ICICI Bank Ltd (IBN) 2015 Q1 法說會逐字稿

Ladies and gentlemen, good day and welcome to the ICICI Bank Q1 FY15 Earnings Conference Call. As a reminder, all participant lines will be in a listen-only mode. There will be an opportunity for you to ask questions at the end of today's presentation. (Operator Instructions) Please note that this conference is being recorded.

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

Thank you. Hello, good evening to all of you. Welcome to the conference call on the financial results of the ICICI Bank for the quarter ended June 30 2014, which was the first quarter of this current FY15.

My remarks this evening, as always, I'll cover the following areas. First, the macroeconomic and the monetary environment. Then we will move onto our performance during the quarter, including the performance on our 5C strategy. Then we'll talk about our consolidated results, and finally the outlook for the full FY15.

Let me start with the first part, on the macroeconomic and the monetary environment during the first quarter. During the first quarter, there were some initial signs of improvement in growth. Industrial activity, as measured by the index of industrial production, that is IIP, recorded a year-on-year growth of 3.4% in April and 4.7% in May, compared to a decline of 0.1% for the entire FY14.

Car sales recorded a year-on-year growth rate of 14.8% in the month of June 2014. The services sector Purchasing Managers Index, PMI, was at a 17-month high of [15.4%] in the month of June of 2014. These are, we believe, early positive signs, the sustainability of such and more indicators would be keen towards revival in the growth in the economy.

Moving on to inflation, the headline Consumer Price Index or CPI, based on that the inflation moderated from 8.6% in April to 7.3% in June. However, upside risk to inflation remained on account of two key factors, one is the monsoon trend and two, volatility in international crude oil prices. Keeping in view, the targeted inflation levels, the Reserve Bank of India maintained stable policy rates during the quarter. However, to ensure adequate credit flows to the productive sectors of the economy, the statutory liquidity ratio was reduced by 50 basis points to 22.5% in June 2014.

Moving onto the financial markets, during the quarter, they saw a significant improvement. FII flows were strong at $10.6 billion during the quarter. As a result, the BSC Sensex rose by 13% during the first quarter, the rupee strengthened to INR58.4 per US dollar in mid May before stabilizing at INR60.1 per US dollar at June 30, 2014. The yield on government securities eased to about 8.7% levels at quarter end compared to about 9% levels in the beginning of the quarter.

With respect to the banking sector, non-food credit growth for the banks was 13.5% year-on-year basis at end 2014 -- end June of 2014. Growth in total deposits moderated to about 12% on a year-on-year basis at end June 2014, from about 15% at end of March 2014. The demand deposits saw year-on-year growth of about 10% at end June 2014.

During the first quarter, there are several regulatory developments. Effective March 31, 2014, RBI has allowed banks to include their outstanding investments in Rural Infrastructure Development Funds (RIDF) within the indirect agriculture lending portfolio, while also mandating inclusion of the same within the adjusted net banking credit, that is ANBC, for the computation of priority sector lending targets. In addition, effective first quarter of 2015, banks are required to recognize higher standard asset provision and capital charge on account of three factors. One is borrowers unhedged foreign currency exposure. Two, implementation of framework for early recognition of distress in borrowers. And three, recognition of capital charge for credit value adjustment for derivative exposures. Apart from this, several guidelines have been issued by RBI during the quarter, including final guidelines on liquidity coverage ratio, framework for dealing with D-SIBs in India, report of the working group on countercyclical capital buffer and draft guidelines on licensing of payment and small banks. RBI has also issued guidelines on issuance of long-term bonds by banks and flexible structuring of loans to infrastructure and core industries in line with announcements in the Union Budget.

With this overall background, let me now move on to our performance during the quarter, including our progress on our 5Cs strategy. First with respect to the credit growth. The Bank's domestic loan portfolio grew by 17.1% on a year-on-year basis as of June 30, 2014, compared to 13.5% growth in non-food credit growth for the system as of June 27, 2014. Loan growth for the Bank continues to be driven by retail segment, which grew by 26.4% on a year-on-year basis as of June 30, 2014. The growth in our retail portfolio continues to be driven by growth in secured products with outstanding mortgage and auto loan portfolios growing by 25% and 46% respectively on a year-on-year basis as of June 30, 2014.

Growth in the business banking and rural lending segments continued to be healthy, of course, off very low basis at 24% and 46% respectively. Commercial business loans declined by 14% on a year-on-year basis as of June 30, 2014, reflecting both the slowdown in the segment, as well as rundown of the bought out portfolio in the segment. The unsecured credit card and personal loan portfolio at INR81.96 billion as of June 30, 2014, continued to remain a small portion, about 2.4% of our overall loan book, though the growth rate is high due to the low base.

In view of the operating environment, the Bank continued to adopt a cautious approach to growth in the corporate and the SME segments. The domestic corporate portfolio growth was 7.7% on a year-on-year basis as of June 30, 2014, at a similar level compared to March 31, 2014. The SME portfolio increased marginally on a sequential basis to INR154.33 billion as of June 30, 2014.

Growth in net advances in the overseas branches in US dollar terms was 8.4% on a year-on-year basis as of June 30, 2014, reflecting primarily the lending against FCNR deposits during the third quarter of FY14. On a sequential basis, the overseas branches loan book remained broadly flat. In rupee terms, the net advances of overseas branches increased by 9.8% on a year-on-year basis due to the movement in the exchange rate.

As a result of the above, the total advances of the Bank increased by 15.2% on a year-on-year basis from INR3.01 trillion as of June 30, 2013 to INR3.47 trillion as of June 30, 2014.

Moving on now to the second C on CASA deposits, the Bank continued to see healthy momentum in its CASA deposit mobilization. On a period-end basis, we saw an addition of INR36.03 billion to our savings deposits during the quarter, but the current account deposits declined by INR15.67 billion. However, on a daily average basis, the current account deposits remained broadly stable and savings deposits increased by about INR48 billion. As a result of the above trends, the period end CASA ratio marginally improved to 43% at June 30, 2014, compared to 42.9% at March 31, 2014. The daily average CASA ratio for the Bank for Q1 improved to 39.5% compared to 39.1% for the Q4 of 2014.

