ICICI Bank Ltd (IBN) 2012 Q4 法說會逐字稿

Ladies and gentlemen, good evening, and welcome to the ICICI Bank quarter 4 2012 results conference call. As a reminder, for the duration of this conference, all participants' lines will be in the listen-only mode. 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 now like to hand the conference over to Mr. N. S. Kannan, Executive Director & CFO of ICICI Bank. Thank you, and over to you Mr. Kannan.

Thanks, (inaudible). Good evening. Welcome to the conference call on the financial results of ICICI Bank for the quarter ended March 31, 2012. This is the fourth quarter of this fiscal 2012.

As usual, I make my opening remarks in four parts. Part one on the macroeconomic and the monetary environment. Then we'll move on to part two, where we will talk about the performance during the quarter, including our performance on the 5Cs strategy. Then, we'll move to part three, consolidated results of the Bank; and finally, part four on the outlook for financial year 2013.

So let me start with part one on the macroeconomic and monetary environment. As you all know, the global economic environment continued to remain uncertain during the fourth quarter of fiscal 2012. Of course, on the positive side, the US showed some signs of improvement on key economic indicators.

In Eurozone, sovereign debt concerns abated somewhat with the resolution of the Greece debt restructuring. However, recent events indicate heightened risk perception with respect to the economies in the Eurozone in general.

On the domestic side, the macroeconomic environment remained subdued during the fourth quarter of fiscal 2012. The index of industrial production, that is IAP, was considerably weak during the fourth quarter, recording a year-on-year growth of just 1.1% in January 2012, and 4.1% in February 2012, and it has been volatile as well.

Merchandise exports growth, which slowed from November 2011, continued to remain moderate, and recorded a growth of 10% in January 2012, and just 4.3% in February 2012. The deceleration of exports has been much sharper than the imports, which continued to grow at about 20%.

On a positive note, sales in some key sectors, like passenger vehicles, two wheelers and cement, showed some pickup during Q4 of 2012. Given the moderation economic activity, the Central Statistical Organization, CSO, has placed the advances estimates of GDP growth for the country for fiscal 2012 at 6.9%.

During the fourth quarter of fiscal 2012, there was a moderation in inflation, particularly in the manufactured products. Overall inflation reduced from 7.7% in the December 2011 to 6.9% in March 2012. Manufactured products inflation moderated from 7.6% in December 2011 to 4.9% in March 2012.

Fuel inflation moderated from 15% in December 2011 to 10.4% in March 2012. However, food inflation remained volatile, and picked up towards the end of the quarter. The average overall inflation for financial year 2012 was 8.8% compared to an average of 9.6% in the previous year.

The systemic liquidity was in deficit. It increased substantially, the deficit increased substantially during Q4, banks remaining borrowers and other liquidity adjustment facility window, that's the last window. Average daily borrowing by banks under the last window was about INR1.4 trillion during Q4 2012, and reached a historic INR1.9 trillion towards the end March 2012.

Interest rates on market instruments like commercial papers, certificate of deposits, remained very high during the quarter. Three months [CP] rate crossed 11% during the quarter. A similar trend was seen in the certificate deposit rates as well.

To ease liquidity pressure, the RBA undertook several measures, including a reduction in the CASA ratio by 125 basis points implemented in two phases during the quarter, and also opened market operations in [Gorman] Securities aggregate into about INR910 billion in the same period.

The yield on the 10-year benchmark Gorman Securities was volatile during the quarter, with yields reaching a low of 8.13% for early 2012, before increasing to 8.57% at March 30, 2012.

After keeping the policy rates unchanged since the last increase in October 2011, in the annual policy review on April 17, 2012, RBA reduced [reportage] 50 basis points, marking a reversal in policy stance after over two years.

Equity markets improved during the quarter in response to some other positive global developments. Investments by foreign institutional investors, FIIs, crossed $12.8 billion, with $9.12 billion flowing into equity markets, and about $3.69 billion towards the debt market.

Flows were particularly strong in January and February 2012, so as a consequence of these flows, the benchmark BSE SENSEX rose from 15,455 at end of December 2011 to a peak level of 18,429 on February 21, 2012, before declining to 17,404 at March 30, 2012. The March closing of the BSE SENSEX represented a 12.6% increase compared to the December end closing.

Improved market sentiment also had a positive impact on the rupee. It appreciated by 4.2% during the quarter from INR53.11 per US dollar at December 30, 2011, to INR50.88 per US dollar at March 31, 2012.

Coming to the banking sector, the credit [uptake] from scheduled commercial banks remained moderate during Q4 on a year-on-year basis, with a sharp increase seen in the last week of March 2012. Growth in non-food credit remained in the range of 15% to 17% year-on-year basis through the quarter, and was 16.8% at March 23, 2012, before reaching 19.3% growth at March 30, 2012.

Similar trends were seen with respect to deposits as well. Total deposit growth moderated during the quarter from 16.9% at December 30, 2011, to a low of 13.4% at March 23, 2012, before increasing again to 17.4% at March 30, 2012.

Demand deposits remained subdued through the quarter, recording a low to negative growth rate for most part of the quarter. But it recorded a decline of 2.9% at March 23, 2012, but picked up sharply to record a growth of 15.3% at March 30, 2012.

Growth in time deposits decelerated from 19.5% at December 30 to 17.7% at March 30, 2012. With this background on the economy and the banking sector, let me now move to part two of the opening remarks on the performance of the Bank during the quarter. As always, let me begin with the progress on our 5Cs strategy.

First, with respect to the credit growth, the total advances of the Bank increased by 17.3% on a year-on-year basis from INR2.16 trillion at March 31, 2011, to INR2.54 trillion at March 31, 2012. The growth was largely driven by domestic corporate loans, which increased by 26% on a year-on-year basis, and net advances of overseas branches, which again increased by 26% 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. Excluding this, the year-on-year growth in the overseas branches would have been about 10.4%.

