ICICI Bank Ltd (IBN) 2014 Q1 法說會逐字稿

Ladies and gentlemen, good day and welcome to the Q1 FY14 Earnings Conference Call of ICICI Bank. As a reminder, all participant lines will be in the listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes. (Operator Instructions) Please note that this conference is being recorded.

I now hand the conference over to Mr. N. S. Kannan, Executive Director and CFO of ICICI Bank. Thank you and over to you sir.

Thank you. Good evening and welcome to the conference call on the financial results of ICICI Bank for the quarter ended June 30, 2013, which is the first quarter of the current fiscal year 2014. As always, my remarks this evening would revolve around four key themes. First, on the macroeconomic and monetary environment, followed by our performance during the quarter, including performance on our 5C strategy. Then we'll move on to our consolidated results and finally the outlook for the full fiscal year 2014.

Let me start with the first part on the macroeconomic and monetary environment during the first quarter. On the global front, growth forecast by the IMF have been revised downwards across countries. While the economic conditions in the US have been showing signs of recovery, indication from the US Fed of possible withdrawal of quantitative easing have affected market sentiments. This resulted in volatility in capital flows, exchange rate, bond yields and equity market returns across several emerging economies, including India.

In the domestic economy, the government has taken several steps to revive investment activity, which augur well for an improvement in the long-term growth projects of the country. These include approval for mechanism for coal supply to power producers, increase in gas prices, clearance of several projects by the Cabinet Committee of Investments and increase in FDI limits in some key sectors. However, current economic activity continues to remain subdued. The growth in the Index of Industrial Production, IIP, remained weak, recording a growth of just 0.1% during April-May of 2013.

Exports declined by 1.4%, while imports grew by 6% during the first quarter, resulting in a higher trade deficit of $51 billion in the first quarter compared to $45 billion in previous quarter. Headline wholesale price based inflation continued to remain below 5% at 4.9% in June, 2013. There was consistent moderation in manufactured products inflation, which eased from 4.1% in March, 2013 to 2.8% in June, 2013. However, consumer price inflation remained at over 9% during Q1 of 2014.

Given the volatility in global markets and domestic concerns, during Q1 of fiscal 2014, the rupee depreciated by 9.4% from INR54.3 per USD at end-March 2013 to INR59.4 per USD at end-June 2013. The depreciation was sharp in June 2013, when it breached the INR60 per USD mark. FII flows were volatile with net outflows of over $6 billion in June 2013 alone compared to inflows of a similar amount during April-May 2013. Considering the above trends, the Reserve Bank of India put on hold its reduction in policy rates after the 25 basis points reduction in repo rate announced in May 2013.

On July 15, 2013, with a view to stabilizing the exchange rate, the Reserve Bank of India increased the Marginal Standing Facility rate to 10.25% and fixed the borrowing limit for banks under the Liquidity Adjustment Facility or LAF, at INR750 billion. The immediate impact of these measures on the market was a sharp increase in interest rates, particularly the short-term rates. Subsequently on July 23, 2013, the Reserve Bank of India set the overall limit for LAF access by each individual bank at 0.5% of the bank's net demand and time liabilities, effective July 24.

In addition, effective July 27, the minimum daily cash reserve ratio balance required to be maintained by banks was increased to 99% of the stipulated fortnightly requirement from 70% earlier. In its monetary policy statement on July 30, RBI kept the policy rates unchanged and has mentioned that the liquidity tightening measures would be rolled back in a calibrated manner once stability in the foreign exchange market is restored. Since July 15, that is the initiation of various measures by RBI, there has been over 200 basis points increase in short-term rates, 100 basis points increase in the G-sec yields and 1% depreciation in the exchange rate.

Credit off take during the first quarter remained moderate. Non-food credit by scheduled commercial banks recorded a 13.9% increase year-on-year at June 28, 2013 compared to a growth of 16.1% at June 29 of 2012. Deposit growth continued to remain muted with total deposits recording a growth of 13.8% year-on-year at June 28, 2013 compared to a growth of 13.5% at June 29, 2012. Demand deposits grew by 10.9% year-on-year, while time deposits grew by 14.1% at June 28, 2013.

With this background, I 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 Credit growth, total advances of the Bank increased by 12.3% on a year-on-year basis from ING2.68 trillion at June 30, 2012 to INR3.01 trillion at June 30, 2013. The growth in the domestic loan portfolio was higher at 14.1% on a year-on-year basis at June 30, 2013. The growth in advances was balanced across various loan segments.

As I had mentioned on the earlier results call, from March 31, 2013, we have revised the presentation of the domestic loan portfolio mix to better reflect the nature of the underlying loans. The disclosure of loan portfolio at June 30, 2013 is on a similar basis. For your convenience, we have included in the presentation, data for June 30, 2012 on the revised basis so that the figures are comparable. My subsequent discussions on our credit growth for the year is based on this new classification.

I am happy to report that the Bank continues to see strong traction in its retail lending business. Mortgage and auto loan disbursements increased year-on-year by 36% and 17% respectively, and the outstanding mortgage and auto loan portfolios grew by 20% and 21% year-on-year respectively at June 30, 2013. Commercial business loans declined by 18.6% on a year-on-year basis at June 30, 2013, reflecting both a slowdown in this segment as well as continued run down of the bought out portfolio in this segment. Coming to the unsecured credit card and personal loan portfolios, there was an increase of about 37% on a year-on-year basis. While the growth rate is high due to the low base, the outstanding unsecured credit card and personal loan portfolio at INR48.69 billion at June 30, 2013 was only about 1.6% of the overall loan book.

Based on the above trends in individual products, we saw a year-on-year growth of 26.6% in the organic retail loan portfolio, excluding buyouts, at June 30, 2013. On a total retail portfolio basis, including the impact of rundown of the earlier buyout portfolios, the growth was 12.6% on a year-on-year basis at June 30, 2013. With the re-basing of the buyout portfolio over the course of the year, we expect to see strong growth in the total retail loan portfolio, including buyouts, on a full year basis.

