ICICI Bank Ltd (IBN) 2013 Q3 法說會逐字稿

Ladies and gentlemen, good day and welcome to the ICICI Bank Q3 FY '13 earnings conference call. (Operator Instructions). Please note that this conference is being recorded. At this time I would like to hand over the conference over to Mr. N.S. Kannan. Thank you and over to you, sir.

Yes. Thank you. Good evening all of you. Welcome to the conference call on the financial results of ICICI Bank for the quarter ended December 31, 2012, which is the third quarter of the current financial year 2013, that is Q3 of 2013.

As always I'll start, and my theme will revolve around four broad areas. First is the domestic macroeconomic and monetary environment, followed by our performance during the quarter, including our performance on our 5C strategy. Then we move on to our consolidated results and finally the outlook for the full financial year 2013.

Let me start with the first part on the macroeconomic and monetary environment during the third quarter. Global financial markets stabilized during the quarter, following liquidity support measures announced by the US, Japan and EU, and resolution of the US fiscal cliff for the time being.

Domestically the government continued with policy reforms. Several key measures, such as approval of 51% foreign direct investment in multi-brand retail, and also a fiscal consolidation roadmap, formation of Cabinet committee on investments to expedite investments in projects, partial deregulation of diesel prices, approval of the Banking Laws Amendment Bill by both the Houses of the Parliament and Company's Bill 2011 by the Lok Sabha, increase in railway passenger fares and deferral of GAAR implementation through financial year 2017. These have been announced since October 2012.

These measures, coupled with global liquidity conditions, resulted in an improvement in market sentiment, with FII flows improving from $8b in the previous quarter to $10.2b in the third quarter, and stabilization of the exchange rate over the past few weeks.

However, indicators of real economic activity continue to remain subdued. GDP growth for Q2 of 2013 was 5.3%, with the moderation in growth largely driven by subdued industrial sector growth. Cumulative growth in the Index of Industrial Production, IIP during April to November 2012 was 1% compared to 3.8% in April to November 2011. The growth in IIP has also been volatile, with an 8.3% year-on-year growth in October 2012 followed by a decline of 0.1% in November 2012.

Merchandise exports continued to decline for the eighth consecutive month in December 2012. However, the pace of decline of exports has been moderating, with exports declining by 1.9% in December 2012 compared to an average of 12% decline during Q2 of 2013. Growth in imports, which turned positive in September 2012, continued to increase driven by, largely, oil imports. As a result, India's trade deficit widened to $147b during April to December 2012 compared to $137b in April to December of 2011.

The current account deficit reached 5.4% of GDP in the second quarter. The rupee depreciated against the dollar by 4% from INR52.7 per US dollar at end September 2012 to INR54.8 per US dollar at end September -- end December 2012.

During the quarter the moderation of inflation was a key positive, with inflation declining consistently from 8.07% in September to 7.18% in December. This was primarily due to a moderation in manufactured products inflation which eased from 6.47% in September to 5.04% in December. Core inflation, which is manufactured products excluding food products, moderated from 5.7% in September to 4.2% in December.

Systemic liquidity tightened during the quarter on account of seasonal factors, with average daily borrowings by banks under the liquidity adjustment facility, LAF window from RBI increasing to about INR937b in the third quarter as compared to INR464b in the previous quarter.

During the quarter the Reserve Bank of India provided liquidity support by way of open market operations, OMO, in government securities of about INR385b and a reduction in the cash reserve ratio by 25 basis points to 4.25%. As a result interest rates on market instruments like commercial papers and certificate of deposits remained stable during the quarter.

The yield on the 10-year benchmark government securities declined by 10 basis points from 8.15% at end September 2012 to 8.05% at end September -- end December 2012.

The RBI in its third quarter review of monetary policy on January 29 reduced the repo rates by 25 basis points to 7.75% and CRR, cash reserve ratio, by 25 basis points to 4%. In the policy statement RBI has mentioned that the recent moderation in inflation provides space, though limited, for monetary policy to give greater emphasis to growth risk.

The equity markets saw a marked improvement during the third quarter, reflecting positive global and domestic developments. We talked about the net FII flows earlier. As a result the benchmark BSE Sensex increased by 3.5% during the Q3 to 19,427 and -- at end December 2012 from 18,762 at end September 2012.

Credit offtake from scheduled commercial banks remained moderate during the third quarter on a year-on-year basis. Non-food credit recorded a 14.9% increase on a year-on-year basis at December 28, 2012, compared to a growth of 15.47% at September 28, 2012. And it was 15.7% increase at December of 2011.

Similar trends were seen with respect to deposit growth. Total deposit growth recorded a year-on-year increase of just 11.1% at December 28, 2012, compared to a 13.8% increase at September 28, 2012, and 17% increase at December 30, 2011.

Demand deposits declined by 0.5% year-on-year basis at December 28, 2012 compared to an increase of 8% at September 2012. Growth in time deposits decelerated again from 14.5% at September 28, 2012, to 12.5% at December 30, 2012.

So with this overall background, let me now move to part two on the performance of the Bank during the quarter. Let me begin with the progress on our 5C strategy, first with respect to the credit growth.