Now on the third C on costs, for the first quarter, operating expenses increased by 13.4% on a year-on-year basis. The increase in operating costs was on account of higher employee expenses, given the full impact of the increase in employee base in FY14, as well as annual wage increase affected in April 2014, and also a larger distribution network and higher retail lending volumes. The Bank's cost to income ratio declined to 38.4% in the first quarter of FY15, compared to 39.4% in the first quarter of FY14.

Let me now move on to the fourth C on credit quality. During the first quarter, the Bank saw gross NPA addition of INR11.95 billion, primarily driven by slippages in the SME and mid-sized corporate loan portfolios. Deletions were INR3.56 billion. The Bank also wrote off INR3.92 billion of NPAs. The net NPA ratio as a result was 87 basis points as of June 30, 2014, compared to 82 basis points at March 31, 2014.

During the quarter, the Bank had gross additions of INR13.94 billion to the restructured loans. After taking into account deletions and the required specific provisioning, the net restructured loan for the Bank increased to INR112.65 billion as of June 30, 2014, compared to INR105.58 billion as of March 31, 2014. Our current restructuring pipeline is around INR15 billion.

Provision for the first quarter were at INR7.26 billion, as compared to INR5.93 billion in the first quarter of 2014 and INR7.14 billion in the last quarter of 2014. As a result, credit costs as a percentage of average advances were at 86 basis points on an annualized basis for the first quarter of 2015. Effective the first quarter, banks are required to make additional standard asset provision in respect of borrowers having unhedged foreign currency exposures, or UFCE, and are permitted to recognize these provisions over four quarters. Accordingly, we have made standard asset provisions of about INR550 million on account of exposure to clients having unhedged foreign currency exposure. This added about 6 basis points on an annualized basis to the provisions as a percentage of average advances for Q1 of 2015. The provision coverage ratio on non-performing loans was 68.4% as of June 30, 2014.

Now moving on to the fifth C on customer centricity, the Bank continues to focus on enhancing the customer service capability and leveraging on its increased branch network to cater to the customer base. As of June 30, 2014, we had a branch network of 3,763 branches and 11,447 ATMs. We also continued to strengthen our technology channels for increasing customer convenience. Our Facebook page continues to be appreciated by customers with about 3 million fans, the largest fan base on Facebook among Indian banks.

During the quarter, we have launched our redesigned website. The new website has a responsive design to offer a seamless and customized experience across multiple devices, based on user behavior and location. Customers can now receive location-specific information on offers, rate and review products and share their opinions on social media through new website.

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 17.6% on a year-on-year basis from INR38.2 billion in Q1 of 2014 to INR44.92 billion in Q1 of 2015. The net interest margin in the first quarter 2015 was 3.4%, compared to 3.27% in the corresponding quarter last year and 3.35% in the previous quarter. The domestic NIM was higher at 3.8% in Q1 of 2015, compared to 3.63% in the corresponding quarter last year and 3.72% in the previous quarter. International margins were at 1.63% in the first quarter of 2015, at a similar level compared to the corresponding quarter last year.

Total non-interest income increased by 14.7% from INR24.84 billion in Q1 of 2014 to INR28.5 billion in Q1 of 2015. If you look at the components of the non-interest income, fee income grew by 8% from INR17.93 billion in Q1 of 2014 to INR19.36 billion in Q1 of 2015. The lower growth is mainly due to subdued corporate activity and lower foreign exchange transaction volumes. However, the growth is in line with the trend seen in the other banks in the first quarter of 2015.

Retail fees for ICICI Bank continued to grow at a healthy rate and contributed about 55% to 60% of the overall fees. Our endeavor would be to increase the growth rate in overall fee income over the course of the year, subject to market opportunities. The other income component of non-interest income was INR5.26 billion in the first quarter, compared to INR2.88 billion in Q1 of 2014.

On a year-on-year basis, during Q1 of 2015, the Bank received higher dividend from ICICI Life based on the increased payout levels approved by the Company's Board. Further, during the quarter, based on the significant reserves and surplus position built up in the overseas branches and the muted growth outlook in the near term, the Bank repatriated profits from the overseas branches, resulting in exchange rate gains of around INR1 billion.

During the first quarter, treasury recorded a profit of INR3.88 billion, compared to a profit of INR4.03 billion in the corresponding quarter last year and INR2.45 billion in the previous quarter. The treasury income for the first quarter of 2015 was primarily driven by gains on the fixed income, equity, as well as mutual fund portfolios.

I've already spoken about the trends in the operating expenses and provisions while speaking about our 5C strategy. As a result of these trends, the Bank's standalone profit before tax increased by 17.7% from INR32.21 billion in the first quarter of 2014 to INR37.91 billion in the first quarter of 2015. The Bank's standalone profit after tax increased by 16.8% from INR22.74 billion in Q1 of 2014 to INR26.55 billion in Q1 of 2015.

In accordance with the RBI circular, dated December 20, 2013, the Bank created deferred tax liability on special reserve by charging it to P&L account. Accordingly, a charge of INR0.95 billion was recognized in Q1 of 2015, while there was no such impact in the first quarter of 2014. The return on average assets was 1.82% in Q1 of 2015, about 7 basis points higher compared to the first quarter of the last year.

The Bank's capital adequacy as per RBI's guidelines on Basel III norms continued to remain strong at 17% overall capital adequacy ratio and 12.23% Tier 1 ratio as of June 30, 2014. In accordance with the guidelines, the profits for the quarter are not considered in the reported capital adequacy ratios. Including the profit for the quarter, the Bank's overall capital adequacy ratio was 17.39% and the Tier 1 ratio was 12.62%. At June 30, 2014, the Bank in accordance with RBI guidelines, has accounted for credit value adjustment or CVA on its derivative exposure, resulting in an impact of about 35 basis points on the Tier 1 ratio. The Tier 1 ratio also included an impact of about 10 basis points on account of a capital charge required on unhedged foreign currency exposure, in accordance with the Reserve Bank of India guidelines.

