ICICI Bank Ltd (IBN) 2015 Q3 法說會逐字稿

Ladies and gentlemen, good day and welcome to the ICICI Bank Q3 FY15 Earnings Conference Call. As a reminder, all participant lines will be in the listen-only mode. 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 at 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 December 31, 2014, that's the third quarter of the financial year 2015.

In my remarks this evening, I'll cover first the macroeconomic and monetary environment, then we'll talk about our performance during the quarter, including performance on our 5C strategy. Then we'll move on to the performance of our subsidiaries and also the consolidated results. And finally, the outlook going forward.

Let me start with the first part on the macroeconomic and monetary environment during the third quarter. On the global front, economic growth continues to remain subdued across key emerging and developed economies, excluding the US which has seen a recovery in growth. On the monetary policy stance, we have seen divergent trends across economies. While the US Fed Reserve Board has concluded its quantitative easing (QE), in October, the European Central Bank (ECB) recently announced an expanded asset purchase program. Exchange rates have remained volatile during the last few months. While the US dollar has strengthened after conclusion of the QE in the US, emerging market currencies including the Indian rupee depreciated during the third quarter. However, the Indian rupee remained among the best performing emerging market currencies during the calendar year 2014.

The significant moderation in commodity prices has been another key global development during the quarter. Crude oil price decreased by about 48% from $95 per barrel in the end of September to about $49 per barrel on January 29, 2015. The price of key industrial metals like copper and aluminum as well as gold prices also decreased during the quarter. In the domestic economy, recovery in real economic activity has remained uneven, industrial activity as measured by the Index of Industrial Production (IIP) recorded a year-on-year decrease of 0.3% in October-November 2014 compared to a growth of 1.4% in the second quarter. The services sector Purchasing Managers Index (PMI) moderated to 51.1 in December 2014 compared to 52.6 in November 2014.

With respect to the trends in merchandise trade, exports decreased by 1.8% year-on-year during quarter three, while imports grew by 7.9% year-on-year, mainly due to an increase in gold imports. On the positive side, the manufacturing PMI was at a two-year high of 54.5 in December 2014. Also there was a pick up in the passenger and commercial vehicle sales during the quarter.

Moving on to the performance of financial markets, the S&P BSE Sensex rose by 3.3% during the quarter. The yield on 10-year government securities eased by 65 basis points to 7.9% as of end December 2014 compared to 8.5% as of end September 2014. The Indian rupee depreciated by 2.8% to INR63.3 per US dollar at the end of Q3 from INR61.6 per US dollar at the beginning of the quarter. The FII inflows were lower at about $9 billion during quarter three compared to about $13 billion in the second quarter. Overall, while the quarter was benign with regard to financial markets, December second half was quite volatile.

Moving on to inflation, the headline Consumer Price Index (CPI) based inflation moderated from 6.5% in September 2014 to 5% in December, supported by easing food prices as well as decrease in oil prices. Survey-based households inflation expectations have also eased to a single-digit percentage in December 2014 for the first time since September 2009. Keeping in view the trends in inflation and inflation expectations, RBI reduced the repo rate by 25 basis points to 7.75% on January 15, 2015. RBI also reiterated that once the monetary policy stance has shifted, subsequent policy actions will be consistent with this stance. Key to further easing will be continuing this inflationary pressures and sustained high quality fiscal consolidation.

The government has announced several measures recently including reissuance of the coal ordinance and initiation of auction process, issuance of ordinance amending the Land Acquisition Act 2013 and issuance of ordinance amending insurance laws whereby the composite cap on foreign equity investment has been increased from 26% to 49%. Also the direct benefit transfer scheme to provide subsidy on cooking gas has become operational from January 2015. These developments are expected to positively impact the investment and growth climate in the country.

With respect to the banking sector, non-food credit growth continued to remain moderate and was at 10.8% year-on-year as of December 26, 2014. Growth in total deposits moderated to 11.5% on a year-on-year basis as of December 26, 2014 primarily on account to the base effect due to FCNR(B) deposits. Demand deposit growth moderated to about 12.4% year-on-year as of December 26, 2014 compared to about 15.8% year-on-year as of October 3, 2014. With this background, let me now move on to our performance during the quarter, including the progress on our 5C strategy.

First with respect to credit growth, the bank's domestic loan portfolio grew by 15.6% on a year-on-year basis as of December 31, 2014 compared to a 10.8% growth in the non-food credit for the system as of December 26, 2014. Loan growth for the bank continues to be driven by the retail segment, which grew by 25.6% year-on-year on December 31, 2014. The growth in our retail portfolio continues to be driven by secured products with the outstanding mortgage and auto loan portfolios growing by 27% and 32% respectively on a year-on-year basis as of December 31.