The total advances of the Bank increased by 16.5% on a year-on-year basis from INR2.46 trillion at December 31, 2011, to INR2.87 trillion at December 31, 2012. The growth in total advances was balanced across various loan segments. Growth in the retail portfolio has been increasing steadily over the last few quarters. This trend has continued into the third quarter as well, with the retail portfolio growing by 17.2% on a year-on-year basis at December 31, 2012, compared to 14% year-on-year growth we saw at September 30, 2012. The outstanding retail portfolio of the Bank at December 31, 2012, was INR965b.

The growth in the retail portfolio was driven by growth in the secured retail lending categories, with outstanding mortgages increasing by 18.6% on a year-on-year basis and auto loans increasing by 25.4%.

Growth in the commercial business loans moderated to 7.3% on a year-on-year basis, reflecting the market slowdown being witnessed in this segment.

After reducing the unsecured retail portfolio consistently since the financial year 2009, the Bank has started to moderately expand this portfolio. Accordingly the Bank's unsecured retail portfolio increased by 12% on a year-on-year basis to INR39b at December 31, 2012, off a relatively small base of INR35b at December 31, 2011. The retail unsecured portfolio, however, continues to remain very small at less than 1.5% of the overall loan book. The increase in the unsecured retail loan portfolio is predominantly to existing customers of the Bank. And the Bank has been following several checks, including CIBIL score checks, that is Credit Bureau score checks, customer income levels and KYC checks. While increasing the volumes in this segment, we continue to be conservative in our approach.

The growth in Corporate and International portfolio was 15.8% on a year-on-year basis, driven largely by a 26.6% growth in the domestic corporate portfolio. This includes some short-term loans to high-quality corporates that will mature during the year itself.

Net advances of the overseas branches increased by 5.7% on a year-on-year basis in rupee terms, primarily due to the movement in exchange rate. In dollar terms the net advances of the overseas branches remained stable on a sequential basis and have grown by 2% as compared to December 31, 2011.

Moving on to the second C, on CASA deposits. Mobilization of CASA deposits has been challenging for banks during the third quarter, with system demand deposits, as I mentioned earlier, declining by INR624b during the quarter. Despite this the Bank maintained its CASA ratio at 40.9% at December 31, 2012, compared to 40.7% at September 30, 2012. And the Bank also maintained its average CASA ratio at 37.4% during quarter three as compared to 37.5% during quarter two.

During quarter three, Bank has seen an increase of INR23b in average savings account deposit and about INR5.5b in average current account deposits as compared to the previous quarter. On an absolute basis, the Bank's savings account deposits increased by INR8.45b and the current account deposits increased by INR18.73b in quarter three.

Now to the third C on costs. For the third quarter, operating expenses, including G&A expenses, were higher by 17.9% on a year-on-year basis. The Bank's cost-to-income ratio declined to 39.5% in quarter three of 2013 compared to 40.9% in the previous quarter and with the cost-to-asset ratio at 1.77% in quarter three.

Let me now move on to the fourth C on credit quality. The Bank saw additions of INR8.5b to its overall gross NPAs. Recoveries in quarter three were INR5.67b, resulting in net additions to gross NPA of INR2.85b. The Bank has also written off INR5.2b of NPAs during the quarter.

The net NPA ratio was 64 basis points at December 31, 2012, compared to 66 basis points at September 2012 and 70 basis points at December 2011.

Additions to the restructured portfolio were INR3.5b in quarter three, offset in part by deletions and repayments during the quarter. As a result the net restructured loans were stable at INR41.69b at December 31, 2012, compared to INR41.58b at September 30, 2012. The Bank has about INR9b to INR10b of loans outstanding to cases that are currently under the corporate debt restructuring mechanism.

The provisions for quarter three were at INR3.69b, lower on a sequential basis, as compared to the provisions of INR5.08b in the previous quarter, which had included substantial provisions made for the media company recognized as NPA in the previous quarter, which we talked about in the last call.

Credit costs as a percentage of average advances were at 53 basis points on an annualized basis for quarter three and 66 basis points for the nine-month period on an annualized basis. This is after including additional 75 basis points general provisioning for restructured assets as stipulated by RBI.

The provisioning coverage ratio, PCR, was 77.7% at December 31, 2012, compared to the PCR of 78.7% at September 30, 2012.

Now to the fifth C on customer centricity. The Bank continues to focus on enhancing its customer service capability and leveraging on its increasing branch networks to cater to the customer base. During the third quarter we added 123 branches to the network, including 101 Gramin branches in unbanked villages across six states of the country. With this the Bank has a branch network of 2,895 branches at December 31, 2012.

And the Bank has also recently launched a unique, flexible recurring deposit product called iWish which allows customers to create their own goals and share them with friends and family on Facebook. iWish provides an easy online interface to track the progress of all goals and manage them from one place. Family and friends of customers can also contribute towards these goals from any bank account using a VISA debit card. The Bank's Facebook initiative continues to be appreciated by customers, with a fan base for ICICI Bank Facebook page crossing 1m fans during the quarter and currently 1.4m fans.

