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Moderator
Ladies and gentlemen, good day and welcome to the Q3 FY11 Post Results Conference Call of Allahabad Bank hosted by
Emkay Global Financial Services. We have with us today, Mr. JP Dua, Chairman and Managing Director of Allahabad Bank.
As a reminder, for the duration of this presentation, all participants’ lines will be in the listen-only mode. And there will be an
opportunity for you to ask questions at the end of today’s presentation. Should you need assistance during the conference call
please signal an operator by pressing ‘*’ and then ‘0’ on your touchtone telephone. Please note that this conference is being
recorded. I would now like to hand the conference over to Mr. Anish Damania, Head of Equities in Emkay Global. Thank you.
And over to you, sir.
Anish Damania
Thank you very much. Hello everybody. We welcome you to this Q3 conference call for Allahabad Bank. I also take this
opportunity to thank the management for giving us this opportunity to host this call. We have with us Mr. J.P. Dua, Chairman
and Managing Director, Allahabad Bank. Over to you sir, for your remarks.
J.P. Dua
Thank you, Anish. The performance highlights for this quarter is, this quarter has again been a quarter for consistent
performance by the bank. We have crossed the total business of 2 lakh crores and growth is 29.9%, touching a business of 2,
07,785 crores. Another milestone which we have achieved, our branch network has crossed 2,400 and now we have 2,402
branches. We have opened 116 branches this year. We have 65 licenses in hand. And we will be opening another 23
branches up to 31st March making it 2,425 by the end of this current quarter.
Operating profit is up 21.27% from 650.13 crores to 788.43 crores. Net profit is up 20.39% from 345.37 crores to 415.80
crores. Cost of deposit is marginally down from 5.96 to 5.95, that means we are holding on, in spite of the way the deposit cost
is going up. And yield on advances have gone up by 10.58% from 10.54%. NIM is up from 2.97 year’s back to 3.44 and NII is
up 55.67% from 675.57 to 1,051.63. Book value has gone up from 152.72 to 177.16. Earnings per share are up from 7.73 to
9.31. Return on assets is 1.28. Return on net worth is 24.31. And cost to income ratio is 39.78.
Now, coming to financial results for nine months, deposits have grown by 28.44%, credit have grown by 32.21%, CASA is
33.5, credit deposit ratio is 72.12%, retail credit has grown by 28.30%, agriculture by 10%, micro small enterprises by 38%.My
gross NPA is at the same level of 1.77% at 1540.49 and net NPA has gone up marginally to 0.59% at 506.65%. Provision
coverage ratio stands at 80.22%, a healthy ratio. There has been an excellent recovery during the last nine months at 615.74
crores. And out of this 615, cash recovery is 385 crores. Capital adequacy stands at 12.78 with a tier one at 8.14 and tier two
at 4.64. Operating profit for the nine months has gone up by 20% from 1891 crores to 2275 crores and net profit also for nine
months is up 18.71% from 982 crores to 1166 crores. NII also from 1908 to 2871 at 50.49%. So these are the figures coming
specifically to deposit, the total deposit is 1,20,948 crores, out of which core deposit is 84%, that is 1,01,648 is the core
deposit. Savings growth has been 23.31%. So, these are some of the highlights. So any questions?
Moderator
Sure. We have the first question from the line of Amit Premchandani from UTI Mutual Fund. Please go ahead.
Question and Answer Session
Amit Premchandani
Just a question on the fee income front. Quarter-on-quarter, there has been a marked decline in fee income on LC as well as
bank guarantee etc. And this is not an Allahabad Bank, phenomena it is across the sector. Just wanted to understand, is it
because you have kind of increased interest rate and some of the compensation was earlier been taken in the form of fee
income and this is reversing now?
J.P. Dua
No, as you right say, this is an industry-wide phenomenon but then I think this is for the current quarter, this is a thrust area for
us because we have been pushing for this and we have been successful. The growth was very good all along but this quarter
the growth is only 12%. From 156 to 174.
Amit Premchandani
Right, sir. Also trying to understand this quarter has been very good in terms of overall lending growth….
J.P. Dua
Yeah.
Amit Premchandani
While fee income generally tracks lending, this quarter has been kind of a different quarter. Just trying to understand what has
actually changed this quarter which has led to a drop in the fee income as compared to the last quarter while lending has gone
up?
J.P. Dua
You are right, I think with the LC business we have to concentrate more. And processing fee also we reduced in some cases, I
think, most of the retail is, because we are running a retail bonanza right now. We are processing fees very little. And even in
big loans I think somewhere we have given too many concessions it appears. See, what happens. My thrust was on quality of
assets even compromising 0.25% interest. That was what my philosophy was throughout. I will compromise on these things
but I will not compromise on quality of assets. I will go for a better quality of assets. Maybe that I charge 0.25% less. I think
somewhere maybe this has affected. Anyway, we will take corrective steps.
Amit Premchandani
And in terms of generally, competition in the fee income rates, in a sense, LC or bank guarantee, have you seen any
compression in rates in terms of fee income?
J.P. Dua
Yeah, there is a compression; there is a lot of competition also from these private sector banks. We are big players as far as
this business is concerned. We have to compete with, because if you are charging 3% at some place, is it not, it has suddenly
dropped to 1% where you are charging 1%, it drop to 0.3%, that is the position. But then volumes will have to grow, we have to
have a different strategy to do business.
Amit Premchandani
And sir, which are the areas that you see that 3% going down to 1% or 1% going down to 30 basis points?
J.P. Dua
See, 3% normally are financial guarantees.
Amit Premchandani
Okay. So financial guarantee fees have gone down significantly, is it because ….
J.P. Dua
Yeah, substantially it has gone down. But then we must concentrate on volumes if we have to charge less fees, definitely. I
think we will rework our strategy in this quarter. We have to concentrate on this.
Amit Premchandani
Thank you for this. Another question, on the pension liability front, have you arrived at a figure…..
J.P. Dua
Oh yes, we have the figures with us; let me tell you, the pension liability is 780 crores.
Amit Premchandani
Okay. Second option liability?
J.P. Dua
Second option and I have made a provision of 104 crores up to now.
Amit Premchandani
And this quarter?
J.P. Dua
104 crores up to this quarter.
Amit Premchandani
And this quarter specifically, sir?
J.P. Dua
This quarter 52 crores. First quarter I did not provide. Last quarter I provided 52 crores, this quarter I have provided 52 crores,
and the last quarter again I provide 52 crores, so 156 in all. So I will take care in five years. That is what it is going to be.
Amit Premchandani
How many employees have participated in the second option?
J.P. Dua
See, I have 21,591 employees. 38.13% are the existing pension optees. In this pension option, 50.75% have taken this option.
89% I have covered now by pension.
Amit Premchandani
So this 50.75% roughly it is around 11,000 employees?
J.P. Dua
Yeah.
Amit Premchandani
So just trying to understand for 11,000 employees, the liability 780 crores so basically around 7 lakh per employee.
J.P. Dua
Yeah.
Amit Premchandani
Is it the very low liability as compared to some of the other banks which are saying like 10-12 lakh is the average liability. Just
trying to understand why is this ….
J.P. Dua
A lot of actuarial and everything which has come.
Amit Premchandani
Okay. Thank you sir. That is it from my side.
Moderator
Thank you. The next question is from the line of Anand Laddha from HDFC Mutual Fund. Please go ahead.
Anand Laddha
We have been improving our NIM consistently as guided. And how is the outlook for Q4 and next year?
J.P. Dua
Our Q4 it will be above 3 only. And the next year we will talk later. Let us see what, but definitely, this has been a conscious
decision, this was the thrust area, we have started from 2.60 two years back, not in fact, 2.60, less than that. And here we
have reached. My endeavor will always be whatever business I do it should be a profitable business and cost particularly, we
have been always conscious, I have always been trying to reduce the cost of funds and if you see this time also, my cost
remains at the same level. If I have not been able to reduce, I will just reduce by 1 basis point. It has not gone up in spite of
that deposit rates have shot up four times in a year.
Anand Laddha
So next year, in spite of this deposit rate tightening, where do you see NIM, probably, what sort of compression can we
expect?
J.P. Dua
See, I was expecting this time also, tremendous pressure is there, in spite of all this, I have been able to increase my NIM for a
simple reason. My interest income has grown by 35% but my interest expenses have gone up by 25% only. You have to work
out different strategies. Now, I am out of bulk deposit market. My whole thrust in the last nine months was on improving my
retail deposits. My wholesale deposits is only 267 crores today. Similarly, coming to credit, I am out of a short-term loan
market which is much cheaper. I gave short-term on a 500 crores to Reliance and I charge only the base rate. So slowly,
slowly, I have got out of this market. I am more after relationships and long-term relationships, we are not only that I give the
loan or a working capital, but I sell more than one products to the corporate or even for a mid segment corporate. And that has
been working well and results are before you.