Growth in the business banking and rural lending segments was 13% and 35% year-on-year respectively. Commercial business loans declined by 13% on a year-on-year basis, reflecting primarily the rundown of the bought-out portfolio. The unsecured credit card and personal loan portfolio at INR103.62 billion as of December 31, continued to remain a small portion of about 2.8% of the overall loan book, though the growth rate is high due to the low base.

In view of the operating environment, we continued to adopt a cautious approach to growth in the corporate and SME segments. The domestic corporate portfolio growth was 4% on a year-on-year basis as of December 31, 2014 compared to 4.5% growth as of September 30, 2014. The SME portfolio increased marginally on a sequential basis to INR163.47 billion as of December 31, 2014. Going forward, we will continue to calibrate the growth in corporate and SME portfolios with the trends in the economic environment.

Growth in net advances of the overseas branches in US dollar terms moderated to 3.5% on a year-on-year basis as of December 31, 2014 compared to 11.9% growth on a year-on-year basis as of September 30, 2014, as the lending against FCNR(B) deposits during the third quarter of fiscal 2014 is now reflected in the base. In rupee terms, the net advances of the overseas branches increased by 5.6% on a year-on-year basis due to the movement in the exchange rate. On a sequential basis, the overseas branches' loan book grew marginally by about 1.5% in US dollar terms. As a result of the above, the total advances of the bank increased by 12.8% on a year-on-year basis from INR3.33 trillion as of December 31, 2013 to INR3.75 trillion as of December 31, 2014.

Moving now onto the second C on CASA deposits. The bank continued to see a healthy momentum in CASA deposit mobilization. On a period-end basis, we saw an addition of INR49.27 billion to our savings deposits, while the current account deposits decreased by INR22.02 billion during the quarter. However, on a daily average basis, current account deposits increased by about INR13 billion during the quarter. As a result of the above trends, the period-end CASA ratio improved to 44% as of December 31, 2014 compared to 43.7% as of September 2014. The daily average CASA ratio for the bank for the third quarter was at 39.3% compared to 39.5% in the second quarter of 2015 and 39.1% in the corresponding quarter last year.

Now onto the third C on costs, the bank maintained a healthy cost to income ratio of 36.3% in the third quarter of fiscal 2015 compared to 37% in the third quarter of fiscal 2014 and 36.5% in the second quarter of fiscal 2015. For the third quarter, operating expenses increased by 9.5% on a year-on-year basis. As mentioned on our previous calls, given the addition of about 14,000 employees in the previous two years and our focus on productivity and efficiency, the employee base has decreased by about 4,700 people during the nine month ended December 31, 2015 to 67,510 employees. This has been achieved primarily by not replacing attrition.

While the Bank would expect the employee base to increase from this level, we will continue to focus on further enhancing the productivity and efficiency of our employee base as well as the expanded distribution network in order to drive growth.

Let me now move onto the fourth C on credit quality. During the third quarter, we saw gross NPA additions of INR22.79 billion, including slippages of about INR7.76 billion from the standard restructured category to the non-performing asset category. Deletions from the NPA during the quarter was INR5.07 billion and the bank has also written off INR1.83 billion of NPAs. We also sold NPAs of a small amount of INR0.53 billion to asset reconstruction companies during the quarter. The net NPA ratio was 112 basis points as of December 31, 2014 compared to 96 basis points as of September 30, 2014. During the quarter, we had gross additions of INR17.55 billion to the restructured loans. After taking into account deletions including the slippages mentioned earlier and the required specific provisioning, the net restructured loans for the bank were at INR120.52 billion as of December 31, 2014 compared to INR110.2 billion as of September 30, 2014. Our restructuring pipeline for the fourth quarter is estimated at about INR23 billion.

Provisions for the third quarter were at INR9.8 billion compared to INR6.95 billion in third quarter of 2014 and INR8.5 billion in the second quarter of 2015. As a result, credit cost as a percentage of average advances were at 107 basis points on an annualized basis for Q3. For the nine-months period ended December 31, 2014 credit costs as a percentage of average advances were at 97 basis points. Provisions in the third quarter includes standard asset provisioning of about INR480 million on account of exposure to clients having unhedged foreign currency exposure. This added about 5 basis points to the annualized provisions to average advances for Q3 of 2015. The provisioning coverage ratio on non-performing loans was 63.5% as of December 31, 2014.

