ICICI Bank Ltd (IBN) 2010 Q1 法說會逐字稿

Good evening, ladies and gentlemen. I'm Manjula, the moderator for this conference. Welcome to the ICICI Bank conference call. For the duration of the presentation all participants' lines will be in the listen only mode. I will be standing by for the question and answer session. The Chairperson for today's call is Mr. N.S. Kannan, CFO of ICICI Bank. Now I would like to hand over to Mr. Kannan. Thank you and over to you, sir.

Thank you, Manjula. Hello, everyone. Good evening. I'm sorry we have to do this call Saturday evening at five o'clock. Sorry about that. We have announced our first quarter's results of this financial year. Let me first take you through the results. Then we can answer any questions you have. Here I have my colleagues with me, Rakesh Jha, Anindya, Rupesh and Rajendra to answer the questions along with me.

I will take the opening remarks in three parts. I will talk about the operating environment during the quarter. I will talk about our own strategy and how we have delivered against the strategy. And finally the financial performance for the quarter.

On the operating environment, if you look at the economy, after a year of unprecedented volatility, the Indian economy is showing some signs of improvement. If you look at the government securities market, though, the liquidity has been abundant with 10-year government yields increased over the quarter, on concerns on government borrowing program. As you know the budget which got presented, the net borrowings are far higher than last year's as well as the interim budget that we had earlier.

The government is seeking to address these concerns through frontloading of the program. And we expect that about two-thirds of the program will get completed in the first half of the current financial year. And hopefully this will avoid crowding out in the second half. Also there could be some possibilities of disinvestment which will mitigate the pressure.

On the industrial and corporate sector, the industrial production grew by 2.7% in May 2009. And this has registered growth for the second consecutive month. And as you would have observed the six core industries -- six core sectors grew at 6.5% in June 2009.

The prices of key commodities are stabilizing. The steel price is at $538 per tonne. Aluminum prices currently hovering around $1,600 per tonne. The capacity utilization across the key sectors have shown improvement. So all in all we are seeing some kind of stabilization and possibly a positive sentiment across industry, economy and the liquidity environment.

So let me now move on to the second part of my remarks on our strategy and the delivery against our strategy. I have been meeting several of you over the last couple of months. I have met with several investors. And we have clearly articulated the strategy for the current year as being around four Cs, that is the capital conservation, CASA improvement, cost control and credit monitoring and control.

Let me now talk about how we have delivered against each of these strategies. On the first C which is capital conservation, the capital adequacy of the Bank at June 30, 2009 was 17.4%. And the Tier-1 within that was at 13.1%. We believe our Tier-1 ratio is the highest among the large Indian banks. And we believe this kind of a capital base gives us enough ability to leverage in the areas where we want to grow in the second half of the current financial year.

The second C on CASA improvement, the CASA ratio has improved from 28.7% at March 31, 2009 to 30.4% at June 30, 2009. During this period the total deposits have come down by approximately INR80b. But predominantly because of our not taking wholesale deposits, the wholesale deposits during the period had come down by over INR70b. Net-net we have raised INR34b of savings account deposits over the quarter. So we are operating at a monthly run rate of over INR10b of accretion to savings bank accounts.

The third C we had articulated were on cost control. On operating expenses we continue to have a tight leash on our expenses. And the expenses decreased 20% as compared to the last year same quarter and 7% as compared to the sequential last quarter. The cost per average asset, despite reduction in our total assets, has declined from 1.9% in Q1 of 2009 to 1.6% for the first quarter of the current financial year. So we continue to have a tight control on our costs.

Finally on credit monitoring and control we have seen the loan book declining by 11.6%. This is on account of our sharply reducing the disbursements of unsecured personal loans and credit cards which is part of our articulated strategy. And these are the areas, unsecured retail loan areas, where we have seen credit losses over the course of last year.

On the net NPL ratio we had a NPA ratio of 2.19% at June 30, 2009 compared to 1.96% at March 31, 2009. This increase in net NPA ratio is primarily on account of reduction in customer assets. As you know advances have declined by 9.3% during the quarter.

I will talk about the provisioning later when I talk about the financials. So all in all I just wanted to summarize on our strategy and delivery. We are sticking to the strategy which we have articulated to you all of four Cs. And we are seeing clear delivery against our strategy which we have articulated. And I'll talk about the provisioning specifically later in my presentation.

The third part of my remarks is on financial performance. If I have to just summarize the highlights of our profit and loss account, we have seen a 31% increase in profit before tax to INR12.05b in the first quarter compared to INR9.22b for the first quarter of the last year.

The profit after tax improved by -- increased by 21% to INR8.78b from INR7.28b in the corresponding quarter last year.

The consolidated profit after tax improved by 68% to INR10.35b from INR6.17b in the corresponding quarter of last financial year. The higher increase in consolidated profit after tax compared to our standalone profit after tax is primarily because of the reduction in losses of our life insurance subsidiary to about INR0.3b during this quarter.

Net interest income for Q1 2010 was at INR19.85b compared to INR20.9b for the last quarter of the last financial year. This decrease in NII is primarily because of the decrease in advances by 11.6%. The net interest margins were maintained at the same level as the first quarter of the last financial year at 2.4%.

