ICICI Bank Ltd (IBN) 2012 Q3 法說會逐字稿

Ladies and gentlemen, good day and welcome to the ICICI Bank Q3 FY '12 results conference call. As a reminder, for the duration of this conference all participants' 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.

At this time, I would like to hand the conference over to Mr. N. S. Kannan, Executive Director and CFO of ICICI Bank. Thank you and over to you, sir.

Good evening. This is Kannan here. Welcome to the conference call on the financial results of the Bank for the quarter ended December 31, 2011; that is the third quarter of the fiscal 2012.

I have with me Rakesh Jha in India, Rakesh Mookim and other colleagues of mine. And after my opening remarks, we will be here to take your questions.

I would like to make my opening remarks, as usual, in four parts. Part one on the macroeconomic and monetary environment. Then we'll move on to part two, which is performance during the quarter, including our performance on our 5Cs strategy. Then in part three, we will talk about the consolidated results. And finally, part four, outlook for rest of the year.

Starting with part one, on the macroeconomic and monetary environment, the global macroeconomic environment continued to remain subdued, with a slowdown in growth and concerns on the eurozone debt crisis, which resulted in extensive rating downgrades of banks and sovereigns. Impact of these events was felt in Indian markets as well, through the capital channel, the impact on equity markets and a sharp depreciation in the currency.

In addition, domestic factors, such as continued high levels of inflation and the tight monetary policy cycle, resulted in a slowdown in macroeconomic growth and had an impact on corporate performance.

Growth in industrial production decelerated to 3.8% during April to November 2011, compared to 8.4% in April to November 2010. IIP declined by 4.7% in October 2011.

Investment activity has seen a significant decline, while sales in some segments, like passenger cars and cement, have also moderated.

Merchandise exports also slowed down significantly in October and November to 10.8% and 3.9% growth respectively, as against a growth of over 35% in the preceding months of fiscal 2012. While growth in imports has also moderated, the deceleration has not as pronounced as in the case of exports.

Rising input costs, sharp currency movements and moderation in sales growth have resulted in an impact on corporate profitability.

GDP growth estimates for the fiscal 2012 have been revised downwards by the RBI to 7% from the earlier level of 7.6%.

Having said all this, some early positive signs are also there in the macroeconomic environment. There are signs of a moderating trend in inflation, which came down to a two-year low of 7.5% in December 2011.

The decline was primarily driven by food inflation that declined to a low of 0.74% in December 2011 and continued to recede in January 2012 as well. Fuel and manufactured products inflation also showed some moderation, although the levels are still high. Core inflation declined from 7.9% in November 2011 to 7.7% in December 2011.

In terms of growth indicators, the purchasing managers' index, PMI, has improved from about 50.4 level since September to 54.2 in December 2011. IIP growth was up 5.9% year on year in November 2011.

Let me now move on to the system liquidity. It remained in deficit during Q3 of 2012, with banks continuing to remain borrowers under the LAF window of RBI. The deficit exceeded INR1 trillion in November 2011 and continued to remain at decelerated levels through the rest of the quarter. Liquidity conditions tightened following advanced tax outflows, with the deficit reaching about INR1.8 trillion in December 2011.

Average daily borrowing by banks from RBI LAF window was around INR880 billion in Q3 2012, more than double the amount witnessed in the previous quarter.

Yield on 10-year benchmark government securities increased by 14 basis points during the quarter from 8.43% at September 30, 2011 to 8.57% at December 30, 2011.

Interest rates on market instruments, like commercial papers, certificate of deposits, increased during the quarter. The three-month CP rates were in the range of 9.5% at the beginning of the quarter and reached about 9.9% at the end of the quarter, after witnessing a peak of about 10.3%. A similar trend was seen in the CD rates as well.

In view of all of these developments, the RBI in its third quarter review of monetary policy kept the repo rates unchanged, while reducing the cash reserve ratio by 50 basis points to 5.5%.

Equity markets were volatile through the quarter, mainly in reaction to the eurozone debt crisis and concerns on slowing domestic growth and its impact on the corporate sector.

Investments by FIIs was weak in the equity markets, with a net outflow of $0.4 billion in Q3 2012. However, FII investments in the debt markets were robust, at around $3.5 billion during the quarter.

The benchmark BSE SENSEX ended the quarter lower by 6.1% compared to the September levels. The rupee depreciated by about 8.4% during the quarter to INR53.11 per $1 at the end December 2011.

On the banking side, the non-food credit growth of scheduled commercial banks has moderated, reflecting the slowdown in economic activity.

During Q3, non-food credit outstanding grew by 3.2% compared to an increase of 5.4% in Q2. On a year-on-year basis, credit grew by 16.7% at January 13, 2012, compared to an increase of 21.2% at September 30, 2011, and 23.2% at January 14, 2011. The deceleration was seen across sectors.

Deposit growth in the system also moderated to 17.2% on a year-on-year basis at January 13, 2012, from 19.1% at September 30, 2011, and 16.5% at January 14, 2011.

Demand deposits, after declining by 0.9% on a year-on-year basis at December 30, 2011, recorded a year-on-year growth of 5.1% at January 13, 2012.

Time deposits grew by 19.5% on a year-on-year basis at December 30, 2011, and by 18.8% year-on-year basis at January 13, 2012.

Let me now move on to part two on the performance of the Bank during the quarter. Let me begin with the progress on our 5Cs strategy.

With respect to credit growth, the total advances for the Bank increased by 19.1% on a year-on-year basis from INR2.07 trillion at December 31, 2010, to INR2.46 trillion at December 31, 2011. The growth was largely driven by domestic corporate loans, which increased by 23.8% on a year-on-year basis, and net advances of overseas branches increased by 38.4% on a year-on-year basis.

The depreciation of the rupee had a positive impact on the growth of the net advances of our overseas branches. If we exclude this, the year-on-year growth in the overseas advances would have been about 16.5%.

On a sequential basis, total advances increased by 5.2% over the quarter, driven by a 14.7% increase in the domestic corporate advances. However, the slowdown in new sanctions during the quarter continued, due to significant decline of the new project announcements.

International portfolio and overseas branches increased by 4.4% as compared to September 30, 2011.

The domestic retail book marginally increased to INR823.86 billion at December 31, 2011, as compared to INR818.73 billion at September 30, 2011. The year-on-year growth in the retail portfolio was impacted by continued decline in the unsecured retail portfolio, which declined from INR56.7 billion at December 31, 2010, to INR35.09 billion at December 31, 2011.

Further, while home loan disbursements, excluding builder finance, have increased by about 15% on a year-on-year basis in Q3 of 2012, due to continued repayments and prepayments we are seeing on the existing portfolio, overall portfolio size increased by only about 5.8%.

