The bank’s flagship product which is the small business loans, has seemingly done quite well in Q4 as well. What explains that and what is the outlook for FY23?
In FY22, we ended the year with a reasonably good set of numbers. The beginning of the year was impacted but during the year, things improved and last year, we had guided for 15% growth because of the Covid 2.0 impact and we ended up achieving exactly that. Also in case of credit cost, we had guided 2.5% credit cost for the year and finally the year ended with just about the same level of credit cost also.
We have restructured about 9.5% of the book last year and the whole focus of the bank was to see how that restructured book is going to perform and a lot of focus is on that. Finally, what has turned out at the end of the year is that some of the restructured books have become NPA by March and so they have been recognised and provided for.
For the remaining restructured book, we have set out the details in our presentation. We believe that there is no further significant stress coming from the restructured book and the quality of asset is almost back to our pre-Covid levels which gives us a lot of confidence to pursue growth. In terms of guidance for FY23, we should be looking at 30% growth for the year in terms of our advances and in terms of credit cost, our pre-Covid credit cost used to be in the range of 1.1% to 1.2%. Last year, it was 2.5% but in FY23 we expect our credit cost to be somewhere in the range of 1.5%, trending closer to our pre-Covid levels.
What is your take on the NIMs? Where do you think it will be headed going forward and what will be the impact of the rate hikes on your financials?
Our NIM has improved in Q4 compared to Q3. It has improved by a good 50 bps and so the yield drop is something which has happened over the last four, five years. Our cost of funds as well as operating cost is dropping. The yield will be dropping over time but the NIM has been more or less steady around the 8.5% level.
It has been more or less steady over the last few years. We believe our NIM may be sustained in that same historical levels of around 8.5% because we are not doing much of a product mix change. Our portfolio consists of 18% microfinance, 45% small business loan, 25% commercial vehicle loans, 5% NOC loans and 5% loan to NBFC.
In terms of the rate hike that RBI has announced yesterday, we will have to wait and watch how the market reacts to that and if the deposit rates of other banks go up, then we may also follow suit but we will be able to pass it on to the clients because our ticket sizes are very small loans. A marginal increase in rate from an EMI perspective is not very high for a client, where the loan sizes are very small and tenures are generally short.
Talk to us about your asset quality. Provisions were seemingly high at Rs 1,200 crore during the quarter but take us through the upgrades, recoveries, write offs and the slippages during the quarter?
We have a gross slippage of around Rs 400 crore for the fourth quarter out of which our recoveries as well as upgrades are very high compared to the previous quarters and so our NPA did come down marginally from 4.39 to 4.06% for the fourth quarter. There was a gross slippage of Rs 400 crore for the quarter. A large part of it actually came out of the restructured book and as I mentioned just a little while back, the restructured book minus the NPA has already come out of the restructured book.
The remaining restructured book quality is pretty strong and we do not expect too much slippage coming out of the remaining restructured book. Going forward, we believe the gross slippage should get back to more normal levels. Pre Covid our gross slippage used to be in the range of around Rs 150 crore to 200 crore a quarter. We should get back to those levels very soon.
What is the outlook on asset quality? Do you see the NPA numbers sustaining at these current levels for the coming quarters as well?
The quality of the book has significantly improved over the last two quarters and the restructured book performance has come back pretty well. For the remaining book, which is the non restructured book, actually the performance is very much close to the pre Covid levels on the rest of the book. Going forward, we should definitely see a downturn in our NPA.