Ladies and gentlemen, good day and welcome to the Bandhan Bank Limited Q2 FY23 conference call. As a reminder, all participant lines will be in a listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star and then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Vikash Mundhra. Thank you, and over to you, sir.
Thank you, Mike. Good evening, everyone, and thanks for joining this conference call. I wish you all a very happy and prosperous Diwali. Pleasure to welcome you all to discuss Bandhan Bank business and financial performance for the quarter ending September 2022. We will take this opportunity to update you on the recent developments in the industry and Bandhan Bank during the quarter. To discuss all this in detail, I have got with me our Founder, Managing Director and CEO, Mr. Chandra Shekhar Ghosh, our Chief Financial Officer, Mr. Sunil Samdani, Head Retail Banking, Mr. Santanu Seng upta, Head Retail Assets, Mr. Kamal Batra, Housing Finance Head, Mr. Suresh Iyer, and myself, Vikash Mundhra, Head of Investor Relations.
Now I would like to request our founder, MD and CEO, Mr. Chandra Shekhar Ghosh, to brief you all about our bank's operation and financial performance, along with the developments for the quarter ending September 2022. Over to you, sir.
Thank you, Vikash. Namaskar. First, on behalf of Bandhan, I extend it to you and your loved ones best wishes on the festive season, Diwali. I thank you all for joining us this afternoon. This is the second quarter update of the financial year. We are trying to explain our bank performance. I am pleased to state that the July to September quarter of this financial year has been yet another quarter of good growth for the bank. This year's festive season started early, and we have seen the effect of the same in the previous quarter, not only for the bank but for the entire financial services. As a result, credit growth for the bank has been encouraging. The overall advances recorded a 22% growth for the year.
The significant growth for the bank has come from the retail segment, including housing and MSME. However, including the write-offs, the advance growth will be 17.4% and total advances INR 95,835 crore. The housing finance book has registered a growth of about 32% year-on-year and 5% quarter-on-quarter. We have seen that the very good demand for housing loans across the country. We are planning to grow our housing book by more than 20% year-on-year. The retail loan book, other than the housing finance book consisting of personal loans, gold loans, two-wheeler loans, and auto loans, has grown by 111% year-on-year and 19.5% quarter-on-quarter. The commercial banking vertical, consisting mainly NBFC, ECLGS, and SME loans with 96.2% growth year-on-year and 15.4% quarter-on-quarter.
One important point I would like to highlight that when we look at the loan book growth, other than micro credit book, we have seen a growth of 52%, which is very encouraging for the bank. The growth in this segment is a welcome sign for the bank as this is in line with the bank's portfolio diversification agenda and also in line with the trend of increase in business with the onset of the festive season. We are confident that quarter three, like each year, will continue to further trigger business growth. As we started earlier, the second quarter of the current financial year coincides with the festive season and has seen stable momentum in economic growth as many business return to normalcy given the significant increase in the confidence among the population of managing COVID.
We are happy to see sign of strong demand for credit in most of the business in the second quarter. However, in line with our diversification agenda and further strengthening of the credit underwriting standards, we have seen some de-growth in the micro credit business. During the quarter in review, deposit has grown 21.3% year-on-year. Amount was INR 99,366 crore. In line with our aim of building a robust and granular retail deposit franchise, our CASA deposits grown 11% year-on-year to INR 40,520 crore. The CASA ratio is at the healthy 40.8%. The retail to total deposit ratio stands at 74%. There is a slight dip in the CASA ratio as we have seen a shift of deposits from savings to FD due to an increase in deposit rates in the last two quarters.
A few numbers show strong momentum in our portfolio diversification agenda, which I mentioned earlier. The share of housing loan book of the total book of the loan increased to 27% from 24% year-on-year. The share of group loan to our total loan book has come down to 30% from 57%, which is called as a microcredit share. Our share of commercial banking loan has grown from 9% to 15% in the total loan book year-on-year. Along with the business growth in advances and deposits, we have also seen very encouraging collection efficiency trends during the quarter. We have seen the good improvement in the overall collection efficiency, which is 98%.
The collection efficiency for microcredit vertical, excluding restructured and NPA, improved substantially to 98% from 86% in quarter two in the last year. With people's livelihood coming back on track, we have observed a notable eagerness among our customers to standardize their accounts in order to continue to enjoy the benefits of formal credit by maintaining a healthy credit record. We have seen strong collection efficiency despite the spillover effect of the Assam flood and the current inflation. Our collection efficiency, excluding the restructuring in Assam for EEB customers, has increased from 95% to 96% and in West Bengal remained the same, 98%.
With the business growth and improvement in collection, we have seen our net profits for the quarter at INR 209 crores against a net loss of more than INR 3,000 crores in quarter two, financial year 2022, which was due to higher accelerated provision. You know that. Our net interest income has shown a growth of 13% year-on-year, which has increased to INR 2,193 crores in quarter two, financial year 2023, from INR 1,935 crores in quarter two, financial year 2022. Our net interest margin for the current quarter is above 7%, which is slightly lower from our comfort range of 7.5%-8%. This is largely on account of one-off interest reversal during the quarter. We are sure we'll get in our comfort range very soon.
Our gross NPA stood at 7.2% versus 10.8% in the previous year same quarter, and our net NPA stood at 1.86% versus 2.04% in the previous year. During quarter two, the bank has seen improvement in the gross and net level compared to quarter two of the last year, as well on sequential basis. However, here we have to keep in mind few facts before coming to a conclusion. First one, majority of the treaties during the quarter are come from the account of restructure, which is happened during the pandemic period. Also, in the last two quarters, we have not done any fresh restructuring.