I now move on to the consolidated results. The profit after tax for the life insurance company in the first quarter of 2015 was INR3.82 billion, as compared to INR3.64 billion in Q1 of 2014. The new business annualized premium equivalent increased from INR5.41 billion in the first quarter of 2014 to INR6.59 billion in the first quarter of 2015. The retail weighted received premium for ICICI Life grew by a healthy 35.6% on a year-on-year basis in Q1 of [2015], compared to a 1.7% decrease in FY14. The new business margin for the Company was 10.9% in Q1 of 2015, same as for Q4. While the IRDA numbers for the industry are not available yet, we understand that the Company has seen an increase in its market share to over 8% in the first quarter of 2015.

The profit after tax for ICICI General was INR0.72 billion in Q1 of 2015, compared to INR2.03 billion in Q1 of 2014 and INR0.76 billion in the fourth quarter of last financial year. The year-on-year decrease in profits was primarily on account of higher investment income in Q1 of 2014.

The investment portfolio of the Company has performed well and the Company had unrealized gains on the investment portfolio of over INR2 billion. The company continues to retain its market leadership among the private players.

ICICI Securities and ICICI AMC have continued to see improvement in their performance. The profit after tax for ICICI Securities increased from INR0.13 billion in the first quarter of 2014 to INR0.61 billion in Q1 of 2015. The profit after tax for ICICI AMC increased by 64.9% from INR0.37 billion in Q1 of 2014 to INR0.61 billion in Q1 of 2015.

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 of 2015 was CAD14 million, as compared to CAD14.4 million for Q1 of 2014. The total assets for ICICI Bank Canada were CAD5.63 billion as of June 30, 2014 compared to CAD5.45 billion at March 31, 2014. Loans and advances were CAD4.65 billion at June 30, 2014, compared to CAD4.78 billion at March 31, 2014. The capital adequacy ratio for ICICI Bank Canada was healthy at 30.6% as of June 30, 2014.

ICICI Bank UK's total assets were $4.12 billion as of June 30, 2014 compared to $4.47 billion as of March 31, 2014. Loans and advances were $2.75 billion at June 30, 2014 compared to $2.77 billion as of March 31, 2014. The profit after tax for ICICI Bank UK for Q1 of 2015 was $6.3 million compared to $5.4 million in Q1 of last year. The capital adequacy ratio for ICICI UK was 23.3% as of June 30, 2014.

Let me now talk about the overall consolidated profits. The consolidated profit after tax for Q1 of 2015 was INR28.32 billion, compared to INR27.47 billion in the first quarter of last year. The growth in consolidated profits was lower mainly due to year-on-year decrease in profits for ICICI General and ICICI Securities PD. In Q1 of 2014, ICICI General and ICICI Securities PD had higher investment income and trading gains due to favorable fixed income market environment.

Further, since third quarter of 2014, the Bank has received higher dividends from ICICI Life, based on the increased payout levels approved by the Company's Board, based on an assessment of its capital requirements and high solvency levels. The annualized consolidated return on average equity was at 14.6% in the first quarter of 2015.

So just to summarize, we believe our performance in the first quarter of 2015 is a result of our continued focus on delivering against our stated objectives. In line with our expectations, we have, one, sustained the improvement in net interest margins, two, maintained a healthy non-interest income, three, sustained improvements in our operating efficiency, four, our deposit franchise has remained the key area of focus and we have seen continued healthy trends in CASA mobilization in the first quarter, resulting in an increase in the average, as well as period end CASA ratios, and five, with respect to the loan growth, we have continued to scale up growth in the retail segment while calibrating growth in the corporate and SME segments in view of the operating environment.

While we would have liked to see the fee income grow at a higher rate, it needs to be viewed in the context of the operating environment for corporate banking and also the overall growth in fee income for the banking sector, what we have seen so far. Retail fees for us, however, continues to grow at a very healthy rate.

So, now moving on to the outlook for the financial year, our outlook remains similar to what we had articulated in April 2014 when we announced our fourth quarter results.

On the loan growth front, we continue to expect our domestic loan growth to be 2% to 4% higher than the system, driven by more than 20% growth in the retail segment. Growth in the loan portfolio of overseas branches will continue to be calibrated to conditions in the funding markets.

With respect to our deposit franchise, our focus would be on maintaining the stable average CASA ratio in the range of 38% to 40%. With respect to margins, we would target overall margins of 3.3% to 3.4% in the FY15. Fee income growth would depend on market conditions, particularly the activity in the corporate sector, as well as regulatory measures with respect to various components of the fee income. Our endeavor would be to continue to grow the retail [fee] streams while capitalizing on opportunities that emerge in the corporate segment within our risk management criteria. Operating efficiency continues to be a key focus area for the Bank. Our endeavor will be to further improve the cost to income ratio in FY15.

With respect to the full year additions to nonperforming and restructured loans in this financial year, to be lower than that in the last financial year. However, provisioning for unhedged foreign currency exposure, or UFCE, applicable from the first quarter of FY15, will have an impact on provisioning requirements. Despite this, we estimate the provisions to be around 90 basis points of average loans in FY15. Through these measures, our focus in FY15 will be to sustain the return on assets.

We believe that our strong and diversified franchise and large distribution network give us the ability to leverage opportunities for profitable growth. We are well placed with regard to the capital required to support this growth and given our current capital position, we believe that we do not need to raise capital for the next three years.

With this 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. I have a couple of questions. Firstly in terms of this unhedged exposure, how much of capital have you used up and what is the provisioning, and likewise for CVA norms?

On the provisioning for unhedged foreign currency exposure, as I said, it was 6 basis points on an annualized basis. So, it was about INR550 million in the first quarter. So taking that forward, for the year as a whole, it will be roughly INR2.2 billion.