Now moving on to the second C, on CASA deposits, mobilization of CASA deposits has been challenging, given the decline in the demand deposits in the system. Despite this, the Bank's savings account deposits grew by INR33.49 billion in the quarter, and the current account deposits grew by INR70.42 billion during the quarter. The increase in current account deposits, of course, included the impact of greater float on account of NHAI bond issuance-related flows.

The overall CASA ratio for the Bank increased to 43.6% at December 31, 2011, compared to 42.1% at September 30, 2011. Even on an average daily balance basis, there was an improvement in the CASA ratio sequentially for the Bank. The average CASA ratio during Q3 improved to 39%, as compared to 38.3% in Q2.

Moving on to the third C, on costs, on a year-on-year basis, operating expenses, including the DMA expenses, were higher by 11.7%.

During the first half of the year, the higher increase in operating expenses was, in part, on account of the full cost base of Bank of Rajasthan that was considered in fiscal 2012, whereas it was considered only from mid August onwards in fiscal 2011.

The second half of the fiscal 2012 would be comparable on a year-on-year basis, and accordingly, the increase in operating expenses has moderated as compared to the previous quarter.

On a sequential basis, the operating expenses have increased by 1.4%, primarily due to an increase in non-employee expenses, as employee expenses remain broadly stable. The employee count decreased from 59,033 people at September 30, 2011, to 57,733 people at December 31, 2011.

In Q3 of 2012, the Bank's cost-to-asset ratio was 1.7%, and the cost-to-income ratio was 41.5%.

Let me now move on to the next C, on credit quality. We saw a 26.7% decrease in provision from INR4.65 billion in Q3 of 2011 to INR3.41 billion in Q3 of 2012. Credit costs as a percentage of average advances were 58 basis points in Q3 2012 on an annualized basis.

During the quarter, our net additions to gross NPLs was INR1.81 billion. This comprises slippages of INR8.77 billion, and recoveries and upgrades of INR6.96 billion. We have also written off INR4.68 billion of NPLs during Q3 of 2012. The net NPL ratio declined to 70 basis points as at December 31, 2011, as compared to 80 basis points at September 30, 2011.

Our provisioning coverage ratio improved to 78.9% at December 31, 2011, compared to 78.2% at September 30.

During Q3, 2012, we had additions of INR8.8 billion to restructured assets, primarily on account of restructuring of exposure to our corporate client and of middle market and SME cases that had been referred to CDR.

After accounting for upgradations, our net restructured assets portfolio increased from INR25 billion at September 30, 2011, to INR30.7 billion at December 31, 2011.

Our exposure to cases referred to CDR at December 31, 2011, and those yet to be restructured, is about INR13 billion. The key cases in this INR13 billion include GTL and 3i Infotech.

With respect to GTL, while we understand that some other banks have effected a restructuring in Q3 of 2012, the restructuring arrangement and the execution in our case will take place in Q4 of 2012. Further, some small exposures could be restructured outside the CDR mechanism as well. The restructured portfolio, as a consequence, is expected to increase from the current levels, as we have always informed you earlier.

The fifth C, on customer centricity. The Bank continues to focus on enhancing its customer service capability, and leveraging on its increasing branch network to cater to the customer base.

The focus is on providing increased functionality and convenience to our customers through various technology channels. One such initiative that the Bank has recently launched is an active presence on social networking platforms which allows the Bank's customers to access their bank account through Facebook.

Our Facebook app, the first of its kind in the country, allows customers to check their account details, view account statements, and also place various service requests. Within a month of its launch, the ICICI Bank Facebook page now has over 36,000 fans.

Having talked about the progress on the 5Cs, let me now move onto the key financial performance highlights for the quarter.

The net interest income increased 17.3% on a year-on-year basis from INR23.12 billion to INR27.12 billion in Q3 2012.

The net interest margin improved from 2.64% in Q3 2011 to 2.70% in Q3 2012, mainly due to an increase in yield on advances and investments, offset, in part, by an increase in the cost of funds.

On a sequential basis, the net interest margin increased by 9 basis points from 2.61% in the previous quarter to 2.70%.

The NIM on the domestic business improved from 2.92% in the previous quarter to 2.98%, while international NIM increased from about 1.09% in the previous quarter to 1.4% in the current quarter.

Fee income grew by 4.7% on a year-on-year basis from INR16.25 billion in Q3 2011 to INR17.01 billion in Q3 2012. The continued moderation in fee income growth was primarily on account of corporate banking fee income, which remains impacted by the slowdown in the new projects and financial process which I talked about earlier.

During Q3 2012, there was continued momentum in the granular fee income streams, such as ForEx and derivative fees, transaction banking fees and remittance fees. The Bank will continue to focus on these revenue streams going forward.

Other income for the Bank increased by 149.2% from INR1.03 billion in Q3 2011 to INR2.56 billion in Q3 2012. This was primarily on account of dividends received from ICICI Life.

Going forward, the life insurance subsidiary would continue to pay dividends based on its profitability and subject to regulations. In view of the visibility on profitability of the life insurance subsidiary, we would expect to receive dividends from ICICI Life on a quarterly basis in the subsequent periods.

During Q3 2012, treasury recorded a loss of INR0.65 billion on account of mark-to-market losses on equity portfolio and mark-to-market losses on security receipts, offset, in part, by proprietary trading gains.

I've already spoken about the trends in the operating expenses and provisions, whilst speaking about the 5Cs strategy.

As a result of the above, the Bank's standalone profit before tax increased by 24.9% from INR18.78 billion in Q3 2011 to INR23.46 billion in Q3 2012. The Bank's standalone profit increased by 20.3% from INR14.37 billion in Q3 2011 to INR17.28 billion in Q3 of 2012.

I now move on to the consolidated results. The profit after tax for the life insurance subsidiary was INR3.67 billion in Q3 2012 as compared to INR6.14 billion in Q3 of 2011.

Here, I would like to mention that the impaired non-par surplus for the nine-month period ended December 31, 2010 was recognized in the profit and loss statement for Q3 of 2011, while the same has been recognized on a quarterly basis in the subsequent periods, including in Q3 of 2012.

So, for the nine-month period 2012, which is comparable on a year-on-year basis in its statement of non-par surplus, the profit after tax increased by 105.8% to INR10.56 billion compared to INR5.13 billion for the nine months of 2011.

The new business premium for the Company was INR11.97 billion in Q3 2012, with the new business margins at 16%. Following a phase of transition to a new regulatory regime, ICICI Life has started witnessing healthy year-on-year increase in volume. The new business annualized premium equivalent, APE, for ICICI Life increased by 50.6% from INR5.71 billion in Q3 of 2011 to INR8.6 billion in Q3 of 2012.

ICICI Life saw an improvement in its market share, with the overall market share increasing from 5.96% for H1 of 2012 to 6.83% for Q3 of 2012.

