Lionheart Holdings Q4 FY2024 earnings call

• Achieved two historical landmarks in FY '24: crossed INR 1 lakh crore total business and INR 1,000 crores PAT. Board recommended a 150% dividend including a 50% special dividend.
• Board changes: Shri G. Mahalingam became nonexecutive Chairman effective 4th May 2024; Shri R. Vijay Anandh joined as Executive President in March 2024, with plans to appoint him as full-time director. About 10 executives joined to strengthen senior management.
• Financial performance aligned with forecasts: PAT growth, substantial NPA reduction, improved coverage ratio, ROA near long-term average of 1.5%.
• Digital lending for MSME near completion, expanding to secured retail (housing, LAP, etc.). Opened 800th branch in Ayodhya and plans to open 50-75 branches in FY '24-'25.

For the financial year ended 31st March 2024, City Union Bank achieved several key milestones. Total business crossed INR 1 lakh crore. Deposits stood at INR 55,657 crores, registering a 6% growth, and advances were INR 46,481 crores, a 6% QoQ improvement. PAT for FY '23-'24 was INR 1,016 crores, an 8% growth YoY. Q4 FY '24 PAT was INR 255 crores, a 17% QoQ growth. Gross NPA declined to 3.99% as on 31st March 2024 from 4.91% in Q1 FY '24, and net NPA reduced to 1.97% from 2.95% last year. Net credit cost decreased significantly to 0.24% for FY '24 from 0.90% in FY '23. Insurance income doubled to INR 55 crores in FY '24 from INR 27 crores in FY '23. ROA for FY '23-'24 was 1.52%, NIM for FY '23-'24 was 3.65%, and cost-to-income ratio for Q4 FY '24 was 51.26% while for FY '23-'24 it was 47.06%.

• Projected net NPA to be between 1-1.25% by end of FY '24-'25.
• Working to improve ROA and ROE; ROA for FY '23-'24 was 1.52% and aiming to improve further.
• Cost-to-income ratio expected to moderate as investments start yielding returns; currently elevated but expected to come down as returns materialize.
• Aim to achieve double-digit growth in FY '24-'25, but specific numbers not provided yet, as past guidance wasn't met and they want to be cautious.

• Headwinds in treasury income due to interest rate movements and regulatory changes related to HTM treatment.
• Cost-to-income ratio may remain elevated temporarily until investments in digital lending and other initiatives start yielding returns.
• Divergent practices in LCR calculation across banks, leading to uncertainties in liquidity position measurement.

Q: What is your projection estimation for gross NPA, net NPA and ROA for financial year '24-'25?

A: Expect net NPA to be between 1-1.25% by end of FY '24-'25. ROA is being worked to improve from current levels.

Q: What kind of growth are you seeing in the current year?

A: Things are being put in place with new teams, digital lending processes, and sales verticals, aiming to accelerate growth but specific numbers not committed yet.

Q: On the cost-to-income ratio, how should we think about it?

A: Cost-to-income ratio moved up to 51.26% in Q4, expected to moderate in the second half as investments start yielding returns, with FY '24-'25 cost-to-income ratio expected to be in the 47-51% range.

Q: How should we think about return on equity given ROA is back to 1.5%?

A: Lower ROE is due to higher capital maintained; as growth engine kicks off, ROE will improve as ROA increases.

Q: On digital initiatives, when will the MSME digital lending process be completed?

A: MSME digital lending process is in the last leg and should be through before mid-June. Secured retail digital lending (housing, LAP, etc.) should be completed before end of Q1.

Q: What led to the deposit growth this quarter?

A: Q4 showed improvement, with Q1 normally having a lull but expecting better than previous first quarters as processes and teams are in place, though exact numbers not committed yet.

Q: On the recovery from technically written-off accounts, what's the guidance?

A: Recovery from technically written-off accounts is difficult to predict exactly, but live recoveries have helped reduce credit cost, positively impacting ROA.