Anand Laddha
Right sir. In terms of slippages from restructured assets, how much was that this quarter?
J.P. Dua
This quarter 94 crores.
Anand Laddha
Okay. From the restructured book?
J.P. Dua
Yeah.
Anand Laddha
And what is the structured book now?
J.P. Dua
It is 2,700 crores.
Anand Laddha
Okay. Now, it is left over to 2,700 crores, earlier it was 3,400 crores….
J.P. Dua
We started with 4,100 crores.
Anand Laddha
Okay. So this quarter was 94 crores addition?
J.P. Dua
Yeah.
Anand Laddha
Okay sir. Thank you. That is all from my side.
Moderator
Thank you. The next question is from the line of Ajinkya Dhawale from Bajaj Allianze Life Insurance. Please go ahead.
Ajinkya Dhawale
I have a couple of questions on asset quality, again, last two quarters, you had some one-offs. If I understand one large
account in agriculture NPA.
J.P. Dua
Yeah.
Ajinkya Dhawale
But considering that, still 350 crores of slippages in a quarter, look to be on a higher side. So was there a gain, any large
accounts slipping into NPA and what is your outlook on the slippages trend as we move ahead?
J.P. Dua
See, my total NPA is 1,539.55 crores including slippages this quarter. And if you see the composition of this NPA, 0 to 5 lakh
is 903 crores. 5 to 25 lakh is 321 crores. So that means 1225 crores comprises of small loans only. Is it not?
Ajinkya Dhawale
Yeah.
J.P. Dua
So my slippages mainly they are in agriculture of small loans. This is what happens that I am working in so many geographies.
So somewhere drought, somewhere floods and all those things. Every year this happens. And it has taken care of my
recovery. This year it is unusual. You will also find suddenly, my NPA has shot up this year. Is it not?
Ajinkya Dhawale
Right.
J.P. Dua
It is mainly because of that government scheme then relief. Where government give a 25% relief, telling people to deposit
75%, people have not come forward to deposit hoping that government will come with the 100% amnesty and that is what has
happened. It is 350 crores again has come out of that.
Ajinkya Dhawale
So how much agri NPAs came out in this quarter again, out of this 350 crores?
J.P. Dua
130 crores.
Ajinkya Dhawale
Okay. Out of 350 crores, 130 crores is agri?
J.P. Dua
Out of 350 crores, 130 crores is agri.
Ajinkya Dhawale
Okay. And balance, was there any large count or it was again smaller accounts on…
J.P. Dua
These are small, some educational loans, some construction loans, some MSME that is again a major segment with me, some
others.
Ajinkya Dhawale
So is there any large account of in the horizon where you are still….
J.P. Dua
No, last quarter only it was there.
Ajinkya Dhawale
So are there any more stress of points left…?
J.P. Dua
I do not think. If some things happens to industry, definitely, if I am part of it, yeah. You do not know, but normally, I hope there
will be no surprises henceforth in the industry also.
Ajinkya Dhawale
Okay. And how far have we progressed on moving to system-based NPA recognition?
J.P. Dua
Out of 46 zones, 14 zones are already on system-based NPA. And by 28th February, I think we will complete the whole
exercise. Parallel runs are going on.
Ajinkya Dhawale
So how much of our loans are moving totally through in percentage terms, I mean, 80, 90% is already happening through
system in terms of …..
J.P. Dua
No, I think less than that. But before the next quarter, we will try to complete it, on 28th February, that is an internal target we
have kept. So that as on 31st March, everything is on system-generated NPA.
Ajinkya Dhawale
Okay. But do you expect a spike because of that, because you have seen that in many other banks?
J.P. Dua
See, why it happens? If something is under the carpet. Two, if your master data is not updated. So the major problem is
master data updation because millions of accounts, small accounts are there. So that is a Herculean task, but then we have to
do it.
Ajinkya Dhawale
Okay. On the CBS, all…
J.P. Dua
100% CBS.
Ajinkya Dhawale
It is already….?
J.P. Dua
Oh yes, bank is 100% CBS including my administrative offices.
Ajinkya Dhawale
Okay. Thank you. I will come back later.
Moderator
Thank you. The next question is from the line of Rajatdeep Anand from ICICI Prudential. Please go ahead.
Rajatdeep Anand
Just one small question, of the provisioning expense of 236 crores in this quarter, how much of this was for NPA?
J.P. Dua
See, 175 crores towards that.
Rajatdeep Anand
And rest was standard assets and ……
J.P. Dua
Are standard assets, others and all.
Rajatdeep Anand
Can you give the breakup please?
J.P. Dua
Yeah, it is posted on my web site. All details are there, but still let me share with you. I have made total provision of 372
crores, 175 crores is towards bad to doubtful debts, 13 crores is towards standard advances, 35 crores is deprecation on
investment, 136 crores is towards income tax and about 12 crores is for others.
Rajatdeep Anand
And when you were saying that 84% of deposits are core deposits, these are CASA plus retail term deposits that you are
referring to or what is your definition of core…?
J.P. Dua
See, core is less CD and bulk, rest is all core.
Rajatdeep Anand
Okay. All right sir. Thank you.
Moderator
Thank you. The next question is from the line of Ramanath V from Birla Sun Life. Please go ahead.
Ramanath V
Just wanted to know what is the quantum of money that you are supposed to get from the Government of India and when are
you expecting to get that money?
J.P. Dua
We have requested for 1,000 crores and we are expecting before the end of the quarter. How much we get? I do not know as
yet.
Ramanath V
Right, sir, all this will be in the form of equity or will it be in the…
J.P. Dua
They have informally told us they are giving us money. In what shape they give, I think we have yet to know.
Ramanath V
Right, so what tier 1 as of now sir?
J.P. Dua
It is 8.41.
Ramanath V
Sir, this is not including the nine months profit that you are looking at?
J.P. Dua
We have not included as yet.
Ramanath V
Like because these are unaudited accounts, so you would not …..
J.P. Dua
Yeah, yeah.
Ramanath V
So if you include that it will be slightly more than 9.
J.P. Dua
Yeah, more than 9.
Ramanath V
Right, so, sir, then if this 1,000 crores comes, because you have your net worth excluding revaluations which has come to
around 7,000 crores, and 7,050 crores it comes, so the 1,000 crores would add close to 15% to your tier one?
J.P. Dua
So that is what I am saying, next two years at least government should take care.
Ramanath V
And what will be this one, the holding will go to 58%?
J.P. Dua
Yeah. That is what has been discussed.
Ramanath V
Right. Sir, this money is supposed to come within this financial year or….
J.P. Dua
Yeah, this financial year.
Ramanath V
Sir, this is part of the World Bank, just technical question for my own understanding….
J.P. Dua
No, it is more than that, because World Bank gave 15,000 crores, that is already exhausted. Now, government is giving more
than that.
Ramanath V
So this is not included in the budget, so it has to come in the next budget, is it?
J.P. Dua
I do not know when they are giving the money. From where they are getting, I do not know.
Ramanath V
Because budget for this thing in the current budget document, they have not….
J.P. Dua
I do not know.
Ramanath V
I understand sir. I just wanted to get your sense on the CD ratio that you have….
J.P. Dua
I have 72.15. And I will maintain this.
Ramanath V
You will maintain that and then what is the kind of growth you are looking for the remainder of the year?
J.P. Dua
25% average growth for the year.
Ramanath V
So the year end could be slightly higher or lower?
J.P. Dua
Yeah.
Ramanath V
Okay. So I just wanted to get one more sense from you. In terms of the demand environment are you seeing broad basing of
credit demand?
J.P. Dua
Yeah, broad basing, because in every sector, the growth has been there, whether it was infrastructure, within infrastructure
also, power sector, road sector, and then MSME there is a very good growth, in lending there is a very good growth, food
processing, there is a very good growth, yeah, it is a very broad-based. Because we have seen, the recovery is broad-based.
This is one point. If you forget for the time being inflation, everything is going very fine.
Ramanath V
Fine. Sir, the other thing is, are you currently a lender in the market or borrower in the market sir, given….
J.P. Dua
Sometimes, lender, sometimes, borrow only for lending, some arbitrage you get sometimes.
Ramanath V
The interest expense line in your P&L if I look at that, from the second quarter to the third quarter, there has been a fairly
significant jump, from 1667-odd crores or 1668 crores to around 1800 crores in a single quarter, it comes to around 8% or….
J.P. Dua
See the growth also. But still if you see the gap, my interest receipt growth is 35%; interest payment growth is 25%.
Ramanath V
No, no, I am not denying that you have….
J.P. Dua
Because there is a volume growth. See, business has grown, which was in the bank, first time the bank is witnessing such a
growth.
Ramanath V
Fine sir. Thank you.
Moderator
Thank you. The next question is from the line of Praful Kumar from Principal Mutual Fund. Please go ahead.