At the beginning of the current fiscal year, we had articulated our expectation that additions to restructured loans and non-performing assets in the current year would not exceed the previous year. However, as mentioned on our previous calls, given the prolonged economic slowdown and uneven economic recovery, banks including us have witnessed slippages from the restructured portfolio. For the last full year fiscal 2014, the aggregate addition to NPAs was INR45.4 billion, of which, fresh NPA addition was INR38.13 billion and the slippage from the restructured loans to the NPA category was INR7.27 billion. Loans restructured during fiscal 2014 were INR66.33 billion. Thus if you look at the sum of loan restructuring during the period and NPA additions, excluding the slippages from the restructured category, it was INR104.46 billion for the last year.

In comparison, during the first three quarters of the current year, the aggregate additions to NPAs was INR51.47 billion, of which the fresh NPA addition was INR28.55 billion and the slippage from the restructured loans to the NPA category was INR22.92 billion. Loans restructured during this period were INR41.1 billion. Thus if you look at the sum of loan restructuring during the period and NPA additions excluding the slippages from the restructured portfolio, the number comes to INR69.65 billion. After taking into account deletions and provisioning, the aggregate net NPAs on net restructured loans increased by INR30.24 billion from INR138.59 billion at March 31, 2014 to INR168.83 billion as of December 31, 2014.

We believe that the aggregate restructuring and fresh additions to NPAs for the full-year fiscal 2015 will not exceed the previous year. As you are aware from April 1, 2015, any loan restructuring other than in specific sectors based on certain strict criteria will lead to the asset being classified as non-performing. The systemic loan restructuring trends in the fourth quarter of the current year would have to be closely monitored in this context. The total NPA additions in the fourth quarter are expected to be higher than the third quarter, primarily due to challenges with respect to one or two large restructured borrowers. Apart from this, we are continuing to closely monitor other exposures such as a large gas-based power plant exposure originated in the late 1990s where uncertainties exist with regard to more than timing of resolution of the asset.

Now to the fifth C on customer centricity, the bank continues to focus on enhancing customer service capability and leveraging on increased branch network to cater to the customer base. During the quarter, the bank added 35 branches and 352 ATMs to the network. Accordingly, as of December 31, 2014, the bank had a branch network of 3,850 branches and 12,091 ATMs. We also continued to strengthen our technology channels for increasing the customer convenience. During the quarter, we launched the country's first contactless debit and credit cards that use near field communication or NFC technology. The NFC technology provides customers improved convenience of speed and security over traditional cards as these cards can complete the transaction faster and are more secure as they remain with the customer always throughout the transaction.

We have extended our Pockets by ICICI Bank app on Facebook to our non-resident Indian customers, offering NRI customers the convenience of banking while they are on social media site. Our Facebook page continues to be appreciated by customers with over 3.4 million fans, the largest fan base on Facebook among Indian banks. We have also recently launched banking services on Twitter and are the first bank in India to do so. We will continue to launch new digital banking propositions in the days ahead.

Having talked about the performance on the four Cs, let me now move onto the key financial performance highlights for the quarter. The net interest income increased by 13.1% year-on-year from INR42.55 billion in Q3 of 2014 to INR48.12 billion in Q3 of 2015. The net interest margin improved to 3.46% in the third quarter of 2015 from 3.32% in the corresponding quarter last year and 3.42% in the preceding quarter. The domestic NIM was at 3.88% in Q3 of 2015 compared to 3.67% in the corresponding quarter last year and 3.84% in the preceding quarter. International margins were at 1.67% in Q3 of 2015 compared to 1.7% in the corresponding quarter last year and 1.58% in the preceding quarter.

Total non-interest income increased by 10.4% from INR28.01 billion in Q3 of 2014 to INR30.91 billion in Q3 of 2015. Within the non-interest income, if you look at the fee income, it grew by 5.7% from INR19.97 billion in Q3 of 2014 to INR21.1 billion in Q3 of 2015. The lower growth is mainly due to subdued corporate activity and consequent decline in corporate fee income. Retail fees for the bank continues to grow at a healthy rate and now constitute about 60% of the overall fees.

Other income was INR5.38 billion in Q3 of 2015 compared to INR3.57 billion in Q3 of 2014 and INR4.98 billion in Q2 of 2015. The bank continued to receive healthy dividend streams from its subsidiaries. During the quarter, the bank made net exchange rate gains of INR1.92 billion relating to its overseas operations.

During the third quarter, treasury recorded a profit of INR4.43 billion compared to INR4.47 billion in the corresponding quarter last year and INR1.37 billion in the previous quarter. The treasury income for Q3 of 2015 was primarily driven by gain from the fixed income portfolio.

