State Bank of India
NSE:SBIN
Earnings Call Analysis
Q3-2024 Analysis
State Bank of India
The bank has witnessed an improved asset quality, evident from a 5 basis point year-over-year decrease in the slippage ratio, which now stands at 0.67%. Additionally, credit costs have reduced by 12 basis points on a year-over-year basis, settling at 0.67% for the nine months of financial year 2024. The bank is well-provisioned, with a Provision Coverage Ratio (PCR) including AUCA at 91.49% and PCR for Q3 FY24 at 74.17%.
Historically, the bank's credit growth outpaces the nominal growth by 3% to 4%. Staying true to this trend implies that a substantial increase over the nominal growth is not customary. The bank's conservative risk approach has been highlighted, with a keen emphasis on quality over quantity.
The anticipated wage increase has been calculated at INR 500 crores per month, leading to an annual impact of INR 6,000 crores. Despite the provision for wage increase, the overall wage bill for the next financial year is predicted to decrease from INR 77,000 crores to INR 66,000 crores due to preemptive provisions.
The bank has invested in structures such as 400 credit processing cells and continues to enhance digital workflows for SME loans and home loans. An emphasis on leveraging technology and analytics is evident in efforts to improve employee productivity, which has risen from INR 18.77 crores in 2019 to INR 29.78 crores. Although some provisions affected the profits, the executive dreams of reaching INR 1 trillion profit for the bank in the absence of such circumstances.
The bank reported a 20% year-over-year growth in other operating expenses. However, in terms of absolute numbers, these expenses are not considered significant, and the relevance of this increase was questioned, indicating expectations for eventual normalization.
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Namaste, and good evening, ladies and gentlemen. I'm Sanjay Kapoor, General Manager of Performance Planning and Review Department of the Bank. On the occasion of the declaration of the bank's quarter 3 for FY '24 results of the bank, I am delighted to welcome the analysts, the investors and the colleagues for this in-person meeting. I also extend a warm welcome to the analysts, investors and colleagues who have joined this presentation through our live webcast. We have with us on the stage, our Chairman, Shri Dinesh Khara at the center; our Managing Director, International Banking, Global Markets and Technology, Shri C.S. Setty; our Managing Director, Corporate Banking and Subsidiaries, Shri Ashwini Kumar Tewari; our Managing Director, Risk, Compliance and Stressed Assets Resolution Group, Shri Alok Kumar Choudhary; our Managing Director, Retail Business and Operations, Shri Vinay M. Tonse; our Deputy Managing Director of Finance, Smt. Saloni Narayan. Our Deputy Managing Directors heading various verticals and Managing Directors of our subsidiaries are seated in the front row of this hall. We are also joined by Chief General Managers of different verticals and business groups.
So to carry forward the proceedings, I request Chairman sir to give a brief summary of the bank's quarter 3 FY '24 performance and the strategic initiatives undertaken. We shall thereafter straightaway go to the question-and-answer session.
However, before I hand over to the Chairman sir, I would like to read out the safe-harbor statement. Certain statements in these slides are forward-looking statements. These statements are based on management's current expectations and are subject to uncertainty and changes in circumstances. Actual outcomes may differ materially from those included in these statements due to a variety of factors. Thank you. Now I would request Chairman sir to make his opening remarks. Chairman sir, please.
Good evening, dear friends, and thank you for joining this analyst meet today. I would like to start by thanking the support of all our stakeholders, including our customers, shareholders, employees, and the broader ecosystem. Without their support, we would not have been in a position to achieve what we could. Fairness to all our stakeholders remains at the crux of the bank's culture, which in turn has helped us in creating sustainable value.
Let me start with a brief description of the present global and domestic economic scenario. Global economy is projected to grow at the rate of 3.1% in '24 and 3.2% in 2025, owing to greater-than-expected resilience in the U.S. and several other emerging economies. While global economy is showing resilience, the projected growth is still below the historical average of 3.8% for the 20 years starting from 2000. While the likelihood of a hard lending has receded, still there are certain risks that need to be monitored. New commodity price spikes from the geopolitical shocks, supply disruptions and persistent underlying inflation could prolong the tight monetary conditions. Against this backdrop, the outlook for the domestic activity is brightening on account of the sustained buoyancy in the services, consumer and business optimism, public spending on infrastructure and the underlying strength of the financial sector's balance sheet. Consumer confidence has improved with uptick in most of the macroeconomic conditions. The union government at historically unprecedented rate, and it has taken the overall public sector capital investment from almost about INR 6 trillion in 2015 to INR 18 trillion in 2025 as per the budget estimates, which is a jump of almost 3 times. Gross tax to GDP in financial year '25 is projected to touch 11% plus, the highest ever in 16 years. GST monthly threshold has moved up to INR 1.64 trillion. And even in the previous month of January, we have seen a level of INR 1.67 trillion. CPI inflation is expected to moderate in coming months.
On external front, the current account deficit is modest with foreign exchange reserves providing a strong buffer. IMF has recently updated India's GDP outlook growth for the year 2024 to 6.7% from 6.3% earlier, underpinning the growth potential of the Indian economy. While recognizing the global risk and the volatility in financial markets that the real GDP growth is expected to be 7.3% in financial year '24. Interim budget has estimated the nominal GDP growth of 10.5% for the year '25. On the banking front, the deposit growth has rebounded, but sustained credit growth momentum has increased the wedge between deposit and the credit growth. As on 12th of January, all scheduled commercial bank credit grew by almost 20% as compared to 16% last year. And the deposit grew by 13% as compared to almost 11% last year. Latest credit growth numbers reveal a sustained pickup across agriculture, MSME and services.
