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Edited Transcript of SOUTHBANK.NSE earnings conference call or presentation 18-Oct-19 5:00am GMT

Q2 2020 South Indian Bank Ltd Earnings Call

Oct 29, 2019 (Thomson StreetEvents) -- Edited Transcript of South Indian Bank Ltd earnings conference call or presentation Friday, October 18, 2019 at 5:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* H. Chithra

The South Indian Bank Limited - Joint GM & CFO

* V. G. Mathew

The South Indian Bank Limited - MD, CEO & Director

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Conference Call Participants

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* Abhinesh Vijayaraj

Spark Capital Advisors (India) Private Limited, Research Division - VP of Equity Research & Banking Analyst

* Bhavik Shah;Batlivala & Karani Securities India Pvt. Ltd., Research Division

* Deepak Poddar

Sapphire Capital Management LLC - Portfolio Manager

* Jai Mundhra

Batlivala & Karani Securities India Pvt. Ltd., Research Division - Research Analyst

* Nilanjan Karfa

Jefferies LLC, Research Division - Equity Analyst

* Prakhar Agarwal

Edelweiss Securities Ltd., Research Division - Research Analyst

* Pranav Gupta

Aditya Birla Sun Life Insurance Company Limited - Research Analyst of Banking & Financial Services

* Rakesh Kumar

Elara Securities (India) Private Limited, Research Division - VP and Analyst

* Renish Bhuva

ICICI Securities Limited, Research Division - Assistant VP

* Rohan Mandora

Equirus Securities Private Limited, Research Division - Analyst

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Presentation

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Operator [1]

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Good morning, ladies and gentlemen. Welcome to the South Indian Bank Q2 FY '20 Earnings Conference Call hosted by Spark Capital Advisors (India) Private Limited. (Operator Instructions) Please note that this conference is being recorded.

I now hand the conference over to Mr. Abhinesh Vijayaraj from Spark Capital Advisors (India) Private Limited. Thank you, and over to you, sir.

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Abhinesh Vijayaraj, Spark Capital Advisors (India) Private Limited, Research Division - VP of Equity Research & Banking Analyst [2]

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Thank you, Lizanne. Good morning, everyone. On behalf of Spark Capital, I welcome you to the 2Q FY '20 earnings call of South Indian Bank.

We have with us today the management team of South Indian Bank represented by the MD and CEO, Mr. V. G. Mathew; EVP Operations, Mr. Thomas Joseph; EVP Credit, Mr. Sivakumar; EVP Treasury, Mr. Reghunathan; and CFO, Ms. Chithra.

I now request Mr. Mathew to take us through the highlights of the quarter gone by, after which we will open the floor for questions. Over to you, sir.

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V. G. Mathew, The South Indian Bank Limited - MD, CEO & Director [3]

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Thank you. A very good morning to all, and thank you for joining us for our Q2 FY '20 earnings conference call. We are joined by Mr. Thomas Joseph, EVP Operations; Mr. G Sivakumar, EVP Credit; Mr. Reghunathan, EVP Treasury; as well as CFO, Ms. Chithra.

Let me take you through the key highlights of the operation and financial performance for this quarter. I'm happy to state that the bank's performance in Q2 FY '20 continues to be robust. The profit after tax rose from INR 70 crores in Q2 FY '19 to INR 84 crores in this quarter, an increase of 20%.

As part of our stated strategy, we continue to expand our noncorporate portfolio, particularly in the segments of retail, MSME and Agri loans. We have also achieved a significant increase in the noninterest income, which contributed 30% of the total income.

As on September 30, 2019, the total business of the bank stood at INR 1,46,857 crores, an increase of 11%. Advances grew by 11% to INR 63,920 crores driven by continued robust growth in retail, MSME and Agri loan segments, while the corporate loan portfolio declined. Retail loans grew by 20%, primarily driven by increase in our retail segment, such as mortgages, auto loans and gold loans.

Our data mining and analytics initiatives have rendered very encouraging results in increasing product per customer. We hired experienced employees in the last financial year towards these (inaudible) initiatives, [resulting] in the overall growth in various focus segments.

In tune with our strategy, the share of corporate loans declined from 35% as on September 2018 to 31% as on September 2019. We expect our overall advances to grow by 15% by the end of the current financial year.

Deposits excluding CDs rose by 17% to INR 79,430 crores. CASA deposits increased by 12% to INR 20,614 crores. CASA ratio rose to 24.9% of the total deposits.

Our investment book rose by 13% to INR 20,972 crores of which HTM category contributed INR 16,680 crores while AFS contributed INR 4,292 crores. Gross NPA ratio improved to 4.92% as on September 2019 as against 4.96% as on June 2019. Net NPA ratio stood at 3.48%, a marginal increase of 7 basis points over June 2019 numbers.

Net interest income for the quarter stood at INR 584 crores, registering a growth of 15%. Net interest margin was 2.69% in the quarter as against 2.61% in Q2 FY '19. Other income for the quarter increased by 58% to INR 249 crores. Our core transaction fees rose by 11% to INR 57 crores, while treasury income increased from INR 13 crores to INR 83 crores.

We have already entered into multiple distribution tie-ups with the leading insurance companies and are seeing strong traction in third-party sales. As we continue to expand the retail and MSME verticals, we expect better momentum in the transaction fee and third-party income in the coming quarters.

Operating profit for the quarter was INR 411 crores as against INR 310 crores in Q2 FY '19, an increase of 33% driven by higher income and better cost efficiency. In Q2 FY '20, the business per employee rose by 14% while business per branch rose by 11%. The [cost to] income ratio improved from 53.4% to 50.6% in Q2 FY '20. We expect the improvement in the OpEx ratio to continue as we gain from operating leverage from our centralized operations higher fee income and increasing productivity from existing branches.

Overall provisions increased by 50% to INR 306 crores in Q2 FY '20. These provisions included loan-loss provisions of INR 285 crores. Including write-offs, the provision coverage ratio stood at 48.1% as on September 2019 as against 45.1% as of June 2019.

In Q2 FY '20, gross slippages amounted to INR 418 crores, out of which, INR 238 crores was contributed by a single account from the textile sector. We had given a guidance of INR 1,000 crores for the full year, out of which, INR 658 crores have crystallized in the 6 months ended September 30, 2019. We expect additional slippages of not more than INR 500 crores in H2 FY '20.

We have been mentioning a few accounts which have seen stress and in which various resolution options are being explored or finalized. One is the HFC with exposure of INR 114 crores; second is the real estate-focused NBFC, where our exposure is INR 68 crores; another is a fitness-related company with exposure of INR 75 crores; and the last one is an -- is in the irrigation sector with exposure of INR 50 crores.

Our overall capital adequacy stands at 12.1%, while the core CRAR is at 9.6%. Including profits of the current year, core CRAR is at 9.9%. The bank has a wide geographical presence with 870 branches, 52 extension counters and nearly 1,400 ATMs.

To summarize, the bank continues its steady progress towards strong business growth with the focus areas, favorable loan mix and improved asset quality. We expect that this will enable us to deliver higher profits in the coming quarters.

With this, we open the floor for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question is from the line of Jai Mundhra from B&K Securities.