The retail loan portfolio increased by 7.7% on a year-on-year basis to INR901 billion at March 31, 2012. The growth in the retail portfolio was driven by growth in the secured retail lending categories, with outstanding auto loans and commercial business loans increasing by 14.5% and 20% on a year-on-year basis respectively.

With respect to the mortgages portfolio, the Bank has seen a year-on-year increase of 26.8% in terms of disbursements. However, due to the repayments and prepayments on a large existing opening portfolio, the overall year-on-year growth for the outstanding portfolio of mortgages was subdued at about 7.5%.

The unsecured retail portfolio for the Bank was INR35.74 billion at March 31, 2012, which is a decline of about 31% as compared to this last year.

Now let me move on to the next C, on CASA deposits. Mobilization of CASA deposits has been challenging. given the volatility in the demand deposits in the system. Despite this, the Bank maintained its CASA ratio. The average CASA ratio during the Q4 of 2012 was 39%, at the same level as in the previous quarter. On an absolute basis, the Bank savings account deposits grew by INR25.48 billion in Q4 2012.

Current account deposits declined by INR50.66 billion. During Q3 of 2012, we had mentioned that the current account deposits included the impact of greater slowdown on account of NHAI bond issue. With those flows having gone away, there has been a sequential reduction. The overall CASA ratio for the Bank remained flat at 43.5% at March 31, 2012, compared to 43.6% at December 31, 2011.

Let me move on to the third C on costs. For the fourth quarter, operating costs, including DMA expenses, were higher by 20.7% on a year-on-year basis. On a sequential basis, operating expenses increased by 16%, mainly on account of an increase of INR2.67 billion in the employee expenses, primarily due to the increase in bonus provision. Typically the bonus provision is higher in the second half of the year given better visibility on the outlook for the full year profits with (inaudible) we are on budget.

Non-employee expenses remained broadly stable on a sequential basis. For fiscal 2012, the Bank's cost to asset ratio was 1.8%, and the cost to income ratio was 42.9%.

Let me now move on the next C on credit quality. We saw an increase in provisions on a year-on-year and sequential basis to INR4.69 billion in Q4 of 2012. During Q4 of 2012, as we had said earlier, the Bank saw an increase in its restructured assets, with a primary increase on account of restructuring of exposures to companies like GTL and 3i Infotech.

The Bank has a contract for the NPB impact of these restructurings in the fourth quarter numbers. For the full year, financial year 2012, provisions decreased by 30.8% to INR15.83 billion. Credit costs as a percentage of average advances were at 68 basis points for the whole of fiscal 2012, within our expectations of 70 basis points for the year.

During Q4 of 2012, our net additions to gross NPAs was marginal at INR0.6 billion. This comprises slippages of INR6.35 billion, and recoveries and upgrades of INR5.75 billion. We have also written off INR3.09 billion of NPAs during Q4, 2012. As a result of all, this the net NPA ratio declined to 62 basis points as of March 31, 2012, as compared to 70 basis points as of December 2011.

Our provisioning coverage ratio improved to 80.4% at March 31, 2012, compared to 78.9% at December 31, 2011. The net restructured assets portfolio increased from INR30.7 billion at December 31, 2011, to INR42.56 billion at March 31, 2012, primarily due to the restructuring of exposures to GTL and 3i Infotech during Q4 of 2012, as we had spoken to you earlier.

Finally, on the fifth, re on customer centricity, the Bank continues to focus on enhancing the customer service capability and leveraging on its increasing branch network to cater to the customer base. During Q4, the Bank added 200 branches, and 1,400 ATMs to its existing network, taking the total number of branches and ATMs to 2,752 branches, and 9,006 ATMs at March 31 of 2012.

The focus is also on providing increased functionality and convenience to our customers through various technology channels. In this regard, the Bank has extended the services it offers through mobile banking to include creation of fixed deposits and online shopping.

In addition, the Bank is the only banking institution in the country, we believe, to provide an application on its Facebook page to allow customers to access their bank accounts without moving away from Facebook. The Bank's Facebook initiative has been appreciated by customers, and within four months of the launch, the Bank Facebook page has close to 400,000 fans.

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

The net interest income increased by 23.7% on a year-on-year basis, from INR25.1 billion in Q4 of 2011 to INR31.05 billion in Q4 of 2012. The net interest margin improved from 2.74% in Q4 of 2011 to 3.01% in Q4 of 2012. On a sequential basis, if you look, the net interest margin increased by 31 basis points from 2.7% in Q3 [sic - see Press Release] of 2012 to 3.01%, as I mentioned, in Q4 of 2012.

The NIM on domestic business improved from 2.98% in Q3 to 3.31% in Q4. Domestic NIM improved on account of the transmission of base rate increases we have done in the earlier period into higher lending days as and when the loans start getting reset on the new base rate, and also on account of higher investment yields during Q4 of 2012.

International NIM improved from 1.4% in Q3 to 1.52% in Q4 on account of the full benefit of improved asset yields on incremental lending portfolios during Q3 and Q4. For the full year financial year 2012, overall NIM improved by about 10 basis points from 2.64% in 2011 to 2.73% in 2012.

Our margins typically reduce in the first quarter of the financial year due to the full impact of private sector loans made in the fourth quarter at lower rates and the full impact of higher rates on bulk deposits in the fourth quarter. This phenomenon will be there in the current financial year as well. Accordingly, we expect the overall NIM for 2013 to be lower compared to Q4 2012, but for the full year 2013, we expect the overall margins to improve by 10 basis points to 15 basis points compared to the full year of 2012.

Let me move on to fee income. The fee income decreased by 3.5% on a year-on-year basis during the quarter from INR17.91 billion in the corresponding quarter last -- previous year to INR17.28 billion in Q4 of 2012. The continued moderation in fee income growth was primarily on account of corporate banking fee income, as I have mentioned earlier, which remains impacted by slowdown in new projects and financial closures.

During Q4 of 2012, there was continued momentum in 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 as well.