With the initial trend and report from the ground, we are confident that quarter three and quarter four will see good improvement in performance of the bank across all verticals, especially in micro credit. Many of our customers have been paying regularly and have nearly regularized their overdue account. Until the entire overdue amount is recovered, they cannot be categorized as non-NPA customers. In the second quarter, 66% of our NPA customers and 62% of our restructured customers paid their dues to us, either in part or in full. From the recovery perspective, we have seen total recovery and upgradation for this quarter is INR 529 crores. We are engaging with our customers on a regular basis to encourage them to ensure timely payment and recovery whenever needed.
We are confident that it is only a matter of time before these customers regularize their accounts fully. After which we expected to see a significant drop in the gross NPA in the next couple of quarters. This makes our another comfort is where the PCR has come as a 76%, which was increased from 75% of the last quarter. Bank has done written off INR 3,539 crore in this quarter. Coming to the outlook for the rest of the year, as you all know, we are seeing the economic activity picking up and business coming back to the normal across the country. Bandhan has always had an ear to the ground given its distribution reach. We have observed that our customers' business have been gaining traction once again.
We remain confident that this will have a positive impact on our business operations. As the festive season continues, we remain highly optimistic about the pickup in demand from all quarters. We expect to grow our advances and deposits by 20%-25% year-on-year, with our focus remaining strong on the retail segment. With our continued efforts in diversification, investment in technology, people and processes, the Bandhan growth story remains strong and promising. We have added about 800,000 new customers in this quarter and also plan to open more 550 branches in this fiscal year. This will lead to fresh demand creation in the coming quarter. I wish you and your family all the very best. Please take care and stay safe. Thank you. I invite to Sunil Samdani if you'd like to add some points with me. Thank you to all of you.
Good evening, everyone. Wishing you all a very happy Diwali and a prosperous new year. I'll take this opportunity to explain a few slides that we have presented in our investor presentation. Starting with slide number five, the collection efficiency. Few things to observe here. While Assam, we have shown an improvement here quarter-on-quarter, and we see this trend continuing. Hopefully in next quarter we'll see Assam collection efficiency to be no different than the rest of the country's collection efficiency. At an overall level, it stands at 97% for the month of September and for the quarter it is 98%. The drop of 1% in September is largely on account of floods that we saw in various states in the month of August, and we see that impact going away starting October.
In terms of customer paying profile, it continues to be healthy at 94% customers continue to pay in full, 5% is partial payment, and 1% is non-payment. Of course, these all customer base excludes the NPA customers and the restructured customers. Including restructuring, the collection efficiency including NPA is at 95%, which is an increase of 1% if we compare it with June. For the quarter it is 96%, an increase of 2% if we compare it with June. This increase is largely contributed by the increase in collection efficiency from the State of Assam. Now we are at a trend where we will see all our core geographies as well as rest of India to perform in line, across all the geographies and the states in the country.
Our share of receivables continues to be stable at 92% full paying customers, 6% part paying customers, and 2% non-paying customers. I think the next slide, which is the slide number seven, requires some explanation because, you know, I've been receiving a lot of queries on the part paying and the non-paying customers. When we say that 62% of the customers pay, then why is it that we see these, flows into the DPD bucket? This 62% or 66% customers, whether it's, restructured or NPA, we are saying this is on the basis of customer count who have paid us in part or full. Now, when we say part-paying customers, clearly these customers don't pay the full installments. What we would want to now present to you is in value terms how does it look like, right?
If I have to jot down the list of all my customers and mark against them what is the percentage of installments they are paying, against their demands, the average, including the non-paying customers, right, for my NPA and restructured customer base works out to 25%. Right. That's including the non-paying customer of 34% or 38% as the case may be. Between paying, non-paying, all customers, part-paying and non-paying customer base, the average recoveries that we are making is 25% of the installment amount. Now coming to the DPD, right? While we have taken a INR 3,539 crore write-off, you know, there would be a question that why we see the percentages in the DPD buckets remaining stagnant or flat. Now, two reasons here. One is, of course, these are percentages and not the absolute amount.
On an absolute amount basis, there is a INR 900 crore reduction. Since our DPD book, in which includes the group and individual together, has come down, the percentage looks higher. Secondly, the second tranche of restructuring which came out of restructuring starting first July, which was shown as standard zero DPD customers as part of restructuring, they have also flown, which is about INR 2,500 crore. Adjusting for that and write-off, at an overall level, we are still seeing an improvement. Now coming to the slide number nine, which is the EEB pool coverage analysis that we present every quarter. Now, the EEB pool has come down largely because of the write-off that we have taken, and for that we have utilized also some part of our provisioning that we have created.
We still continue to remain very confident that the coverage and the recoveries that we are expecting, we should be able to meet the entire EEB pool. Now what is also important here to understand on the EEB pool is when the restructured customers become NPA, you know, the requirement of provisioning goes up, and that is where our provisioning on one hand is utilized for the write-off, but we need to create it more for the NPA customers. The second important aspect is you might have noticed that we have reduced the recovery estimate from INR 25 billion to INR 15 billion. Now, two parts here, two things that I want to mention here. One, of course, we're going little conservative here. We don't want to face a situation where we have to defend a number which is lower than what we projected.
We've gone with a number which we are more than 100% confident of recovering it. If the things go right, the way it went in Q4, there could be an upside there. The second aspect is we have tightened our credit norms. What we are saying today is that we will not extend loan to our customers who are in NPA category in near future. What essentially it means is it also will have a small impact on our collections, right? The reason we have to take this call is we have to set that discipline right. You know, what we are observing that despite giving moratorium and restructuring, we've observed a small portion of our customers, where we believe that they have the ability to pay, but still there is a question mark on the willingness.