Coming to the bank's performance. Once again, we have delivered stellar numbers. Our net profit in 9 months of the financial year '24 stood at INR 40,378 crores, which has witnessed an increase of 20% plus over 9 months of financial year '23. This is despite providing for a wage revision of INR 12,718 crores during the current financial year as per the bipartite wage settlement at the rate of 17% wage hike. Further, I'm happy to share that our net profit for the quarter 3 of financial year '24 stands at INR 9,164 crores after absorbing the additional liability to the tune of INR 7,100 crores in a single quarter as a onetime exception item. This comprising of 2 sub items, firstly, INR 5,400 crores, which is on account of an increase in pension and addressing the anomaly which used to be there between the employees who retired many years back. Some of the employees who are getting pension at the rate of 40%, while others were drawing pension at the rate of 50%, this matter was sub judice for a fairly long time, and it is almost likely to get resolved soon. And with that in mind, we had a very clear visibility in terms of the likely liability, and we have decided to provide for the same in the current quarter. Secondly, we have also provided INR 4,700 crores towards the dearness relief neutralization for the pre-2002 retirees and family pensioners. Our ability to absorb the above liabilities without significantly impacting the long-term profitability outcomes of the bank demonstrates the strength of our balance sheet and also is a reflection of our philosophy that we must ensure that the balance sheet stays strong under all conditions. ROA of the bank at 0.94% for 9 months of financial year '24 has improved by 7 basis points over 9 months of financial year '23. The ROE for 9 months of financial year '24 stands at 19.47%, which has improved by 88 basis points over 9 months of financial year '23. We have been consistently delivering ROE in excess of 15% for last 6 quarters. Our aspiration from our current position of strength is to sustainably deliver a ROE more than 15% through various business cycles. The cost-to-income ratio of the bank stands at 57.35%, including wage revision provision and excluding the impact of onetime exceptional item of pension liabilities and dearness relief neutralization. Overheads have been under control and have been shown a decline of 3.10% sequentially. The underlying driver for the sustainable step-up in the profitability profile of the bank have been the unmatchable liability franchise with 48 crore plus customers comprising nearly 34% of the Indian population. Our customer-centric approach, the process-oriented culture of the bank, strengthened underwriting processes and correct pricing of the risk have also contributed to the sustainable profitability. We are mindful of our liability portfolio as it provides a stable stream of resources for us. We continuously monitor the concentration of our deposit profile daily, ensuring that the dependency on the wholesale funding is contained within the prescribed level.
The differential rate of deposits and the CDs are just around 13% of our total deposits. We retain reasonable reserve resource in the form of liquid assets over and above the CRR and the SLR requirement to meet the future contingent demand and broad basing the deposit mix. Unencumbered excess SLR stands at about INR 4 trillion as on 31st of December '23, liquidity coverage ratio at about 131% as on 31st of December '23, is well above the regulatory benchmark. I'm happy to highlight that the credit growth has been robust across all the segments. Our retail personal loan book is more than INR 13 trillion, is growing at a 15% plus Y-o-Y with an industry-leading asset quality. The growth in Agri, SME and Corporate segment has witnessed a healthy growth of 18% plus, 19% plus and almost 11%, respectively. I'm glad to share the progress we are making in digital banking. 59% of the savings bank accounts were opened through YONO in 9 months of financial year '24. We are also leveraging analytics with significant business of INR 95,000 crores being sourced through analytical leads showing growth of 37% Y-o-Y.
With regard to asset quality, our gross NPA ratio has improved by 72 basis points Y-o-Y and stands at 2.42% as at December '23 and continues to be at the lowest level in more than 10 years. Our net NPA ratio has also improved by 13 basis points and stands at 0.64%. Slippage ratio for 9 months of financial year '24 has improved by 5 basis points Y-o-Y and stands at 0.67%. The consistently improving asset quality is also reflected in our credit cost. For 9 months of financial year '24, it stands at 0.25% and has improved by 12 basis points on a Y-o-Y basis. We are well provided for our loan book with PCR including AUCA standing at 91.49% and PCR for quarter 3 financial year '24 standing at 74.17%.
While we are glad about the outcome in the current quarter, we are also conscious of the areas for further improvement. On the liability side, we continue to focus on increasing our share in current account, while maintaining our leadership position in savings deposit. Our CET ratio -- our CET1 ratio after considering plough back of 9-month profit is at 10.38%. Additionally, the current ROE profile of the bank is above the credit growth trend, which will lead to CET1 incremental accretion. However, the bank is open to raising equity capital if the growth trends are higher than expectation. Our subsidiaries are also consistently performing well and continue to create significant value for all the stakeholders, and most importantly, for the customers.
Concluding my opening remarks, I want to thank you all for your support to the bank. The bank while pursuing its own progress contributes to the progress and economic growth of the broader ecosystem. We remain committed to reward your trust in us with superior sustainable returns over the long term. My team and I are now open to taking your questions. Thank you very much.
Thank you, sir, for your opening address. Sir, thank you sir. We will now invite questions from the audience. For the benefit of all [Operator Instructions]. Also, kindly restrict your questions to the financial results only and no questions be asked about specific accounts, please. In case you have additional questions, the same can be asked at the end. We will now proceed with the question-and-answer session.