Moving on to other income, the other income for the Bank increased from INR0.46 billion in Q4 of 2011 to INR3.42 billion in Q4 of 2012. On a sequential basis, other income increased by 33.6% from INR2.56 billion in Q3 2012 to INR3.42 billion in Q4 of 2012. This was primarily due to the higher dividend received from our subsidiaries.

During Q4, the Bank received a dividend of INR1 billion from ICICI Bank UK following the approval we got from the FSA. During Q4 of 2012, the Bank also received a dividend from ICICI Life for one quarter as compared to the dividend for two quarters in the previous quarter.

Let me move on to the Treasury income. During Q4 of 2012, Treasury recorded a profit of INR1.58 billion as compared to a loss of INR1.96 billion in Q4 2011, and a loss of INR0.65 billion in Q3 of 2012. This improvement in Treasury income was primarily on account of improved performance of the equity portfolio, increase in property trading income, and partly offset by loss on security receipts.

I've already spoken about the trends in the operating expenses and provision while speaking about the 5Cs strategy. As a result of the above drivers, the Bank's standalone profit before tax increased by 37.5% from INR19.21 billion in Q4 2011 to INR26.42 billion in Q4 of 2012. The standalone profit after tax as a consequence increased by 31% from INR14.52 billion in Q4 of 2011 to INR19.02 billion in Q4 of 2012.

Let me now move on to the consolidated results. The profit after tax for the Life Insurance subsidiary was INR3.28 billion in Q4 of 2012 as compared to INR2.95 billion in Q4 of the previous year. Following a phase of transition to the new regulatory regime, ICICI Life has started witnessing healthy year-on-year growth in their volumes. A new business annualized premium equivalent, that is APE, for ICICI Life increased by 22.7% from INR8.78 billion in Q4 of 2011 to INR10.77 billion in Q4 of 2012.

The new business margin for Q4 2012 was 16%. The retail weighted received premium for ICICI Life increased by 35.7% in H2 of 2012 over H2 of 2011, as compared to a 15.9% increase for the industry. So ICICI Life maintains its market leadership with a market share of 5.9% on the basis of retail weighted received premium for the whole of 2012 fiscal year.

As I mentioned during the third quarter call, the insurance regulator IRDA, through its orders in December, January and March, have directed the dismantling of the third party motor pool on a clean-cut basis, and advised recognition of full liabilities as per the loss ratios estimated by the Central General [Actuary] department of UK of all underwriting years commencing from year ending March 31, 2008, to year ended March 31, 2012, with the option to recognize this over a three-year period.

ICICI General Insurance, our subsidiary, has decided to recognize the additional liabilities of the pool in the current year itself, and therefore the loss after tax of ICICI General of INR4.16 billion for financial year 2012, and INR6.13 billion for Q4 of 2012, includes the impact of additional full losses of INR6.85 billion.

ICICI General will have some impact of the motor third party business in FY 2013, as well as the liability is actually valued periodically, and on account any share of declined pool accruing to the Company. However, despite this impact we, expect the Company to be profitable in financial year 2013.

IRDA has also relaxed the solvency requirement for insurers to 1.3% at March 2012, 1.4% at March 2013, and 1.5% at March 2014 respectively. The current solvency ratio for ICICI General is higher than the minimum solvency ratio of [1.3] prescribed by IRDA without having to do any capital infusion into the Company.

Effectively, April 1, 2012, the existing third party motor pool has been dismantled by IRDA, and a declined pool has been created instead. I've spoken about the working of the declined pool in detail during the Q3 call. Under the declined pool mechanism, the size of the motor 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 for IFRS financials, ICICI Bank Canada profit after tax for Q4 was CAD10.2 million as compared to CAD6.6 million for Q3. The total assets for ICICI Bank Canada were CAD5.25 billion at March 31, 2012, a marginal decline as compared to December 31 numbers. The capital adequacy ratio at March 31, 2012, at ICICI Bank Canada, was 31.7%.

ICICI Bank UK continued to see the balance sheet consolidation during Q4, with the total assets declining from $4.77 billion at December to $4.08 billion at March 31, 2012. The profit after tax for ICICI Bank UK for Q4 was $10.5 million compared to $7.7 million in Q3. The capital adequacy ratio was comfortable at 32.4% as of March 31, 2012.

Now let me talk about the overall consolidated profits. The consolidated profits for Q4 increased by 15.4% to INR18.1 billion as compared to INR15.68 billion in Q4 of 2011, despite the loss of INR6.13 billion for ICICI General.

For the full year, the consolidated profits increased by 25.4% from INR60.93 billion in the previous year to INR76.43 billion in financial year 2012. The consolidated ROE improved from 11.6% in financial year 2011 to 13% in financial year 2012.

And now, I would like to talk about our outlook for fiscal 2013. As I mentioned earlier, there has been a moderation in the economic growth, with a significant slowdown in new project activity. At the same time, there are several challenges on the regulatory front which are underway. So our outlook for fiscal 2013 has to be viewed in this overall context.

For fiscal 2013, we estimate an increase of about 20% in our domestic loans, driven primarily by growth in the retail portfolio, and continued [offtake out] of the past project finance approvals and working capital demand in the corporate segment. However, given the current environment and the large amount of repayments on the overseas loan portfolio in 2013, we would expect our overseas loan book to remain flat or decline slightly in financial year 2013.

For the year, the target for the average CASA ratio would remain at about 40%. For the full year financial year 2013, as I mentioned earlier, we expect the overall net interest margins to improve by about 10 basis points to 15 basis points compared to the full year of financial year 2012.

For financial year 2013, we would expect overall fee income to grow in low double digits, with corporate fees stabilizing at about the current levels, and continued momentum in granular streams such as ForEx and derivative fees, transaction banking fees and remittance fees, and of course, improvement in retail-related fees.

With respect to operating expenses, we would be working to keep the cost income ratio at about 41% to 42%. Based on our current assessment, as we have always articulated, we expect the provisions to average advances to be at 75 basis points for financial year 2013.