I've already spoken about the trends in operating expenses and provisions while speaking about the 5C strategy. As a result of these trends, the bank's standalone profit before tax increased by 8.4% from INR37.44 billion in Q3 of 2014 to INR40.57 billion in Q3 of 2015. The bank's standalone profit after-tax increased by 14.1% from INR25.32 billion in Q3 of 2014 to INR28.89 billion in Q3 of 2015.

The return on average assets was 1.9% in Q3 of 2015, about 14 BP higher compared to Q3 of 2014.

The bank's capital adequacy on a standalone basis as per Reserve Bank of India's guidelines on Basel III norms continues to remain strong. Including the profits for the nine-month period ended December 31, 2014, our total capital adequacy ratio at December 31, 2014 was 17.57% and the Tier 1 capital adequacy ratio was 12.96%. Excluding the profits for the nine-month period, the total capital adequacy ratio was 16.39% and Tier 1 capital adequacy ratio was 11.78%.

I now move on to the performance of our subsidiaries and the consolidated results. The profit after tax for ICICI Life in Q3 of 2015 was INR4.62 billion as compared to INR4.28 billion in Q3 of 2014. The new business annualized premium equivalent increased from INR8.68 billion in Q3 of 2014 to INR12.9 billion in Q3 of 2015. The new business margin for the company improved to 11.4% in Q3 of 2015 compared to 10.9% in Q2 of 2015. The retail weighted received premium for ICICI Life has grown by a healthy 37.5% on a year-on-year basis during the period April to December as compared to 1.7% increase in FY 2014. While the IRDA numbers for the industry are not yet available, we understand that the company has seen an increase in its market share to over 11% during the period April to December 2014.

The profit before tax of ICICI General increased from INR0.78 billion in Q3 of 2014 to INR2.27 billion in Q3 of 2015. The increase in profits was mainly on account of higher investment income and lower expense on account of claims and benefits in Q3 of 2015. The profit after tax increased from INR0.76 billion in Q3 of 2014 to INR1.76 billion in Q3 of 2015. The lower increase in profit after tax compared to profit before tax reflects the normalization of tax expenses, which in fiscal 2013 and fiscal 2014 was low due to losses carried forward from earlier years.

The gross premium income of ICICI General decreased marginally by 1.7% on a year-on-year basis to INR17.08 billion in the third quarter as the company adopted a calibrated approach to growth given the pricing trends in the industry. The company continues to retain its market leadership among the private players. While the IRDA numbers for the industry again are not available, we understand that the company had a market share of about 8.5% during the period April to December 2014.

ICICI Securities and ICICI AMC have continued to see improvement in their performance. The profit after tax for ICICI Securities increased from INR0.35 billion in Q3 of 2014 to INR0.76 billion in Q3 of 2015. The profit after-tax for ICICI AMC increased by 42.6% from INR0.47 billion in Q3 of 2014 to INR0.67 billion in Q3 of 2015. ICICI AMC sustained its market position as the second largest mutual fund in India during the third quarter of 2015.

Let me now move onto the performance of our overseas banking subsidiaries. As per IFRS financials, ICICI Bank Canada's total assets were CAD5.64 billion as of December 31, 2014 compared to CAD5.49 billion as of September 30, 2014. Loans and advances were CAD4.97 billion at December 31, 2014 compared to CAD4.77 billion as of September 30, 2014. The profit after-tax for the third quarter of 2015 was CAD3 million compared to CAD10 million for Q3 of 2014 and CAD9.2 million in Q2 of 2015. The decrease in profits was on account of higher specific provisions on account of change in risk categorization of a mid-sized India-linked account during the quarter. The capital adequacy ratio for ICICI Bank Canada was 33.2% as of December 31, 2014.

ICICI Bank UK's total assets were $4.17 billion as of December 31, 2014 compared to $4.16 billion as of September 30, 2014. Loans and advances were $2.9 billion as of December 31, 2014 compared to $2.71 billion as of September 30, 2014. The profit after-tax for ICICI Bank UK for the third quarter of 2015 was $6.1 million compared to $8.5 million in the third quarter of 2014 and $5.1 million in Q2 of 2015. The capital adequacy ratio was 21.8% as of December 31, 2014.

Going forward, ICICI Bank UK and ICICI Bank Canada will continue to focus on short-term loans, working capital lines, trade and transaction banking products to multinational corporations, select local-market corporates and subsidiaries and joint ventures of Indian companies, including through participation in syndication transactions. Additionally, ICICI Bank Canada would also continue to grow its securitized insured mortgages portfolio. We expect that the approach to lending in ICICI Bank UK and ICICI Bank Canada will also yield synergies for the clients' Indian banking requirements. The bank and its UK and Canada subsidiaries also continue to work towards optimizing the capital invested in these subsidiaries. ICICI Bank Canada has made an application to the Office of Superintendent of Financial Institutions (OSFI) seeking approval for the second round of capital repatriation.