Praful Kumar
Just want to get some sense from you on the deposit cost, do you think the deposit rates have peaked, for say, next six
months or do you think that we can see some more increases?
J.P. Dua
See, according to me, deposit rates have peaked, but since we are a market player and if market, everyone increases the rate,
by force I have to go for that. Is it not? Because otherwise I will be out of the market.
Praful Kumar
Correct sir. In terms of CDs, we have close to 19,000-odd CDs today.
J.P. Dua
Yeah.
Praful Kumar
How much come for renewal say next three to six months?
J.P. Dua
I do not have the maturity pattern with me right now, but then time-to-time, we go, because, at the end of the day, I have to
reduce my cost, so I go according to my need only.
Praful Kumar
What was the number for this, in the last quarter, September quarter, CDs?
J.P. Dua
CDs during the last quarter is 17,216 crores.
Praful Kumar
Okay. Sir, on a CASA, we have seen your current accounts going down, 5% year-on-year. Any sense on what we should look
at, for the CASA for the year-end next year?
J.P. Dua
No, I think saving was my thrust area but last quarter we will have both current and saving as a thrust area. Current, you see
the industry wise position.
Praful Kumar
Sure, I agree.
J.P. Dua
If you talk to any bank, current has not grown at all. In fact, this is what position is. That is what you find liquidity tightness. So
the money is not being kept in the bank.
Praful Kumar
Sure. And lastly on your pension number, I think when you last met, you said that, that you have already provided close to
300-odd crores for this, now, you are saying that we have provided close to 100-odd crores, just wanted to get a sense on
where exactly is-, the number that just reiterated is that the final number on pension liability, 780 crores?
J.P. Dua
780 crores is the final number.
Praful Kumar
In terms of, provisioning, earlier, we were saying that we have provided close to 350-odd crores for this?
J.P. Dua
See, I have given total provision to you. Now, I am giving you provision only for the sacred option of pension. That is 104.
There are so many other provisions for AS15. There is a LFC. Leave Travel Concession. There is a medical leave. That
provision has to be made. How many banks make? I do not know but I make. Is it not? So there are so many heads, four, five
heads are there, where leave encashment, medical, LFC, so I made provisions for everything. And that provision in one-go I
have made instead of spreading over four quarters. So that is why, what figure I gave you it pertains to that.
Praful Kumar
Sure. Thank you sir and all the best.
Moderator
Thank you. The next question is from the line of Abhishekh Kothari from Way2Wealth Securities. Please go ahead.
Abhishekh Kothari
Sir, your slippages from restructured book into NPA, has been 4.6% in Q2 and 4.4% additional slippages during the last
quarter. So, overall, it has slipped around 14.2%, what would be your view on that?
J.P. Dua
No, see, my total restructured book was 4,100 crores. And the present outstanding is 2,700 crores, and this is one. When I
restructured 4,100 crores, at that time itself, the NPA was 144 crores. Is it not? Out of 4,171 crores, 144 crores which were
restructured. That 144 crores has become 391 crores. So how much difference comes to? It comes to around 250 crores you
can say, roughly. So, 4,250 crores, what is the percentage comes to? I do not think it comes to 8%.
Abhishekh Kothari
No, but what more are you expecting? Any slippages to NPA from the restructured portfolio?
J.P. Dua
See, I do not expect anything, but sometimes, this was one big account which has made all the difference. Ramsarup
Industries I can share with you also.
Abhishekh Kothari
What is the quantum?
J.P. Dua
And quantum in the industry is 1800 crores. I am one of the bankers. But it is going to CDR. It is being admitted in the CDR.
But such surprises do come. You are in the business of lending.
Abhishekh Kothari
Yes sir. And on your recovery front, what would be your guidance for the year and where would you see gross NPA
maintaining at?
J.P. Dua
See, my recovery these nine months have been excellent. I have recovered 385 crores cash recovery in addition 220 crores
has been upgradation. I have recovered 173 crores out of return of debt also. Out of which 60 crores is from the current NPA.
So, last year, the position was 164 crores cash recovery and 161 crores was upgradation also. So, thrust is on recovery. At the
same time, the NPA which have gone up, I have to take care of that. I have been able to maintain my gross NPA ratio, 1.77.
And my net NPA is also at a comfortable level. I hope to maintain that.
Abhishekh Kothari
You will maintain the same level…?
J.P. Dua
Yeah, I hope to maintain that because I do not think any major surprises will come and I have 2.5 months for recovery.
Abhishekh Kothari
And so what would be your risk weighted asset at the end of this quarter?
J.P. Dua
That I cannot tell you, because my risk weighted asset, my credit growth is -- my target is around 90,000 credit. I am at 86,000
crores. So you can judge.
Abhishekh Kothari
Okay. Thank you. That is it from my side.
Moderator
Thank you. The next question is from the line of Jai Prakash Toshniwal from Taurus AMC. Please go ahead.
Jai Prakash Toshniwal
My question is on your NPA side. Are you looking to sell your NPA in this quarter?
J.P. Dua
Yeah, 250 crores we have the permission from the boards.
Jai Prakash Toshniwal
Okay. And on your CD ratio is 72%, are you carrying any excess liquidity at this point of time?
J.P. Dua
Yeah, I am comfortable with liquidity. I am not a borrower in the market.
Jai Prakash Toshniwal
Okay sir. Thank you.
Moderator
Thank you. The next question is from the line of Abhishek Agarwal from Motilal Oswal Securities Limited. Please go ahead.
Abhishek Agarwal
Sir, wanted to check about the employee expenses. On a sequential basis, it has dropped by almost like 9-odd per cent, in Q2
also you had provided 52 crores in this quarter as well we have provided 52 crores for the pension, so, why this drop has been
there?
J.P. Dua
No, there is no drop. Sometime, you provide excess that is all.
Abhishek Agarwal
Just wanted to understand what was the excess particularly in Q2?
J.P. Dua
No, it gets adjusted automatically. See, because what happens. We provided last year 275 crores which is taken care of.
These 25 crores were excess which has been adjusted now.
Abhishek Agarwal
Sir, what sort of incremental trend in terms of employee expenses, can we look going ahead?
J.P. Dua
See, in the banking industry, today, in India, the stage is, the people who join between 70s and 80s were all retiring, so a lot of
natural attrition is there. Two, there is a normal attrition also these days in the banking industry. So we go on recruiting people.
Last year I recruited 2,000, this year, again, I am recruiting 2,000. My retirement for next two years is 2,000 people. But the
only thing is the natural attrition is there, that is a cost neutral to me. So I do not incur any extra cost on them. Because people
who are retiring at their peak of salaries. People who are joining are at the base level.
Abhishek Agarwal
What was the gratuity liability for us for FY11?
J.P. Dua
Yeah, gratuity liability now because gratuity has announced from 3.5 lakhs to 10 lakhs. So it is coming to 284 crores.
Abhishek Agarwal
And how much of this has been provided?
J.P. Dua
I have provided 52 crores. I have to provide another 8 crores in the last quarter. And I will amortize in five years.
Abhishek Agarwal
Okay. And sir, lastly about the tax rate. Like in this quarter we have seen a tax rate has dropped a bit. So, what would be…?
J.P. Dua
I have provided up to now 450 crores. Last year was 565 crores in all for the whole year. So it is okay, it is as per the
requirement only.
Abhishek Agarwal
And what could be our effective tax rate for the full year?
J.P. Dua
I do not know exactly, but it comes to finally because for HTM and all you get lot of relieves, for some other things also, you
get some relieves, so finally I think it should be down 30% to 32% it should come to. If you want to work my net operating profit
out of that I leave it to you.
Abhishek Agarwal
That is it from my side. Thank you.
Moderator
Thank you. The next question is from the line of Naga Deepika from Capital Market. Please go ahead.
Naga Deepika
I have small industry wise information from you. How has been the – after the increase in the base rate, a couple of weeks
back, how is the advances growth, I mean sanctions going on and at what rates are going on particularly in MSME segment?
J.P. Dua
I will divide your question into two parts. See, Reserve Bank has to take care of inflation and they have revised the policy rate
six times up to now. This is the seventh revision which they have done. Base rate also started from 8, it has reached 9. We
have to transmit the policy. Deposit rates have also been increased. So going forward, depends, I think the deposit rates have
already peaked, it is difficult for the banks to increase further same as position of my bank also. Coming to base rate, my Alco
will decide and they will take a view whether to increase or not, if to increase, how much to increase. Now, coming to the
question that whether credit, my credit growth has been 32% and it is across all sectors, in the steel, credit has also gone up,
infrastructure credit has also gone up, MSME has gone up by 40% plus, so retail loans are growing at 30% plus, so it has
been across all sectors. So we ran some structured products for MSME sector where the rate of interest is low.
Naga Deepika
Right, but what would be the average yield in this segment, particularly, MSME and SME?
