ICICI Bank Ltd (IBN) 2008 Q2 法說會逐字稿

Good evening, ladies and gentlemen. I am Muktar, the moderator for this conference. Welcome to the conference call of ICICI Bank Limited. Mr. Rakesh Jha will be your call leader today. For the duration of the presentation all participants' lines will be in the listen-only mode. After the presentation the question and answer session will be conducted for the participants in the conference. Now I hand over the floor to Mr. Rakesh Jha. Thank you and over to you, Mr. Jha.

Thank you. Hi. I'll just start on the presentation first. I'm accompanied by Rupesh and Pankaj. I'm sorry that some of you will not have received the presentation as we have sent it back about 20 minutes back. So I will just go through the presentation in detail, so you get all the numbers that are there. But most of the numbers are also there in our press release, which many of you will have received.

The key highlights for the current quarter. 33% increase in profit after tax. The profit for the quarter was INR10.03b. There was a 52% growth in core operating profit to INR17.12b. The net interest income increased 34% year on year in the second quarter to INR17.86b. This is with the change impact of reducing the amortization of government securities from the net interest income. The fee income growth was 25% during the quarter to INR14.86b over the last quarter.

The fee income growth was a bit lower than the trend that we have seen of growth of about 30% in the past quarters. As we have mentioned earlier, there was some impact -- some immediate impact of the change in the ECB guidelines which [Amir] had put out in the beginning of the quarter. That impacted some of the transactions which were underway at that point of time. So we expect that to be a phenomenon which was there in the current quarter. And going forward we will continue to target to grow our fee income at a pace which is higher than the balance sheet growth.

Coming to the balance sheet, there was a 33% growth in total advances year on year, from INR2.07 trillion at September 30, 2007. The retail loan growth moderated down to 22% growth year on year, while the growth on the corporate international side continued to be very robust, the total growth there being about [18%] with the international branch in itself, the loan portfolio growing by 146% year on year.

The deposit growth was about 20% year on year to INR1.89 trillion, within which the CASA deposits grew by 38%, again year on year. The savings deposits are now close to INR350b at September 30, and the current account deposits are about INR230b.

Just coming to the detail of P&L statement, as I mentioned earlier, we have reclassified the amortization on government securities to be reduced from interest income from investments. Earlier this was shown in the treasury line item. So if you look at the numbers for amortization government securities, it was INR2.43b in Q2 2007, it was INR2.10b in Q2 2008, INR5.09b in H1 2007, and INR4.46b in H1 2008 and INR9.99b in FY 2007. So to that extent you will find that the past period NII has -- would have reduced to the extent of these numbers.

So in NII we saw growth of 34% during the quarter compared to the last year second quarter, while the deposit costs on an incremental basis have declined compared to the earlier periods, given the fact that we had raised a high amount of higher cost deposits in the months of February and March. As we have said earlier, we would expect the cost of deposits to reduce more sharply towards the end of the financial year and in Q1 of FY09. To that extent, our net interest margin for the current quarter on a reclassified basis was 2.23% compared to 1.95% in Q1 2008.

Fee income, as I mentioned, increased 25.4%, to INR14.86b from INR11.85b. The primary reason for slowdown, as I mentioned, being the lower growth on the profit side, which we expect to continue to grow at a handsome pace going forward.

The other non-interest income was about INR4.11b, which was about -- slightly more than INR3b in the first quarter. This includes the dividend distribution from our subsidiaries, including the income distribution from our venture fund company. So the total non-interest income was INR18.97b.

Operating expenses increased 33% to INR15.41b from INR11.57b. The DMA expenses were about INR3.85b with the core operating profit being INR17.12b, a growth of 51.6%.

The treasury income was INR1.75b, which was a decline over last year Q2 of INR2.4b, a 27% decline. That was mainly because of the mark-to-market impact on our trade derivative portfolio, which was close to about INR1b, that we have taken at September 30. As we have mentioned earlier, we believe this is only a mark-to-market provision. We have not seen any underlying defaults happening or any loss in the underlying economic value of these investments.

The loan provisions were about -- total loan provisions were about INR5.66b and the general provisions in addition were about INR0.78b. The general provisions were down about 10% compared to Q2 of last year. And the loan -- the specific loan provisions were higher by about 49% compared to Q2 of last year and were higher by about INR350m compared to Q1 of this year.

As a result of the profit before tax increase by about 38% to INR12.4b, and the tax increasing by 63% to INR2.40b, the profit after tax increased by 33% to INR10.03b.

The total balance sheet size at September 30 was INR3.64 trillion, a 29% growth over last year September, with advances increasing to INR2.07 trillion, a 33.3% growth over last year.

On the deposits, as I mentioned, in the second quarter the deposits actually declined a bit compared to June 30. That was mainly because of the capital that the bank had raised, so the need for the term deposits was not there. And we were able to repay the wholesale deposits to some extent.

The net worth, subsequent to the capital raising, is now at about INR447b compared to INR246b as at June 30. As a result of the capital raising, the total capital adequacy has increased to 16.76% with Tier 1 of 13.02%. And the total capital still excludes the $750m Upper Tier 2 issue that we had done in January 2007, as we have not yet received RBI's approval pending the clarification that they had sought on the terms and conditions of the raising.

Coming to the key ratios, the return on average net worth is 11.5% for the quarter, reflecting the increased capital at September 30 which was not there at June 30. Excluding the investments in insurance and including the profit of banking subsidiaries, that number would have been about 13.2%. The book value is about INR400. The cost to income ratio is about 40.4%. And the fee to income ratio continues to be at the high level of 39%.

Coming to asset quality, the gross NPLs at September 30 is INR66.89b, increasing from INR60.4b at June 30. The net NPLs are INR30.36b, increasing from INR27.42b at June 30. So within the gross NPLs, the retail gross NPLs are INR42.44b and the retail net NPLs are INR19.99b. The net restructured loans have declined a bit from the June levels down to INR46.98b.