Let me now talk about the overall consolidated profits. The consolidated profit after-tax grew by 13.7% from INR28.72 billion in Q3 of 2014 to INR32.65 billion in Q3 of 2015. The annualized consolidated return on average equity was 15.5% in the third quarter of 2015. The bank's capital adequacy on a consolidated basis as per RBI's guideline on Basel III norms continues to remain very strong. Including the profits for the nine-month period ended December 31, 2014, the consolidated total capital adequacy ratio at December 31, 2014 was 17.99% and Tier 1 capital adequacy ratio was 13.13%. Excluding the profits for the nine-month period, the consolidated total capital adequacy ratio was 16.83% and Tier 1 capital adequacy ratio was 11.97%.

In summary, we have continued to pursue our core operating strategy during the quarter. In line with our focus areas, we have sustained the improvements in the net interest margin, we have maintained a healthy non-interest income, we have sustained improvement in our operating efficiency, we have seen continued healthy trends in CASA mobilization, we have continued to scale up growth in the retail segment while calibrating our growth in the corporate and SME segments in view of the environment, and finally, we have achieved strong performance in our non-banking subsidiaries. We would continue to pursue these objectives while closely monitoring corporate asset quality trends.

We believe that our strong and diversified franchise and large distribution network give us the ability to leverage opportunities for profitable growth across our businesses even as asset quality trends would improve with a lag on the back of expected economic recovery. We are well placed with regard to the capital required to support our growth. And given our current capital position, we believe that we do not need to raise capital for at least the next two fiscal years. In addition, we would explore opportunities to monetize a part of our insurance holdings given the recent policy developments in this regard.

With these opening comments, my team and I will be happy to take your questions. Thank you very much.

Thank you, sir. Ladies and gentlemen, we will now begin with the question-and-answer session. (Operator Instructions) Suruchi Jain, Morningstar.

I wanted to ask the higher provisions are from a specific sector or are they spread across?

As Kannan mentioned, it is -- the addition to NPAs, we have seen mainly in the corporate and the SME portfolios. So these are a few select accounts which have got added to NPAs, either fresh additions or slippage from restructuring. So that is from where the provisions have come in this quarter.

Okay and you mentioned that you would look to monetize your insurance business. Are you looking at getting out of it completely, or would you retain some percentage of the holding?

We are not at all looking at getting out of it completely. Given this ordinance, which has been promulgated, we do have various options today and we are looking at those options as we go along. Whatever be the optimal and appropriate option and the timing of that option as appropriate, we will do.

Okay, got it. And one thing on your ATMs, you continued to grow your ATM base, but with the change in transaction costs, do you see the customer sort of evolving in their transaction behavior that they might use alternate channels.

Our approach has always been a multi-channel approach where different types of formats of branches as well as ATMs and at the same time, pushing electronic channels including call centers, Internet and social media. So all we will give equal emphasis. Our philosophy has been that we'll have to make all the platforms available to the customer and the customer chooses based on his convenience and his preferences. So that approach will continue.

So and have you seen any trends in, say, the number of transactions per ATM falling currently or are they continuing to grow?

We are not seeing any significant difference in trends. The number of transactions which are happening in the branches, they continue to be around 15% of our total transactions. And rest of the transactions happen on all these electronic channels we have talked about.

And what percentage would be from the branches?

Branches is 15%.

And ATMs is also 15%?

No. I mentioned that branches is 15% and rest of the 85% of the transactions are spread across the ATMs, call centers, Internet as well as social media and mobile.

Okay. Would you be able to tell me what is ATMs?

Around 40%.

40% would be ATMs.

Nilesh Parikh, Edelweiss.

The question is around the corporate growth. This is the second consecutive quarter where we've seen the corporate growth in low-single digits and when you compare that with what we've seen (technical difficulty) we have started to see a pickup on the corporate side, largely culminating from the refinancing opportunities and also when you compare some of the PSU banks, which have reported, they seem to do numbers anywhere between 8% to 10%. So, I just wanted to understand is, are we seeing more repayments or it actually beats fresh disbursements [with sales] have come off? And your comment, it's basically on the environment on that.

If you look at the overall industry growth on the credit side -- on the overall credit itself is pretty sluggish still. So the opportunities as you're mentioning, there are some opportunities of refinancing some other credits. But clearly in terms of pricing, it is not that attractive right now. So our focus continues to be to grow the retail portfolio, where the growth has been pretty good. And on the corporate side, we are pretty open to growth when we see the pricing and the risk to be appropriate for us.