The growth in the corporate and international portfolio was 14.1% on a year-on-year basis. Growth in the domestic corporate portfolio has moderated from about 30% year-on-year at March 31, 2013 to 20% year-on-year at June 30, 2013, in line with expectations. Net advances of the overseas branches increased by 7.6% on a year-on-year basis in rupee terms, primarily due to the movement in the exchange rate. In dollar terms, the net advances of the overseas branches remained stable on a sequential and year-on-year basis at June 30, 2013.

Moving on to the second C on CASA deposits; reflecting our strong retail franchise, the Bank saw an addition of INR32.02 billion in its savings deposits during the first quarter. The Bank was able to maintain the current account deposits at a stable level at June 30, 2013 as compared to March 31, 2013. As a result, the CASA ratio for the Bank improved from 41.9% in March to 43.2% at June 30, 2013. The average CASA ratio improved from 38.1% in the previous quarter to 39% in the first quarter.

On the third C on costs; for the first quarter, operating costs, including DMA expenses, were higher by 17.3% on a year-on-year basis. The Bank's cost-to-income ratio declined to 39.4% in the first quarter of fiscal 2014 compared to 41.8% in the first quarter of fiscal 2013. Let me move on to the fourth C on credit quality. The Bank's asset quality trends continue to be broadly in line with expectations. During the first quarter, the Bank saw gross additions of INR11 billion to its overall gross NPAs, primarily driven by slippages in the SME and mid-sized corporate loan portfolio. Recoveries in the first quarter were ING3.10 billion, resulting in net additions to gross NPAs of INR8 billion. The Bank has also wrote-off INR3.96 billion of NPAs during Q1. The net NPA ratio was marginally higher at 69 basis points at June 30, 2013 compared to 64 basis points at March 31, 2013.

During the quarter, the Bank restructured INR8.32 billion of loans, similar to the level seen in the previous quarter. After taking into account deletions and the required specific provisioning, the net restructured loans for the Bank increased to INR59.15 billion at June 30, 2013 compared to INR53.15 billion at March 31, 2013. The Bank has a pipeline of about INR10 to INR11 billion of loans referred to CDR mechanism. In addition, the Bank may also undertake some bilateral restructurings.

Provisions for Q1 of 2014 were at INR5.93 billion as compared to INR4.66 billion in Q1 of 2013 and INR4.61 billion in previous quarter. In Q1 2014, the Bank has made specific provisions of about INR2 billion at rates higher than the minimum percentages prescribed by RBI guidelines against certain NPAs in the corporate and SME portfolio. The provisions also reflect the impact of higher general provisioning requirement on restructured loans as per RBI guidelines. As a result, credit cost as a percentage of average advances was at 82 basis points on an annualized basis for Q1 of 2014. The provisioning coverage ratio on non-performing loans continues to remain healthy at 75.4% at June 30, 2013.

Now to the fifth C on customer centricity. The Bank continues to focus on enhancing its customer service capability and leveraging on its increased branch network to cater to the customer base. During the quarter, we added 250 branches and 421 ATMs to the network. With this, we have a branch network of 3,350 branches and 10,902 ATMs at June 30, 2013. The Bank also continues to strengthen its technology channels for increasing customer convenience. During the quarter, the Bank launched Money2India Mobile App to help non-resident Indians track their money transfers to India. Money2India.com currently has over a million registered users and is a popular online money transfer tracking service offered to non-resident Indians by the Bank for over a decade. The Bank's Facebook initiative continues to be appreciated by customers with about 2.3 million fans. ICICI Bank continues to have the largest fan base on Facebook among the Indian banks.

Having talked about the progress on 5Cs let me move on to the key financial performance highlights for the quarter. Net interest income increased by 19.6% year-on-year from INR31.93 billion in Q1 of 2013 to INR38.2 billion in Q1 of 2014. The Bank saw a year-on-year improvement of 26 basis points in the net interest margin from 3.01% in Q1 2013 to 3.27% in Q1 2014. The domestic net interest margin was 3.63% in Q1 2014 as compared to 3.51% for the full fiscal year 2013. In line with our expectations, we have seen an improvement in the international business margins from 1.34% for the full fiscal year 2013 to 1.6% in Q1 of 2014.

Total non-interest income increased by 32.1% from INR18.8 billion in Q1 2013 to INR24.84 billion in Q1 2014. During the quarter, treasury recorded a profit of INR4.03 billion compared to a loss of INR0.21 billion in the corresponding quarter last year. The profit the treasury made in the previous quarter was INR0.93 billion. The profit in Q1 2014 in the treasury business was primarily on account of realized gains in the fixed income portfolio. Going forward, the treasury performance would depend on market developments, including the impact of policy measures which I talked about earlier.

Other income was INR2.89 billion in Q1 2014 compared to INR2.54 billion in Q1 2013, primarily driven by the dividend from the subsidiary companies. We have seen an improvement in fee income growth from about 3% for the full year financial year 2013 to 8.9% on a year-on-year basis in Q1 2014. This improvement in fee income growth was primarily driven by growth in the retail banking fees. I have already spoken about the trends in operating expenses and provisions while speaking about the 5Cs strategy.

The Bank's stand-alone profit after-tax increased by 25.3% from INR18.15 billion in Q1 2013 to INR22.74 billion in Q1 2014. This translates into an annualized return on average assets of 1.75% for Q1 2014 compared to 1.51% for Q1 2013. The Bank's capital adequacy at June 30, 2013 as per Reserve Bank of India guidelines on Basel III norms continued to remain strong at overall capital adequacy ratio of 17.04% and Tier I capital ratio of 11.72%, giving us the ability to grow our business further. In line with applicable guidelines, the Basel III capital ratios reported by the Bank for the quarter ended June 30, 2013 do not include the profits for the quarter.

On a comparable basis, total capital adequacy ratio as per Basel II norms would have been 18.35% and Tier I capital adequacy would have been 12.48%. Including the profits for the first quarter, the capital adequacy ratio for the Bank as per Basel III norms would have been 17.39% and the Tier I ratio would have been 12.07%. On a consolidated basis, the Basel III Tier I ratio would be higher by about 25 basis points and the overall capital adequacy ratio would be higher by about 90 basis points, since on a consolidated basis, only the equity investment in the insurance subsidiaries is deducted from capital.