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

The net interest income increased 29% on a year-on-year basis from INR27.12b in Q3 of 2012 to INR34.99b in Q3 of 2013.

The overall net interest margin improved by 37 basis points on a year-on-year basis from 2.7% in Q3 of the previous financial year to 3.07% in Q3 of the current financial year. On a sequential basis the net interest margin improved by 7 basis points from 3% in the previous quarter to 3.07%.

The net interest margin on the domestic business increased to 3.47% in Q3 of 2013 as compared to 3.43% of Q2 of 2013 and 2.98% in the corresponding third quarter of last year. The sequential increase has been driven by lower cost of funds during the quarter due to the reduction in term deposit rates since the beginning of the year.

The international NIM improved on a sequential basis from 1.22% in the second quarter to 1.31% in the third quarter due to reduction in the excess liquidity maintained in the international branches in the previous quarter, following the large bond redemption we had in October 2012.

Moving on to the non-interest income, overall the non-interest income increased by 17.1% from INR18.92b in Q3 of 2012 to INR22.15b in Q3 of 2013.

During the third quarter, treasury recorded a profit of INR2.51b as compared to a loss of INR0.65b in Q3 of the previous financial year and a profit of INR1.72b in Q2 of 2013. The profit in the third quarter of 2013 was on account of proprietary trading gains primarily in the fixed income segment.

Other income was INR1.93b in Q3 of 2013 compared to INR2.56b in Q3 of 2012. The decline was on account of Bank receiving dividends for two quarters from ICICI Life in the base quarter Q3 of 2012 compared to the quarterly dividend that has been received in Q3 of 2013.

Fee income increased by 4.1% from INR17.01b in Q3 of 2012 to INR17.71b in Q3 of 2013. Overall fee income growth continued to remain impacted by lower Corporate Banking fee income due to slowdown in new projects and financial closures.

During Q3 of 2013 the Bank saw a healthy growth in its Retail Banking fees.

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

Consequent to the financial parameters I described now, the Bank's standalone profit after tax increased by 30.2% from INR17.28b in Q3 of 2012 to INR22.5b in Q3 of 2013.

I now move on to the consolidated results of the Bank. The profit after tax for the life insurance subsidiary was INR3.97b in Q3 of 2013 as compared to INR3.67b in Q3 of 2012. This level of net profits reflects an annualized return of over 30% on the Bank's invested capital in ICICI Life.

Following a phase of transition to new regulatory regime, ICICI Life Insurance has started witnessing healthy year-on-year increase in volumes. The new business annualized premiums -- the premium equivalent, APE, for ICICI Life increased by 10.5% from INR20.4b in nine months of 2012 to INR22.55b in nine months of 2013. The new business margins for Q3 of 2013 was 15%.

The retail weighted received premium of ICICI Life increased by 12.7% in April to December of 2012 compared to a 1.2% year-on-year growth for the private sector and 7.6% growth for the industry.

During April to December 2012, ICICI Life maintained its market leadership in the private sector with an industry market share of 6.6% on the basis of retail weighted received premiums.

ICICI General Insurance recorded a profit after tax of INR0.95b in Q3 of 2013 as compared to INR1.01b in Q3 of 2012. The Company maintained its leadership position in the private sector with an overall market share of 9.6% during April to December 2012.

As I mentioned during the earlier quarters' results call, ICICI General is expected to have some impact of the motor third party business in the fourth quarter as the liability for the period financial year 2007 to financial year 2012 would have to be actuarially valued and due to any share of the declined pool accruing to the company. However, despite this impact, we do not expect the company to report a significant loss in the next quarter and accordingly the company would be profitable for the full year financial year 2013.

Let me now move on to the performance of our overseas banking subsidiaries. As per the IFRS financials, ICICI Bank Canada's profit after tax for Q3 of 2013 was CAD8.3m as compared to CAD6.6m for Q3 of 2012. Total assets for ICICI Bank Canada were CAD5.33b at December 31, 2012, compared to CAD5.28b at September 30, 2012. The capital adequacy ratio at December 31, 2012, was very high at 34.5%.

ICICI Bank UK's total assets were $3.98b at December 31, 2012, as compared to $3.81b at September 30, 2012. While working towards capital rationalization, ICICI Bank UK has been looking at selective lending opportunities to highly rated entities, including trade and transaction banking products and smaller term loans to multinational corporations and subsidiaries of Indian companies in UK and Europe.

The profit after tax for ICICI Bank UK for Q3 of 2013 was $5.4m as compared to $7.7m in Q3 of 2012. The capital adequacy ratio continues to be high at 31.5% at December 31, 2012.

Let me now talk about the overall consolidated profits. The consolidated profits for Q3 of 2013 increased by 21.7% on a year-on-year basis to INR26.45b compared to INR21.74b in Q3 of 2012.

In 2009 the Bank had set a target, as you know, of doubling its ROE from less than 8% to 15%. At the beginning of the current financial year we had also indicated our expectation of achieving a consolidated ROE of 15% in the fourth quarter. I am very happy to report that in Q3 of 2013 itself the Bank has achieved an annualized consolidated ROE of 15.7%.