Now, while we can accept the ability issue, clearly willingness is something that we will not accept, and we have to bring back that credit culture, which is what we were so proud of. Accordingly, what we have decided is we have to tighten those norms. We have to give a clear messaging to those customers because we don't want these 2-3% of customers spoiling the entire group discipline and the behavior. The messaging from our side is if after giving you all the opportunities, if we don't see the recoveries coming in, we will not be extending you a fresh loan. Because of this change in credit norms, we are seeing, you know, we are budgeting it a small reduction in the recovery, and that's why this reduction in the number. Now, CGFMU recovery of INR 25 billion.
As we mentioned earlier, this comes in two parts, one which we have applied in the month of October. That amount is about INR 950 crore that we expect to receive in the month of November. By November end is something that we expect this amount to come in. As per the claim, we had filed the claim of about INR 1,390 crore based on the first loss and the 25% retention. This number has been calculated. The other adjustments that has happened in this number is INR 95 crore of recoveries that we have made since March 2022 from these NPA pools. To that extent, the recovery has come down. We had estimated a number of INR 1,000 crore-INR 1,100 crore.
Since we have already recovered INR 95 crore from these customers, now the exact number that we have filed and as per the system download we have got from the CGFMU, the eligible amount is around INR 950 crore. That is the number we are expecting it in the month of November. The balance claim, we should be placing it in the first quarter of the next financial year. If we see slippage and as we see that, in this quarter that there has been INR 200 crore more slippage than what we had anticipated. That number of INR 1,500 crore what is left for the next quarter can also go up. The maximum we can claim is INR 3,000 crore. But we are still conservatively budgeting it at INR 25 billion and not INR 30 billion.
I hope you will have more questions. Happy to answer them. Thank you very much.
Thank you. We will now begin the question answer session. Participants who wish to ask a question may press star and one on the touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we'll wait for a moment while the question queue assembles. We have the first question from the line of Mahrukh Adajania from Nuvama. Please go ahead.
Yeah. Hi, good evening. My first question is on the retail asset growth. Obviously it has been growing well and it grew well this quarter, but competition in this segment is also very intense and you are a relatively new player. What has been your strategy all this while? What has been driving this growth?
Kamal, you want to take that?
Yeah, sure. Thank you, Sunil. Okay, ma'am, I would just like to tell you know, we have a large franchise and frankly at the level that we are and the growth rates, so we can frankly show a lot more growth with the already existing franchise. I have, you know, 1,200 branches, another 4,500 banking units. All put together all of these customers and many of them, even if I am able to tap a, you know, single-digit percentage of these customers, that gives me enough fuel for growth for many coming quarters.
Yeah, got it. Was my question more so, is there any geographic concentration or, because you're always a very strong brand in the east?
Ma'am, if I can tell you this, you know, of course, what you said is absolutely right that we are a very large brand in the East, but I can tell you broadly right now, only one third of my retail assets come from the whole East put together, which will be, you know, all the states of the East. I have almost like the rest of the portfolio split equally between the three parts of rest of India, North, South, and West. Because I, if you see, I mean on the microfinance business, we have a lot of business on this side of the country. If you see also we have a lot of asset businesses, housing finance customers who are there on the West side.
We are very conscious, you know, anyway the bank is working a lot on the geographical diversification. We are in fact very conscious and I have like between 30%-32% from east and rest is spread one third, one third.
Got it, sir. What will be your slippage for the quarter?
Slippage is for retail assets?
No, the total slippage for the bank of which if you can call out the EEB figure separately.
Yeah, I'll go back to Sunil. Sunil, over to you.
Let me take that. The total slippage is, gross slippage is for the bank is INR 3,954 crores, of which EEB slippage is INR 3,624 crores. Total recoveries and upgrades is INR 530 crores, of which EEB is INR 360 crores. Write-off we've done is only for the EEB portion, which is INR 3,539 crores.
Got it. Thank you. Thanks a lot.
Thank you.
Thank you. Participants who wish to ask a question may press star and one on their touch-tone telephone. We have the next question from the line of Karthik Chellappa from Buena Vista Fund Management. Please go ahead.
Yeah. Thank you very much for the opportunity, sir. Diwali wishes to the management team. I have three questions. The first one is, given your outlook on collections and improvement in the NPA ratios, what is the kind of credit costs you are expecting for FY 2023?
Karthik, we were guiding for a credit cost of 2.5%. Given that we have reduced our recovery number from INR 25 billion to INR 15 billion, we now look at, and this is for a reason because we don't want years to come to have more than normalized level of NPAs and slippages. We have increased our credit cost guidance to 3% with a ±15 basis points.
Okay, 3% ±15 basis points. Okay, got it. Second question, Sunil, is if I just look at the various buckets, the 1-30, 31-60, 61-90 and the NPA, for the rest of India, almost all the buckets have seen a sequential deterioration of various magnitude. Which are the principal regions which are contributing to this slippage? And could you give your thoughts on how do you see that playing out in the second half?
Two things, Karthik. You know, when we look at the slippage numbers, there are two factors which has impacted the slippage. One is the portfolio coming out of restructuring. That is one reason. The other reason, particularly in the early bucket, is the flood seasons that we had gone in the Q2 of this financial year. As the portfolio which came out of restructuring and the second restructuring. You know, we had two parts of restructuring. One came out in the April month, and the other came out in July. The R2 restructuring had a reasonably good share comparatively than the R1 restructuring of the rest of India. That is where we see some slippages in rest of India as well.
When you spoke about the floods, Sunil, apart from Assam, in rest of India, which were the other regions impacted by the floods?
We had floods in some parts in Bihar and MP.
Okay. Last question from my side is, if I look at the mortgage book, sequentially also the NPA ratio has gone up, and in absolute terms, the NPA has also gone up by about 13%-14%, which looks pretty high, whereas most of the other HFCs are actually improving, showing some improvement. Could you please comment on what is driving this?
