't see much issues on MSME secured front, whatever we have.

[Operator]

The next question is from the line of Krishnan ASV from HDFC Securities.

[Krishnan ASV, analyst]

My most of the questions have largely been answered. I've just got one query. This is pertaining to just the demand environment within MSME. There's generally been feeling that working capital requirements are pretty low because inflation is pretty benign. Just wanted to understand what you are hearing, what you are sensing from the ground, what your RMs are actually telling you?

[R. Anandh, executive]

So the market as of now is flat, I would say. So when we meet the existing customers, some of the industries are doing well and some are looking flat. And based on the requirements, we are also analyzing and we are taking the exposure on the call. Even for the new-to-bank customers, we are looking at the business prospects and what kind of industry is operating and how is it going and what is the demand? And really is there a need for working capital and what is going to be the CapEx before we are taking the final call. As of now, the message from my existing to bank customers, we have not seen anything very, what you call, unusual. So looks like it's stable and on track.

[Krishnan ASV, analyst]

I guess I'm asking you because you kept highlighting that retail is relatively new in the second quarter. Dual loans remain where they were. A bulk of your credit growth has come on the back of MSME. But given that we are in a benign, I was just wondering, are there any early signs about this growth beginning to taper off...

[R. Anandh, executive]

That's what I said a couple of minutes back, sir. The metric is holding. We don't see unusual pattern in our metrics, whether it is SMA 0 or 1 or 2. Probably something is not working as per our prediction or as per our plan, we could have switched off the engine. But we did not see anything as we speak as of today. So our monitoring is very close and very frequent. And probably every month, we go back and check whether things are looking fine, and it's well, well within the budget. So we don't see anything for your question as of now.

[Krishnan ASV, analyst]

No, sure. And I think probably -- I mean, I can get in touch with you offline, with 2 you in offline because I was trying to address the growth component, not the stress. But anyway, I'll come to that later.

The second issue was around all these tariffs, the noise that we are hearing around tariffs generally seems a lot centered around the textile industry. Given our exposure to that industry, what is the sense you're getting there, sir?

[R. Anandh, executive]

So we came to know last night, last evening, and we immediately reached out to our customers. We have quite a good exposure there in textiles, as you rightly mentioned. A few of our customers are more Europe-oriented. And out of my total exposure, only 20% of the customers seems to be with the U.S. And having said that, their version is their profit margin should get compressed by 2%, 3%. That's the number which they are paying on this tariff. So nothing alarming.

So we have around INR 1,200 crores in our total exports. And out of that, even if I take 20% and the margins they are saying when we did have a discussion in the morning with a few of the seasoned guys and who does a decent exports, their version is 2%, 3% compression, nothing beyond that.

And most of the players have started focusing on European segments now. So to diversify the risk. So I think it's broadly, I would say, flat and nothing much to worry because materialistically, it is not a big number for us.

[Operator]

[Operator Instructions] The next question is from the line of Himanshu Taluja from Aditya Birla Sun Life AMC.

[Himanshu Taluja, analyst]

Again, just one question. If you put some perspective on the retail portfolio that you are building. Currently, what I can see is the housing and the personal loans. Can you put something how much is the pure housing loans and the LAP portfolio? And what is the blended yield of your housing portfolio?

[R. Anandh, executive]

Sir, no personal loan. We do only home loan and LAP, no personal loan. There is no personal loan. We don't do unsecured loans, we don't do unsecured. We do only home loan and LAP. I have not taken it separately. Probably when I meet you, I'll give it you in person or probably I'll separately and send it across.

[Himanshu Taluja, analyst]

What is the blended yield that you have on the home loans and the LAP together?

[R. Anandh, executive]

Home loan and LAP put together, we could be around 9.8%, 9.85%.

[Himanshu Taluja, analyst]

Fair. And any other plans to get into any of the other retail segments that you are trying to look at?

[R. Anandh, executive]

No unsecured, sir. We might get into -- we have a huge presence in rural and UBR branches. So we want to get more active there in terms of affordable housing or home loan because basically, we are doing branch-driven sourcing. As I said earlier, my DSA business is only 20%, 80% is coming from my home branches. So that strategy is still there. We have not changed our goalpost. So 80-20 as we speak, out of INR 825 crores, INR 160 crores alone has come from DSAs and direct. So we will also get into affordable and micro LAP to our home branches.