So this year, I think from the beginning, we have said that overall our expectation is that the retail growth will be much higher than the corporate loan growth. The corporate loan growth currently is running a bit lower than what you would have expected at the beginning of the year. Over the next few quarters, we would expect that to correct. There is nothing specific in that sense.

In terms of the new credit requirements of corporate, really we are not seeing any pickup on fresh investments or anything of that sort yet. So most of the opportunities are limited to some refinancing or some high-rated clients at very fine pricing.

We are growing our home loan portfolio, which according to us that again is a product which is very highly competitive and from a rate perspective. So that bit is growing, but on the corporate side, we just believe that the risk spreads are still not adequate enough for us to [compete].

Like Rakesh mentioned, in corporates also wherever it makes sense in terms of our exposure to that particular corporate as well as the profitability, if it makes sense, we are very happy to do it. I think over the next few quarters, you will see pick-up in our corporate loan growth.

As far as our home loans are concerned, yes, it is competitive, but we also have significant competitive advantages in that segment, plus from overall capital and diversification perspective, it's a very good book to grow. So that has been the approach for our home loans. So that has been the approach and maybe some of the refinancing opportunities are coming up, we may already be exposed to that corporate. So we have taken a decision on a case-to-case basis.

What will be the fresh restructuring during the quarter?

Fresh restructuring we did during the quarter is about INR17.7 billion. That is the number we have had for the first quarter.

Okay and guidance for Q4? Basically you mentioned about the slippages, if I recollect slippages are going to be higher than Q3, what about the restructuring?

What I mentioned was restructuring, if you remember during the last call, we said that there is a pipeline of restructuring was about INR18 billion.

Right.

We restructured about INR17.7 billion during (technical difficulty). So we have a pipeline of restructuring for this quarter at INR23 billion. So that will -- are being restructured during this period. The only caveat I made there was that the restructuring the way it is done for today for the system is going to stop as of April 1, 2015 because thereafter only under certain specific conditions, for only certain specific industries or projects is what is allowed to be restructured and classified as restructured. So that caveat I made because we'll have to watch the (technical difficulty) what happens in the next two -- we just have about two months and in this two months whether there is any further proposals, but as of now, our pipeline is INR23 billion.

INR23 billion and the slippage number will be higher than Q3, is that correct?

Addition to NPLs?

Yes, addition to NPLs.

Yes. Addition to NPLs would be higher than what we have seen in the third quarter, yes.

Anish Tawakley, Barclays.

I just wanted to make sure I got the numbers right. So Kannan, you mentioned that you had slippages excluding slippages from restructured assets and then fresh restructuring of INR104 crores -- INR104 billion in FY14 and that number was about INR70 billion in the first nine months, am I correct?

That is correct. So just to clarify once again. During the full year 2014, if you look at the aggregate addition to NPL, add to it the additions to restructured loans and remove the slippages from restructured loan bucket, which slipped from restructured to the NPA. That number, total number was INR104.46 billion for the last year.

And INR70 billion for the first nine months. And then you said that in this year, you don't expect this number to go above INR104 billion, is that correct?

That is correct.

But INR23 billion we already have in the pipeline of restructuring.

Yes. INR23 billion and I also talked about a couple of cases, which we're very closely monitoring in terms of restructured loans. So again, I'm looking at net of slippages if you look at, again, am looking at that number, the total number not exceeding the last year number.

But that means that [about INR35 billion] more could happen in the last quarter, effectively.

That's correct. And there after as I said from 1st of April, the restructuring is going to be quite limited because there is no provision to restructure and continue to classify the loan as restructured, it has to be classified as NPL and it's been done. In closed cases which do not conform to the specific requirements of RBI.

Kannan, [INR35 billion] is also a fairly large number for one quarter given the current run rate.

I agree with you, yes, but that is what -- we have seen prolonged economic slowdown, that is why this new phenomenon of slipping from restructured loans to NPL really happened in the last couple of quarters. So till that time, yes, as I mentioned in the opening remarks, the recovery will happen, but it will happen with a set of a lag. While all the sort of environmental pieces are in place for the recovery to happen, it'll be some time before that actually gets translated into the asset quality.

So then, Kannan, if we look at the current stock of restructured assets and given that the moratorium periods, given your view on your sort of predictability around how the moratorium periods are ending, could you talk about how much slippage you would expect from the current stock of restructured assets?

It's very difficult to give an estimate on that, because this is largely corporate portfolio and so it has to be done kind of on an account-by-account basis. So as Kannan mentioned earlier, we indeed are seeing a higher level of slippages coming from restructured compared to what our earlier belief was. Now, if you look at what we have restructured over the last several years, the slippage would have been in the region of about 17% to 18%, but that is just based on the total restructuring that we have done in the amount slipped till now. Some of those restructured loans will still be in moratorium. So that number will go up going forward, it's very difficult to give an estimate on where that number would be.

