ICICI Bank Ltd (IBN) 2010 Q4 法說會逐字稿

Ladies and gentlemen, good day and welcome to the Q4 FY '11 results conference call of ICICI Bank Ltd.

As a reminder, for the duration of this conference, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions at the end of today's presentation. (Operator Instructions)

Please note that this conference is being recorded. I would now like to hand the conference over to Mr. N. S. Kannan, Executive Director and CFO, ICICI Bank. Thank you, and over to you, sir.

Thank you. Good evening, and welcome to the conference call on financial results of ICICI Bank for the quarter ended March 31, 2011, that is Q4 of 2011 financial year.

I have with me Rakesh Jha, Anindya, and (inaudible) from the finance and investor handling teams.

Now I'd like to make my opening remarks in four parts actually, as usual. Part one is on the macroeconomic and monetary environment; part two is on the performance during the quarter, including performance on our articulated 4C strategy; part three on consolidated results of the Bank, and part four on outlook for the next year.

I'll now start with part one, on the macroeconomic and monetary environment. Growth momentum in the Indian economy has been sustained so far. India's GDP grew by 8.6% during the first nine months of the fiscal 2011, compared to 7.4% in the corresponding period the previous year.

However, compared to the first two quarters, when the GDP grew by 8.9% each, growth was somewhat muted in the third quarter, at 8.2%, due to a slowdown in the industrial growth.

In the third quarter, industry grew by 5.7%, as compared to over 10% in the first half of fiscal 2011. This moderation largely was reflecting a high base effect. Agricultural and services sectors, however, continued to remain strong, and are expected to drive growth in the fourth quarter as well.

The central statistical organization has estimated the GDP growth at 8.6% for the fiscal 2011. Other indicators suggesting sustained growth momentum include, strengthened purchasers managers index, or PMI, pickup in merchandise exports, strong credit growth, and tax collections.

Inflation remains the key concern for the economy, though, especially since December 2010, when the food prices increased steeply. Food prices have now started abating, but have been replaced by rising fuel as less non-food manufactured products inflation.

Core inflation, that is manufactured products, excluding food, increased to 7.2% in March 2011. With the domestic fuel prices yet to fully adjust to international oil prices increase, and also pressures arising in non-food manufactured products, we believe [industry inflation] are clearly on the upside.

Headline inflation, as measured by the wholesale price index, or WPI, was at 9% in March 2011. Accordingly, we have seen consistent monetary tightening through the year, aimed at controlling inflationary pressures and managing inflation expectations.

During Q4 of 2011 fiscal, RB increased their repo rate by 50 basis points, from 6.25% to 6.75%, with a similar increase on the reverse repo from 5.25% to 5.75%. This takes overall increase during the fiscal 2011 to 175 basis points in the repo rate, and 225 basis points in the reverse repo rate. During the year, RB also increased the cash reserve ratio by 25 basis points to 6% in April 2010.

The statutory liquidity ratio, SLR, was maintained at 24% in response to the deficit in systemic liquidity during the year. However, liquidity conditions eased through the quarter on the back of increased government spending, with government cash balances with [RB] falling to a lower level of INR1 billion by March of 2011.

Interest rates on most of the short-term money market instruments, including [T bill] yields, interbank call money rates, rates on commercial papers and rates on certificate of deposits, have showed a decline.

In the mid quarter monetary policy review announced in March 2011, RBS indicated a comfort level for overall liquidity to move in the range of plus or minus 1% of net demand and time liabilities. Also, the special liquidity measures in terms of additional liquidity support and second LAF facility, which was to end in April 2011, were extended up to May 2011.

Going forward, we expect liquidity to continue to remain tight, and coming under pressure again around June 2011, due to advance tax payments.

Equity markets remained very volatile during the quarter, particularly on concerns of rising domestic inflation, accentuated by international events, in terms of rising international crude oil prices, the political unrest in the Middle East and North Africa region, and improving US economic conditions.

Foreign portfolio investments remained moderate during the quarter, with the net foreign institutional investment, that is FII inflows, of $2.63 billion, as compared to a total inflow of $29.71 billion in the previous three quarters of the fiscal. In February 2011 there was, in fact, a net outflow of $1.22 billion. The benchmark BSE SENSEX ended the quarter lower by 5.2%, compared to the December 2010 closing.

Now let me move onto credit growth. The credit growth remained strong during the quarter, with a year-on-year non-food credit growth at 21.2% at March 25, 2011, compared to 17.1% growth at March 26, 2010. Based on sector-wide data published by [RBI], as of end February 2011, the growth was largely driven by industry and services sectors.

However, the deposit growth in the system continued to lag, recording a growth of just 15.8% on a year-on-year basis as at March 25, 2011, as against 17.2% at March 26, 2010. This moderation was due to a decline in demand deposits by 1% at March 25, 2011, compared to a growth of 23.4% at March 26, 2010. Time deposits grew by 18.7% in FY '11, compared to a growth of 16.2% in the previous year.

Fiscal 2011 ended with the banking system reporting a credit to deposit ratio of 75.68% compared to 72.22% at the end of financial year 2010.

During the quarter, we saw most banks increase their deposit rates in the range of 25 to 150 basis points for various maturities. Lending rates were also increased by most banks, with a 65 to 100 basis point increase in base rates during the quarter.

Now let me move onto part two on the performance of the Bank during the quarter. Against each of our [4Cs], that is credit growth, CASA, cost control, credit quality, and customer service.

The first C, on credit growth. The total advances of the Bank increased sequentially by 4.7%, from INR2.07 trillion at December 31, 2010, to INR2.16 trillion at March 31, 2011. This represented at 19.4% growth in advances over March 31, 2010.

Excluding the impact of the merger of Bank of Rajasthan, the growth in advances for the year was about 16%. This was driven mainly by a 44% growth in domestic corporate advances, and 22% growth in the advances of international branches.

The retail portfolio also stabilized and started growing in the second half of the year after several quarters of decline we have seen.

In the fourth quarter specifically, the loan book increased by about INR97 billion, driven primarily by growth in the retail and rural and agri portfolios, including corporate lending and buyouts for building up the priority sector lending, [as advances] in the loan portfolio of international branches.