Our outlook for the full-year fiscal 2013 continues to be in line with what we have indicated in our earlier calls.

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

(Operator Instructions). We have the first question from the line of Mahrukh Adajania from Standard Chartered. Please go ahead.

Yes. Hi. Just wanted to know that CNBC and other TV channels are flashing some comments on expectations of the management is guiding to margin improvement. So how would that be possible in a falling rate environment? I know you have a lag in re-pricing, but if you could explain in better detail.

Yes. Mahrukh, the outlook continues to be what I had articulated in my earlier calls that margins, we expect them to hold the margins and actually continue to improve them, which we have done in the last couple of quarters as well.

The factors which we believe will work in our favor in the short term are the international net interest margins. If you remember, we had gone up to about 1.4% to 1.5% a couple of quarters back but because of the excess liquidity we were carrying in October for the redemption, our margins had come down to about 1.22% in the previous quarter and in Q3 to about 1.31%. So we do believe that a normalized level for the kind of business we are doing would be more like 1.4% to 1.5%. So that is going to clearly give us a benefit in terms of overall net interest margins.

Even on the domestic lending we will continue to look at protecting the margins. So our outlook of -- over the medium term improving our margins will continue.

Okay. But just on the domestic front, if base rates are cut, how will your margins behave?

Yes. See base rate cutting is actually in our hands. So whenever -- we will look at cutting our base rate when we see a movement in our deposit rates. And if we see a movement in deposit rates downwards, we will be happy to cut the base rate, but it will really depend on the deposit rate movement. So in doing so our endeavor would be to protect the domestic margins.

Okay. And see, anywhere there is a pressure on savings deposit growth, so any medium-term outlook on that?

On savings bank?

Yes, growth in savings deposits.

The outlook for us is that in the subsequent quarters we expect the numbers to be higher than what we have seen in the third quarter. In the third quarter our incremental customer acquisition has been quite robust. We have looked at the numbers. We don't have any concerns on that, including the fact that during the quarter the accretion on a daily average basis savings account has been quite positive. That's why we have been able to maintain the daily average CASA ratio at 37.5%. So those are the positives.

The -- during the quarter we also had to contend with the phenomenon of it being a festive quarter. Because of this there has been some movement of deposits towards consumption, and that is something which we had to contend with during the quarter. But as I mentioned earlier, we are quite happy with the incremental customer acquisition. We are happy with the daily average accretion to savings account. And we do believe that we will be able to increase the savings account accretion in the coming quarters.

Okay. Thanks.

Thank you Mahrukh.

Thank you. We have the next question from the line of Vishal Goyal from UBS Securities. Please go ahead.

Hi, sir. My question is actually about the loan growth which we are seeing for next year and some color on the same. How you think will be coming through; projects or retail or how will be breakdown -- broken down?

Yes. See, our outlook for the loan growth in the next year, as we had said earlier, will -- on the domestic side will continue to be ahead of the systemic loan growth. That is something which we believe that we can achieve. Within the loan growth, the focus would be, on the corporate side, on the working capital loans which we have seen some pick-up.

We will also seek to grow the Retail even better, because if you look at our performance of consumer loans, over the last three quarters on a year-on-year basis we have been improving the growth from about 10%/14% to 17% now. In the medium term we do believe that we have an ability to grow it at about 20% plus.

So those two areas would be clear focus. The project disbursements, etc., will really be a function of whether new projects, large new projects do get announced or not. As of now we do believe that for the next couple of quarters we will continue to have disbursements on projects based on the past sanctions we have done. Beyond that we'll have to really wait and see how the incremental sanctions really develop.

On the overseas side, it's going to be pretty much a function of the appetite from the borrowers in terms of their preference of foreign currency loans over rupee loans, depending on the relative interest rate regimes, plus our ability to raise bond market funds. So that we will calibrate as we go along. But that could -- the outlook for growth on that segment is going to be obviously less than the domestic loan growth rate.

So those -- that is the color I can give you today for loan growth for the next few quarters.

Can we say that working capital, Retail and project all will grow at pretty much the same 20% rate, because there's no -- I don't see anything growing faster than that. Retail would be growing 20%, working capital may be around 20% and project also would be roughly at 20%, correct?

Yes. See, we are a Bank who start with a very lower base of working capital. So normally even if you do a -- if you follow the system, our growth rate is normally higher in working capital. That's what I have seen. Project finance growth rate in the past has been much higher than the 20% you have suggested. So over a period of time it may move to that kind of numbers you are talking about.

So to answer your question, yes, the working capital will be 20% plus clearly. And probably Retail our endeavor would be to take it to 20% plus.

Okay, okay. And sir, one more question. On the Life Insurance company, I think the accounting profit definitely seems to be plateauing. And what is the outlook here, because I think the big amount of -- the big margin business I think is definitely behind and new business is definitely coming at low margins. So what is the outlook here?

See in the foreseeable future in terms of next few quarters, we do expect them to continue to deliver profits which will be like a 30% return on the invested capital. So that kind of numbers we do see. Yes, there will be muted growth compared to the kind of sharp growth we have seen in the past because they've achieved that high level of profitability.