How much would come out of moratorium, Rakesh, in the next four quarters?

We have not given that number separately, but typically what happens is that when you do a restructuring, you would have a three or four quarter period of moratorium. So if you make that kind of a lag, it will give you an estimate.

Okay. Four quarter of moratorium, okay, not two years.

So you'll have principal and interest moratorium. So principal moratorium could be even six quarters or eight quarters.

Okay. And just one small clarification, did you say the current accounts were down, because the presentation is showing current accounts are up? Did I mishear that?

Current accounts had come down sequentially. If I remember the number correctly, it's about by INR22 billion it had come down sequentially.

INR481 billion to INR459 billion sequentially.

Sequentially and then I also mentioned that during the period on a daily average basis, current accounts went up, period-end basis.

If I can squeeze in one more question, is there reason why the housing finance subs' profits are down?

No specific reason, bulk of the business is really booked in the parent. That is one reason and second is that there was some tax clarification on the DTL. It's just now brought to be -- what happened to the bank a little earlier that happened later for all the housing finance companies now, so that is the only reason.

Abhishek Kothari, Quant Capital.

Just wanted to know if I calculate your yield on advances, has it declined sequentially, is it right?

No, it is stable sequentially. Maybe it went up by about 1 basis point or so, it's broadly stable.

The overall yield on interest earning assets is flat. The yield on advances, we actually don't disclose separately. We give the overall yield on interest earning assets and the cost of funds, both of which have been pretty much --.

Pretty much flattish, stable numbers.

Okay. And can I get the employee base at the end of quarter?

Employee base?

About 67,500.

So, that was sequentially 1,900 down?

Yes.

Vishal Goyal, UBS Securities.

Actually, one question is on this refinancing facility, which is basically RBI has given all banks. So have you used that in the quarter?

Early days, we have not really used it yet. I think it will take some time for the industry to get used to it, because all the project lenders will have to come together and then do -- that 5:25 scheme you're talking about, isn't it?

Yes.

That will take some time to sort of figure -- because there are a lot of conditions around that. We'll have to have an independent viability study and so on. So, I think it'll take some time for the industry to work on this.

And the second question is also on the life insurance [end of] the new business margin, so the improvement which we are seeing I think 50 bps improvement is on account of it expense -- basically what is the reason for that?

It is that the company has been looking at managing the product mix. So the approach is to sell more of term kind of products, which have higher margin -- protection products having higher margins. However, given the market conditions, ULIPs have been our most popular product. So the company is having an approach of continuing to write the market in terms of selling ULIPs. At the same time doing a top up or add-on in terms of protection to ULIP policies.

So that strategy is sort of playing out. We would -- ideally we would have liked the margin to expand even more, if the market trend of ULIP had not happened the way it has happened. So that is -- it's really a part of the protection selling strategy and the product mix strategy. That why it's improving. Our endeavor is to take it up from here.

Can I ask your protection mix, if you have that number?

[It's a small number of 1%].

Adarsh, Nomura.

This was again on the slippage for this quarter and what you all are guiding. I think you had INR8 billion of slippage from the restructured book and about INR15 billion. So any sense, color of sectors or lumpiness out of the fresh slippage because INR15 billion also is a large number and similar thing for your guidance as to you all have some visibility in terms of what you all are looking for slippages as well.

It'll be very difficult to derive a industry trend because these are specific -- a few accounts, which would have got added to NPL or restructuring. Overall, as we have said in the past, if you look at the stress which has been there, it has been more on the construction EPC kind of companies and some of the iron and steel product companies. So that is where we have seen some additions to be there.

And then there is -- how do you see this for FY16 because you all made a comment that the slippage from restructured book may continue into FY16, what about fresh slippages, any sense to you now, if you all can add some color there?

As of now -- I mentioned we have talked about the trends we are likely to have for the fourth quarter. Then when we make a full-year assessment in our next call, we will give you a trend for the next financial year going forward. So the only thing we are hoping on is also that by the time the economic recovery, lot of things I talked about in my speech also of government having done several measures that should kick in some time in terms of on-the-ground growth for credit or the asset quality. So our hope is that by the next year, the revival should help us in terms of our ability to leverage our capital footprint et cetera and grow whereby asset quality also will come under control. So that is our hope as of now.

Rakesh Kumar, Elara Capital.

Firstly, on the restructured loan, this quarter actually we added INR17.7 billion, so if you look at the net outstanding, so what is the reduction, total reduction from the restructured loans?