This is Ashok Ajmera, Chairman Ajcon Global. Sir, compliments to you for the fantastic results. But for that exceptional item, even the net profit would have been higher more than 20,000 -- I mean the operating profit also had gone up and net profit also would have been much, much higher. So my question is on that only, number one, that the 15% to 17%, I mean the expected rate hike was -- wage hike was 15%, now it has gone to 17%. So in our employee cost in the normal P&L, there is hardly any impact if you see the numbers of the last quarter and this quarter, and which seems that you have taken exceptional item. Whereas in case of all other banks so far, they were taken in the regular P&L the direct hit of the increase. This is number one. And secondly, what was the need for a provision in this quarter itself of such a big amount? Was it because the results were good, the profitability was good. Or is it because in the next quarter you are feeling that may not be so robust or so good? And third is that you wanted to make the -- remain the bank's balance sheet very healthy? This is my first.
Well, I think, when it comes to the way we look at this expense particularly, as far as the provision for the wage increase is concerned, we were providing at the rate of 10% from November '22 onwards. Later on, we increased it to 14% and when the MOU got entered into, as of now it has not crystalized into a liability. That will crystalize into liability at a later date. So that is the reason why we thought much in order to create a provision because only and only when it gets crystallized into liability, it should be taken as an expense. That is something which we have done. I must mention that up to September '23, we had made a provision of INR 8,895 crores. And we have made additional provision for the wage increase in this quarter to the tune of about INR 6,313 crores. So in all, we have now made provision, which is as high as INR 8,895 crores -- and provision made for during this financial year is INR 12,718 crores. And the additional provision, which is required to be made in this financial year would be another INR 5,400 crores. Your second question, why we have made provision in this quarter? INR 7,100 crores is actually a provision, which is essentially we have made because, as I mentioned in my opening remarks also, there was an anomaly in the pension being paid to the different set of employees in the bank. Some set of employees were being paid pension at the rate of 14% -- 40%, the other were being paid pension at the rate of 50%. And this matter was pending before the court of law since 2002. And now, of course, there is a definite progress, though we still don't have the liability, but nevertheless since we saw this -- it's event which is almost certain to happen our actuary suggested that we should make a provision of another INR 5,400 crores for meeting this liability in the future. And also, the other piece was relating to the difference in the dearness relief for the pensioners who retired before 2002 -- November of 2002. That liability was asserted at INR 1,700 crores and actuarial assessment suggested that we should provide for this. So the decision to account for these liabilities have actually happened because there was a crystallization of the liability. It has nothing to do in terms of whether this quarter is strong or the next quarter is weak. I'm not supposed to make any kind of projections about the next quarter. But the general expectation is that last quarter is always a strong quarter and also the kind of growth trajectory, which you have seen, I have no reason to believe otherwise. So I think that should actually answer your -- all your questions.
Just a connected question. This -- we will get the tax benefit on this provision or -- for the year-end? Will it be treated as full expenses?
We'll get the tax benefits.
And sir, my second one is on the capital adequacy, sir. I mean, we are growing very fast, and we have to -- I mean, we need to grow in spite of even the size -- such a large size, still we are going in percentage terms also 13%, 14%, 15%. So on capital adequacy, though, I mean, you have excess SLR, you said INR 4 trillion, but don't you feel that some major decision is required to be taken to bring it -- the capital adequacy on par with some of the other banks. I would not use the word peer bank because they are too small as compared to you. But still a capital adequacy of 15.5%, 16% don't you think that some drastic decision or bold decision is required to be taken when the share price is also reasonably good now?
See, if at all, we reckon the profit which we have booked till now and if we reckon it to be brought back into the system, our capital adequacy ratio would have been 14.34%, and our CET1 would have been 10.38%. So this is something which I think we need to reckon. And the other piece is that our ROE is growing at about 19% to 20%. And also, our loan book is growing at about 14%, 15%. So long as our ROE is growing faster than the loan book, the incremental ROE will actually give us the ability to plough back the profit and which will ensure that we stay healthy as for as the capital adequacy is concerned. But nevertheless, we are quite open. We are reviewing the situation on an ongoing basis. And we are hopeful that there would be some resolution relating to the AT-1 pricing and the valuation issue also. So even that will also open up the opportunities in terms of raising money through AT-1 option.
So we are quite open for all options. And we will -- as I have mentioned in the past, we are well equipped to deal with the opportunity for growth in the loan book, and we will ensure that the capital should not come in the way for the growth of this bank. And even now also, if at all, we reckon this kind of plough back, we can easily buildup our loan book by another INR 7.5 trillion.
So I think we are very well placed. I have no reason to doubt but as I mentioned, that we are quite open if at all, need be, we will not hesitate in terms of raising capital. We have identified enough resources through which we can raise the capital. It is not more than a 1-quarter effort to raise that kind of a capital, and there's no reason for my investors also to really worry because when we are prudent in terms of identifying the source of capital and also the cost of capital, I think that should be a happy situation for all our investors.
We will move to the next question, please.
This is Manish Ostwal from Nirmal Securities. Sir, my question on the kind of credit cost we are seeing in bank, if I look at the 9-month performance of the bank. And when I compare to the large private banks, our performance is even better. So, obviously, the economy is doing well. So that is 1 factor. But can you talk about some of the structural factors in the bank, underwriting practices, which sustaining these kind of credit costs. I've never seen this kind of credit cost in SBI in almost 15, 20 years. So can you comment on that?