And in NPLs, during the quarter we have sold part of our non-performing mortgage loans to Arcil. As you know, we have an (inaudible) of Arcil and we had initiated the process of selling our loans to Arcil to afford improved recoveries earlier. So as a part of market development, we are looking at the sell down of the retail NPL portfolio as well. And so if you look into impact, the sell down of the NPLs, it was about INR3.6b, which the gross NPLs would have been higher if the sale was not done and the net NPLs would have been higher by about INR2.5b. And the sale has been done as required by RBI, at a fair valuation done by independent rating agency. And the provisioning that the bank was holding was adequate for the whole portfolio, so there was no further provisioning required on the sale of the whole portfolio.

Interesting brief, coming to the insurance business. We continue to be the market leaders in the private sector on the life insurance side with 26.2% market share and in the total market with a 9.6% market share. The annual premium equivalent growth was 45% in H1 2008. There was a significant increase in Q2, where the growth was 76%, and the base effect of last year's Q1 was not there in Q2. And the entire growth of 45% in H1 continues to be on the high base of 124% growth that we saw last year. So we continue to expect to grow at upwards of 60% for the current full year.

The total assets held by ICICI Life is now at INR225b, of which 67% is equity investments. The branch network has increased to about 735 at September 30 from 583 at March 21. The new business profit for half-year was INR4.32b, which has reflected a margin of about 19.7% for the half-year.

On general insurance, again we continue to be market leaders in the private sector with a market share of 31.6%. The overall market share is at about 12.4%. There was 18% growth in the gross written premium in Q2, increasing from 9% that we saw in the first quarter. The non-corporate business is now at about 58% of total gross premium. We saw a strong profit growth in the first half with the profit after tax increasing to INR0.81b from INR0.33b last year first half.

We will be happy to take questions now.

(OPERATOR INSTRUCTIONS). The first question comes from Mr. Ravikant Bhat from IDBI Capital, Mumbai. Mr. Bhat, you may ask your question now.

Hi. I just wanted to understand what would be your NIMs in the retail and corporate business? Can you give me a definite bifurcation?

We have not disclosed this statistic, NIMs broken down into retail and corporate segments.

In that case, is a subjective (inaudible) possible vis-a-vis the blended NIM, whether they were good, not so good or better?

Broadly, if you look at the retail lending rates, the NIMs on the retail side is substantially higher than on the corporate side.

Correct.

It would be, for example, broadly in the region of 3% is what it would be compared to about 1%, for example, on the international business. But it's broad numbers that we have said, because the composition of income between the retail and the corporate segments is quite different. For example, the cost ratios are significantly lower on the corporate side compared to the retail side.

Okay.

In the current quarter, if you ask me about the trends, we continue to -- we did reduce the home lending rates by about 50 basis points for the floating rate loans during the -- for the specified festive season period. Otherwise, we have continued with broadly at the same level of rates as earlier on the lending side. On deposits we have reduced our deposit rate by about 50 basis points for the special deposit schemes that we were running. But in terms of a more medium-term indicator, we would still look at what RBI [consults] with its policy and what is the kind of security scenario which sustains in the second half of the financial year.

Okay. Secondly, what would be the [annualized] licenses, branch licenses, that you would be holding and how much do you expect to grow the branch network to by the end of FY08?

We are currently at about 950 branches. We have received license from RBI for opening a new set of branches. But unfortunately we have not disclosed the number of licenses that we have received. But we did mention that it is in line with our own application to RBI in line with our expectations. So it is obviously substantially higher than what we had received last year. And we would hope to open these branches over the next six months.

Okay. Secondly, I just wanted to understand what would the weighted duration of your liabilities and assets be currently?

On the funding side, if you look at the deposits, most of the retail deposits come in a one-year maturity bucket.

Okay.

The wholesale deposits are distributed between six months to one year bucket. So on average it will be slightly below one year.

Okay.

On the lending side it will be just slightly above one year. That is because 90% of our home loan portfolio is floating rate home loans.

Okay.

Where the retail (inaudible) every quarter, so it's like a three-month duration paper. And so that's why all the duration is lower. And on our investment portfolio, we continue to be close to about two years or slightly more than that in terms of duration.

Okay. And have you pumped any equity into any of your insurance businesses within the year?

During the half-year, we have put about INR800m in ICICI General, and about INR6m in ICICI Life Insurance.

Okay. One final question. I just want to understand what would be the size of the international assets that are held as investments and that relate to the Indian corporate exposures which have been syndicated.

Sorry, I didn't hear that question.

The size of the international assets that you hold as investments.

What does investments mean?

I mean the loans which you might have syndicated, but which are held as paper, corporate paper, rather than as loans.

I am not able to understand that. We typically syndicate loans, so if you still mean the nature of loans invested. We will take the question afterward. I am not able to understand it right now.

Okay, fine.

Thank you, sir. The next question comes from Mr. Rajagopal Raman from [SPK] Hong Kong. Mr. Raman, you may ask your question now.

Hi, Rakesh. The first thing, that I have yet not received the presentation from your end. Could you just ask somebody to forward that across?

We have sent it to everyone because it's a common mail that we send, but I think --

I understand that but sending it just 20 minutes before the earnings call doesn't indicate a -- it hardly gives us any time to go through the release in the first place, right.

I'm sorry, I [know] the entire presentation -- I can (multiple speakers) talk again, because we cannot spend the whole meeting -- when we can do the call next time, we will take that out a bit later as well.

Two things on the -- essentially, I couldn't understand the technicality. It says that the standalone, the fee income growth, was just 25% lower on account of an RBI technicality. Can you throw some light on that?

I think it was on account of the change in the ECB guidelines that you will have seen happen earlier in the quarter, wherein the restrictions have been imposed on ECB borrowings that Indian corporates can do for rupee purposes. As that guideline came out suddenly, which was not anticipated by the market, there was certain transactions that would not have happened during the quarter which were planned. So to that extent there is some immediate impact on the fee revenues for the bank.

Okay. So have they got crystallized as domestic assets or domestic loans?

Going forward, a part of that will get crystallized as domestic loans.

And which could be syndicated, may not be syndicated, depending on --?

Depending on, meaning on an appetite for that risk on the rates.