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Jai Mundhra, Batlivala & Karani Securities India Pvt. Ltd., Research Division - Research Analyst [2]

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Sir, first question is on the slippages this quarter wherein you mentioned INR 238 crores is from a single account. And -- but if I recollect, in last quarter interaction, you had said that there is no account which is above INR 100 crores which is in SMA-1 or SMA-2 category. So how did this -- I mean so just wanted to understand your thought process on this. And I believe this textile account is not a new stress. This was under stress for the last 6 months at least if not more than that.

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V. G. Mathew, The South Indian Bank Limited - MD, CEO & Director [3]

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We are not looking at it that way because this was a project implementation. The project implementation itself is not over as yet. And there are 10,000 people working in the company, and it has got a good turnover. It was not -- whatever we stated about the SMA status is absolutely correct. And on that basis, we have gone ahead. And the moment we found that there's an issue, we have declared it as [SNP] and then moved ahead. That's what it is.

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Jai Mundhra, Batlivala & Karani Securities India Pvt. Ltd., Research Division - Research Analyst [4]

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Okay. And sir, this 4 stress account that you just highlighted, if I just total them up, that is around INR 300 crores. And most of them will actually slip. There's no hope, I believe. So when you say, for the next half, you are saying the slippage is of INR 500 crores. Do you -- I mean this is INR 500 crores over and above this INR 300 crores? Or this INR 500 crores includes these INR 300 crores?

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V. G. Mathew, The South Indian Bank Limited - MD, CEO & Director [5]

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Yes. In the first place, we may not look at INR 300 crores. There are -- I mean chances are very, very strong at least for 1 or 2 of them to avoid falling into an NPA category. There may be resolutions which are working out without slipping into NPA. There could be management change. There could be significant infusion of external fund. So that is a different calculation. So we have done that exercise, and we are of the view that INR 500 crores is enough for the next 2 quarters, and that number is also recognizing this into consideration.

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Jai Mundhra, Batlivala & Karani Securities India Pvt. Ltd., Research Division - Research Analyst [6]

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Sure, sir. And sir, have you signed any ICA apart from these 4 names that you just mentioned? Or -- HFC, you must have signed real estate and fitness and irrigation, have you -- has the [IC] been signed or just -- just want to understand.

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V. G. Mathew, The South Indian Bank Limited - MD, CEO & Director [7]

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Some of the cases there, it's already signed. Other cases, it's just in progress, I think it will get signed very shortly. Or it is -- just look, either way, but in the case of HFC, et cetera, it is already signed, yes.

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Jai Mundhra, Batlivala & Karani Securities India Pvt. Ltd., Research Division - Research Analyst [8]

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Sure, sir. And just last 2 [data-keeping] questions, sir. First is RWA number, and what is our repo-rate linked home loan?

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V. G. Mathew, The South Indian Bank Limited - MD, CEO & Director [9]

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Our?

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Unidentified Company Representative, [10]

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Repo-rate linked loan.

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V. G. Mathew, The South Indian Bank Limited - MD, CEO & Director [11]

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Repo rate. Yes, the repo rate was (inaudible) from 1st October only. So as of now, the exposure with repo-rate linked loans is very, very minuscule, just starting out. But then the last quarter, we have some exposure of about (inaudible) crores, so we expect that going forward, will be around INR 1,000 crores per quarter (inaudible).

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Jai Mundhra, Batlivala & Karani Securities India Pvt. Ltd., Research Division - Research Analyst [12]

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Sure, sir. And this RWA number?

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H. Chithra, The South Indian Bank Limited - Joint GM & CFO [13]

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[53,000]

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Operator [14]

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The next question is from the line of Rohan Mandora from Equirus Securities.

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Rohan Mandora, Equirus Securities Private Limited, Research Division - Analyst [15]

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Sir, wanted to understand like how are we seeing the recovery outlook and the overall outstanding NPAs that we are having? Anything that we should budget in for the second half of the year or maybe early next year?

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V. G. Mathew, The South Indian Bank Limited - MD, CEO & Director [16]

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No, we do have the guidance of INR 600 crores -- INR 500 crores to INR 600 crores for the full year. We have done about INR 200 crores so far, and the remaining almost INR 400 crores will be done in the next 2 quarters because significant movement is there on a number of accounts.

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Rohan Mandora, Equirus Securities Private Limited, Research Division - Analyst [17]

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Sir, this is primarily from the corporate side or SME retail?

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V. G. Mathew, The South Indian Bank Limited - MD, CEO & Director [18]

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No, no, no. The corporate side actually, particularly the syndicated corporate side, we are really not looking at any recovery at all. That's the reality because that is not in line with the remaining part of our book where we take significant amount of collateral security, where the resolutions are much faster, and we end up having a very good recovery record. In fact, even today, including the corporate, our LGD is less than 25%.

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Rohan Mandora, Equirus Securities Private Limited, Research Division - Analyst [19]

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Got it. And sir, like, what are -- what is the incremental positioning requirement on the INR 1,000-odd crores of the security receipt books for the second half of the year?

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V. G. Mathew, The South Indian Bank Limited - MD, CEO & Director [20]

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No, that is not from second half. It is actually -- yes, I mean so far it is not there. Up to September, it is not there. So it can happen in March based on the December evaluation. So the worst-case scenario is, I mean, it could be in the range of around INR 200 crores. So I mean -- because we also don't have any clear understanding on that even today because there are no serious resolutions that have taken place after the last evaluation. There's no reason why there should be a change. However, we'll just leave it to the wisdom of the rating agencies concerned, and we are -- we do not want to second guess that. So if the number comes, it should be around INR 200 crores.

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Rohan Mandora, Equirus Securities Private Limited, Research Division - Analyst [21]

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Got it. And sir, if I look at your Basel disclosure, the portfolio exposure, above 100% risk weight, has declined from INR 6,300-odd crores to INR 4,600 crores. So what explains this because I don't see any material movement in the NPA or the recovery assets. This is substantial decline.

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V. G. Mathew, The South Indian Bank Limited - MD, CEO & Director [22]

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We will give you separately. We just will give you this data separately.

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Rohan Mandora, Equirus Securities Private Limited, Research Division - Analyst [23]

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Sure. And lastly, like in the INR 242 crores of MSME restructuring that you've done during the quarter, like if you could share some color on how do you -- we see the underlying assets? Like once they move out, are they likely to remain standard, or there is more stress in those accounts, and it's just...

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V. G. Mathew, The South Indian Bank Limited - MD, CEO & Director [24]

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No, MSME restructuring accounts are high -- very good quality assets, and 1 or 2 accounts we have got some concerns, but otherwise, we have absolutely no problem with the rest of the accounts. And therefore, in our calculation, we are looking at a maximum slippage of 20%. And as I mentioned earlier, these are not like the syndicated debt. They all carry significant amount of collateral security. And we never had LGDs of more than 25% in the last 3 years if you look at it. So therefore, we are looking at a very nominal loss coming out of that, maybe just about 5% if you look at it that way, 20% or 25%. And that solution is already there in that account, 5% provision is already there in the restructured book -- in their restructured book.

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Operator [25]

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The next question is from the line of Renish Bhuva from ICICI Securities.

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Renish Bhuva, ICICI Securities Limited, Research Division - Assistant VP [26]

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Sir, couple of questions. One is on the bulk deposit side. So just wanted to understand what's the real differentiation between the bulk deposit and the general deposit cost.

