Key Takeaways
- Turnaround delivers record profit: FY22 net profit of ₹1,039 crore is the highest ever, driven by a deliberate shift from corporate to retail advances that strengthened the bottom line even as it slowed headline loan growth.
- Asset quality is de-risked, not just improved: Slippages are granular (no large accounts), NCLT provisions sit at ~96%, and the SMA-2 book is a negligible ~₹266 crore. The ₹1,095 crore Q4 write-off is technical, with recovery expected.
- NII dip is a one-off, not a trend: The Q4 decline to ₹697 crore reflects the absence of a December Air India settlement boost; the underlying trajectory is intact.
- Digital and co-lending are the growth bets: The 'UniC' omni-channel platform is live, two digital banking units are ready, and one co-lending partnership has already disbursed ~₹250 crore with three more NBFC tie-ups near final.
- What to watch next quarter: Whether the 8–10% credit growth target materialises, the pace of recovery from technically written-off accounts, and any clarity on the treasury's capacity to absorb further rate hardening.
The Turnaround: Profit Over Volume
- Conscious model shift: Management deliberately pivoted the advances mix from corporate to retail (RAM segment), accepting slower overall growth to reduce concentration risk and build a stronger, more stable bottom line.
- Deposit quality improved: High-cost deposits were reduced and replaced with low-cost or no-cost deposits, keeping headline deposit growth below the industry average but strengthening the balance sheet. CASA improved to 33.81%, described as "real retail CASA."
- Record profit, dividend restored: The bank declared a dividend of 31 paisa (3.1%) after a four-year gap, signalling confidence in the sustainability of the turnaround.
S Krishnan: "I believe that the foundation has to be made strong and that there was need for course correction in the mix of the advances."
Asset Quality: Clean-Up Is Largely Done
- Slippages are granular: Q4 slippages of ₹433 crore were spread across smaller accounts with no large single-name pain. Full-year slippages of ~₹2,000 crore were dominated by two SREI accounts (~₹1,200 crore), which have been declared fraud and fully provided for.
- Provision adequacy is a strength: The NPA provision charge was only ₹9 crore in Q4 (vs ₹324 crore in Q3) because provision write-backs from recoveries now exceed the regulatory provision required for fresh slippages. Management states the bank is "optimally provided for, even more than required."
- NCLT exposure is near-fully provided: Provision coverage on NCLT accounts stands at ~96%, with RBI list 1, list 2, and bank-filed cases at 100%. No large account is expected to enter NCLT as of now.
- Write-offs are technical, not final: The ₹1,095 crore Q4 write-off follows prevailing standards and does not mean the accounts are removed from the books; management expects good recovery in future.
- SMA book is tiny: The SMA-2 book is negligible at ~₹266 crore, and no large accounts are expected to slip.
S Krishnan: "What I say is when I look at recoveries in the NPA's and the provision write back because of the recovery and the regulatory provision what is required for the fresh slippages, my provision write back itself is more."
NII & Treasury: One-Off Noise, Unanswered Questions
- NII dip is explained: Net interest income fell from ₹758 crore in December to ₹697 crore in March solely because December included a one-off entry from an Air India settlement that boosted interest income. The underlying run-rate is stable.
- Treasury duration reduced: Treasury income declined in Q4, but management emphasised that M-duration has come down substantially, stating "I'm safe" and that the hit may not be much.
- Rate-hike absorption is an open question: When asked whether the bank can absorb a further 50–70 bps hardening in June, management deferred: "I'll come back to you on that." A separate question on treasury planning for the year was also deferred to the GM Treasury.
Growth Levers: Digital, Co-Lending, and Selective Corporate
- Digital platform live and expanding: The 'UniC' omni-channel product (mobile and netbanking for retail, corporate, and NRI customers) has been extended to all customers and is working "extremely well." Two digital banking units in Punjab (Faridkot and Ludhiana) are ready to go live as E-lounges pending the nationwide launch date.