I now move on to the consolidated results. The profit after-tax for the life insurance company in Q1 2014 was INR3.64 billion as compared to INR3.49 billion in Q1 2013. The Q4 2013 level of net profits reflects an annualized return of about 30% on the Bank's invested capital in the subsidiary. The new business annualized premium equivalent, APE, for ICICI Life was INR5.41 billion in Q1 2014 compared to INR5.7 billion in Q1 2013. The new business margin for the quarter was 15%. The retail weighted received premium for ICICI Life decreased by 9.4% during April-June 2013 compared to a 28% year-on-year decrease for the industry.

During April-June 2013, 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 premium. The profit after-tax for the general insurance company in Q1 2014 was INR2.03 billion as compared to INR0.83 billion in Q1 2013. The company maintained its leadership position in the private sector with overall market share of 9.4% during April to June 2013. Let me move on to the performance of our overseas banking subsidiaries.

As per IFRS financials, ICICI Bank Canada's profit after-tax for Q1 2014 was CAD14.4 million as compared to CAD11.9 million for Q1 2013. Total assets for ICICI Bank Canada were CAD5.23 billion at June 30, 2013 compared to CAD5.37 billion at March 31, 2013. The capital adequacy ratio was healthy at 31% at June 30, 2013 compared to 33.2% at March 31, 2013.

ICICI Bank UK's total assets were $3.75 billion at June 30, 2013 compared to $3.59 billion at March 31, 2013. The profit after-tax for ICICI Bank UK for Q1 was $5.4 million compared to $4.4 million in the corresponding quarter last year. The capital adequacy ratio was 26.6% at June 30, 2013 compared to 30.8% at March 31, 2013.

In line with the objective of rationalizing the capital invested in overseas banking subsidiaries, we received capital repatriation of $100 million from ICICI Bank UK, including redemption of $50 million of preference capital in Q4 2013. During Q1-2014, ICICI Bank UK has also called back $50 million of Tier II capital bonds. Further, ICICI Bank Canada has repatriated CAD75 million of equity capital to the Bank during Q1 2014. Going forward, we will continue to focus on rationalizing the capital invested in the overseas banking subsidiaries.

Let me now talk about the overall consolidated profits. The consolidated profits for Q1 2014 increased by 32.3% to INR27.47 billion compared to INR20.77 billion in Q1 of 2013. This level of profit reflects an annualized consolidated return on average equity of 15.6% for Q1 2014 compared to 13.3% for Q1 2013. I would now like to talk about our outlook for fiscal 2014. As I had mentioned earlier, there has been continued moderation in economic growth, along with increased volatility in financial markets. At the same time, several changes on the regulatory front are underway. Our outlook for fiscal 2014 is in this overall context.

With respect to loan growth, we will continue to target domestic loan growth at 2 percentage points to 3 percentage points higher than the system growth, with higher growth in the reported retail portfolio of about 18% to 20%. The growth in our international book in our overseas branches will of course depend on conditions in the global financial markets. Given the current growth trends in demand deposits in the system, our target would continue to be to maintain the average CASA ratio at 38% to 39% for fiscal 2014. We continue to target an improvement of about 10 basis points in the overall net interest margins on a full year basis as we had indicated earlier. Driven by growth in the retail fee segment, we continue to target an improvement in fee income growth to double digits in fiscal 2014.

For financial year 2014, our endeavor would be to contain the cost-to-income ratio to about 40%. While the asset quality trends continue to be challenging for the system as a whole and we would expect additions to NPLs and restructured assets to continue, for the full year fiscal 2014, we continue to target provisions of about 75 basis points of average loans as we have indicated earlier.

So in conclusion, I would like to say that during the quarter we made progress on our stated objectives, achieved healthy operating parameters in the context of a challenging operating environment, including significantly enhancing our deposit franchise. Our retail franchise has seen good growth, with respect to both the liability and the asset franchises. We have also seen the first steps in rationalization of capital at our overseas banking subsidiaries. We continue to make progress in improving our profitability metrics such as margins, fee income growth and operating expenses.

So with these opening comments, my team and I will be happy to take your questions. Thank you.

(Operator Instructions) Nikhil Rungta, Standard Chartered Securities.

Hi, this is Mahrukh. Just wanted to check a few things. Firstly, in terms of retail NPLs, they have risen quarter-on-quarter because of the classification of the loan portfolio or?

Yes, that's right Mahrukh, because when -- the numbers that we have given in our presentation for Q4 were excluding the rural loans et cetera that we had reclassified into retail. So the main difference is because of the change in plan.

So most of this would be SME? I mean most of the increase.

No, it's just that both the underlying portfolio size now being reported as retail is larger.

Got it. And you said that most of the slippages were SME and mid-sized corporates. So there was nothing lumpy and in terms of SME, is there any geographic bias or any such thing, because SME portfolios are behaving differently across banks, that's why I'm asking.

These are largely what we have seen as company specifications, Mahrukh. There is no specific pattern. Typically in cases where the gearing is a little high and there is increase in receivables, those are the cases which have got impacted and in any case if you look at our loan book composition, the SME as a percentage has come down to 4.6% as of June. So, yes, there has been strain in that segment in general, but within the slippage there is no specific sector wise trend, it is a company specific.

And why such a sharp growth in personal loans in this quarter and credit cards? Of course of the base is low, but is that the new focus or?

No, it is just the base effect. As I mentioned earlier also in the call that the percentage growth will be there, but as a percentage of the overall loan book it is still not a very significant amount. Strategy wise, we continue to target our liability customers to sell more cards and other unsecured products. And compared to our peak market share, we are starting off a very small base, so the increase looks high percentage increase.

The buyout was zero during the quarter?

Some buyout would have been there in through the PTC route, but in the loan book, it was close to zero.

Reran their buyout in the PTC?

This is from a priority sector requirement and when opportunity is available as and when we need to do, we will look at it.

The 18% to 20% loan growth will happen despite some amount of buyouts being there in the fourth quarter last year, right?

Yes, that's right.

So it will be on the total portfolio, not just organic, the 20% retail growth is on the total not only on the organic.

My sense is organic will be higher, but when we say 18% to 20%, it's just a reported number itself will be able to show a growth of 18% to 20%.

Okay. Perfect. In terms of restructuring pipeline?