Thanks for the compliment. And what you mentioned in terms of economy doing well, and that is the reason for the credit cost being low. If that being so then the industry should also have a similar kind of a situation. But nevertheless, I would like to highlight that we have worked on it for quite some time in terms of -- we have strengthened the mechanism for underwriting the risk, for having adequate depreciation of the risk and for ensuring that there is adequate risk premium for the risk which we are undertaking. And that is something which has helped us in terms of ensuring that the credit cost should remain contained. Apart from that, when it comes to the portfolio selection also, we are very clear in our mind that what should be our portfolio composition. And we have leveraged the -- whatever is available in the ecosystem structured, unstructured. And also when it comes to retail book, we have created our loan management system, which does not leave any [ discretion ] and there the decision engines are all embedded into the loan management system. So when it comes to retail, when you have got such a large network, you have to control the quality, and that is something which we have addressed through the loan management systems. And when it comes to the corporate credit, our credit review department which is there. The credit committees and the composition of the credit committees are the one which helps us in achieving what we have achieved. And I think going forward, we are quite cognizant of the likely emergence of the risk, and we are ensuring that should be -- we should be ahead of the curve, and we should be in a position to manage those risks very well.
Within that, there is a retail portfolio where even your portfolio, even -- like home loan, car loan and personal loans, where the gross NPA level even significantly lower than the top-notch lenders in the private space. So can you talk about that also?
We are actually the top notch. We are the industry best.
No, no. I mean -- I'm talking of the private sector, sir.
No. So see the point is you should be -- one thing which you should -- I expect you to be -- it should be agnostic to the ownership, whether private or public sector. So it is more of a professionalism. I think professionalism is not the exclusive domain of the private sector. I think it is there, it is uniform and anybody can be professional. And I actually rate ourselves as more professionals than any private sector.
Appreciate, sir. And the second question on the -- on your Slide #20, there's a statement which mentioned that we expect our ROE is higher than the loan growth and you said in your remarks that if the credit growth even higher than your expectation, then we may tap the market. So what rate of credit growth where you see that need of capital to raise? And secondly, in your macro commentary, you said, sir, said that 11% kind of nominal GDP for the FY '25, so based on that, what kind of loan growth we are looking at?
Normally, when it comes to as compared to the nominal growth we have seen in the past that the credit growth for a bank like us is generally 3% to 4% more than the nominal growth. And more than that is normally not there. And considering the fact that we are very selective in terms of the risk, as I mentioned, that risk is something which is we are very cognizant of. So I would say that we should be -- ideally speaking, we should be growing around 14%, 15% kind of a growth.
And also, I would like to mention that this ROE is actually a bit depressed because of the kind of -- as I mentioned that we have -- in this quarter itself, if you really look at it, I mean till now, we have made an additional provision of almost about INR 20,000 crores. We have got a profit of INR 40,000 crores for the 9 months and INR 12,000 crore provision we have made in this financial year for the wage hike and another about INR 7,100 crores is on account of the one-off, the pension and the pension liabilities. So almost about INR 20,000 crore we have provided for. The impact on the wage increase in the next financial year is almost about INR 500 crores per month, which is about INR 6,000 crores overall. So INR 14,000 crore is an additional provision, which we are absorbing in this financial year. With that, our ROE is at about 19.5%. My expectation is that we should be trading at more than 20% of ROE. And if at all we are trading at more than 20% of ROE and our loan growth is at 15%, incrementally we are creating additional elbowroom for the loan book to grow. As I was mentioning that we have got enough elbowroom to grow at about INR 7.5 trillion loan book can be grown, our loan book is at about INR 35 trillion, INR 36 trillion. So INR 7.5 trillion is almost about 18% to 20% kind of a growth. I think 18% to 20% growth is some distance. Not that we don't have liquidity, we have got enough liquidity. Our liquidity coverage ratio is at 131%. And also when it comes to our credit deposit ratio, today, we are at 66% -- as on 31st of December, we are at 66%. So I think liquidity-wise, no challenge. Ability to support growth in terms of capital, I don't see any challenge. I only need your good wishes and your support so that we should continue to grow.
We'll move to the next question here this side.
Sir, my first question is just on wages that you have mentioned that you had aligned for DA to pre-2002 -- of pre-2,002 employees and then the 40% and 50% alignment for wages.
Not wages, that is for pension.
Sorry, for pension. So how long was this -- I mean that how long did the case go on? Because we don't recollect...
See, the point is that this case was going on from the year 2002. And as far as the pensions are concerned. As far as the DA neutralization is concerned, it was at an industry level. And this was a decision which happened at the behest of intervention through IBA. So this is something which we have identified the likely liability, and we have provided for it.
But the IBA would have told the entire industry.
There's second part, there are 2 parts, INR 5,400 crores and INR 1,700 crores.
Yes, INR 1,700 crores.
INR 1700 crores is for the industry.
INR 5,400 is only for -- specific to SBI.
Right, right. So INR 1,700 cores likely impact for the industry as well, depending on their size.
Yes, yes. Correct.
And INR 5,400 is specific to SBI, and both of them are onetime actuarial assessment, which we have made and...
We have only contributed to the prudent fund corpus -- pension fund corpus that's all.
Yes, It's not a recurring expenditure.
So is there any other pending hike left from the past in terms of pension.