Okay. Second thing, you indicated that the treasury income, or I guess the profit on sale of investments, is close to INR1.75b. And you also indicated that there is a mark-to-market provision on the credit derivative/syndicated book or whatever you call that. There is a mark-to-market provision of INR1b. Has this already been netted off on this profit on sale of investments?

Yes. The INR1.75b is the net number which is (inaudible).

So which means the gross number would have been INR2.75b, right?

About INR2.75b, yes.

Okay. Could you broadly indicate the nature of (inaudible), because I'm definitely sure that at least on the fixed income book you wouldn't have made so much profit? So if it's any value unlocking, could you just elaborate on that?

It will include -- as I said, it basically will include one is on the prop trading book on the fixed income derivatives and equity side. And secondly is our private equity sales, which would include sales of some of our non-core investments that we have been selling over the past quarters. These investments are basically things like NCDX, NSE, going forward, what we call (inaudible). Some of them we have to also reduce our holding because of the military reasons.

Okay. Any -- could you provide us numbers on these three hedges - prop trading, private equity and (multiple speakers)?

No, we will not disclose the transactions in that way.

Okay, but at least broad numbers?

Broad -- the total number, as I said, is about INR2.75b. About a third of that will have come from prop trading and the balance would be private equity sales.

Okay, okay, okay. Fine. Going forward, you've indicated that -- you've indicated a split of provisions on the corporate and the retail book. Now, if I notice it rightly, you indicated that you have sold one of the amounts that you indicated to us.

On -- I said that is the impact on the gross NPLs.

Yes. Would be higher by (multiple speakers).

The gain would have been about INR3.6b.

Okay. This transaction which you have completed, what is the consideration in terms of cash receipts/cash/securitized receipts? How has it been valued?

(Multiple speakers).

Has there been a (multiple speakers) differential which is INR3.6b minus INR2.5b or an amount greater than that?

Sorry?

You indicated that the gross value of that pool of assets would be close to INR3.6b, right?

And a net value of [INR1.25b]. And we sold it at pretty much close to the net book value. And the valuation (multiple speakers) is to be done by an independent rating agency.

Okay. Could you indicate what prompted this particular piece of action? Because of course it's been commonly known that corporate NPLs have been sold off to asset reconstruction companies. But from a retail perspective, has it been on account of ICICI Bank having doubled the covering or is it -- are there other reasons for it?

No, it's not at all because of any challenges on the recovery side. It's basically we have been in dialogue with Arcil for quite some time in terms of selling down part of our retail portfolio because in the longer run, as the retail portfolio increases from other banks, Arcil clearly sees an opportunity in this market. And so it's more in the nature of the market. We'll see how it actually pans out in terms of the collections. It is not really anything to do with the challenges of collection that the bank may have anticipated.

If you look at the way Arcil is constituted, do you think -- do you really think they have the necessary machinery to recover these assets, because (multiple speakers)?

They are in the process of -- they have over the past few months set up that process. And they are in the process of building that kind of a network. Because, as I said, it's more a thing that they are looking from three to five years timeframe in which they would be looking at this business.

Going forward, you indicated that the gross NPLs, okay, aside of this transaction, is around INR66b, right? And in terms of the split, you indicated that INR48b would be retail and close to INR20b are the provisions against this retail book. Now, of course last time around you did indicate that you're not providing a split in terms of how much would be the NPL numbers on the secured book and the unsecured book and so on and so forth. Could you broadly indicate what are the numbers like in terms of at least net NPL positions?

On the overall basis, I think we have said that about overall retail, the gross NPL was about 3% at June. The net NPL was about 1.5%. The net NPL right now is about 1.53% and the gross is about 3.18%.

3.18% on the retail book?

On the retail book.

And you also have a bifurcation which was called the collateralized and the non-collateralized. Could you provide a number on that?

Yes, the -- 45% of the gross retail NPLs is coming from the collaterized products.

Okay. 55 (multiple speakers).

And 55% is coming from the non-collateralized products, which is roughly in line with what we were seeing in the previous quarter. And I'm adjusting for the Arcil sale, just to make it comparable for you.

Okay. First quarter there were no sales to Arcil, right?

No.

Okay. Further insight, I just happened to listen to [Ms. Muli's] comments on NBC. There was a question which was raised in terms of ICICI Bank considering getting out of probably the urban micro-finance business/the higher risk lending because of the RBI-related strictures or potential strictures on ICICI Bank, given some views on recovery-related tactics. Is there any -- what is the official position on this?

You know --

No, I'm just quoting on the press report in the economic sense, okay, I'm not making it up.

No, I know, I appreciate that. We have adopted all regulations and guidelines as prescribed by RBI, and prescribed a code of conduct for our agents. And there has been quite a bit of reporting in the media in the recent -- not just for our bank but even for some other banks. If you look at the reported incidents, they are very few in number of -- the large number of customers that we have. And we deeply regret the unfortunate incidents that you would have got in the media. Even though there will not be any direct causality from ICICI Bank's point of view, but we are being extremely conscious of this issue. And we are reviewing our plans, particularly in the urban micro-banking loans, given the intensive collection efforts required.

So I would say that we are in the process of evaluating what should our strategy be in this particular segment going forward. As you're aware, it's not really that large a portfolio for us. It's less than 1% of our total loan books. It's not something which is significant either way for us currently. So as I said, we are reviewing right now in terms of what should be our strategy for this particular segment going forward.

There was another comment which Ms. Muli made on the agricultural advances. I couldn't quite understand what she meant by that. Because she indicated that part of the loan book has petered down in the first half because a bit of the agricultural advances go off books. I couldn't quite understand what she was trying to indicate.

I have not heard it. [If you] ask me any question independent of her comment, because I've been --

Fair enough. If that's the case, then if you look at year-on-year loan growth, how do you explain the significant reduction in the loan growth? Because, again, if you give me a broad systemic answer, yes, it's very clear. But if you look at quarter-on-quarter trends as well, if you look at ICICI Bank historically, you've never had a situation wherein Q2 loan growth comes down to very low double-digit levels (multiple speakers).