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V. G. Mathew, The South Indian Bank Limited - MD, CEO & Director [27]

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In today's context, there is not too much of a difference, very little difference is there, almost flat. Only thing is we have to put a lot of focus on that kind of deposits also because we want to remove our dependence on CDs almost altogether. That's the whole idea because CDs used to be a very comfortable kind of [purchase] liability at one particular point of time, when we could pay CDs cheaper than retail deposits. So that we have learned during last year, including work, so we are back to our deposit mobilization campaign, and as you have seen, it is growing by 17% today and, correspondingly, the CDs have come down.

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Renish Bhuva, ICICI Securities Limited, Research Division - Assistant VP [28]

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Okay. So basically, this bulk deposit is in terms of the definition is about INR 2 crores of deposits. That is what...

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V. G. Mathew, The South Indian Bank Limited - MD, CEO & Director [29]

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That's it. That's it.

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Renish Bhuva, ICICI Securities Limited, Research Division - Assistant VP [30]

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But it would be from the region customers. I mean, let's say, [HNI] customers.

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V. G. Mathew, The South Indian Bank Limited - MD, CEO & Director [31]

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It is from our general -- normally -- of course, there's always a small component, maybe a state government or some department or something may have put maybe INR 100 crores, et cetera. But that's all very small. But otherwise the real bulk deposit is actually coming from individual and firms and things like that in Kerala and elsewhere.

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Renish Bhuva, ICICI Securities Limited, Research Division - Assistant VP [32]

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Right. So just a follow-up on that. So we are having a CD ratio around 77% wherein our closest peer is close to 83%, 84%. So I mean what's the strategy of improving the CD ratio? Of course, I mean, we must be focusing on the deposit mobilizing as well. But is it -- is there a chance to, let's say, step up the credit portion and somehow cut deposit rate or just halt for some time on the deposit side? I mean what's your strategy? What's your thought process (inaudible)

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V. G. Mathew, The South Indian Bank Limited - MD, CEO & Director [33]

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No, it's not important to reduce the CD -- I mean the certificate of deposit, that was absolutely important for us because we have been bitten once, and we certainly don't want to be in that space anymore in this way. So significant reduction in the CD was the first target that was to be done, that is done. Now what is happening is, now you must have noticed we are very serious about reducing our corporate exposure to 30%. Already, it has come down to 31%, and we are very happy about that. And going forward, we'll continue to do very well in our retail, MSME and Agri portfolio, which are all growing very steadily. The overall retail portfolio has gone by 20% and Agri has grown by 30% and MSME has grown by 16%, almost 17%. So we are very comfortable with that kind of a scenario, and we have committed that, by the end of the year, we would have achieved 15% growth. So obviously, a lot of this money will get deployed also.

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Renish Bhuva, ICICI Securities Limited, Research Division - Assistant VP [34]

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Okay, okay. Okay. Got it, sir. Now sir, the second question is on this external benchmark rate regime. So as you have highlighted earlier that we have almost INR 1,000 crores portfolio will get reprice, when let's say, linked to repo in coming quarters? So are we thinking to link our SAAR rate to our repo rate? Or...

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V. G. Mathew, The South Indian Bank Limited - MD, CEO & Director [35]

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We need to look at all that at some point. Now today, what's happening is as, Thomas was mentioning, we look at our sanctions as we know going by the past quarter experience, we will be having around INR 1,000 crores of first quarter, that is -- that micro small plus retail, around INR 1,000 crores per quarter, and then fresh ones. And of course, there is the -- if anybody wants migration to this, that also will happen. There is no track record as of now to talk about, but then going forward then we will seriously look at our liability side and try to find out if some part of the [SAAR] like other banks -- some of the other banks have done it, whether we can really do that, we will do that also.

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Renish Bhuva, ICICI Securities Limited, Research Division - Assistant VP [36]

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Okay. And I'm just -- just a clarification on that, so I'm assuming whatever incremental lending which is happening on the repo rate, we are adjusting the spread so that our margin doesn't get impacted. Is it at the initial disbursement?

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V. G. Mathew, The South Indian Bank Limited - MD, CEO & Director [37]

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Right now,, that is only thing that we can do. Then of course if there are, I mean, market considerations or significant reductions in interest rate regime, then...

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Renish Bhuva, ICICI Securities Limited, Research Division - Assistant VP [38]

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Yes, that will still remain, but we'll -- we must be making sure that, at least at bandage level initially we'll not have to take any hit.

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V. G. Mathew, The South Indian Bank Limited - MD, CEO & Director [39]

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That's true. That's true.

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Renish Bhuva, ICICI Securities Limited, Research Division - Assistant VP [40]

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Okay. And sir, if I may ask the last question. On the recovery side, so this quarter, actually, there is almost INR 444 crores reduction. So -- I mean what is the writeoff? And do we have sold anything to ARC in this quarter?

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V. G. Mathew, The South Indian Bank Limited - MD, CEO & Director [41]

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No, we have not. But writeoff is INR 351 crores, and recovery and upgrades together is INR 93 crores.

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Renish Bhuva, ICICI Securities Limited, Research Division - Assistant VP [42]

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INR 351 crore of writeoff.

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V. G. Mathew, The South Indian Bank Limited - MD, CEO & Director [43]

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Writeoffs because we have 100% provided accounts we wrote off yes and significant recoveries I expect in those accounts because many of them are very small retail accounts where we have got high amount of collateral security. And as I mentioned, LGD was never more than 25%. So obviously, we expect a lot of recovery going forward in these accounts also.

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Renish Bhuva, ICICI Securities Limited, Research Division - Assistant VP [44]

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And -- so I'm assuming all this INR 351 crores of writeoff will be a season booklet, say, like more than 3, 4 years old accounts.

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V. G. Mathew, The South Indian Bank Limited - MD, CEO & Director [45]

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Definitely. Yes, almost. Yes, yes. Almost all of it is for almost 4 years old.

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Operator [46]

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(Operator Instructions) The next question is from the line of Bhavik Shah from B&K Securities.

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Bhavik Shah;Batlivala & Karani Securities India Pvt. Ltd., Research Division, [47]

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Sir, first question. Sir, the units have picked up sharply quarter-on-quarter. Any color there as in what happened?

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V. G. Mathew, The South Indian Bank Limited - MD, CEO & Director [48]

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Yes. I mean, obviously last quarter was the problem, if you ask me, last quarter as well as on 31st March also if you ask me, there were problems mainly emanating from heavy dependence on CDs, and there the rates of course had moved unfavorably for us. And we knew that correction would happen, and that's the reason why we mentioned about 10 to 15 basis points improvement would happen almost immediately. And on a stand-alone basis if you looked at it, between the last and current quarter, there's an improvement of 16 basis points. So that correction has happened. That is the most important thing. Then of course, on the loan side, we are definitely trying to hold on to a certain basic price line. We are -- I mean we are insisting on a certain amount of pricing comfort here. That is also helping us.

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Bhavik Shah;Batlivala & Karani Securities India Pvt. Ltd., Research Division, [49]

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Okay. Sir, what would be the NIMs target approx given that incremental home loans should be on benchmark linked and most of our incremental lendings in retail book is through home loans only.

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V. G. Mathew, The South Indian Bank Limited - MD, CEO & Director [50]

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See, our home loans are also, I mean, to some extent compensated by our other mortgages also. It is not -- so not hit the home loans. Of the INR 10,000 crores portfolio, roughly, of the mortgages, 50% is home loans and 50% is mortgages. So obviously, there is certain amount of compensation that happens on that. And we don't expect any serious change to the NIM position to happen because of external benchmarking.