Fortunately, nothing. But rest you never know, it can come up any day. As of now, there's nothing.
Okay. And in Q4, sir, then what is the INR 54 billion -- the pending provision of INR 55 billion that you've mentioned or INR 54 billion?
INR 5,400 crores.
INR 5,409 crores.
Yes, INR 5,400 crores. That would include some impact on pensions or this is just...
This is only salary.
Only salary.
So that is salary plus the regular pension.
Salary plus -- that is regular expenses. All staff expenses because even now also...
That means bonus everything is covered in that.
Even now also when we are providing for, we are providing for everything on an ongoing business. It's a recurring kind of a thing, but it will stop. INR 5,400 crores once we will provide the 17% aspect is taken care of.
So then over and above that, whatever pensions will be provided for, that will just be interest rate related. Is that the case or...
That will be from the quarter-to-quarter, whatever is the gap, if at all, there is any.
It will not be because of the new ways.
No, no. Nothing, nothing, nothing.
Okay. So it will just be the rate [indiscernible].
As I mentioned in my passing reference that the wage increase impact of all this, whatever wage increase is envisaged is INR 500 crores per month. And for the year as a whole, it is going to be about INR 6,000 crores.
Okay. So for the next quarter, then the wage provision -- like your wage line is [ INR 98 billion ] this quarter, right? Your wage you have employee expenses and then you have contribution to employees. So the employee expenses are around [ INR 98 billion ] for the quarter, INR 9,800 crores. So next quarter, what will it be?
It would be about no, INR 5,400 -- sorry, maybe if you can clarify, I'm not in a position to comprehend this question.
It will be -- we have provided for [ INR 6,312 crores ] this quarter. For the next quarter, what remains is INR 5,408 crore, out of which salary is INR 1,386 crores, and pension at the rate of 17% is INR 3,072 crores, gratuity is INR 378 crores, other employee benefits is INR 572 crores. And total it comes to INR 5,400 crores. Is it clear? Another point that I would like to make that we have done all the provision for the wage settlement that has happened, so next year around when you see the impact of this, the overall wage bill will be around INR 66,000 crores as against INR 77,000 crores this year because of all the provisions that we have already taken.
It's only wage bill.
It is actually going to go down.
It's only wage bill, but the pension-related liabilities is actually over and above.
No, sir, it is all put together.
Okay, fine. Yes. No, no INR 77,000 crores.
INR 77 is all put together. INR 7,100 is excluded.
Okay. Fine. That is what I'm saying. INR 77,000 crores, plus INR 7,100 crores is something which we have provided this year. So as against INR 84,000 crores, it is going to be only INR 66,000 crores.
Got it, sir. That's very clear. And my last question is on margin. So can we say that now margins will be maintained at these levels...
Around the same level. We expect maybe at the most, if at all, there is any dip, it would be only 2 to 3 basis points.
Maximum.
Okay. And most of the deposit repricing of the past is over now.
Yes. Yes. It's almost.
Sushil Choksey. Indus Equity. Congratulations for very stable results and all the guidance and the time and talent, which SBI provides to the country. Sir, my first question is based on the interim budget and the FOMC outlook and the behavior of money market. And if there's a proxy to India where money market is concerned, SBI should be the largest gainer. So based on INR 4 trillion of excess SLR, how is your outlook on treasury? Second thing, will the interest rates peak out as newspapers are indicating and RBI may cut to [ 150 ] bps in the second half, therefore, MPC may have cut in the last quarter. It's all speculation. But what is our internal outlook based on all the parameters which have happened in the last 1 week.
When it comes to RBI and FOMC, I would say that they have decoupled to a greater extent. RBI decisions are more based upon their own assessment, MPC's assessment as far as the inflation trajectory is concerned. And as we read MPC deliberations, we would say that perhaps they are looking at inflation to come within 4% range. We are hopeful what you mentioned in terms of second quarter, our assessment is second or third quarter, we should actually get to see some kind of a rate reduction. This is what our expectation is. And when it comes to the money market and the trajectory and its likely impact on the State Bank of India's balance sheet, I would put it like this that much of it depends upon how the interest rate or the T-bill and the G-sec would be behaving as on 31st of March, that will be probably helping us in terms of the eventual outcome. Though going by the current trend, we are optimistic, but let's wait and watch.
Sir, urbanization and consumption in India is growing and the economy is headed to INR 5 trillion, INR 10 trillion based on numbers. Being the largest bank in India, I'm sure our consumer print, consumer-led banking and corporate banking, both needs your support with the market share what we have. If you have to gear up for those kind of economy size and challenges for the consumer credit, what enablers you will have to do it now along with YONO and so many other things, and what kind of digital spend you'll have to do for the next 3, 4 years to sustain those numbers?
Well, we have already invested in terms of the structures. When it comes to the credit processing cells for the real estate, our credit processing cells last year, we added almost [ about 150 ]. So now we have somewhere around 400-odd credit processing cells we have created across the country. We have enough feet on street for sourcing of applications. And also, we have created a seamless process when it comes to the low-value SME loans, and also for the home loans also, we are working on a workflow mechanism so that the journey should become end-to-end digital. So I think it's a constant and ongoing process which is there. And our effort is that we should stay ahead of the curve in terms of investing and ensuring that we deliver value to our customers, and we should be expedient in terms of delivery.