On the capital charge, I mentioned that it has had an impact of about 10 basis points to the capital adequacy ratio. On the CVA, [Rakesh] will answer this question.

The CVA, the impact on the capital adequacy was about 35 basis points.

And also wanted to check out on the infra and affordable housing. So obviously, we've seen the news flow on your infra bond that you're planning, the small one. Do you think these norms are attractive even for affordable housing?

Yes, for both the portfolios it is attractive, because RBI has said that on these bonds there will be exemption on SLR, CRR, as well as priority sector requirements. So, whichever portfolio it is seeking to finance, it will be attractive for a bank. So, we are looking at it as we have just launched an issue of [INR5 million] of infrastructure bonds and going forward, depending on the market appetite, we will be in the market.

Sir, when you're looking at affordable housing, you're obviously benchmarking the cost of five year deposit. That's the correct way to look at it, right? It is not on the average cost, because that creates a mismatch.

No, I will look at this whole thing as a part of the pool of total funding available to the Bank. So as long as there are eligible assets in the form of opening [infrastructure] assets, incremental infrastructure assets, as well as the affordable housing loans, that much can be financed by this bond. Then it will really depend on what is the market appetite that -- the constraint will be the market appetite, not our portfolio. Portfolio will be much larger to be financed out of this thing and once we finance it, we will have to really look at the marginal cost of funds in terms of raising wholesale deposits and see whether this makes sense in that context, given there will be SLR, CRR, and priority sector exemptions. So, based on this calculation, it is indeed attractive and we should be using it to the extent possible, depending on the market appetite.

But even the risk adjusted returns on affordable housing are attractive, because anyway the yields are low?

Again, I'm saying that this infrastructure bond is going to be part of my overall pool of funds. So, for me that's incrementally the choice is between should we go for wholesale deposits today on an incremental cost or go through this route and look at the SLR, CRR and priority sector adjusted cost of these two streams and we find that indeed the infrastructure bond is attractive to us.

So, I will look at it not one-to-one in terms of which portfolio is financing. Eligibility will get computed based on our portfolio on affordable housing loans and infrastructure loans, but once eligibility is done, then our ability to raise it, depending on the market conditions this becomes a part of the overall pool of funds.

Manish Ostwal, KR Choksey.

My question on the insurance business, we have seen this quarter, one, is dip in the NBAP margins, secondly, expense ratio increase. So, could you explain why this has happened in insurance business during the quarter? And secondly, post this 49% hike in the FDI, what is your plan on insurance business listing?

Yes, on the margins, my understanding is that sequentially the margins have been stable. Last quarter also we had a 10.9% margin and this quarter also we have 10.9% margin. Last time we had articulated to you that the endeavor would be to increase the margins over the medium term, which the Company will be focusing on.

On the expense ratio, we should look at it in the context of this number as being in the first quarter and there is some amount of seasonality in the business through the year. So, considering that this is the first quarter, on a year-on-year basis, expense ratio is actually lower, and they've been able to make some good steps in terms of expense reduction. So we don't have any concerns around the expense management in the Company.

And this post-FDA increase, what is your plan on insurance side?

We will wait and watch when this [49%] in which form it happens and we will wait and watch. Immediately there is no plan, so we'll have to wait and watch in which form it comes out and when the bill gets approved, we will take appropriate call.

And what we have already said is that we do at some point intend to monetize a part of our holding in the Company, but we will do it at the appropriate time and in the appropriate manner, because the Company -- neither the Company nor the Bank requires capital. So based on whatever method and timing the valuations are optimal, we will look at it at --

The market conditions and valuations, we look for optimal situation there.

And secondly, during this quarter, we have restructured around INR13.94 billion, right? So what are the segments contributed to this thing and what is your cumulative slippages from the restructured asset book?

The incremental restructurings that we have done actually this quarter -- in the last few quarters, it has been spread across a few sectors. In terms of concentration, I think construction is one area where we have seen more restructuring to happen. Otherwise, these have been midsized corporates, which have got into challenges and the restructuring has been done by banks.

In terms of the, slippages, if we look at over the last few years, the total amount of loans that would have slipped from restructured into the NPL category is about 12.5% and of course some of the loans that we have restructured more recently, we have not seen enough aging on that.

And lastly, very quick data point, one is what is your outstanding provision on restructured asset? And secondly, what is your AFS book size and modified duration?

The provision on restructured loans is about INR10 billion. And duration on the G-Sec portfolio would roughly be about four years or so.

No, AFS book size and the modified duration?

AFS, the portfolio will be about 20% of our total portfolio. The duration of that portfolio varies on a regular basis, so we don't have any specific number on that.

Nilesh Parikh, Edelweiss Securities.

A question on the retail business. We've seen a strong growth and this is something that we seen in the last couple of quarters. Just this seen in context with what we've seen -- moderation in some of the other private sector banks, just wanted to get your thoughts in terms of the competitive intensity in this business, specifically the secured assets and the changes that probably we would have done on the distributions side, and how sustainable is the growth going forward?

On the distribution side, clearly the continued effort on expanding the sourcing through more branches that is an ongoing exercise. We have done it, both for mortgages portfolio, as well as for passenger car and other portfolios. So that -- the brand sourcing of retail has been very, very good in terms of momentum for us, so that is the primary internal driver towards it. Of course, competitive intensity continues to be strong in all the retail areas, but incrementally we have not seen the competitive intensity to change or anything like that. It has been always there and it continues to be there. We have not seen any fresh wave of undercutting or a new competition which is coming along.

On the asset quality of the portfolio, across the portfolio, asset quality has been quite good and we are very happy to grow this portfolio.

So we're still talking about the secured growth coming from the secured assets on the retail side. So when do we start looking to expand the personal loans and the credit card portfolio?

We have seen expansion in that portfolio as well. Largely, we are trying to do that to our own customers and see the credit experience. So far, again, there also our credit experience is all right. But given our small base, while the growth rates are looking very high, overall basis, yes, it has sort of inched up from under 2% levels to about 2.5% levels currently. Yes, it will grow, but we don't see it getting a disproportionate number compared to the current proportion of the total loan book.

