ICICI Bank Ltd (IBN) 2015 Q4 法說會逐字稿

Ladies and gentlemen, good day and welcome to the ICICI Bank Q4 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 of ICICI Bank. Thank you and over to you, sir.

Thank you. Good evening. Welcome to the conference call on the financial results of ICICI Bank for the quarter ended March 31, 2015, that's the fourth quarter of the fiscal 2015. In my remarks today; I will cover first, the macroeconomic and the monetary environment; then we'll move on to our performance during the quarter, including performance on our 5C strategy; then we'll talk about performance of our subsidiaries on the consolidated results; and finally, outlook going forward.

Let me start with the first part on the macroeconomic and monetary environment. Economic conditions remained stable during the fourth quarter of fiscal 2015. Some positive trends during the quarter included moderate inflationary trends with a growth in Consumer Price Index at 5.2% in March 2015, signs of a pickup in industrial activity as reflected by positive growth in the Index of Industrial Production, and reduction in repo rate by 50 basis points to 7.5% by RBI. Further, the government focused on fiscal consolidation in the Union Budget for fiscal 2016 and the passage of Coal Mines Bill and Insurance Bill during the quarter were positive developments. Modi has upgraded India's sovereign rating outlook to positive from stable in April 2015. As per the government's revised methodology on GDP calculation, GDP growth in fiscal 2015 is estimated at 7.4% compared to growth of 6.9% in fiscal 2014.

Moving on to the performance of financial markets. The Bombay Stock Exchange Sensex rose by 1.7% during the fourth quarter. The yield on 10-year government securities declined to 7.74% as of end March 2015 from 7.86% as of end December 2014. Short-term interest rates however remained volatile during the quarter. Since the beginning of April 2015, short-term interest rates have declined by 30 basis points to 40 basis points. Exchange rate moved to INR62.6 per US dollar at the end of Q4 of 2015 from INR63.3 per US dollar at the beginning of the quarter. Subsequently, the rupee has depreciated against the US dollar and was at INR63.4 per US dollar as of April 24, 2015. With respect to the banking sector, non-food credit growth remained moderate at around 10% to 11% on a year-on-year basis throughout the quarter before increasing to 13.2% year-on-year as of April 3, 2015.

Growth in total deposits was at 12.8% on a year-on-year basis as of April 3, 2015. Demand deposit growth remained volatile in the range of 8% to 14% year-on-year growth through the quarter before increasing to 25% on a year-on-year basis as of April 3, 2015. Given the reduction in repo rates by RBI during the fourth quarter at stable liquidity conditions, most large banks have reduced their base rates and retail deposit rates in April 2015. With this background, let me now move 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 17.8% on a year-on-year basis as of March 31, 2015 compared to a 13.2% growth in non-food credit for the system as of April 3, 2015. Loan growth for the Bank continues to be driven by retail segment, which grew by 24.6% on a year-on-year basis as of March 31, 2015.

The growth in our retail portfolio continues to be driven by secured products with the outstanding mortgages and auto loan portfolios growing by 26% and 24% respectively on a year-on-year basis as of March 2015. Growth in the business banking and rural lending segments was 18% and 35% on a year-on-year basis respectively. Commercial business loans declined by 13% on a year-on-year basis as of March 31 reflecting primarily the rundown of our bought out portfolio. On a sequential basis, commercial business loans remained broadly stable and were about INR108 billion as of March 31, 2015. We expect growth in commercial business loans to gradually improve with the recovery in the industrial activity. The unsecured credit card and personal loan portfolio at about INR109 billion as of March 31, 2015 continued to remain a small proportion of about 2.8% of the overall loan book so obviously the growth rate is high due to the low base.

The domestic corporate portfolio growth was 9.6% on a year-on-year basis as of March 31, 2015 compared to a 4% growth we saw as of December 31, 2014. The higher growth at March end compared to December end was primarily on account of lending to higher rated clients including public sector entities during the fourth quarter. The SME portfolio increased marginally on a sequential basis to about INR172 billion as of March 31, 2015. Growth in net advances of the overseas branches in US dollar terms was at 0.6% on a year-on-year basis as of March 31, 2015 compared to 3.5% year-on-year growth as of December 2014. In rupee terms, the net advances of the overseas branches increased by 4.9% on a year-on-year basis due to movement in the exchange rate. The net advances of overseas branches decreased marginally by about 1.6% on a sequential basis in US dollar terms.

As a result of the above, the total advances of the Bank increased by 14.4% on a year-on-year basis from INR3.39 trillion as of March 31, 2014 to INR3.88 trillion as of March 31, 2015. Moving now on to the second C on CASA deposits. The Bank continued to see healthy momentum in CASA deposit mobilization. On a period-end basis, we saw an addition of INR43.27 billion to savings deposits. Current account deposits increased by INR36.04 billion during the quarter. As a result, the period-end CASA ratio improved to 45.5% as of March 31, 2015 compared to 44% as of December 31, 2014. The daily average CASA ratio for the Bank increased from 39.3% in the third quarter to 39.9% in the fourth quarter. Moving on to the third C on costs. The Bank maintained a healthy cost to income ratio of 36.2% in the fourth quarter compared to 36.3% in the third quarter of fiscal 2015.

For the fourth quarter, operating expenses increased by 7.9% on a year-on-year basis. For the full-year 2015, operating expenses grew by 11.5% year-on-year and the cost to income ratio was 36.8% compared to 38.2% in the previous year. As mentioned on our previous calls, given the addition of about 14,000 employees in financial years 2013 and 2014 and the Bank's focus on productivity and efficiency, the employee base has decreased by about 4,400 people during financial year 2015 to 67,857 employees. This has been achieved primarily by not replacing attrition. While we 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 on to the fourth C on credit quality. As we indicated on our previous calls, the total NPA additions in the fourth quarter were higher than the third quarter primarily due to challenges with respect to one or two large restructured borrowers. During the fourth quarter, we saw gross NPA addition of INR32.6 billion including slippages of INR22.5 billion from the standard restructured category to the non-performing asset category. Deletions from the NPA during the quarter was INR6.54 billion and we have also written off INR5.95 billion of NPAs. We have not sold any NPAs to asset reconstruction companies during the quarter. The net NPA ratio was 140 basis points as of March 31, 2015 compared to 112 basis points as of December. During the quarter, we had gross additions of INR12.47 billion to restructured loans.