We had always articulated that the last quarter of financial year we needed to do low margin agricultural loans to meet our priority sector requirement. And the full impact of it in terms of yields comes in the first quarter of our financial year. So that's the reason you have -- that's the predominant reason why you have seen the sequential decline in net interest margin from 2.6% to 2.4%.

This has also been contributed because of higher level of liquidity which we have been maintaining in our balance sheet.

On the fee income, we had INR13.19b of fee income in Q1 of 2010. We have seen a decline of this fee income from around INR19.5b levels in the first quarter of the last financial year. But that is because of general slowdown in the corporate activity through the year last year, and distribution of retail savings and investments products being much lower in volume compared to the previous years. However, on a sequential basis, the fee income has been stable at around INR13b compared to the previous running quarter.

This quarter we have had a robust treasury income. Actually we have realized INR7.14b of treasury income in the P&L account in Q1 2010. The corresponding number for the first quarter of the last financial year was a loss of about INR6b. This again -- the profit this quarter has been primarily on account of government bond capital gains and equity related capital gains.

On the operating expenses, as I mentioned, we've seen a 20% year-on-year decline and 7% sequential quarter-on-quarter decrease in the operating and DMA expenses. The cost/average asset ratio is at 1.6% compared to 1.9% for the first quarter of the last financial year. So despite a reduction in assets, we've been able to bring down the cost to assets ratio.

Finally on the credit expenses, we have the total credit expenses during this quarter of INR13b. Out of that if we look at some restructuring provisions we have made, it's predominantly on account of one large power project. The total restructuring portion was about INR2b. But if you keep that aside the total amount of credit loss in provisions for this quarter was broadly in line with the Q4 2009 level.

So we hope to -- this is one of the Cs we have to continue to deliver through the year. And based on the risk containment measures we have taken in terms of sharp reduction in the unsecured disbursements, credit card, two-wheelers, small ticket personal loans or other personal loans and tightening of our collection process on the trends, we are targeting a reduction in retail provision in the second half of the current financial year.

On the balance sheet, on CASA ratio, as I mentioned it was at 30.4% at June 30, 2009 compared to 28.7% which was there in March 2009. And an increase of INR34b in savings deposits during the quarter.

Advances declined by 9% in Q1 2010 due to repayments from retail loans and short term agri loan retail portfolio. And net NPL ratio finally was at 2.19% at June 30, 2009 compared to 1.96% at March 31, 2009, which is primarily because of the reduction in customer assets and advances declining by 9.3% during the quarter.

So with these opening remarks, our team and I are ready to take any questions you may have on our financial results. Thank you.

Thank you very much sir. (Operator Instructions). Kindly note I request all the participants to ask two questions at the initial round and then come back for the follow up question.

First in line we have Mr. Dipankar Choudhury from Deutsche Bank. Please go ahead with the question.

Yes, hi. Can you hear me?

Yes, yes, very well.

Kannan, is it the right way to read that you said that the total restructured assets provision was INR2b during the quarter or only the one-off unusual item?

I mentioned that of the total provisions of INR13b for the quarter, INR2b is on account of restructured provisions. Out of that predominantly it is on account of one large power project of [Centrix] I talked about.

Okay, understood. And if you could just go to your slide number 18 of the presentation and help us understand the movement a little bit, because your gross has come down significantly. Provisions also have come down. Net is also flattish. So could you just give a figure for how much was the formation during the quarter and just explain this a little bit?

Yes. Dipankar, in terms of the NPL movement during the quarter, we have given the outstanding numbers at the beginning of the quarter and the end of the quarter. The two things you would have to adjust for, one is that, as you know, on the retail portfolio we have started making write-offs from the last three quarters now. And for the current quarter the write-off of retail NPLs would have been about INR11b. That could result in a decline in the gross NPA number as you look at it.

Okay.

(Inaudible) we would have sold NPLs of about INR4.5b to ARCIL.

So this means that the formation was about INR12b or?

Sorry?

So the formation during the quarter, new NPLs during the quarter was around what?

You'll have to adjust for these two numbers and then -- basically there will be movement also in the NPLs that we sell to ARCIL, because as the book is with ARCIL there are upgrades and downgrades in that portfolio as well. So it will not give -- if you look at only this, it will not give an appropriate picture in that sense.

Okay. So are you willing to disclose the figure for the formation during the quarter, which was about INR12b last quarter?

That would be -- as I said, if you look at the numbers it would be slightly higher than the last quarter. So once you adjust for the write-off and the sale, that will be the gross addition for the quarter.

Okay. Right. Thanks.

Thank you very much sir. Next in line we have Sunil Garg from JP Morgan. Please go ahead.

Kannan, hi. This is Sunil Garg from JP Morgan. I have two questions. One if you mentioned you upgraded some restructured loans. If you could give us some color on the INR32b upgradation.

And the second question is, going forward are you still going to pursue your strategy of balance sheet contraction. Or are you going to change that in light of the changed economic environment?