[Operator]

The next question is from the line of Param Subramanian from Investec.

[Parameswaran Subramanian, analyst]

Congrats on the quarter. Sir, I just wanted to understand from your MSME exposure, how much of the book is exposed to, say, exporting MSMEs? And do you see any signs -- so of course, textile is one of the biggest sectors for us, but do you see any pressures that could come through from some of the announcements that are coming through today, for example?

[R. Anandh, executive]

I think we just discussed INR 1,000 crores, INR 1,200 crores is my total exports. And say 20% is broadly with respect to U.S. So majorly textiles, and we did have a candid discussion with our good customers who do a very decent business. So their version is most of them are -- I mean, moved their risk to European markets. And 20% who are doing with U.S., their view is that 2% to 3%, there could be a margin compression. Beyond that, they don't see anything big negative in this. And anyway, our materialistically, our numbers are quite less, by the way.

[Parameswaran Subramanian, analyst]

Okay. So INR 1,200 crores is the total exporting exposure?

[R. Anandh, executive]

Correct. Correct. Out of that, 20% is focusing on U.S. market.

[Parameswaran Subramanian, analyst]

Okay. And this is within textile or this is across your MSME because...

[R. Anandh, executive]

Broadly textile, sir. Textiles is major for us.

[Parameswaran Subramanian, analyst]

And others would not have any exporting...

[R. Anandh, executive]

Very, very less, very less. Maybe carbon kind of stuff, very, very less, not a big number.

[Operator]

The next question is from the line of Bunty Chawla from IDBI Bank.

[Bunty Chawla, analyst]

Congratulations, sir. Can you share some thought process on fresh slippages of INR 196 crores from which segments have come, if you can give some bit of light on that?

[R. Anandh, executive]

Okay, one second. MSME is INR 148 crores, 75%, 75.82% -- 75% MSME out of INR 196 crores.

[Bunty Chawla, analyst]

And rest will be?

[R. Anandh, executive]

Rest, we have agri around 3%, CRE around 2%, educational loan around 0.7%, which is again -- and all are very, very negligible numbers after that. Wholesale trade around 0.96%.

[Bunty Chawla, analyst]

Okay. And sir, what we are observing net addition has been negative up to Q3. From last 2 quarters, we're getting some bit of increase in net addition. For example, this quarter was around INR 53 crores and last was [ INR 20 crores ]. How one should see that number because we are targeting recoveries and upgrades should be higher than the slippages as such?

[R. Anandh, executive]

I will answer in 2 questions -- 2 parts in this. For the current quarter, the total slippages is around INR 196 crores and the recovery is INR 187 crores. So broadly, we are talking about INR 9 crores difference. And as we said before, on an annual basis, our recoveries will be more than slippages. This is number one. Number two, if you see our slippages, our slippages has come down from INR 259 crores to INR 196 crores from Q4 March to June from INR 259.49 crores to be precise, we have moved down to INR 196.28 crores, yes, which is INR 50 crores reduction.

[Bunty Chawla, analyst]

Okay. And sir, lastly, on the PCR, if we calculate, it has quite drastically improved from last many quarters to 51% to currently 60.76% or roughly 61%. Where is our thought process to bring by end of FY '26, this number?

[R. Anandh, executive]

We would be around 63%.

[Operator]

The next question is from the line of Pritesh Bumb from DAM Capital.

[Pritesh Bumb, analyst]

Yes. So a few questions. One is on the yield perspective. Basically, I wanted to check what is the reset time for our working capital loans? I mean just wanted to check how much pass on has happened, how much...

[R. Anandh, executive]

The rates were fully passed on. My EBLR is at 48%, my fix is at 78% and the remaining is MCLR. My yields are passed on. Sir, you are breaking now. Sorry, we are not able to hear you. Sir, we are not able to hear you, sir. We are not able to hear you, sir. Sorry.

[Operator]

Sorry to interrupt, sir, but could you go to a better reception area?

[Pritesh Bumb, analyst]

Can you hear me now?

[Operator]

Yes, you're a bit audible. Yes, sir, go ahead.

[Pritesh Bumb, analyst]

Sorry, sir, just wanted to check, although they are on EBLR, is there any reset or is it happening on T plus 1?