J.P. Dua
See, my yield on advances coming 10.58, then agriculture it is less, in personal loan it is higher, in industrial advances also, it
is coming to around 10.5, 11.
Naga Deepika
Okay. Sir, one more question. How much of our advances are linked toward the base rate and the PLR?
J.P. Dua
30% is linked to the base rate.
Naga Deepika
And PLR?
J.P. Dua
If you take out all the agriculture advances and directed lending, rest is linked to PLR.
Naga Deepika
Okay. The corporate loans are also….
J.P. Dua
Yes. All fresh advances are linked to the base rate.
Naga Deepika
No, I was asking not on incremental advances, I was asking the total advances.
J.P. Dua
Oh yeah, total advances 30% has been linked to base rate now.
Naga Deepika
Yeah, but on PLR basis, BPLR that would be the same, as you did agri advances and the other…
J.P. Dua
Yeah.
Naga Deepika
Okay. And what would be your exposure to microfinance institutions be?
J.P. Dua
145 crores.
Naga Deepika
Okay. Are they particularly catering to AP?
J.P. Dua
My NPA is 53 lakhs only in that segment.
Naga Deepika
And any aviation?
J.P. Dua
My exposure is to Air India granted by the World Bank.
Naga Deepika
Okay. Thanks a lot, sir.
Moderator
Thank you. The next question is from the line of Vinod Birla from KJMC Capital. Please go ahead.
Vinod Birla
Sir, can you help me with a break-up of advances in agri, SME and MSME?
J.P. Dua
Yeah. My priority sector advances are 22,462 crores, out of which, MSE is 10,000 crores, and agriculture is 12,172 crores.
Vinod Birla
And MSME?
J.P. Dua
MSME is 10,000 crores.
Vinod Birla
Okay. Sir, can you give me the deposit breakup?
J.P. Dua
84% is core.
Vinod Birla
Okay. Can you give me an absolute figure, sir?
J.P. Dua
1,20,000 crores.
Vinod Birla
Okay. Sir, current account, savings, term deposits, that is what I was asking.
J.P. Dua
Okay. Out of 1,20,000-1,21,000 crores, saving bank accounts are 32,300 crores, current account is 8,000 crores, rest all is
term deposits.
Vinod Birla
Actually, when we met you, you told that you will be increasing lending rate after RBI will be taking initiatives like increasing
repo and reverse repo, so, what is your take right now to increase the lending rate?
J.P. Dua
My Alco will decide.
Vinod Birla
Okay. Thanks a lot. That is all from my side.
Moderator
Thank you. The next question is from the line of Nidesh Jain from Espirito Santo. Please go ahead.
Nidesh Jain
Sir, my question is regarding pension liability. What is the size of pension liability identified for the second pension option?
J.P. Dua
780 crores is the liability. I have provided 104 crores; I will provide 52 crores in the last quarter and amortize the whole liability
in five years.
Nidesh Jain
And how many employees have opted for second pension?
J.P. Dua
89% have opted in total, out of which, 38% opted earlier, 50.75% have opted now.
Nidesh Jain
Okay. Thank you sir.
Moderator
Thank you. The next question is from the line of MB Mahesh from Kotak Securities. Please go ahead.
MB Mahesh
Just one clarification on the number of 50.75% that you have mentioned for pension. Can you translate what will be the total
number and how much….
J.P. Dua
I have 21,591 employees exactly. This is exact figure.
MB Mahesh
So it is 50.8% of 21,000?
J.P. Dua
Yeah.
MB Mahesh
Okay. And how much would be the retired employees who have opted for it?
J.P. Dua
See, Allahabad Bank runs earlier pension also. It is a historically pension paying bank for the last 100 years.
MB Mahesh
Correct. But as in number of employees who probably would have retired between 95 to let us say 2010, who have taken the
option of provident fund earlier, but now have come into the scheme, is that number included in this, because what you are
saying is only of the current servicing employees of the…..
J.P. Dua
No, no, no. This includes all. Because all the new employees, they have to go to NPS. 7% people are covered under NPS.
New Pension Scheme of the government.
MB Mahesh
Now, this is the new set of employees, I am just asking those employees who have retired over the last decade who were part
of the provident fund were also eligible for pension scheme. Now, how much would that be…?
J.P. Dua
I have to give you a bifurcation, right now I do not have.
MB Mahesh
Okay. Any rough estimate you would …..
J.P. Dua
Yeah, there should be good number.
MB Mahesh
Because you are looking at 10,000 for the current employees, just wanted to check how much would the balance….
J.P. Dua
Yeah, I will provide you later on, but right now I cannot give you.
MB Mahesh
Okay. Fine, sir. Thank you.
Moderator
Thank you. The next question is from the line of Ashutosh Mishra from Asian Markets. Please go ahead.
Ashutosh Mishra
Sir, what is your average deposit for the whole quarter and what is your take for next year FY12 for deposit and credit growth?
J.P. Dua
See, FY12, we have yet to decide our targets. We will meet in February to decide our targets. My target for this March is
1,30,000 crores of deposit.
Ashutosh Mishra
And what is your average deposit balance?
J.P. Dua
We do not work on average, we work on terminal numbers.
Ashutosh Mishra
And sir, is there any possibility that this pension numbers would be revised going forward when you will submit your final
account in March or so?
J.P. Dua
Maybe very, very little difference.
Ashutosh Mishra
Okay. Thank you sir.
Moderator
Thank you. The next question is a follow-up from the line of MB Mahesh from Kotak Securities. Please go ahead.
MB Mahesh
I am sorry, I missed the question earlier. See, if you look at the way most banks including yours have increased their base
rate, does not seem to match with the pace at which the cost of deposits have actually increased, so we just wanted to
understand as to what is the broad rational which is kind of -- or what is the thought process behind increase in the base
rate….
J.P. Dua
I do not agree with you. See, one year deposit were around 5.5% to 6%. They have crossed 9% today. While base rate has
moved from 8% to 9% only.
MB Mahesh
Now, but if you look at the average cost of deposits for your bank and also for the industry, it is not increased at the pace at
which the base rate has actually …
J.P. Dua
My CASA is 33.5%. Why you forget that? See, everything is not a fixed deposit. Two, it is not necessary that I take all the
deposits for one year. I run 300 days scheme, I run short-term-deposit scheme also, I take CD also, end of the day I maintain
my cost. Not necessary that everything translates into amount multiplied by 9.
MB Mahesh
Which is true sir. No, the point is if I look at the pace at which you have increased your base rate and the pace at which your
cost of funds have increased, more or less you seem to have been using something of the nature of an incremental cost of
deposits. Now, the point remains is, in a rising interest rate scenario….
J.P. Dua
Another thing in the banking industry, see, when deposit rates come down, then also the transmission is slow, similarly, my
deposit rates go up, then also transmission is slow. Because if I have a deposit at 7.5% for one year, today, deposit rate is 9%,
my turn will come only on the maturity date, is it not? This is what normally happens. Similarly, when the deposit rates come
down, nobody is going to encash the deposit to get the lower rate of interest. Everyone will wait for the maturity to come in. So
always transmission is slow. In the case of credit, always, transmission is immediate.
MB Mahesh
The point which I am trying to drive here is that since the margins seem to be a little bit overstated, in a sense that though your
cost of funds have not been increasing, since you have been using the incremental cost of deposits to kind of calculate the
base rate, you have a position where the assets are getting repriced at a pace which is faster than the liability.
J.P. Dua
No. No, formulas are different for calculating the cost. It is quarterly cost, some banks have taken half yearly cost, base rate
formula is that you have to have one formula for calculating the cost. Some bank is taking quarterly cost. Some bank is taking
average quarterly cost. For some bank, it is last quarter cost. So that is not the formula.
MB Mahesh
Somehow everyone seems to have landed at the same number of 9% and if the increase has been more or less similar across
the entire industry….
J.P. Dua
No, State Bank base rate is around less than 8% I think even today, is it not? Corporation Bank is also less than 9%; I think it
is around 8%, so it is not like this.
MB Mahesh
Could you broadly share what is your rational behind how you are looking at the base rate calculation….?
J.P. Dua
No, my formula is very much there on my web site.
MB Mahesh
Okay. Thanks.
Moderator
Thank you. Ladies and gentlemen, that was the last question. I would now like to hand the floor back to Mr. Anish Damania for
closing comments. Please go ahead.
Anish Damania
Hello, sir. Thank you everybody. Thank you very much everybody. Thank you very much Mr. Dua to be on the call.
J.P. Dua
Thank you, Anish. Thank you very much.
Anish Damania
Yeah.
Moderator
Thank you. Ladies and gentlemen, on behalf of Emkay Global Financial Services, that concludes this conference call. Thank
you for joining us and you may now disconnect.
Note: 1.This document has been edited to improve readability.