After taking into account deletions, including the slippages mentioned earlier and the required specific provisioning thereof, the net restructured loans for the Bank was at INR110.17 billion as of March, lower compared to the INR120.52 billion as of December. Moving on to the provisions. Provisions for the fourth quarter were at INR13.44 billion compared to INR7.14 billion in the fourth quarter of 2014 and INR9.80 billion in the third quarter of 2015. As a result, credit costs as a percentage of average advances were at 144 basis points on an annualized basis for the fourth quarter. Provisions were higher in the fourth quarter on account of higher additions to non-performing and restructured loans. Provisions in Q4 also include standard asset provisions of about INR420 million on account of exposure to clients having unhedged foreign currency exposure.

This added about 4 basis points to the annualized provisions to average advances for the fourth quarter. On a full-year basis for financial year 2015, credit cost as a percentage of average advances were at 109 basis points. The provisioning coverage ratio on non-performing loans was 58.6% as of March 31, 2015. For the full-year fiscal 2014, the aggregate additions to NPAs was INR45.4 billion, of which fresh NPA addition was INR38.13 billion and slippages from the restructured loans to the NPA category was INR7.27 billion. Loans restructured during fiscal 2014 were INR66.33 billion. So, the sum of the loans restructuring during the period and NPA additions excluding the slippages from the restructured portfolio was INR104.46 billion for the fiscal 2014, that's the previous year. In comparison, during current fiscal 2015 the aggregate additions to NPAs was INR80.78 billion. Of this, fresh NPA additions was INR35.49 billion, which is lower than the previous year.

However, slippages from restructured loans to the NPA category was INR45.29 billion in fiscal 2015. Loans restructured during the period was INR53.94 billion. Thus the sum of the loans restructuring during the period and NPA additions excluding the slippages from the restructured portfolio was INR89.43 billion, about INR15 billion lower compared to the previous year. After taking into account deletions and provisioning, the aggregate net NPAs and net restructured loans increased by INR34.82 billion from INR138.59 billion as of March 31, 2014 to INR173.41 billion as of March 31, 2015. The aggregate net NPAs and net restructured loans increased by INR4.58 billion in the fourth quarter. Now, moving on to the fifth C on customer centricity. We continue to focus on enhancing our customer service capability and leveraging on our increased branch network to cater to the customer base.

During the quarter, we added 200 branches and 360 ATMs to the network. Accordingly as of March 31, 2015, the Bank had a branch network of 4,050 branches and 12,451 ATMs. We also continued to strengthen our technology channels for increasing the customer convenience. ICICI Bank has always been a pioneer in bringing technology enabled products and services to the Indian customers. We are focusing on leveraging the three key transformational trends we see in technology; that is mobility, digitization, and rapid growth of social media; so that we can bring value to our customers. Our innovations in recent years include fully automated 24/7 Touch Banking branches, Tab Banking for seamless and convenient account opening, a refreshed and intuitive Internet banking website, a rich mobile banking application, specific convenient mobile applications for ease of information and transactions, and contactless tap and pay card payments.

During the quarter, we launched a digital mobile wallet called Pockets positioned as India's first digital bank. Pockets allows any individual, whether ICICI Bank customer or otherwise, to download and instantly activate an e-Wallet. The e-Wallet is amongst the India's most comprehensive wallets, which can be used to pay on all websites and mobile apps in the country. Our Facebook page continued to be appreciated by customers with over 3.5 million fans, the largest fan base on Facebook among Indian banks. The Bank also launched Video Banking for NRI customers during the quarter. Using this service, NRI customers can now connect with a customer care representative over a video call round the clock on all days from anywhere using their smartphones. We are now launching an application for Apple watch leveraging the emerging trend in wearable technology.

We will continue to launch new digital banking propositions in the days ahead. Having talked about the performance on the 5Cs, let me now move on to the key financial performance highlights for the quarter. Net interest income increased by 16.6% year-on-year, INR43.57 billion in Q4 of 2014 to INR50.79 billion in Q4 of 2015. The net interest margin improved to 3.57% in Q4 of 2015 from 3.35% in the corresponding quarter last year. The domestic net interest margin was at 3.99% in quarter four of 2015 compared to 3.72% in the corresponding quarter last year and 3.88% in the previous quarter. International margins were at 1.71% in Q4 of 2015 compared to the same number in the corresponding quarter last year and 1.67% in the preceding quarter. Net interest income in the fourth quarter includes interest of about INR1 billion on income tax refund received during the quarter.

Total non-interest income increased by 17.5% from INR29.76 billion in Q4 of 2014 to INR34.96 billion in Q4 of 2015. Within the non-interest income, the fee income grew by 8.3% from INR19.74 billion in Q4 of 2014 to INR21.37 billion in Q4 of 2015. The moderate growth is mainly due to subdued corporate activity and consequent decline in corporate fee income. Retail fees for the Bank continued to grow at a healthy rate and now constitute about 60% of the overall fees. During the fourth quarter, treasury recorded a profit of INR7.26 billion compared to INR2.45 billion in the corresponding quarter last year and INR4.43 billion in the previous quarter. Treasury income for the fourth quarter was primarily driven by gains from the fixed income portfolio where the Bank capitalized on market opportunities.

Other income was INR6.33 billion in Q4 of 2015 compared to INR7.57 billion in Q4 of 2014 and INR5.38 billion in Q3 of 2015. During the fourth quarter, the Bank received dividend of about $30 million from ICICI Bank UK and about CAD19 million from ICICI Bank Canada. ICICI Life did not pay dividends during the fourth quarter of 2015. The Board of ICICI Life at its meeting held on April 24, 2015 has approved dividend which would be paid in Q1 of 2016. The net exchange rate gains relating to Bank's overseas operations were at INR1.82 billion in the fourth quarter compared to INR2.22 billion in the corresponding quarter last year and INR1.92 billion in the preceding quarter. I've already spoken about the trends in the 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 10.3% from INR37.4 billion in Q4 of 2014 to INR41.24 billion in Q4 of 2015.