Based on these numbers, the Bank expects to achieve a continued improvement in the standalone return on assets from 1.5% in financial year 2012 to about 1.7% over the next two years. The Bank will target to reach an exit run rate of 14% for the standalone ROE, and an exit run rate of 15% for the consolidated ROE by the end of next year.

With this, I conclude my opening remarks. My team and I will be happy to take your questions.

Thank you.

Thank you so much, Mr. Kannan. We will now begin with the question and answer session. (Operator Instructions). Amit Ramchandani, UTI Mutual Fund.

I have a question on the credit derivative portfolio. During 2006 to '08, a lot of Indian corporates have come out with convertible bonds, and some of the Indian banks have written CDS on them. What would be your exposure to these kinds of convertible bonds?

Our total exposure to credit derivatives is about $200 million, and that number has been progressively coming down. It reduced by close to half in the third quarter, so this is the residual portfolio that is left with us.

And this portfolio, the value of the portfolio of $200 million, is it -- what happens if there's a credit default even, and actually [it's materialized]? Are you taking into account the nominal value of the insurance even?

While there have been reports, there has been no real default as such on the underlying credits to our portfolio. And the reduction has happened through maturity of the instruments and then been paid off by the companies concerned.

So what does this $200 million imply? Is it the mark-to-market value of --? How is it calculated?

So our, as [Arinder] was mentioning, our exposure three years back was $1.4 billion, which is the notional exposure to credit derivatives. That is not the mark to market.

34:49repayments happening and maturities happening, it's come down to $200 million, which is again the notional value. And on a quarter-on-quarter basis, whatever is the mark-to-market loss or gain on that portfolio is taken through the P&L. So we have got -- come down from $1.4 billion to $200 million with really not much impact on our P&L in terms of any negatives. So we are not really concerned on the portfolio in terms of the trend going forward.

And that's not going to produce any volatility to our numbers.

And this includes all the TDSs on your corporate side?

Yes.

And, sir, one more thing. On the consolidated balance sheet, if you look, the quarter-on-quarter results and surplus have gone down. It was around INR62,000 crores past quarter. It's come down to INR60,100 crores this quarter. Why has this declined?

If you look at the increase in the consolidated reserves during the year, it has been in line with the consolidated profit for the year, adjusted for the dividend payment and the change in the foreign currency translation result, which happens because of movement in dollar/rupee.

So if you look at the entire FY 2012, reserves have increased by approximately INR59.7 billion in the consolidated balance sheet, which is primarily due to the profit after tax of INR76 billion, less the proposed dividend, which is about INR22 billion for the year. So the net number is about INR54 billion while the increase in reserves to INR59.7 billion. It is higher because of the increase in the foreign currency translation reserve due to the rupee depreciation.

If you look at only the quarter 4, the reserves for the standalone balance sheet have declined basically because of the dividend payment, which is higher than the quarter 4 part. And that, together with the rupee appreciating partly during the quarter, the FC translation reserve has also declined.

Similarly, in the consolidated balance sheet, there is also a decline which is reflected in the reserves in Q4, and the decline in the consolidated results is higher in Q4 due to the change in foreign currency translation reserve account with respect to the consolidation of overseas subsidiaries.

Just to reconfirm that the movement in foreign currency translation reserve has no impact on either the standalone or the consolidated profit for any of the periods. And this reserve is in any case not included for the capital. When we report our capital adequacy, the foreign currency translation reserve, which can be a credit or a debit based on the movement in dollar/rupee, that is not considered, that is ignored for the computation of capital adequacy as well.

Also for book value?

We actually report book value on the standalone basis only. For the consolidated, we actually only report -- if you look at the numbers that we highlight, it's basically the profit after tax is the only number that we put out.

And a question on margins. Just a few quarters back, you said that because of the decline in the RSL securities received, as well as the securitization book that you have, the securitization asset book, there is some margin dilution because of that. And that will continuously decline, that margin dilution, and that will have an impact on the margin positively. Has it already started reflecting in the P&L?

Yes, that's true. It started reflecting in the Q4. So that has been another reason for margin improvement. And as I mentioned in my opening remarks, the repricing because of [high base] has also contributed along with the investment deal. So all the three have really contributed to the margin improvement.

And generally, which line item has it impacted, this security received as well as securitization related losses?

Securitization related losses are generally from NII itself because originally when we sold these assets, the income also got booked in NII. So as this is getting removed, so NII will get impacted because of that number.

The RSL security receipts which are you talking about, that comes in the [industry] income.

This will continue for some more time, but the numbers have become much lesser incrementally compared to what they used to be in FY '11 and FY '12.

And just to clarify, on the NII part, will it come as an interest expense or an interest income, on the advances?

It comes as a reduction in interest income.

Okay. So some part of -- okay, sure. Thank you. That's it from my side.

Thank you.

(Operator instructions). Participants are requested to only restrict their questions to only two per participant. Thank you.

Rakesh Kumar, Dolat Capital.

I just would like to know what is the domestic margin we have reported for this quarter for Q4.

Domestic margin for Q4 was 3.31%, and the international margin was 1.52%.

So actually looking at from the sequential basis, we have improved our domestic margin as well. That is considering that the secured retail book has grown and unsecured has not grown. And there is a corporate loan book increasing. So what has basically contributed this expense on that side of the domestic margin?

Yes, as I have mentioned earlier, the primary reason has been on account of the -- our benchmark rate, high base, having been increased during the year. Not all of our assets get repriced immediately. So the transmission takes place over a few quarters and that transmission was much more in Q4 compared to Q3. That is one of the reasons.

Second, given the interest rate in environment, the securities we hold, the SLR and other securities in the investment book, the yields there have improved.

These would be the two primary reasons. And the other point which I mentioned in response to the previous question, securitization, also has contributed. Those are the three primary contributors for the domestic margin to expand sharply.

Okay. Could you quantify what is the -- where the maximum contribution has come from basically, just to gauge that what is the sustainability of that domestic margin?

Well, as I mentioned earlier, sustainability of the margins has to be looked in the context of year as a whole margin expected for financial year 2013. So that year as a whole margin for 2013 fiscal, we expect it to be 10 basis points to 15 basis points more than the NIM for the fiscal year 2012.