Yes, I talked about the number in the call of about INR10 billion to INR11 billion of CDR restructuring and in this operating environment Mahrukh, it's very difficult to give a full year number, but we want to assure you that close monitoring of the portfolio will continue to be the top most priority given the environment.

The only concern is that, you know, like say Lanco which is being talked about, it may not have been referred to CDR rates yet, but it's talked about and there will be many such other companies. If the balance sheet is growing, then can the SPVs be far behind?

Yes, the number which I talked about sort of takes into account what is in the pipeline which you have already mentioned, but of course, we will monitor and we will ensure that our top exposures are monitored even more closely so that we don't allow slippages.

Perfect. Thank you. Thanks a lot.

Thank you.

(Operator Instructions) Vishal Goyal, UBS Securities.

Hi, Kannan.

Hi, Vishal.

Question actually is on the credit quality. I think we are still maintaining 75 bps of credit cost guidance, while I think in last three months, I think lot has changed, both on currency side plus RBI stance and I'm sure you must be seeing more pain visible on the ground, so you think there is a need to change this?

Not at this point, Vishal, we looked at the numbers and again annualization. As I mentioned, we have already taken provisions in excess of RBI requirements of about INR2 billion in the first quarter, because of that the number has gone up to 82 basis points on an annualized basis. So considering all this, we are quite happy to be expecting about 75 basis points for the year as a whole.

So, basically on the provisions, maybe I'm not aware, but the provisions have like INR5.9 billion, can you just give us some breakup of that? You said INR2 billion specific on that.

INR2 billion, what I said was the INR2 billion specific provisions is the excess provisions over and above what is required by RBI guidelines that's what I mentioned. Apart from that this INR5.9 billion would also include a normal run rate provision on a specific basis as per RBI guidelines. It will also include for the restructured assets, if you remember RBI has increased the provisioning requirements. That is also included in the provisioning apart from the general provisions.

Also, can you just give us some color on the AFS book now with the duration if possible?

If you look at our SLR portfolio, typically we have about around 25% of that portfolio in AFS and about 75% in HTM. So that is -- and the duration on the AFS portfolio would typically be less than one year that we would be carrying. In addition to that we will of course have some other fixed income investments like corporate bonds or other things which would be in the AFS portfolio.

Okay. So, the corporate bond would be how much? Are there some RIDF including in the disclosure, I think you give RIDF and related at INR198 billion.

That is only that PSL shortfall number, which is an investment in RIDF at the lower yield bond, those are not corporate bonds, those are entirely SIDB or NHB or NABARD, which ever are the issuing entities.

Of course the good news there is that with the Bank rate going up, the incremental investments will fetch a much higher return of 7.25% as against 4% to 5% which we get now.

Okay. That is for incremental stuff.

Of course.

So the corporate bond book would be how much, Rakesh?

Corporate bond book will be typically about INR150 billion.

Which has come down during the quarter.

It would have come down already in the quarter?

Yes, because I talked about fixed income gains which we have been able to sell in the first quarter.

Great. Thanks and all the best.

Thanks.

Nilesh Parikh, Edelweiss.

Yes, hi. On the specific provisions in excess of RBI norms that we made of about INR2 billion, so this is the first time we've made excess on specific assets or we've kind of made something earlier also?

As a policy for example or against retail loans we indeed make additional provisioning over and above RBI guidelines. On rest of the portfolio, on corporate and SME we typically make provisions in line with the RBI guidelines on the substandard, doubtful based on the security that we have on the loan and the aging of the loan. So the provision that we have made in excess this quarter would typically not have been made in the past in this manner.

And it's specific to--?

These are specific to specific NPLs. So, these are in no way any general provisions that we have made in excess. These are specific against identified NPLs and these are netted out in the net NPL number that you look at.

Sure. And just on the fee income trends, if you can just talk specifically in terms of how is the retail pie moving? So, we've seen some inch up only overall level, but still not kind of moving closer to the double-digits guidance that you were giving. So just wanted to get some color in terms of direction of where we are moving here?

I agree with you, but we are quite satisfied with having moved it at least from 3% to 9% for a start, because last year as a whole, the movement was only 3%, which we were ourselves disappointed. So 9%, yes, of course we would have liked it to be higher, but it's a good start for the year and we are quite confident that we should be able to get a double-digit percentage growth. Just to give a color on relative segments, we would have increased the retail side of the fee that will be in teens and on the corporate side still, especially project related, it's a flattish kind of fee income development that's what we are seeing. On the other area such as Forex and commercial banking there has been some growth. So, those are the segments where we will continue. And areas such as Forex, we do believe we have gained some market share over the last year. So, those would be the areas we will be focusing on.

Just one quick question on the write-offs of about INR4 billion, largely from the retail book?

Yes.

Okay, fine. Thanks.

Thank you.

Kashyap Jhaveri, Emkay Global.

Hi. Congratulations on good set of numbers. Actually I have a question from the annual report, where we have reported this priority sector lending, we have given number for agri weaker section and home loans separately in the notes to accounts. The residual number will be largely micro, small and medium enterprises?

Yes, it will be.

About 9.9% -- about 10% is agri, about 2.5% will be weaker sections, about 8.5% will be home loans, so residual 14% will be what MSME?

It will largely be MSME, but it will include part of commercial vehicle which qualifies for other priority and those kind of categories, which typically will then come under MSME or it could include -- some of the earlier categories were still allowed like loans to [NBSC] for on-lending in the past were allowed, so there were stopped incrementally, so they were still in the book to some extent. These are the larger categories. You know they are large categories.

Why I'm asking this questions is if I look at FY12 report versus FY13, this segment has grown at something like about 24%, which is about 600 basis points to 700 basis points above our average growth rate, so in cash which you spoke about in the SME segment, were those largely from this category or they were separate SME category?

No, no, no. That is not from this category.

That is not from this category? Okay, sure. The second question is on borrowing from RBI in the new report, which is at about 4% of NDTL, now is this a year-end phenomenon or is this something which is on regular basis?

Some part of it definitely is year-end phenomenon as well, but if we look at it on a more regular basis, what I would like to say is that if you look at the structural improvement in the funding profile now compared to three, four years back, now we have really swung the funding side to 70% plus retail deposits, whereas in 2008 the situation would have been probably the other way around. So that has really helped us and in terms of even this number of under repo borrowings we talk about, it's not very high in the overall funding side. So it's more like the opportunity being available in the market, but structurally we don't need to continue to do that.