2. Blanks in this transcript represent inaudible or incomprehensible words.
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Moderator
Ladies and gentlemen, good day and welcome to the Q3 FY11 Post Results Conference Call of Allahabad Bank hosted by
Emkay Global Financial Services. We have with us today, Mr. JP Dua, Chairman and Managing Director of Allahabad Bank.
As a reminder, for the duration of this presentation, all participants’ lines will be in the listen-only mode. And there will be an
opportunity for you to ask questions at the end of today’s presentation. Should you need assistance during the conference call
please signal an operator by pressing ‘*’ and then ‘0’ on your touchtone telephone. Please note that this conference is being
recorded. I would now like to hand the conference over to Mr. Anish Damania, Head of Equities in Emkay Global. Thank you.
And over to you, sir.
Anish Damania
Thank you very much. Hello everybody. We welcome you to this Q3 conference call for Allahabad Bank. I also take this
opportunity to thank the management for giving us this opportunity to host this call. We have with us Mr. J.P. Dua, Chairman
and Managing Director, Allahabad Bank. Over to you sir, for your remarks.
J.P. Dua
Thank you, Anish. The performance highlights for this quarter is, this quarter has again been a quarter for consistent
performance by the bank. We have crossed the total business of 2 lakh crores and growth is 29.9%, touching a business of 2,
07,785 crores. Another milestone which we have achieved, our branch network has crossed 2,400 and now we have 2,402
branches. We have opened 116 branches this year. We have 65 licenses in hand. And we will be opening another 23
branches up to 31st March making it 2,425 by the end of this current quarter.
Operating profit is up 21.27% from 650.13 crores to 788.43 crores. Net profit is up 20.39% from 345.37 crores to 415.80
crores. Cost of deposit is marginally down from 5.96 to 5.95, that means we are holding on, in spite of the way the deposit cost
is going up. And yield on advances have gone up by 10.58% from 10.54%. NIM is up from 2.97 year’s back to 3.44 and NII is
up 55.67% from 675.57 to 1,051.63. Book value has gone up from 152.72 to 177.16. Earnings per share are up from 7.73 to
9.31. Return on assets is 1.28. Return on net worth is 24.31. And cost to income ratio is 39.78.
Now, coming to financial results for nine months, deposits have grown by 28.44%, credit have grown by 32.21%, CASA is
33.5, credit deposit ratio is 72.12%, retail credit has grown by 28.30%, agriculture by 10%, micro small enterprises by 38%.My
gross NPA is at the same level of 1.77% at 1540.49 and net NPA has gone up marginally to 0.59% at 506.65%. Provision
coverage ratio stands at 80.22%, a healthy ratio. There has been an excellent recovery during the last nine months at 615.74
crores. And out of this 615, cash recovery is 385 crores. Capital adequacy stands at 12.78 with a tier one at 8.14 and tier two
at 4.64. Operating profit for the nine months has gone up by 20% from 1891 crores to 2275 crores and net profit also for nine
months is up 18.71% from 982 crores to 1166 crores. NII also from 1908 to 2871 at 50.49%. So these are the figures coming
specifically to deposit, the total deposit is 1,20,948 crores, out of which core deposit is 84%, that is 1,01,648 is the core
deposit. Savings growth has been 23.31%. So, these are some of the highlights. So any questions?
Moderator
Sure. We have the first question from the line of Amit Premchandani from UTI Mutual Fund. Please go ahead.
Question and Answer Session
Amit Premchandani
Just a question on the fee income front. Quarter-on-quarter, there has been a marked decline in fee income on LC as well as
bank guarantee etc. And this is not an Allahabad Bank, phenomena it is across the sector. Just wanted to understand, is it
because you have kind of increased interest rate and some of the compensation was earlier been taken in the form of fee
income and this is reversing now?
J.P. Dua
No, as you right say, this is an industry-wide phenomenon but then I think this is for the current quarter, this is a thrust area for
us because we have been pushing for this and we have been successful. The growth was very good all along but this quarter
the growth is only 12%. From 156 to 174.
Amit Premchandani
Right, sir. Also trying to understand this quarter has been very good in terms of overall lending growth….
J.P. Dua
Yeah.
Amit Premchandani
While fee income generally tracks lending, this quarter has been kind of a different quarter. Just trying to understand what has
actually changed this quarter which has led to a drop in the fee income as compared to the last quarter while lending has gone
up?
J.P. Dua
You are right, I think with the LC business we have to concentrate more. And processing fee also we reduced in some cases, I
think, most of the retail is, because we are running a retail bonanza right now. We are processing fees very little. And even in
big loans I think somewhere we have given too many concessions it appears. See, what happens. My thrust was on quality of
assets even compromising 0.25% interest. That was what my philosophy was throughout. I will compromise on these things
but I will not compromise on quality of assets. I will go for a better quality of assets. Maybe that I charge 0.25% less. I think
somewhere maybe this has affected. Anyway, we will take corrective steps.
Amit Premchandani
And in terms of generally, competition in the fee income rates, in a sense, LC or bank guarantee, have you seen any
compression in rates in terms of fee income?
J.P. Dua
Yeah, there is a compression; there is a lot of competition also from these private sector banks. We are big players as far as
this business is concerned. We have to compete with, because if you are charging 3% at some place, is it not, it has suddenly
dropped to 1% where you are charging 1%, it drop to 0.3%, that is the position. But then volumes will have to grow, we have to
have a different strategy to do business.
Amit Premchandani
And sir, which are the areas that you see that 3% going down to 1% or 1% going down to 30 basis points?
J.P. Dua
See, 3% normally are financial guarantees.
Amit Premchandani
Okay. So financial guarantee fees have gone down significantly, is it because ….
J.P. Dua
Yeah, substantially it has gone down. But then we must concentrate on volumes if we have to charge less fees, definitely. I
think we will rework our strategy in this quarter. We have to concentrate on this.
Amit Premchandani
Thank you for this. Another question, on the pension liability front, have you arrived at a figure…..
J.P. Dua
Oh yes, we have the figures with us; let me tell you, the pension liability is 780 crores.
Amit Premchandani
Okay. Second option liability?
J.P. Dua
Second option and I have made a provision of 104 crores up to now.
Amit Premchandani
And this quarter?
J.P. Dua
104 crores up to this quarter.
Amit Premchandani
And this quarter specifically, sir?
J.P. Dua
This quarter 52 crores. First quarter I did not provide. Last quarter I provided 52 crores, this quarter I have provided 52 crores,
and the last quarter again I provide 52 crores, so 156 in all. So I will take care in five years. That is what it is going to be.
Amit Premchandani
How many employees have participated in the second option?
J.P. Dua
See, I have 21,591 employees. 38.13% are the existing pension optees. In this pension option, 50.75% have taken this option.
89% I have covered now by pension.
Amit Premchandani
So this 50.75% roughly it is around 11,000 employees?
J.P. Dua
Yeah.
Amit Premchandani
So just trying to understand for 11,000 employees, the liability 780 crores so basically around 7 lakh per employee.
J.P. Dua
Yeah.
Amit Premchandani
Is it the very low liability as compared to some of the other banks which are saying like 10-12 lakh is the average liability. Just
trying to understand why is this ….
J.P. Dua
A lot of actuarial and everything which has come.
Amit Premchandani
Okay. Thank you sir. That is it from my side.
Moderator
Thank you. The next question is from the line of Anand Laddha from HDFC Mutual Fund. Please go ahead.
Anand Laddha
We have been improving our NIM consistently as guided. And how is the outlook for Q4 and next year?
J.P. Dua
Our Q4 it will be above 3 only. And the next year we will talk later. Let us see what, but definitely, this has been a conscious
decision, this was the thrust area, we have started from 2.60 two years back, not in fact, 2.60, less than that. And here we
have reached. My endeavor will always be whatever business I do it should be a profitable business and cost particularly, we
have been always conscious, I have always been trying to reduce the cost of funds and if you see this time also, my cost
remains at the same level. If I have not been able to reduce, I will just reduce by 1 basis point. It has not gone up in spite of
that deposit rates have shot up four times in a year.
Anand Laddha
So next year, in spite of this deposit rate tightening, where do you see NIM, probably, what sort of compression can we
expect?
J.P. Dua
See, I was expecting this time also, tremendous pressure is there, in spite of all this, I have been able to increase my NIM for a
simple reason. My interest income has grown by 35% but my interest expenses have gone up by 25% only. You have to work
out different strategies. Now, I am out of bulk deposit market. My whole thrust in the last nine months was on improving my
retail deposits. My wholesale deposits is only 267 crores today. Similarly, coming to credit, I am out of a short-term loan
market which is much cheaper. I gave short-term on a 500 crores to Reliance and I charge only the base rate. So slowly,
slowly, I have got out of this market. I am more after relationships and long-term relationships, we are not only that I give the
loan or a working capital, but I sell more than one products to the corporate or even for a mid segment corporate. And that has
been working well and results are before you.