[R. Anandh, executive]

See, the passing is based on the final pricing. So the passing will happen basis the pricing what we have given. So to answer your question, our repo rate passing has finished and we have done with the customers. So net-net, that's what I've been giving the math. In terms of advances, my negative is INR 135 crores. My deposits because of my reduction in rate positive is INR 64 crores. My net impact is INR 71 crores as of now. My -- this deposit repricing again is happening in the Q2 end. So effectively, I will have a 11%, 12% -- 11, 12 bps cut. So that's the reason why we are saying we will be maintaining at 3.5% for the year.

[Pritesh Bumb, analyst]

Got it. No, sir, but just on that question, which I asked, basically, what I wanted to check is generally, the loans are for 1 year, right, some working capital or cash credit can be for 1 year. So the reset happens immediately. Is that correct?

[N. V. Kamakodi, executive]

See, Kamakodi here. If it is based on the EBLR, the passing on will happen, let's say, immediately. For example, if we had already given final pricing earlier, let's say, some amount of discount given in the past, based on that much amount of, let's say, say, for example, whatever related to that risk rating, EBLR-related rating is, say, for example, 10 percent which is I have already given 50 basis point concession to the associated risk. When 1 percentage reduction in the EBLR happens, the net impact to that customers will be only 50 basis point. You understand what I'm trying to say?

Finally, whatever that is -- so like EBLR will come down by whatever percentage, but some amount of [indiscernible] will be there depending upon the, let's say, concessions given in the earlier period. Also because of the, let's say, composition of advances, say, for example, our -- close to 30 percentage of our loan book is from the gold loan, which is at the fixed rate. You also have MCLR.

So because of that, even if you have 1 percentage reduction in the overall EBLR, net impact will be only, let's say, to that extent, lesser, and that is what it has happened. So some amount of extra -- let's say, maybe 5, 10 basis point extra can happen because some of the rate passing happened only in the June, they may not have impact for the entire quarter, but they will be having full impact for the second quarter.

So that's why, in fact, we had given -- the question repeatedly came in the fourth quarter con call was that how are you certain that your rate reduction will be, let's say -- I mean, you will be able to maintain the margin of 3.5%. We repeatedly explained this calculation, and we are sticking with that calculation even now.

Even after having the 50 basis points -- I mean, the last rate cut, which was front-loaded, which we actually expected only in the, let's say, towards the end of the current calendar year, even though it got, let's say, implemented much earlier, we are still sticking with the, let's say, expectations, which we shared during the last con call.

We expect because we have a higher amount of repricing of deposits because of the maturity in the third quarter, so the repricing of assets will be more in the second quarter, and that's why we say there will be some reduction in the -- let's say, maybe a few basis point incremental reduction. But year as a whole, whatever expectations we shared in the last con call that we will be having 3.5 percentage -- I mean 3.6% plus or minus 10 basis point to be precise, whatever we said.

So we still stick with the, let's say, the margins predictions or expectations, whatever we shared during the fourth quarter last con call. It is very difficult to get into the individual basis point wise calculations and all. So we gave you a broader categorization calculations based on the composition of the loan and how they pass on.

What I can say you now is that the MCLR reduction -- I mean, the EBLR reduction that needs to happen because of the rate reduction, whatever that has happened so far has already been given full effect to all our existing customers currently.

[Pritesh Bumb, analyst]

Got it. Sir, second question was on branches side. So we've not added any branches [ this fiscal ] or maybe we added only 1 branch this quarter, and we have announced some branch additions on the exchanges in this quarter. So how -- what kind of branch addition we should see in this full year?

[R. Anandh, executive]

On an average, we have been doing 75 branches per year, and we should continue this. And the Q2, Q3 will be more. In fact, as we speak, in Q2, we have opened quite a substantial branches in the first week. So we have already done with, I think, 8, 10 branches, and we will continue with that. And we will be around 75, 80 branches for the year.

[Pritesh Bumb, analyst]

Okay. So the follow-up on that is that will we see some OpEx increase because we'll have to add people maybe because the branch cross operational and all?

[R. Anandh, executive]

Once we open the branch, a proportion of expenses will be there and 15% expenses would be there and fine, this is very normal, whatever we do in terms of branch opening.

[Operator]

The next question is from the line of Gaurav Jani from Prabhudas Lilladher.