Yes. Let me talk first about the strategy of balance sheet contraction. We don't have a specific strategy of balance sheet contraction. But as we have articulated, we will conserve capital and will make sure that we don't be present in the unsecured retail segment where we have seen the NPLs developing over the past year, or past year and more.

So that part of the portfolio we would not like to be there. Our strategy in terms of a loan growth will, going forward, be focused on home loans. But a bulk of that home loan you will see as booking in the ICICI HFC. Apart from the home loan segment, we think that in project finance and corporate finance there are opportunities. But the bulk of it probably will materialize during the second half of the current financial year.

So I don't want to put a target for asset growth specifically because it's a derived number. But even to keep a flat to a 5% kind of growth for the whole year, we have enough and more opportunity to disburse to the desirable segments of project finance, corporate finance and home loan and continue to maintain our -- maintain and increase our market share in these segments.

On the restructured assets, the additions to opening net restructured loans was about INR14.5b. We started this quarter with an opening balance of about INR59b of restructured assets. And we saw an upgrade from the opening balance of about INR32b of restructured loans, which have been upgraded primarily because of satisfactory payment performance of these loans. So we ended the quarter with net restructured loans of INR41.5b on June 30. As we speak, we will continue to restructure further assets during the second quarter of this financial year also.

I mean, just to clarify, when you said satisfactory performance, can you give us some color on how long the satisfactory performance was?

Just on the home loan strategy, what's your take on the pressure on pricing? Sorry, just two quick follow ups.

On the restructuring, the satisfactory performance is for a minimum period of one year as per the regulatory guidelines as well. So that is when we upgrade the assets.

And on home loan pricing, we were the first in fact to reduce the home loan rates. And we are quite competitive in the market compared to the leading home loan lenders in the country. And we would pretty much -- our disbursements month-on-month, when we are tracking, they have increased. And we would pretty much like to play in that market based on our current strategy on pricing.

Mr. Garg, are you done with the question, sir?

Yes, I'm done. Thank you.

Thank you very much. Next in line we have Ms. Mahrukh from Nomura. Please go ahead with the question.

Yes, hi. Just have a couple of questions. Firstly, when do you see the home loan demand picking up? And how much was booked in the home finance company this quarter?

Also if you could give the sell down to ARCIL this quarter? Probably I missed the number.

And the other thing I wanted to check is that your life insurance losses are coming down, which is positive. So any specific reason there?

And what would be your weighted average fund management cost -- fund management charges on a weighted average basis for your ULIP?

Yes. Mahrukh, on the home loan basis we would have booked about close to INR800 crores in the -- close to INR600 crores in aggregate in the current quarter. And in terms of the trend that we are seeing currently, we think that by the second half of the year we should see a strong growth in the housing loan market. And if you look at our lending rates over the last one month, we have brought our lending rate in line with the market. And we would expect that the second half of the year to see a much more stronger growth on the housing business.

For the Bank, it will continue to be only the home loans that are eligible for priority sector lending that we would be focusing on. The rest of the loans will continue to be booked in the housing finance company.

The actual disbursement number for the quarter was -- for our retail company was about INR850 crores. And for -- yes, about INR8.5b.

On the ARCIL sale, we sold about INR4.5b of NPL to ARCIL during the current quarter.

On the Life, the losses that you have seen over the last few quarters has been coming down partly of course because of the much slower growth in the new business premium that we have been seeing. So the loss in the current quarter was only about INR0.3b or so. The pre-tax loss was about close to INR1b. We got a benefit of deferred tax during the current quarter. That's why the after-tax loss was much lower.

And, as we have said, we would expect over the next two years for the company to breakeven and start making profits, unless there is substantial change in the growth trajectory itself.

In the growth trajectory. So financial year 2011 profit is what we are continuing to target. We think that there should not be any problem. As Rakesh mentioned, if the growth surprises us, of course it might get pushed out. But we are pretty confident of getting to a breakeven situation by financial year 2011.

You asked a question on the fund management charges. Our equity fund -- the equity products we get a fund management charge of around 2.25%. And predominantly, the incremental sales are predominantly into equity. So that will give you a sense of our annual fund management charges.

Okay. Thanks so much. And just one more thing, that in terms of margins of course there was -- there were these low-yielding farm loans. And the good thing was that savings -- savings deposits did improve. But when would you see your margins really pick up, I mean given that there is so much of liquidity on the balance sheet?

In the second half of the year we see a much more significant repricing of the wholesale deposits, because most of the deposits that we raised last September, October, November at rates of 11% to 12%, they were typically one year maturity deposits. So that will start maturing from September, October, November of the current financial year. So in the December and March quarter one would expect to see the benefit of that decline on the margin.

And gross savings deposit accretion of INR10b that you talked about, what was it at its lowest, or what was it last quarter?

Sorry?

The INR10b savings deposit accretion that was mentioned, what was it say in February/March?

Jan to March was roughly at a similar level. It's in the December quarter that we had seen a decline. So year on year --

So February onwards we have been seeing a good trend.

Okay, okay. Thanks so much. Thanks.

Thank you very much, ma'am. I request the participants to ask two questions at the initial round and then come back for the follow up question.

Next in line we have Mr. Ashish from ENAM AMC. Please go ahead.