- Co-lending gaining traction: One NBFC partnership is already live with ~₹400 crore of business and ~₹250 crore disbursed. Three more NBFC partnerships are in advanced discussions and "almost started."
- Corporate lending door is ajar: Having stabilised the RAM segment, the bank will selectively re-enter corporate lending, constrained by its network strength rather than risk appetite.
- Cost-to-income strategy: Expansion will lean on digital channels because customer acquisition cost through digital is much cheaper than brick and mortar. Third-party products are expected to increase non-interest income, bringing the still-high cost-to-income ratio down over time.
S Krishnan: "We have not closed the door for corporate. Only thing is, we will be selective given the strength of the bank, more particularly my network."
Guidance & Commitments
| Commitment | Specifics | Timeline |
|---|---|---|
| Credit growth | Around 8% to 10% | FY23 |
| GNPA reduction | Come down to around 10% to 11% | In a year's time |
| Cost-to-income ratio | Consistently work to bring it down | "Years to come" |
| Co-lending expansion | Build the loan book further with 3 additional NBFC partners | Ongoing |
| NCLT recovery | Reasonable recovery expected; no big account likely to need NCLT | FY23 |
| NARCL transfer | Transfer of identified account expected "as and when it starts" | Something expected this quarter |
Key Metrics
| Metric | Q4 FY22 |
|---|---|
| Net profit | ₹346 cr, against ₹161 cr a year back |
| Full-year net profit | ₹1,039 cr, highest ever; increase of 13,802 bps Y-o-Y from a loss |
| Operating profit (Q4) | ₹317 cr, against ₹184 cr a year back |
| Full-year operating profit | ₹1,330 cr, increase of 7,228 bps Y-o-Y |
| Net interest income | ₹697 cr, against ₹495 cr a year back; Q3 was ₹758 cr, decline due to one-off Air India settlement interest in December |
| Net interest margin | ~2.9%, against 2.19% a year back |
| Full-year NIM | 2.80%, increase of ~18 bps Y-o-Y |
| Return on assets (QoQ) | 1.1% |
| Full-year ROA | 0.85%, 340 bps increase Y-o-Y |
| Return on equity (annualized QoQ) | 25.84% |
| Cost to income ratio | 65%, down from 78% in March 21 |
| EPS | ₹3.39 for March 22 |
| Dividend | 31 paisa (3.1%), declared after 4 years |
| Gross NPA | 12.17%, expected to come down to 10–11% in a year |
| Net NPA | 2.74%, down from 4.04% a year back |
| Provision Coverage Ratio | 87.89%, up from 82.89% a year back |
| Slippage ratio | 0.76% |
| Fresh slippages | ₹433 cr, against ₹214 cr last quarter |
| Credit cost (QoQ) | 0.01% |
| SMA 2 book | ₹266 cr, negligible |
| Total business growth | 5.25% |
| Deposits growth | 6.27% |
| Advances growth | 3.80% |
| CASA | ₹34,528 cr, increased by 951 bps; CASA ratio improved from 32.63% to 33.81% |
| RAM segment growth | 10.45%; mix improved from 47% to 51% |
| Retail growth | 15.29% |
| MSME growth | 13.26% |
| Agriculture growth | 2.78% |
| Corporate advances | decline of 2.26%; mix down from 52% to 49% |
| Cost of deposits | 4.17% |
| Cost of funds | 3.48% |
| Yield on advances | 7.13%, against 6.76% a year ago |
| Yield on funds | 5.69% |
| CET-1 | 12.77% |
| Tier-1 | 14.80% |
| Overall capital adequacy | 18.54% |
| CD ratio | around 69% to 70% |
| Digital transaction share | 84% of transactions through electronic mode |
| Co-lending book | ~₹400 cr with one NBFC, ₹250 cr already disbursed |
| NCLT provision coverage | 96% overall average; RBI list 1, list 2 and bank-filed cases at 100% |
| Write-off | ₹1,095 cr, technical write-off |
| Government of India holding | 98.25% |