[Gaurav Jani, analyst]

Congrats on the quarter. Just a question on the fee income. So last quarter, we had some bulked up fees because of, I think, a banker. And that has actually probably come off this quarter. So that is number one. So as to why has there been a reduction? And could we revert back to the previous levels is my question? And I'll just come to the next part later.

[Unknown Executive]

Sir, bancassurance income is always very high on Q4, if you see, that's normally going to happen. And with respect to the bancassurance income, we are on target with what we have stipulated for Q1, Q2, Q3, Q4. I think this quarter, we have done around INR 15.74 crores to be precise, which we moved from INR 12 crores we were at Q1 last year, and we have done INR 15 crores this year. Last year, again, moved from [ INR 12.18 crores, INR 16.51 crores ]. We expect the same trend to continue this year. We don't see any...

[Gaurav Jani, analyst]

Sure. And sir, the next part is FY '25, right, versus FY '24 because obviously, of the kicker from the banca, our fee to assets has improved by 10 basis points. What sort of a trend do you see that -- do you see shaping up over the next -- over the near to medium term as to fee to assets as a percentage?

[Unknown Executive]

We moved from INR 54.64 crores to INR 97.56 crores, sir. So this is always directly proportional to the business. So from INR 54 crores we have moved to INR 97 crores. Now that we are having a 16% growth, we should exit with a decent numbers for the year.

[Gaurav Jani, analyst]

Understood. No, sir, what I meant is the fee-to-asset ratio as to how do you see that shaping up overall from a near to medium term?

[Unknown Executive]

Sir, this is not a materialistically big number for us. We did INR 54 crores in '24 -- '23-'24. As I said, we did INR 97 crores in '24-'25. And this increment is always vis-à-vis my business, what I'm growing.

[Gaurav Jani, analyst]

No, I'll probably take it offline, I'll take it offline.

[R. Anandh, executive]

Yes, 1 minute, I just want to add. Earlier, we had our relationship with only one insurance company, LIC. Last year was the first year when we had -- for the whole year, we had a tie-up with multiple insurance companies. So we had a quantum jump last year. It cannot be just extrapolated year after year. So normally, the bancassurance income will be growing in proportion to the business growth and branch growth and that usual growth, we hope it will be continuing for the current year also.

[Operator]

The next question is from the line of Ajit Kabi from BNP Paribas.

[Ajit Kabi, analyst]

Congratulations for a good set of number. I have the first question from the line item in provisions. So the provision number this quarter is around INR 700 million, out of which the write-off made in this quarter is around INR 744 million. So -- and in the provision stock, there is hardly any movement. In last quarter, it was INR 985 crores. Now it came to INR 982 crores. So is it fair to assume that whatever provisions made this quarter was towards the write-off and no additional specific provisions has made in this quarter?

[R. Anandh, executive]

No sir, actually, we have written off probably in Q2 and -- D2 and D3 accounts, which further we made earlier provision towards 50 and 70 to 80 percentage. So the balance amount only to be provided for the current quarter. And whatever the addition happened around INR 180 crores in the quarter mainly consists of SSA, which needs around 15 to 25 percentage of provisions only. So it's all based on the IRAC norms and whatever the requirement we provided.

[Ajit Kabi, analyst]

Okay. So can you give a little idea, we are getting the restructuring -- the provision towards the restructuring assets. Any idea about the standard asset provisions and any contingent provisions you are making earlier, any idea or can you give the number for those, the contingent provisions in the standard asset provisions? The provisions for...

[R. Anandh, executive]

See whatever the provision we made towards the MSME restructuring, also non-MSME restructuring earlier 2 years back, now after completion of successful 12-month period of repayment, the provisions are now -- we are getting back so that we don't need to provide any additional provisions towards standard assets. And whatever the requirement, that's already proved off.

[Ajit Kabi, analyst]

Okay. So that's nice. The second question is from that gold loan. The gold loan has seen a significant sequential jump this quarter. We can see the gold loan has improved around 11% sequentially. So I just want to know these loans, whatever you have disbursed or sanctioned in this particular quarter, are they to the existing customer or any new customer is already added? Because in this season, we see the high gold rates and gold price has already moved to an upper level. So I just want to know whether those particular loans is overleveraging or the new customers are going to -- are added in this quarter?