So compared to what RBI is contemplating, would we be very far away from where they have sort of contemplated.

In terms of?

NDTL -- as a percentage of NDTL?

Of course, if the system was borrowing much higher than the 0.5% of NDTL, that is true for all banks including for us that we would have been borrowing at a much higher level than that 0.5%, some are borrowing more than double of that. We would definitely--

But it sort of adjust to the prevailing regulatory and the monitory environment, because that opportunity was available at that time. So it was there.

Sure. And just last question, in last quarterly call, you had guided to a CDR pipeline of about INR7 billion odd in Q1, the residual number which is 8.23 minus 7 will be largely bilateral, or they were also CDR?

What I have said the pipeline is pretty much what has happened in the first quarter.

In any case the pipeline is at a point in time, cases do get added over a quarter as well.

So this 8.23 is largely CDR led only, this is all CDR led. There is no bilateral in this 8.23?

There will be some bilateral, yes.

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

Thank you.

Amit Premchandani, UTI Mutual Fund.

Sir, a question on the Basel II and III, there is a gap around 100 basis point in capital adequacy. Can you just explain what is the difference? What is it getting founded for?

Yes, in the Tier-1 capital adequacy, will you really look at it, the gap would be about 75, 80 basis points. So there are two primary reasons for this difference as we have talked about earlier also. One is on account of some of the securitization transaction we have done in the past, the risk-weight and the capital requirement on that is much more punitive under Basel III. So that accounted for about 40 basis points of difference between Basel II and Basel III Tier I ratios. The second aspect is our investment in the subsidiaries, as you know under Basel II, we take 50% of that investment out from Tier I and 50% from Tier II. Under Basel III eventually we have to take the entire 100% out of Tier I, but there is a facing arrangement and to start with the Basel III RBI guideline is that we have to take out 60% for this period from Tier I. So that has accounted for difference, these are the two primary reasons why that 75 basis point difference has happened. So this is pretty much as we had anticipated.

And the risk-weighted asset?

The expectation is a wind down portfolio since we have not done incrementally. So that divergence will go away as we go along.

So the risk-weighted asset number that you have given, is it based on Basel II or III?

Based on Basel III.

Basel III.

Sir, on the retail NPLs, that has been reclassified. Can you give us a number for the last year same quarter and last quarter, the reclassified number?

March number of gross is about INR58 billion, which is now INR54 billion.

Yes, INR58 billion moving to INR54 billion.

And June?

June, I don't readily have right now.

Okay, sure. Just one last question, RBI had come out with a draft kind of guideline on overseas unhedged exposure of borrowers and its impact on banks and you have to take a hit depending on the EBITDA level of the borrower. So since you have funded lot of acquisitions overseas of Indian borrowers, so how are we placed in case that are actually implemented?

Overseas funding that we have done to NTTs that actually is where NTTs would have used it in dollars itself, so that will not really have this impact. It will be more for ECBs that have been given by Indian banks to corporates in India or other such loans. It doesn't really link itself to dollar loans, even if you have made rupee loans, what RBI seems to be saying is that you have to look at the corporate and if their unhedged exposure will have a impact on their EBITDA above a certain level, then you have to maintain a higher GP and a higher risk weight, so whether you have a dollar exposure to the company or a rupee will not really matter. The only thing is that the way that the guidelines have come, it is quite difficult if not near impossible for banks to be able to work out those numbers unless as the guideline suggests that auditors of these companies would kind of workout the exact unhedged position and based on that the impact on the EBITDA then can be worked out. So, I think all bank would have given some comments on RBI on this and we have to see this kind of works out.

So in effect, what you are saying is that, a company X buys a mine in Australia and borrows for funding that mine, that will not be considered as unhedged exposure?

So instead of -- for each company, it will be looked as to what are their assets and liabilities and whether they have a cover or not. So maybe it is possible that a company borrowers in US dollars and lends us over the currency that is possible. But typically this will be where you have lend in ECB, where you are using the dollar for some other purposes as an arbitrage against rupee or something like that, is where you will end up having these open positions. So it will be more linked to that.

Yes, in our own case as well as in other bank's case, irrespective of whether you have a rupee exposure or a foreign currency loan exposure to a corporate, if the corporate has got some economic or actual financial exposure to dollars, we'll have to really look at the net position and then make a decision. So, I think this will, as in early days, it will evolve and there has been discussions held with IBA also. So I think it will take some time before further clarity emerges.

Are your view on the monetary policy and the decision of some of the banks to actually hike deposit rates and one or two banks actually increasing the lending rates, so are we also thinking on that lines or we have to wait more right now?

We will wait and watch now. We are very closely monitoring the situation and as I mentioned earlier, we are quite confident that all necessary steps would be taken, but finally we should be able to expand the names for the year as a whole by 10 basis points over last year. We are pretty much focus on that. The situation is evolving, every morning, every afternoon, we keep looking at the money markets and then taking a decision. But as I mentioned earlier, what has really helped us, which is showing in the Q1 numbers is also that, the kind of deposit franchise, we have been able to push on kind of retail deposit we have been able to get. That is really helping us in this situation of not having the need to quickly resort to any drastic measures?

Thank you, sir. That's it from my side.

Thank you.

Abhishek Kothari, Violet Arch Securities.

Sir, how confident are you of the deposit growth have been matching with the credit growth given the current environment?

Given the systemic credit growth environment, we are quite confident that there should not be any structural liquidity mismatches, arising out of the difference in growth rate in credit and deposit. Further as we go along, I think with the inflation sort of going away and probably a lesser diversion to physical assets such as gold and real estate, I think it will be good for the deposit growth. In any case as you know the relative basis of credit and deposit in the system is quite different and the credit we are talking about are, let's say, about INR40 trillion to INR50 trillion of credit as against INR70 trillion of deposit base, so a couple of percentage point difference can always be handled without any problem. System, as you know is also excess on SLR. So we don't see that it will create any problem whatsoever for the overall structural liquidity of the banking system?