Yes. Good evening, sir. Just a clarification on, first, the advances growth number. There was some confusion as to one media report said that you would like to grow our asset book by less than 20%. So can you just clarify, because I had earlier read that INR30,000 crores of repayments are supposed to come? So [if they're going to grow] more than 5% to 10% I think we have to increase our balance sheet by INR60,000 crores. So just can you clarify on that, sir?

What was mentioned actually was that in the areas that we would want to grow, that is the corporate lending and home loans, that is the kind of growth that one would see in the second half of the year. So on an overall balance sheet basis, as Kannan mentioned, it will more be up to 5% kind of a growth that we would see. Of course, it will depend on how the credit environment is in the second half of the year. That 20% number was only for the second half and only for part of the portfolio.

Okay, sir. And second clarification would be on the restructuring loan book. Had we done any restructuring on the international loan book in the standalone bank, sir, offshore loan book in the standalone bank?

The number that Kannan disclosed of INR14.5b of restructuring, that includes from our overseas branches as well. It's not a very significant number of the total number.

Okay. And lastly in your annual report '09 there was a MTM loss on loans sold to ARCIL. Do we expect that trend to continue in FY'10, sir? Can you just explain on that, sir?

That is based on the NAV of these securities that we hold in terms of our investments in ARCIL. So that will continue to be a quarterly phenomenon in terms of what the actual NAV comes out. It depends on what the collection and recoveries by ARCIL is on these set of NPLs.

Do we have booked any -- have we booked any provision on the same in Q1, sir, this year, this quarter?

Yes, there would be some provision, which is there as a part of this quarter's P&L as well.

Okay, sir. Thanks a lot.

Thank you very much, sir. Next in line we have Mr. Rajiv Verma from DSP Merrill Lynch. Please go ahead with the question.

Hi. I just wanted to ask you on -- can you just give me an idea what is the equity gain that you have on the book this time. And separately, sir, I understand on the fee side are we seeing any -- how are the trend lines now? I know growth has been quite muted. But are you seeing any signs of pick up at all on the fee side?

And sorry, sir, just one other thing, how does the new insurance capping affect your operations going forward given your -- fee charges are 2.25%?

On the treasury income, Rajiv, we don't really give a product-wise breakup on a quarterly basis.

Okay.

Treasury income for the quarter does include some write-back on our credit derivative portfolio which is there, given the compression spreads that we have seen. It includes some bit of equity gains and some bit of equity mark-to-market reversal in terms of whatever our portfolio was as of March 31, and the negative mark-to-market we would have taken a hit in the P&L. There is some write-back there. And the balance will be on the fixed income securities, that is mainly SLR.

On the fee income, currently the trend that we are seeing is pretty similar to what we have seen in the last, now, about six or nine months. So the corporate activity, we believe, would start picking up. But by the time it actually translates into business for us, either in terms of disbursements or other opportunities to book fee income, it would more be towards the third quarter and the fourth quarter. So we expect that the fee income run rate should pick up in the second half of the year is --

Sure. And sorry, just one other thing on that. On the new IRDA rules, how does that affect you?

We believe that any kind of measure which looks at capping the reduction to the gross yield on IRR basis to the customer is beneficial in the long run, both for the customer as well as for the industry. I understand that there is a Life Council meeting which is going to happen where the industry is going to discuss. So we'll have to just wait and see the output of the discussions to seek some clarifications on the circular and so on.

So we think that possibly it will lead to some kind of structuring of the products in the short term and refiling if it is required. But long term, both for the industry as well as the customer, we think it's a very important move. We look at it as positive. And any case you would have looked at our commissions and charges, we would probably be one of the lowest in the market.

Right. Okay. Thanks a lot.

Thank you very much, sir. Next in line we have Ajinkya Dhavale from Motilal Oswal. Please go ahead with the question. Mr. Ajinkya lines are open. Please go ahead with your question sir.

As there is no response, we will move on to the next question. Next in line we have Madhuchanda Dey from Kotak Securities. Please go ahead.

Yes. I have just couple of questions. First is if you could tell me what kind of restructuring proposal you have.

And if you could give some sectoral color on the INR32b upgrades. Hello? Hello?

Yes, yes. We can hear you.

Yes.

So on the -- restructuring, as again Kannan mentioned, that we would expect over the next two or three quarters some more amount of restructuring to happen in the corporate book, both domestically and in the overseas book as well. It's very difficult to give a number on that. And as such there is -- because a lot of these are arrangements where multiple banks are there. So it will take some time in terms of the restructuring proposal to be finalized and approved by each of the banks. But there will definitely be addition to the restructured loans over the next two, three quarters.

I understand the point. Just to put it in perspective, last time you had mentioned that there was about INR20b of proposals pending. So out of this was it that INR14.5b got restructured and the remaining is still pending and it will get carried over? If you could just clarify that for me please.

Yes, so that will also be there. So most of the INR14b which got restructured during the current quarter was in the -- pending [in] application as of March 31. Of course, of that INR20b in some of the cases, there would not eventually be any restructuring because the proposal would not have -- the application would not have been accepted by the bank. So that's how it will be on --

And there are further applications also after that date.