(Multiple speakers) that we are seeing a much slower growth on the retail side and the retail loan portfolio growth is much lower. And on the rural side, as you're aware, that particularly in the first half of the financial year all banks here decline in their rural portfolio. And again, as we have mentioned earlier, that pursuant to certain fraudulent transactions that we have seen last December, we have been in the process of reviewing all our processes for the loans and relaunching the business. And I would say that in the first half, typically, if you look at last year first half our rural book would have declined in the first half. And (multiple speakers) we can have a chat just after this call.

What is the size of the rural book as of March '07 and September? Hello?

On March '07 INR200b and September is about INR100b.

And what would be the (multiple speakers)?

(Multiple speakers) there are quite a few people waiting on the call, so we can have a call after this for getting into each detail.

Fair enough. Okay. And just one more on the financial sector holding company. Where does it currently stand in terms of the value unlocking on the insurance and the other businesses?

There is no change in status from the last update that you were given following the RBI draft paper that had come. So I think we will have submitted comments to RBI, for RBI to come out with the final guidelines. As far as we stand, the transaction that we had done winds down in the -- by the end of November. So if the transaction doesn't get completed by then, then we would renegotiate with the investors in the event that RBI gives an approval for the company to be set up. In the event that RBI does not give its approval for the subsidiary to be set up, we would look at alternative plans which, as we have said earlier, could potentially include a listing of the individual insurance companies. So I guess we are waiting for every word from RBI on this one.

Fair enough. I just wanted to know that. Thanks. Thanks, Rakesh.

Thank you, sir. The next question comes from Mr. Dipankar Choudhury from Deutsche Bank. Mr. Choudhury, you may ask your question now.

Yes. Hi, Rakesh. Can you just give an idea of the NPL formation in the first quarter and the second one, sans of course the Arcil sale to make it like for like?

In the first quarter, if you recall, we have added close to about INR12b of NPLs. The second quarter that number on a like-to-like basis would be about -- slightly below INR10b.

Okay. And I just missed one part. You said the retail NPL at the end of first quarter was 3.5% gross and now it's 3.1%. Is that correct?

No, it was 3% at the end of -- [gross and below] 3%.

Okay. And just one qualitative couple of questions. Firstly, what is happening on the uncollateralized retail NPL front? If you could just throw some light on whether the loss rate [in a] quarter is too short a time period for that. But what are your reflections on that, the secured retail NPLs, whether you think (multiple speakers)?

I have not really seen any change in terms of underlying NPL formation or credit losses. As I mentioned, mentioning earlier, there have been these issues on the collection side because of a lot of highlight that the media has put on the urban micro-banking loans. So we are looking at evaluating our strategy for this particular business segment going forward, which as I said is only 1% of our total loan book. And even out of our retail book it will be maybe about 2%. Or actually, it's below 2% for the retail book as well. On credit cards and personal loans, we continue to see quite strong growth. And in terms of credit losses there is no change from what we have seen, I guess.

Okay. And one last question from my side. How is the (inaudible) shaping up? And when do you think it will be scaled up to your desired levels of efficiency, at least on the liability side?

In terms of integration, about 75% of their business is done from about 50 branches is what we were targeting to do in the first phase, which we have said would be -- would take about six to nine months, which is in progress. I think we would have done by now close to 40 branches, which would account for a significant proportion of their business. In terms of contribution to the deposit side, as we have said, for us it is more like getting a new branch license. It would take that period of 12 to 18 months for them to contribute effectively.

Okay, thanks.

Thank you, sir. The next question comes from Miss [Madhuchanda Dey] from Kotak Securities. Miss Dey, you may ask your question now.

Yes. In terms of the -- actually, I've got some housekeeping questions. If you could share with me what is the like to like in IM of Q2 '07? Hello?

Yes.

[2.15%]. Q2 '07.

Q2 '07.

Q2 '07 is 2.13%. I would again apologize for you people not receiving the presentation. Q2 '07 is 2.13%, Q1 '08 was 1.95% and Q2 '08 is 2.23%.

Can you just repeat the number, 1.98 was Q1 or -- '08?

Q2 of 2007 is 2.13%.

Okay.

Q1 of 2008 is 1.95%. And the current quarter is 2.23%, all on the revised basis of amortization consolidation.

All right. And what is your costs [recorded] for the quarter and (inaudible)? Hello?

Yes. The cost of the -- the total cost of funds has come down to about 7.7% from 7.8% in the first quarter. And the yield on interest-earning assets is about 9.4%.

And what is the cost of deposits for the quarter?

Cost of deposits is about [7.60%].

And if you could throw some color on the INR10b incremental NPL growth in terms of the sectors and rough composition?

It would be -- it would roughly be about 7 point -- I will just give you the break-up. It is about INR7.4b would be retail NPLs. And the balance would be across SME, rural and corporate.

One small question. As you mentioned, the growth in the total outstanding rural book sales, is there a strategic change in terms of your rural focus? Hello?

Today there is no strategic change in terms of the rural focus at all. As we have said earlier, it is driven by the fact that a consequence of the fraudulent transactions that we had last December, we were in the process of reviewing all our processes for the rural business and relaunching it in each of those segments. And we continue to look at growth on the rural side, especially on the retail side, through micro [fund] institutions, from already based financing of farmer equipment financing, so all that continues to be in place.

In terms of growth, you are right, the growth has been lower than what one would have anticipated maybe 12 or 18 months back. But again, we look at it as a longer-term strategy. So over the next three to five years we would look at the rural book increasing to closer to 15% of our overall book.

Thank you.

Thank you, ma'am. The next question comes from Mr. Ashish Agrawal from CLS in Mumbai. Mr. Agrawal, you may ask your question now.

Hi, Rakesh. Can you just give me some numbers on what was the disbursement for this quarter and how does it compare to, say, the first quarter and the second quarter of last year?

Yes. The total disbursement in this quarter was INR147b, the retail disbursement.

Okay.

Which was up about 12% compared to Q1 of '08, that is the June quarter, which was about INR132b.

Right.

It was down about 16% compared to Q2 of last year, which was INR176b.

Okay. And how much was the mortgage investment out of this [147], just for this second quarter?

INR54b.