Sir, and the rate what you're growing around 14%, as you indicated, based on nominal GDP, in 3.5 years, we would be nearing INR 50 lakh crores. So our cost to income with all the enablers which you've already placed in, will it not substantially be low?
Cost to income, we are hoping -- actually, if you look at our productivity -- also employee productivity. If you can pull out that slide, please, employee productivity. So if at all, you will look at that, our productivity is significantly higher about INR 29.78 crores which has gone up from about INR 18.77 crore in the year 2019. So that number, it has moved to INR 29.78 crores. So actually, it has jumped up quite a lot. We are actually leveraging multiple things here. We are leveraging analytics. We are also cognizant of the need, if at all. We are exploring the possible application for GenAI. And also, we are looking at the -- how we can leverage technology to the -- for the advantage of our employees. So I think it's a multipronged approach which we have in terms of addressing the requirements and also to ensure that we should be ahead of the curve -- much ahead of the curve as far as the opportunities when they arise. We should be in a position to respond or maybe we should be in a position to create opportunities also.
Have you not provided the onetime provision this year, I think the year-end would have been the largest profit-making company of India.
You are right because by that occurring we were already at INR 60,000 crores plus as of now. So going by the normal expectation. I think my dream is that this bank should generate INR 1 trillion profit. And hopefully that is -- what I'm seeing is that is the reality. That is -- that would have happened, if at all we would not have been required to make such provisions.
Next question here, please here.
Saurabh from JPMorgan. Sir, 2 questions. One on your corporate banking piece. We have seen the private banks getting strained on LDR and all. Are you seeing opportunity either to buy portfolios from them or accelerate growth in that space? That's the first one. And secondly, your presentation mentions a 50 basis points capital release because of the investment for evaluation in April '24. Can you just comment on that.
Well, as far as the private bank's opportunity is concerned, I would rather say that we already have got a pipeline, which is almost about INR 4.6 trillion. So that is one opportunity. But yes, of course, if at all, opportunities come our way, and it is in line with our risk appetite, we'll be more than happy to support such kind of requirements of the corporates. Now the other piece which you have mentioned in terms of the impact of -- to the extent about 50 basis points on the capital adequacy, maybe I'll request Sreenivas Setty to come in.
Yes. I think it's -- when we look at the revised valuation norms, which are likely to come from 1st April next year. Our broad assessment is that if you have the same portfolio levels and move and implement the norms, there is a positive uptick in terms of the -- some of the portfolios, what moved to [ FVTPL ] from the AFS category. I think that is what adding to the positive MTM in that. While we may not immediately be able to add to the profit, the norms indicate positivity. Today, any positive MTM cannot be booked. It is only negative MTM, which needs to be booked. But the new norms allow us to move to AFS reserve. And AFS reserve is part of the CET1.
So probably to start with, we'll have to wait for the detailed RBI guidelines, how do they want us to. If I'm opening the balance AFS reserve in a positive way, whether I can book that or I need to book in the general reserve is something what we are negotiating. But it will definitely add around 50 basis points to CET1 that is our assessment.
So sir, on the 1st of April, we have to actually draw up balance sheet so there that will come.
Yes. It's only a matter of accounting, but it will add to the CET1 50 basis points. Is it clear or -- yes.
Question. My question was essentially are private banks talking to you to sell their wholesale books.
No, no, no. As of now, we have not received any such request. But if at all it comes, I'll be more than happy to wrap it up if it meets my risk appetite.
Yes, next question.
Kunal over here from Citigroup. So firstly, maybe just to get on to that number of INR 77,000-odd crores. So you highlighted that will be the staff cost for this fiscal FY '24. So today, we are at almost 55%, so that indicates another INR 22,000-odd crores for 4Q. That would be more to do with this INR 5,000 crores, which is required because any which ways this quarter there was additional wage division catch-up, which was there. But we are expecting further rise in the employee cost build for Q4 as well.
That is only additional provision, which is required to be made in the fourth quarter is only INR 5,400 crores the wage increase.
Because it was coming to [ INR 55,000 crores ] in 9 months and INR 77,000 crores. So that's where maybe INR 22,000 crores seems to be the catch-up for 4Q in terms of the wage bill, which is still higher than Q3, considering that there was already a catch-up from 14 to 17-odd-percent.
No, it is -- actually, the requirement is only INR 5,400 crores additional. Apart from that, the normal wage bill, which is there, that is only required.
Assuming that the biparted settlement is not implemented in the Q4, which is unlikely. I think we probably will -- I don't know it will -- it may take some time. Had it been implemented, it will become a normal wage bill.
That would have been almost INR 500 crores worth of additional wage bill on a month-on-month basis.
Okay. Got it. And secondly, in terms of the expansion in CD ratio was there this quarter. But still, if we look at it in terms of margins, there was still some decline of 6-odd basis points. Would it be fair to assume that this would be more back-ended growth and we will see the benefit on the...
You are very right. Because it would not have been uniform right from the first day of the quarter. It would have happened towards -- it is normally seen towards the busy season and also later than the busy season, that is something which is there. And also, the fact remains that during the busy season because in the retail sector, the competition really mounts and then we have to give all kind of concessions relief, et cetera. But nevertheless, the asset come to our book. So that is something which has happened. So I think it is more abnormality considering the fact that we are choosing the quality and for quality we are willing to look at the lower risk, you will probably appreciate that. The CRP naturally has to be lower for the better risk, and that is something which is the reason.