The growth in these portfolios was partly offset by repayments of short-term corporate loans. During the quarter, the Bank was able to deploy substantially all of the $1 billion raised through senior bond issuance in November of 2010.

While these are reflected in a strong 22.1% growth in advances at international branches on a year-on-year basis, the overall international advances, including our overseas subsidiaries in UK and Canada, put together, grew at a relatively moderate pace of about 11%.

Now let me move on to the second C which is CASA deposits. The Bank's CASA ratio at March 31, 2011 was 45.1%, which is a sustained upward trend, quarter on quarter, since March 2009 when it was 28.7%. More importantly, the average CASA during the year was higher at 39.1%, compared to 32.5% in financial year 2010.

This was achieved in the backdrop of declining demand deposits, as I mentioned earlier, in the system. Our savings deposits have grown by INR136.51 billion, or 26% during the year. We would continue to leverage our expanding branch network to significantly increase our savings and retail term deposit base, with the objective of maintaining an average CASA ratio of at least 40%, even as we continue to grow our balance sheet and deposit base.

Now on the third C, which is cost. The operating expenses increased sequentially, primarily due to the increase in employee cost which saw an increase during the quarter due to provisions for bonus, we had to do a bit of a catch up on bonus, and increasing the number of employees. For 2011, as a whole, the financial year, the increase in operating expenses was 14%, of which 5% was due to the cost base of Bank of Rajasthan for the period August 30, 2010 to March 31, 2011. For financial year 2011 the cost to asset ratio was 1.7%, and the cost to income ratio was at 42%.

Now let me move on to the fourth C, which is credit quality. We are happy to report that this quarter also there was no net addition to gross NPAs. The net NPA ratio at March 31, 2011 was 0.94%, compared to 1.87% at March 31, 2010, and 1.16% at December 2010. The provision cover ratio was 76% at March 31, 2011.

At this point I would like to add that the recent RBI guideline on provision coverage ratio would not impact us in the immediate term as there was no catch up provisioning, or provisioning buffer, that we had created towards reaching the stability provision coverage ratio as of September.

In line with our expectations, we have seen progressive decline in credit costs this quarter to INR3.84 billion. The annualized credit cost had declined from 1.77% of average advances in Q1 of 2011, to about 1% in Q3 of 2011, and 2.73% in Q4 of 2011. On a full-year basis, the credit cost was INR22.87 billion, representing 1.2% of average advances. The unsecured retail loan portfolio, which we use to track very regularly, at March 31, 2011 had further declined to 2.4% of total advances, compared to 3% at December 31, 2010.

The improvement in credit quality was reflected even in the decline in restructured assets, which came down from INR25.52 billion at December 31, 2010, to INR19.7 billion at March 31, 2011, driven by the payments as well as upgrades. We continue to proactively monitor all portfolios and take action where required.

As you know, there have been developments relating to the micro-finance sector during the year. We have scaled down our portfolio in this segment from INR32 billion at the beginning of the fiscal year to INR12.6 billion at March 31, 2011. This includes portfolio buyouts of about INR3.1 billion. A part of the overall exposure is likely to be restructured within the extended period of restructuring up to June 2011 as permitted by RBI.

Let me move on to the fifth C, which is customer service. The Bank continues to execute and implement the overall strategy of [Kaya Labka] to deliver a superior transaction and relationship experience for its customers. To facilitate ease of transaction the Bank increased the number of access points for the customers, and has also enhanced the capabilities of various channels, including value-added services through ATM money manager on the Internet, cash withdrawal at point of sale terminals etc.

The Bank rolled out various measures to improve turnaround time and quality of service delivery. Further, a new branch model and service architecture was implemented for delivering a differentiated and high-quality customer experience for the wealth and privileged banking customers.

The Bank strengthened the customer feedback mechanism through the launch of its SMS Happy or Unhappy campaign. The Bank would continue on this journey of keeping the customers at the center of our business, and through innovation and service uphold the customer centric aspect of our brand.

Having talked about the progress on 5Cs, let me now move on to the key financial performance highlights for the quarter. These are part of the presentation email; I'll read it to you all.

One, the net interest income; it increased 23.3% year on year to INR25.1 billion, and net interest margin improved from 2.6% to 2.7%. This includes the interest on income tax refund of about INR0.25 billion in both the quarters Q4 of 2010, and Q4 of 2011. On a sequential quarter basis, net interest income increased 8.6%, and the net interest margin improved to 2.7%. The net interest margin on domestic business was 3.1% during the quarter, while the international NIM was stable at 0.85%.

I would like to put the international NIM in perspective. The international NIM remained stable, despite the impact of excess liquidity carried by us out of the $1 billion bond issue done in November 'til its full deployment in Q4 of 2011.

While the systemic increase in interest rates was reflected in higher deposit rates across banks, the impact of this was cushioned by an increase in the base rate and the other benchmark rates for lending, as well as higher yield on the SLR portfolio, on account of resetting of interest rates on floating rate bonds at higher levels.

Given the sharp increase in deposit rates, there was some breakage of deposits to re-price upwards. The breakage of deposits resulted in lower effective costs of deposits for the quarter. Normalizing for this the NIM would have shown a lower growth over Q3 of 2011.

Next fee income; fee income grew by 17.7% year on year to INR17.91 billion in Q4. This, as in the last quarter was driven by higher activity in corporate and international banking. On a full-year basis, the fee income growth at 13.6% to INR64.19 billion, also reflected the strength. The relatively strong growth in corporate and international banking fees was partly offset by a decline in retail fees, especially as fees from credit card and third party distribution declined during the quarter. Retail fees now represent 45% of the fees, compared to about 55% last year.

During the quarter, the Bank had a net negative treasury income of INR1.96 billion, mainly due to the mark-to-market impact on the security receipts portfolio, and losses on the equity and mutual fund positions held by the Bank, partly offset by some gains on the fixed income and Gsec portfolio. For the year, the net negative treasury income was INR2.16 billion, compared to a gain of INR11.81 billion in the financial year 2010.

I would also like to mention that the mark to market of security receipts commences post 12 months after the sale of NPLs. And we have not undertaken any fresh sale of NPLs in the last few quarters. Hence, the negative impact of mark to market on security receipts on treasury income would be substantially absorbed by the financial year 2012, based on the current trends in the collection performance.