Okay. So it will be within that -- less than 5%, it's fair to assume that?

Yes, that is very fair to assume, because overall domestic book also we are growing. So that's okay.

Just one quick question. On the life insurance business, you mentioned that there is a Board approval for the enhanced payout. So, if you can just elaborate on that? Is there a specific number to that as a percentage of the quarterly profits, which can come out as dividends?

Nilesh, as you'll recall, the dividend level increased during last year and at that time, the Board of the Company had taken a view that the payout levels could go up based on the capital position of the Company and so on. And that is the basis on which the dividend has been paid till Q1, basically it's paid based on the previous quarter's profits.

Previous -- sorry -- previous quarter -- Okay, yeah. Sure, sure. Got that. So from a cash receipt basis, it will probably come next quarter.

Yes.

And overall, the total dividend that we have received this quarter?

About -- slightly more than [INR4 billion].

[INR4 billion]. And this is outside of the INR1 billion of the repatriation?

Yes.

Abhishek Kothari, Networth Stock Broking.

Sir, in this INR11.95 billion of slippages that you've seen during the quarter, has there been any slippages from the restructured account as such?

Actually the would be. But again, as Rakesh mentioned, the cumulative ratio it's gone up somewhat to 12.5%.

That's okay. I just wanted to understand the breakup of slippages in terms of fresh addition and slippages from the restructured book.

So we don't give that separately, but as Kannan said, actually every quarter there would be some -- odd slippages will happen from the restructuring into the NPL category as well. And this quarter also there is slippage from restructure into NPL category.

And in those slippages, could you give a breakup of top five accounts as such, how much did they contribute to slippages (multiple speakers)?

The slippages are coming from the mid-sized corporates and the SME portfolio. We have not given any specific size wise distribution of that, but it's mostly coming from the mid-sized corporates and the SME side.

Jatinder Agarwal, CIMB.

Couple of questions. First, can we have the number of employees as of the quarter end?

It's gone up by about 600 employees compared to March. So we will now be at about 72,800.

And obviously because of first quarter, year-on-year staff costs increase looks a bit -- [this thing] -- but could you give some broad sense what type of absolute percentage staff costs increase can we look forward this year?

So we cannot give that number, because there are a lot of variables which are there. So, what we can tell is that every April, we have a increase in salaries for our employees, which would have been roughly about 10% for the current year compared to last year. That increase that will happen. And the other component, which is there is the performance bonus, which is a function of how we do during the year and how we end up paying on that. And then we, last year, in a couple of quarters, we also had some movement on the retirers. That's a function of how the interest rates also move.

Overall, as Kannan mentioned, in terms of cost to income ratio, we are targeting to be at the current levels or have some improvement from the current level. Specific growth on employee cost -- because in terms of numbers, the employee numbers will not go up from here. Typically, in the first quarter we have inflow, which we kind of get on the employee side. So going forward, we would not expect the employee count to really increase in the rest of the financial year, but the increase of 10% in salaries will definitely come through.

And second is broadly on some of these large leveraged corporates, we've seen some of them already raise capital. Could you give a broad sense what is really happening, are they actually coming to repay their debt, or is it money is still lying with some of these corporates? And related to this, if you could just give an update on the Dabhol project?

On the corporates which would be raising equity, so it would be a mix of, whether they are paying down their debt immediately or using some of that funds for their own business and reducing debt over a period of time. Frankly, there's not too much of a difference in either case. We are quite happy that some of these corporates have been raising equity and have been proactive about it. And from banks point of view, I think all banks are also pushing corporates towards either raising equity or kind of looking at other measures of reducing their leverage levels. So hopefully things will move in the positive direction in the rest of the financial year there.

On specific cases, we don't really comment. On Dabhol, which is called Ratnagiri Gas and Power, in the past we have said that there is a challenge in that exposure, given the lack of availability of gas. So there is discussion which are ongoing between the banks, the government, the state government. So we are quite hopeful that there should be some resolution that gets worked out there.

Manish Karwa, Deutsche Bank.

Can I have the margins for domestic and overseas?

Yes, domestic margins is 3.8% and overseas would be 1.63%.

And any rough outlook on margins going forward?

Yes, as I said, for the year as a whole we would like to keep the margins between 3.3% and 3.4%.

And if you look at your balance sheet, the other income -- other assets figure have declined quite a lot on a sequential basis and similarly your borrowings on the liability side have reduced. Anything which is causing this?

Borrowings would have reduced mainly in the domestic borrowings, we would have done lesser amount of repo against government securities. So we would have maintained more liquidity in the form of government securities compared to other investments. So you will see that some of the other investments would have gone down and government securities has gone up and correspondingly we have not borrowed as much in the repo market. So, the borrowings have come down.

And your other assets it's down like 25% on a sequential basis?

On other assets, it will be a function of the mark-to-market on derivatives, which would move on a quarterly basis. And there were some receivables on some of the sales that would have done on the last day in March 31, which would have not been there on June 30. So there's nothing really on -- structurally any change which has happened there.

And this is not causing anything to the P&L as such, right?

So in the P&L, if you look at it, we have seen margin improvement, overall we have seen some increase in the proportion of interest earning assets which has happened, but not really explained by this other asset item, because the two items that I mentioned, the derivative mark-to-market and receivables that doesn't impact any of the cash.

And lastly, what is the gain that you are sitting on in your overseas subsidiaries, which is not repatriated yet as of June 30?

In the overseas branches, the foreign currency translation reserve for us in aggregate is about 20 -- slightly more than [INR20 billion].

And what is the thought process behind that? It's like -- do you strategize to get it back or you will decide when the funds are needed or it's at a particular exchange rate you will probably want to get it?

