ICICI Bank Ltd (IBN) 2016 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Q2 FY 2016 Results Conference Call for ICICI Bank. As a reminder, all participant lines will be in the listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes. (Operator Instructions) I now hand the conference over to Mr. N.S. Kannan, Executive Director of ICICI Bank. Thank you and over to you, Mr. Kannan.

Thank you. Good evening to all of you. Welcome to the Conference Call on the financial results of ICICI Bank for the quarter ended September 30, 2015. That's the second quarter of the fiscal year 2016.

My remarks today, I will cover first the macroeconomic and the monetary environment. Then we'll talk about our performance during the quarter, including performance on our 5Cs strategy and outlook on key parameters, and then finally, the performance of our subsidiaries and the consolidated results.

Let me start with the first part on the macroeconomic and monetary environment. Global macroeconomic conditions continue to remain volatile during the second quarter.

Three key issues were in focus during the period; one, the potential withdrawal of accommodative monetary stance by the US Fed; two, the economic slowdown and currency depreciation in China and the resultant market volatility; and three, continued weak global commodity prices and currency depreciation in key commodity exporting economies.

The International Monetary Fund (IMF) lowered its global growth forecast for 2015 from 3.3% to 3.1% largely due to lowering of growth estimates for large emerging market economies.

Coming to the trends in the domestic economy, the Indian economy is better positioned compared to other emerging market economies in weathering the impact of global volatility. Several positive trends continued in the domestic economy during the quarter.

The country's external position continued to be strong with the current account deficit continuing at a comfortable levels of below 1.5% of GDP, along with healthy inflow of foreign direct investments. The country's foreign-exchange reserves improved to $353 billion covering 10 months of imports.

There was broad-based easing in inflation during the quarter, despite deficient monsoons. The Consumer Price Index decreased from 5.4% in June 2015 to 4.4% in September 2015. There was continued improvement in key domestic growth indicators. We do observe some green shoots.

Industrial production as measured by Index of Industrial Production grew for the 10th consecutive month in August 2015, recording a growth of 6.4%. Capital goods production also continued to record improvements and sales of passenger cars, commercial vehicles remained strong, reflecting gradual improvement in demand conditions in the economy. The government's capital expenditure was 19% higher year-on-year during April to August 2015 compared to a decline of 1.4% in April to August 2014.

The Reserve Bank of India reduced the repo rate by 50 basis points to 6.75% on September 29, 2015, following their earlier rate cuts of 25 basis points each in January, March and June. RBI mentioned that it had front-loaded the rate cut in September, considering the likelihood of achieving the inflation target of 6% by January 2016. Of course, the focus now shifts to bring inflation down to 5% by end of fiscal 2017.

Indian financial markets remain volatile during the second quarter, largely due to global developments. The S&P BSE Sensex declined by 5.9% during the quarter. The yield on the benchmark government securities [ended] the quarter at 7.54% compared to 7.86% as of end June 2015.

The exchange rate depreciated by 3.1% during the quarter to INR65.7 per US dollar as of September 30, 2015. Short-term interest rates eased by about 65 basis points to 75 basis points during the quarter. Banks continue to reduce their lending as well as deposit rates.

With respect to the banking sector trends, non-food credit growth remained moderate at 9.8% on a year-on-year basis as of October 2 compared to 10.6% year-on-year basis as of October 3, 2014. Growth in retail credit continued to remain strong, while growth in credit to industry and services sector remained moderate.

Including other sources of funding such as bonds and commercial papers, growth in total funding was higher by about 2.7 percentage points compared to bank credit growth as of end September 2015. Growth in total deposits was 11.3% on a year-on-year basis as of October 2, 2015. Demand deposit growth was 10.8% year-on-year as of October 2, 2015.

With this background, let me now move to our performance during the quarter, including the progress on other 5Cs strategy. First, with the respect of credit growth, the bank's domestic loan portfolio grew by 17% on a year-on-year basis as of September 30, 2015, compared to 9.8% growth in non-food credit for the system as of October 2, 2015.

Loan growth for the bank continued to be driven very retail segment, which grew by 25% year-on-year and constituted 44% of the total loans as of September 2015. The mortgage and auto loan portfolios grew by 25% and 23%, respectively on a year-on-year basis. Growth in the business banking and rural lending segments was 22% and 30% year-on-year, respectively.

Commercial business loans grew by 5% on a year-on-year basis as of September compared to 6% year-on-year decline as of June 2015. The improvement in growth in commercial business loans was primarily driven by pickup in sales activity for the segment.