I've already discussed the trends in operating expenses and provisions during the quarter, and on a full-year basis, while describing the progress against the 5Cs.

Next, during the last quarter's call we have mentioned that we have provided for tax based on our estimated tax rate for the full year at 23.5%. This factored in the benefit of provisions made in Bank of Rajasthan's accounts prior to merger with ICICI Bank for employee benefits that got funded, post merger.

Subsequently, the Finance Act 2011 has reduced the corporate tax surcharge from 7.5% to 5%. This has resulted in an increasing tax rate for the year to 23.8%, due to the adverse impact on deferred tax asset. Accordingly, the Bank was required to make a tax provision at a higher rate of 24.4% during the quarter.

Based on the above, profit after tax for the quarter was INR14.52 billion, which represents a year-on-year increase of 44.4%. For financial year 2011, the net profit after tax was INR51.51 billion, representing a 28% increase over the financial year 2010. At this level, the return on assets is 1.34%, compared to 1.13% for the previous financial year.

The Board of Directors has recommended a dividend of INR14 per equity share, which is equivalent to INR0.63 per ADS. The declaration and payment of dividend is subject to requisite approvals. The record and book closure dates will be announced in due course. The return on equity for the year, based on the above numbers, was 9.6%, compared to 7.9% for the previous year.

Now let me move on to part three, which is on consolidated results. Before I talk about the consolidated numbers, I would like to highlight one significant development during the quarter. This development pertains to our general insurance subsidiary, ICICI Lombard General Insurance Company, that is ICICI General.

The IRDA, the Insurance Regulatory and Development Authority, by an order dated March 12, 2011, instructed general insurance companies to provide for losses towards the Indian motor third-party insurance pool at the higher provisional loss ratio of 153% for each of the four years from financial year 2008 to financial year 2011 in the financial results for the financial year 2011.

Just by way of the background, this pool is a multilateral reinsurance arrangement covering the third-party risks of commercial vehicles. This arrangement had been in place since April 2007, and based on earlier loss estimates, the pool had provided for losses in the range of about 122% to 127% earlier.

The requirement of providing for losses at 153% meant an impact of around INR27 billion for the industry as a whole. Since the pool losses are allocated to members on the basis of their overall market share in the general insurance industry, ICICI General provided for additional pool losses of INR2.72 billion during the quarter.

On the positive side, however, IRDA has recently also allowed increase in premiums for motor third-party liability business by 68.5%, with effect from April 25, 2011. The increase in administered premium on this business should help cushion some of the impact on higher loss provisioning, going forward.

Due to this development, the solvency position of these general insurance companies has also been impacted. IRDA has allowed general insurance companies to meet the 150% solvency norm over a four year period, with a minimum for FY'11 being set at 130%. We have infused INR2.52 billion of capital, our share of a total of INR3.4 billion required, the balance having been infused by JV partner.

This we have done in Q4 of 2011, taking the Company's solvency ratio to above 150%. ICICI Lombard General Insurance has achieved a gross written premium growth of 28% in financial year 2011, compared to 2010, maintaining its position as the largest private sector player in the general insurance industry.

During financial year 2011, ICICI General, because of the above factor, had a net loss of INR0.81 billion -- I repeat, INR0.81 billion -- compared to a profit of INR1.44 billion in financial year [2010]. The loss was on account of the impact of additional provisions towards third-party motor pool, which I have explained earlier.

As far as the financials for the Life Insurance business is concerned, we mentioned last quarter that, based on IRDA circular dated December 27, 2010, we had recognized surplus in non-participating policyholders' funds for the nine months ended December 31, 2010, in the third quarter of fiscal year 2011.

After last year the entire surplus was recognized only in the fourth quarter. On a full-year basis, the quarter-on-quarter variations have neutralized, and hence, I will talk about the consolidated numbers on a full-year basis, which will be a more appropriate representation.

The [operating] profit of the Life Insurance subsidiary, ICICI Prudential Life, increased from INR2.58 billion in financial year 2010, to INR8.08 billion in financial year 2011. During the year, the new business profit was INR7.13 billion, compared to INR10.15 billion in the previous financial year. And the new business profit margin was at 17.9%.

ICICI Life maintained its leadership position among the private players, both on a retail weighted premium, that is 7.3% market share, as well as retail received premium basis, which is 6.2% market share, for financial year 2011.

The Bank subsidiaries in UK and Canada continued to face challenges in scaling of business, on account of the expectations of local regulators, that their business would be substantially in the local market. Consequently, the business volumes were scaled down, which impacted revenues and profit. This was partly offset by increase in net interest margins on the existing portfolio, and optimization of operating expenses.

So as a result, ICICI Bank UK's profit after tax for financial year 2011 was $36.6 million, compared to $37 million in financial year 2010. ICICI Bank Canada's profit after tax for financial year 2011 was CAD32.4 million, compared to CAD35.4 million in financial year 2010.

The loan book of ICICI Bank UK declined from $4 billion at March 31, 2010, to $3.6 billion at March 31, 2011. The loan book of ICICI Bank Canada declined from CAD3.1 billion at March 31, 2010, to about CAD3 billion at March 31, 2011.

As a result of all of the above, the consolidated profit after tax of the Bank for financial year 2011 was at INR60.93 billion, representing a consolidated return on equity of 11.6% for the period. The consolidated profit was higher by 30.5% on a year-on-year basis, despite the negative impact of the additional motor pool loss, which I described earlier, as well as the impact of financial market performance, and activity on the profits of banks, securities, primary dealership and asset management businesses. This was driven primarily by improved financial results of the Bank's life insurance subsidiary.

Now let me move onto part four, which is outlook for the next year. We expect the overall loan growth of about 20%, with domestic, corporate, and international branches, which lend primarily to Indian companies, growing at around 20%; retail loan growth accelerating significantly to over 15%; and higher rates of growth in the SME portfolio, of course off a small base; and the rural and agricultural portfolio to meet the priority sector lending requirements.

This outlook is based on a systemic loan growth of around 20%. We do not expect to see loan growth in our international subsidiaries.

Total deposits are projected to grow at about 20% for the financial year 2012, with a target to maintain our average CASA ratio at above 40%. We expect the net interest margins for financial year 2012 to be at around the same levels as financial year 2011. All banks are likely to face margin pressure in the next couple of quarters, given the sharp rise in deposit rates in the second half of financial year 2011.