Anand Laddha
Right sir. In terms of slippages from restructured assets, how much was that this quarter?
J.P. Dua
This quarter 94 crores.
Anand Laddha
Okay. From the restructured book?
J.P. Dua
Yeah.
Anand Laddha
And what is the structured book now?
J.P. Dua
It is 2,700 crores.
Anand Laddha
Okay. Now, it is left over to 2,700 crores, earlier it was 3,400 crores….
J.P. Dua
We started with 4,100 crores.
Anand Laddha
Okay. So this quarter was 94 crores addition?
J.P. Dua
Yeah.
Anand Laddha
Okay sir. Thank you. That is all from my side.
Moderator
Thank you. The next question is from the line of Ajinkya Dhawale from Bajaj Allianze Life Insurance. Please go ahead.
Ajinkya Dhawale
I have a couple of questions on asset quality, again, last two quarters, you had some one-offs. If I understand one large
account in agriculture NPA.
J.P. Dua
Yeah.
Ajinkya Dhawale
But considering that, still 350 crores of slippages in a quarter, look to be on a higher side. So was there a gain, any large
accounts slipping into NPA and what is your outlook on the slippages trend as we move ahead?
J.P. Dua
See, my total NPA is 1,539.55 crores including slippages this quarter. And if you see the composition of this NPA, 0 to 5 lakh
is 903 crores. 5 to 25 lakh is 321 crores. So that means 1225 crores comprises of small loans only. Is it not?
Ajinkya Dhawale
Yeah.
J.P. Dua
So my slippages mainly they are in agriculture of small loans. This is what happens that I am working in so many geographies.
So somewhere drought, somewhere floods and all those things. Every year this happens. And it has taken care of my
recovery. This year it is unusual. You will also find suddenly, my NPA has shot up this year. Is it not?
Ajinkya Dhawale
Right.
J.P. Dua
It is mainly because of that government scheme then relief. Where government give a 25% relief, telling people to deposit
75%, people have not come forward to deposit hoping that government will come with the 100% amnesty and that is what has
happened. It is 350 crores again has come out of that.
Ajinkya Dhawale
So how much agri NPAs came out in this quarter again, out of this 350 crores?
J.P. Dua
130 crores.
Ajinkya Dhawale
Okay. Out of 350 crores, 130 crores is agri?
J.P. Dua
Out of 350 crores, 130 crores is agri.
Ajinkya Dhawale
Okay. And balance, was there any large count or it was again smaller accounts on…
J.P. Dua
These are small, some educational loans, some construction loans, some MSME that is again a major segment with me, some
others.
Ajinkya Dhawale
So is there any large account of in the horizon where you are still….
J.P. Dua
No, last quarter only it was there.
Ajinkya Dhawale
So are there any more stress of points left…?
J.P. Dua
I do not think. If some things happens to industry, definitely, if I am part of it, yeah. You do not know, but normally, I hope there
will be no surprises henceforth in the industry also.
Ajinkya Dhawale
Okay. And how far have we progressed on moving to system-based NPA recognition?
J.P. Dua
Out of 46 zones, 14 zones are already on system-based NPA. And by 28th February, I think we will complete the whole
exercise. Parallel runs are going on.
Ajinkya Dhawale
So how much of our loans are moving totally through in percentage terms, I mean, 80, 90% is already happening through
system in terms of …..
J.P. Dua
No, I think less than that. But before the next quarter, we will try to complete it, on 28th February, that is an internal target we
have kept. So that as on 31st March, everything is on system-generated NPA.
Ajinkya Dhawale
Okay. But do you expect a spike because of that, because you have seen that in many other banks?
J.P. Dua
See, why it happens? If something is under the carpet. Two, if your master data is not updated. So the major problem is
master data updation because millions of accounts, small accounts are there. So that is a Herculean task, but then we have to
do it.
Ajinkya Dhawale
Okay. On the CBS, all…
J.P. Dua
100% CBS.
Ajinkya Dhawale
It is already….?
J.P. Dua
Oh yes, bank is 100% CBS including my administrative offices.
Ajinkya Dhawale
Okay. Thank you. I will come back later.
Moderator
Thank you. The next question is from the line of Rajatdeep Anand from ICICI Prudential. Please go ahead.
Rajatdeep Anand
Just one small question, of the provisioning expense of 236 crores in this quarter, how much of this was for NPA?
J.P. Dua
See, 175 crores towards that.
Rajatdeep Anand
And rest was standard assets and ……
J.P. Dua
Are standard assets, others and all.
Rajatdeep Anand
Can you give the breakup please?
J.P. Dua
Yeah, it is posted on my web site. All details are there, but still let me share with you. I have made total provision of 372
crores, 175 crores is towards bad to doubtful debts, 13 crores is towards standard advances, 35 crores is deprecation on
investment, 136 crores is towards income tax and about 12 crores is for others.
Rajatdeep Anand
And when you were saying that 84% of deposits are core deposits, these are CASA plus retail term deposits that you are
referring to or what is your definition of core…?
J.P. Dua
See, core is less CD and bulk, rest is all core.
Rajatdeep Anand
Okay. All right sir. Thank you.
Moderator
Thank you. The next question is from the line of Ramanath V from Birla Sun Life. Please go ahead.
Ramanath V
Just wanted to know what is the quantum of money that you are supposed to get from the Government of India and when are
you expecting to get that money?
J.P. Dua
We have requested for 1,000 crores and we are expecting before the end of the quarter. How much we get? I do not know as
yet.
Ramanath V
Right, sir, all this will be in the form of equity or will it be in the…
J.P. Dua
They have informally told us they are giving us money. In what shape they give, I think we have yet to know.
Ramanath V
Right, so what tier 1 as of now sir?
J.P. Dua
It is 8.41.
Ramanath V
Sir, this is not including the nine months profit that you are looking at?
J.P. Dua
We have not included as yet.
Ramanath V
Like because these are unaudited accounts, so you would not …..
J.P. Dua
Yeah, yeah.
Ramanath V
So if you include that it will be slightly more than 9.
J.P. Dua
Yeah, more than 9.
Ramanath V
Right, so, sir, then if this 1,000 crores comes, because you have your net worth excluding revaluations which has come to
around 7,000 crores, and 7,050 crores it comes, so the 1,000 crores would add close to 15% to your tier one?
J.P. Dua
So that is what I am saying, next two years at least government should take care.
Ramanath V
And what will be this one, the holding will go to 58%?
J.P. Dua
Yeah. That is what has been discussed.
Ramanath V
Right. Sir, this money is supposed to come within this financial year or….
J.P. Dua
Yeah, this financial year.
Ramanath V
Sir, this is part of the World Bank, just technical question for my own understanding….
J.P. Dua
No, it is more than that, because World Bank gave 15,000 crores, that is already exhausted. Now, government is giving more
than that.
Ramanath V
So this is not included in the budget, so it has to come in the next budget, is it?
J.P. Dua
I do not know when they are giving the money. From where they are getting, I do not know.
Ramanath V
Because budget for this thing in the current budget document, they have not….
J.P. Dua
I do not know.
Ramanath V
I understand sir. I just wanted to get your sense on the CD ratio that you have….
J.P. Dua
I have 72.15. And I will maintain this.
Ramanath V
You will maintain that and then what is the kind of growth you are looking for the remainder of the year?
J.P. Dua
25% average growth for the year.
Ramanath V
So the year end could be slightly higher or lower?
J.P. Dua
Yeah.
Ramanath V
Okay. So I just wanted to get one more sense from you. In terms of the demand environment are you seeing broad basing of
credit demand?
J.P. Dua
Yeah, broad basing, because in every sector, the growth has been there, whether it was infrastructure, within infrastructure
also, power sector, road sector, and then MSME there is a very good growth, in lending there is a very good growth, food
processing, there is a very good growth, yeah, it is a very broad-based. Because we have seen, the recovery is broad-based.
This is one point. If you forget for the time being inflation, everything is going very fine.
Ramanath V
Fine. Sir, the other thing is, are you currently a lender in the market or borrower in the market sir, given….
J.P. Dua
Sometimes, lender, sometimes, borrow only for lending, some arbitrage you get sometimes.
Ramanath V
The interest expense line in your P&L if I look at that, from the second quarter to the third quarter, there has been a fairly
significant jump, from 1667-odd crores or 1668 crores to around 1800 crores in a single quarter, it comes to around 8% or….
J.P. Dua
See the growth also. But still if you see the gap, my interest receipt growth is 35%; interest payment growth is 25%.
Ramanath V
No, no, I am not denying that you have….
J.P. Dua
Because there is a volume growth. See, business has grown, which was in the bank, first time the bank is witnessing such a
growth.
Ramanath V
Fine sir. Thank you.
Moderator
Thank you. The next question is from the line of Praful Kumar from Principal Mutual Fund. Please go ahead.