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Bhavik Shah;Batlivala & Karani Securities India Pvt. Ltd., Research Division, [51]

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Okay. So then roughly then when would be -- there would be ceilings from hereon for the year-ended?

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V. G. Mathew, The South Indian Bank Limited - MD, CEO & Director [52]

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Could you please come again?

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Bhavik Shah;Batlivala & Karani Securities India Pvt. Ltd., Research Division, [53]

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What do we have NIM target, around 2-point...

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V. G. Mathew, The South Indian Bank Limited - MD, CEO & Director [54]

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Yes around 2.7 is what we were looking at, 2.70 going forward, yes. 2.7 for the full year.

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Bhavik Shah;Batlivala & Karani Securities India Pvt. Ltd., Research Division, [55]

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Okay. And sir, how do we see our target mix...

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Operator [56]

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Sorry to interrupt, Mr. Shah. Sir, we request that you return to the question queue.

The next question is from the line of Pranav Gupta from Birla Sun Life.

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Pranav Gupta, Aditya Birla Sun Life Insurance Company Limited - Research Analyst of Banking & Financial Services [57]

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Sir, just a couple of questions. Firstly, if I remember, last quarter, if I remember correctly, you had stated that your exposure to [HFC] was around INR 150 crores. So has there been any increment on the NPV side at least?

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V. G. Mathew, The South Indian Bank Limited - MD, CEO & Director [58]

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No -- yes, I'm sorry. I mean on NPV side also we have the exposure and that continues. And if you take book, particularly after correcting for the provisions held on the treasury side, it would be in that range, yes. Correct, you are right.

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Pranav Gupta, Aditya Birla Sun Life Insurance Company Limited - Research Analyst of Banking & Financial Services [59]

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The reduction is mainly due to the provision created, am I right?

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V. G. Mathew, The South Indian Bank Limited - MD, CEO & Director [60]

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Pardon me?

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Pranav Gupta, Aditya Birla Sun Life Insurance Company Limited - Research Analyst of Banking & Financial Services [61]

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So you're saying that the reduction in the amount is mainly due to the provisions which has been created?

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V. G. Mathew, The South Indian Bank Limited - MD, CEO & Director [62]

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No, on the credit side, it was always INR 114 crores, even last quarter and now or maybe what's coming from the treasury minus its provision, yes.

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Pranav Gupta, Aditya Birla Sun Life Insurance Company Limited - Research Analyst of Banking & Financial Services [63]

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Okay. And sir, if you could give us some color on how the SMA-2 book has been because last quarter we had seen a spike. Have any of these 4 accounts which you have mentioned earlier fallen into SMA-2 or SMA-1? How they are projected there overall?

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V. G. Mathew, The South Indian Bank Limited - MD, CEO & Director [64]

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Yes, there -- 1 or 2 issues are there. For example, the HFC is already B-rated, so is the case with the NBFC, if I remember correctly. These 2 are B-rated accounts. And -- so those things -- indications are there. In terms of SMA, it has gone into the -- I will just mention SMA-2 position. Yes, one of them is -- in fact, 2 of them are in the SMA-2 numbers, the INR 50 crores to INR 100 crores, If you look at it, it is coming in the -- we have in the listing of the SMA-2, these 2 accounts are figuring out, yes. Out of the 4 accounts, 2 are in the B rating and 2 are in the SMA-2.

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Pranav Gupta, Aditya Birla Sun Life Insurance Company Limited - Research Analyst of Banking & Financial Services [65]

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Okay. And if you could give us a sense on the MSME restructuring that you have done. You said that 20% of that at maximum we expect to be slipped. But what kind of account is there -- I mean are the borrowers coming forth and asking for the dispensation or I mean what is the major reason why [the dispensation] has been given to these funds, whether it's a liquidity issue or it's a cash flow issue or (inaudible) issue?

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V. G. Mathew, The South Indian Bank Limited - MD, CEO & Director [66]

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Yes. Basically, yes. I mean both are issues. Basically typically, there's the cash flow issue for them. Some of them, particularly one of them, is a marine exporter. He has got some issues about the bills not getting realized on time. And so typical issues of that variety are coming for almost all of them, which we believe are fairly temporary except in 1 or 2 accounts, and that is the reason why we said around 20% slippage possibility is very much there.

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Pranav Gupta, Aditya Birla Sun Life Insurance Company Limited - Research Analyst of Banking & Financial Services [67]

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Okay, okay. And just one last question. The overall coverage, we are still relatively much lower. And if I were to -- in a worst-case scenario, if I were to assume that you have to also (inaudible) on the SR, as you've stated earlier. What kind of probables are we looking at (technical difficulty)

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Operator [68]

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Sorry to interrupt, sir. Your voice is breaking up, Mr. Gupta.

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Pranav Gupta, Aditya Birla Sun Life Insurance Company Limited - Research Analyst of Banking & Financial Services [69]

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Could you hear that question? Or should I repeat?

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V. G. Mathew, The South Indian Bank Limited - MD, CEO & Director [70]

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Yes. I hope you are talking about provision coverage ratio?

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Pranav Gupta, Aditya Birla Sun Life Insurance Company Limited - Research Analyst of Banking & Financial Services [71]

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Yes. So what I was (technical difficulty)

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V. G. Mathew, The South Indian Bank Limited - MD, CEO & Director [72]

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Yes, our target is at least 52% by the end of this year and 62% by the end of the next year.

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Pranav Gupta, Aditya Birla Sun Life Insurance Company Limited - Research Analyst of Banking & Financial Services [73]

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That is including technical write-offs, right?

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V. G. Mathew, The South Indian Bank Limited - MD, CEO & Director [74]

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Yes, that is true. But then we must also look at the fact that our LGD is 25% -- sorry, less than 25%. And again, the point is that the mix is definitely now going in our favor. If it's all -- I mean already 69% of the loan book is MSME, Agri and retail. And add the corporate book, which was giving us so much of hell all this while. That is slowly now -- that -- I mean it's coming down significantly, particularly syndicated debt is absolutely out of danger today.

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Pranav Gupta, Aditya Birla Sun Life Insurance Company Limited - Research Analyst of Banking & Financial Services [75]

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Right. Right. So this 52% and 62% guidance will not include any provision (inaudible) is that a fair assumption?

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V. G. Mathew, The South Indian Bank Limited - MD, CEO & Director [76]

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Yes, yes. SR provision is not part of this scheme. Otherwise our SRs are already carrying INR 252 crores of provision, but that doesn't get accounted toward the credit provision, yes.

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Operator [77]

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The next question is from the line of Kunal Shah from Edelweiss.

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Prakhar Agarwal, Edelweiss Securities Ltd., Research Division - Research Analyst [78]

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Sir, this is Prakhar. Just the 4 questions. So even in terms of rating profile, so when I look at your corporate rating profile, there is a decline when you look at from an external rating perspective. First, a large part of decline is because of the stability that we have seen? Or there's something else related to it? And the second part is when you look at internal rating, that has been gone up by 4 percentage points, which has been up to around to 17.5%. And any reason why as to there is so much of material divergence between these 2 ratings?