The Bank's standalone profit after tax increased by 10.2% from INR26.52 billion in Q4 of 2014 to INR29.22 billion in Q4 of 2015. For the full-year financial year 2015, the profit after tax increased by 13.9% to INR111.75 billion from INR98.1 billion in financial year 2014. The return on average assets improved from 1.76% in fiscal 2014 to 1.86% in fiscal 2015. The Bank's capital adequacy ratio on a standalone basis as per Reserve Bank of India guidelines on Basel III norms continues to remain strong. The Bank's overall capital adequacy ratio as of March 31, 2015 was 17.02% and Tier 1 capital adequacy ratio was 12.78%. The Bank has been providing fully for any interest income which is funded through an FITL, that is Funded Interest Term Loan, for cases restructured subsequent to the issuance of the RBI's 2008 guidelines on restructuring.

However, RBI has now required similar treatment of outstanding FITL pertaining to the cases restructured prior to the 2008 guidelines. The Bank has with the approval of RBI debited the results by INR9.29 billion to fully provide for such outstanding in the quarter ended March 31, 2015 as against over three quarters permitted by RBI. These disclosures have also been made by the Bank in the Stock Exchange format. I now move on to the performance of subsidiaries and the consolidated results. On a full-year basis, the profit after tax for Life Insurance Company was INR16.34 billion in financial year 2015 compared to INR15.67 billion in financial year 2014. The profit after tax for ICICI Life in Q4 of 2015 was INR3.91 billion as compared to INR3.88 billion in Q4 of 2014. The new business annualized premium equivalent increased from INR10.81 billion in Q4 of 2014 to INR15.98 billion in Q4 of 2015.

The retail weighted received premium for ICICI Life has grown by 41.3% for the full-year financial year 2015 compared to 1.7% increase in financial year 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 financial year 2015. The new business margin was at 11.4% in Q4 of 2015 based on traditional embedded value or TEV methodology. The company will be separately making disclosures based on Indian Embedded Value or IEV methodology later this week. On a full-year basis, the profit after tax for ICICI General increased from INR5.11 billion in fiscal 2014 to INR5.36 billion in fiscal 2015. The year-on-year increase in profit before tax was about 33%. 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 were low due to losses carried forward from the earlier years.

The profit after tax increased from INR0.76 billion in Q4 of 2014 to INR1.31 billion in Q4 of 2015. The gross premium income of ICICI General decreased marginally by 3.1% on a year-on-year basis to INR69.14 billion in fiscal 2014 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 are not available, we understand that the company had a market share of about 8.3% during fiscal 2015. ICICI Securities and ICICI AMC have continued to see improvement in the performance. The profit after tax for ICICI Securities increased from INR0.91 billion in fiscal 2014 to INR2.94 billion in fiscal 2015. The profit after tax for ICICI AMC increased from INR1.83 billion in fiscal 2014 to INR2.47 billion in fiscal 2015.

ICICI AMC sustained its market position as the second largest mutual fund in India during the fourth quarter of 2015. Let me now move on to the performance of our overseas banking subsidiaries. The Bank has continued with its strategy of optimizing the capital in the overseas banking subsidiaries. During the fourth quarter, the Bank received a second round of equity capital repatriation of CAD80 million from ICICI Bank Canada and $75 million from ICICI Bank UK. Further, both the overseas banking subsidiaries paid equity dividends to the parent bank in the fourth quarter. The Bank's total equity investment in ICICI Bank UK and ICICI Bank Canada has reduced from 11% of the net worth as of March 31, 2010 to 5.6% as of March 31, 2015. As per IFRS financials, ICICI Bank Canada's total assets were CAD5.94 billion as of March 31, 2015 compared to CAD5.64 billion in December.

Loans and advances were CAD5.17 billion as of March 31, 2015 compared to CAD4.97 billion as of December. The increase in loans and advances was on account of higher securitized insured mortgages as of March 31, 2015 compared to December. The profit after tax for the fourth quarter was CAD7.5 million compared to CAD11 million for the fourth quarter of 2014 and CAD3 million in Q3 of 2015. For the full-year financial year 2015, profit after tax was CAD33.7 million compared to CAD48.3 million for fiscal 2014. The decrease in profits was on account of higher specific provisions primarily on account of change in risk categorization of a mid-sized India-linked account during the year. The capital adequacy ratio for ICICI Bank Canada was 28.5% as of March 31, 2015. ICICI Bank UK's total assets were $4.13 billion as of March 31, 2015 compared to $4.17 billion as of December 31, 2014.

Loans and advances were $3.03 billion as of March 31, 2015 compared to $2.9 billion as of December. The profit after tax for ICICI Bank UK for the fourth quarter was $0.9 million compared to $5.2 million in the fourth quarter of the previous year and $6.1 million in Q3 of 2015. The lower profits in fourth quarter of 2015 were on account of higher provisions on existing impaired loans. For the full-year 2015, profit after tax was $18.3 million compared to $25.2 million for the previous year. The capital adequacy ratio was 19.2% as of March 31, 2015. Going forward, ICICI Bank UK and ICICI Bank Canada will continue to focus on short-term loans, working capital line, trade and transaction based 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 will also continue to work towards optimizing the capital invested in these subsidiaries further. During the quarter, the Bank concluded the sale of its Russian subsidiary. Let me now talk about the overall consolidated profits. The consolidated profit after tax grew by 13.3% from INR27.24 billion in Q4 of 2014 to INR30.85 billion in Q4 of 2015. The annualized consolidated return on average equity was 14.5% in Q4 of 2015 compared to 14.2% in Q4 of 2014 and 15.5% in the Q3 of 2015. For the full-year financial year 2015, consolidated profits increased by 10.9% from INR110.41 billion in financial year 2014 to INR122.47 billion in fiscal 2015.