The way we look at it is that next few quarters, getting about INR750m approximately of dividend every quarter from that company is something you should expect. So that is the way we are running the company. In this quarter we had a bit higher number at about INR900m. But ballpark in that range for next few quarters on a regular basis is something we are expecting.

And sir, is it -- sorry to ask this again. On the accounting profit, will it be tracking the APE growth or will it be tracking the banking profit, because banking obviously profit will be growing much faster?

Yes. We do believe that the banking growth will be faster than the Life company profit growth. But that is something which has already happened in the last few quarters. That trend will continue.

Okay. Thank you sir. All the best.

Thanks, Vishal.

Thank you. The next question is from the line of Kashyap Jhaveri from Emkay Global. Please go ahead.

Yes. Hi. Congratulations on good set of numbers. I have a question on your international book. The growth has plateaued, as you said, in constant currency terms in this quarter on a sequential basis. Even if I look at Y-on-Y basis probably the book on constant currency basis would have remained stable or would have declined. Commensurate with that, if I look at the numbers which come from RBI in terms of external commercial borrowings, in the last two months we have seen by far the highest ECB raising by the Indian corporates. So what is the view on that business? And particularly when other banks are getting aggressive, why are we being a little cautious? Why has our loan growth been modest on that front?

Our loan growth has been modest on that side because our repayments out of the past have been very strong for us. If you remember we have articulated earlier that in this financial year we'll have a repayment of close to $2.5b from the opening book, and that is something which is playing out. And also on the liability side, if you look at we had large bond repayments of about $2.5b. So for us it's starting with the larger book. And even if you do a $2.5b kind of incremental business then the book will stay flat. So we are just going through that phenomenon.

But in terms of our ability to access resources, that's only improved today given the risk from a global perspective. So money is available. The way we are looking at this business is that it has to be closely linked to our domestic corporate strategy, because largely these corporates who are borrowing foreign currency loans through this book is only domestic corporates so it has to make sense from a strategy perspective of funding domestic corporates.

Secondly, it has to make sense from a fundraising perspective. And as I mentioned earlier, our fundraising is quite all right today. So we have to calibrate it depending on the global bond raising environment.

Third is that we are quite disciplined about doing at least 1.4% to 1.5% margin on the incremental business. So I would say that these three would be the [boundary] conditions under which we will grow. So apart from that our ability to do the business, the demand is not really a problem. These three boundary conditions will largely be satisfied for us to expand this book. That's the way we look at this book.

So if I look at your peers in the same business, on the international front they have actually a slightly bigger-sized loan book than what you have at this juncture and their loan book has grown at about 20%, 30%. But if I look at margins, you would have taken over them in terms of margins in this quarter. So does one understand that any business which is less than 140 or 150 basis points we probably would not touch unless the risk is also commensurate?

Well yes, you can assume that anything which is less than 1.4 or 1.5 we will not touch at all. The way we look at it is that we are in a situation today where our return on assets has really caught up very nicely to the best in class. So if we have to do that 1.6%, 1.7% of return on assets, I have to be achieving 1.4, 1.5 kind of margins in the international book. We are today at a different situation of [commercial] profitability compared to what we were about two years back. So that becomes the primary consideration for us to [track] this business. So you can assume that that will be the philosophy going forward as well.

And the second question is on -- you must be looking at a lot of data which comes also from RBI and you must have your own sources in the international market. What's your outlook on the kind of borrowers that one can see in the external commercial borrowing market? Has the quality deteriorated? Because we see a lot of infra names and power sector names now in the international market which probably in the local market we probably wouldn't have liked in a bank's loan book. So what's your outlook over there?

No, no. The quality has not really changed really.

I'm not asking for you, I'm generally asking from an industry perspective.

In general also. I would really look at this business for industry as well as being quite cyclical depending on the domestic interest rate regime. So in times like this where we have had high domestic interest rate, borrowing money through ECB route, even on a fully hedged basis, makes more sense. The economics work in that manner. But going forward, depending on what happens to the domestic interest rate regime, this situation can change. So we'll have to really look at this as a cyclical business depending on the flavor of the market and differential interest rates. And so quality to me, I've not seen difference for the industry as well.

Okay. Just a continuation of the comment that you made, if you could just help us with in terms of borrowing cost for corporate overseas, what could be the spreads over LIBOR and of ForEx hedge cost?

Yes, see if you look at really five-year MIFOR type of thing, today it will be about 6.5%.

Okay.

So we are really talking about a 6.5% LIBOR swapping to 6.5% on a MIFOR basis, plus you add the credit spread. So it really -- for good corporates it does work out cheaper than doing a domestic borrowing.

So you say 6.5%. Is the total cost including hedging?

Yes, that's LIBOR.

Less LIBOR?

Swap -- swap was for LIBOR.

Swap was for LIBOR. So depending on the credit rating of the company.

Okay.

That could be from 300 to 500 basis points.

500. And if you remember the ECB guidelines for the five-year, it is LIBOR plus five cap. So one has to look at it between 3% to 5%, as [Rakesh] mentioned, [that's over] LIBOR, adding 6.5% on a MIFOR basis. And for several corporates it does make sense today.