The private market share improved from 14.9% in H1 2012 to 19.1% for Q3 of 2012, based on new business retail-weighted received premiums.

ICICI General recorded a 38.3% increase in the profit after tax from INR0.73 billion to INR1.01 billion in Q3 2012, driven by an increase in gross premiums and investment income. The company maintained its leadership position in the private sector, with the overall market share of 9.6% up to December 2011.

I have spoken about the revision in the third-party motor pool loss rates, as mandated by IRDA in Q4 2011, and the subsequent capital infusion that we had done in Q4 of 2011.

I had also mentioned that a peer review of the loss rates in the third-party motor pool was being carried out. According to the results of that review, the loss rates have further been revised upwards to 159% for FY 2008, 188% for FY 2009, 200% for FY 2010 and 213% for FY 2011.

This will impact the profitability of the company in Q4 of 2012. The overall estimated impact on the company is about INR6.27 billion. The industry as a whole is in discussion with IRDA on the manner in which the liability had to be determined and treated in the financials.

Along with the revision of the loss rates, IRDA has also relaxed the solvency requirements for insurers to 1.1 at March 2012, 1.2 at March 2013, 1.3 at March 2014, 1.4 at March 2015 and 1.5 at March 2016 respectively. We will evaluate any requirement of increasing capital into the company in due course.

Effective April 1, 2012, the existing third-party motor pool has been dismantled by IRDA and a declined pool has been created instead. Under this mechanism, insurers would see only those policies to the pool that they will not look at underwriting themselves.

Insurers have been mandated to underwrite motor pool policies to the extent of sum of 50% of the share in the total gross premium and a 50% share in the total motor premium. Any shortfall against this requirement will be allocated to the insurers from the declined pool.

Additionally, as against the earlier mechanism of ceding all the third-party premiums, including those related to the comprehensive policies, under the proposed declined pool framework, when these specific third-party insurance premiums would be pooled.

Accordingly, under this mechanism, the size of the pool will decline substantially and the allocation of losses to individual insurers will be based on their ability to meet the mandated targets.

With respect to our overseas banking subsidiaries, I would like to mention that the financials reported for ICICI Bank Canada are based on IFRS.

As per IFRS financials, ICICI Bank Canada's profit after tax for Q3 was CAD6.6 million. Total assets for ICICI Bank Canada were CAD5.28 billion at December 31, 2011; a marginal increase as compared to the previous quarter.

The capital adequacy ratio at December 31, 2011 was 31.6%.

ICICI Bank UK continued to see balance sheet consolidation during Q3 of 2012, with the total assets declining from $5.13 billion at September 30, 2011 to $4.77 billion at December 31, 2011.

During Q3, ICICI Bank UK's investment in bonds or financial institutions, excluding those to Indian entities, declined further from about $288 million at September 30, 2011 to about $228 million at December 31, 2011.

Exposure to European entities is less than $35 million and is to UK-based institutions. The remaining investments are primarily for entities in the US, Canada and the Asia Pacific region.

The profit after tax for ICICI Bank UK for Q3 2012 was $7.7 million. The capital adequacy ratio was 29.4% at December 31, 2011.

As a result of the above, the consolidated profits for Q3 2012 were INR21.74 billion compared to INR20.39 billion in the corresponding quarter last year.

For the nine-month period ended December 31, 2011, which is comparable on a year-on-year basis on account of the treatment of non-par surplus in ICICI Life, consolidated profits increased by 28.9% from INR45.25 billion in nine months 2011 to INR58.33 billion in nine months 2012.

The consolidated return on equity improved from 13.7% in Q2 2012 to 14.2% in Q3 2012.

I would now like to talk about our outlook for the full year. As I had mentioned earlier, there has been a moderation in the economic growth, with a significant slowdown in the new project activity. At the same time, several changes on the regulatory front are underway. Our outlook for the balance year is in this context.

With respect to loan growth, we expect the overall loan growth to be about 18% for this financial year. We expect the growth in the fourth quarter to be driven by retail assets growth, working capital demand and the uptake from the past project approvals in the corporate segment and, of course, priority sector lending. We would expect lower growth in the overseas loan book on account of constraints on availability of dollar funding at the desired costs.

Here I would like to reiterate that the Bank would look at incremental dollar funding only from a perspective of growth and there is no fund-raising requirement to meet the liability maturities.

The Bank was carrying liquidity of about $900 million at December 2011 in its overseas branches, which, together with the expected inflows from the asset maturities of about $500 million, would be adequate to meet an aggregate of about $1.2 billion of liability repayments in Q4 of 2012.

It is to be noted that, in the current financial year, the Bank has already repaid liabilities of about $2 billion, including about $700 million in January of 2012, while the last bond issuance of $1 billion was in May 2011.

For the fiscal 2013, the expected inflows from the asset maturities are about $3.2 billion and would be adequate to meet the liability repayments of about $2.7 billion.

Given the decline in the demand deposits in the system, CASA deposit mobilization has been challenging. Our target is to maintain the average CASA ratio at about 40% for this financial year. We expect the overall net interest margin to remain stable at 2.7%.

With respect to fees, we have seen continued improvement of certain fee segments, such as transaction banking, ForEx and derivatives and remittance fees. However, fee income was impacted by a slowdown in corporate project finance-related fees due to moderation in new projects and financial closures, as we discussed earlier.

Going forward, growth in corporate fees would depend on traction in new projects and on certain financial closures. So, in this context, we expect to sustain the current fee growth trends.

Operating expenses in the financial year 2012 are expected to increase by about 18%. The increase would be mainly due to the increase in the employee base in financial year 2011, full cost base of Bank of Rajasthan and the average increase of about 11% in salaries effective for financial year 2012.

For financial year 2012, we expect the nine-month trend for the cost income ratio to be maintained.

Again, for financial year 2012, we do not expect the provisions to average advances to exceed 70 basis points, based on the current RBI guidelines and our current assessment of the asset quality trends. This includes any NBP impact that we would incur on the restructuring of that, as we talked about in Q4 of 2012.

So, with this, I now conclude my opening remarks. My team and I will be very happy to take your questions. Thank you.

(Operator Instructions). Mahrukh Adajania, Standard Chartered.

Congratulations. I just had a few questions, actually. Of course you gave a lot of details on restructuring, but just specifically in terms of GTL -- and I know you did -- your last comment was in terms of credit costs being contained. In terms of GTL, would you have a term loan exposure? Or you had any working capital component as well? Because NBP hits by different banks are all over the place.

Yes, term loan exposure.

Term loan exposures only. Okay. But is it going to be possible to give any broad range of what the NBP hit growth and NBP hit would be like, or any other guidance, even qualitative?

No, that would be difficult, Mahrukh, but what we can say is that when I am saying that 70 basis point provision expenses for the year as a whole as a percentage of advances, we have taken into account all such hits that would be there on NBP basis on account of any restructuring. So that should not (inaudible) beyond that number.