The consolidated return on average equity was 15% in fiscal 2015 compared to 14.9% in fiscal 2014. On a consolidated basis, the Bank's overall capital adequacy ratio as of March 31, 2015 was 7.2% (sic - see slide 26, "17.2%") and the Tier 1 capital adequacy ratio was 12.88%. In summary, we have continued to pursue our core operating strategy during the quarter. In line with our focus areas we have one, sustained the improvement in net interest margins; two, maintained a healthy non-interest income; three, sustained improvement in our operating efficiency; four, seen continued healthy trends in CASA mobilization; five, maintained a strong retail portfolio growth; and six, achieved a healthy performance in our non-banking subsidiaries. Based on the performance of the Bank in fiscal 2015, the Board of Directors has recommended a dividend of INR5 per equity share of face value of INR2 each to shareholders compared to INR4.6 per equity share for 2014 after adjusting for subdivision of equity shares during the year.

Moving now on to the outlook for financial year 2016. We believe that while operating environment in fiscal 2016 is likely to be better than fiscal 2015, recovery in economic activity could be gradual and near-term challenges for the banking sector may persist. Our outlook for fiscal 2016 is in this overall context. We expect to sustain domestic loan growth in the range of 18% to 20% driven by about 25% growth in the retail segment. In the domestic corporate portfolio, we expect a growth of 10% to 15% driven primarily by increasing lending to higher rated clients. The Bank would continue to calibrate corporate loan growth to the trends in the environment. With respect to the overseas branches, the Bank would focus on selective lending opportunities and will continue to calibrate growth to conditions in the funding markets.

We expect the loan portfolio of overseas branches to grow by about 8% to 10%. We would aim to maintain a stable average CASA ratio in the range of 38% to 40%. We will target to maintain the overall net interest margins in fiscal 2016 at a similar level compared to fiscal 2015 despite declining interest rates. We would target a double-digit growth in fee income in fiscal 2016 led by retail fees. The overall fee income growth would depend on market conditions, particularly activity in the corporate sector as well as regulatory measures with respect to various components of fee income. We will focus on sustaining the gains we have made in operating efficiency to maintain the cost to income ratio for financial year 2016 at similar level as in financial year 2015. Coming to the asset quality, we expect that the aggregate additions to restructured loans and NPAs in fiscal 2016 will definitely be lower than in fiscal 2015.

Restructuring in fiscal 2016 will be limited to a, restructuring of project loans in line with criteria permitted by RBI; and b, restructuring of other loans where referral restructuring application occurred before March 31, 2015. Our current restructuring pipeline is about INR15 billion. Based on the above, we expect the provisions to be in the range of 90 basis points to 95 basis points of average loans in fiscal 2016. We believe that our strong and diversified franchise, large distribution network, and technology capabilities 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 equity capital for the next three years based on current regulations.

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

Thank you very much sir. (Operator Instructions) Abhishek Kothari, Quant Capital.

Can I have the breakup of provision expenses for the year in terms of NPA, standard assets, and others?

The standard asset provision is about INR4 billion and the balance is for NPA and restructured loan. For the quarter, the standard asset provision is about INR640 million.

And the rest is NPA?

The rest is NPA.

And restructured loans.

Okay. Sir, coming on to your cost to income ratio, you did mention that you would be looking to hire. My number one question is that in Q4 we added about 200 branches, but there was no movement in cost per se, point number one. And point number two, when you would be looking to hire, what would be the significant increase in employee expenses or the total OpEx that you're seeing?

We would look at increasing our employee base primarily in the retail and the rural business. So, we will have some increase there. While it's difficult to give a specific number, maybe about 5% to 7% increase in employee count is what we could look at during the coming years.

And for this branch expansion that we have undertaken, there hasn't been significant increase in the expenses. Could you throw some light on that?

So, the expenses related to branches have definitely happened. Overall we have been pretty cost conscious over the last several years and that continues to be the case. So that is why in the overall numbers, if you look at it, we have been able to maintain and improve our cost to income ratios in the last few years.

So, expansion would continue in the same momentum in terms of branches?

Yes. So, we would look at increasing our branch network in the current financial year FY 2016 also.

Okay. Thank you.

Pankaj Agarwal, Ambit Capital.

Sir, your restructured assets which slipped into NPAs were close to INR45 billion during the year. Now if I look at, it's close to like 40% of your outstanding restructured assets at the end of FY14 and around 80% of your restructured assets at the end of FY13. So, don't you think this number is slightly on the higher side? That is one. And second, how do you expect this ratio to pan out In FY16 and FY17?

As we have said in the past over the last couple of quarters that we are indeed seeing a trend whereby the slippages from the restructured loans has gone up for us. And while the slippage was only about INR7 billion in the last financial year FY14, FY15 has seen consistent increase in that number through the year. So the slippage ratio for us, if we look at it, the way we compute for loans that we have restructured over the last several years, that has gone up to about 25% and in the past we were looking at that ratio kind of to be closer to about 10%. So, clearly that number has gone up and we have been planning on that basis. Going forward in terms of the quantum of slippage that we have seen in FY15, that quantum will certainly not be there going forward, but there could still be some slippages that happen from the current standard restructured loan portfolio.

Okay. Thanks a lot.

Nilanjan Karfa, Jefferies.

Sir, the question is on securities. As you said, gone by INR730 million on a QoQ basis. Were there some sales which are of SMA 1 or 2 category?

We had one sale of SMA 2 category loan during the quarter, it was a small amount and that's reflected in the increase in the security receipts.

And any loss therefore I guess would have been absorbed in the current quarter, is that right?

Yes.

Okay. Sir, second question is have you already undertaken some refinancing or debt equity swaps? At least we know one case. Can you throw some color on that side? And secondly, what your expectation going for next year? How much of refinancing will you do, how much of other options that the RBI has provided? To what extent do you think these are going to help the Bank not report these numbers?

By refinancing if you're referring to the 5/25 guideline, I don't think that anything significant has so far been done by the banking system per se under that guideline. And I guess there would be a number of projects across the system, which will qualify for application of the guideline in terms of the sectors and the economic life of the asset and so on. I guess banks will look at it on a case-by-case basis as we go along.