And you mentioned the growth in (inaudible) of 66, and I believe the press release has 59, so that balance 7 is write-offs, right?

I'll just -- because this was a -- the stock exchange format now requires the inclusion of the gross NPL ratio. This is a number that we include in our financial statements, which is only for our advances book.

Okay.

The number that we typically talk about and release in our -- normally is including the credit substitution like debentures and other investments.

Okay. So have you written off anything in the second quarter?

There has been no change in any of write-offs between June and September to reconcile.

Okay, fine. And just one last question. Can you just give me a rough break-up of the fee income? Has that changed significantly from the first quarter or not really?

It's broadly been a similar kind of a break-up with 55 -- about 56% coming from the retail segment and about 3% or 4% coming from the rural segment and the balance coming from corporate international.

So international corporate still accounts for like 40%, right?

Yes.

Fine. Thanks a lot.

Thank you, sir. The next question comes from Mr. [Srikant Budman]. Mr. Srikant, you may ask you question now.

Yes. Hi, Rakesh. Two questions, one is on NPS. Have there -- in this quarter has there been any slippage on the agri portfolio?

There would have been some slippage in the agri portfolio, Srikant. We actually don't disclose that.

I'm just doing the line of the (inaudible) that came up in Q1. Either a big (multiple speakers).

There would be no slippage between there on the agri portfolio. It would be lower than what we saw in the first quarter.

Okay. Okay. And on the international book in terms of the growth, how do you see the ECB book growing because of the new guidelines?

As I said, ECB current quarter there was an impact which we felt in terms of our [C] revenue. That was more because there were five or six transactions which were lined up when we were not aware of the guideline coming out and which finally did not go through because of these transactions being under the automatic route earlier but were not allowed as per the revised guidelines.

Going forward in the more medium term, as we have said, we don't think it'll have a material impact in terms of the overall business for ECBs or the corporate international business, mainly because the proportion of such borrowing for rupee purposes is not a high proportion. While the exact data is not available, it is extremely (inaudible) in the region of 30% to 35%, if I read from some of the reports which have been printed on this. So overall it's not a very large number which will impact either way. And currently ECBs continue to be allowed for in our purposes. And on the international side the M&A business is also growing quite strongly. So we would expect, and we see again quite a robust pipeline in terms of such transactions, both on the ECB side as well as the M&A side in the next two quarters.

Okay, fine. Thanks. That's it from my side.

Thank you, sir. The next question comes from Mr. Kashyap Zaveri from Emkay Shares. Mr. Zaveri, you may ask your question now.

Hi, Rakesh. Just a repetition. You mentioned about that the gross NPLs in the (inaudible) exchange and one that is in presentation. The difference between gross NPLs isn't mentioned and it's not on that part.

What is there in the stock exchange format is, as you have seen in our annual report, what is quoted in our financial statement.

Okay.

That is pertaining only to the advance portfolio.

Okay.

Okay? We particularly always have been reporting in our investor presentation as well as in our press releases the numbers based on customer assets that will include the credit substitutes like debentures and bonds and other credit substitutes.

Okay.

So the numbers that we have put out in our presentation and the main release are exactly consistent with what we have been doing earlier.

Okay.

The stock exchange format is exactly consistent with what you will find in our notes about (inaudible).

And the 600 [crores] which is the differential would primarily arise from which part of the credit substitutes?

That difference has been at a similar kind of a level earlier also. And it will particularly be in the debenture and the bond portfolio. The number that is again reported in our notes for accounts in the financial statement is a net of the technical write-offs that we would have done on our corporate portfolio.

Okay, okay. Has there been any regrouping from fee income and treasury in between? Has there been some regrouping?

In terms of -- there is no change between Q1 and Q2?

No, Q2 and Q2 (multiple speakers).

So there is no change in (multiple speakers) fee revenues.

Okay. There has been no regrouping? Hello?

No. No, the regrouping which I was mentioning earlier was amortization of government security.

That's it?

Which got reclassified from treasury income being mentioned there to NII.

Okay. And in terms of retail portfolio and y-o-y business, what are the segments which have seen a maximum contraction?

On the loan basis?

Yes. Is there any portfolio which has seen contraction in terms of business line? Which are the major contributors?

So, disbursements, as I said, trends [used] to be what we saw in the first quarter. So it is across the secured lending products that we have seen decline, for example, on home loans. Disbursements are down about 24% compared to last year.

Okay.

And car loans and two-wheelers would be down about 17%, 18% compared to last year.

Okay.

In terms of the loan book, the growth year on year, home loans have seen about a 20% growth and the non-collateralized book has grown by 48%, which is the highest growth that we have seen.

Okay. And just a second question, can you give us the break-up of the retail loan book?

The retail loan book, yes, sure. In terms of -- I'll just give you the percentage of the total loan book. At September '07 was -- the retail loan book was about INR1.31 trillion, of which home loans was about 15.1%, car loans is about 15%, commercial business is about 13%, two-wheelers is about 2.2%, and then there are other things like professional equipment, dealer funding loan against securities. That will add to about 4.2%.

Okay.

So the total collateralized is about 84.6% and the non-collateralized is about 15.4% in total. Credit cards is about 5.2%.

And you mentioned total is about?

15.4%, the total.

15.4%. Then, regarding the commercial vehicle [target]?

13%.

13%. Okay. Thank you.

Thank you, sir. The next question comes from Mr. Sanjay Jain from Credit Suisse. Mr. Jain, you may ask your question now.

Hi, Rakesh.

Hi, Sanjay.

Hi. I just wanted to quickly understand the mortgage loans which you have sold to Arcil. You seem to have sold 70% of book value, so 30% loss seems to be a bit high. Why did you sell and is this the loss you actually expect on this portion? And what was the profile of borrowers? Why did they default? And what was the reason for such a big loss because I (multiple speakers) in India are not yet coming down, are they?

No. It is not to be looked at as we have sold because of any collection challenges or we had to recover a lower amount. We sold it basically roughly at the -- what was the book cost in our books. For example, if you look at it from an Arcil perspective as well, this is the first time they are entering into this transaction. And as you're aware, that the way these transactions are structured, in case of high recoveries the monies will flow back to ICICI Bank. To that extent, it is -- the valuation is not too critical from that point of view. But these NPLs would have been NPLs which were there for a longer period of time.