Okay. And the other thing I wanted to check is that a lot of banks have classified Kingfisher as NPL, and it is standard with foreign and private banks, including ICICI Bank. So I just wanted to check that -- you know a lot of private banks, even those with smaller exposure than yours, also have security in terms of shares of liquor companies.

Now until what time would you wait? How do you plan to enforce securities? Say the accounts of Spain, would you allow it to be NPL? Or you would rather enforce security? What would be the thought process?

The thought process is that -- I don't know about other banks. As of -- currently the company is not in payment default to us, and there is no question of classifying that as NPL, as far as we are concerned. So it is part of the restructured asset base of INR25 billion for us (inaudible) number.

And so, to that extent, what we will do if there is a payment default at that time is a bit hypothetical, but we will take all actions appropriate to protect the interests of the Bank.

Okay. And the other thing I wanted to check is, probably I missed that, or it got cut off -- the INR1 billion increase that you see in other income is because of the dividend from ICICI. Is that correct?

About INR1.5 billion is the dividend which came during the quarter on account of ICICI Life Insurance. It is primarily on account of that.

Okay. Thanks so much.

[Ameet Prinjandami, UTI].

Just on the restructuring numbers, one of the -- there was a court case which got -- there was a decision on a court case and that was a CDR account, and ICICI also having exposure to that group. So if that group has been restructuring CDR, is it including the restructuring number that you publish every quarter?

I presume you are referring to [Essar Oil].

Yes, yes.

We can't really discuss asset classification on a name-specific basis.

But I'm just saying if, say, some account has been restructured seven, eight years back, will it still appear in this INR3,000 crores restructuring number that you give? Or is it like it has been restructured seven years back and it has performed as per the terms it will go out of that INR3,000 crores number?

This would not be in the reported restructured number for that, and I don't think -- it may not be in the restructured loan book of any of the banks that report restructured loans, because this happened actually in the previous cycle. So that has already got upgraded, in that sense.

And the restructure has been performing.

And in terms of overall quality of the exposure, do you think that it may turn into an NPL, or[any proposal for the restructuring on that exposure?

There is no restructuring proposal or NPL proposal. Essentially this is a tax liability that would have had to be paid over time. Probably the payment will get accelerated and the company will have to discuss with Gujarat Government on the new time schedule for payment. But the cash flows will have to be adjusted to that extent, but we don't see an NPL or restructuring issue there.

And in terms of your exposure to Kingfisher, like you had said that you have the (inaudible) which flows through your Bank (inaudible). So is there a similar structure with other project finance kind of loans? Maybe the KF was not project finance, but generally project finance loans where you are the lead banker and that's where you have the access to the cash flow, and so you will be hit the last in terms of -- and you will have the first charge on cash flows?

Typically in a project finance case, the lead bank typically has the trust and retention account. So all the disbursements to the company, and all the payments from the lenders are made into that account, and the company cash flows again get credited to that account.

And there is a pre-agreed waterfall structure paying for operating maintenance expenses, and then looking at the senior lender's dues. So that is what typically is agreed to there. But in a corporate finance transaction, (inaudible) case by case gets negotiated, depending on the lender's comfort level in terms of security structures.

So in terms of if you had that access to that trust account, and you are the owner of the account, in the sense, how does it help you in terms of whether you will have a first charge (inaudible) cash flow [hundred], and the repayment liability of [one-fifty], how does it get a look at it? Is it a waterfall structure proportionate? Or do you have first [rate]?

It will be depending on the contractual arrangements (multiple speakers) --

Contractual arrangements and the seniority of the lender's interest rate. It really depends on that.

Okay, thank you. That's it from my side.

Anish Tawakley, Barclays.

Congratulations on a very good set of numbers. Two questions; one on the restructured accounts, and this is in the context of a question that was asked earlier. My understanding is that the account is classified as normal, or taken outside the restructured bucket after one year of performance. Is that correct?

Yes, after one year of satisfactory performance.

Right. Then so the INR3,000 crores is [stopped] -- that would have been restructured in the past one year, right?

There could be payment [moratorium] as well. So all the loans would not typically get upgraded within one year, because you may have a moratorium. It's only after one year of payment performance (inaudible).

Oh I see, so it's one year after the moratorium is over.

One year of payment performance.

One year of payment performance. Otherwise one could have a much longer repayment period, and keep upgrading. So that checking balance is there in the system.

Okay. And could you give me the gross restructuring in the past two quarters, corresponding to INR800 crores this quarter?

Yes, just hold on; we're just getting that. It was about INR7.5 billion in the second quarter, and about INR1.5 billion in the first quarter.

Okay. In terms of the NIM on the overseas book, how should we think about how that's likely to evolve, given that it's improved quite significantly? Could you share your thoughts on that?

On the overseas NIM in the past, if you look at it, we have been running at between 1.3% and 1.4%. So in the interim it had come down because of the increase in the funding cost and the asset re-pricing had not happening completely because of the [LM] gap which was there. Because of the fresh lending being at a higher rate and some of the lower spread loans getting repaid or prepaid, the margins have increased. So I think going forward, the current level of margin is what we would expect to continue.

Okay. So it's now stabilized, basically?

Yes, our aim would be to kind of maintain it at the current levels.

Okay, great. Thanks.

Manish Ostwal, Krchoksey Shares & Securities.

Congratulations on a good set of numbers. My question on provision during the quarter, can I have a break up of -- in terms of loan loss provisions and provision for restructured assets?

The provision for restructured assets is quite small. It's mainly provisioning for the loan losses, which is there.

Okay. And secondly, in last few quarters we have seen tepid growth in the fee income line, and basically as mentioned in the call this primarily relates to corporate fee income. So how do you see the fee income going forward, especially, next two to three quarters; whether it will see some traction or it will remain at current levels?

If you look at the current period, we have been -- the current quarter, growth has just evolved 4% to 5% on a year-on-year basis. For the nine months, we are running at about 7.5%. For the full year, I think we'll end up around this kind of growth in fee income.

But the coming financial year, we would expect that, given that we are seeing reasonably good growth on transaction banking and the granular fee income of the Bank, we would expect to see at least double-digit kind of growth in fee income in the coming years.

Okay. And last, can I have the momentum NPL during the quarter, sir, in terms of (inaudible) and upgradation?

As Kannan mentioned, our additions was INR8.77 billion. Recoveries (inaudible) [saw] INR6.96 billion.

Okay, sir. Thank you very much. All the best for next quarter.

Nilanjan Karfa, BRICS Securities.

(inaudible) on the Life Insurance, the expense ratio has shot up to 21%. Can you throw some light on that? If I recall, you used to guide somewhere around 15%, 16%.