For us, traditionally, the June quarter tends to have a lower level of margin on account of lower yielding agricultural loans made in the March quarter.

Further into the year, as margins for overseas business expands gradually from about 85 basis points to about 125 basis points over the next five to six quarters, and domestic loan yields fully reflecting the higher rates, margins are expected to improve. There would, however, be some headwind from the increased rural infrastructure development fund investments, and systemic pressures from CASA groups.

Fee growth in financial year 2012 and 2013 is expected to be broadly in line with asset growth. The fee to income ratio is expected to be in the region of about 40%. We expect that the corporate fees, including international, will continue to show momentum. And retail fees will also grow from the current level, with the impact of all the negative factors already present in the current run rate.

Operating expenses are expected to grow in line with the assets and revenue growth, as we have articulated earlier. The cost increase in financial year 2012 will be mainly due to increase in employee base, full year cost base of Bank of Rajasthan employees, and additional expenses on rural business and financial [inclusion].

We will be working to keep the cost to income ratio within 40% to 42% level, and the cost to asset ratio should be at about 1.7% to 1.8% level.

With respect to the loan loss provisions, the declining trend is expected to continue, as the losses from the retail and secured book has been already taken, and no near-term challenges are seen in the corporate portfolio.

The excess general provisions that we hold currently should also be adequate for growth projected for FY'12 and FY'13, based on the current RBI guidelines. Provision should be within the normalized level of 80 basis points to 1% [of the advances].

The tax rate should move up to a more normalized level of 27%. The return on assets improved in financial year 2011 from 1.13% to 1.34%, mainly due to lower provisions, partly offset by lower treasury income. The Q4 2011 return on assets was 1.44%. We continue with our target of reaching the consolidated ROE of about 15% in three years that we had articulated in Q1 of 2010.

The above outlook is based on a systemic outlook of over 8% GDP growth, about 20% credit growth, systemic liquidity at the range of plus or minus 1% of systemic liabilities, and gradual containing of inflation, though we expect inflation to remain above the RBI's comfort zone of 5% during the year.

This concludes the summary of our performance and outlook. We will continue to execute our 5C strategy of profitable growth with a view to improve return on equity for the shareholders.

With this, Rakesh, Anindya, our team and I would be happy to take your questions. Thank you very much for patient listening.

Thank you very much. We will now begin the question and answer session. (Operator Instructions) Amit Premchandani, UTI Mutual Funds.

Just a question on the breakup of deposits which led to a low cost of deposit. Just wanted to understand what was the amount of deposits which you have broken up, and what are the benefits arising on dividing the costs of deposit, in terms of absolute amount, and also the impact on margins?

In terms of the impact for the quarter, would have been -- on the margin, as we said, without that we had about 2.7%. So it would have been maybe 6 or 7 basis points lower than the margin that we reported for the quarter, if we adjust for the benefit on the breakages of deposits.

And generally, what was the amount of deposits which you would have been broken?

Yes, we don't disclose that separately, in terms of the numbers.

Okay. And in terms of the difference in cost of deposit, going forward, because of this [difference], was the difference so huge that people were shifting deposits from the lower deposits to the higher deposits, or was it just a marginal difference? Just to understand the cost going forward.

The difference, I think, which is there across all banks, has been the fact that the deposits that were raised last year would have been in the region of about 7% or so. And currently, as you know, in the March quarter, the deposit rates were upwards of 9.5%. So 9.5% or 10% were the deposit rates in the quarter of March. This is something which all banks will have [taken].

This is across the banking system. I just wanted to tell you that there is a trend, because the increase in term deposit rates have been quite sharp.

Yes, but other banks have actually reported that they have benefited out of this, in terms of cost of deposit going down for the quarter.

Well, usually the banks -- every bank there is a breakage cost involved, and during the times of sharp deposit increase, like we have seen, the banking system has normally experienced this kind of a breakage, and depositors moving to the new rate regime. And at that time there is always a penalty rate regime which operates. And this is a normal phenomenon we see in this type of [investor] regime.

Do you expect that to continue over FY'12, or is it already done, more or less?

No, as we explained, with this, our margins went up from 2.6% to 2.7%. They would have been marginally lower on a steady [state] basis. This is a normal feature of periods when there are very sharp increases in term deposit rates. And absent such an environment in the coming months, this should not happen.

Yes, this is the time of a one time catch-up kind of situation. And as I articulated earlier, we do have corresponding mitigants in our P&L in terms of the international margins expanding. Because the international margin had come down, or has been broadly stable at 83 basis points, primarily because of the excess liquidity we had.

And two phenomenon are operating here. One is that out of the branches, the loan book growth has been higher than we had anticipated, because of the cost differential between foreign currency and rupee loans. So there has been, at the margin, there has been a significant demand by corporates of foreign currency loans.

So that growth has been higher. And incrementally, as we have articulated earlier, broadly, these kind of loans are coming at spreads of 1.5% to 2% type of levels at the margin, which should push up the international book margin. So that will be a mitigant; as this phenomenon plays out, we'll have that mitigant coming in place.

So we are happy to internally be looking at a flatter margin, or a broadly stable margin in financial year 2012, as in financial year 2011.

And in terms of the normal seasonal phenomenon of first quarter margin going down because of the priority sector, shall we expect that to happen again this quarter?

It will happen, but again, the mitigants for this time around for the system was that no bank would lend below base rate. So earlier, the March deals in the priority sector used to happen at very, very low rates. And that has been partly mitigated this time, because banks could not lend below base rates. So the kind of drop we have seen may be lesser than what we have seen in the past.

And in terms of the investment in IRDA's bond, what is the figure as of March?

It was INR150 billion.

And what was the number for December?

December was about INR145 billion.

Okay. Thanks, that's it from my side.

Thank you.

Anand Laddha, HDFC Mutual Fund.

Good set of numbers. Just have a few questions. If I see this quarterly interest income, all the advances has gone up very significantly, sequentially it is up significantly. In fact, you've had a loan growth which is just 10% QonQ, the same is up 19%. So was there some re-pricing of advances in terms of benefit of interest rate going up, or something, if you can explain?