You're talking about the housing book?
Yes, the housing book sequential NPA amount, both in absolute terms and percentage terms, seems to have gone up.
Housing book, we had a one-time adjustment of INR 62 crore for a technical reason, and that is why this has gone up. We expect this INR 62 crore to be reversed in next two quarters. Suresh, you are there on the call?
Yeah. Yeah, good evening.
Can you please elaborate that?
Yeah. Basically, the INR 62 crore is mainly on account of a small system-related issue where for some reason, you know, the tenure of the loan has increased because of lack of time of a prepayment. This was mainly not the fault of this. It was mainly on the, on to the prepayment made by the customer. Because of that, as per the technical norms of the RBI guidelines, this tantamount to a restructuring, although it was not at the restructuring for a default customer. In all the country it was a prepayment. Technically, as it was mentioned, it is to be treated as it is. We have taken that as a on a very conservative side.
We have taken it and shown it as a NPA, which obviously, since the accounts are regular and they are continuing to perform, will come out of it automatically because they are performing accounts.
Oh, okay. This was actually a prepayment, but you have actually classified it as an NPA. I mean, what was the logic? I mean, it seems a bit.
Yeah.
Unusual.
Basically, you know, in terms of a tenure, you cannot give a tenure increase to the customer. It tantamounts to a restructuring. On the face of it.
Okay.
It is a prepayment, but the customer wanted a reduction in the EMI, and since the system control was not there, the system allowed a lower EMI to be accepted which resulted in a tenure increase beyond the original tenure. That, on a technical side, as per RBI guidelines, will tantamount to a restructuring, although the accounts are performing accounts.
Okay, very clear. Okay, that's it from my side. Wish the team all the very best for the remaining quarters. Thank you.
Thank you.
Thank you.
Thank you. We have the next question from the line of Kunal Shah from ICICI Securities. Please go ahead.
Yeah. Thanks for taking my question, and wish you all a very happy new year. Firstly, when we look at it in terms of the slippages.
Kunal, could you be a little louder, please?
Yeah. When we look at it, in terms of the slippages, even outside of the restructured pool, that seems to be much on the higher side. Okay, 3,900 and maybe 3,600 for EB. When we look at, maybe the disclosure which is there in terms of the slippage from restructured, that's hardly 35% of the restructured pool. Still it seems to be much on the higher side. One could be Assam. Otherwise what are the factors which are really impacting that and what should be the steady state slippage levels, given this kind of a collection efficiency which we have currently at around about 97%?
Kunal, the slippages, as you mentioned, is higher. One reason is because of the customers coming out of restructuring, right? If you see, our customers in EV segment came out of restructuring in two tranches. What came out of restructuring after 31st March did not slip fully into NPA on 30th June because there was an element of part payment and 90-day DPD was not there. Similarly, the customers which came out of restructuring on 1st of July, there is a portion which is still standing in 60-90 bucket.
Which we expected to flow during Q3.
Yeah. No, I'm just saying outside of restructuring. When we look at the disclosure out of INR 7,000 crore, almost maybe INR 2,500 crore have slipped into NPL over a two-quarter period. Okay. Still there seems to be like unusually high slippage of INR 1,500-INR 1,600 crore in this quarter.
No. I will have to do because I'm not too sure from where you're looking at this number of INR 1,500 crores of gross slippages outside restructuring.
No. Total is 3,600. If you can just highlight in terms of how much was from the restructure.
EEB.
I am talking about EEB, yeah.
Wait for a minute. Yeah. If I understand your question right, you want out of these slippages, what proportion or what amount is non-restructured.
Yeah. Yeah.
Right. That is about INR 1,200 crores.
That is INR 1,200 crore. Okay. That's still running at the run rate of more than
1,200 crore, okay, in a particular quarter, so that is again a very high proportion, okay, looking at 58-odd thousand crore. That is still a much higher run rate, more than 8-odd%. Just wanted to see in terms of what is maybe what is the scope of improvement in the steady-state slippage number as well. Because overall, when we look at in terms of the collection efficiency, that is 97-odd%, which is lower than the previous year.
Right. Again, as I said, two things here. You have two-pronged questions. One is what is the steady-state slippages that we expect outside restructuring customers. That number, according to us, should be in that range of INR 700-800 crores. Right? We are talking about the gross slippages, not the net slippages.
Got it.
Now, why this number? You know, your second question was?
No, I was just saying that's the steady-state number. Yeah. Okay. Got it.
That's the steady-state number that we should look at. If I'm guiding for a 2.5% credit cost, so net of recovery, that will lead me to that number.
Okay. Got it. Secondly, in terms of the development with respect to PSLC, so now what happens with respect to the pool which was classified in 2021, 2022? Any observations which have been there, maybe post if any audit would have taken place? Was there any further increase in the RIDF pool?
First thing is, whatever they have disqualified for the 2019, 2020, that's the only disqualification. For next years, there is no further disqualifications. Now, your second question with respect to RIDF, we have deposited further INR 685 crore in RIDF during the quarter, and this number now stands at INR 6,400 odd crore. The terminal number, ultimately we have to deposit INR 7,000 crore into RIDF, as we mentioned it earlier as well. INR 600 crore more we should expect.
Sure. This disqualification is very clear that now it will not happen for the 21-22 balance sheet for sure.
For that, we have the confirmation from them. There is no doubt there.
Sure. One last question on wholesale deposits. What was the reason for going so aggressive in terms of mobilizing the wholesale deposits as such? Otherwise, I think growth was not anyway so high and CASA accretion is still continuing. If you can just highlight in terms of what led to this kind of a strategy.
The bulk deposit was higher this quarter for two counts. One is, we had to deposit this RIDF money this quarter. There was a repayment of refinance this quarter of about INR 1,000-1,500 crore. Both put together, we had to replace this, and we chose to do it with the bulk deposit.