Yes.

Okay. And any sectoral color on that INR32b upgrade, any particular sector which came up? Hello?

It's quite difficult to give a sectoral up -- this thing because these are typically corporate exposures which are relatively large. So it's much more company specific kind of things there in terms of --

Okay. And in terms of -- it's a very broad question. In terms of the balance sheet guidance that you're giving of 5%, which is much lower than the broad industry average, what would make you start lending again? Is it the incremental slippage being contained at a particular number or CASA hitting a particular level?

No, see we have clearly been focused on this 4C strategy which I articulated right up front. So to that extent we will not look at any specific ratio and trying to manage the denominator to get the ratio down. So that is not going to be part of our strategy.

We are going to be focused on some segments like project finance, corporate finance and the home loans where we think the asset quality will be good and there will be an opportunity. And we do have necessary structuring and syndication -- and project appraisal capabilities in areas such as project finance. That we are going to be pursuing a growth.

But for any meaningful significant disbursement to be happen I guess we'll have to wait for the second half of the current financial year. So that's why I am not able to give an amount.

But as I mentioned earlier, given that the advances have declined in the first quarter, even for maintaining a flat or a 5% growth through this whole financial year, we get enough lever to pursue the growth opportunity in these desirable segments. So clearly the strategy is going to be not to be aggressive or not even be present if possible on areas such as credit cards, two wheelers, the short -- small ticket personal loans and other personal loans to the extent possible. So that is going to be the strategy which we'll be driving.

So then whatever asset growth we will put at the end of the year is really an output of these strategies and not -- we are not working towards a number. But again, just to summarize 0% to 5% growth for the whole year in terms of assets. That gives us enough and more amount available to be present in the desirable segments of lending.

And just last one question if you permit me to. This slippage in the quarter appears to be slightly higher than what you did last quarter also. So do you see this kind of peaking out or you're anticipating some more slippage in the coming two quarters also?

No, you are right, slippages have increased. But again if I look at -- if I analyze the portfolio it is largely again on account of the retail unsecured portfolio where our strategy is to sort of ring-fence the existing portfolio in terms of problem sizing and not increase our exposures incrementally to that portfolio. That strategy is firmly in place.

And you will -- a couple of portfolios will peak this quarter. Maybe one or two portfolios within that will continue. And if you look -- if you take out those items which I talked about of INR200 crores, that is INR2b on account of restructuring, it is broadly -- the credit losses was broadly at the same level as the last quarter. So it's like one or two things peaking and maybe one or two portfolios within that retail unsecured portfolio are continuing into the next quarter.

So as Rakesh mentioned we are very hopeful that by H2, our incremental provisions on a quarter basis, we should be able to bring down in absolute terms.

Okay, thanks a lot.

Thank you very much, ma'am. Next in line we have Mr. Amit from UTI Mutual Fund. Please go ahead.

Yes, just a question. What is the total mark-to-market write-back on overseas subsidiaries as well as the overseas branches on account of credit derivatives?

On the credit derivatives we don't really disclose the mark-to-market numbers on a quarterly basis. There was some amount of write-back which was there. In the UK investment book we have disclosed in the presentation that there was a write-back of about $68m pre-tax.

Okay, thank you.

Thank you very much, sir. Next we have Mr. Kashyap Zaveri from MK Global. Please go ahead.

Yes, hi. Hi Rakesh. Congratulations on a good set of numbers. Hello?

Yes.

Am I audible?

Yes, of course.

I just wanted to know equity investment in subsidiaries in this quarter has remained flat across all the subsidiaries. So any guidance or probably anything on the trend going forward?

Yes -- this is Kannan here. Overall I do not see any reason to infuse further capital in any of the subsidiaries other than ICICI Prudential Life Insurance during this financial year.

Okay.

And even ICICI Prudential Life Insurance, you will have probably about INR3b of capital they will (technical difficulty) shareholders?

Could you come again on that INR3b please?

INR3b, that is INR300 crores of capital requirement is what we expect.

For the full year?

Financial year. Out of that ICICI's share as you know would be 74%. So that is kind of the investment I see there.

On the -- of course I articulated earlier that bulk of our home loan incremental booking will happen in HFC, that's ICICI Home Finance. But that is again -- it really depends on the growth opportunities there. But again you get a benefit in terms of the preemption being lesser there. So that is a part of -- I would say that's part of our inherent retail lending strategy, so -- though the amount gets booked there.

Sure.

On UK let us wait and see whether any -- incrementally if there is any mark-to-market or anything is there that I am not able to make a comment today because we'll have to wait and see how the market develops.

Apart from this I do not see any need for putting capital. But just to round up this, given that our capital adequacy ratio is at 17.4% total and Tier 1 of 13.4%, so we are much -- more than adequately capitalized to take care of any of the subsidiary requirements as well.

Right. And whatever is mentioned in terms of FY '09 presentation also in terms of equity investment and subsidiaries, this is gross of any dividends probably which we would have received from any of them. It's not after netting out whatever dividends probably which we would have gotten?

It's our investment in share capital of those subsidiaries.

Okay, okay. Now sir, earlier a question was asked on this ULIP thing, would the mortality charges be also included in this 3% yield?