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V. G. Mathew, The South Indian Bank Limited - MD, CEO & Director [79]

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Yes, that is -- I mean I'll answer that part of the question first. That is that our internal rating is substantially data-driven. That is only the financials are given the maximum weightage and very little weightage is given to or override is given to say promotor-related comforts or group comforts and things like that. Because we wanted to maintain a particularly consolidated approach for some more time. So we didn't want to recalibrate it at least in the last 2, 3 years. We have been continuing with that arrangement, and in fact, we have only tightened some of the norms. So that mapping -- direct mapping will not happen, although this is definitely more conservative than external rating. Now when it comes to the external rating for one of the accounts that become NPA coming out of that, so automatically there is some improvement in the overweighted accounts. Otherwise, I can mention which are the accounts which are -- I mean which are coming in that BBB and de novo cases.

So the BBB about INR 100 crores exposure, BBB and below-rated 1 is a hotel project, INR 101 crores, and another one is a highway, INR 129 crores. And these 2 accounts certainly will not become NPA. And one of the accounts -- the other one is an HFC, which we already talked about INR 114 crores, that is already B-rated and some resolution plans are underway at the moment.

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Prakhar Agarwal, Edelweiss Securities Ltd., Research Division - Research Analyst [80]

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Sir, despite the rise that we have seen in our internal rating and being more conservative, we have not revised any sort of slippages guidance that we have been seeing. Any particular reasons because of, thereby, we are not -- we are -- why we are so confident that, despite the sort of rise in at least internal rating portfolio BBB and below, we are confident that we'll be able to maintain our asset quality moving forward as is?

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V. G. Mathew, The South Indian Bank Limited - MD, CEO & Director [81]

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Yes. Because those accounts -- there are many issues, as I mentioned. Any individual accounts, when we look at it, we do not find any area of concern as far as 100% above which is concerned. And what all is there, as already mentioned, we have already mentioned, which are the accounts in which we have got a concern, so beyond that, there are no concerns.

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Prakhar Agarwal, Edelweiss Securities Ltd., Research Division - Research Analyst [82]

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Okay. Secondly, in terms of your moratorium at least on non-MSME side, that is valid till March 2020, I believe. So we have not assumed while saying that related to around INR 1,000 crores of slippages, we have not factored any amount of slippages that might come through from this INR 350-odd crores of pull that we have right now there?

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V. G. Mathew, The South Indian Bank Limited - MD, CEO & Director [83]

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We have considered. And within that, we know -- I mean we are only having a concern at the moment about 1 particular account. Even that I mean current indications are that they are trying to find a solution and things may improve. Otherwise, that's only one marine account where we are having a serious -- I mean we had a discomfort. But then they seem to be having a lot of receivables, and they believe that these receivables may be realized well within March. So we are just watching that. But at the same time, we have factored that into our consideration, yes.

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Prakhar Agarwal, Edelweiss Securities Ltd., Research Division - Research Analyst [84]

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Okay. So despite the dispensation being till March 2020, we have assumed some sort of stable income?

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V. G. Mathew, The South Indian Bank Limited - MD, CEO & Director [85]

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One account we have assumed, yes. That's correct.

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Prakhar Agarwal, Edelweiss Securities Ltd., Research Division - Research Analyst [86]

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And sir, lastly, just on your breakup of the loan books of there, seen a sharp moderation at least on the business loan side from INR 3,400 crores of fine last quarter, around INR 3,000 crores outstanding basis this quarter. So any particular reasons for that? It's Slide #10.

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Unidentified Company Representative, [87]

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Corporate portfolio itself has come down by around INR 800 crores or INR 900 crores on account of some bill discounting in all we were doing because the NIM which is generated out of these transactions is relatively less. Consciously, we decided to do a little bit of -- only transactions where we're getting some good yield. So that way, there is some fall. On top of that, bills are contracted, which used to be there earlier in the quarter. It's now, the number has come down substantially. Because of these 2 reasons, only the corporate portfolio has come down.

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Prakhar Agarwal, Edelweiss Securities Ltd., Research Division - Research Analyst [88]

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Sir, what is the ticket size that we define over here for business loans?

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H. Chithra, The South Indian Bank Limited - Joint GM & CFO [89]

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In fact, the business loan segment concurs as [Shiva sir] was saying, the -- I mean this card from contractor vendor, which has been mature and got reduced from the portfolio. So there are small contractors where they do bill discounting is there.

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Prakhar Agarwal, Edelweiss Securities Ltd., Research Division - Research Analyst [90]

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Just in -- some idea in terms of ticket size for this sort of segment that we have seen.

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V. G. Mathew, The South Indian Bank Limited - MD, CEO & Director [91]

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The business loan -- overall business loan in the retail book, the ticket size is very low at around less than INR 2 crores, that is the ticket size coming up. But what EDC Credit was mentioning it, some of these relatively small site contractors, who are having only the discounting facility, they will be having this kind of relatively small exposures, INR 1 crores or INR 2 crores, et cetera, which are getting covered in this, that also has been reduced significantly because the return is very, very low. And if the retail assets get built up, naturally, we would like to get out of this kind of unremunerative businesses so that the NIM also improves significantly.

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Operator [92]

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The next question is from the line of Deepak Poddar from Sapphire Capital.

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Deepak Poddar, Sapphire Capital Management LLC - Portfolio Manager [93]

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So you are doing any kind of credit. (technical difficulty).

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Operator [94]

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Mr. Poddar? Sir, this is the operator. Your audio is not clear. Can you use the handset mode while speaking?

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Deepak Poddar, Sapphire Capital Management LLC - Portfolio Manager [95]

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Yes, yes, yes. Now it's clear?

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Operator [96]

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Much better. Thank you.

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Deepak Poddar, Sapphire Capital Management LLC - Portfolio Manager [97]

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Okay. Yes. Sir, you have been maintaining around 1%, 1.1% credit cost for FY '20. Now given the current scenario, do you want to revise that, any outlook on that?

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V. G. Mathew, The South Indian Bank Limited - MD, CEO & Director [98]

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Not necessarily because we were looking at around INR 200 crores of addition every quarter, and that, by and large, will fold. This quarter, sits on the higher side, but last quarter, it was much smaller. And going forward also, it may not be exactly even in the 2 quarters coming up.

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Deepak Poddar, Sapphire Capital Management LLC - Portfolio Manager [99]

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Okay. Now -- so this INR 200 crores per quarter provision is what you're targeting?

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V. G. Mathew, The South Indian Bank Limited - MD, CEO & Director [100]

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Exactly, exactly. So INR 800 crores will be the minimum provision from the credit cost.

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Deepak Poddar, Sapphire Capital Management LLC - Portfolio Manager [101]

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Okay, okay. So that's what -- so I think, the first half, you've already done INR 500 crores of provisioning, right?

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V. G. Mathew, The South Indian Bank Limited - MD, CEO & Director [102]

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True. Fine. That is -- because we also did something more that we know the provision coverage ratio is definitely not up to the mark. We wanted to somehow reach 52%, 50% at the earliest. So this quarter also we have put more money into some of the accounts where some of the solutions are expected, and we believe that there could be some haircut, so we have put more money into those accounts and grew the provision coverage ratio significantly during this quarter.

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Deepak Poddar, Sapphire Capital Management LLC - Portfolio Manager [103]

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Okay. So basically, that means that INR 300 crores of provisioning in the second half is what you might be targeting, right?

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V. G. Mathew, The South Indian Bank Limited - MD, CEO & Director [104]

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Yes, yes, yes.

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Deepak Poddar, Sapphire Capital Management LLC - Portfolio Manager [105]

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Okay. So if -- okay, understood. Fair enough. So overall on a -- little on the medium-term basis, a 1% kind of ROA, is that something that we are kind of having -- targeting?