Okay. I guess you don't want to give out a pipeline number of that sort or you --?

There is no such number as of now frankly.

Okay. And sir, quickly two last questions. You talked about an IT refund, I'm guessing this is a regular occurrence, right?

I mean sometimes irregular, sometimes regular. Some quarters they come up, nothing unusual about it, but some quarters we do get it. It's about INR1 billion for the fourth quarter.

Is that one of the reasons why the margins have went up?

No, even otherwise it would have gone up. This would have on an overall basis made a difference of only about 7 basis points to our margins. Even otherwise, the margins would have gone up.

What is the reason, sir? Any specific reasons?

No. It's just that cost of funds have been under control and we have seen some pickup in the yield on interest earning assets. So, nothing specific. It's been a conscious strategy of improving our net interest margins.

Okay. And then lastly, sir, you talked about a guidance on asset quality so do you mean the gross addition to impaired asset will be less than sum of 80.78% plus 53.94%? Is that how you're looking at asset quality for next year?

Yes, that's what I said. I said definitely that will be lower than that amount. That's what I mentioned.

Okay. So, the number is 80.78% and not 45.29%, which is just a slippage from restructured?

Yes.

Thank you so much, sir.

Rakesh Kumar, Elara Capital.

The one question here is that this quarter the improvement in the margin has actually come from the greater yield. So, the one thing is that next year like we have already cut the base rate so here onwards there would be a pressure on the yield side. So, the stability in margin what we have projected for this year, how we are going to achieve that? This is coming from the grade composition or like what is the strategy behind it?

On the margins actually if you look at the increase which has happened this quarter, as Kannan explained, about 7 basis points to 8 basis points kind of has come in from the interest in the income tax refund. For the balance, the increase that you're seeing on the overall interest earning assets, a part of that has come from the mix change because if you look at our domestic book, the kind of entire growth between Q3 and Q4 has happened in our domestic loan book while the overseas loan book has remained flat and even the other interest earning assets which typically earn lower. So for example the investments and other interest earning assets, they have also remained flat vis-a-vis Q3. So, that is the reason for the increase in the margin. Going forward while immediately of course there will be an impact of the base rate reduction that we have done in the current month, but the deposit costs also we have reduced on the retail side so that will also start showing up with some bit of lag. So, that is why we believe that we should be able to maintain our margin because overall the mix benefit will continue into FY16 also because the overseas book will grow at a lower pace than the domestic book.

Secondly, again from the [credit] perspective like suppose the kind of slippage we have seen, had this come entirely from the standard book rather than coming from the restructured standard book. So, would that have impacted our margin much more because straightaway your standard account is becoming [sub-standard]? So if the composition of slippage suppose changes next year, then the interest earning assets would come down to that extent and margin would get impacted. So, like any thought over it?

Theoretically, it is correct if that happens. But overall as Kannan mentioned that we are indeed expecting the level of NPA additions and restructured loans to be lower in FY16 versus FY15. So, that should not be as big a factor for margins in FY16.

Okay. Thanks a lot.

Amit Premchandani, UTI Mutual Fund.

Can you just help us explain the FITL accounting before 2008 and after 2008 and what is the impact on the NPL recognition as well as NII because of this difference in accounting of FITL?

Prior to 2008 when banks were restructuring loans and if a funded interest term loan was granted by banks, there was no requirement to reverse that income. So post 2008 is when the guideline came, which required that all restructurings done post 2008 and if an FITL is created, then banks need to make a provision against that. So, as we have mentioned in our press release that the FITL pertaining to loans restructured prior to 2008 which was not provided for at that point of time is what RBI has required to be provided for and that is something which RBI allowed us to do over three quarters through results because it pertains to past periods actually. So, we have decided to take that upfront in one quarter and that is the impact on the results that you have seen for the quarter.

As to your question on NPA, that does not have any implication on NPA because these borrowers have since been upgraded. As Rakesh mentioned, these are all restructuring related to pre-2008 days, in fact much prior to 2008. So, the borrowers have since been upgraded so the impact what you have taken will get reversed as the FITLs are repaid as per the contractual maturities.

So, this [900] does not include a specific account, It includes many accounts.

Meaning it is not just one account, but a few accounts (multiple speakers).

These are all old restructuring which was done and the 2008 August circular of RBI was very clear that this was applicable only for the restructuring done prospective after that date. However, RBI had said that it should be taken in respect of the previous also so being a prior period item, It went through the results. And as Rakesh mentioned, we didn't want to exercise the option of doing it over three quarters. We just thought that we should take the knock and move on so that's what we have done.

And sir, this INR22 billion of slippage from restructuring, any sectoral composition would be very helpful? And there was one account which was kind of talked about that the interest has been converted into equity, any color on that account? What is the status of that?

On the first one on the restructured portfolio, as we have said in the past, these are corporate exposures and so then these would be a very small number of corporates that would have slipped into NPA from restructuring. So, it is not really a sectoral.

It's more on a specific issue. And then I had mentioned that in the last call specifically that one or two large accounts we are monitoring and that could slip in. That is what has happened, that slippage has happened.

Okay. Thank you, sir.

(Operator Instructions) Suruchi Jain, Morningstar.

Firstly on the overall credit offtake environment, I understand it's been slow. But is there a reason why you didn't see say deposit growth outpacing loan growth because we've seen that for some of the other similar sized banks and what are you doing to basically grow deposits?

On deposit growth that we have seen during the quarter and for the year, what we have consciously done is that while we have grown our CASA deposits as much as possible through our branch network and also the retail term deposits have grown quite well. On the wholesale deposit side, we have continued to consciously see a reduction in the level of wholesale deposits. We have instead raised some amount of funding through the infrastructure eligible financing that RBI allowed so we did about INR60 billion through that. We have also done some amount of refinancing that is available from some of the institutions like SIBI and NHB, which again comes at a lower cost.