And lastly, in terms of RBI's increase in risk weights, both for NBFC as well as unsecured, so maybe they have not highlighted any which ways we have been commenting that our unsecured portfolio is much better than the secured as such. But just in terms of the RBI's indication or maybe highlighting that this could be the riskier segments, what would be our stance in both these segments? And are we passing it on in terms of the increase in the lending rates?
Yes. We are actually -- it has got an impact of about 49 basis points for CET1 and 70 basis points for the capital adequacy ratio overall. So to that extent, the cost of capital has gone up while we are lending to this particular sector. And -- when it comes to NBFCs, et cetera, we are passing on -- we actually have jacked up the pricing also.
To the extent of?
Depending upon each of the NBFCs, depending on the risk grade we will look at it how much we should...
And on Express, we have not increased.
We have increased in excess creditors.
We have increased in the excess creditors.
This is Mahesh from Kotak. Just to clarify on the question that he had asked this 50 -- this INR 77,000 crores that you are saying includes the INR 7,100 crores?
No.
No.
Then I think the statement he has asked is right, right? Because in 9 months, you have provided...
No come back again. I will just explain. So the wage revision impact is INR 18,127 crores for the whole year. So -- and for the next quarter, coming quarter, it's INR 5,409. We have already made a provision of INR 12,718 crores during the 9 months. And in FY '23, we made a provision of INR 2,920 -- INR 2,490 crores, okay. The staff expense, which anyways we are paying to the staff. So you look at that up to 9 months of '24, it is INR 42,171 crores. So 3 more months, we will pay the salaries and pension and everything, that comes to INR 16,829 crores for the next quarter. Add to that INR 5,409 crores. Is it clear? So for the whole of next quarter, it is INR 22,238 crores, which is staff expenses plus the provision. Put together all of this for the whole year, it is INR 777,127 crores which means INR 59,000 crores for the wage bill and plus INR 18,127 crores for the increase.
Mr. Khara, sir, if you look at the numbers today, your average wage cost, even if you exclude these one-offs, are running at about INR 30 lakhs, which is significantly higher than almost all the public sector banks and the private banks put together. Any direction in which you want to see how does this number go because this is simply way too high that we're seeing.
Sorry, I could not get your question, please.
If you look at the wage cost for next year, which is about a little over INR 65,000 crores. On a [ 2 lakh ] employee base, you're still looking at about a INR 30 lakh.
2.35 -- [ 235,000. ]
Give or take, the number will be work out to roughly about INR 30-odd lakhs per employee. Most banks are...
We have got about 300,000 pensioners also.
But how do you solve this problem? Because the large part is cost.
The problem which can be solved is only through improving the productivity. And that is something which we are trying to showcase our effort in terms of improving the productivity have already started yielding results. And I'm sure, going forward, this will also improve -- the productivity will actually improve. The kind of focus which we have on our digital. Today almost INR 95,000 crores worth of loan book has been generated through the digital, and it is up by about 30%. Going forward, we expect that this particular lever will start creating value. And our back of envelope calculation is as the pension obligations are concerned, that we should be in a position to meet by generating this incremental productivity through the digital. And we have got the attrition rate, which is just about 1% as compared to the industry level of 35% or 33% or whatever be the number.
Perfect. Sir, 2 questions. One is, what would be the outstanding priority sector book and RIDF investments -- or just specifically the RIDF investments.
That specific we will provide to you.
Okay. Just one question to you, sir. The some of the NBFC-led banks, companies like PFC, REC have become a little bit more aggressive on the power sector. For some time we have seen almost all public banks being -- banks in general being slow on this sector. Is there any opportunity that is being missed here?
I don't see that we have missed out any opportunity. But yes, of course, as I mentioned that we always evaluate the risk in terms of the return which we can get. And if at all, it does not meet our risk appetite, we let it pass. So renewable energy is one of the areas where we are very clearly focusing, and we have developed the expertise also. And we are seeing good traction coming for that.
We have one last question from one more person.
This gentleman is over here.
Bhavik from Morgan Stanley. Sir, 2 questions. First, sir, our other operating expenses growing at say 20% Y-o-Y. Sir, how should one look at it? Like will this be related or should it normalize?
Other operating expenses. Can you please put out the slide?
Operating expenses, Slide #18.
Maybe better you can throw some light on this. Yes.
So sir -- majorly, sir, it comprises of the staff expense, as you can see in that -- and also the pension.
No. So I mean other operating expense excluding the staff.
Just a minute, other operating expenses overheads. Overheads, I don't think there's a very significant number.
In terms of absolute number, they are not any very big number.
Not very relevant. But anyway, I can tell you some of the items where we have seen this growth. One is business acquisition and development expense, which is to the tune of INR 711 crores, other tech expenses to the tune of INR 371 crores. DCIGC (sic) [ DICGC ] Insurance, INR 230 crores, GST expense INR 128 crores, donations INR 81 crores, P&T expenses INR 74 crores. So I don't think there is a big number.
We have a quarterly run rate of, say, INR 11,000 crores.
So actually see one aspect which is there when it comes to the insurance, particularly deposit insurance as the deposit grows, this will continue to grow.
And quarter-on-quarter actually it has gone down, sir, from INR 11,948 crores, it has gone down to INR 11,577 crores.
Yes, that is for our total overheads have come down from INR 11,948 crores to INR 11,578 crores and I think there is -- the major items which are there is one among them is ATM, CDM, debit card and those expenses, which I think is a cost of delivery, which will continue to be there. And the other one is the business acquisition and development expenses, again it is corresponding to the wages growth. It will continue to grow. So this is what is the behavior. But we'll get to see.