So that much we are able to see in terms of our own targeting internally, while in saying this, we have factored in what I had mentioned in terms of the base rate changes. As you know, most recently, we have reduced our base rate by 25 basis points. We have factored that in. We have looked at the development of the yields on both investment book as well as advances book, and we are quite confident of 10 basis points to 15 basis point expansion in margins.

On the credit cost front, we have given slightly higher projection from the 68 bps to 75 bps, though the environment appears to be improving. So what is the reason for increase in this credit cost for the next year?

We have stayed consistent with the guidance for FY '13, or the general outlook for FY '13 that we had given at the time of our Q3 results that we would expect to limit credit costs to within 75 basis points of the average loan book. And indeed, depending on the environment, it could be better than that, but this is broadly what we feel could be the maximum number.

Thanks a lot.

Thank you.

Manish Karwa, Deutsche Bank.

I have a question on fees. If I just look around, every bank seems to be improving their fee trends quite a lot over the last two/three quarters, but for us, fee income has generally remained very subdued. What is the reasons for the subdued fee income in this year? And I think you mentioned that next year, the outlook looks really good. So what makes you confident on that?

The primary reason for our fee growth being less than some of our peers is because, if you look at the composition of our fee income, there is still a significant [lag] on corporate lending based fee income. (Technical difficulty) of the fee income, if you look at the retail liabilities (technical difficulty) distribution, ForEx fees, all the granular transaction banking fees, all those income streams have grown by about 20% upwards, whereas the corporate lending based fee income, given the environment in terms of decision-making projects, etc., that does not really grow.

And still, since it's significant [in this], as it's a phenomenon which has happened in, more specifically in Q3 and (technical difficulty), [where] we say that we will be able to grow double-digit, which is what I had mentioned during the financial year [2011], because the granular fee income streams like (inaudible), we expect them to gather more momentum into this financial year.

(Technical difficulty) the retail assets what I have talked about in terms of (technical difficulty) about the retail asset growth, that will also start to (technical difficulty) fee income, which has so far has not been contributing. (Technical difficulty) we are confident of getting good double-digit growth of fee income into this year.

Okay. And another question on margins. Can you just explain how the base rate will impact your yields? It's -- in the fourth quarter, it clearly seems that you had a late repricing benefit on the lending side. So does that also mean that when base rates come down, you will have a late repricing on the downside also when base rates get cut over time?

I will ask Rakesh to talk about the [specific] dynamics of [this]. But our own reduction in base rates this time around has been primarily taking into account the [error] reduction which has happened, which (technical difficulty) benefit in terms of [SG&A] line. And also, the [Bank supported] rates, if you look at March numbers, they have started coming down. So those are the primary reasons behind our -- behind the reducing of our base rates.

So then we have reduced our base rates, we are quite confident of expanding the NIM by 10 to 15 basis points over the previous year, even after [reduction] in (technical difficulty) the kind of competition we do before we decided to (technical difficulty).

But let me ask Rakesh to talk about how the base rate (technical difficulty) [happens] into the yields.

Sure.

On the base case, the thing is that you have to also take into account movement in the deposit costs. So for example, in the past, the wholesale deposit rate went [up] (technical difficulty) not yet passed on because no-one really increased the base rate.

So when we now increase the base rate, there's one impact which is there on the asset yields that happens, which happens for us with some lag compared to other banks. But of course, in -- as Kannan mentioned earlier, in the June quarter, the funding cost for us will go down -- go up, because of the increase in the wholesale deposit costs, which has happened across [all the banks], though that will be an offsetting factor. Otherwise, indeed, our base reduction impact, but with some lag.

Though of course, incrementally, what we have been doing on the lending over the last year or so is that after the introduction of base rate, a lot more of our loans actually get repriced immediately when the base rate changes compared to the earlier regime which was there. So that is still [changing].

So in the near term, we still expect to -- there to be some lag in terms of our yield going down, but we will have impact of the cost of deposits going up in the near term.

So what you are also indicating is that even in the first quarter, despite a base rate cut, yields overall for the whole portfolio may still go up, given the fact that the lag impact of the previous base rate increases may continue, and I think spreads over the base rate would have also gone up in the last two quarters, given the environment?

If you look at it now, the last base rate increase happened quite some time back. So a lot of it has indeed got impacted on the asset yield because we have not really changed the -- increased the base rate for quite some time. So a lot of that would have already flown, actually. So what remains is not that much.

Okay. And broadly, you would have also reduced the housing loan rate as well? And base rate will probably only impact your corporate loan book, right?

Rakesh, I'm getting a request from the call organizer to just say that we have to restrict ourselves to --

Okay.

[Two questions].

Okay.

If that's your last one, can you --?

The last one, okay.

So can you just repeat that?

Yes. I just wanted to check the base rate will only have an impact on the domestic book, domestic corporate book.

Domestic corporate book, and also our mortgage loans. In fact, when we change the base rate, we would typically also change our earlier benchmark, what we call the FRR, the floating reference rate, to which [old loans] was linked.

Okay. Thank you very much.

Thank you.

Saikiran, Espirito Santo. Just a gentle reminder to all participants to please restrict their questions to only two per participant in the interests of time. Thank you.

Just two questions. One, how do you define your net restructured book? Is it net of slippages?

It is net of slippages, yes.

Okay. If you can disclose what will be the slippages as a percentage of your restructured book?

We have not disclosed the specific amount, but during the quarter, it was negligible, [though overall long-term] experiences, 5%.

Okay. On the second question, you mentioned that your disbursements are at a very healthy growth, and healthy rate, [while outstanding book growth has been muted in the retail book, primarily because of repayments. When do you think this will get rectified, and when overall you will see higher growth in the retail portfolio, maybe in the (inaudible)?

As I had mentioned earlier, one of the reasons, apart from repayment and prepayment, has also been that we have been reducing our retail unsecured loans. I had mentioned during the opening remarks that retail unsecured loans had come down sharply on a year-on-year basis by about 31%.