Okay.

And if you look at it on an overall base, with an NPL ratio in the region of 1%, the loss ratio being at about 25 basis points, 30 basis points, this is the kind of loss that you would typically see ultimately on a home loan portfolio. I'm saying it's not out of line with the kind of recovery that you will see on the mortgage portfolio, because these are the loans that have defaulted for a long period of time.

But still, if they defaulted, if the original loan was given, let's say, two or three or four years ago, and at that time the price was $100, now the property price should be $200 or $300 and original loan value may have been $80.

Yes. So, as I'm saying, (multiple speakers).

Recovering more than the loan value and why have those guys defaulted then?

Well, because in lending business there will always be defaults. Our mortgage NPLs [are] currently about 1.2%. So, clearly, 1% of customers do default and there are various reasons for defaulting, starting from the fact that maybe for some of the customers it was a second house purchase or it could have been a high level of EMI that they could not sustain or there could have been a job loss because of a large part of our customers are salaried employees. I'm saying there is no specific reason behind, or a common factor, that one can identify across all these customers. And these are pretty much in line with the 1% kind of a gross NPL number that we are looking at in the mortgage portfolio.

Okay. And you think that -- that's fair enough. You cannot identify any factor in terms of either the profile of people or geographical concentration?

Yes.

Okay. And just to clarify, finally, the 30% loss ratio, you are seeing (technical difficulty) normal last Q1 default?

That would -- again, as I said earlier, it may not be the normal last Q1 default, but that is the kind of provisioning level that we do for our mortgage portfolio, wherein we provide over a three-year period. So to look at the last Q1 default number, we will need some more time to actually have that data because the portfolio is not really seasoned in terms of on the recovery side.

Okay. Fair enough. Thank you very much.

Thank you, sir. The next question comes from Miss [Lakshmi Minohur] from Capital Markets, Chennai. Miss Minohur, you may ask your question now.

Hello. I would like to know how much yen exposure do you have in your total borrowing book.

Which exposure?

Yen exposure.

We don't have any. We will not be carrying any material yen position in our balance sheet. For all banks in India there is a restriction on the net open position that the banks can carry. So while you may have seen us borrowing in yen in some of our transactions, those transactions are pretty much swapped into LIBOR-linked floating rate dollar loans.

Okay. And can I have the corresponding numbers for your cost of deposits and yield on assets?

For last year, Q2, the cost of deposits was about 6.1% and the yield was about 8.4%.

Okay. Thank you.

Thank you, ma'am. The next question comes from Miss Tabassum Inamdar from Kotak Securities. Miss Inamdar, you may ask your question now.

Thanks. Rakesh, just one clarification. The yield on earnings that you gave us was 9.4%, right?

Yes.

And in the first quarter this was 10%?

In the first quarter it was about 9.6%.

Okay. So it's come down compared to the first quarter. Is that because of government securities or it is because the rates are falling?

Two things. One is that, to some extent, the international book has increased. To that extent, the yield would have been lower and to that extent the borrowing cost also would have been lower. And secondly, because we did a very large capital raising for a large part of the quarter, those monies would have been deployed in shorter-term investments with a lower yield.

Okay. Just one more thing. Special deposit schemes where you reduced the rate recently, what kind of overall deposits outstanding you would be having in that category? Rather, what was the deposit you were attracting in that category?

I don't have that number offhand, Tabassum, but what I would say is that that rate, while it is there for the special deposit scheme, it basically also becomes a benchmark for the corporate deposits. So it's more that we have basically been able to reduce all the deposits that we are raising to closer to 9%. Again, we will see whether that -- how that sustains on the corporate side. For example, given the current thing on FX inflows stop reducing, or something of that sort. The intention is to basically look at reducing the cost for the entire term deposit maybe.

And within the term deposits, has the wholesale retail component changed?

It would have changed but within a quarter it can't change materially, you see. It would have changed because wholesale would have declined and retail would have increased, but it would not be a material change also in the fourth quarter.

Okay. Thanks.

Thank you, ma'am. The next question comes from Mr. Manish Karwa from Motilal Oswal. Mr. Karwa, you may ask your question now.

Hi, Rakesh. Rakesh, can I have the (inaudible) number again and for auto (inaudible) mortgages?

Yes. On total, this was INR147b in the second quarter. Home loans was about INR54b and auto was about INR22b.

Okay. And do you have the number offhand for CVs and other categories?

CVs was roughly about INR18b.

Okay.

Two-wheelers is about INR8b.

Okay.

And personal loans is about INR23b.

Okay. And secondly, in your current accounts where there any IPO floats or significant IPO floats, because that number has gone up very sharply in a quarter?

Not really. I don't think it has increased sharply between June and September.

It's gone up from INR200b to INR230b.

Yes. But within that, at any point of time, there is IPO float which is there in the current account.

Right.

I think at September there was about, if you -- technically it was about maybe [INR220b] of IPO floats, but a part of that would have been there in June as well, so.

Right. And lastly, on the term deposit front, clearly, as you mentioned, that you have been reducing your wholesale deposits. Is there a quantum which you can specify which has been reduced in this quarter and is there a quantum over the next two quarters which can technically be paid back?

I don't have the numbers. As I mentioned, we have not disclosed those specific repayment numbers. But, as I mentioned, that, again, a large part of these wholesale deposits will come for renewal only in --

The fourth quarter?

In March and April, yes.

Okay, Rakesh. Thanks.

Thank you, sir. The next question comes from Mr. Jatinder Agarwal from ABN AMRO. Mr. Agarwal, you may ask your question now.

Okay. Thank you. I just wanted to know, in terms of the capital that you raised, what was the time when you actually had all the money at your disposal?

Sometime in the -- I think in the July first week or second week.

Okay. And finally, this I believe was some [slippage] still of the retail segment or is that a very large part of that money that will come through? And when do you expect that to come through, sir?