The unsecured credit card and personal loan portfolio at INR128.25 billion as of September 30, 2015 was about 3.1% of the overall loan book. The Bank continues to grow the unsecured credit card and personal loan portfolio, primarily driven by the focus on cross-sell.

The domestic (technical difficulty) portfolio growth was 7.5% on a year-on-year basis as of September 30, 2015 compared to 8.8% growth recorded as of June 30, 2015. The SME portfolio grew by 9.9% year-on-year to INR176.85 billion, driven by granular collateral based lending.

For the full year 2016, financial year 2016, we expect domestic loan growth to be in the range of 18% to 20% driven by about 25% growth in the retail segment. In rupee terms, the net advances of the overseas branches increased by 2.4% on a year-on-year basis due to the movement in the exchange rate.

In dollar terms, however, the net advances of overseas branches decreased by 3.5% on a year-on-year basis as of September 30, 2015. As a result of the above trends, the total advances of the Bank increased by 13.3% on a year-on-year basis from INR3.62 trillion as of September 30, 2014 to INR4.1 trillion as of September 30, 2015.

Moving on to the second C on CASA deposits, the Bank continued to maintain healthy CASA ratios on a period-end basis as well as daily average basis. Savings account deposits grew by 14.3% year-on-year to INR1.21 trillion as of September 30, 2015.

On a period-end basis, we saw an addition of INR39.55 billion to savings deposits and INR72.20 billion to current account deposits during the quarter. As a result, the period-end CASA ratio increased to 45.1% as of September 30, 2015, compared to 44.1% as of June. The daily average CASA ratio was at 40.7% in the second quarter compared to 39.5% in the second quarter of the last year.

On the third C on costs, the Bank's cost-to-income ratio was at 37.5% in the second quarter of fiscal 2016 compared to 36.5% in the second quarter of fiscal 2015. During the second quarter, operating expenses increased by 14.9% on a year-on-year basis.

The Increase in employee expenses was on account of aggregate addition of about 4,970 employees in the first six months of fiscal 2016, primarily in frontline roles in the retail banking business. The annual wage increases affected in April 2015 also contributed to this.

The year-on-year increase in non-employee expenses was primarily on account of larger distribution network, higher retail lending volumes and advertisement campaign expenses in the second quarter. The Bank will focus on sustaining the gains made an operating efficiency to maintain the cost to income ratio for the financial year 2016 at a similar level as of financial year 2015, driven by the efforts for enhancing the productivity and efficiency of employee base as well as expanded distribution network.

Let me now move on to the fourth C on credit quality. The Bank's net NPA ratio was at 1.47% as of September 30, 2015 compared to 1.4% as of June 30, 2015. The gross NPA ratio was at 3.36% as of September 30, 2015, compared to 3.26% as of June 30, 2015.

During the second quarter, we saw gross NPA additions of INR22.42 billion, including slippages of INR9.31 billion from the standard restructured category to the non-performing asset category. Excluding slippages from restructured loans in both the quarters, the gross NPA additions declined from INR13.8 billion in the first quarter to INR13.11 billion in the second quarter.

Deletions from NPAs during the quarter were INR7.09 billion and the Bank also wrote-off INR8.13 billion of NPAs. The Bank did not sell any NPAs to asset reconstruction companies during the quarter. The net restructured loans for the Bank were INR118.68 billion as of September 30, 2015, compared to INR126.04 billion as of June 30, 2015.

Provisions for the second quarter of 2016 were at INR9.42 billion compared to INR8.5 billion in the second quarter of 2015 and INR9.56 billion in the first quarter of 2016. As a result, credit cost as a percentage of average advances were at 94 basis points on an annualized basis for the second quarter of the current fiscal year.

The provisioning coverage ratio on non-performing loans was 57.4% as of September 30, 2015. Including cumulative technical prudential write-offs, the provisioning coverage ratio was 69.8%. Asset quality trends in the retail segment continued to be healthy and stable.

In the corporate sector, there continued to be challenges given the time taken for projects to generate cash flows and high leverage levels in some companies. Banks are working actively to resolve these through asset sales as well as working with various stakeholders to ensure that the companies are able to operate at an optimal level and generate cash flows.

For the full year, financial year 2016, we continue to expect that the aggregate additions to restructured loans and NPAs will be lower than that in fiscal 2015.

Now to the fifth C on customer centricity, the Bank continues to focus on enhancing customer service capability and leveraging on the increased branch network to cater to the customer base. As of September 30, 2015, we had a branch network of 4,054 branches and 12,964 ATMs.