Right.

So now we know we are close to the rock bottom in terms of retail and secured loans. And if you look at the year-on-year growth, including the retail unsecured loans, it was 8% as of March. So we expect the trend to -- we do believe that the trend is a little diverse, and in financial year 2013 itself, we expect the retail growth to be -- it was at 20%, assuming that the dynamics play out like we expect them to.

Did you see a change in the incremental growth pattern, especially in the retail book, to be different from what we have as an outstanding [basis]? That means you will see higher growth in non-mortgage book, or it will be more or less similar to what we have currently?

As of now, as I mentioned earlier, the growth in mortgage book is more like 7%/8% compared to the growth in the other retail secured book which has between 14% 14% to 20%. So going forward, we believe that these two [then] can merge.

Thank you so much. Thanks a lot.

Thank you.

Suruchi Chaudhary, Edelweiss.

This is Nilesh here. On the retail assets again, you mentioned, Kannan, you mentioned that the unsecured piece has been now -- and now we've seen large part of it behind us. What is the thought process going forward on this specific asset, the unsecured piece? Because when you look at the competitors, they've actually grown this book heavily, and you've -- great experience has been pretty good on that, so your thoughts on that.

Well, our thought is that we look at our culture, the way we have done the business, our own past experiences in 2008/2009, and considering all that, we do believe that this portfolio is best built by selling these products to our already existing liability customers, so that is our primary focus.

Within that portfolio, we started growing our credit card portfolio. We have introduced several variants. We are quite happy to grow that portfolio. But I think, largely, the [volume] conditions will continue to be predominantly selling them to our already existing liability customers. So we are quite clear about that.

We do get asked this question. We do internally challenge ourselves on the same basis, but net-net, we do believe that given the state of the economy, given the environment we are living in, expanding this book based on the existing customers of the Bank, we think is appropriate for ICICI.

Okay. So this -- when you mention 20% retail asset growth, this would be largely mortgage rate, but it means philosophy would still continue that will be driven by secured?

Yes, that'll be secured retail. Yes, that's right.

Okay. And in Q4, the CD portfolio has gone up. So how much is the buyout pool of that, and when does it run out typically?

Actually, the buyouts we do typically in every fourth quarter of a year, basically towards meeting the [private sector norms]. If I look at the overall book of buyout between March '11 and March '12, broadly at the same level. If you look at only the quarter in terms of buyouts that we would have done on the commercial business, would have been about [INR20 billion/INR25 billion].

Okay. Just one last question. On the securitization, would -- the loss that you've reported for the year as a whole, last year was about INR5.7 billion, so the corresponding number for this year?

The number for the current year would be about INR2 billion to INR2.5 billion. [As I mentioned], for the fourth quarter, it is a near zero number which is [that].

Okay, great. Thanks a lot. All the best.

Thank you.

Parag Jariwala, Maquarie Securities.

Suresh here. Just quickly on pipeline of restructuring. This year -- this quarter, we added a gross number of [INR14 billion]. Could the number be lower than that in the coming quarters? Just some guidance on how does the restructuring pipeline is looking like. And also, the fourth quarter NPV loss that you've taken on restructured assets, what could be the percentage number?

Yes. On this -- you mean the Q3 call, Suresh, I have mentioned that we had CDR references to the extent of about INR13 [billion which] get restructured during the fourth quarter. So net-net result, restructure that has going up by about INR14 billion during the quarter.

Today, we have a very insignificant pipeline, so bulk of the restructuring is behind us. So if something fresh comes up because of different reasons in the economy, that may always be there, but today's pipeline is insignificant.

The second part you said, out of that, how much has slipped into NPL --?

NPV loss.

Sorry, NPV loss has been reflected in our provisions. That's why you've seen growth in the provisions on a sequential basis. But the good news is that despite that, if you look at the year as a whole, we'll be able to contain the provisions at 68 basis points to the loan book.

So the NPV loss will [be] 10% usually, 10% to 15% on the assets that you have restructured?

It will vary between 5% to 15%. It will depend on each --

Okay, and you said the insignificant pipeline, that means the exposures to all these controversial losses that we keep hearing in news like [at TC Barti Shapi], everything is very negligible, right?

Yes, this is not an issue at all. It's not like the cases such as 3i and GTL which I talked earlier. These are all very little exposures.

Okay. Thanks so much, Kannan.

Mahrukh Adajania, Standard Chartered Bank.

Congratulations. I just have a couple of questions. Firstly, what was the total disbursements for home loans during FY '12, ICICI standalone and then ICICI [home] separately?

Total disbursements are about INR170 billion for the bank. And for the housing finance company, as you know, we do a lot more of our business in the parent bank, so there, the disbursement number would be very low, actually.

And the other question I have is on the life insurance dividend. What was it during the quarter?

Mahrukh, as we have mentioned, typically we said about INR750 million, in that range for every quarter. That is what I have mentioned during the last call. So it was about --

Yes, it will be in that range.

It is in that range.

Just one more question on the securities. The [sales force] was a write-down this quarter? It's a standard thing which happens in the third quarter. Is it the same number?

It's a different number every quarter. It's included in the Treasury number.

Okay. But could you quantify that?

For the quarter, it would be in the region of INR1.5 billion to INR2 billion.

INR1.5 billion to INR2 billion.

And again, and I mentioned that going forward we would expect that number to be at a lower level than this.

Okay, perfect. And just one last question, that in terms of slippage, it was spread across, right? There was no concentration? Is there any more color to slippages?

For [cross sector] no, not at all. Not two cases actually, other than that some retail cases which slip in and then it gets collected by the end of the quarter. So it's not (inaudible).

Okay, so most of the INR6 billion was retail only? There was not much corporate, is it?

Yes, that's right. And then the corresponding (inaudible) collected and then the --

(Inaudible) next quarter.

Oh, same quarter [by now]. At the beginning of the quarter, end of the quarter it happens.