I think we will do -- I think today the Board approved that we will be doing defaults. We'll be issuing that (inaudible). So then that money should then come in the next (inaudible) date and thereafter it will come from -- it will come by the end of this calendar year. And --

And what will be that amount approximately?

We had about INR17m partly paid shares of -- in which is partly -- [INR500] have been paid up on that. So I think we'll still be on INR390 or INR17m in shares.

Perfect. Thank you, sir.

Thank you, sir. The next question comes from Miss [Releta Manieretta] from Edinburgh Life Insurance. Miss Manieretta, you may ask your question now.

Hello. Yes. I had two questions. The first one is that what will your [actual] investments to deposit ratio be September ending and for March '07?

Sorry, I misheard.

What would your ratio be for your [actual] investments as a percentage of your deposits?

I don't have the number offhand but we typically keep it at about 26% or 27%.

Has it -- sort of was it at [10] --?

It's always been at about 26% to 27%.

Okay. Also, this number that you said, branches growth, was about 33%, 34%. This is -- this include would international and domestic rate?

Yes.

What would the break-up be, the growth in international segment and in the domestic segment?

On the international branches the growth was 146%. And against that, on the domestic, the retail, I guess, really was about 22%.

Overall in domestic?

I don't have that ready number, actually. It would be in the region -- which is about 146%. It will be slightly below.

What percentage of -- is international of outstanding (multiple speakers)?

18%.

Sorry?

18%.

18%. Thanks. That's it.

Thank you, ma'am. The next question comes from Mr. Ian Smith from Nevsky Capital. Mr. Smith, you may ask your question now.

Hello. Is there any way that you could give us a sense of the like-for-like net interest margin when you exclude the benefit of the capital increase?

It's very difficult to exactly estimate what was the impact of the capital. But I think, as we have broadly said, that between Q1 and Q2 we would expect our margins to be at a similar level of growth marginally if you exclude the capital. So I think it has gone up by maybe about 5 to 7 basis points if you exclude the impact of capital but that's just an estimate.

Or, alternatively, can you give us a sense of where the capital was deployed on deposit versus paying off wholesale term deposits?

As -- again, it's completely [fungible] once you raise the capital, as I said. In terms of margin, excluding the capital it would have gone up by about 5 to 7 basis points.

Fantastic. Thanks a lot.

Thank you, sir. The next question comes from Mr. [Supramaniam] from UTI Securities. Mr. Supramaniam, you may ask your question now.

Good evening, sir. One question on your international loan book. Do the international loans -- are they [counted as ECB's] (inaudible) international on your book currently?

Sorry?

You have -- your international branches give out loans. These are classified as international loans.

Yes.

Are these in the nature of ECBs from a borrower's perspective?

If it is lent into India.

Okay.

It will be in the nature of ECB. If it is for -- if it is lent outside India for M&A purposes or other purposes, it would be -- if it doesn't come into India, it doesn't become an ECB.

Okay. And where is the (inaudible) issued, and which category of international lending that are you doing currently, is that an ECB kind of lending or --?

Most is going quite strongly. I would say, as I mentioned earlier, in the current quarter because of ECB guidelines there was some impact on the ECB side.

Okay. And one more question. Could you give the amount of amortization that you have decreased from your [informal] investments for the last four quarters if possible?

Yes. I'll just look it up. It was INR2.43b in Q2 2007.

2008 or --?

(Inaudible). In Q -- I'll give you the FY07 numbers and then the FY08 numbers quarter-wise?

Yes.

Q1 of '07, INR2.67b.

Okay.

Q2, INR2.43b.

Okay.

Q3, INR2.24b.

Okay.

Q4, INR2.66b.

INR2.66b. Okay.

Q1, INR2.35b.

Okay.

And Q2, INR2.10b.

INR2.10b. Thanks a lot.

Thank you, sir. The next question comes from Mr. Kashyap Zaveri from Emkay Shares. Mr. Zaveri, you may ask your question now.

Yes. Hi, Rakesh. Just a question about your NIMs. As I can see from the calculations, yield on advances has already started coming down probably. This quarter it was much lower, about either 6 or 10 basis points. And we have reduced our interest rates on the incremental loans, so will the cost of deposits, any incremental decline in the cost of deposits, would be able to compensate for the same? How do you see NIMs going from here, to be precise?

I can't be precise on that. [I can be precise on other] things but I can estimate that.

Okay.

I don't think there's really anything from what we have said earlier in the first quarter that we would expect NIM to adjust, marginally increase, if you take aside the benefit of capital in Q2 and Q3.

Okay.

Then towards the end of Q4, when a large part of the whole -- higher cost wholesale deposits [come for the] pricing.

Okay.

You'll see the benefit on the deposit costs coming through, and we shall actually fully reflect only in Q1 of FY09.

Okay.

In terms of incremental lending rates, as I said, while we have reduced the lending rates for our home loans, we have also reduced the deposit rates on the liability side. Going forward, we would definitely not be touching our lending rates unless we see impact on the deposit.

Okay. Hello?

Yes.

I think that's okay. And another thing, in terms of the investments, the number that you have given for auto, CV and two-wheeler, should we assume that there has been a decline in the investments of those asset classes also on a Y-o-Y basis?

As I mentioned, about 18% decline there.

Okay. Sure. Thank you.

Thank you, sir. The next question comes from Mr. [Pashan Boda] from ICICI Prudential. Mr. Dodar, you may ask your question now.

Hello. Hi. I'm sorry, I was late in the conference so maybe my questions are being repeated. Can I get the breakup of NPLs in between the retail and non-retail, also the collateralized portion and non-collateralized portion?

I'll ask Rupesh to give you a call, because we've discovered that actually.

Okay.

I'll just ask Rupesh to give you a call.

Okay. And was there any writeback of provisions in this quarter?

No.

Because the gross NPLs have also increased. Your net -- sorry, have fallen quarter on quarter while net NPLs have increased.

I think you would had missed that. We said that we have sold a part of our mortgage non-performing loans to Arcil.

Okay.

Because to that extent, you would see that change being there. So that's had an impact of about INR3.6b on our gross mortgage NPLs.

And the realization out of that would have been recorded in which part of the P&L, sir?