ICICI Bank has always been a pioneer in bringing technology-enabled products and services to Indian customers. We have focused on leveraging three current transformational trends in technology; one, mobility; two, digitization; and three, social media, to bring value to our customers.

The Bank has received a number of awards for use of technology across areas in 2015, including Best Technology Bank of the Year at the Indian Banks' Association Technology Awards, award in the Best Internet Banking category at The Asian Banker Excellence in Retail Financial Services awards, winner in categories of business intelligence analytics, enterprise security, virtualization, social media and social cause at the Dataquest Business Technology Awards, Sustainable Business award for the Digital Village initiative at Akodara at the Accenture Innovation Awards and winner in the category of Evangelizing Technology Adoption among large banks at the Institute of Development and Research in Banking Technology awards.

During first quarter of 2016, we had upgraded our mobile banking application iMobile, taking the total number of services available on the application to over 100. The new mobile application has been appreciated by customers and we have seen activation of iMobile by customers increasing by about 140% on a year-on-year basis in the first six months of fiscal 2016. There has been a robust growth in mobile banking transaction and the bank has emerged as a market leader in this area, with a market share of about 32% based on the value of mobile banking transactions in the months for June and July, 2015.

We continued to strengthen our technology channels for increasing customer convenience and improving the efficiency of our operations. During the quarter, we launched Smart Vault, a unique locker facility, designed with state-of-the-art robotic technology and high-end security to provide customers the convenience of storing and accessing their valuables 24 hours a day, seven days a week.

We have launched a mobile app-based mVisa solution which enables customers to make electronic payments from their smartphones at physical stores, for e-commerce and other deliveries at home and to radio taxis and utility billers, among others.

We are the largest provider of online remittance services to India, and the first to offer remittance services through mobile phones. We have recently launched Money2World, a fully online outward remittance service. Through this even non-account holders of ICICI Bank can transfer money online from any bank account in India to any bank account overseas in 16 major currencies.

ICICI Bank was the first bank in India to offer banking services to customers on Twitter. Recently, we rolled out a new set of services on Twitter, including creating a fixed deposit, paying postpaid mobile bills and receiving e-statements, among others.

Our digital mobile wallet, Pockets, has seen over 2.5 million downloads with significant interest from non-ICICI Bank customers. The e-wallet is amongst India's most comprehensive wallets which can be used to pay on all websites and mobile apps in the country. Our Facebook page continues to be appreciated by customers with 4 million fans, the largest fan base on Facebook among Indian banks.

As a result of our constant focus on digital channels, currently about 61% of total transactions for our savings account customers are done through new age digital channels and less than 10% of the transactions are done through branches. Transactions of over INR2 trillion are processed annually through the Bank's internet banking platform and website sees about 15 million unique visitors every month.

In fiscal 2014, we had started facilitating opening of savings account through the Tab Banking platform. The Bank has opened over 3 million savings account through Tab Banking till date, resulting in improved customer service, faster turnaround time and better efficiency of operations. Currently, about 85% of savings account opened for the household segment every month are through Tab Banking. The Bank has also introduced use of tablets and smartphone applications for employees and agents for certain retail loan products.

Having talked about the performance on the 4Cs, let me now move on to the key financial performance highlights for the quarter. The net interest income increased by 12.8% year-on-year from INR46.57 billion in Q2 of 2015 to INR52.51 billion in Q2 of 2016.

The net interest margin was at 3.52% in Q2 of 2016, compared to 3.42% in the corresponding quarter last year and 3.54% in the preceding quarter. The domestic net interest margin was at 3.84% in the second quarter of 2016, compared to 3.84% in the corresponding quarter last year and 3.90% in the preceding quarter.

The sequential decrease in domestic margins is primarily on account of lower tax related interest income of INR0.51 billion in the second quarter, compared to about INR1 billion in the first quarter and also the impact of reductions in the base rate we affected in Q1 of 2016. We had reduced our base rate by 25 basis points in April 2015 and a further 5 basis points in June 2015.

International margins were at 2% in second quarter of 2016, compared to 1.58% in the corresponding quarter last year and 1.88% in the preceding quarter. The year-on-year improvement in international margins is largely on account of decrease in cost of borrowings achieved through proactive refinancing.

We reduced our base rate by further 35 basis points effective October 5, 2015. While the net interest margins in the third quarter of 2016 could be lower due to this, we continue to target to maintain overall net interest margin in financial year 2016 at a similar level compared to financial year 2015 despite the declining interest rates.