It's a function of actually all of those things, in terms of what our view at any point of time is on exchange rate, what is the view in terms of the growth that we would see in each of the individual branches. So it will be a function of that. So, going forward, we did repatriate in the March quarter and this quarter and we would continue to do that. But it's not something that we may do every quarter also. So it is something which is a function of all these things, because while it does appear in the P&L as an immediate translation gain, but actually the bigger benefit is that these are dollar which we get into the rupee form and we can get a higher interest income on this in the domestic market. So, it has a continuing impact, which is actually slightly more relevant than the immediate gain which is there. So, it may not come every quarter, but we would look at it based on what our outlook on these aspect is.

And on the provisioning line, I think Mr. Kannan mentioned about INR55 crores of unhedged ForEx. Rest all is for NPLs only, right?

NPLs, restructured --

Restructured loans are also there.

So total standard asset provision is about INR1 billion. Rest is all NPA and restructured.

Nitin Kumar, Quant Capital.

Sir, my question is on the deposit profile. If I look at it from the Annual Report, then the proportion of long-tenure deposits, by long-term I mean greater than three years, has been on a constant rise every year, like it used to be a single digit and thereafter it has -- now it has increased to up to 48%, the greater than three year deposits. So initially I [couldn't] understand that this could be to address the earlier mismatch, as advances also grew in the greater than three year bucket, used to be around 28% to 30%. But now the proportion of deposit is running far ahead of the corresponding proportion of advances. So what is the, like reasoning there?

Total deposit profile that you see, it would be a combination of CASA deposits and term deposits. So based on the behavioral analysis of CASA deposits that gets bucketed into the respective maturity buckets. So in that sense, you're right that if you look at only the term deposits bought, the general profiles of private banks will still be -- a lot of it will be one-year deposits. But behaviorally, lot of the CASA deposits, especially the savings deposits, are of a longer tenure.

So then there has been a substantial change for us, because it was only 4% in FY11 and 48% in FY14?

Yes. So, because based on the behavior also that keeps --

CASA itself has gone up, plus behavioral pattern would have got established.

And the behavior, we look at that typically the last two or three years, so it would have changed definitely.

And, sir, what are the branch expansion plans for us, this quarter was a little slow there?

Sorry?

Branch expansion plans?

On the previous one, the FCNR B deposits also would have come in and that would have come in typically in the more than three year period. That we have done about [$2 billion].

Second question, sir, on the branch expansion side?

What we have said is that we expect to do around 400 branches this year. So, we'll -- it could vary between 350 and 450, but it will be in that range.

And lastly sir, would it be possible to get the rating distribution of large corporates and SME borrowers, may not be this quarter, going forward?

We will look at that, we don't disclose that currently.

Amit Premchandani, UTI Mutual Fund.

Just a question on the infra bond. Is there any demand side issue with infra bond in terms of what kind of investors are eligible to invest, any regulatory changes required by IRDA or PFRDA to make insurers and [PFs] eligible? And also on that, fixed or floating, what would be the ideal bond for you, especially given that most of the lending is floating?

And finally on the overall pool of funds, as per your estimates, which can be tapped by the system through this one?

In terms of the investor appetite, as you said, it will come mainly from the insurance companies and the [PFs]. There is really no restriction which is there in terms of them investing in these bonds. In the past also banks have been raising Tier II bonds from insurance companies and [PFs]. So, yes, of course there could be some changes made to maybe to the insurance funds, which can further incentivize them to put money into these infra bonds. But even the current regulations are actually quite fine. As Kannan mentioned earlier, we are raising a bond in the market and we will see. We are doing a issuance of about INR5 billion to see -- test out how the market is and what is the kind of demand that we see. But the bulk of the demand will indeed come from the larger insurance companies and PF funds.

In terms of the overall appetite which is there, in the past one has seen that banks used to raise Tier 2 bonds from the market, about INR250 billion to INR300 billion. So that's something which has happened in the past on an annual basis. More recently, with the Basel III type of clauses, the Tier 2 issuances have come down substantially. So that definitely can get replaced by the demand for these infra bonds. And in addition to that we'll have to see, we've to test out the market. From the investor perspective, they typically look at this as a fixed return product. In the past also --

Yes, while RBI has allowed both the floating and fixed, but --

It will be fixed, so we will have to kind of look at the overall direction at the Bank, at the duration of equity and kind of manage this in the overall scheme of things. So, in the overall funding which we have, it will not become a very large proportion. So it's not going to be a big challenge in terms of that. But overall, if we -- because of this we need to increase some duration of SLR or manage it in some other way, we would do that.

And generally in terms of housing finance dynamics, does this product make any sense to reduce housing finance loans given that they're already almost at base rate level, so any further competition expected on the housing finance part?

As I said, the bulk of the funding for banks will still come from the normal sources, like deposits and other sources. So this will not become a very large source for all banks put together. So while, definitely there could be some benefit, which close to the sectors which are eligible for this kind of funding. But I don't think it will be a material thing in the overall context.

Saikiran, Espirito Santo.

Just quickly a couple of [detail] questions. What's the total number of Gramin branches you have as of June 30, 2014?

[450].

So essentially not much of a change from March onwards, right?

No.

Okay and the second question is, [if I have to] look at your branch network in terms of the number of products which you would offer, what's the kind of leverage you can expect in terms of asset [sales] from here on, because you have pulled out of the market in some of the products and then you restarted some of these businesses a few quarters back. So what's the kind of leverage you can expect from here on from the existing branch network?

I think that now there are not too many products where we have restarted only a few months back. I think in most of the cases, we have been doing the retail products for definitely more than a year and in fact, in products like auto, we significantly expanded our location coverage in FY13 actually, which has given us the results in FY14 and this year. So I think the way we're looking at branches is not specifically in terms of asset sales, but overall, the fact that we have added so much -- so many branches in the last two years should improve our overall sales throughput in terms of deposits fees and assets in the coming year. So in that sense, yes, we do believe there is some amount of operating leverage that we have, which is why we have taken on -- we are planning towards maintaining or reducing actually the cost to income ratio, even while, say, growing the retail book upwards of 20%.