That is essentially because of this adjustment on account of this new regulatory regime coming in. The volumes have been slower to start with at the beginning of the year.

Second, as we all know, it is a bit of a seasonal business where Q4 is higher in terms of volumes. We get (inaudible) for the period.

So there is no specific concern from our side on the expenses. Pretty much under control, and they are also embarking on a cost control plan. So, really, there should not be any issues on that.

If I have to quickly take on one thing that you mentioned, you said that you are looking further into cost control. And it has essentially been happening over the last four quarters. So could you throw in what more we are looking at in terms of how are you going to control the costs?

Some of the areas in which the companies have been working on is on the sales management side. They have focused on the span of control and improving the productivity of the sales force. We have also taken several technology measures in terms of customer convenience, as well as internal processes.

So these three, four initiatives, they have been pursuing. And we do believe that this will be one of the best productive companies among the life insurance companies.

I'm sure. And I think you also mentioned you've got a dividend about INR1.5 billion this quarter. So which means that the statutory profit for the nine months, I believe, somewhere around INR10 billion to INR10.5 billion. So is that the payout ratio from the Company is going to be in that range of 14% to 16-odd-%? Is that the broad guidance you would like to give?

No, the way that we have worked out, Nilanjan, is that the company's Board approved the dividend, and they declared and approved the dividend in the month of December. And while looking at it, they had the six-monthly results which were available to them. So this dividend is really for the first six months of the financial year.

So going forward, as I mentioned to you, the expectation is to get a regular dividend on a quarterly basis, although with a quarter lag. That is how this is likely to pay out. Of course, subject to their Board declaring a dividend, and subject to any regulatory requirements.

So maybe this time we go for two quarters together, but going forward, for every quarter we will get it in the corresponding -- sorry, in the next quarter. That's what we are planning.

Okay. So if I have to broadly look at it, the first half profit was somewhere around INR6.5 billion, I would guess, for which you got a dividend of INR1.5 billion. So that's going to be the broad --

The other thing is, that INR1.5 billion is our share of the dividend.

So, that's 72% of that.

It's a joint venture. We hold 74%, and (inaudible) percent of Prudential so we'll have to adjust it for that.

Okay. And the second is on the general insurance. You broadly touched upon it, but have you decided are you going to infuse more capital in Q4 because of the shortfall in the liabilities?

No, no, we are not yet decided. We will have to -- as I mentioned, both from a perspective of capital infusion, as well as from a perspective of the treatment, from a holding perspective, the discussions are on (inaudible). As we go along, we will take the call, and then we will decide appropriately. We are not taking a call yet.

Okay. And very last question. There are a couple of [levers] based on our past discussion, in terms of margin, how the margins shape up in FY '13. Could you give a broad guideline as to it's going to be 2.8% to 2.9% going forward in FY '13?

Yes, broadly, the discussions we have had in the past, they do continue. But, of course, we are -- on the deposit side also, as you have seen from the numbers, the cost of deposits is broadly plateauing now. But we will have to really wait and see how the rate cut cycle plays out.

Assuming that it will go as per our expectations, we are seeing a visibility for margins of about 2.8% or so. Then beyond that, we'll have to really take it on from there.

For 280 basis points, we do see a visibility, yes, and (multiple speakers).

Would that include your factoring of the 50% to 40% [agri], the loans that you do, plus securitization book running of maybe another two-odd months from now on?

That's correct.

Great. Okay. Thank you very much.

(Operator Instructions). [Bajaran Barvna, Soneti Securities].

Congratulations for good set of numbers. My first question pertains to could you provide us, in dollar terms, the net interest income PPP and paid for during the quarter? Is it possible for you to provide that number?

Dollar terms?

Yes. I just want to understand what was the contribution in constant currency and what proportion has been added, just because of this year-on-year currency movement of almost 19%.

In the income statement, actually, the impact is not there because you take -- both interest income and interest expense would have been stated on the average rate during the period.

Currency impact has an impact, which, again, Kannan has referred in his opening when he talked about the overall loan [book]. The international book, which is showing a 38% year-on-year growth, if you exclude the impact of currency, that growth is about 16.5%.

Income statement, there should not be any impact on (inaudible).

Okay. And my second question pertains to could you just provide us the -- your thought process? Because what we understand is that this -- probably the interest cycle is about to peak, whether this will coincide with the asset quality cycle to also peak out.

Because this time around there are a couple of issues, which pertains to policy issues, like power, then aviation, then textile, and mining, which are not predominately the asset quality has turned red because of the higher interest rate; it's predominately because of the policy issues.

So if -- what is your thought process, whether you see that this will coincide with the asset quality cycle as well?

Our own sense is that as, at least as far as our book is concerned we have always articulated that we do not expect the non-performing loans to increase significantly. As we have seen from the quarter's numbers also the [impair] percentage has actually declined to 70 basis points. That is on [PNP] side.

But we have always maintained that there are some cases which have to undergo restructuring. And we have also maintained that this is not any sector-specific issue. These are issues pertaining to specific cases, whether that could be reasons regarding there's some impact of their business model on account of cost, or, in some cases, the group gearing is high, so they'll have to have a restructuring. So the process is what we are going through.

That issue, as we mentioned earlier, we had the outstanding restructure assets of about INR30 billion and we have said from here on about INR13 billion of our exposure is there in CDR to be restructured. So that is how we see this situation developing.

I don't think -- and also the credit cost, I mentioned that it is likely to be around 70 basis points of the average loan book for this quarter -- sorry, for this year. And into the next year also we expect that our provision to average advances would be around 75 basis point levels.

So when we make the statements we have factored in our -- in the base case that the margin there maybe will not to all projects which may get delayed because of what you mentioned as a policy slowdown, etc. But net net, we do think that the estimates we have made pretty much factor in the policy issues which you have highlighted.

Okay, thank you. That's useful.

Thank you. [Surin Rosheti, UBS].

Sorry I missed the point on the refinancing requirement over the 2012 period. I guess there is certain USD bond issuance which need to be refinanced?

Yes indeed, if you're talking about the current financial year, 2012?

Yes sorry, 2012, yes.

Yes, in the current financial year we had a bond issue repayment happening in January 2012 -- that is this month, and that was about $700 million or so. We had anticipated -- in the anticipation of this deduction, we had kept about $900 million of liquidity as of December, so that was used to repay this bond issue.

During the current quarter also, broadly our bond reductions would balance with our asset maturities happening, so we don't have to access the markets with the bond issue for the repayment of our past bond issuance redemptions. So that is not required.

What I mentioned during that discussion was that if we had increase the loan book on the international side, then, for that, we may have to access the bond markets, if we have to have a growth aspiration on the international book. And that we'll have to evaluate, based on the cost at which such bond issuances can be made.