Okay, sure. Yes, that's it from my side. Thank you.

Thank you. Thanks.

Thank you. (Operator Instructions). We have the next question from the line of Manish Karwa from Deutsche Bank. Please go ahead.

Yes. Hi, sir. My question is on your staff cost. Sequentially if I look at it on an absolute basis your staff cost is coming down. And even your cost to income on an overall basis has declined despite the fact that our retail disbursements and retail loans have been growing. Now is this just because of the bonus provision that will get corrected in the fourth quarter or we should read something else on the cost-to-income front?

The cost-to-income front, there are two reasons for the ratio coming down. On the denominator impact, our incomes, as you have seen, have been quite robust, including some of the areas like treasury income we had a very healthy year-on-year and sequential movement. So that has really helped in terms of the denominator impact on the cost-to-income ratio.

If you really look at the numerator impact, I don't think there will be any bump-up in the fourth quarter on account of bonus or any other bonus type of expenditures. That may not be there. But the variations we are looking at quarter to quarter in terms of staff expenses has been predominantly on account of pension valuation which gets done based on several parameters. So that is the only variation we see.

Apart from that it has been a smooth kind of numbers across quarters. So I don't -- there is no specific pattern beyond the two specific issues I talked about.

Okay. So going by what you're saying, most likely the cost to income should sustain at around 39%, 40% range?

Yes. As we have said earlier, for the year as a whole we still want to be between 41% and 42%. That's the kind of numbers we have talked about. As of now I would stay with that. And if we are able to improve it, it is well and good.

Okay. Also one more question on your overseas banking subsidiaries. Despite things getting better in the overseas market, our ROEs in those subsidiaries still continue to remain fairly low. Now over the next one or two years do we see ROEs in those businesses improving or we will be saddled with these low ROEs for a pretty long time?

Our endeavor will be to improve the ROEs over the period of the next three years to anything between 10% and 15% depending on the geography. But organically expanding the loan book to achieve that is going to be quite difficult. So what we will seek to do is, through a combination of identifying India-linked trade type of opportunities, we will grow the book.

At the same time we'll also look at regularly taking dividends from those geographies and also look at appropriately capital rationalization with the approval of the respective regulators. So it's actually a combination of a little bit of organic growth in two areas which fit in with our strategy, and a little bit of dividend and capital -- dividend -- getting dividends and a bit of capital rationalization subject to regulatory approvals.

We think that this combination of these three things will only lead to achieving an acceptable ROE. But I just want to assure all of you that this is something which we continuously are focused on internally and continuously discussing it, so hopefully we'll be able to push those numbers to higher levels from what they are today.

Okay. And lastly, what would be your outlook on fee income? That number continues to remain pretty low on a broad perspective.

So fee income, yes, the growth was only about 4% on a year-on-year basis for the quarter. The outlook in the medium term is to endeavor to get it close to the balance sheet growth. That continues. That outlook in the medium term continues. In the short term we will continue to push things like ForEx, (inaudible) banking and third party distribution on the retail side. Those will be the areas.

On the corporate side, given that the project -- big new project sanctions are still not happening, we would still have a weakness in that particular front-end fee type of revenue stream. So we are quite prepared for that. And then we are trying to push all the line items to get the growth close to the balance sheet type of growth in the medium term. So that's the kind of outlook we can see.

Okay. So next year, fiscal year '14 over fiscal year '13, hopefully we should see a much better growth which will be much closer to balance sheet growth?

Definitely a better growth. But depending on the environment we'll have to assess whether we are able to reach the balance sheet kind of growth levels. But definitely much better growth than what we have put out so far this year.

Sure. Thank you.

Thank you. We have the next question from the line of Abhishek Kothari from Violet Arch Securities. Please go ahead.

Sorry, I joined the call late. Could you give me the CDR in pipeline?

CDR for us, what we have mentioned was that we have about INR9b to INR10b of our loan to be restructured. We would have expected some of that restructuring to happen in the third quarter itself, but because of the packages being worked out in various stages we could not implement it. So that is the number we are seeing happen over the next quarter or so. So that's the number we have.

And current quarter the slippages were --? I mean just run through the break-up of NPAs.

Current quarter we had a gross -- additions to the gross NPA of about INR8.5b we had. And we had about INR5.7b of deletions leading to a net NPA ratio of 0.64%.

So recoveries were to the tune of --?

INR5.7b.

Total?

Yes, for the quarter.

Okay. And I just wanted to know, this 3.5b that you added to restructure, what was the largest account and which sector?

We don't give specific largest account numbers. But you could --.

In terms of amount?

In terms of -- it was -- this time it was several assets actually.

Okay. Fine. That's it from my side. Thank you.

Thank you.

Thank you. We have the next question from the line of Rajeev Varma from Bank of America-Merrill Lynch. Please go ahead.

Hi there. I just wanted to know, you've been having this discussion I guess in the past with the Canadian authorities on the return of capital. I was just wondering where are you on that now. Any progress?

And I guess the second one was on the repayments on the international book. How much are the repayments for this year, just -- actually for this calendar fiscal '14?