Add-on question actually, how do you see the profitability of the auto loans and then competition, maybe if you would like to throw some light on your outlook on the commercial vehicle financing business going forward?

So on the commercial vehicle financing business, as you would have -- I think we would have fairly or actually continuing to see fairly weak trends in terms of volumes. Our book has de-grown, as Kannan mentioned earlier. And that business is linked to the cycle of the economy. As it recovers and demand recovers, we will participate in it. But currently the underlying business trends themselves are not strong.

As far as auto is concerned, I think what we have done over the last year and a half is to bring our business back to a certain scale and now we are comfortable with the level of -- versus that we are doing. So we are not aiming for a significant increase in market share or in our disbursal volumes. But given the base effect, even if we kind of sustain the current run rate of disbursals, it will still give us fairly high growth on the book. So that is the way we are looking at it in terms of balancing growth and profitability.

And last question from my side. What's the quantum which you would have sold to [ARC] during the current quarter?

We [sold] one asset of quite a small value. As you would see, it's -- I think our SRs have gone up by about INR50 crores or so, so that gives you a sense of it.

Rakesh Kumar, Elara Capital.

Actually this time in the outlook reading, we could not get the clear number, what kind of a growth we are looking on the fee income for this year, if you can tell us. And also like how much growth we are witnessing right now in the retail segment and in the corporate for the fee income?

If you look at the fee income trend, we had -- last year our growth for the full year was about 13% and we had spoken of sustaining to improving that. But if you look at, I think the first quarter results for all banks, the fee income trends have been quite weak, particularly if you look at fee and ForEx income together, most banks would be in the single-digit kind of range. I think the issue there really is that the ForEx income trends on the wholesale side have been weak, given lower activity. And even if you look at the wholesale commercial banking product, like the letters of credit, bank guarantees and so on, there is really not much growth in those businesses, both from a corporate activity perspective and from the risk appetite of the banks perspective. And pricing therefore is also competitive in those businesses, whatever is being done. So broadly the corporate side of the fee income continues to be quite muted.

On the retail side, if you look at things like, for instance, retail assets or the third-party distribution or the retail asset processing fees or the credit cards and so on, there the growth is quite strong. It would be 20% plus kind of growth.

Secondly, just one more question I had. Just looking at the annual numbers for last maybe six, seven years, the trend is that the margin has been -- it has been moving up consistently, maybe the degree could be different in the different years, but it has been moving up. And if you look at the CASA number that has been like, in the last five years maybe in the range of 40s kind of range. So we have certainly done some credit composition change and which has brought us some margin improvement -- yield improvement and the margin improvement, even though the slippage ratio was up. So the question what I have is that like from here on, do we see the margin flattening out or still we see there is a chance that because of the retail credit growth happening or chances of that happening more in the -- at least in the next two quarters, margin will still go up or like how [that will span]?

For the immediate next two quarters, as Kannan said, we would expect the margins to be around the level of 3.3% to 3.4%. In terms of the last five years, actually if you look at a five-year period, our CASA ratio would have jumped significantly in that. So we started off five years ago with more or like late 20s average CASA ratio. We are today at nearly 40%. And again, in 2009, 2010, we had higher amount of retail NPLs. The overseas business for us, the margin there had gone down to as low as 50 basis points, plus on the investment side our yields used to be lower, which we have worked on.

So there have been various things that we've done. And on the funding side, clearly the retailed proportion of deposits has gone up significantly. So even in the last financial year, when we saw the rate jumped in the market, we were not impacted as much. So all of these things have really helped us to go from nearly a 2.5% kind of a margin to 3.4% currently. Going forward, the improvement in margin from this level, we will definitely target, but it is not going to be of the same magnitude as we saw in the past and it is going to be more a function of the market in terms of how competitive the market is. But we do believe that in the medium term, we would still look at some improvement in the margins from the current level.

And thirdly, if I could ask one more question. Just like the kind of the capital we have, the core capital we have, I think it is good that we ramp up the balance sheet growth given the circumstances. So the raising of infra bond that you are planning on that front and the effort to increase the credit growth from the corporate side, is that also aimed to increase the return ratio faster so that the consumption of capital could take place?

As you would have seen in the last few years, we have really not been too worried about having a higher capital ratio. So we look at growth in terms of, if it is profitable growth at the risk that we want, then we would go ahead with that growth. So this year we had said that given the growth that we're seeing on the retail side, we should be able to grow about 2% to 4% higher than the system in the domestic side, mainly driven by the growth that we see on the retail side. Corporate would continue to be a bit muted. We will see if we get some opportunities on the higher rated clients.

Overseas business, again, we are looking at about a 10% kind of growth is what we have talked about. So it is going to be more a function of what are the risk/return that we see in individual businesses.

Aakanksha, Allianz Global Investors.

I have a couple of questions on your asset quality. First one is on your Canada and UK book. I understand that the gross NPLs are actually quite high. So what is the reason for that and what is being done to address the problem?

In both the Canada and UK books, as you would know, we have not been growing those balance sheets or in fact, the balance sheets have been flat to declining. Over the last five years, both balance sheets would have shrunk by more than 30% and to the extent that those banks have India-linked loans in their book, done in say 2008, 2009, those would have also seen a credit experience similar to the overall Indian corporate credit. That combined with the fact that the balance sheets have not been growing, have led to a certain level of impaired loans. But, overall, the banks continue to be profitable and continue to have excess capital. So I guess this will -- as these gradually starts growing again, these levels will adjust.

So there is no plan to write these off or anything?

No.

My second question is on your restructured book. Would it be possible for you to give us your sense of how many accounts are really chunky ones? So, for example, more than INR10 billion. So, is that possible?

Right now we have not given, we'll see in future if we would disclose that. But these are --

The number of accounts structured kind of disclosure is done on an annual basis.

Yes. So, in the Annual Report, the number of accounts is there, but there is no size-wise disclosures which will be there. But most of the restructuring, as we said, is on the mid-sized corporates and SMEs. So, they would likely not be too many accounts more than INR10 billion.