Just two data points, what's the total cumulative NPA from restructured book and if possible, can you give a sectorial break-up of your gross NPA?

Sectorial NPA actually we give it in annual report on an annual basis, we are not putting it out on a quarterly basis, but the numbers we talked about the retail numbers are given separately, rest of it is mainly coming from the SME and corporate side. The second question on the restructuring, if you look at all the--

No, the NPA from restructured book.

Yes, if you look at the all the restructurings that we have done over the last say five years or so, cumulative slippage is less than 10%, it will be about 8% or so.

No quantifiable number or something?

About 8% is what is the slippage is.

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

Nitin Kumar, Quant Capital.

Hi, good evening sir.

Good evening.

I have two questions, firstly like we have seen two rounds of capital repatriation so far, so like what is the outlook there going forward like how much capital do we expect to bring back this year?

No, the expectation, no, I would really like to ensure that the level of capital is such that we get with the reasonable ROEs in both those businesses. The dialog for repatriation of capital or rationalizing capital invested continues with the regulator. This will be a multi-meeting, multi-level discussions and time frame is very difficult to sort of predict, but we have said as I said earlier is that we will continue to focus on rationalizing the capital invested in the overseas banking subsidiaries especially UK and Canada. So that will really continue. The focus is there, but timing is very difficult to predict, because regulatory approvals are involved in this.

Okay. Secondly, like this quarter our off balance sheet restricted assets have grown very sharply so anything in particular which has driven this growth?

Off balance sheet risk-weighted assets, my sense would be because of derivatives on other exposure, which is because of the currency movement would have happened.

And the securitization which earlier Kannan mentioned that is now it is risk-weighted.

Basel III risk-weight on securitization is the second reason.

Earlier it was a deduction from Tier I and Tier II capital of the trade enhancements that we have given. Now it is risk-weighted that included in RWA and there is no deduction from Tier I and Tier II. So that's why the RWA goes up to that extent and Tier I and Tier II would go to the extent of the earlier deduction which was there.

Okay. Thank you, so much.

As I said earlier this is the portfolio which is -- I mean it will come down as we go along.

Okay, sure sir. Thanks.

Thanks.

Surendra Chetty, UBS.

Hi. My question is regarding news that ICICI Bank is in the process of closing two branches in UK, is this a part of capital repatriation plan any motivation from this?

No, that is nothing to do with the capital repatriation plan, those two branches accounted for less than 2% of the deposits of ICICI UK, so we thought from an overall productivity perspective, cost management perspective, we thought that there is no reason to continue with those branches. So we mapped those customers into other branches where there are more footfalls and more customers. So that is what we have done. So it has got nothing to do with the capital repatriation plan and the intention is currently to continue with the subsidiary and we do believe that there will be India-linked opportunities as we move forward, so this has got nothing to do with the capital repatriation.

My next question is, I missed the guidance on the credit growth, can you please elaborate on that?

Credit growth, what we said is that we target to grow the credit 2% to 3% over the systemic credit growth, so that sort of continues on the domestic book. International side what I said was that depending on the overseas funding markets, we'll have to calibrate the growth as we go along, but domestic we are quite confident of doing 2% to 3% over the systemic growth. One of the areas where it is coming along quite nicely is the retail assets growth as we have seen in the first quarter, so on that basis we are quite comfortable to target 2% to 3% over the systemic domestic growth.

Okay. Thank you, very much.

Thank you.

Adarsh Parasrampuria, Prabhudas Lilladher.

Hi, Kannan, hi Rakesh. One was the question on international margins, now I just wanted to understand, you all have seen a decent improvement, but sustainable is it?

Yes, sustainability is not a problem, because given our incremental lending rates there, we are able to protect and enhance the margins. But you are right in a sense that about 1.5%, 1.6% would be the sort of steady state level. Beyond that on a sustained basis increases it is going to be difficult. So I mean that is what even prior to the global financial crises we would have achieved those kind of sustainable margins. So that is what we are seeking, but given the fact that for the year as a whole in financial year 2013, it was less than that steady-state level, that much of pickup is something which will contribute to the overall NIM for the current financial year, but 1.6%, 1.7%, we do believe is a good number to look at. So we would seek to sustain it at about 1.6% level.

The reason why I'm asking you is, is there some I guess increase in hedging cost per se and a lot of this would be India linked guys. So, would you generally trade off a little bit of margins to some of your customers that was -- the question was more from that side that you've seen a decent increase in hedging cost now.

Not required at all, because our approach to international book has been more like sustaining a margin of 1.5%, 1.6% and see the funding side opportunities to sort of look at growth as a derivative. Not target a particular level of growth. That is how we have pushed that business. While we are very confident on -- while we are targeting a growth of 2% to 3% kind of growth on the domestic book, international book always is based on the availability of funding. So, there is no specific growth target as a percentage in the international book. Even if you look at past periods, we have seen the book to be steady in the dollar terms. Whatever growth we have seen is because of the rupee depreciation. So approach would be that look at the funding market, is there an opportunity to let's say do a lending at a margin of 1.5%, 1.6% then only we will raise the fund, otherwise there is no need to raise the fund, there is no specific growth targets I can assure you on the international book.

I understand. Secondly on general insurance profitability, seems to have improved quite dramatically, just wanted to understand, are these run rate sustainable, there some one offs there?

See there are two primary reasons why the profits have gone up, one is that, as we have mentioned earlier, the drag in motor pool which they had to take during the last year in the first quarter. That has gone away, plus of course the growth in the business has been there and there have been investment income also in that given the market condition. So we do believe that about 20% ROE on the steady state basis or something the business can deliver.

Just one more on outlook and I think you've touched on this a little bit, but if you can elaborate, I think we've tightened a little bit more on the liquidity side and it's not easy, so some of the infra conglomerate exposures, what kind of comfort level, do you have now in lots of large infra conglomerates and asset sales have not happened at the base expected.

That's a question of monitoring the assets on a continuous basis, and in some cases we have reduced the exposure over the last year or so. So that kind of approach of talking to the promoters, pushing them to do asset sales or carefully monitoring our exposures, ensuring that the payment comes on time, that kind of monitoring will continue. Yes, clearly the situation demands that kind of a closer monitoring, but apart from that, as I said earlier, we are quite confident of looking at credit costs for the year at 75 basis points of the average loan, so that is the basis on which we are quite confident to be expecting now.