Yes. On the Canadian issue which you talked about, I can only say that we continue to discuss. And over the period of the next 12 months to 18 months we are hopeful of getting something. But in between, if you remember we got a dividend payout of about INR1b. We are hoping that going forward another INR1b we can get. Depending on when they give the approval it can come in that particular quarter. So about INR1b per annum of dividend is something which we are looking at in the medium term.

But these are all regulatory discussions so we can't be sure of the timing of such decisions. But we will continue to engage them and we are very hopeful. That's all I can say.

On the repayments on the overseas branches book, about close to about $2m is the repayment we see for fiscal 2014. Again you know that that amount is matched on both sides, that is [$1b].

Right, on the assets.

Yes. As said, the element's quite matched. Just over $2m is what we'll reduce.

Okay, great. Thanks a lot.

Thank you, Rajeev.

Thank you. The next question is from the line of Saikiran from Espirito Santo. Please go ahead.

Sir, your capital consumption in the last seven quarters has not been in sync with the balance sheet. I'm just wondering why is it so and then how it might pan out going forward?

A couple of things are there. One is that in terms of efficiency of capital, we have tried to get more and more of our portfolio externally rated, so that has helped. And secondly on the -- in addition to the crisis on the market risk side we have not seen -- we will not see commensurate increase in the risk-weighted assets as happened on the balance sheet side. As you saw in the current quarter that even actually went up compared to September. The only thing to keep in mind is that typically the dividend payout will come in the March quarter. So in the last quarter of the financial year we do see a more substantial drop in the tier 1 ratio.

Okay. But this quarter at least would be attributable to the factors like what you mentioned on the rating of your portfolios and other stuff?

This quarter in specific was just the addition of the profit for the quarter. And there was actually some decline on the risk-weighted assets [equivalent] for the market risk side.

Understood. And just a couple of data core points. What will be your outstanding builder loan portfolio? And also on the auto side, what will be the outstanding dealer portfolio?

The builder loan portfolio continues to be in the region of about 3% of the loan book.

Okay. And on the vehicle loans, what will be the outstanding dealers' portfolio?

It will be less than 1% of total loans.

Okay. And also if you can help us with the provision break-up. In terms of provisions break-up, the NPA provisions as well as the standard asset provisions and other miscellaneous ones.

Of the total provisions, actually it is -- we have made a general provision in the standard assets and including these on the restructured loans, so that was about INR1b. The rest of the provision is almost all for specific provisioning against NPAs.

Thanks. That's it from my side.

Thanks, Sai. Thanks.

Thank you. The next question is from the line of Manish Chowdhary from IDFC Securities. Please go ahead.

Hi. Just a couple of questions from my side. Firstly on the asset quality slippages this quarter, could you give us some flavor in terms of what is from corporate and how much from retail or anything?

And secondly on the fees, you mentioned earlier that the retail fees are much healthier than corporate. Could you give us an indicator of growth rates on each of these segments if possible?

On asset quality, we actually don't give a specific break-up into each of the categories. But as we have said in the past and [currently] mentioned earlier, we have seen slippage mainly on the SME side which has been coming through in the last several quarters. Given that our overall portfolio in the SME segment is about 5% of total loans, it doesn't impact us on an overall basis. But we have seen slippages on the SME portfolio that have continued.

On the retail side, gross slippages are there but we have kind of an equaling number which is going -- getting recovered as well. So on a net addition basis it is close to zero. But there will definitely be some gross addition and gross deletion on the retail side.

Corporate side, really we have not seen any material slippage at all during the quarter.

And sorry, secondly on the fees side, if you could give us relative growth rates on the fee income between corporate and retail?

So fee income, as again [currently] mentioned on the corporate side we actually would see a year-on-year decline on the fee income side, which is mainly coming through the lending linked fees, the loan processing fee, syndication fees. Those fees have come down while we have continued to grow the commercial banking and FX fees. Overall, despite the reasonably good growth on the FX and commercial banking on the corporate side, we have seen some decline on the overall corporate fees.

For the retail fees, across various categories the growth has ranged between 10% to 20%. And at the higher end we have seen the 20% kind of growth on the third party distribution and FX fees.

Thank you so much.

Thank you. We have the next question from the line of Vijay Sarathi from Nomura. Please go ahead.

Good afternoon. Is it possible for you to share the new customer acquisitions per quarter on the retail side, on the banking side?

Yes. We are not disclosing that in the general [reasons]. So maybe going forward we'll look at doing that, but we have not looked at that yet.

Okay. Thank you very much.

Thanks, Vijay.

Thank you. The next question is from the line of Sudhanshu Asthana from Axis Mutual Fund. Please go ahead.

Good evening. I just wanted to understand the growth which is coming in the credit book. If I look at 12 months, you have done a delta of almost INR40,600 crores of credit. Out of that if I remove the overseas book which has seen because of the dollar movements of INR4,000 crores. So your core growth is around INR26,500 crores, out of which the corporate book has grown by INR21,700 crores approximately. So that's almost 60% of incremental growth.