So with the increased the base rate, and the equivalent PLR and [deferrer], so that benefit has come in during the current quarter. What is still remaining is a part of our mortgage portfolio. That re-prices on a quarterly basis, so that is something which would happen from April 1. Otherwise, the rest portfolio has seen the benefit of all the increase that we have done on the base rate and the PLR.

If you can say this quarter, how much the base rate has gone up?

100 basis points.

And same with the PLR, that has gone up?

Yes.

What's your current base rate right now?

8.75%.

8.75%? Okay. Secondly, also if you can explain the breakup of the treasury income in terms of what has been the total provision for FY'11 in terms of security received, and what could have been the total mark-to-market loss on the Gsec portfolio, since we take mark-to-market on Gsec portfolio through the treasury item?

So in terms of for the year, the impact of the [security assets] has been about INR2.3 billion, out of about slightly more than INR1 billion was in the March quarter. So that is the main reason for the loss on the treasury income.

In the fourth quarter we also had some mark-to-market losses on the credit portfolio.

Okay.

And from a full-year perspective, there would have been some mark-to-market losses on the [AFS], the Gsec portfolio, because on a March-to-March basis, the (inaudible) were higher.

Thanks. Also, can I get a breakup of the [NPA] provision. [100% was told, NPA was there something for standard assets also]?

There was no provision for standard assets. We already hold excess of close to about INR4 billion.

Okay. That's from my side. Thanks.

Thank you.

(Operator Instructions)

[Praful Kumar], Principal Mutual Fund.

First of all a question on the liquidity today. Given the, as you said, inflation, you don't think it will be in RBI's comfort zone. How do you see the wholesale rates for the next six to nine months?

And given RBI has been coming back on banks for maintaining, for releasing their margins, what's your outlook for the margins for the full year?

On the outlooks for the margin I cannot mention. We are looking at, at least maintaining the margins for FY'12 at the same level as FY'11.

I just want to understand how do you work in terms of -- you see the cost still to hit you, and most of the re-pricing, as you said, except the home loan has already happened. So how do you see it panning out for the full year? Don't you see any demand restructuring going to happen, because you are seeing some push from corporates and other guys in terms of you increasing lending rates?

In one, of course, on the deposit side, the cost of deposits, we continue to increase on a quarter-on-quarter basis.

On the lending side, for example in the corporate loans that we give, that has an annual reset, so a lot of that will get reset going forward. Only the market portfolio which we have, that gets reset on a quarterly basis, still some increase which will come through on the (inaudible) advances. That's on the investment side.

We do carry a shorter duration than most banks on a government securities portfolio, currently. There again, we will see some increase on these. And if you look at the current year in the FY'11, in the initial part of the year we indeed carried excess liquidity. That is not going to be a scenario in FY'12.

So all these factors put together, and assuming that deposit rates don't really jump up from the current level, which is basically a scenario of wholesale deposit rates maybe being at about 9.5% for one year, we would expect to maintain margins. And again, as we mentioned, that on the overseas book there would be some expansion in the margin, so that will also provide some cushion to the overall margin for the Bank.

But on a system basis, do you think passing on costs from here on would be easy without affecting the asset quality? Or do you think there is some demand destruction looking likely?

We don't expect any impact on the credit quality to come about with increase in lending rates from the current level. From a demand point of view, yes, if the rates go up 100 basis points on the current level, there would be some impact on the demand which would happen. But from a credit quality point of view, we don't see anything.

Okay, last question, on number of branches you added this quarter, and outlook on the branch addition for next year?

This quarter, we would not have added significant numbers, we can just give you the exact number of (multiple speakers) in 15 branches.

Okay, next year?

Next year, what we have said is that by 2015 we would want to be at about 4,000 branches. So we are currently at 2,500, so over a four year period that implies an additional 400-odd branches.

Every year? Okay. Thank you, and all the best.

And this year I think branch implementation will be a bit back-ended.

Okay. Thank you.

Mahrukh Adajania, Standard Chartered.

I just wanted your thoughts on your CD ratio? Obviously, it's historically high, so that's not a new point, but in general, what is your outlook on the CD ratio is for the next few quarters?

Mahrukh, if you split our balance sheet into domestic and international, on the domestic balance sheet, we have a CD ratio of about 75%, broadly in that range, and it should pretty much stay there.

The balance sheet as a whole shows a higher CD ratio because international branches are primarily funded through borrowings and bonds.

And in terms of the international subsidiaries and branches, there you would see growth consolidation only going ahead for some more time? Is that fair to assume?

Yes, that's correct.

And just one last question on life insurance. Of course, first quarter is seasonally strong, etc., but one has still not seen any major pressure on growth after the new rules have been implemented. So what is the outlook on premium growth ahead for FY'12, because fourth quarter has not been that as bad as expected?

I know there's seasonality, but --

Clearly, premium growth has been impacted, post the new guidelines particularly in the third quarter, and there's also been a shift for most players in the mix of new business from regular premium UPLIPs to single premium, and to some extent towards endowments.

But we expect next year the business mix to be more balanced, and overall, we would think that there would be flat to relatively low growth in the life insurance sector next year. The first half will show a decline, because the first half last year was very strong, particularly in the period up to August, when the product had scarcity value, but the second half showed reasonable growth given the base effect of this year. So for the year as a whole, maybe single-digit growth is what we're looking at.

Okay, thanks. Thanks a lot.

Suresh Ganapathy, Macquarie Capital.

Just a few quick questions. The breaking up of deposits, the penalty charges are included in the interest income, therefore it is a part of the net interest margin? You don't take it as a part of fees, right?

It is not a penalty, Suresh, it's is basically if someone had placed a one-year deposit and now wants to avail of a higher interest rate at the end of seven months, then when the deposit is taken off and renewed, on the deposit that is getting extinguished, he would be paid the interest rate as if he had contracted a seven month deposit. It will be lower.

Okay, fine. The other thing is, how much has been your cost of deposit increase on a Q-over-Q basis, or cost of funds, you can give that also is fine?

About 20 basis points.

20 basis points?

Increase in cost of funds and cost of deposits were about 20 basis points.

20 basis points. And then, final question is regarding your international subsidiaries. Now, the issue there is that you're not growing that business, and all of them are operating at very high levels of capital adequacy, which means there is excess capital in that business. So how are you planning to take that capital out and bring back to, say, your domestic business where you actually are going to grow? Otherwise the capital is simply going to sit in that business, and you're not going to make productive usage of that capital. So any thoughts on the efficient use of capital could be great.