Praful Kumar
Just want to get some sense from you on the deposit cost, do you think the deposit rates have peaked, for say, next six
months or do you think that we can see some more increases?
J.P. Dua
See, according to me, deposit rates have peaked, but since we are a market player and if market, everyone increases the rate,
by force I have to go for that. Is it not? Because otherwise I will be out of the market.
Praful Kumar
Correct sir. In terms of CDs, we have close to 19,000-odd CDs today.
J.P. Dua
Yeah.
Praful Kumar
How much come for renewal say next three to six months?
J.P. Dua
I do not have the maturity pattern with me right now, but then time-to-time, we go, because, at the end of the day, I have to
reduce my cost, so I go according to my need only.
Praful Kumar
What was the number for this, in the last quarter, September quarter, CDs?
J.P. Dua
CDs during the last quarter is 17,216 crores.
Praful Kumar
Okay. Sir, on a CASA, we have seen your current accounts going down, 5% year-on-year. Any sense on what we should look
at, for the CASA for the year-end next year?
J.P. Dua
No, I think saving was my thrust area but last quarter we will have both current and saving as a thrust area. Current, you see
the industry wise position.
Praful Kumar
Sure, I agree.
J.P. Dua
If you talk to any bank, current has not grown at all. In fact, this is what position is. That is what you find liquidity tightness. So
the money is not being kept in the bank.
Praful Kumar
Sure. And lastly on your pension number, I think when you last met, you said that, that you have already provided close to
300-odd crores for this, now, you are saying that we have provided close to 100-odd crores, just wanted to get a sense on
where exactly is-, the number that just reiterated is that the final number on pension liability, 780 crores?
J.P. Dua
780 crores is the final number.
Praful Kumar
In terms of, provisioning, earlier, we were saying that we have provided close to 350-odd crores for this?
J.P. Dua
See, I have given total provision to you. Now, I am giving you provision only for the sacred option of pension. That is 104.
There are so many other provisions for AS15. There is a LFC. Leave Travel Concession. There is a medical leave. That
provision has to be made. How many banks make? I do not know but I make. Is it not? So there are so many heads, four, five
heads are there, where leave encashment, medical, LFC, so I made provisions for everything. And that provision in one-go I
have made instead of spreading over four quarters. So that is why, what figure I gave you it pertains to that.
Praful Kumar
Sure. Thank you sir and all the best.
Moderator
Thank you. The next question is from the line of Abhishekh Kothari from Way2Wealth Securities. Please go ahead.
Abhishekh Kothari
Sir, your slippages from restructured book into NPA, has been 4.6% in Q2 and 4.4% additional slippages during the last
quarter. So, overall, it has slipped around 14.2%, what would be your view on that?
J.P. Dua
No, see, my total restructured book was 4,100 crores. And the present outstanding is 2,700 crores, and this is one. When I
restructured 4,100 crores, at that time itself, the NPA was 144 crores. Is it not? Out of 4,171 crores, 144 crores which were
restructured. That 144 crores has become 391 crores. So how much difference comes to? It comes to around 250 crores you
can say, roughly. So, 4,250 crores, what is the percentage comes to? I do not think it comes to 8%.
Abhishekh Kothari
No, but what more are you expecting? Any slippages to NPA from the restructured portfolio?
J.P. Dua
See, I do not expect anything, but sometimes, this was one big account which has made all the difference. Ramsarup
Industries I can share with you also.
Abhishekh Kothari
What is the quantum?
J.P. Dua
And quantum in the industry is 1800 crores. I am one of the bankers. But it is going to CDR. It is being admitted in the CDR.
But such surprises do come. You are in the business of lending.
Abhishekh Kothari
Yes sir. And on your recovery front, what would be your guidance for the year and where would you see gross NPA
maintaining at?
J.P. Dua
See, my recovery these nine months have been excellent. I have recovered 385 crores cash recovery in addition 220 crores
has been upgradation. I have recovered 173 crores out of return of debt also. Out of which 60 crores is from the current NPA.
So, last year, the position was 164 crores cash recovery and 161 crores was upgradation also. So, thrust is on recovery. At the
same time, the NPA which have gone up, I have to take care of that. I have been able to maintain my gross NPA ratio, 1.77.
And my net NPA is also at a comfortable level. I hope to maintain that.
Abhishekh Kothari
You will maintain the same level…?
J.P. Dua
Yeah, I hope to maintain that because I do not think any major surprises will come and I have 2.5 months for recovery.
Abhishekh Kothari
And so what would be your risk weighted asset at the end of this quarter?
J.P. Dua
That I cannot tell you, because my risk weighted asset, my credit growth is -- my target is around 90,000 credit. I am at 86,000
crores. So you can judge.
Abhishekh Kothari
Okay. Thank you. That is it from my side.
Moderator
Thank you. The next question is from the line of Jai Prakash Toshniwal from Taurus AMC. Please go ahead.
Jai Prakash Toshniwal
My question is on your NPA side. Are you looking to sell your NPA in this quarter?
J.P. Dua
Yeah, 250 crores we have the permission from the boards.
Jai Prakash Toshniwal
Okay. And on your CD ratio is 72%, are you carrying any excess liquidity at this point of time?
J.P. Dua
Yeah, I am comfortable with liquidity. I am not a borrower in the market.
Jai Prakash Toshniwal
Okay sir. Thank you.
Moderator
Thank you. The next question is from the line of Abhishek Agarwal from Motilal Oswal Securities Limited. Please go ahead.
Abhishek Agarwal
Sir, wanted to check about the employee expenses. On a sequential basis, it has dropped by almost like 9-odd per cent, in Q2
also you had provided 52 crores in this quarter as well we have provided 52 crores for the pension, so, why this drop has been
there?
J.P. Dua
No, there is no drop. Sometime, you provide excess that is all.
Abhishek Agarwal
Just wanted to understand what was the excess particularly in Q2?
J.P. Dua
No, it gets adjusted automatically. See, because what happens. We provided last year 275 crores which is taken care of.
These 25 crores were excess which has been adjusted now.
Abhishek Agarwal
Sir, what sort of incremental trend in terms of employee expenses, can we look going ahead?
J.P. Dua
See, in the banking industry, today, in India, the stage is, the people who join between 70s and 80s were all retiring, so a lot of
natural attrition is there. Two, there is a normal attrition also these days in the banking industry. So we go on recruiting people.
Last year I recruited 2,000, this year, again, I am recruiting 2,000. My retirement for next two years is 2,000 people. But the
only thing is the natural attrition is there, that is a cost neutral to me. So I do not incur any extra cost on them. Because people
who are retiring at their peak of salaries. People who are joining are at the base level.
Abhishek Agarwal
What was the gratuity liability for us for FY11?
J.P. Dua
Yeah, gratuity liability now because gratuity has announced from 3.5 lakhs to 10 lakhs. So it is coming to 284 crores.
Abhishek Agarwal
And how much of this has been provided?
J.P. Dua
I have provided 52 crores. I have to provide another 8 crores in the last quarter. And I will amortize in five years.
Abhishek Agarwal
Okay. And sir, lastly about the tax rate. Like in this quarter we have seen a tax rate has dropped a bit. So, what would be…?
J.P. Dua
I have provided up to now 450 crores. Last year was 565 crores in all for the whole year. So it is okay, it is as per the
requirement only.
Abhishek Agarwal
And what could be our effective tax rate for the full year?
J.P. Dua
I do not know exactly, but it comes to finally because for HTM and all you get lot of relieves, for some other things also, you
get some relieves, so finally I think it should be down 30% to 32% it should come to. If you want to work my net operating profit
out of that I leave it to you.
Abhishek Agarwal
That is it from my side. Thank you.
Moderator
Thank you. The next question is from the line of Naga Deepika from Capital Market. Please go ahead.
Naga Deepika
I have small industry wise information from you. How has been the – after the increase in the base rate, a couple of weeks
back, how is the advances growth, I mean sanctions going on and at what rates are going on particularly in MSME segment?
J.P. Dua
I will divide your question into two parts. See, Reserve Bank has to take care of inflation and they have revised the policy rate
six times up to now. This is the seventh revision which they have done. Base rate also started from 8, it has reached 9. We
have to transmit the policy. Deposit rates have also been increased. So going forward, depends, I think the deposit rates have
already peaked, it is difficult for the banks to increase further same as position of my bank also. Coming to base rate, my Alco
will decide and they will take a view whether to increase or not, if to increase, how much to increase. Now, coming to the
question that whether credit, my credit growth has been 32% and it is across all sectors, in the steel, credit has also gone up,
infrastructure credit has also gone up, MSME has gone up by 40% plus, so retail loans are growing at 30% plus, so it has
been across all sectors. So we ran some structured products for MSME sector where the rate of interest is low.
Naga Deepika
Right, but what would be the average yield in this segment, particularly, MSME and SME?