Okay, got it. Yes, you explained that last time. Thanks.

Adarsh Parasrampuria, Prabhudas Lilladher

This is regarding the margins. Just wondering when the losses in the securitized pool mostly go off next year end. Also probably we are looking at a favorable asset mix from a margin angle. Just trying to understand the 10 bps/15 bps margin improvement that we're expecting. Wouldn't that be a little conservative assuming that both these play out next year?

No, whenever a regime change happens in terms of industries going down, there will always be one or two quarters of pressure because the yields may come down faster than the corresponding direction and the average cost of [funds]. So given that dynamic, at this time, we are comfortable to expect a number of 10 basis points to 15 basis points improvement.

And as Rakesh mentioned, securitization also is a near zero in the fourth quarter itself.

But to some extent it has started coming in now.

Okay, I understand that. Thanks a lot.

Nilanjan Karfa, Brics Securities.

Looking at the dividends, I think [INR1 billion] came from UK and about half of last quarter; was about [125] came from the Life. You have already you are generating on a [core] basis, on a standalone, let's say about 10.5%/11%, and you are probably recuperating capital from your overseas subsidiaries. And if I was to look at the [press release which happened], the Canadian subsidiary is also likely to pay a dividend, and if that's the way forward of getting the capital back.

I just want to understand, does a 20% growth give you a good enough comfort in terms of growing your ROE? Because it looks like the ICICI Bank itself (inaudible) or standalone [its] lowest leverage at this point in time. How do you see this panning out over the next two years?

So our growth has to be predicated on what is happening in the economy and the banking system, and on our perception of risks and rewards across various asset classes. So I think we have been quite clear from -- for the last three years that we will have to balance risk, profitability and growth. And that is what we would continue to do. So if the domestic system grows at whatever is the expectation, 17%/18%, and we grow a couple of percentage points ahead of that, I think we would be quite happy with that.

Yes, if you had looked at it a year back, with the economic growth at 8% and system credit growth expected to be 20% plus, the leveraging would have been faster. But being a bank of the size that we are, we can't really - we don't wish to outpace it substantially, because that may mean taking on a risk profile which is not appropriate.

Sure. What I was actually trying to get, do you have a capital deployment strategy at this point in place, because you surely are getting a lot of excess capital? That's what I was trying to figure out.

So, the capital deployment strategy is to grow the balance sheet, but that growth has to be seen in the context of what is the economic environment and the opportunities and the kinds of businesses that we want to do. And ultimately, as you said, we are seeing profits in the subsidiaries as well as dividend payments from the subsidiaries, which is what is all fed into our broad target of existing next year with a standalone ROE of 14% and a consolidated ROE of 15%.

So probably that would have happened a little faster had the growth in the environment and the various parts of the financial sector been as we would have estimated it a year, 1.5 years ago.

Sure. Second question is on the margins. You already talked about 10 basis points to 15 basis points that you expect, but I was just looking at the Q4. Your [priority] sector has gone up quite sharply, so there is some margin pressure there. You get some 10 basis points to 12 basis points from the securitization loss, which has now vanished.

What percentage of the book actually had such an [inertiated] rate of repricing? Is it about 30% odd? And if you can reflect. I think somebody else also asked what happens if two years down the line and we have a base rate which is falling, let's say, another 2%, how do we see our NIMs at that point?

Kannan already mentioned that if you look at the 30 basis point increase in the margin for the quarter, it has various components. So the basic increase is only one of the components there. It is not the only or the major component of the 30 basis points.

So partly, a part of that came from the [five; that securitization] losses that became zero during the quarter. A part of it came because we got investment yields going up because of repricing which happened on some of our floating rate government securities, plus the overall increase in the SLR investment [deed].

And then, the base rate increase also helped, and the fact that in all the private sector lending and the increase in the wholesale deposit rate that would typically happen in the month of March, so that would show up more in the June quarter.

So you know it's not just the base rate which is impacting the margin. And even on -- for example, on the deposits this quarter, on the overall CASA, the numbers were reasonably good, and even the current account we had mentioned in December result that we had a large amount of float available on one of the bond issues that had happened. So that will also be there with us during the month of January. So all these factors have helped the margin to go up in the March quarter.

Okay. One small last data point. Can you qualify what percentage of retail term deposits will probably mature in the next three months and next six months?

Retail is typically a one-year deposit that we have, and it will be quite uniform actually. The maturities are quite uniform through the year.

All right. Thank you very much, Rakesh.

Anish Tawakley, Barclays. I think he's disconnected. Jimit Doshi, Reliance Securities.

Sir, I just want to know do we have a data on how much of our overseas advances is sourced borrowings and deposits. Do we have that bifurcation?

Overseas loan book is primarily funded through borrowing, because in most of our branches, we have limited deposit-raising capabilities, as per regulation.

Okay, so it is mostly borrowings.

Yes, that's right.

Okay. And secondly, I'm looking at Life Insurance premium. It has dipped 22% year over year. So what is your guidance or outlook on the same?

That is because the industry [simply] grew, because the first half was not really good because of the base effect as well. So going forward, we think this industry can grow anything between 15% to 20%, and then we would largely be in line with the industry growth over the medium term.

So you're saying that you would grow by 15% to 20%, right, in FY '13?

Yes, let me just say, in the medium term, I would say that we'll have to see how the industry develops. And we would be keen to grow in line with the industry to protect our market share.

Okay, that's it, thank you.

Thank you.

Hiren Dasani, Goldman Sachs Asset Management.

I'll just put all the data points to the next questions at the same time; number of employees, [belated] loan in the mortgage book, interest expense on the deposits for the full year. And within term deposits, how much is the wholesale deposits?

Anything else, Hiren?

The other thing is one more on the accounting change related issue. So now the repo borrowing sum in the impact is physically grossing above both borrowings as well as the investments. Is my understanding correct?

Yes, just like borrowing/lending. And we were doing it for all repo or market repo borrowings. For [last] also we have a line back.

And is it the RBI, requirement or is it your internal reorganization of this?