So overall from a cost optimization perspective, we have raised these in the form of borrowings instead of wholesale deposits. Otherwise the growth that we are seeing on the deposit side, CASA is growing at around 15% or so and even the retail term deposits would have grown at that pace or higher. It's just because of the calibration that we have consciously done on the wholesale deposit side that the overall deposit growth appears to be lower. So going forward for example into FY16, we would expect the growth in deposits to kind of broadly keep pace with the loan growth except to the extent that we will still continue to raise some amount of funding through the eligible bonds.

Okay. And just one clarification on why you've included the tax refund in the NII and not in an exceptional line?

It is as Kannan mentioned earlier, while the timing of that is not something which is consistent, but that interest income that refund is something that we do get on quite a regular basis. So, it is something which for example --.

And it is the interest income of tax paid in advance. It's been a succession statement and every year a few quarters we do get this so it's not exceptional in that sense and I mean we do get it. From quarter-to-quarter we do get this interest.

So, would you say once every year you get it.

We have announced it earlier also. This year itself it came in about three quarters if I remember right.

So if you look at the last full year for example, it was about INR1.8 billion of interest income tax refund, this year is about close to INR2.5 billion of interest income refund. Because the number for the quarter was about INR1 billion, that is why Kannan highlighted it while talking about the NII.

Okay. And just a quick question in terms of branch expansion, I know you've already mentioned that you will be looking to grow branches further, but any annual run rate that you could provide on an ongoing basis would really help?

I think today we are at just over 4,000, 4,015 so probably around a 10% increase in that number is what we would be looking at.

So, that would be at 10% every year?

No. If we look at it year-by-year, for the time being we are looking at say 400 for the next couple of years and then we will take stock and see how many more we need and where.

It's not 400 for this year, but it's just 400 over the next couple of years.

No. It is 400 per year for the next couple of years and at the end of that period, we will take stock and see whether we need to increase that, decrease that, and how the various channels are playing out.

And if I may just slip one last question. Is there anything that you're changing on your underwriting side that would maybe prevent these future restructurings on your loan book? I understand some of it is unavoidable, but is there anything that you're changing at the loan origination standpoint?

Yes, couple of areas we are working on. One is if you really look at some of the causes for this kind of an asset quality development has been in areas where there's construction type of companies where there are lots of receivables to be received on the principals. Things have got delayed and because of that it has put pressure on those construction companies and it has led to the devolvement of guarantees as well. So, that is one sector where one has to be a bit careful in terms of lending going forward. The second area would be that I mentioned in the context of the corporate loan quality, which we have done in Q4 also we have implemented somewhat, is that the overall rating mix we would like to push it towards a better rating mix by focusing on corporate lending to higher rated corporates.

The third area where we have done some work and we will pursue that into the year is overall concentration risk where I had also mentioned in the context of our restructured loans that there is some lumpiness in terms of one or two assets slip that creates a bit of volatility in the provisions. So, that kind of situation we would like to minimize going forward. So, incrementally we are looking at tighter concentration thresholds so that anything above a particular number gets highlighted and escalated to the higher level committees. These are the three ways in which we are trying to address the issue and of course with the revival of the economy, again it should lead to improvement in asset quality. So, those are the things we are focusing on.

Okay. And just a clarification in the construction companies, are you seeing you're going to stop doing any lending in that area or you're just going to do it a little maybe later in the project and less?

A couple of things we will do. We will look at those credit ratings carefully. We may stipulate in some cases some kind of an additional security because these kind of companies are asset light companies. We will not stop, but we would be a bit more selective in terms of our financing.

Okay, great. Thank you so much.

Mahrukh Adajania, IDFC.

Just in terms of the slippage from restructured so these would be necessarily the accounts that have come out of moratorium, right? It would not be something that you feel will come out of moratorium, but will still not survive? So, is there any early identification or this would be aged accounts only?

These would typically be accounted as come out of moratorium.

Okay. And following up on an earlier question because already a large part of the slippage to restructured as percentage to the FY13 book is anyway a big number. So, could we say that it's really peaked now at least the slippage from restructured? So, I know that you've said that total stress loans will be lower YoY, but I mean will it be substantially lower because already a large portion has been recognized as NPL?

See, If you're looking at the percentage for the quarter, Mahrukh, definitely it will be lower because as I always mentioned earlier, if I look at the numbers currently, the highest of the restructured loan would probably be about 5% of the restructured loan outstanding. So, that would be the maximum kind of a number of a single asset. So, that kind of situation we do not think will arrive so I agree with you.

You were saying that your standard restructured loan, the biggest amount would be 5% something like that.

Yes, something like that. The top most amount will be of the order of magnitude of 5% or so. Because I said that the net restructured outstanding is INR110 billion as of March 31, 2015. On that number if you put an order of magnitude of 5% will be the single largest restructured asset. So, obviously the slippages cannot be as lumpy as it has been in the past.

Got it. And the other thing I wanted to check is that just in terms of again this FITL so currently you recognize it under NII and then provision for it.

Yes.

Okay. And just one last question in terms of extending liquidity support or extending additional credit facilities. So when you do that to an existing borrower, when the consortium does that, it basically happens on the same charge, right? So, you just extend the charge on the same assets to a higher limit, right? There's usually no additional security because it's not restructuring, is that correct?

No. I mean it depends on what the bankers want and what the borrower has to offer. So, I don't think there is any rule that there will be no additional security. But it could be on the same assets or it could be with some additional security coming in as well. It depends on a case to case basis.

Okay. Thank you.

Manish Karwa, Deutsche Bank.

On this FITL thing, does it also mean that your restructured loans are lower by INR9.6 billion?

No. As Kannan mentioned, these accounts had already been upgraded so they don't form part of the restructured portfolio.

Upgraded and we are very confident of recovering the money and it'll get reversed.

So when you charge it against your reserves, what is the second entry that you are passing or what is getting reduced on the asset side then?

The funded interest term loan, which was lying in the advances book.

So advances growth is lower to that extent, but not restructured growth.

Okay. And last call we had mentioned that the restructured pipeline is somewhat on a higher side than actually what has come about. Does it mean that the outlook is slightly better or the restructured things that you were expecting have actually become NPLs or recognized as NPLs during this quarter?