[R. Anandh, executive]

So it's a combo of both existing to bank and new to bank. And broadly, it will be 85-15, 90-10 kind of stuff between ETB and NTB, number one. Number two, in terms of LTV, it is very clearly documented. Regulatorily, we cannot give more than 75%. That includes even the interest as well. So when we start, we do with 67%, 68%. So we have been doing this for the last so many years. So it's not new to us. Hence, the portfolio is also holding and LTV is also well below the threshold limit.

[Ajit Kabi, analyst]

And the last question for me is in the personal loan that which we have around 3% of the entire loan book, which -- what carries in this personal loan? I just understood that personal loan is not unsecured loan. So what are those sort of segment of loans which are included in this particular segment?

[R. Anandh, executive]

So whatever we would have given to the existing MSME customers, we normally -- we have a holistic relationship. We don't want them to go to some other bank if he is married to us because we are the sole banker. So we would have taken the call only for my existing to bank MSME borrowers. We don't do personal loans for new-to-bank customers.

[Operator]

The next question is from the line of Chinmay Nema from Prescient Capital.

[Chinmay Nema, analyst]

I just have one question. Could you talk about the competition that you see from large private banks on the MSME side?

[N. V. Kamakodi, executive]

The competitions had always been there, and they will always be there. With all the competition only, we also need to thrive, which we had been doing from 1904.

[Chinmay Nema, analyst]

So sir, in terms of service quality metrics, like turnaround time, typically, how do you differ from other banks in this space?

[N. V. Kamakodi, executive]

See, as I had been repeatedly saying in my multiple con calls, this is basically a commodity business. And you have to -- like say, you need to continuously convince the customer that you are providing service for whatever price he is paying.

[Operator]

The next question is from the line of Jai from ICICI Securities. As there's no response from the participant, I now hand the conference over to the management for closing comments.

[N. V. Kamakodi, executive]

So thank you all for attending the conference, Kamakodi here. So when I was hearing, let's say, the bulk of the, let's say, the questions were particularly on, let's say, growth, whether we will be having mid-teen or plus 2% or whatever it is. So these things are like always, let's say, till last minute on, say, 31st of March, you will be finding it extremely difficult to exactly do what it is. We are just giving a broader expectations.

What I have to clearly say is that as of now, everything is looking pretty good. So the acceleration in the growth is pretty visible. Profitability, for the first time, we have crossed, let's say, INR 300 crore mark for the quarter. The slippage also has sequentially reduced from the fourth quarter. Even though you listen at multiple -- from multiple corners that there are issues, so far, we are not, let's say, facing that, but we are very closely monitoring the situation.

It gives us sufficient comfort that we should be able to, let's say, maintain the growth rate and probably maintain the profitability as we move forward. The margins should stabilize from the third quarter. And also, you have the -- let's say, we have to increase the CD ratio and also you have the CRR rate cut. To that extent, if we are able to move, there will be further strengthening of the margins.

There are enough levers to improve the margins, if we are able to increase the thing. Earlier, there were issues of the LCRs and all, a lot of constraints on the liability side, which have been removed. Many uncertainties in the gold loans have also been taken out from the recent circular. So there are enough opportunities now.

Moreover, currently, gold loans particularly are looking extra lucrative because yields are also supporting and the -- it's also coming in the fixed rate not getting affected by the decreasing interest rate scenario. Considering everything, I think the financial year, let's say, should be progressing with, let's say, a lot of positive hope.

So we are -- at the same time because of the 25 percentage tariff now announced by the U.S. or the other caution given by, let's say, a few, let's say, financial finance companies, particularly on the Karnataka and all. I mean we have a little exposure in Karnataka. But overall, things look extremely positive, be it in terms of growth or be it in terms of the profitability.

And we hope to complete this year pretty in a decent way, both in terms of growth and also in terms of the quality. If at all, any changes in the pattern, we will be continuing to, let's say, discuss with you during the forthcoming con calls.

So in that background, to sum up, let's say, things are even shared better than what we anticipated maybe 6 months back, but things are turning out to be much positive, and we hope this positivity will continue for the foreseeable future.

With these words, I once again thank you all for participating in this con call and hope to meet you all with the better quarters in the, let's say, future, be it in after September or December and March onwards.

So once again, thank you all, and thanks for AMBIT for arranging this conference, and thanks for all of you for attending this. And once again, we welcome you for the -- for attending our Annual General Meeting. Thank you all.

[Operator]

Thank you. On behalf of AMBIT Capital, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.