I think RBI, if we go strictly by it, I think that they have asked only for the market repo to be classified as borrowing/lending. But I think they have a mixed practice, which is --

It's in discussion with RBI. It doesn't matter really because it grosses upon both sides.

Okay. And the third one is that any comments on the dynamic provisioning paper which RBI has come out, and how would it impact your --? If it were to become a reality in FY '13, would it impact this (inaudible) guidance?

No, it is too early days because it is only in the form of a discussion paper, and we are also giving our comments to the discussion paper. So it's too early to say when it is going to be implemented.

But that paper also talks about the ability given to the banks to do this dynamic provisioning based on the Bank's own loss experience of the past. So in many cases, we'll have to do that for advanced approaches under Basel II.

So if these two sort of converge, that's the date of application of the advanced approaches as well as dynamic provisioning, if it happens to be (inaudible), then there will not be any impact actually. Our loss experience is probably better than are the syndicated and dynamic provision guidelines.

Okay. And lastly, were there any PSL related shortfalls? And if yes, under which sub-heads, what kind of shortfalls?

There was -- we had a shortfall in our overall PSL and in the individual categories. So overall PSL, we achieved about 95% of our target for the year.

In terms of the [direct], I believe we achieved about 70% of the target for the year. And in terms of the weaker section, we did about 40% of the target for the year.

So this is more or less in line with what we did in the last year as well, the only difference being that this time, we were a bit short on our overall private sector lending loans also, which basically followed the change in our guidelines and expectations in terms of some of the loan categories, which were earlier classified as private sector.

Sure, if you can give me those data points.

Yes. The employee count is 58,276.

Okay.

The [bill of] loan outstanding is about INR9,000 crores -- INR90 billion. Interest expense on deposits for Q4 was about INR39.05 billion.

Full year [rupee]?

Full year interest expense is INR143 billion.

Okay. And within term wholesale/retail kind of [composition]?

The wholesale, if you look at our overall deposits, the deposits for Wholesale Banking Group would be about 40% of our term deposits.

40% of term?

40% of the domestic term deposits, yes.

Okay. Are you planning to add a similar number of branches of FY '13 as well, 200 to 300 branches?

Yes, we have talked about that kind of a number.

Okay, thank you very much.

Amit Ganatra, Religare.

Yes, I had questions on the ROE guidance that you basically indicated in the beginning of the con call. If I look at basically this quarter's consolidated profits, I need to add that bit that you have taken, which is on this general insurance. You are already getting 15% ROE. So are you basically saying that ROE remains the same? I thought that you were indicating some sort of an improvement in the [consolidated] ROEs next year.

In comparison to the full year, there is going to be an increase in ROE. And even in the exit rate, the ROE will be higher than in the current quarter.

ROEs [in interim].

So then it has to be higher than 15%, right? Because 15% is something that you're already achieving in that sense.

15% per year. If you adjust everything, then of course, we are achieving. So we are talking about what is the reported number, which is there.

Okay. So compared to the reported number, basically, there is some (multiple speakers).

Given the guidance for the -- yes.

Okay, thank you.

[Chinmi Desai, Annual Shares and Stocks].

Sorry, most of my questions have been answered. Thank you. Yes, I don't have any further questions.

Thank you, sir. [Annan Ludda], HDFC Mutual Fund.

Just some more data points. Actually, I'm just wondering about the impairment for the Q4 and for the full year, and also if you can share the loss in securitization for the full year (inaudible).

So on the impairment numbers, as Kannan mentioned, I'll just give you the numbers again.

Thanks.

So for the quarter, the additions are about INR6.35 billion, and deletion was about INR5.7 billion.

Okay, this includes the write-off?

There was a write-off of about INR3 billion.

This is in addition to the --

Yes.

Yes.

Okay. And for the full year?

I'll ask you once again about it.

On the loss on the securitization, you said --

The full year, the gross addition was about INR30 billion.

Okay.

And deletion was about INR24 billion. We had write-offs of about -- close to INR12 billion.

INR12 billion

Okay, thanks.

And the securitization loss for the year would be about INR2 billion. For the quarter, we said it is near zero.

On the [half year] is it?

[Half year], this for the quarter, we said it would be about close to INR1.5 billion to INR2 billion.

Okay, and full year?

Full year would be about close to INR4 billion.

Okay, very good. But if I notice last year, at the opening of the year, your securitization holding was INR28 billion. It has come down to INR18 billion right now.

There would have been reductions also and we would have -- [derivatives] would have been redeemed for cash.

By what time do you expect this will -- [to more fully fund] the books?

In terms of (inaudible), for example, on a lot of these portfolios, we are getting all the payments on time and we're not really getting any further hits on the portfolio.

So in terms of the maturities, some of them, for example, small part of the portfolio is mortgages, so that will take quite some time to come back. But in terms of hits, because of mark to market on a contract [NAV], that, as we said, that we expect in FY '13 that should get [award] and that number should be lower than what we have seen in the past.

Okay, thanks. That's all on my side.

Thank you.

Kashyap Jhaveri, Emkay Global.

I just wanted to check, you mentioned about more exposure to probably loan losses on -- sorry, (inaudible) the restructuring amongst your other names. In the case of Air India, the whole of the exposure is in terms of debentures, or is there any loans also?

Air India's exposure is in the form of bonds which are fully guaranteed by the Government of India, and that is the treasury bonds which keep getting sold.

It's more a technical exposure to the Central Government.

Exposure to the Central Government.

So they are all bonds; there are no loans as such?

Yes.

Okay, yes. That's it from my side. Thank you.

Thank you.

Thank you. That was the last question. I would now like to hand the call to Mr. N. S. Kannan for closing comments. Please go ahead, sir.

Yes, thank you once again for joining this call and participating in the call. My team and I are available any time you can send any questions you may have so that we can answer them.

Thank you once again, and goodnight.

Thank you so much. On behalf of ICICI Bank, that concludes this conference. Thank you for joining us. You may now disconnect your lines.

Thank you.