Perfect. That's it, thanks.

Manish Karwa, Deutsche Bank.

Yes, hi. On your term deposits -- sequentially term deposits have declined, largely the wholesale deposits which have come down?

Indeed, indeed it is a wholesale deposit, because there is both retail term deposits and savings deposits has grown quite well. Current account, as I said was flat, so the wholesale term deposits have sequentially declined because we didn't required to raise money at those rates?

Also total term deposits, how much would be retail?

Total term deposits retail will be about 60%, on total deposits retail will be 70%.

Of the term deposit, this number has consistently been going up for us is that right? So one year back how much would that number be? Any rough number if you have?

Around 50% possibly, yes. 50%.

Okay. As part of your liabilities your borrowings have gone up, is that largely because of the rupee depreciation overseas borrowing in rupee terms have gone up?

Yes, that would be a good - over total borrowings if you look at, yes, that would be one of the reasons.

And if I'm not wrong you had raised the MTN issue sometime early during this calendar year and you were sitting on reasonably good liquidity in the international book, which was supposed to get deployed this year. And despite that you were saying that the overseas growth outlook is pretty, you are not trying to grow that loan book fast?

Yes, some of the money has been deployed and that is one of the reasons why sequentially the net interest margin in the international book has expanded from about 1.3% to 1.6% in the current quarter. So that is one of the reasons of deploying that excess liquidity. What I meant to say was that the margin of 1.5%, 1.6% is non-compromisable. We have told the international teams that that much of margin has to be achieved. So depending on -- based on that constraint, depending on the fund requirements, we will raise funds. So it's not to say that I will grow that book by 20%, let's go and find the business on both sides is not the way we want our perspective like, that's what I was clarifying.

Okay. Just a question on the subsidiaries, your PD have seen a good profit this quarter. Obviously the environment was pretty good for a PD business, but will this thing get reversed significantly as we move forward?

It really depends on what happens on 30 of September in terms of rates, but PD will be -- any market linked business and the fixed income will be subject to volatility given the RBI measures. The focus would be on staying nimble, I mean they have an ability to stay much more nimble compared to a large balance sheet like a typical bank balance sheet. In the past also they've been very nimble traders and they have an ability to play both sides of the market. So I do believe that, yes, their focus would be on limiting the losses and see how they can protect as much as possible, but yes of course, I do agree that, you know the current volatility will directly impact that business.

Okay. Lastly, continuation of an earlier question on general insurance, this INR200 crores of profit do you think that can be sustainable if it's coming from only, if it's only business related income than shouldn't it be sustainable as we move forward?

So my sense is that, yes, the profit will be better than last year. The sustainable ROE one should look at more like a 20%. Clearly, as (inaudible) clarified that there was a component of investment income in the first quarter like any other business, but two things which have happen I can tell you is that the motor pool drain has gone away and second we are confident that on a steady state basis this business can produce 20% ROE, on that basis you should be computing the profitability of this business.

So if you look at it last year on India here, Manish, if you look at it last year the extra provision for the motor pool was about INR100 crores and after that for the full year the Company made a profit of just over INR300 crores. So it was pretty much running at a profit run rate of INR400 crores and the business is growing at 20%. So that minimum kind of level we feel that the company should get to and you know then something beyond that. So we are this year definitely looking at a 20% plus ROE in that business. So, unless there is some catastrophe clause or something which we can't foresee just now.

Sure. Thank you.

M.B. Mahesh, Kotak Securities.

Yes, good evening. My first question is, Mr. Kannan had kind of indicated that the international margins can be maintained at about 1.5% to 1.6%. Now is that the primary reason why you are still maintaining a guidance of 10 basis points overall improvement in margins?

That is one of the reasons, yes, that's correct, because - but for the exchange rate fluctuation, if you look at it, the proportion of that book as a percentage of total book would come down. Plus, so to that extend the margin will be more contributed by the domestic margins. The second is that within that pie itself, the year as a whole last year over this year there will be an expansion of margins there.

No, the reason why I'm asking is, if we go with that calculations, just an average number itself gives about 10 basis points improvement just by the kind of margins that you had last year. Does that mean that given the kind of domestic margins that we have today, we will see some level of decline from here on. Because you started last year with about 3.3% and exited at 3.7%, today we are at 3.6%, are we likely to see some level of compression in the domestic margins? If yes, I just wanted to understand, is it because it is driven by the mix more towards retail or you are seeing some level of pressure coming in on the corporate loan piece?

We have said, it's very difficult on a quarter-on-quarter basis to kind of give an estimate on this, so what happens is that there are leads and lags of when you increase deposit rates, when you increase or reduce base rates, so those kinds of things will happen. So overall, as Kannan mentioned, for the year we were looking at a large part of the increase that you are talking about of the 10 basis point to come from the expansion in the overseas business.

Just wanted to reverse that saying that does it mean that the domestic business will see a decline?

If you take same example March quarter as a base, because we look at it on a full year basis, we are not able to predict quarter-on-quarter. If you indeed take March quarter as a base, it is a fare thing to say that margins will be lower than the March quarter base for the domestic business.

So that's why I am just asking, would that be led by the pressure on the deposit side or from a pricing or a loan mix perspective?

That as I said is more a function of on a quarter-on-quarter basis margins can be a bit higher or lower depending on how the re-pricing happens. What is the increase or decrease in base rate, what is the impact of the re-pricing on that front. So there is nothing to specific to it, but you have seen in the wholesale rates were lower this time around in the March quarter compared to the previous year. So we had better benefit in the March quarter. Right now, as we are looking at things indeed, the expectation is that the cost of funding will go up for banks in the near-term till RBI reverses or reduces these measures. And then like all banks we will also look at our deposit rates and lending and try and assess what is the increase if any that we need to do. And then the impact of that will again flow through the rest of the quarters, again with some lead and lag, but as I said, for the year, we are looking at a 10 basis point increase, quarter-on-quarter it is very difficult for us to give any specific estimate.

Just as a follow-up to this, as large part of the project funding comes up for as it completes, as it sees its COD, are you seeing a lot of pressure to cut rate very aggressively to either to keep the underlying loan book or as a part of the loan agreement to kind of reduce it in your portfolio?