I guess it's a mix of both. So, some of the restructuring has kind of not got completed in the March quarter so that will happen going forward. And as Kannan mentioned, he talked about the pipeline of restructuring, so it would be a part of that pipeline. And a couple of these restructurings have not kind of been --.

They may not be required at all. So, they dropped out of the pipeline also. So it's a little better outlook, but a couple of things have got postponed. That's all.

And lastly on the fee front, I think generally compared to competition we are still lagging on the fee growth. While the last few years have been tough for us, do you think that now we probably see much better trends as in can we expect a double-digit kind of fee growth going from here?

Yes, clearly. That is the internal targets are even higher than what I had sort of indicated to be a double-digit target for fee growth. One, retail continued momentum is there, that is a positive. On the corporate and SME and other portfolios, the base effect will work in our favor so we are definitely targeting double-digit growth of fees.

Okay. And lastly due to the higher slippage, did we have some interest reversals also?

That will always happen.

But is it a big number to talk or it's --?

The interest accrued typically for the last 90 days is something which gets reversed whatever has not been received in cash. But that's a consistent number every time so there's no exceptional case.

Okay. Thank you.

Anish Tawakley, Barclays.

One is the non-funded risk weighted assets have been almost flat this year so just in this context, one is why are you not growing this and what's the plan for the future? And if the plan is not to grow these, then I was a little surprised that you didn't raise the dividend because if these are not going to grow, then capital consumption will probably be lower? So if you could talk about why these are not growing, what's the profitability on these, and if the plan is not to grow them why not dividend out more? That would be helpful. The second was just a factual question on the INR11,000 crores of restructured assets, how much will leave the moratorium this year?

So on the first one in terms of the non-fund book, I think over the last two years we have said that the growth in the non-fund book for us will be lower than what we see on the funded side. In terms of overall profitability, indeed the pricing is extremely tight on the non-fund based business. So in the past for example say seven, eight years ago we used to do a lot more of non-fund based business on the corporate side because in terms of funding cost we were not as efficient, our CASA ratios were lower. Over the last few years our CASA ratios have gone up, we are running at 40% average CASA level. So that means that on the fund-based book, we are able to make better returns.

And in terms of the overall return on risk weighted assets, that is something which we believe will be helpful for us to increase that number. I don't think it's directly linked to a higher dividend payout ratio or anything like that. If you look at the payout ratio for us would be amongst the highest within the banks and we have looked at a consistent payout ratio through the cycle. So, we don't look at changing that. And as Kannan mentioned, we believe that over the next three years we have sufficient capital for growth and indeed RBI has been tightening lot of capital requirements so we have to keep that also in mind.

Rakesh, in terms of our seeing these off-balance sheet RWAs, that should remain flattish for the next few years as well?

We will see if the opportunities will grow also so I would not want to commit on that. I'm just kind of explaining how we have looked at in the last two years and I don't think that will change suddenly, but it could change going forward. As of now, it is right that we will look at a higher growth on the fund-based RWA versus the off-balance sheet RWAs.

And just the second question was you have INR11,000 crores of standard restructured assets. How many will exit the moratorium this year?

We have not given any specific numbers on that. Actually I don't even have it off hand. But overall as we have said, typically the moratorium which is given by banks ranges between four to six quarters. So, that is how you could look at it.

And then if that number is not there, as you're tracking these, you had a different sort of slippage rate earlier and it's gone up. Would you expect it to reverse back or remain high?

As we said, we definitely don't expect the same level of amount of restructured loans slipping into NPAs next year as we have had this year and that is factored into the overall outlook that we gave that the additions to gross NPAs and restructured loans next year would definitely be lower than this year.

Okay. Thanks.

Vishal Goyal, UBS Securities.

Just wanted some color on the relapse from restructuring in this quarter, which is like INR45.3 billion in terms of sectoral breakdown and also for your outstanding restructured loans, what will be some sectoral color?

INR45 billion is the number for the year.

For the full year, yes.

So, I think Rakesh spoke about it a short while ago that these are basically corporate accounts so there is no real specific sectoral bias, some of the accounts are relatively larger. On the last call we had spoken about one or two large accounts being vulnerable and possible that they could slip and some of that has come through. In terms of the composition of the overall restructured portfolio as we've said in the past, it's again diversified across a range of sectors, but there is concentration in areas like construction. The construction EPC is clearly one area which has a sizable share.

And any breakdown which you can provide in terms of rating mix of your portfolio so that we can understand whether things are improving or deteriorating or how you're changing your credit?

We don't provide a rating mix of the portfolio.

Great. Thank you.

Roshan Chutkey, ICICI Prudential.

So firstly, has there been any traction on conversion of debt of stressed borrowers to equity since the SEBI is in the guidelines?

So, those guidelines RBI has announced, but I don't think SEBI --.

I don't know whether SEBI has notified. I think they have disclosed what their Board has approved, but I'm not sure that they have actually notified anything. But to answer your question, it has not happened in a meaningful manner.

Okay. And can you comment on the decline in overall PCR?

It's a function of the much higher NPA addition that we had this quarter compared to the last few quarters and as we have said, these provisions that are made by banks are over a period of time. So, we will see improvement in PCR happening once the pace of NPA addition slows down so as we expect the FY16 additions to be lower, we should some time during this FY16 start to see PCR stabilizing.

Okay. And just one last question. What is your overall overseas subsidiary strategy now? I see kind of net worth declining and then you have backed out of Russian subsidiary also.

As far as the Russian subsidiary is concerned, you know clearly that was a business that we have been scaling down for some years now because the original thesis of our presence in that market has not worked and the market has been volatile and particularly of course this year you are aware with both the geopolitical issues and the commodity price issues that the economy has faced challenges. But the good thing was that we had anyway invested a relatively small amount of capital there and we had also scaled down the business significantly. I think the last reported numbers were asset size of about $100 million. So, we were able to exit it quickly. In terms of UK and Canada, I think what we have said is that of course we do plan to maintain our presence there. However, in the changed regulatory environment, the kind of business that we can do there don't require (technical difficulty)

Participants please continue to stay connected while we reconnect the line to the speaker. Participants, we have the line connected back for the speakers. Sir, you may go ahead.