Yes, so that problem is actually relatively more in our Canadian subsidiary, where we have about CAD1 billion of capital, and currently, actually -- so there we indeed do have a significant excess. And obviously, we are looking at how to reorganize that, but it will be over a two to three year timeframe. So our guess would be that by the time the parent bank comes around to requiring capital in any form, which is maybe at least a couple of years away from now, by then we should have a solution to this.

Up 'til then, yes, we will not be earning any good ROEs in those subsidiaries, but it's not that we will have excess capital sitting [still] there, and having to be constrained on account of capital somewhere else, because even the parent bank is currently not constrained on capital.

Okay, fine. But no plans to increase the payout. I think the payout is restricted at 35%, right? You can't pay more than 35%, dividend payout.

That's correct.

Okay. And this year it is how much? I didn't calculate. What would be the dividend payout for this year?

It's around that level [only].

Including the distribution tax, it will be around that level.

Okay, fine. And thanks so much, Kannan.

Thank you.

(inaudible)

Could you give me your investment break-up with duration?

On our government security portfolio the duration, overall, is about 3.2 years. And all of that about 75% to 80% is [invested in category].

Okay. And what would be the duration of your [AFS]?

AFS would be slightly above one year.

Slightly above, okay. That's it. Thank you.

Nilanjan Karfa, Brics Securities.

Just one question on deposit growth. It was just 11%, and depending on how you want to grow, is this deposit rate slightly lower?

And secondly, did we see any impression on the current account this time? Because the liquidity was particularly low.

On the deposit side, 11% growth looks like -- the growth itself looks a bit muted because we did not renew the bulk deposits. We are calibrating it based on the asset growth opportunity, so that has been the primary reason for our deposits not being at about 11%.

If you look at our retail banking group, the deposit from retail banking group was 65% of the total deposits, so that is one thing which we are driving consciously, calibrating our asset growth based on what retail liability can be raised. So currently the primary reason.

The savings growth deposit momentum has been sustained; the savings growth in deposits itself has gone up about 25% during the year. So there's no cause for concern, and the branches have started operating.

Current account in the quarter have become a bit volatile depending on the movement. But granularly, on an average basis, we have seen that current account deposits have been rising and we have not had any big issues there because of the liquidity conditions.

Okay. The second thing is on -- and we talked about the 6/7 basis points that we gained because of this breakage in term deposits. So is this going to add to your cost in the coming quarters? Typically, I want to understand how much percentage of the [strong] retail term deposits actually was broken, just a ballpark number?

No, we will not be able to really give a breakup of the deposits in that way. As [I said] is that we had anticipated some pressure on margins in the fourth quarter, which did not happen, and the margins actually improved. And partly due to this reason of some deposits shifting to a higher rate regime, and the impact of that not coming fully in that quarter because of this P&L provision.

Going forward, I think what we have said is that while, yes, the cost of deposits in FY'12 will clearly be higher on the back of the rate hikes that have happened, re-pricing of domestic loans, higher interest rates on new loans, and the improvement in margins on the international book, should enable us to at least maintain margins at the 2.6%/2.7% level on a year-on-year basis.

Okay, and one --

[As you know] the asset side re-pricing has not fully happened yet. Because the asset side there is a bit of stickiness on when [base rate] get reset, because the base rate regime itself came into being only in July of 2010. So that would mean that that is a truly floating portfolio. That is a much smaller component of the portfolio currently. So the bulk of the floating [side] portfolio is based on the floating reference rate for the home loans.

And if you look at the other part of the business, it is a prime lending rate. And these are all normally re-settable at some point, some time in the future, rather than becoming truly floating on a daily basis. So there's a bit of stickiness to re-pricing, so that should come and mitigate the [answer] from the deposit costs.

Right, I understand it. Well, two questions maybe, one on provisioning strategy. Now, because of this new guideline from RBI, which says the floor on the amount of provisions you hold is 70% of what was the gross in September. So is your provisioning strategy going to change, going ahead?

No, strategy we would continue with our own provisioning policy on individual categorizations, whether it's a standard, or a [doubtful] or a [loss effect], so based on that, we will do.

And in retail, we have a provisioning policy, which is a bit more conservative than the RBI guidelines. I think there's no rethink on that, and we will continue with that type of strategy.

In fact, the RBI guidelines give the Bank the leeway in terms of a larger (inaudible) to get in, and NPA because of technical reasons [that widen]. There is no need to really bring the provisioning up in the quarter to 70%. Although the normal (inaudible) as we call it. So that is a good relief for the Bank which has been given by RBI.

Okay, and one last question. You've been talking about this Gsec being short-ended, which is going to positive. I couldn't figure that out, if you can just kindly explain that?

Which question is that?

You've talked about this investment, the yield that we get on investment, and the duration is short.

Basically, in terms of --

We have one portfolio, Gsec portfolio, which compresses floating rate bonds, partly. And that floating rate bonds, there is a resettable rate, which is an indexed. The interest rate is going up in the system, the coupon gets readjusted. So that has partly helped with yield on investments becoming higher during the quarter.

Okay, now I've figured it out. It's a resettable bond.

Yes, resettable, floating rate, government securities.

Okay, yes, that's it thanks.

Thank you.

Thank you. Before we move on to the next question, we would like to remind participants to please limit your questions to two per participant. (Inaudible)

My question is on ICICI Life. If I look at the new business premium, it has increased 24%. But if I look at the non-single premium, individual non-single premium, it has grown by 34%. And that has been a substantial increase in the group non-single premium. So what are the reasons for changing the business mix from individual non-single premium to others like group single and group non-single and individual single? What is the reason for?

Well, the largest strategic issue here was that as the industry itself is getting adjusted to the new regime of the IRDA, the products had to be refined. And all the products had to be in compliance with the IRDA's new guidelines.

So as the process was going on, what the Company thought was a good strategy could be selling off single premiums, especially through channels like ICICI Bank, because it becomes easier to understand [letter of mis-sell] in the product.

And as the agents get trained in the regular premium products, the new products, it is easier to manage the transition through selling of single premiums. So that was the strategy that was adopted 'til March.