That's the reason INR 5,000-odd crore net increase.
Yes. You see my borrowings have come down and bulk deposits have gone up.
Yeah. Okay. Thanks and all the best. Yeah.
Thank you.
Thank you. Participants who wish to ask a question may press star and one on your telephone. We have the next question from the line of Jai Mundhra from B&K Securities. Please go ahead.
Yeah. Hi, good evening, sir. Couple of questions. If you can share what is the restructure-
Mr. Mundhra, if you could kindly come closer to the mic or off the speakerphone. We are unable to hear you very clearly.
Yeah. Hi, sir. Good evening. If you can share the restructuring outstanding number outside EEB, if there is any, restructuring stock. Hello.
INR 180 crore, which is still under restructuring. Otherwise, while there are customers outstanding, but they are out of restructuring, which means the normal demand is getting generated.
Right. This is non-EEB portion, is it?
This INR 180 crore is non-EEB, yes.
Right. Sir, on the slide five, collection efficiency in non-restructuring book is now 98%. Two questions here. This 98%, how should we look at it going forward? Is there any scope for further improvement or you think this is like a new normal? Of course, you mentioned that Assam may see a bit of an inch up. On an overall basis, 98%, how should we look at this number?
If you see that the collection efficiency, there's some seasonality is there. First two quarters, it is always a normal time also, may come back. This is in 97%-98%. Next two last two quarters it has come 98%-99%. This is seasonality, not a exceptional anything number. I hope that in the next two quarter it will become to little bit better position.
Sure. Just because, you know, collection efficiency hopefully will improve in non-restructuring book. Is there any number outstanding in EEB which is, you know, still restructured, though they have been moved to SMA one, two, but I think this does not include restructuring at all. What is the quantum of restructuring in EEB book outstanding as of 2Q? I mean, it would make things.
Restructuring, there is no customer which are still in restructuring as far as EEB book goes. That number I already mentioned outside EEB. As far as EEB goes, there is nothing outstanding on restructuring. Whatever these customers are, they are either in current or DPD bucket or NPA bucket, depending upon the payment they have made.
Right. From next quarter, the collection efficiency should be one number. I mean, there would not be any concept of restructuring and outside restructuring collection efficiency.
That's right. That's correct. That's right.
Right. The last question, sir. If you can quantify what is the total specific provisions is, I think, there, but what is the non-PCR provisions that you are holding at the bank level? And of course, excluding the regulatory standard assets provisioning.
Excluding regulatory standard assets provisioning, what we are carrying today is about INR 1,150 crore.
This INR 1,150 crores is on top of specific provisions of some INR 5,300 crores, roughly.
We also can add on that the CGFMU, though it is not in a provision amount, but it is in realizable amount.
Right.
So that is a INR 2,500 crores.
Correct. Just to get this correct, the total specific provisions is around INR 5,200 crores, and then on top of that we have INR 1,150 crores, which is on top of specific provisions.
Yes.
Sure, sir. That is all from my side, sir. Thank you.
Thank you. Participants who wish to ask a question may press star and one on your touchtone telephone. We have the next question from the line of Saurabh from JP Morgan. Please go ahead.
Good evening, sir. Sir, the first is, what will be the impact of this interest reversal on your NIM for the quarter?
The interest reversal amount for the quarter is INR 298 crores and the impact of NIM is about 80 basis points, 82 basis points.
Okay, got it. Secondly, this credit card outstanding which you have given 3% ±15 basis points, that's incremental or for the full year fiscal 2023?
For the full year.
Basically INR 2,800-INR 2,900 crores of which you have done INR 1,800 crores in the first half. Is that the right way to think about it?
No, I don't want to quantify that number. Yeah, we can do the math so that,
Okay.
The overall number is totally the same.
Okay. Sir, the write-off policy from here on, would you have a write-off policy that you write off loans at 180 days or will it just be like half year? I mean, how should we think about your write-off happening?
Currently we've written off all customers with DPD above 180 days.
Okay. That will continue. 180 days should be now the incremental write-off policy or?
Yes.
Okay. Understand. Any color you can give on this October number? How has October trended versus September end?
In terms of collections?
Collections and disbursements.
On both the sides we see an improvement, whether it's disbursement or collection. Of course, we will have to compare it like to like with October versus last October.
How would that trend be, sir?
The trend is improving.
Even with this last year.
On the disbursement side and on the collection side, it's better than September.
You should keep in mind that the workday in October is lower than any month because of the long vacation in that the festival.
Okay, got it. Thank you, sir.
Okay, thank you.
Thank you. We have the next question. Participants who wish to ask a question may press star and one on your touchtone telephone. We have the next question on the line of Karthik Chellappa from Buena Vista. Please go ahead.
Yeah. Thank you for the opportunity again, sir. Just two clarifications. When you said the gross slippage on a steady state is about INR 700 crore-INR 800 crore, is that a quarterly number?
Yes.
Okay. The second one is, when you actually revise down the estimated recovery from INR 2,500 -INR 1,500 crore, Sunil also made a comment that you have tightened some underwriting standards and you no longer lend to a customer who's already NPA or where you sense that there is not a willingness to pay. Could you just elaborate on what exactly the change in the underwriting standard is?
Earlier, if a NPA customer repays the loan, we used to extend a fresh loan to them.
Okay.
Now what we are saying is, if an NPA customer repays the loan, they will not be immediately eligible unless we are satisfied on the, you know, the willingness aspect of it, the discipline aspects of that customer.
Okay. That results in a INR 1,000 crore reduction in your collections. Is it because otherwise that person maybe would have part paid the loan, taken another loan from you and then repaid the original loan. That portion is basically INR 1,000 crores. That's what you're factoring in your revised guidance, right?