I would not say that is specific to just the projects. In general, if you look back say two or three months back, given the decline in the overall systemic loan growth, indeed banks were quite competitive on some of these corporate loans. I think the things have changed in the last couple of weeks and we have to see how things pan out, but indeed, there is refinancing which is happening.

There are set of corporate who always come and bargain. Maybe my sense is that for some of those corporates the ability to borrow in the short-term market with this RBI measures with the interest rates having shorter, my sense is in the near-term that bargaining power from the corporate perspective also will also come down.

Sure. Just one last question, what is the underlying loan book in retail excluding buyouts? You have a total portfolio, I am just trying to see an INR1,085 billion. What is the core portfolio?

The buyouts are about INR60 billion.

INR60 billion. Okay, thanks.

Thank you.

Nilanjan Karfa, Jefferies.

Hi, Rakesh, hi Kannan. Good evening. Quickly, I just want to dwell on one of the companies which is right now getting a lot of media attention of about INR75 billion odd, the EPC business is getting talked about. Is this something that was on your radar, when you talked about a 75 basis points even a quarter back or two quarters back?

Which one?

Essentially the Lanco is what I am talking about.

I don't want to comment on a specific case, but I can only say that when I mentioned earlier that [INR20 billion] of pipeline which is there for CDR cases, I have definitely considered that exposure as well.

Okay. Continuing on that--

Whenever we do sort of whether it is a credit cost estimate or if it is, let's say, the restructuring, additions or anything. When we do that we always keep some cushion, because especially given the operating environment there could always be one or two unforeseen circumstances which can happen. So whenever I say 75 basis points, when I do at the beginning of the year I always keep some cushion. Like last year also, in one media case we talked about some of that consumed. So those kind of things will happen, but my sense is that whenever we target a number we are quite aware of the environment and what can potentially go wrong in that environment.

The point I was trying to make, was it is a kind of an even if a surprise for you or it is something I'm actually interested in? Did it come as a surprise, for us it's a different case, but for you?

No, the specific case I don't want to talk about, but several things, the close monitoring is always there. That much we will do.

And just to take it forward, if you look at that particular EPC business, they have just got three other outside projects, right? One of them is a Moser Baer Power Plant which has not taken up, one is Mahagenco and probably one is in Iraq Power Plant that they have just closed. Would you think that INR75 billion whatever they have discussed or whatever there is in the media, I mean gross incomes gives us a feeling that there is a problem on the SPV side, because of which it is trying to restructure is that how you think that case is going to work? Any color, if you don't want to discuss it's okay.

We would not want to discuss specific individual cases on the call.

Sure, perfect. Second question is on the international subsidiary. Is there a target? Tier I you're targeting at each of this UK and Canadian subsidiaries?

Our endeavor would be to focus on improvement of the ROE to a more respectable level. Tier I, there is no target, but the current Tier I is far higher than what we would like to hire. So in those domains what happens is that it is a dialog with the regulator, they don't say that you have - there is nothing like, here we have a 9% minimum, we don't have such a requirement, they just look at whenever they get comfortable then they allow us to repatriate capital. So there is no specific Tier I that is being targeted there.

So what is your target ROE for example it's and if you want to put in the other way around?

Say for example over a period of three years or so double-digit ROE is what we want to get.

Canada, I think is at sitting at a Tier I of about 26%, 27%?

That's correct.

So I think the ROEs will be compressed for quite some time out there.

Yes, it is about. So that is why you know it's a part repatriation growth, a part of business growth, it cannot be just by business growth we cannot achieve those ROEs, not possible.

All right. Thank you, very much. Thank you.

Thank you.

Prashant Kumar, Credit Suisse.

Hello, sir, just an extension of a question asked earlier, that on retail portfolio, if you could just give some more color that adjusted for buyout, what was the sequential growth in absolute terms and also like disbursement per month for say home loan, auto loan and even credit card and personal? That would be great helpful.

So during the quarter, the buyout portfolio declined by INR20 billion, because of repayments on that. So that is the only adjustment, which is required on the numbers that we had said.

So any color and disbursement on home loan, auto loan on a per month basis, just to get an idea of an absolute sense that what is the growth?

I don't get it. What is the numbers that you want?

Our disbursements on home loan, auto loan per month kind of?

No, we don't -- we are giving the book at the end of the quarter, those numbers are there in the presentation. We are not giving out monthly disbursements in the business. So if you look at the home loan, the book was about INR596 billion, car loans is about INR110 billion.

Okay, sir. Thank you.

Sampath Kumar, India Infoline.

Hi, Kannan.

Hi, Sampath.

In the past you used to have variation in your margins, because of priority sector obligations coming in the fourth quarter, but recently we don't see that variation, is there any specific reason?

One of course is that there is a base rate floor, which has come in. Indeed is that the overall -- some of the lendings which used to qualify for priority sector used to be like lending to corporates, engaged in agriculture and all that, where the pricing pressure used to be much more, those anyway no longer qualify for PSN, so it now shows up frankly in a higher shortfall for many of the banks. So in that sense that is the reason the impact is still there, but it is a lesser impact which is there. For example, the buyouts that we do in the form of PTCs those are still at a lower rate than what the rate will be on our overall assets.

As far as your margin guidance goes, where you used to guiding for a 10 basis points increase on a year-on-year basis for full year. Would you be confident given the current environment?

As of now, we are quite confident, Sampath. Yes of course, we will have to keep on monitoring what happens to the rate. Some other pieces like I mentioned earlier, will give a better yield on the asset side also. We are quite confident of a 10 basis point expansion.

One last question, do you think this healthier levels are sustainable in a domestic business? Is that almost 80% now?

Yes, I think it is sustainable because we have operated in that manner and that's quite okay. I don't see any issues there.

Thank you, very much.

Thanks, Sampath.

Thank you. Participants that was last question, I would now like to hand the floor back to Mr. N. S. Kannan for closing comments. Over to you, Sir.

Thank you and thanks for -- and this is a little longer call, thank you for staying back in the call. And any further questions, my team and I, we will be there to answer your questions offline. Thanks very much, once again. 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.