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V. G. Mathew, The South Indian Bank Limited - MD, CEO & Director [106]

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No. ROA is depressed only by the provision. And these elevated provisions have to continue for another 4 to 5 quarters, then we are out of this completely. And one particular quarter, you'll find that finally -- now we can look at the operating profit -- you are talking about INR 411 crores of operating profit.

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Deepak Poddar, Sapphire Capital Management LLC - Portfolio Manager [107]

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Right.

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V. G. Mathew, The South Indian Bank Limited - MD, CEO & Director [108]

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And we have put in large amounts of that money into various provisions, and that is where we stand at this particular level of facts. So obviously, that will suddenly change the moment the large corporate problems are completely resolved and the provision is slightly tipping over, which is a very, very finite time now.

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Deepak Poddar, Sapphire Capital Management LLC - Portfolio Manager [109]

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Okay. So a limited provision you mentioned will continue for another 3 to 4 quarters, right?

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V. G. Mathew, The South Indian Bank Limited - MD, CEO & Director [110]

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Yes, some 3 -- maybe more like 4 quarters, yes.

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Deepak Poddar, Sapphire Capital Management LLC - Portfolio Manager [111]

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Okay, 4 quarters. So what is the steady state provisioning you're looking at?

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V. G. Mathew, The South Indian Bank Limited - MD, CEO & Director [112]

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Yes, that would be -- no, for the moment, what we are talking about is INR 250 crores of NPA addition every quarter. And we are not likely to change that guidance going forward for some more time until we find that the NPA accretion really comes down to our targeted level of INR 150 crores. That is our targeted level. We believe that INR 150 crores is more like a reasonable NPA accretion per quarter once we are through this complete corporate problem. So we are not adding any further problems in the corporate side. We are staying away from all the questions. So we have completely standing in the last 3, 4 years, and the benefits are coming in today. And the retail is coming up very steadily, and therefore, we expect that around INR 150 crores would be the steady accretion at one particular point of time soon, but we will talk about it only after we realize that. Meanwhile, the provisions will continue to be INR 200 crores per quarter for another 4 quarters. After that, it will come down by straightaway 50%.

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Deepak Poddar, Sapphire Capital Management LLC - Portfolio Manager [113]

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Okay. INR 100 crores is stable...

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V. G. Mathew, The South Indian Bank Limited - MD, CEO & Director [114]

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It will come down to -- I mean that is our expectation. Definitely, we are looking at INR 400 crores to INR 500 crores maximum credit cost.

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Operator [115]

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The next question is from the line of Nilanjan Karfa from Jefferies.

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Nilanjan Karfa, Jefferies LLC, Research Division - Equity Analyst [116]

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Sir, 2 questions. First, on the asset quality front, could you just repeat what is the total number of accounts on which you have signed IC? And what would be the total quantum? I'm looking only at the stressed -- sorry, non-NPLs, the standard accounts.

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V. G. Mathew, The South Indian Bank Limited - MD, CEO & Director [117]

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Yes, sure. I had mentioned that. We mentioned that -- yes, one is that HFC, INR 114 crores, we have signed the ICA. Then we have signed ICA in respect of the irrigation sector company, which is an exposure of INR 50 crores. Then, we have 2 more accounts where, of course, we have not signed ICA, and the work is still going on that is one is a big-time company where we have about INR 75 crores and one is a real estate-focused NBFC, which is INR 68 crores.

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Nilanjan Karfa, Jefferies LLC, Research Division - Equity Analyst [118]

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Right, right. And sir, you talked about this INR 250 crores kind of accretion that you are looking at on NPLs. Why is this happening? I mean I think you alluded to cash flow issues in many of these corporates, but how would you look at this cash flow shortages? Is it related to leverage? Or is it related to the overall business slowdown?

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V. G. Mathew, The South Indian Bank Limited - MD, CEO & Director [119]

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No, it depends -- if we are -- there are 2 contested, but I mentioned about the cash flow shortage only in the contested MSME restructuring because that is an established issue for them because some of them, for example, just what lease they're not being realized on time, some of the exposures are not taking place. They are getting delayed. Inspection agencies are taking a little longer. A lot of issues are coming up like that, so we are able to pinpoint those problems, and we are willing to hear them some time according to the dispensation which is available today.

The other side, if you are looking at the last quarter expense, substantially, our exposure today is only to somewhat to NBFCs, and they are all highly rated NBFCs. And we don't find any problems or any of those things in those NBFCs. We are doing quite well in those areas. So we're talking out of the total last corporate growth INR 5,147 crores is coming only from NBFCs and HFCs put together. And there are 15 such accounts, and 3 are AAA. Eight are AA. One is A, and one account, of course, is B, which I mentioned and there are 3 AAA -- BBB accounts adding up to just INR 470 crores, which are all Kerala-based NBFCs with whom we have longstanding relationships. And hopefully, that we have taken significant amount of collateral security also by way of land, building, et cetera. So we're absolutely comfortable about that portfolio. Not only that, the other portfolios are very, very limited, and there are no cash flow issues outstanding anyone is talking about.

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Nilanjan Karfa, Jefferies LLC, Research Division - Equity Analyst [120]

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Right, sir. So this rating profile that you just talked about, it's your internal rating profile. Is that…

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V. G. Mathew, The South Indian Bank Limited - MD, CEO & Director [121]

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Oh, these are external rating.

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Nilanjan Karfa, Jefferies LLC, Research Division - Equity Analyst [122]

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Okay. So to an earlier question, would this -- the way we have shown internal and external, will NBFCs be the largest proportion of assets, which is why there is a significant difference between external and internal?

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V. G. Mathew, The South Indian Bank Limited - MD, CEO & Director [123]

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Not quite. In fact, there is -- in the AAA accounts, there is no single divergence. Only with the AA account there could be some divergence that could be there. And otherwise, there is no serious divergence on the NBFC side. They are all just the same. But in other cases, there could be some small differences coming up, yes. Because we broadly go by any override, it is only through our financials, yes.

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Nilanjan Karfa, Jefferies LLC, Research Division - Equity Analyst [124]

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Sure, sure. And the second part of question, sir, is related to this external benchmark. Now I know we all realize I mean repo rate is probably not going to stay here for long. But on the way up sir, how are you looking at maybe educating your customer or maybe reducing your interest rate risk on a market-wise basis? What is the policy that you have thought about?

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V. G. Mathew, The South Indian Bank Limited - MD, CEO & Director [125]

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Yes, that is something that we are a little concerned about because, at the moment, it is very favorable to the customers. But with slightly changes, yes, we are getting the customers upfront very, very clearly there is an external benchmark. It has been to repo rate which has changed every quarter -- which is likely to change every quarter.

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Nilanjan Karfa, Jefferies LLC, Research Division - Equity Analyst [126]

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Sir, that's part of educating, but internally, how would you kind of reduce your interest rate risk on the -- on buckets. I'm not even aware which buckets would face the highest amount of risk?

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V. G. Mathew, The South Indian Bank Limited - MD, CEO & Director [127]

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Look, there the way of doing it is to also look at the liability side linked to it, which as I mentioned some time back, we have not even considered it, but we have certainly not taken a final view on that.

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Nilanjan Karfa, Jefferies LLC, Research Division - Equity Analyst [128]

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Right, sir. And related to this, have you seen your existing customers coming back for switching into this product? Or are you actively discouraging it?