So it's a mix of both. One is this and the other is again, as I said, the same applicability is for the restructured loan moving into NPA and then coming back. As I said, the INR 1,000 crore reduction, we've been a little conservative, but now that we've put that number, we want to stick, you know, we would want to attribute it to this.
I think, Sunil, just a little clarification. Sorry, I want to just come in.
No, sure. Please.
I think the point that is being made is that the customer who paid his full outstanding, not part outstanding fees.
Yes.
Earlier also, if a customer came and paid, cleared his full loan, then he would possibly become eligible where we tightened the norm. There were never a situation where he came and part paid and he got a fresh loan.
Okay. Just one more clarification on the claim amount that you have made under CGFMU. The claim that you made was about INR 1,390 crore, of which you were able to recover something I think INR 950 odd crore, right? That is what you expect to receive from the government. What explains the gap between the claim that you have made and what you are actually getting?
No, no. It is if you go through the scheme. Actually the scheme says that the first 3% loss has to be borne by the lending entity and for anything above 3%, 75% they will pay. Effectively, it's the 72% of the claims that you make, you get as recovery. When we had factored INR 1,000 crore recovery, we had factored around 72%. Now, this number can change based on the recoveries we do it ourselves. If I have recovered some money on our own, to that extent, I file a lower claim and I show it as already recovered from that formula, and I file a lower claim. That number of INR 1,050 crores, which ideally should have been claimed or rather receivable is INR 950, is because I have myself recovered INR 95 crores.
Okay. INR 1,390 crore is the amount of which you have already recovered INR 95 crore. Of the balance, what you get as INR 950 crore represents about 72% of the claim amount. That's the arithmetic, right?
That's the mathematics, yes.
Okay. Very, very clear. Thank you very much for this clarification, Sunil. That's all from my side. Wish the team all the very best.
Thank you.
Thank you. We have the next question from the line of Neelanjan from Nomura. Please go ahead.
Hi, Sunil. A couple of questions have already been answered, but just on the previous question from Karthik. What happens to the balance amount? I mean, in case we are able to recover after getting a repayment from CGFMU, are we allowed to retain it or do we need to share it out?
To the extent of first loss, we will be. Anything in excess of that will have to be refunded or returned to the CGFMU.
Sorry, how does the math work on that? Not very clear. Sorry.
To the extent of the first loss which I have borne, I can r etain that money.
Okay.
Any recovery beyond that has to be refunded to CGFMU.
Another question, and somebody had asked the total pool of provisions. The specific provision is roughly, let's say, about INR 5,200 odd crore. On top of that, you mentioned INR 1,150 crore as provisions outside regulatory asset provision.
Yes.
What is the regulatory asset provision? I just want a sum total of it.
Standard asset provision is required.
Which is how much, at this point?
As per regulation, that number is INR 249 crores.
INR 249, INR 1,150 and INR 52 million roughly. That's the total.
Right.
Okay. A quick final question. How is the, you know, sort of EEB growth looking like in the days to come or in the quarters to come, you know, post the changes that have happened, you know, in the first quarter?
You know, historically if you see, the second half of the year has always been, a growth quarter or the growth half for us, particularly in EEB, right? Because this is where we see bulk of the growth for the year comes in. The seasonality that plays out in this business is Q1 you see a portfolio going down, Q2 you see the portfolio going back to the March levels and the entire growth for the year comes in H2. Now that we are in the business end of the financial year, we expect this growth, to continue. But the only difference here is that there is a 10% of our customer base which are NPA which we will not extend fresh loans.
Historically if I have grown at 20-25%, I should expect a 3-4% reduction in that growth. Typically about 16%-18% is what we should look at this point of time because of the tightening of credit norms.
Okay. Sunil, very quickly, last one. Are you seeing a propensity for higher ticket size demand as well, even from, you know, customers who are 100% on time?
Yes, there is a demand. Demand is not an issue. As we said that we've seen those 2%-3% of the customers where we saw the willingness issue and that is what we want to correct. We, for the rest of the portfolio there is a good demand and we expect good growth there.
Okay. Perfect. Thank you. Thank you so much, Sunil.
Thank you.
Thank you. We have the next question from the line of Dhaval Gada from Edelweiss Sunrise. Please go ahead.
Hey, Mr. Mohit and Sunil. Happy Diwali to the entire team. Sir, couple of questions. One, outlook on loan growth with revised underwriting standards, do you think that growth could see some pressure in current financial year? Also, if you could update on the new MFI norms for NBFC-MFI companies on income assessment. How do we stand on the same if at all those rules apply? Second question, just to understand what could be the likely, the say if at all we know and with this in coming quarters.
Dhaval, sorry to interrupt, but your question was not very clear. If you can come closer to the mic.
I'm actually, I'm fairly clear. I'm on the handset. Can I, should I repeat my question number one?
Yeah. Dhaval, you are much better now. If you can repeat.
Sorry. Question number one is, Sunil, outlook on the loan growth with revised underwriting standards. Also, basically we mentioned that we want to emphasize more on non-EEB book over the period of next three years. How are we seeing that growth? I come back on my second question.
First question on that, Dhaval, that is the growth will not compromise, which I saw that the demand. Yes, Sunil mentioned about it that 2%-3% maybe not grow, but other side also the credit growing very good. 52% of the credit growth is coming from the microcredit. This is one. Second is in microcredit growth actually is coming to this fourth quarter, third and fourth. Third quarter, October is not coming much more because of the lot of, the percussion in that time. And the harvesting will start in the November and that will be like to help on that. The credit growth is coming on that. That symptom already it has been shown on that. That, it will be coming.