So even within your watch list of accounts that you closely monitor, there aren't very big accounts that you have?

We don't discuss about our accounts under watch. But as a bank, we have a large corporate portfolio and typically the corporate lending which we will have would be large loans that we would have done.

[John], Standard Chartered Bank.

I guess I have questions in two broad areas. The first is while I understand that you're very liquid, mainly because of the local regulations, wanted to get a sense of what your liquidity would look like on Basel III standards, so primarily liquidity coverage ratio and whether in fact this is actually something you think about very much and whether you are modifying your behavior at all in light of the kind of LCR requirements? So that's the first area. And I guess also does the NSFR regime enter into your thinking at all?

The second area is just around RWA growth. What is your RWA growth look like and are you seeing any changes in your RWA density, mainly due to regulation, maybe also because of changes in your portfolio mix?

On the Basel III liquidity, RBI has put out guidelines on liquidity coverage ratio, that is applicable from January 1, 2015 and banks have to start with maintaining 60% in their domestic business. Overseas business, they have not yet specified a particular trigger level. So 60% is the maintenance from January 1. So banks have given some feedback to RBI on this guidelines. These guidelines are final that RBI has issued. So some of the things which banks have talked about is that currently in India you have a very high SLR requirement of investing in government securities, which is 22.5%, plus we have a 4% CRR. So about 26.5% of liabilities are always maintained, so to say, in absolute liquid asset. That is currently not being considered in the liquidity coverage ratio.

So by definition, then banks would need to maintain a much higher liquidity to meet the LCR requirement if it comes on top of the SLR and CRR requirements which is there currently. So that is one actually big area which is there, and I think RBI will also look at the data which banks submit on this, because if you factor in -- even if you don't factor in the entire SLR, if you factor in a reasonable part of that, it would meet a large part of the requirement which is there on the liquidity coverage ratio. Otherwise, if we completely exclude SLR and CRR, then I think all the banks, including us, will definitely need to maintain higher liquidity starting in January 2015, not so much maybe initially, because the requirement is at 60%. And as you rightly said, with the guidelines coming in, I think banks will also look at their funding mix and funding profile in a slightly different way, because any funding that you raise from, say, other financial institution or banks that will have kind of a 100% weightage in the denominator.

In India, typically the deposits that are raised by banks currently can be withdrawn prematurely by the depositor. That is the standard product which is there. Again, for such type of deposits, the outflow that is considered in LCR is pretty high. So again, I think that will also -- banks will have to re-look at that as well. So I think over the next few months there would be some further developments in this regard. The only good thing is that there is a phased implementation, which is there over the next few years. But as I said, the biggest thing right now is that currently the LCR seems to be coming completely on top of the SLR and CRR. So, either maybe RBI, going forward considers reducing the SLR, so that banks anyway then maintain liquidity as a part of their LCR requirement. So we have to see how this develops, but we are keeping a close eye on this and we will also have to look at on the funding mix what we need to do.

So just on that one, to be clear, the liquid assets and liabilities included in the SLR and CRR frameworks are explicitly excluded from being counted as liquid assets or liabilities under the LCR framework?

Yes. So if only we maintain excess of SLR that counts and RBI does allow banks to dip up to 2% into their SLR as part of [MSS] lending. So that will count, but the rest of it, the 20.5% will be on top of this.

Okay, just final question on this, do you expect a lot of pressure on your funding model as a consequence?

There would be pressure on the funding models of all Indian banks if that were to apply, but the expectation would be that the regulators will manage the existing liquidity ratios along with introducing the new ones. So for instance, they reduce SLR slightly in the first quarter, the whole discussion around infrastructure bonds and so on and so forth is in a way giving banks access to a liability source without to which SLR doesn't apply. So I guess that through a variety of mechanisms the SLR burdens will get reduced and that will get offset by the new LCR burden.

And NSFR, is that beyond your -- the horizon for your thinking right now?

Yes, because this one is more (multiple speakers).

They said they'll come back on the guidelines.

And regarding RWA growth?

RWA, of course, the Basel III implementation, that phased wise thing, so from this quarter all banks have the impact of the CVA on derivatives coming in, which we earlier said had an impact of over 35 basis points on our Tier 1 capital ratio. Other than that there is nothing in the immediate future, which would have a direct impact. But just from an overall portfolio perspective, we have seen a much slower growth for example on non-fund-based businesses. So as a result of that our growth in RWA has not been as much in the last year or so.

Do you disclose your RWA growth?

Yes, we disclosed RWA numbers in our -- it's there in the presentation that we would have mailed out from site.

Oh, I am sorry. I didn't see it. Sorry about that.

It has gone up from INR4.98 trillion on March 31 to INR5.18 trillion on June 30. As I said, the increase between March and June is mainly because of the additional RWA on account of CVA adjustment on derivatives which has come in and also RBI had a requirement of higher risk weighted assets on corporates, which have unhedged foreign currency exposure, that had some increase. So, the increase in this quarter is kind of completely from that.

Sachin Sheth, HSBC.

Congratulations on a great set of numbers. Just one more follow-up question on the seven-year infra bond. Wanted to get an idea of how much of your existing book is eligible in the first year for basically residual maturity of seven years or more under these guidelines?

Original maturity of seven years and more.

No, residual at the time of these guidelines?

Guidelines basically say that 16% of your existing book is eligible.

In terms of our book, it will be a pretty large number. If you look at our infra portfolio, actually more than that now the mortgage portfolio which is there with the new definition. So it will be a large number for us. So we will have no constraints from the lending --

Ability to lend perspective (multiple speakers) constrained by that. It's more of funded constraints and how market --

It will be more than -- for example, 10% of our loans actually. And that'll be true for the system as well. So it will be a large number.

Sir, would you like to add any closing comments before we conclude?

Thank you everyone. In case you have any further queries, you can always contact us. Thanks a lot for participating on the call. Thanks.

Thank you. 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.