So I wanted to understand that if you look at this number, which is a 33% growth on the corporate book, how much has come from disbursements made for projects which were sanctioned? How much has come through new loans being disbursed? And how much has come through working capital? Because if I remove your international book then you have a 20% growth in credit, but the incremental disbursement on that part of the book, 60% comes from the corporate book. So I just wanted to get an idea on that.

And the second part of the question is that housing volumes are increasing more and CVs have fallen. So will retail loan growth be dominated by housing and by non-CV auto? That's my question. Thank you.

On the nine-month growth in the corporate loan book, during the previous call in September --.

No, I'm taking a 12-month period, I mean December to December, 12 months rolling.

Correct. So we had said that one effect during this period, during the year, we typically do a reasonable amount of short-term lending to corporates which matures before the end of the financial year. So the growth that you see during the year will typically be higher than when we end up for the year. So for the year we are looking at corporate growth to be in the region of 20% to 25%.

So the growth that we have seen until now, we have seen increase in the short-term loans to the higher-rated clients. As [currently] mentioned earlier we have seen a reasonably good growth on the working capital side of it. Of course our overall share in the fund-based working capital has been on the lower side in the past so we have seen good growth there.

On the project finance, from the past sanctions we have seen disbursements coming in, really nothing much on the incremental side. So it has been a mix of, I would say, these three elements of working capital, the other short-term loans that we do which are less than six months or one year in maturity, and the increase in the project finance disbursement from the existing --.

Could you give us a number on how much has been disbursed on past projects over the last 12 months rolling? That could give us a fair idea of what has happened to short-term loans and working capital.

Yes. So we actually do not give a specific break-up into that -- those --.

But on a percentage basis if you would just tell us how much it was of this number?

We don't give a specific number. But I will say you know that overall the working capital book would have grown at higher than the growth that we have seen for the corporate book. If you are comparing, say, March to December, then the one more element which will be there is that in March we had sold down a part of our corporate loan portfolio. As part of [IBPC] we have done about INR45m which came back into the portfolio in September quarter. So that increase is, in that sense, not an additional credit that we had taken but that was something which had sold down as part of IBPC for six months and came back in the book. That was another element.

And project finance, as I said it is only happening from the past disbursements. Ao that growth on that book will not be more than 20% or so.

And could you just comment on the retail piece?

Retail, yes, you're right that going forward, if you look at the near term, the growth will be driven largely by mortgages and then the car loans. On the commercial vehicle side, clearly we have seen that incremental disbursement volumes have come down for us as it has happened in the market as well. So while we would be quite keen to grow the commercial vehicle portfolio, but in the current environment in the near term it does look like the portfolio growth will be lower than what we see on mortgages and passenger cars.

Thank you.

Thank you. We have the last question from the line of Hatim Broachwala from Karvy Stockbroking. Please go ahead.

Yes. Hello, sir.

Hi. Hello.

There's a lot of competition increase in the retail segment. So are you worried about compression in margins in this segment?

Yes, it continues to be a very competitive segment. And actually we have seen that play out in the last three quarters. Some of the banks have been aggressive on the mortgages side and the automobile loans. But from an overall perspective we have been looking at the incremental yields, but we do believe that we'll be able to maintain the margins. The approach we have taken is that in the automobile segment, for example, when it was very competitive we thought that rather than chasing the market share we should just continue to look at our volumes and [we are] satisfied with some base level of volumes. It was quite fine.

And also we should remember that we are operating at a market share of about 8% to 10% across products. So to be able to maintain this kind of market share and probably slightly to grow it to be in line with our 20% growth aspiration, we don't have to really chase market share by undercutting. So I think, given our aspirations of about a 20% growth in retail and given the fact that our market share is low at about 8% to 10%, and given that we also are pushing an agenda of margin improvement for the bank as a whole, we don't think we need to really compromise on margins.

Okay. Sir, also we are seeing a good amount of improvement in the asset quality for past many quarters. How do we see it going ahead?

Yes. As I mentioned earlier, the provision cost is pretty much under control. We do think that the earlier expectation of that being less than 75 basis points of average loans, that is something which we don't have to revise upwards. If you look at the NPL ratios, they are very comfortable. Again we don't expect that increase to move up significantly.

The only area where we have been watching closely is the restructured assets. While so far that has held off very well, as I mentioned about INR9b to INR10b of loans are yet to be restructured. So that is the only area where I can see some kind of addition to this portfolio. But overall when we look at the performance of past restructured assets and so on, we don't have any big concerns.

So I would say that it is an environment where, for our book, we are seeing a stable asset quality. That's how I'll summarize it. But the need to monitor closely is very much there today given the operating environment. So stable with a close monitoring, that's how I will summarize the situation.

Okay, sir. Sir, I also missed NIMs on the domestic side.

Yes. For the quarter the NIM on the domestic book came at 3.47.

Okay. Yes. Thanks a lot.

Thank you.

Thank you. I would now like to hand the floor back to Mr. N. S. Kannan for closing comments. Over to you, sir.

Yes. Thank you. And thanks to everyone for joining the call. And my team and I will be available to take any further questions offline. Thank you. Bye-bye.

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