I think that is one of the clarifications which they will be seeking at the Life Council meeting. It is not specifically mentioned for exclusion. So I think that is what is going to be talked on Wednesday. That's why I sort of made a comment that let us wait for the final way in which the guidelines will -- clarifications will be made to decide our strategy on product structuring.

But at least as of now we are sure about portfolio allocation charges or premium allocation charges or management charges. At least that we are sure of are included.

Yes.

Okay. And just lastly, I can see a change in provisions of about INR2.8b, that is from INR53b to about INR50b. Now this would purely be provisions converted into write-offs? Or there is any write-back of provision also included here?

No, this would be -- this would include all the impact of the provisioning made during the quarter, the write-offs that we talked about and the sale of NP to ARCIL as well.

But any write-offs -- if converted into write-offs this is included in that earlier INR11b number which you mentioned for retail.

That is the write-off number.

Okay.

The movement in the provision account is a combination of the write-off number, the incremental provision charge on sale of loans to ARCIL as well any (technical difficulty).

I just wanted to understand that INR11b which you spoke about which I believe is the write-off in the retail book, is that correct?

Yes.

This would also include any provisions also converted into write-off.

(Multiple Speakers).

Actually it will be provided for, yes. That is right.

Right, right. And just lastly a bookkeeping question. If you could give me break up of loans in terms of rural, SME, international for the same quarter last year.

Yes, one second.

Maybe a percentage will also do.

Do you have it?

For the June 2008 quarter, the retail was 55%, the corporate portfolio was about 10%, our agri book was about 6% and the overseas book was about 24%.

And residual will be about SME.

Yes, SME was about 3.5%.

3.5% odd. Just last one question. Have you taken any hit on the balance sheet on account of any [MT] or something? I can see a difference of about INR220 crores, if I were to add this quarter's profit to Q4's reserves.

That would be -- that impact is on a quarterly basis, whatever is the foreign exchange translation reserve.

Okay, okay. Okay, sure, that's it from my side.

Thank you.

Thank you very much, sir. Next in line we have Mr. Krishnan from Ambit Capital. Please go ahead with the question.

Yes, hi. I just wanted to get a sense on what you've mentioned in slide number five. Slide number five you've mentioned that the NIMs are a bit lower on a sequential basis because of the full impact of low margin agricultural loans. Whereas your press release seems to suggest that agricultural loans have been -- have dipped off, have been shed during the quarter. So I just wanted to understand what exactly is happening there.

Yes, it is -- the disbursements are assets which were built in the last quarter of the last financial year to meet with our priority sector requirement. And typically these assets get built in the last fortnight of a financial year. The full impact on the yield comes in the subsequent quarter.

So last year there was only a few days left to -- on the yield for these assets whereas the full impact comes in the first quarter of the subsequent financial year. Typically these assets run down during the year. It keeps running down. It's about six month kind of maturity assets. And again we build it back at the end of the financial year.

So that's why you will see the biggest impact in terms of yield reduction comes in the first quarter of the financial year.

Okay fine. That's was one question. The second is about your operating expenses. It's been trending down over a period of time. But how long do you think the cost control measures will help in terms of perking up the profitability?

Krishnan, see here as we have articulated what we are trying to pursue for this year is that to keep the absolute level of operating expenses at the same level as the last financial year. And at the same time, establish 580 additional branches through this financial year. The 580 is the licenses we have for establishing new branches. So you will see us have about 2,000 branches at the end of the financial year. That is the kind of aspiration we have on costs.

The reduction will continue in terms of manpower. We will continue to have control on -- outsourced employees we will continue to have the control on. And then the physical infrastructure is one area where we feel we can rationalize continuing into the next couple of quarters. And finally on collection expenses, with our incrementally choking the credit to retail unsecured portfolio, which is prone to a large collection machinery for collection, we think that we'll be able to bring down those collection expenses.

So these are the four areas where we are continuing to work on. And we are quite confident that we'll be able to hold the operating expenses at the same level as the last financial year and still implement these 580 additional branches.

Okay, fair enough. Just one last --

Yes, Krishnan.

-- query. After a long time, after a long, long time, you -- the credit deposit ratio of the bank has actually cooled off a fair bit. From almost over 100% it has now come off to 94% or thereabouts. Where is this likely to settle down? At a more -- say for instance the system is running at roughly around 70% of a credit deposit ratio. I just want to understand where is it that you would want it or want to see it settle down.

The credit deposit ratio for us has been high because if you look at our overseas business, that has largely been funded out of --

Borrowings.

Borrowings. That is the reason why on an overall balance sheet basis the ratio appears much higher than for the other banks. On the domestic balance sheet the credit deposit ratio for us is at about 73%. And I think it will broadly continue to be at that kind of a level.

Okay, sure. And thanks a lot.

Yes.

Thank you.

Thank you very much, sir. Next in line we have Mr. Ramnath from Kotak Securities.

I think all my questions are answered. Thanks.

Thanks, Ramnath.

Thank you very much, sir. Next we have Mr. Saikiran from Centrum Broking.