Next point, if you recall, on that the last year, last quarter, if you seen that the how the growth has come, very much big way. The time was the after pandemic, the first fourth quarter we have been seeing that. In that sense, in this year also, fourth quarter and third quarter will be come to this, the growth which is, more than normal on that. This is the one. Second point, we've seen that a very good amount of new customer we are adding. We see that every month we are nearly two lakh new customer added for new loan. So that is also helping us to growth of the credit. So credit growth, whatever we say that we are conservatively making some strengthening of, underwriting for NPA customer, not the normal customer.
Mm-hmm.
That is. Third another point we saw that micro credit is a behavioral credit. When they are getting back in the last two years, no discipline is there because of the group meeting is not happened. Gradually they are coming to the group meeting and now it has been also showing on that the because of they are not getting the loan immediately close with the NPA customer, so people's the behavior also coming to positive now gradually. It will take some time, maybe this quarter last or next quarter full. That will be also help from that to growth will become from the micro credit point of view.
Sure. I'm sure, sir. Sir, just to understand the new MFI norms of income assessments, does that impact us?
No, it has been now, if you see that the income assessment has been systematically done in the first quarter. In first quarter, little bit has been slow on that assessment. This quarter we are habituated on that, how it can be like to calculate. We have the two products. One product is a micro credit in a group. Another product we have the Bandhan small business and agri loan. Who are not eligible for because of the income is more than INR 3 lakh in family income, they are getting that the assessment by the Bandhan product and getting the loan from Bandhan with the paying interest rate on that. This is our advantage on that.
Sure. Sir, second question was around maybe medium-term collection efficiency and the way one looks at our asset quality and therefore our returns. Very clearly, maybe we are normalizing this year because we had COVID one, COVID two and also floods. Three years we had different impacts. Assuming from here on, we do not have any impacts and we've also untightened our underwriting, what should we say steady-state slippages in the next financial year and, as per our earlier conversations through March quarter, you expect everything to normalize?
I feel that it has got back the confidence from the field on this.
Okay.
Customer point of view also we saw that everything, they are also returning back on that way. That is the reason. If you see that the 98% is the best collection efficiency.
Right.
Even the normal time also, we are seeing that in the first two quarters, 98. Last two quarters is in, normally in the last quarter it has come to 98.5%-99% depending on geographical location on that.
In terms of slippages that you asked, you know, if I have to differently answer it, the steady-state credit cost that we look at for the next financial year should be around 180 basis points, thereabout. That should be normal, Sunil? For medium term, next few years, should that be the number which one should be considering?
Yes.
There would be scope for improvement?
For that, we should, for now, we should look at that number.
Sure. Sunil, just to understand more purely on basis numbers, the more and more you have a mix change tilting towards what our guidance is for FY 25 in terms of loan book, what type of return ratios one bank should be able to clock? In general, what is the scope of improvement in margins from current levels? I'm talking about except for the interest reversals. Steady-state margins and steady-state return ratios.
Dhaval, the way it works is about almost 65% of our book is the fixed-rate loans. While we have increased the lending rate and we-
Right.
Continue to do that, the impact of that will be felt only in the next financial year.
Right.
That is one aspect. The second aspect is, as you mentioned, there won't be such large reversals of interest in income as the slippages will be lower. That should also aid. On a steady-state basis, we are looking at NIMs around 8% with a 10-20 basis point here and there.
Okay.
In terms of ROEs, we are looking at 20-21% ROEs on a steady-state basis.
Sure, Sunil. Thank you.
Thank you.
Happy Diwali and Happy New Year again.
Thank you.
Happy Diwali to you.
Happy Diwali.
Thank you. We have the next question in the line of Param Subramanian from Equity. Please go ahead.
Yeah. Hi, thank you for the opportunity. My first question is on whether the RBI risk-based supervision has it been completed for the year FY 2022 and have there been any observations on that? If you could throw some light on that, please.
The supervision for the FY 2022 is completed. Observations will always be there in RBI report, but nothing to report what we are required to report categorically.
Great. Good to hear. Sunil, a follow-up question now. The outlook on the MFI growth, the EEB business growth, I picked up that, you know, you were saying, loan growth should be 16%-18%, if I'm not wrong. Is this more a near-term sort of loan growth and does this pick up from here going forward, in your view? Is this more because of the change in the underwriting now being a more near-term impact? Because, you know, we are used to seeing Bandhan growing this business at a higher level, and this is the business that is the core of our DNA. Yeah, if you could throw some light on that.
Yeah. You're right to some extent that this is a near-term guidance. On a steady-state longer-term guidance, we would still be in that range of 18%-20%.
This is for the MFI business and 24%-25% for the overall business. Yeah. That's what I understand, right?
Absolutely. Yes.
Okay. Got it. Sunil, if I could follow up another question. The retail deposits, so it's come as in the growth is, you know, sort of stopped over here. 10% YOY, even on a percentage basis, retail deposits is now 22%.
You are right that retail deposits obviously looks flat quarter-on-quarter, just about 1% growth. But that's more to do with our requirements and the resultant interest rates that we offer to our customers. Right. As we see the asset growth happening in the second half of the financial year, we would see the deposit growth also growing in line. We should see that traction on the deposits as well.
Mr. Param Subramanian, can you hear us? It appears that Mr. Param Subramanian is no longer connected. We will move on to the next question from the line of Nitin Aggarwal from Motilal Oswal. Please go ahead.
Sir, with respect to the large slippages that you are witnessing in the restructured pool, I just want to know, like. Hi, am I audible?
Yes.
Am I audible?
We lost you for a second, but you are audible now.
Okay. Thanks, Sunil. First question is like in respect to the slippages that you are witnessing in the restructured pool, I would just want to understand how difficult it is for these delinquent borrowers to again borrow from some other player in the industry. I'm asking it because, like, Bandhan has a very dominant position in the North East with very competitive interest rates, but it seems like that this is not a factor for these borrowers, and they have decided not to pay. How easy or difficult it is for them to come back?