No, the gross number was about INR3.6b and the net would have been about INR2.5b.

Okay.

It was sold more or less at the book cost, so there is no P&L impact of the sale.

Okay. And the last question is on yields. Are yields and advances on an uprise trend or are they on a declining trend now? As a whole the book will show an increase in expansion yield and advances going forward or will it show contraction?

The yields will -- because of the higher growth that we see on the international side, yields may not increase at an overall level. It will more be, as I mentioned just now, that on the funding side we would expect repricing to happen for the higher cost deposits towards the end of the financial year. So I don't think from the current level, for example, we would expect the deposit cost and -- to come down. It may not be increasing from the current level.

So margins could expand by the year end, or maybe first quarter next year?

It would be first quarter next year when we would see the full impact of just the liability repricing, to an extent, for example, that will get offset by the higher growth on the international business.

Okay. Thank you very much, sir.

Thank you, sir. The next question comes from Mr. [Mohit Anija] from [Besal] Research. Mr. Anija, you may ask your question now.

Hi, Rakesh. It's Mohit. Just can you briefly give an outlook on your debt? How much will you be making this year and what's the respective rate at which you'll remain in these borrowings?

On the front end, you say?

Yes, on the front end. See, we have witnessed that you have recently borrowed INR2b -- $2b, then another 500m of commercial paper, then another yen loan, then one more loan is -- it's just a (inaudible). As of right now, what is your outlook on the overall borrowings in this year?

Yes. I'll try to give you an estimate. Obviously that will depend on how we see the actual growth happening in the balance sheet. So to that extent it is caveated. So, our international balance sheet, which was about $17b at March 2007, going from about $8b at March 2006. We would -- in general, if you look at the trend view, you would see that we would expect the $17b balance sheet to grow to closer to $30b by March '08. And of this incremental $13b growth that will happen, we have already raised about $6b through a combination of borrowings and syndicated loans that you mentioned.

Okay.

And again, a part of the growth will also come from the retail deposits in the U.K. and Canada, which again, on a run rate basis, would contribute about $2b to $3b towards the funding. And the balance amount will be raised through trade finance sources like bank (inaudible), [USCB] syndicated loans and [debt aftermarkets]. And we have already diversified our funding from only (inaudible) to 144A and Euro [outstanding] markets. And we're also looking actively at other markets to diversify our funding base. But as I said, while I've given these forward-looking numbers, it will depend on the actual growth that we see in our balance sheet, the actual -- the market condition, or changes that we see in terms of raising these funds.

Okay. So you mentioned that you'll be approximately borrowing this year some $4b to $5b more.

Broadly. Based on the current position and the current growth that we are seeing that would be the -- again, it will come from, as I said, from the -- from across the various things that I mentioned, not just the bond market.

Okay. Rakesh, where do you see your NPLs going forward? Right now your (inaudible) ratio is around 1.4%. And what we see is that the provisioning is a bit less. Do we have a lower number of net NPLs listed, a less than 1% number, which then is in overall industry and which was earlier in overall industry now. Where do you see that going forward? Will you be provisioning more on the NPLs?

On the NPLs, we are provisioning as per what our policy is. And we will continue to do as per that policy because we believe that reflects the economic value of the NPLs. If you look at -- on the retail side, we fully provide for a loan over a one-year period, other than mortgage loans, which we provide over a three-year period. So we're quite comfortable with that kind of a provisioning level. And in addition to this specific provisioning, we also do general provisioning in line with the requirement of RBI. If you look at the current quarter, the total provisioning that we have done, about INR780m is a general provisioning that we have done.

[Once again, please].

INR0.78b.

Okay.

And in terms of on the overall NPLs, if you look at the trend that we have seen of additions in the current quarter is what we would expect to see going forward as well. And given the fact that the loan growth has slowed down on the retail segment, to that extent, in terms of ratio, the number would increase going forward, reflecting the loan growth as well as the change in the portfolio mix towards the unsecured loans.

Okay. So you said that going forward you're laying more stress on your unsecured loans portfolios because of a lower credit growth?

Sorry?

Going forward you're laying more stress on your uncollateralized loan portfolio because of a lower credit growth.

Not really. We have been seeing the growth. What has happened is that on the non-collateral side the growth was always at this kind of a pace. But because there has been a slowdown on the secured lending side, to that extent it appears that a proportion of unsecured lending is growing. So it's not that because we are seeing lower growth on the secured lending we're trying to do more of unsecured lending. Unsecured lending was also always growing at a 35%, 40% kind of a pace because of changing interest rates, while a home loan or a car loan has got impacted more. The unsecured loans, where the rates are much higher, on an average about 20%. Plus that has not got impacted as much. So that growth has continued at earlier levels. For example, in terms of market share, I would say that we are still at whatever we were in terms of unsecured lending. So it's not higher stress that we are paying on that segment.

Okay. Now that when you reduce your loan rate on floating rate mortgages and other retail loans, do you see any more reduction in the rates going forward, [let's say that it reduces] October 31?

(Inaudible) obviously I'm sure all banks look at reducing their deposit rates and their lending rates. Our own expectation is that RBI will not be reducing rates in the current policy. But if RBI does that, we would obviously look at what they do in terms of rate reduction. And we would also look at that. But as of now, our own expectation is that RBI will not be negating the rate during the current -- during this policy. Then we would continue with our current lending rates and we'll see how the deposit market pans out in terms of the deposit rates. We have reduced our incremental deposit rates. We will -- we have just done that some time back. So we will see over the next six to eight weeks whatever kind of monies that are coming in at those rates and then decide going forward.

All right. Thanks, Rakesh.

Thank you, sir. At this moment, there are no further questions from participants. I'll now hand over the floor back to Mr. Rakesh Jha for final remarks.

Thanks on my behalf and Rupesh and Pankaj. You could call up Rupesh or Pankaj or myself for any other queries. And again, I would apologize for not -- for you not receiving the presentation on time. Thanks.

Ladies and gentlemen, this concludes the conference call. You may now disconnect your lines. Thank you for connecting to Audio Conference Service from Airtel and have a pleasant evening.