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V. G. Mathew, The South Indian Bank Limited - MD, CEO & Director [129]

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No, no. We are not discouraging. We -- in fact, we have sent out letters to the customers. But so far I mean whatever available information does not give us any indication what is likely to be the request level coming in.

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Operator [130]

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The next question is from the line of [Prashasti Saha] from Investec.

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Unidentified Analyst, [131]

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All my questions have been answered.

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Operator [132]

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We'll move on to the next question that is from the line of Bhavik Shah from B&K Securities.

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Bhavik Shah;Batlivala & Karani Securities India Pvt. Ltd., Research Division, [133]

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Sir, I wanted to understand how are we looking at our capital levels. CET1 ratio is at 9.7% with respect to the growth and PCR target. Is it sufficient?

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V. G. Mathew, The South Indian Bank Limited - MD, CEO & Director [134]

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No, obviously, we will create additional capital, and we have got approval for both Tier 2 as well as Tier 1 capital that we -- all the approvals are in place from the board as well as from the shareholders. And we're evaluating all the opportunities as of now. We'll definitely increase capital here.

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Bhavik Shah;Batlivala & Karani Securities India Pvt. Ltd., Research Division, [135]

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And sir, what's the loan mix target do we expect for retail SME, corporate you have 30% as you mentioned?

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V. G. Mathew, The South Indian Bank Limited - MD, CEO & Director [136]

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Yes, yes. Today, the retail -- pure retail is already 30%. It will continue. That is -- we have already reached the level that we had targeted. And MSME is 24% and Agri is 15% as of now. This makes this good for us, and corporate is just about 31%. It will go down to 30%, and the share will be taken. We prefer MSME, but it may be either MSME or retail. The retail is actually growing quite well, but MSME has, in terms of relationship value-wise, that is so much more important for us. We are pushing for more MSME. So MSME will be more than 25% anyway. That's the plan here.

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Bhavik Shah;Batlivala & Karani Securities India Pvt. Ltd., Research Division, [137]

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Okay. And sir, my last question, sir, with respect to the IBA-linked (inaudible) division, what is the assumed high side you have taken?

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V. G. Mathew, The South Indian Bank Limited - MD, CEO & Director [138]

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We assumed a 12%. 12% in our -- in fact, we are already at 30%, yes.

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Bhavik Shah;Batlivala & Karani Securities India Pvt. Ltd., Research Division, [139]

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And sir, one data piece driven question. Sir, SMA-2 this quarter would be -- for SMA-2?

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V. G. Mathew, The South Indian Bank Limited - MD, CEO & Director [140]

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Yes?

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Bhavik Shah;Batlivala & Karani Securities India Pvt. Ltd., Research Division, [141]

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What will be the absolute amount for this quarter?

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V. G. Mathew, The South Indian Bank Limited - MD, CEO & Director [142]

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Okay. I just mentioned this. (inaudible) 3.4%, 3.5%. SMA-2 is 3.5%. Yes, that is correct.

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Bhavik Shah;Batlivala & Karani Securities India Pvt. Ltd., Research Division, [143]

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And sir, which states will be contributing to the MSME restructuring that we did this quarter? Is it a a state-specific issue?

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V. G. Mathew, The South Indian Bank Limited - MD, CEO & Director [144]

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We have -- we can give you breakup state-wise. But if you look at it, mostly, if you link it to flood or anything, that is a very, very nominal number. Kerala flood I think has led to a small amount of MSME restructuring, very nominal. But otherwise, it is in line with the business distribution. For example, we have it from Tamil Nadu. We have it from Karnataka. We have also from Gujarat as well as Delhi regions, yes.

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Operator [145]

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We'll move on to the next question, that is from the line of Rakesh Kumar from Elara Capital.

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Rakesh Kumar, Elara Securities (India) Private Limited, Research Division - VP and Analyst [146]

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Firstly, sir, this bulk deposit thing, what is the average tenure that we have, sir?

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V. G. Mathew, The South Indian Bank Limited - MD, CEO & Director [147]

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Around 2 years, 1 to 2 years.

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Rakesh Kumar, Elara Securities (India) Private Limited, Research Division - VP and Analyst [148]

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1 to 2 years. Okay. So like, we've seen the last 1 year there has been quite good growth we have seen from INR 7,000 crores to INR 10,500 crores. So where are we deploying this from like on the credit side, like, in which bucket we are deploying this?

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V. G. Mathew, The South Indian Bank Limited - MD, CEO & Director [149]

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No. The deployment of the -- I mean it goes into loan and also it has gone for reducing the CDs. CDs have come down by more than INR 3,500 crores, if I remember correctly.

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Rakesh Kumar, Elara Securities (India) Private Limited, Research Division - VP and Analyst [150]

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See, like, if I see the March end ALM number like deposit average maturity has gone up. So -- and then the loan advances, further maturity has actually, like, slightly gone up, but it is much lesser than the deposit with maturity. So that is from where I'm coming on this question.

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Unidentified Company Representative, [151]

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In March (inaudible) it has come down to INR 3,500 crores now, so there is a deposit of around INR 3,200 crore CDs around -- during the quarter against one deposit growth of about INR 3,500 crores. So almost the entire growth (inaudible) is to offset the CD position. So it's almost come down to the equal amount. And both the CDs and the loan deposits are predominantly 1 year.

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V. G. Mathew, The South Indian Bank Limited - MD, CEO & Director [152]

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No, CD was 3 to 6 months.

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Unidentified Company Representative, [153]

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CDs were taken for 3 to 6 months, and the standard deposits are more than 6 months up to 1 year, 2 years. So there is a slight movement from the maturity period from -- when those CDs are off and the deposits comes in. The rest of the bulk deposits are presently available almost up to their targets.

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Rakesh Kumar, Elara Securities (India) Private Limited, Research Division - VP and Analyst [154]

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Okay. And secondly sir, we used to provide the SIB internal rating for INR 25 crore and above. So like, we had a number of -- hello?

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V. G. Mathew, The South Indian Bank Limited - MD, CEO & Director [155]

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We'll give you that data. We just can't right now.

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Rakesh Kumar, Elara Securities (India) Private Limited, Research Division - VP and Analyst [156]

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Yes, yes. Sure, sure. So what I was thinking that we had that number below BBB. That number we used to have around 22% in March '18. So just wanted to know that from that number, what is the slippage that we have seen so far like?

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V. G. Mathew, The South Indian Bank Limited - MD, CEO & Director [157]

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The slippage typically is covered only by the large corporate part of it. Otherwise, the general slippage is not really from BBB or the low-rated accounts specifically. It is more (inaudible) SMA-2 accounts, yes, where it has certain amount of linkage one can find out. But otherwise, it is not from the rating perspective because some of these are slightly lower. These accounts again carrying very high degree of collateral security. They are family run businesses. There is no problem in those accounts. But on the other hand, when it comes to the last corporate where there is a linkage, we find that the -- that from the SMA-2 book -- in SMA-1, SMA-2 book, it's still NPA. Those things are all just getting over today for us.

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Rakesh Kumar, Elara Securities (India) Private Limited, Research Division - VP and Analyst [158]

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Okay. Sir, thirdly, the last question...

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Operator [159]

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Sorry to interrupt, Mr. Kumar. Sir, may we request that you return to the question queue. There are participants waiting for their turn. (Operator Instructions) The next question is from the line of Jai Mundhra from B&K Securities.