J.P. Dua
See, my yield on advances coming 10.58, then agriculture it is less, in personal loan it is higher, in industrial advances also, it
is coming to around 10.5, 11.
Naga Deepika
Okay. Sir, one more question. How much of our advances are linked toward the base rate and the PLR?
J.P. Dua
30% is linked to the base rate.
Naga Deepika
And PLR?
J.P. Dua
If you take out all the agriculture advances and directed lending, rest is linked to PLR.
Naga Deepika
Okay. The corporate loans are also….
J.P. Dua
Yes. All fresh advances are linked to the base rate.
Naga Deepika
No, I was asking not on incremental advances, I was asking the total advances.
J.P. Dua
Oh yeah, total advances 30% has been linked to base rate now.
Naga Deepika
Yeah, but on PLR basis, BPLR that would be the same, as you did agri advances and the other…
J.P. Dua
Yeah.
Naga Deepika
Okay. And what would be your exposure to microfinance institutions be?
J.P. Dua
145 crores.
Naga Deepika
Okay. Are they particularly catering to AP?
J.P. Dua
My NPA is 53 lakhs only in that segment.
Naga Deepika
And any aviation?
J.P. Dua
My exposure is to Air India granted by the World Bank.
Naga Deepika
Okay. Thanks a lot, sir.
Moderator
Thank you. The next question is from the line of Vinod Birla from KJMC Capital. Please go ahead.
Vinod Birla
Sir, can you help me with a break-up of advances in agri, SME and MSME?
J.P. Dua
Yeah. My priority sector advances are 22,462 crores, out of which, MSE is 10,000 crores, and agriculture is 12,172 crores.
Vinod Birla
And MSME?
J.P. Dua
MSME is 10,000 crores.
Vinod Birla
Okay. Sir, can you give me the deposit breakup?
J.P. Dua
84% is core.
Vinod Birla
Okay. Can you give me an absolute figure, sir?
J.P. Dua
1,20,000 crores.
Vinod Birla
Okay. Sir, current account, savings, term deposits, that is what I was asking.
J.P. Dua
Okay. Out of 1,20,000-1,21,000 crores, saving bank accounts are 32,300 crores, current account is 8,000 crores, rest all is
term deposits.
Vinod Birla
Actually, when we met you, you told that you will be increasing lending rate after RBI will be taking initiatives like increasing
repo and reverse repo, so, what is your take right now to increase the lending rate?
J.P. Dua
My Alco will decide.
Vinod Birla
Okay. Thanks a lot. That is all from my side.
Moderator
Thank you. The next question is from the line of Nidesh Jain from Espirito Santo. Please go ahead.
Nidesh Jain
Sir, my question is regarding pension liability. What is the size of pension liability identified for the second pension option?
J.P. Dua
780 crores is the liability. I have provided 104 crores; I will provide 52 crores in the last quarter and amortize the whole liability
in five years.
Nidesh Jain
And how many employees have opted for second pension?
J.P. Dua
89% have opted in total, out of which, 38% opted earlier, 50.75% have opted now.
Nidesh Jain
Okay. Thank you sir.
Moderator
Thank you. The next question is from the line of MB Mahesh from Kotak Securities. Please go ahead.
MB Mahesh
Just one clarification on the number of 50.75% that you have mentioned for pension. Can you translate what will be the total
number and how much….
J.P. Dua
I have 21,591 employees exactly. This is exact figure.
MB Mahesh
So it is 50.8% of 21,000?
J.P. Dua
Yeah.
MB Mahesh
Okay. And how much would be the retired employees who have opted for it?
J.P. Dua
See, Allahabad Bank runs earlier pension also. It is a historically pension paying bank for the last 100 years.
MB Mahesh
Correct. But as in number of employees who probably would have retired between 95 to let us say 2010, who have taken the
option of provident fund earlier, but now have come into the scheme, is that number included in this, because what you are
saying is only of the current servicing employees of the…..
J.P. Dua
No, no, no. This includes all. Because all the new employees, they have to go to NPS. 7% people are covered under NPS.
New Pension Scheme of the government.
MB Mahesh
Now, this is the new set of employees, I am just asking those employees who have retired over the last decade who were part
of the provident fund were also eligible for pension scheme. Now, how much would that be…?
J.P. Dua
I have to give you a bifurcation, right now I do not have.
MB Mahesh
Okay. Any rough estimate you would …..
J.P. Dua
Yeah, there should be good number.
MB Mahesh
Because you are looking at 10,000 for the current employees, just wanted to check how much would the balance….
J.P. Dua
Yeah, I will provide you later on, but right now I cannot give you.
MB Mahesh
Okay. Fine, sir. Thank you.
Moderator
Thank you. The next question is from the line of Ashutosh Mishra from Asian Markets. Please go ahead.
Ashutosh Mishra
Sir, what is your average deposit for the whole quarter and what is your take for next year FY12 for deposit and credit growth?
J.P. Dua
See, FY12, we have yet to decide our targets. We will meet in February to decide our targets. My target for this March is
1,30,000 crores of deposit.
Ashutosh Mishra
And what is your average deposit balance?
J.P. Dua
We do not work on average, we work on terminal numbers.
Ashutosh Mishra
And sir, is there any possibility that this pension numbers would be revised going forward when you will submit your final
account in March or so?
J.P. Dua
Maybe very, very little difference.
Ashutosh Mishra
Okay. Thank you sir.
Moderator
Thank you. The next question is a follow-up from the line of MB Mahesh from Kotak Securities. Please go ahead.
MB Mahesh
I am sorry, I missed the question earlier. See, if you look at the way most banks including yours have increased their base
rate, does not seem to match with the pace at which the cost of deposits have actually increased, so we just wanted to
understand as to what is the broad rational which is kind of -- or what is the thought process behind increase in the base
rate….
J.P. Dua
I do not agree with you. See, one year deposit were around 5.5% to 6%. They have crossed 9% today. While base rate has
moved from 8% to 9% only.
MB Mahesh
Now, but if you look at the average cost of deposits for your bank and also for the industry, it is not increased at the pace at
which the base rate has actually …
J.P. Dua
My CASA is 33.5%. Why you forget that? See, everything is not a fixed deposit. Two, it is not necessary that I take all the
deposits for one year. I run 300 days scheme, I run short-term-deposit scheme also, I take CD also, end of the day I maintain
my cost. Not necessary that everything translates into amount multiplied by 9.
MB Mahesh
Which is true sir. No, the point is if I look at the pace at which you have increased your base rate and the pace at which your
cost of funds have increased, more or less you seem to have been using something of the nature of an incremental cost of
deposits. Now, the point remains is, in a rising interest rate scenario….
J.P. Dua
Another thing in the banking industry, see, when deposit rates come down, then also the transmission is slow, similarly, my
deposit rates go up, then also transmission is slow. Because if I have a deposit at 7.5% for one year, today, deposit rate is 9%,
my turn will come only on the maturity date, is it not? This is what normally happens. Similarly, when the deposit rates come
down, nobody is going to encash the deposit to get the lower rate of interest. Everyone will wait for the maturity to come in. So
always transmission is slow. In the case of credit, always, transmission is immediate.
MB Mahesh
The point which I am trying to drive here is that since the margins seem to be a little bit overstated, in a sense that though your
cost of funds have not been increasing, since you have been using the incremental cost of deposits to kind of calculate the
base rate, you have a position where the assets are getting repriced at a pace which is faster than the liability.
J.P. Dua
No. No, formulas are different for calculating the cost. It is quarterly cost, some banks have taken half yearly cost, base rate
formula is that you have to have one formula for calculating the cost. Some bank is taking quarterly cost. Some bank is taking
average quarterly cost. For some bank, it is last quarter cost. So that is not the formula.
MB Mahesh
Somehow everyone seems to have landed at the same number of 9% and if the increase has been more or less similar across
the entire industry….
J.P. Dua
No, State Bank base rate is around less than 8% I think even today, is it not? Corporation Bank is also less than 9%; I think it
is around 8%, so it is not like this.
MB Mahesh
Could you broadly share what is your rational behind how you are looking at the base rate calculation….?
J.P. Dua
No, my formula is very much there on my web site.
MB Mahesh
Okay. Thanks.
Moderator
Thank you. Ladies and gentlemen, that was the last question. I would now like to hand the floor back to Mr. Anish Damania for
closing comments. Please go ahead.
Anish Damania
Hello, sir. Thank you everybody. Thank you very much everybody. Thank you very much Mr. Dua to be on the call.
J.P. Dua
Thank you, Anish. Thank you very much.
Anish Damania
Yeah.
Moderator
Thank you. Ladies and gentlemen, on behalf of Emkay Global Financial Services, that concludes this conference call. Thank
you for joining us and you may now disconnect.
Note: 1.This document has been edited to improve readability.
2. Blanks in this transcript represent inaudible or incomprehensible words.
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