As I mentioned that the reduction has been largely on account of the slippage of about INR7.7 billion, which I said is the amount which slipped from restructured loans to NPL category plus the provision -- incremental provision we have made for restructured loans that is what led to the reduction. There has not been any meaningful upgrade during the quarter.

Secondly on the PCR we have any number in mind going forward because the kind of provisioning like maybe close to around INR8 billion provisioning we have done just for this specific loans discarding the general provisioning and on this for the -- on its foreign currency. So that number looks slightly on the lower side and the PCR is coming down. So any number we have in mind that --.

We don't have any specific target for PCR. At the same time, we go by the IRAC norms of RBI in terms of the bucket wise provisions for any slippages. So the way the trajectory would be that as we have continued slippages to NPL, the first bucket requires the provision, which is far less than the current PCR levels. But as the buckets move as the time progresses, and when the incremental slippages come under control, then that is the time when PCR will stabilize and improve. But to answer your question, there is no specific target we have on the PCR number, but we go by the IRAC norms of RBI for making provisions for non-performing loans.

Nilanjan Karfa, Jefferies.

Question just not for ICICI Bank, for the general situation in the NPAs. The question is, what are the bankers doing in terms of getting these corporates to either deleverage, raise equity because right now it seems or the message that essentially we are getting is everything is being pushed into the restructuring pipeline and getting it restructured. What is the sense you get from the promoters of these companies? What kind of pressure are bankers putting up or is it that there is no money left either they don't want to sell out assets or they're not able to sell out a stake at a certain price, what seems to be the problem, sir?

There is a lot of pressure being put by the bankers, including direct discussions with the promoters, pushing them to sell assets or using some of the tools which RBI has given in the form of classifying some of the borrowers as willful defaulters wherever necessary, and also the legal action. So I think all the measures are being taken by the bankers. So I don't think there is any want of effort in terms of pushing the system to deleverage and pay to the banking system.

However, this has to be juxtaposed in the context of A, the continued slowdown in the economic environment, which I think when we get full clarity on the way forward in terms of the uptrend in growth, I think then there would be more such buy and sell transactions which can happen, one can see the future prospects. So I think that is one area where things can get some -- some pressure can be released.

The second is the monetary environment and monetary policies. As the rates come down, over the next few quarters, we think that the pain in terms of the interest payment by borrowers to banking system can be managed better. The third issue with the legal system is, that continues to be a bit long-drawn affair. I think that is -- that we'll have to find a structural solution over a period because DRT and other places also things do tend to get stuck and the asset solution through the legal system has turned out to be much more prolong.

I think these would be the key three factors in -- what's happening today. But to answer your question, pressure is very much there on the borrowers and promoters exerted by the banking system.

I'm very glad to hear that. But all the three measures that you said, I mean it almost looks like this is something that will take its own sweet time to play out.

Yes, in the meanwhile if you really look at it, the continued -- we talked about the continued restructuring, which is done by the banking system. I think that is no more going to be unbridled from April 1, 2015, clear boundaries which have been put around what can be restructured and classified. So I think that will also sort of play out as we go along that. If it is a slippage and cases which do not qualify for that kind of a treatment, it will straight away go into NPL. So their concern you are saying of continuous restructuring will also stop from April 1, 2015.

Kannan, if I can just stretch this argument, if assuming all these things are put in place by the government and let's assume there is -- it's probably a little harsh to expect that things are going to improve in the next three months to six months, would you be even more worried? Forget about that monetary angle, monetary policy angle or rates moving down, let's say another, 50 basis points.

Yes, in our own case as we have mentioned, the only trend we have seen of late is more of the restructuring slipping into NPL. So, I think that is a consequence of a prolonged economic slowdown than what was earlier thought to be. Yes, if not the two quarters, maybe it is a three or four-quarter phenomenon. But you juxtapose this with all the steps we've talked about in terms of the ease of doing business, land acquisition act and various other measures, which I've talked about, I think that should start making a difference on the ground.

So, I guess it is a two to four quarters kind of period you can take for the system [for] full-fledged recovery and by that time, the interest rates also will be lower than what we are talking about now. So I think we are in that kind of crossover to that kind of a regime. So, we will wait and watch.

Thank you. Participants, that was the last question. I now hand the floor back to Mr. N.S. Kannan for closing comments. Thank you and over to you, sir.

Thank you for participating in the call and any questions we have, we are always available to answer you offline. Thank you very much.

Thank you, sir. Ladies and gentlemen, with that, we conclude this conference. Thank you for joining us. You may now disconnect your lines. Thank you.

Thank you.