So, as of now, we'll be quite comfortable with this scenario playing out. And even into financial 2013 we are quite prepared to keep the international loan book at around the same levels, or even declining, because largely, as I mentioned earlier, again next year also the bond repayments are less than the set maturities. So we are quite okay on that front.

That means the -- you can cope with the interim cash generation?

Yes, from the opening assets, yes.

Right. And my second question is regarding your foreign subsidiaries. Now it seems you have a high level of capital there, so do you have any intention of reducing capital by repatriating a part of it to India?

You know we have said in the past that we will work towards rationalizing the capital structure there. And our medium-term objective is to rationalize the capital structure and also create some business model there, which will enable us to take ROE to at least double digits in those entities.

But that is a slightly longer term plan, so it will take us one to two years to resolve that. But clearly we are looking at rationalizing this capital structure and also look at alternative revenue sources.

Okay. Thank you very much.

Thank you. [Nada Debeka, Capital Markets].

Congratulations on a good set of numbers. My question is pertaining to the retail book. You said you want to improve more of retail book but I could see only the [regular] loans improving on this book. So going forward, where do you see the loans now putting in, because the home loans was flat on a QoQ basis?

Yes, there are two reasons for this muted growth of our retail book. One, as I'd given the numbers during my opening remarks, the retail and secured loans which we have not very much focused on as a growth strategy, that has been [de-growing]. And that decline continued into this quarter as well. So that was one of the reasons.

The mortgage dispersements, if you look at it on a quarterly basis, we do see a 15% on a year-on-year basis. We have seen that kind of a growth in mortgage dispersements. However, this is not translating into increase in assets, primarily because of our Bank's opening mortgages book being very large and the repayments and the pre-payments happening out of the book, that is not being compensated by depressed dispersement.

But when we said that we want to increase the proportion of retail and increased the growth in our retail book, what we meant was that we will continue to growth the auto book, which we have mentioned. And also the -- over a period of time as the mortgage volumes pick up, then the dispersements would exceed the repayments from the opening assets and, through this, we'll be able to increase the retail loan book size.

Okay. Sir, one more point on the (inaudible)-related investment. That book is growing pretty strong on a QoQ basis -- both on YoY and QoQ basis. What is your guidance for this book and priority sector lending?

On the RIDF book it is a function of the calls we get on, based on the past shortfall. So in the -- we would expect that to increase, based on the past shortfalls that we have had on the portfolio. During the current quarter it increased by about INR10 billion or so.

It's pretty difficult to give a guidance, but it depends on when we would get the call from each of these government-owned entities in terms of this funding.

On the priority sector lending itself, last year we were short on the direct agriculture part and the [weaker] section lending. As you are aware, RBI has tightened some of the guidelines, which have made it more difficult in terms of achieving these numbers, because they basically require banks now to do more of granular in their overall business. So we are in the process of building up those businesses.

But, in the near-term, I think it will be fair to assume that we will end up with a shortfall on our priority lending targets and the sub-targets within that. So that is something that we are factoring in while we talk about our balance sheet and profitability.

Okay. So my final question on the slippages front, do we have any big accounts on this INR877 crores of slippages?

Big accounts, how do you define a big account?

On a corporate account.

There will be corporate accounts, but there's no large exposure which has slipped. The overall aggregate number itself is not a large number in the context of the INR2.46 trillion in our portfolio.

Okay. Thanks a lot.

Anand Vasudevan, Franklin Templeton.

A question on the cost outlook and the cost-to-income ratio. Now the branch expansion has been fairly -- branch numbers have been fairly flat if we look at it on a year-on-year basis and you gave some numbers on staff. I'm not sure I got it right but it looks like staff numbers also have declined. Is that correct?

Yes.

So what is the outlook for the network expansion and staffing over the next year?

Network expansion, we have about 300 branches we are in the process of executing. That will -- we will complete that, and after that we will really review and see whether any further expansion is really required in the short term.

So our own sense is that, in the financial year 2013, we would be working to keep the cost-to-income ratio at about 41%. That is what we are planning. And we still have, as I mentioned, about 57,000 people. That recruitment to -- the capacitization hasn't really happened. So we do believe that the branch productivity and the people productivity can still kick in. So with that, we should be able to manage the cost-to-income ratio at about 41%.

And your guidance for this year is 44%?

No, we have said that the nine-month number is about 43.5%. We said that we will be in that 43.5% range for the whole year as well.

Okay. The other question is on CASA and pricing of savings accounts. I know that you've said in the past that you'll not be the first one to make any move, but if CASA is going to be a challenge, are you -- what are your thoughts on being more competitive at least on high value balances?

Yes, if you really look at the split of accounts, the challenge has been mostly on the current account side. While the numbers are looking good over the quarter, and I talked about that NHAI bond issue which resulted in floats being available as of December 31.

But the good news, of course, is that, even on an average basis, we've been able to increase the CASA. So that is a good point.

But the current accounts will continue to be under pressure because for the system itself, the current account is declining; balances are declining. So that is one part.

On the savings account, however, if you look at the numbers for the quarter, we increased it by about INR33 billion, which came at the back of similar numbers for the previous quarter. So actually, despite the price increases we have seen, the rate increases we have seen by smaller banks, we are quite happy with the savings account performance during the quarter.

So our strategy continues to be the same; just keep wait and watching but not make any moves now.

And what is the rate of savings account customer additions that you are seeing, run rate per month?

It would be about 200,000 or 220,000 or so.

And is that -- what are the trends? Is that improving? Or is that --?

No, it has been improving. So there is no real concern on the savings account now. So we are quite happy with that end of run rate number.

Okay, great. Thank you.

Vishal Goyal, UBS Securities.

I think most of the questions are answered, just one left. If treasury loans of INR1.7 billion we had during the first nine months, of this, how much would be equity related and basically mark-to-market losses on equity side?

No, we don't give the break up. But the bulk of that really is on account of equity side. It could be some part realized and some part mark-to-market because, if you look at a case like GTL or something, or Kingfisher, where we had equity exposures we had to take the mark-to-market -- get mark-to-market at the end of every quarter. So those are really flowing through that line right now. So I would say that in the last (inaudible) is equity.

The other item which happens is the security assets of (inaudible), where on a (inaudible) basis it depends on the (inaudible) we are taking. So those two items will account for the bulk, really.

And the security deficit will continue for next year also? Or will be it over next year?

It will be a lower amount next year. But there will be some impact next year, but it'll be a lower amount than what we have currently.

Okay, thanks.

Krishnan Asv, Ambit Capital.

I just wanted to understand your -- I guess the pace of these upgradations and recoveries has been fairly strong. I just want to understand what is resulting in this? Are there more intense efforts now on the recovery efforts? Or -- has there been some change in the recent past in your strategy on, say, recoveries?

No, nothing significantly different from what we used to do. It's just a normal effort which continues.