A couple of questions. What is the reason for the sharp reduction on quarter-on-quarter basis in off balance sheet exposure?

And the second thing is regarding the UK subsidiary. What is contributing to 14% asset growth in UK subsidiary?

And also a housekeeping question. What is the corresponding quarter UK subsidiary PAT numbers?

The decline in the off balance sheet risk weighted assets is essentially on the treasury side. That is on the foreign exchange and swaps that we have with customers. And there's a decline that we have seen in the current quarter. Your second question was?

Regarding the 14% asset growth in UK subsidiary. And I also see a sharp increase even in the loan growth that is around 17% on quarter-on-quarter basis sequential.

Yes, on the sequential basis, because of the currency movement, that will account for about half of the increase which is there. So the actual increase is roughly about half because the balance sheet is reported in US dollars, although the -- some of the assets and liabilities are in euros and in sterling. So half of the increase is essentially coming from just the currency change.

And the last, the housekeeping question. What is the corresponding Q1 UK PAT number, the subsidiaries' PAT?

It was about $12m -- $11.9m.

$11.9m. And also one more last question. In terms of the liability franchise, what is your view on the current accounts because I primarily see the savings account forms a major portion of our CASA and that's seen a healthy growth? But if I look at the current accounts it's -- on a sequential basis, for the past two it's more or less in the same level. What's your view on there?

I think for the system itself, if you look at the results of some of the other banks which have come out also, from March to June normally there is a decline for the system in current accounts because of the typical year-end activity of corporates and small and medium enterprises. So we are pretty much in line with the banking system.

I think with the banking system itself it sort of grows during the year and with our focus on transaction banking, both in corporate as well as SME sector, we think that we are quite on target to take this whole CASA ratio up to closer to 33% level by the end of this financial year.

Thanks a lot. That's it from my side, thank you.

Thank you.

Thank you very much, sir. Next in line we have Mr. Abhijit Majumder from Prabhudas Lilladher. Please go ahead.

Yes, hello. Hi, everybody. I just wanted to understand your interest on investments quarter-on-quarter has declined by INR300 crores odd but the investment book roughly has increased. If I am missing something or -- would you explain this, how this is?

The yield on the investments would have gone down because of the decline in the SLR yields in the current quarter. That is the main reason which is there.

That is the main reason. Nothing else to read into it?

No.

Yes, thanks. I'm through.

Thank you very much, sir. Next in line we have Mr. Jatinder Agarwal from RBS.

Good evening. Just one small question. In terms of consolidated loans can we have the amount and the year-on-year growth?

Hello?

Hello.

Yes.

Can we just have the consolidated loan book and the year-on-year growth for this quarter?

The consolidated loan book was about INR2.4 trillion. And last year it was about INR2.5 trillion.

Perfect. And on your total cumulative return of book on your retail, whether it includes small ticket and credit cards whatsoever. Can we have that amount of --?

Those -- that is written off from the books so we don't even track it. For the current quarter I gave you the number, that's INR11b.

Perfect, thank you.

Thank you.

Thank you very much, sir. Next in line we have Mr. Hiren Dasani from Goldman Sachs. Please go ahead.

Hi. Just two things. One is on the non-interest income side there is a line called other income, yields and other income. That number was ranging in the range of INR120 crores plus and suddenly it has dropped to INR57 crores this quarter. So any explanation for that?

It's the dividend distribution from subsidiaries or the income that we get from subsidiaries and including from the venture funds that we would have invested in. That number would be lower for the current quarter. That would be one of the key reasons.

Is there any timing of dividend between Q1 and Q2 or something like that or -- which would have been accounted last year in Q1 and this year maybe in Q2?

Not really.

No, but having said that one has to monitor the Q2 profits of the subsidiaries on their subsequent dividends. But we'll have to wait for the markets to stabilize. You can get a sense of their PAT from the consolidated disclosures. So we'll have to sort of wait and see how the market conditions develop for further dividend from the subsidiaries.

Okay. Secondly on the ULIP, earlier questions have also been asked. But let's say as of today, based on whatever is your understanding of the revised guidelines, do you think it can put material pressure on the NBP margins.

We'll have to really analyze that and come back to you.

Okay, so --

I'm waiting for those clarifications. And we think that as I mentioned earlier, it is good for the customer as well as the Company in the long run. And we being one of the players with the lower customer charges as well as the lower commissions to the agents on a per -- parity basis, we think our competitive advantage will continue.

Okay. And you mentioned about the housing loans. Is the -- loan rates are now comparable for the new as well as existing customers? Or existing customers are still paying higher amounts? In line with the market I mean.

Existing customers, it will depend on at which point of time the customer would have taken the loan across various banks.

Yes. No, what I meant was like some of the other lenders have reduced for existing customers the loan yields by about 200 to 250 basis points from the peak. So would the reduction be similar or maybe that would still prompt your existing borrowers to switch to others?

We have done about 150 basis points in the last few months, including 100 basis points in the June quarter itself.

Okay. Lastly on the international side, are we still looking at retail deposit led growth only or the wholesale markets have opened up enough for us to grow?

On the wholesale market our credit spreads have come down and the bond yields have come down. But we would still want to raise money in the wholesale bond market only at much lower rates than what currently is prevailing.