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Jai Mundhra, Batlivala & Karani Securities India Pvt. Ltd., Research Division - Research Analyst [160]

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Sir, just on this internal exposure to BBB means, if you look at absolute amount that the number has increased by around INR 170 crores from around INR 1,250 crores to INR 1,400 crores. Ideally, this should have declined because we have seen some INR 200 crores of corporate slippages. What has led to this kind of an increase there? That is the only question, sir.

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V. G. Mathew, The South Indian Bank Limited - MD, CEO & Director [161]

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We will give that data separately.

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Operator [162]

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The next question is from the line of Pranav Gupta from Birla Sun Life Insurance.

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Pranav Gupta, Aditya Birla Sun Life Insurance Company Limited - Research Analyst of Banking & Financial Services [163]

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Yes, my questions have been answered.

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Operator [164]

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The next question is from the line of Renish Bhuva from ICICI securities.

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Renish Bhuva, ICICI Securities Limited, Research Division - Assistant VP [165]

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Sir, just a small clarification. So you have highlighted that the SR-related provision could be INR 200 crores even if it comes, and you're -- on the other end, you're guiding for a total provision of INR 300 crores, which is I'm assuming would be NPA-related. So if that SR-related provision comes, then the total provision would be around INR 500 crore? Is it?

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V. G. Mathew, The South Indian Bank Limited - MD, CEO & Director [166]

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That provision would be around?

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Renish Bhuva, ICICI Securities Limited, Research Division - Assistant VP [167]

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INR 500 crore. I mean this INR 200, which is SR-related plus the INR 300 crores towards NPA.

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V. G. Mathew, The South Indian Bank Limited - MD, CEO & Director [168]

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Look -- I mean the -- if the SR-related -- so there is an uncertainty about whether the function is coming in the first place because there are no serious changes in the conversion of the assets as of now. Because they are largely IBC accounts, there is no resolution. One account we were expecting a resolution in the last quarter. That has not happened. So really we do not know whether there is any need for any reevaluation of that, that is one thing. Secondly, if it happens, along with that, their resolution happens and, of course, the provision completion also will change depending upon how this money has been received and what the settlement is agreed upon. So there is no clarity about it as of now. I'm assuming, going by the past, that around INR 200 crores may come in the worst-case scenario.

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Renish Bhuva, ICICI Securities Limited, Research Division - Assistant VP [169]

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All right. And that will be about the INR 300 crores?

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V. G. Mathew, The South Indian Bank Limited - MD, CEO & Director [170]

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Beyond that (inaudible) provision, yes.

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Renish Bhuva, ICICI Securities Limited, Research Division - Assistant VP [171]

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Okay, okay. And sir just last question on, again, so sorry to asking -- repeating question on the rating profile side. So in PPT, so what is the external rating? And what is the internal rating? But in the headline, it says the advances above INR 100 crore for both the ratings. So is there any overlap between these 2 ratings? Or how do we read this?

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V. G. Mathew, The South Indian Bank Limited - MD, CEO & Director [172]

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They are both INR 400 crores and above only. One is internal. One is external. Just that.

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Renish Bhuva, ICICI Securities Limited, Research Division - Assistant VP [173]

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For the same set of accounts?

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V. G. Mathew, The South Indian Bank Limited - MD, CEO & Director [174]

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For the same set of accounts. So I -- my recommendation is -- I mean we do maintain a certain amount of rigor in terms of internal rating because there is a board policy, and there is management policy by which because of the problems that we face in some of the sectors, we would like to take a consolidated view, and therefore, the rigor is a little higher on that. So my recommendation is please go more by the external rating rather than by the internal rating. Internal rating is for our purposes, but we are declaring it because it's an official data available with us, so we are declaring it, but that is essentially force written -- I mean onboarding typically and also for depending on certain monitoring aspects.

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Renish Bhuva, ICICI Securities Limited, Research Division - Assistant VP [175]

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Got it. And sir, just a follow-up on that. So basically, if I go by the external ratings, BBB and below is somewhere close to 30%. So this is including the current NPA pool? Or this is excluding the current NPA pool?

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V. G. Mathew, The South Indian Bank Limited - MD, CEO & Director [176]

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This is excluding the NPA pool. This is only the standard assets

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Renish Bhuva, ICICI Securities Limited, Research Division - Assistant VP [177]

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This is only for standard assets?

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V. G. Mathew, The South Indian Bank Limited - MD, CEO & Director [178]

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Yes. There could be some default accounts, B accounts, B-rated accounts also could be there in back, which I mentioned some time back.

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Renish Bhuva, ICICI Securities Limited, Research Division - Assistant VP [179]

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Okay, okay, okay. So basically, it includes watch list but not the NPA?

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V. G. Mathew, The South Indian Bank Limited - MD, CEO & Director [180]

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Yes, yes, exactly. NPAs are not there, correct, but watch list is definitely covered.

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Operator [181]

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The next question is from the line of Rohan Mandora from Equirus Securities.

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Rohan Mandora, Equirus Securities Private Limited, Research Division - Analyst [182]

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Sir, I want to understand your strategy going around the investment book because the modified duration that increased was in March. And as the interest rates have come down, do we look to reduce that going ahead? Or would you like to maintain the modified duration?

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Unidentified Company Representative, [183]

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The NPA of our trading book is around 3.57%.

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Rohan Mandora, Equirus Securities Private Limited, Research Division - Analyst [184]

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Right. Did it increase from 2-point something in March?

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Unidentified Company Representative, [185]

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Yes, that is -- we were having a view that it's coming down slightly. Higher-duration securities were tightening the trading board.

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Rohan Mandora, Equirus Securities Private Limited, Research Division - Analyst [186]

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Okay. Sir, going forward, do we expect the interest rates to move down materially?

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Unidentified Company Representative, [187]

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Interest rates are likely to move down, but there are some external factors are also to be taken care. So that is why we are not moving very high above that. But March -- during March and all that, we were having a view that there was not much expectation of the sudden move downwards. And after March, only the sudden move has started. So we have allowed for the market internally.

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Rohan Mandora, Equirus Securities Private Limited, Research Division - Analyst [188]

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Got it, sir. And sir, in the initial remarks you had mentioned about increasing traction and products per customer, so like, what is the current product per customer that we are having? And how has it influenced the last 1 year?

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V. G. Mathew, The South Indian Bank Limited - MD, CEO & Director [189]

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More than 3. Yes, more than 3 for the prime customers at the moment. Definitely it has to go up to 4.5. 5 is what we are looking at. That definitely, we will have for the prime customers only. I'm not talking about the rest of the customers, only prime customers we are tracking at this particular point of time because the retail asset pushes up, obviously. More and more products per customer will happen. But at the moment, we are focusing on the prime customer base.

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Rohan Mandora, Equirus Securities Private Limited, Research Division - Analyst [190]

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Okay. And this prime customer base, what do we -- how -- what would be the quantum of this prime customer base?

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V. G. Mathew, The South Indian Bank Limited - MD, CEO & Director [191]

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Around 20% of the total customer base would be prime customer base. That is how it is.

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Operator [192]

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Thank you. Ladies and gentlemen, that was the last question. On behalf of Spark Capital Advisors (India) Private Limited, that concludes today's conference. Thank you for joining us, and you may now disconnect your lines. Thank you.