Okay. And the other thing was nearly -- I think nearly 70%, 80% of your incremental credit growth during this October to December has been towards domestic industry. I just wanted to understand the nature of exposure incrementally that might have moved them. And which sectors are moving within your portfolio right now?

It's a bit broad based. Some of the projects (inaudible) here are in the past the investment's not happening.

We have seen in manufacturing expansion projects and (inaudible) sectors like iron and steel, core sectors like cement. And those are the areas (inaudible) sectors that we have seen these first months. We have also seen working capital dispersement happening during the quarter.

So I would say that it's a bit broad based between the core sectors and (inaudible) working capital low.

Okay. And just one last thing, I just want to understand, what is the CB business? The split within the retail book, what (inaudible) loans. But the commission business has been fairly strong this quarter. Is that something seasonal? Is there more to read into this?

There would be a small amount of buyout that we would have done, which would have qualified for priority sector lending. Otherwise, if you leave that aside, the trend has been consistent over the last few quarters.

Okay, sure. I'm done.

M.B. Mahesh, Kotak Securities.

Congratulations on a good set of numbers. The first question is, can we get a rough exposure of the international book that you have in the parent balance sheet? What will be the kind of breakup of that book currently?

The break up into what?

How much is in working capital? How much would be in ECB or just foreign currency loans for domestic corporates?

Yes, we will not give any specific break up. So it is what we have talked about. It is largely lending to India-linked companies. It has a small proportion of (inaudible) finance. The larger proportion is lending in the form of ECBs, to Indian companies or into India. And overseas also it will have mainly acquisition financing and (inaudible). It's a mix of all these things.

But is it possible to give some break up on this? Just an indicator break up?

Yes, we could look at it in the future, yes.

Okay. Sir, just on the understanding on that growth on the retail side again, given it's been quite a few quarters where the repayments continues to remain faster than the pace at which we are adding loans, I just wanted to understand when do we start seeing the reversal of this trend and start seeing, actually, some kind of much broader growth in the retail book, especially on the housing side?

We are hoping to see it in FY '13 itself, partly because that unsecured loans, as I mentioned, is still coming down. So that will stabilize at some point.

Plus one of the reasons has also been that the branch-based sourcing model, as against complete reliance on DMAs, that is taking a bit of time. So we expect these things to get sorted out and FY '13 you should see growth.

Okay. And, sorry, one last question. This 1.5% of slippages that you've reported this quarter, is it fair to assume that the international book is not seeing the same level of delinquencies as the overall book has seen?

Yes. That will be a fair assessment, yes.

Okay, so, in effect, your slippages that you are seeing in the overall book will be somewhere in the range of about 1.7% to 1.8%, if I remove the international book?

The whole question, I just wanted to check is where are we seeing such -- even now the slippages seems to be on the higher side. And retail, if I look at your overall (inaudible), has not changed so materially. So I just wanted to check why are we still -- where are we still seeing such large slippages coming in, even in the last couple of quarters?

No, what's happened, actually is that if you look at the retail portfolio, customers actually flowing to the 90-plus pocket. And then post collections (inaudible) updates that happen. So we just -- as you know from last year, we started reporting the gross addition on the gross basis for retail also.

Correct.

So it shows up as a gross addition and the (inaudible) operation also. So a large part of the addition to the NPLs is coming still from the retail portfolio. And we have similar uplifts also happening there. So the net addition is close to zero on the retail side. On a gross basis, they are both in the addition and deletion side.

Other than that, the additions have really not been much on --

Actually, no, given the kind of improvement we have, where we are all working in, we are quite comfortable with this level of slippages. I think this is not really a matter of concern to us because we think that it's pretty much under control on the NPL side and some contra items, which Rakesh talked about. That should not fundamentally alter the quality of the book itself.

Sure, that is so. Just one question following this up, if you were to look at these kind of slippages that you're seeing in this portfolio currently, and what you've underwritten in terms of loans post 2009, is there any difference wherein you're still seeing a large part of these NPLs coming in from the pre-2008 loans -- 2009 loans, sorry, anything of that sort?

No, and I said on the retail side, the net addition actually is close to zero.

That is a normal operational matter. They just slip in and then they get sorted out by the time they pay. It is not really a concern at all.

No, I just wanted to check how the underwriting has -- are you very comfortable with the kind of -- has there been any improvement in the underwriting that you have seen post 2009 and pre 2009?

Absolutely. The retail credit loss was close to zero. And then an overall, given the economic environment, being able to contain the provisions at less than 70 basis points as against our beginning of the year estimate of 80 basis points, we think (inaudible).

And as I mentioned earlier, that we are really looking at 75 points for the next year as well.

So I think that part of the equation has been pretty much brought under control. In fact some people have been asking that is it not too low, but that is the case.

The second issue is that the way this will get played out is the restructured loan increases, which we have rarely have talked about. And our own experience, I must add, that whenever we restructure the loan, our own experience of slippages from restructured to NPL in the past during several quarters, several years we are seeing, it is less than 10%.

So it is not a question of parking and restructure and we're trying to avoid NPL. Even that issue does not happen. So all in all, I would say that asset quality has played out quite well and to our satisfaction.

Sure. Thanks a lot.

Jatinder Agarwal, RBS

Couple of questions, actually. One is just on the yield on loans. When we try to calculate from the mix, the blended yield at 9.5% seems abnormally low. Could you explain where is the yield significantly lower compared to competition? Is it more in the overseas or is it more in the domestic?

No, this yield is a mix of overseas and domestic. That is why it is a lower amount. So if you have to compare with the competition, our proportion of overseas branches (inaudible) than the competition; that is one reason. And some of the competitors, they must be looking at retail and secure loans domestically where these are much higher, so our book has been coming down.

So those could be the two reasons in terms of the overall yield.

Where can we see your delta in terms of your average yield on loans starting to move up relative to other -- gap actually getting (inaudible) related to competition.

So, we look at the domestic yield and overseas yield separately.

Right. And you don't disclose the numbers, right? Which is what I am struggling for, right? So when we do a backward calculation based on the loan mix --

If you can actually -- oversees, as you're aware, you can assume that we are lending at LIBOR average book [250/300]. So if you go backwards, you will get the number in terms of what the yield on domestic advances is.

And on the advances side, our yields would be comparable, if not better than most of the other banks. The challenge on the margin for us has been that one yield on investment has been lowered, which we referred to earlier. That is an area where we are working on in terms of increasing that yield.

And overall on the funding cost side, average costs as a percentage of total funding is something that we have to work towards increasing that.

Okay. And my second question is basically on these credit substitutes. So if I just look at last year December number, then -- current December numbers, is it fair to assume that this book is about INR40,000-odd crores?

Exactly which -- what number?