Sir, what will be the digital expenses as a part of this. Should we expect this to go to INR 13,000 crores run rate per quarter next year or more than that?
Much of it when it comes to digital part of it would get depreciated also. So we'll have to see that. That composition, how much we can depreciate, how much we can book in the revenue book, that is something which we will see.
And sir, second question, sir, recovery from written-off accounts, the AUCA accounts. They have been around, say, INR 4,300 crores so far in the 9 months. Sir, how should one look at it, like, how do we expect...
This stock is actually -- is now coming down. So I think -- and also there are no lumpy recoveries, which are expected to come in. These are all now small value recoveries, which will come in. But yes, our effort is to see that we should step it up as much as possible, but it has got its own limitation because AUCA is generally -- those accounts were the security, if at all, it is there is much lower. And I mean, various such considerations are there when it comes to making -- affecting recoveries in AUCA accounts.
Sir, in the next 6 months, do we expect anything significant from NCLT, like in the pipeline?
It is very difficult to predict what will come through NCLT. But nevertheless, our effort is to make -- I mean there's no -- we don't let our effort go waste. We are pursuing quite actively and wherever possible, we will certainly be looking at the outcome. But when it comes to NCLT, it is not really what our efforts are. We have to depend upon the other members of the consortium, CoC, et cetera. And there is a dependence on the decision taken by them also. So I think -- and also the ecosystem, how the ecosystem works?
Sir, lastly, sir, from this INR 4,000 crores, how much worth is from NCLT and if you can shed some light. So that's it for me.
I will not have that kind of...
No, we don't have anything from NCLT in this at least as of the numbers. Basically, it is contributed by our retail branches to the tune of [ INR 1,537 crores ]. The specialized ring has contributed [ INR 2,758 crores ]. I think the biggest recovery during this year is around INR 200 crores for -- as far as lumpy recoveries are concerned. And IBG has had a small recovery of INR 33 crores.
So generally, these are all -- compromise something which works much [indiscernible] which yields better results and faster results.
So we have 2 questions coming.
There was one question on RIDF outstanding. The outstanding is INR 267,000 crores.
So we have a few questions coming through the online webcast. These will now be addressed by the Chairman sir.
Yes. This question has come from [ Aditi Naval ]. With respect to business development expenses, there has been quite a significant jump since September quarter. Wanted for you to throw some light on this.
Business acquisition and development expenses has increased by INR 194 crores sequentially. On a quarter-on-quarter basis, increase is due to amortization of the PSLC issuance charges of by INR 65 crores. And various operation expenses have gone up by INR 81 crores and auto loan sourcing fee by INR 54 crores. That is the explanation for the business increase -- business development expenses. The other question has come from Mr. Anil Chaurasia. What were the number of branches at end of December '23.
At the end of December '23, we had 22,494 branches. Next question comes from Ashish Agarwal, percentage of book linked to MCLR, EBLR and fixed rate book.
MCLR, 37.6%, EBLR is 27.4% and fixed rate is 20.9%. Another question has come from Siji Philip. Any guidance on loan growth and deposit growth for financial year '24? We expect all scheduled commercial banks' deposit to grow by about 12% to 13% and ASCB advances to grow by 14%, 15%. Accordingly our deposit -- our growth in deposit and credit is also expected to be in the similar range. Next question comes from Mr. Abhishek Murarka. Will any part of INR 7,100 crores provision recur from the next quarter onwards, also what will be the approximate additional wage provision you will have to make in fourth quarter? There will be no recurrence of this onetime provision. This is something which I would like to mention this is only onetime and for the uniform pension from 40% to 50% and DR neutralization also is only INR 1,700, which is onetime. There is no further repeat of such provisions. And provision to be made in quarter 4 of the financial year '24 is about INR 5,400 crores for the increase in wage to 17%. Mr. Param Subramanian. Why did we see a drop in NIM? How much wage revision provisioning is still pending. NIM has come down mainly due to repricing of deposit at higher rates, mainly term deposits. And provision to be made in Q4 of financial year '24 is INR 5,400 crores. [ Chaitali Vignesh ], any special plans for agriculture business growth? Aggregate advances have registered a growth of 18.12%, while we'll continue to grow in our traditional book and KCC and agri gold loans. Our key focus area will be to finance all the players involved in the entire agri value chain. Under investment credit, we are seeing a lot of opportunities under Atmanirbhar Bharat, scheme of the government of India, that is AIF and PMFME. We have launched 2 new products, namely Agri Enterprise Loan and Kisan Samriddhi Rin, which will enable us to onboard high-value farmers.
This question is from Ashish. Please tell us about exceptional item of INR 7,100 crores? Onetime provision for accommodation of pension from 40% to 50%. And DR neutralization for all pensioners, family mentioners who retired prior to 1st of November 2002, onetime provision for accommodation of pension is INR 5,400 crores, onetime provision for DR neutralization is INR 1,700 crores.
So thank you, sir. I trust all the questions have now been addressed, and we'll be happy to respond to other questions in offline mode. So let me end the evening with thanking the Chairman, the top management team, the analysts, ladies and gentlemen. To round off this evening, we request you to join us for high tea, which is arranged just outside the hall. Thank you.
Thank you very much to all of you. Thanks a lot.