Now that the sales teams of both banks as well as the agents having been trained in the new products, now from April 1 onwards, their strategy has been to shift back to a larger proportion of regular premiums. So it is more like an adjustment strategy to keep the sales force motivated, to keep the products available with the sales force.

So that is the only reason. Otherwise, we do see these numbers reverting, in the medium term, to what it used to be before such a strategy happened. So it's more like a transition management strategy rather than a long-term direction for the Company.

So this thing won't be the [reversed] going forward in FY'11 (multiple speakers)?

We don't expect that (multiple speakers) --

As we mentioned, over the next year, we expect a much more balanced business mix.

Okay. And one more thing, regarding this non-single premium, group non-single premium, that has been substantial in March 2011 [INR14.61 crores]. So is this recurring?

Yes, actually, [as yet] Prudential life insurance has historically not focused at all on the group business. And we have already a small market share and small base in that business. So in a way, we are only partially correcting that by getting in a little more of group business.

Our primary focus continues to be on the individual or retail business.

And that part of the business should be really [the owners of] fund management business; this is what really it is.

Okay, so it might be recurring in the future?

Yes.

It will be recurring (inaudible).

It will be recurring in the future?

Yes.

And what will be the new business profit for the full year?

New business profit for the full year was [INR1.13 billion].

INR1.13 billion, no?

Yes, for financial year 2011, yes.

Okay. And can you throw some light on the persistence ratio and surrenders of ICICI Life?

The 13th month persistency were about 76%.

13 month is 76%?

Yes.

And anything on surrenders?

No, not specifically. In fact, the surrender we cannot give the numbers. But (multiple speakers) we know that the surrender performance has improved substantially during the year. And various strategies have been implemented, including specific targets to the field force for retention of customers. And that seems to be working.

Okay, so more of customer retention?

Yes, primarily the Company had to work on the distribution to make sure that the Company's sales employees as well as the agents had sufficient incentives not to be churning the surrenderable policies. But leave them with the Company and go and source new policies and new customers.

And my last question is on ICICI General, the Company reported a loss of INR80 crores for the full year, after providing for INR72 crores of motor pool provision.

That's right.

So if I just take off those INR72 crores one-off, then the profit for the full year is INR192 crores?

That's correct.

But if I look at the nine months results, the profit for ICICI General was around INR210 crores. That is for nine months. And for 12 months it is INR192 crores if I take out that one-off. So has there been any losses in Q4?

The claims were a bit higher in the Q4. So that, from a general insurance company point of view, on a quarter-on-quarter basis, claims do become higher or lower, so that was more of a specific quarter thing. But on an annual basis, it would have been a growth.

So if I take those --

Excuse me, this is the operator. I'm sorry to interrupt Mr. (inaudible), could you please come back for your follow-up questions? There are other participants waiting for their turn.

I just have a very small question, just half a minute. because of these claims, there might be a marginal loss in Q4 right?

Yes.

And that would be around INR18 crores? That is INR210 crores minus INR192 crores.

That is really a pro forma thing, which is very difficult to compute or disclose. So it's not really appropriate to exactly look it at in that manner.

Okay, but still can I get at least an approximate figure of the loss?

No, it's a pro forma, we cannot disclose --

It's a pro forma number. So for instance, we have not disclosed or published what would have been the profit for the year had the motor pool had not happened because, indeed, it has happened. And it would not be appropriate for us to re-jig the numbers in that fashion.

Also, if there would be other adjustments related to taxation and so on, which would have probably put a higher profit number than INR192 crores for the year. But we can't really get into that because those are pro forma and auditable numbers.

Okay, fair enough. Thank you, sir.

Yes, thank you.

Manish Karwa, Kotak Securities.

Just a few things. One, what has been the domestic margin this year and international margins?

Domestic margin for the year as a whole was 3%. And the international margin was 85 basis points.

And is there a number for the fourth quarter for both domestic and international?

International was around 86 basis points or so. Domestic was 3.1%.

Right, and it's a fair conclusion to make that next year, international margins should actually go up?

That's correct.

Okay. And can we share the movement of NPL numbers, for the whole year or for the fourth quarter?

The fourth quarter, as [Kannan] mentioned, on a net addition basis, the number was close to zero. We did write off about INR600 million in the quarter.

INR600 million?

Million, million rupees.

Okay. And lastly, as a part of your total term deposits, what is the Wholesale deposit component?

As I mentioned earlier, the Retail Banking Group accounted for 65% of the total deposits. The balance is Wholesale Bank.

Okay.

This is based on the total deposits, not just --

Yes, I just wondered, is there a number readily available as a part of your term deposits versus the Wholesale deposits?

That would be about -- [60%] would be Wholesale.

Okay.

Ganeshram Jayaraman, Spark Capital.

Could you just tell me what proportion of your deposits and borrowings get the re-pricing effect [well]?

On the deposit side, 75% will get re-priced because the average maturity's about one year or so.

Okay.

So that would be -- on the borrowing side, actually all the capital eligible borrowings, so the fixed rate borrowings which are longer term, so none of that will get re-priced. And the rest of the borrowings will mostly again be short-term borrowings, within one year maturity, so all of that will re-price.

Okay. And what about [assets] advances?

Advances, we have about 57% floating rate advances, so that will re-price, and after fixed rate, which is the balance, within that also, about one-third will come for maturity during the year.

Okay. My second question is on [MFI] restructuring business, have you got [anything] whether it includes the [buyout] portfolio also?

Currently, actually no restructuring has happened yet so it is going to happen through the CDR forum, and banks have time 'til beginning of June to complete the restructuring. As of now, the restructuring has not yet happened.

Right, but this buyout portfolio, you have not got any clear clarity on whether that is part of the restructuring allowed or not?

Yes, there is no final clarity.

Fine. That's it from me. Thank you.

Thank you.

Yi Hu, HSBC.

I actually just got a quick question, just want to know, ICICI has a funding plan in the year ahead, because we have noticed that the Bank has a significant amount of redemption requirement in 2012, so what's the funding strategy, and any plan to issue overseas bond? Thank you.

Yes, we would, of course, be issuing overseas bonds, but our overall funding strategy takes into account issuance of overseas bonds in more than one currency as well bilateral borrowings from a bank through the syndicated loan market, borrowings from export credit agencies, and deposit raising.