What I have done very simplistically is total investments minus SLR, minus equity investments and RIDF. So the balance is about INR40,000-odd crores last year, and it is about INR43,000 crores currently.

Yes, and that should be.

What is your sense on this credit substitutes business relative to competition? Some of the peers on the street seem to be growing their book very strongly, and that does not seem to be growing at our end? What is your understanding of some of the new business that is getting originated within that segment?

So we believe that if you look at within the credit substitutes, there will be -- it will include part of the book that we maintain for liquidity purposes. It will be CDs. So whether they put money into CDs or into mutual funds or into government securities. That will be a function of our views on each of those specific markets.

Within credit substitutes, from a lending point of view, the corporate bonds and debentures is the one book which we have also grown over the last year or 1.5 years. That book has grown well for us. We don't want to increase it beyond a point, because it does carry market risk and other risks on that portfolio.

Okay. That is it from me. Thank you.

Hiren Dasani, Goldman Sachs.

I just missed one number. (Inaudible) domestic NIM now, it's about 2.91%, right?

2.98%.

2.98%. Now I think in one of the responses earlier, Rakesh mentioned that overseas NIM is about 1.4%. It's now more or less where it should be. So there's not much scope for improvement there?

No, I think it will be just about 1.4% level. If we keep it, we'll be quite happy.

Okay. So then if at all there is any NIM expansion, it has to happen from the domestic side?

That is true. Plus the other thing is that the mix of domestic and international could change. Mix traditionally used to be about 25% international. Now it has gotten close to 28%, 29%, primarily because of the exchange rate fluctuation.

So one is that exchange rate stabilizing, and secondly that the growth being more on the domestic side going forward because of the ability to access bond issue on international trade, as I said, will be quite limited, given the eurozone issues. So the uptick will be the mix also in favor of domestic. That could give us a positive.

So those are the couple of levers available.

Sure. But do you expect domestic NIM per se to [increase] meaningfully from here on? Because if you look at your peer group, which is at 40%, all Bank CASA ratios on the domestic side, they are at between 3.5% to 3.75% of NIM.

No, over the medium term, the target would be to improve the domestic NIMs as well.

But what about FY '13? Do you think it would be better than what it is currently?

FY '13, we would be happy to target an overall about 280 basis points. That should be for the NIM for the Bank as a whole. That should be only -- because we are also making an estimate given the -- knowing fully well that the situation could be different as we go forward into the year because rate increase cycle is over now.

So we'll have to see how the things play out, how the replacing happens on assets and liability side. That's why I'm saying that, as of now, we'll have the visibility for 280 basis point. We'll have to see how things play out.

Sure. And on the restructured book, sorry if I've missed this number, but have you guided for any increase in the next quarter from, let's say, it is INR3,000 crores? What could be the potential restructured book by March '12?

Yes, we have said that INR3,000 crores is a number as of December. And we have also said that, about INR1,300 crores, that is the amount of our non-exposure which is on the CDR mechanics undergoing restructuring.

So that much is definitely -- it will probably grow -- it will happen this quarter. So that much of increase we are seeing, as we just estimate the number for the quarter.

Sure. And when you report the INR3,000 crores book it's basically net of some repayments which would have happened in [this] book, right? The restructuring book?

That's correct.

And based on your understanding of your book, do you see that INR1,300 crores moving up materially over the next maybe three to six months?

Given the situation we are living in, there'll always be a few assets here and there which can get added to that number.

But INR1,300 crores is all the known CDR cases (inaudible)?

That's correct.

Okay. One thing on the life insurance profits, it's heartening to know that the subsidiary has started paying dividends now and we expect it on a quarterly basis going forward. Does it mean that the growth outlook on that business has substantially changed?

No. I think the business has an ability to grow -- the life insurance business itself has an ability to grow between 15% to 20%. The primary issue was really -- the growth came down primarily because of the regulatory changes.

And, as you appreciate, you should also see that we have put substantial capital in that business and the solvency margins are far, far in excess of the regulatory requirements. So no point in running with such a high solvency requirement just for the sake of it.

So when the Board looked at the dividend, they also looked at whether the payment of dividend is going to impact in any manner their business and they came to a conclusion that that's not going to be impacted, having seen -- having factored in the dividend payout for some reasonable period going forward.

So I don't think there is any issue at all of this dividend constraining growth of the life insurance company, no.

The reason why I asked this question was if one talks to the industry participants, one believes that because of these surrender charges being higher for the earlier book which was being written in the earlier regime, possibly some of the profits which life insurance companies are seeing today are not sustainable in that sense.

No, it is indeed true that part of our profit would be coming from the (inaudible) of the past, but it's also true that the core structure has got much better, the efficiencies have started kicking in, the scale has been achieved. So those economies are also resulting in profit from the new business.

So let's the -- the renewal premium is also giving us out of -- based on fund management charges, ongoing revenue streams. It will be a combination, but no, there should not be any concern on that account.

Okay. And lastly, if you can just tell me what's the builder loan portfolio which was at INR10,000 crores in the Q3 -- I mean Q2 and ex-builder loan, what would be the core mortgage growth?

The question is?

The loan book has come down by about INR9 billion or INR10 billion during the current quarter.

For INR1,000 crores it would have come down sequentially.

Okay. And what would be the core mortgage growth in -- or what would be the builder loan as of December '10?

December '10 was about -- it's nearly the same. So if you look at home loans excluding -- the growth is about 5.5% or so. Not a major difference (inaudible).

It doesn't make a big difference to the percentage growth.

Sure. Thank you very much.

For the quarter it indeed does because for the quarter you may see that the overall portfolio is coming down marginally, that is entirely because of builder portfolio coming up.

Yes, so mortgage has gone up actually by about (inaudible) --

For the current quarter.

That's correct.

Thank you.

Thank you. Ladies and gentlemen due to time constraints we will take the last question. Adarsh Parasrampuria, Prabhudas Lilladher.

I just wanted to check on this fee income guidance when you say it could be double digit. Just wanted to check on possible downside risk to that because current trends on core fee income seem pretty muted.

We really hope that there is no downside at all to that, because what we have to suffer in terms of the corporate fee coming down, we have suffered in Q2 and Q3 [and today]. And the revenue streams I talked about that are in transaction banking, the remittances and the ForEx and derivatives, they are growing.

And hopefully next year is also -- on a lower base, we are going to have a better year in terms of this third-party distribution.

So given these three, four revenue streams, we do believe that we can achieve double-digit growth in fee income next year.

Thanks.

And the base also will help us, I suppose.

Okay, thanks.

Thank you. Ladies and gentlemen, that was the last question. I would now like to hand the floor back to Mr. Kannan for closing comments. Please go ahead, sir.

Yes, thank you once again for all of you for listening in and then spending about 1.5 hours [with us]. Thank you very much. Bye. Goodnight.

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