No, it's not that simple, Nitin, right? We have to appreciate that this pandemic did have an impact on bottom of the pyramid more than any other segment, right? With that being the assumption, we would have expected, you know, close to 10% kind of a fallout because of this. You know, the reason we are seeing two to three basis points higher is because of that discipline break, what Mr. Ghosh was talking about. You know, this is a business which works on a very tight discipline. Because of those two years where the group meetings were not held regularly, right, it is our responsibility to ensure that if we have to grow this business at 20%+ year-on-year, we bring back that discipline. Right.
That's precisely the reason, you know, we've been motivating and as you've seen a slightly higher level of these customers. The third and important point is we as an organization only strengthen our credit processes, right? We still continue to be a one loan policy lender, right? When we have restructured these customers, we have done a restructuring for six months and not to the maximum extent possible of two years. Right. Whatever money we received during the restructuring period, we reduced the principal, and we did not show it as an advance installment. Right? If we had to, that was an accounting option available to us, but we chose to reduce their principal, which will reduce their interest burden. Right?
If I had shown it as an advance receivable, probably my delinquency position would have looked better today because I would have been adjusting against those receipts. I think if we have received one-third of the total outstanding from those customers during and until date, so I could have shown all of that as an advance and we would not have been talking about these numbers today. The point is, the reason we are seeing a slightly elevated level is, one, the reflection of pandemic on the bottom of the pyramid. Two. While we have supported them with moratorium and restructuring, we have not diluting and we don't intend to dilute our credit norms. Discipline for us is very important because it is a business which we want to be in.
It is our core business and we want to grow this business, and we had to set these processes right before we again push up the pedal in coming years.
Right. Thanks, Sunil, for this. My question is also around like will these borrowers be able to come back to the industry and borrow from some other MFI players?
As I said, as far as we are concerned, we will not lend them immediately till we are confident about their credit culture. Once only we are confident, we will look at them. In the immediate term or near term, at least from our side, they will not be eligible.
Okay. Right. Sunil, any update on this Assam relief scheme or even the range of amount that you can recover through this? Because this has been an uncertain figure in our stressful coverage analysis for some time. How are we looking at this? Any hopes of recovery there?
The Assam government has started the repayment process for the delinquent customers. They had done it already for the zero DPD customers. As a lender, you know, it doesn't count in recovery because they were anyway zero DPD customers. Now they are starting the process of the delinquent customers. We should see on average about INR 50 -INR 70 crore for the next two, three months.
Okay.
They already started. Hopefully tomorrow morning will be likely to be just so. They are prepared everything. Hopefully, you know, in three months' time we would be in a better position to tell you what is the amount that we have received.
Okay. Right. Lastly, just to confirm on the credit cost, which you said was still in the vicinity of 3% or 15 basis points. Sunil, for the first half, now we have already lent those to INR 1,900-odd crores. Does that imply that we are looking at around INR 1,100 crores over the second half now? Is it like broadly that you look at things?
You know, this is the third time you want to put a number. You want to, you know, hear a number from me. But as I said, it won't be very different from what you are saying. It depends on what is my closing balance sheet as on that date. The variation here could be INR 100 crore, INR 200 crore, not more than that.
Okay. Okay, sure. Thanks, Sunil. We should all leave this.
Thank you.
Thank you. Participants are requested to kindly restrict questions to two per participant. We have the next question from the line of Manish Shukla from Axis Capital. Please go ahead.
Good evening, and thank you for the opportunity. I was going back to the tightening of credit underwriting standards. Just for the sake of clarification, if I understand it right, if there is a customer who's NPA and has come back and made the full payment, earlier you were willing to give that customer a new loan. Now you would probably wait for some time. Is that understanding correct?
That's right.
What would have been the gap earlier and what would be the gap now? I mean, the gap between the customer fully paying their NPA amount, versus the new loan. What was that gap earlier, and what is it likely to be now?
Earlier, we used to lend them within seven days. Now we are saying that we will wait for months.
Okay. This change is already reflected in Q2 disbursements or this is incremental from Q3?
Already reflected.
Okay. Thank you. That is very clear. That was the only question. Thank you.
Thank you.
Thank you. We have the next question on the line of Jai Mundhra from B&K Securities. Please go ahead.
On your MFI book, if I were to just calculate the GNPA percentage, INR 5,000 crore GNPA on, you know, roughly, INR 53,000 crore of my EEB loans, it would be around 9-9.5%.
Jai, you have to. You are not very clear, not audible. You have to be little louder, please.
Yeah. Hi, sir. So I'm saying, sir, if you can bifurcate the GNPA percentage in EEB between group loans and individual loans, because there seems a very divergent growth trend in these two sub-sector within the EEB? If there is any difference, is there any material difference in the GNPA behavior in these two books?
We have not disclosed this number separately. I can tell you that the individual book is much better performing and the NPA level would be one-third or even lower.
Right. Is this like on percentage basis? Because it looks like the growth has been even, you know, in that range, right? The group loan has been degrowing and the individual book is growing by like 100% YOY. In general also, without adjusting for the base also, the delinquency would be materially different. Is that the right way to understand?
Yes. Because individual loans don't have the benefit of restructuring and so the vintage is there. You know, it's not that they were under restructuring and it's very recent that they've come out. That benefit is not there, which is available to group loans.
Great. Yeah. Okay. Thank you, sir. That was it.
Thank you.
Thank you. That was the last question. I'd now like to hand it over to the management for closing comments.
Thank you very much. Thank you, ladies and gentlemen. Thank you for your time.
Thank you.
On behalf of Bandhan Bank, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.