And the exact amount would really depend on the market conditions, as well as the kind of loan demand we will have for such foreign currency loans, because I believe that, during FY '12, our bond raising program would depend largely on the asset side demand rather than being dictated by our own liability [measuring]. So that is the kind of shift you will see, going forward.

Thank you.

And just along is the [maturing] liabilities we also have asst repayment as well of close to $2 billion, so in that sense, it is, as Kannan indicated, with the asset side --

The growth opportunity is going to drive the fund raising.

Thank you.

Tabassum Inamdar, Goldman Sachs.

On the margin, I just wanted to check if you are considering any kind of savings deregulation. And if it does come through, what is the kind of impact it could have on the savings rate and margin for the Company?

Tabassum, the discussion paper was issued this morning and so, no, our budgeting and planning has not taken into account the impact of a savings rate deregulation.

I am assuming that, apart from some period of transition, whatever impact of that happens, will get passed on in the form of higher lending rate, if indeed the savings rate deregulation does occur and does lead to an increase in the interest rates on savings accounts.

[Our end of it], we will somewhat continue to maintain the margins [effect well], and then increase it from there.

Okay. My second question is on general insurance. Just to clarify, I think, Kannan, you mentioned something about investment that would be necessary, given the losses from motor pool. You have already made some investment. Would you be needing more investment in the Company now in the --?

Yes, as I said, the IRDA has also announced the tariff increase effective April 21. The tariff increase is about 68.5% and, broadly, that would lead to a break-even situation at around the current level of motor pool losses they have estimated at [1.3%]. So from then on, we will have to wait for the study, actuarial study which IRDA is conducting to find if the motor pool loss isn't going to be higher than that.

So at the same time, no, there'll be accruals also happening through the year, and IRDA has also given the dispensation to reach 150% over a two-year period. So actually are at over 155% solvency just now, and the absolute minimum for next year, as stipulated by IRDA, is 137%.

So even assuming that the final loss ratio on the motor pool is higher, it's really up to us whether we want to continue to be above 150%, or allow the solvency to dip below 150%, which we'll decide as things become clearer, which is expected to be some time in July.

But even if an additional capital infusion is required, it will be of the same order of maybe INR1 billion to INR2 billion kind of number, which is not going to be material in the overall scheme of things.

Okay. Just one more thing. On life insurance, what was the fourth quarter margin?

15.3%.

And would we be expecting this to come down further, because this was over 17% in the third quarter?

Well, we were, in fact, hopefully trying to get it higher than this level.

Okay, great. Thank you.

Thank you.

Ray Hume, BNP Paribas.

Just wondering, when you were giving out the loan growth target, which is about 20% this year, are you expecting the same kind of growth in deposit? Or if not, then how are you going to fund for your asset growth this year?

Yes, we are expecting the same kind of growth rate in deposits also. We believe that we'll be able to drive this agenda because we now have over 2,500 branches, and bulk of the branches have been put in place on the last couple of years.

So as these branches have been staffed now with the trained staff, we believe that we can improve the productivity of these branches. That is the single biggest lever available to us by which we think we should be able to get a 20% growth in deposits as well.

Thank you. A related question to this one is that I think one -- there's another analyst asking a similar question before. You have quite a chunky liability that is going to mature next year. Now I understand that you mentioned about the funding strategy will depend on how your asset growth will be going to be like in 2012, but then, at this current juncture, can you give us a little bit clue about in the going rate, are your maturing assets is going to enough to pay off the liability for 2012?

Yes, in 2012, our international branches --

Yes, the asset repayments will be such that we are equipped to pay off the bond liabilities maturing.

Broadly equal, the asset maturities and bond maturities are broadly equal in that sector.

Okay. Thank you.

Thank you.

Thanks.

Jatinder Agarwal, RBS.

Just one question on your power sector exposure. Can your broad understanding as to what it was last year, and how does it stand as of [date]?

Secondly, I would like to understand what are your thoughts on the sector exposure, not generally with ICICI Bank, but for the industry as a whole.

As a percentage of our total advances, power it's broadly at the same level of around 4% of our loan book.

Okay.

And in terms of the developments in the sector, so I think the way we are looking at --

It is at the same level as the December level is what [I was] mentioning. For March, it was actually at about 3% of the total industry.

What I can see last year was it was INR56 billion, so can you give the amount as of date?

It's about [4.4%].

It's a bit confusing. Can I get the absolute amount because after last year's annual report, page 61, it is INR56 billion.

INR56.5 billion last year, and it's INR98.1 billion this year.

INR98.1 billion?

Yes.

Perfect. And what are your thoughts on the sector, and how do you see whatever the developments have happened over the last couple of months in the sector?

Well, we choose our projects and our rejection rate is sadly very high in terms of choosing the projects to finance. We look for, clearly, a very good amount of coal linkages. A fairly large proportion of power being covered by [power] purchase agreement, and those are the key criteria we do put in.

We also, clearly, look at projects which are being promoted by people with the promoters with proper background and having implemented these large projects. The fourth kind of criteria and bulk of the projects go to the Board Credit Committee, and the Credit Committee, due diligence is very, very high for each of these projects.

So I can only tell you that yes, there are developments which make us choose the projects in a very careful manner. Coal linkages, the power purchase, and the merchant power tariff which we assume is much lower than what the market assumes for when we look at some of the projects which are being syndicated.

So I can only assure you that we're very careful in financing these projects, and the Credit Committee itself takes the decisions as to whether to go ahead with financing. So we watch the developments very closely. The off-take has been slow to pick up, but we'll be careful in financing these projects.

And so just very qualitatively, are these mostly (inaudible) or mostly private gen cos?

It's all private projects.

Perfect. Thank you, sir.

Thank you.

Thank you. Ladies and gentlemen, that was the last question. I would now like to hand over the floor back to Mr. N. S. Kannan for closing comments.

Yes. Thank you once again for joining the call, and I'm sorry we took a much longer time than anticipated. But if there are any residual questions, we are anyway happy to take it offline. You could please email to us, or you can talk to any of my colleagues, Rakesh, Anindya and (inaudible), any one of us. Thank you. Bye, bye. Goodnight.

Thank you. On behalf of ICICI Bank Ltd, that concludes this conference call. Thank you for joining us, and you may now disconnect your lines. Thank you.