In terms of liquidity and access to that is clearly there now. So it's more an issue of at what pricing would we be comfortable in terms of raising money. At the current level at which our bonds would trade, we would not be comfortable in terms of raising money currently. So we are not looking at any kind of an issuance currently.

Okay, thanks. That's it.

Thank you very much, sir. Next we'll be taking the last three to four questions which is on queue. Next in line we have Ms Tabassum from UBS. Please go ahead with the question.

Yes, hi. I just have one question. In UK and Canada have you restructured any loans?

In UK and Canada we would have restructured some of the loans. But as I said, that number currently is not a large number. But going forward we would have more restructuring in that book just like in the domestic, corporate and in the overseas branches as well.

Okay, thank you.

Thank you very much, ma'am. Next in line we have Mr. Vishal Goyal from Edelweiss. Please go ahead.

Thanks. All my questions have been answered.

Thanks, Vishal.

Thank you very much, sir. Next in line we have Mr. Aditya Narain from Citigroup. Please go ahead with the questions.

Yes, hi. I just had a couple of quick ones. Firstly in terms of the offshore book, that has been growing well. The domestic balance sheet has been contracting. Any sense if that kind of a trend will continue and what is the kind of growth you're looking there?

Secondly, in terms of the APE on the ICICI Life, that's actually halved in the first quarter. So any direction you could give us in terms of how much of this is market influenced, how much of this is strategy and really how much we're looking at it growing going forward.

And the third thing is the standard provision number that you've given for the first quarter, what was that number on the balance sheet as of March 31, '09?

On the last one, the general provision number was the same number as March 31, 09, because RBI reduced the general provision requirement last year but they had not allowed banks to write back their existing general provision. So our general provision number has been the same in the last two quarters.

On the first one, in the overseas book the growth that we are seeing has been in the UK balance sheet. Maybe about $500m of growth is what we have seen in the UK balance sheet. The rest of the impact -- the rest of the growth would essentially be an impact of the currency movement.

If you look at our overseas branches or at the Canadian subsidiary, the book has pretty much been flat or been declining a bit adjusting for the currency. So it's not that we are looking at any significant growth in our overseas business currently.

In UK we are able to raise longer term retail term deposits. We have recently started focusing more on your two year, three year deposits in UK. So to the extent that we are able to raise those deposits, we would look at opportunities in terms of taking India linked exposures in the UK book which will be the kind of growth that we saw in the current quarter. Otherwise we are not really looking at any significant growth in the overseas business.

On ICICI Life Insurance side, the reduction of absolute new business profits is primarily on account of the reduction in new business premiums and the margins have been stable at around 19%. We do not see any significant reduction to margins on a business as usual basis.

On the growth yes, you're right that we have had a decline. But month on month our market share has been going up and we expect the whole industry to grow at around 10% growth for the year. And our earlier estimate of -- for the whole year growing at the same level as industry, around that level, that continues.

So the initial -- the start has been slow for the year but again the first quarter is normally the lean quarter for the life insurance industry so we hope to be able to catch up during the year. But we expect the overall industry to grow only at 10% during this year.

Just one more question if I might add. There is this $48m write-back on the UK subsidiary which goes to the reserves. Is there anything in the P&L, I think you have mentioned $68m but I'm not -- for pre-tax. Are they separate or is there a $68m pre-tax write-back in the P&L?

No, that is only the stockholders --

Right. Is there anything -- there's nothing in the P&L.

There's nothing really in the P&L. It's the same $48m.

It's the same $48m we are talking about.

For the balance sheet, yes.

It's pre-tax and post tax which is --

Okay, that's fair. I just wanted to reconfirm on that. Thanks.

Thanks, Aditya.

Thank you very much, sir. The last question comes from Mr. P.S. Subramaniam from SBI Capital. Please go ahead.

Good evening. My question is on the loans which are being sold off to ARCIL. Could you say what kind of risk you still hold on these loans that you sell off to ARCIL and what would be the cumulative amount that you have sold off until today?

Currently most of the purchase that ARCIL has been doing has not been on a cash basis. So essentially when banks sell NPLs to ARCIL, they also correspondingly do invest in the security receipts issued by the trust. And that is used to fund the purchase by ARCIL.

And on a quarterly basis we do disclose our aggregate investment in security receipts of asset reconstruction companies. For June 30 that number was INR35.7b.

And how much is the cumulative write offs that you've taken on this?

This is the number which is there on the books. So what we would have sold to the asset reconstruction company would have been the higher number. This is what is there on the books.

Okay. But your risk is limited to the INR35.7b amount that you hold.

Yes.

That's correct.

Okay, thank you.

Thank you very much, sir. At this moment I would like to hand over the floor back to Mr. Kannan for final remarks. Please go ahead sir.

Thank you. Once again sorry we had to pull you out on a Saturday for this call. And my team is there and I am available for any further questions you have offline. And thank you very much once again.

Thank you very much, sir. Ladies and gentlemen, thank you for choosing Webex's conferencing service. That concludes this conference call. Thank you for your participation. You may now disconnect your lines. Thank you and have a great evening.