Our apologies, the line seems to have dropped. So as I was saying on UK and Canada, while we continue to maintain our presence there; in the changed regulatory environment, the companies there don't need so much capital and so we have with regulatory approvals been reducing the capital there in a gradual manner so that the capital is right sized for the kind of business that they can do. So, that is the approach there.

And also on the overseas side, are you increasingly funding the local market or is it for the Indian borrowers there?

In the branches, the loan book continues to be largely for the Indian companies either for their operations in India or their operations overseas. In the subsidiaries, we do a fair amount of local lending as well. For instance in Canada, we do the insured mortgage business and in UK and Canada both we do Indian companies operations there as well as select local companies who are investing into India or have some trade linkages with India.

Okay. Thank you so much.

Adarsh P., Nomura.

Question on the performance of the subsidiary lending business. You mentioned that you'll had some provisioning hit there, just wanted to understand whether that continues in FY16 or you'll think these were like more one-off cases there?

Provisions, we see that for example in Canada the level of India linked exposure which is there has become pretty low given a lot of repayments that have happened over the last few years. So, we don't expect any meaningful provisions to come in in the Canadian book. In UK we still have a reasonable amount of India linked exposures and so while we have not seen an increase in the level of impaired loans say in this March quarter, but some amount of provisioning requirement has gone up so that's something that we will have to track into FY16 also.

Okay. The second question related to our credit cost guidance, we have kind of maintained a 90 bps, 95 bps credit cost guidance. If we look at this year, we stuck to that number but it's come at a cost of going down about 10 percentage points on coverage. So when we are guiding for next year, does it assume some bit of drawdown on coverage or you think that we should be like flattish on coverage because that's like a 30 bps or 40 bps on loans?

On the coverage ratio, actually whichever way, we don't plan for the coverage ratio. The coverage ratio is a result of the NPA additions that we see and the recoveries that we see because we have a consistent provisioning policy. If we would have added the amount of NPAs that we did in FY15, our coverage ratio would have moved by this whether it's not at all linked to the guidance that we had and that we were planning to kind of stick to the guidance that we had. In fact we ended up with higher provisions than what we had guided initially. So, the provision will be completely a function of the level of additions that we see. So while the level of additions in FY16 will be lower than what we have seen in FY15, the numbers would still be higher than say a normalized level. So to that extent, the coverage ratio would not be a significant improvement in FY16.

Because I think we're still maintaining a delinquency guidance and within that because the restructuring is coming to an end, it could imply that probably it will be more slippages than restructuring in FY16 which probably requires higher provisioning. So, I was asking in that context.

No, actually the restructured slippage requires a higher provision because it typically happens from the date of restructuring so it can be either ways actually. So as I said, we don't really plan for coverage ratio per se. We do look at the coverage ratio to see that on an aggregate overall basis that we should be expecting to recover whatever is the net book value in our books of the NPAs. But we don't plan for a coverage ratio on a quarter-on-quarter basis.

Perfect. And last question on the corporate growth side, I just wanted to check in the last couple of quarters you mentioned that we are not finding the pricing on some of the refinancing deals available attractive. So are we revisiting that or it's still not attractive enough for you?

No, I think we had said a couple of months ago as well that whatever growth was there on the corporate side was coming from either working capital or from refinancing which would happen at varying yields, but that our growth of 4% that we reported as of December was indeed below normal and we would expect to normalize closer to the system growth 9%, 10% by March, which is what we have done. So I think if you look at this quarter, our corporate book has grown sequentially as well as year-on-year by 9% to 10% and I think at least this level of growth will continue going forward, it could go up a little bit.

Perfect. That's about it. Thanks a lot.

Rohit Shimpi, SBI Mutual Fund.

You had earlier spoken several quarters back about targeting 18% return on equity. Just wanted to get your sense on the medium term what kind of levers now do we have to get there? Do you reckon that return on assets, return on risk assets could improve or do you say that that is more a function of running down current Tier 1 ratios? If you could elaborate on that, please?

It will be a mix of both. So if you look at our Tier 1, we are at about 12.8% and there is at least three years of growth that we can look at in terms of the balance sheet without requiring any dilution. On the return on risk weighted assets, one is the capital optimization. Partly we talked about it when we talked about the off-balance sheet and the non-fund based business and the returns there being lower and we're growing that book at a lower pace. Similarly we have been repatriating some of our excess capital from UK and Canada, growing our domestic book at a faster pace compared to the overseas book. So, all of these things would help in the improvement of ROE.

From a ROA perspective, the credit costs currently running now much higher than the normalized level especially if you look at a quarter like the current quarter. So, overall we would expect the credit cost to normalize down from this level. Margins we are confident of kind of maintaining broadly where we were for FY15 going forward in the near term. And cost ratios and fee income, as Kannan mentioned, there is some scope to improve the pace of growth there. So, we should be able to see some growth in return on assets and that together with increase in leverage of the balance sheet should help us to get to the 17% to 18% ROE that we have talked about.

For capital raising, what's the threshold for Tier 1?

Right now as we said for the next three years, we are not looking at capital raising at all.

But in that assumption, are you saying it's what a 10%, a 11% Tier 1? What's in your mind?

I would say because we are at such a high level that we are really not open too much on that, but it will be at least a double-digit is a minimum requirement today (inaudible).

Thank you so much.

Prashant Kumar, Credit Suisse.

My question is again related to the problem asset addition guidance only. So what we have said is that fresh problem asset addition for next year shouldn't be more than around INR87 billion that we have seen in this year and on top of that, we have some broader idea of the restructuring pipeline. So I just wanted to understand that based on that, can we get the guidance for NPL addition as well or do we have separate guidance for NPL addition for the next year as well given that restructuring won't be available next year?

Separate guidance as such, I think we have been talking about the number of NPL plus restructured and NPL plus restructured net of slippage from the second to the first and we believe that on those parameters next year will be lower than this year. Within that, we've not really giving any separate for the breakup.

Okay, got it. Thank you, sir.

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

Thank you. Thank you all of you for your time and then if any further questions are there, we could answer them offline. Thank you. Bye, bye.

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