Moving on to non-interest income, the total non-interest income increased by 9.8% from INR27.38 billion in the second quarter of 2015 to INR30.07 billion in the second quarter of 2016. If you look at the different components of the non-interest income, the fee income grew by 6.3% from INR21.03 billion in the second quarter of 2015 to INR22.35 billion in the second quarter of 2016.

While retail fees continue to grow at a healthy rate, the growth in overall fees remain impacted by subdued corporate activity and consequent decline in corporate fee income. Retail fees for the Bank constituted about 65% of the overall fees in the second quarter of 2016.

During the second quarter, treasury recorded a profit of INR2.22 billion compared to INR1.37 billion in the corresponding quarter last year and INR2.07 billion in the preceding quarter.

Other income was INR5.5 billion in the second quarter of 2016, compared to INR4.98 billion in the second quarter of 2015 and INR6.73 billion in the first quarter of 2016. The Bank received dividends from subsidiaries of INR3.61 billion and had exchange rate gains relating to overseas operations of INR1.90 billion during the second quarter of 2016.

I have already spoken about the trends in operating expenses and provisions while talking about the 5Cs strategy. As a result of these trends, the Bank's standalone profit before tax increased by 9.6% from INR38.48 billion in Q2 of 2015 to INR42.16 billion in Q2 of 2016. The Bank's standalone profit after tax increased by 11.8% from INR27.09 billion in second quarter of 2015 to INR30.30 billion in Q2 of 2016.

The return on average assets was at 1.89% in the second quarter of 2016, compared to 1.82% in the second quarter of 2015. The Bank's capital adequacy ratio as per Reserve Bank of India's guidelines on Basel III norms continues to remain very strong.

Including the profits for the half year, the total capital adequacy ratio as of September 30, 2015 was 16.9% and the Tier 1 capital adequacy ratio was 12.84%. Excluding the profit for the half year, the consolidated total capital adequacy ratio was 16.15% and Tier 1 capital adequacy ratio was 12.09%.

I now move on to the performance of subsidiaries on the consolidated results. The profit after tax for ICICI Life in Q2 of 2016 was INR4.15 billion compared to INR3.99 billion in the second quarter of last year. The retail weighted received premium for ICICI Life grew by 21.2% on a year-on-year basis in H1 of 2016 compared to a growth of 0.4% for the industry.

The company continues to retain its market leadership among the private players and has seen an improvement in the market share to about 12.4% in the first half of 2016. The new business margin based on Indian Embedded Value methodology and target acquisition cost was at 13.8% in the first half of 2016 compared to 13.6% in the whole of financial year 2015.

During the quarter, the gross written premium of ICICI General Insurance Company grew by 22% on a year-on-year basis to INR19.99 billion in Q2 of 2016 compared to about 11.7% year-on-year growth for the industry. The company continues to retain its market leadership among the private players and had a market share of about 9% in H1 of 2016.

The profit after tax of ICICI General was at INR1.43 billion in Q2 of 2016, compared to INR1.58 billion in the corresponding quarter last year and INR1.16 billion in the previous quarter. The year-on-year decrease in profits was primarily on account of higher operating expenses in Q2 of 2016 on account of increase in retail business for the company.

ICICI Asset Management Company and ICICI Securities have continued to see strong performance. The profit after tax for ICICI AMC increased by 35.5% from INR0.62 billion in Q2 of 2015 to INR0.84 billion in Q2 of 2016. With assets under management of over INR1.5 trillion, ICICI AMC sustained its market position as the second largest mutual fund in India during the first half of 2016. The profit after tax for ICICI Securities was at INR0.6 billion in Q2 of 2016, compared to INR0.68 billion rupees in Q2 of 2015.

Let me now more to the performance of our overseas banking subsidiaries. The Bank's total equity investment in ICICI Bank UK and ICICI Bank Canada has reduced from 11% of the net worth at March 31, 2010 to 5.2% as of September 30, 2015.

As per IFRS Financials, ICICI Bank Canada's total assets were CAD6.47 billion as of September 30, 2015, compared to CAD5.9 billion as of June 30, 2015. Loans and advances were CAD5.61 billion as of September 30, 2015, compared to CAD5.21 billion as of June 30, 2015. The increase in loans and advances was on account of higher securitized insured mortgages as of September 30, 2015, compared to June 30, 2015 and also the impact of movement in the exchange rate, that is depreciation of Canadian dollars vis-a-vis the US dollar.

The profit after tax for Q2 of 2016 was CAD6.6 million compared to CAD9.2 million for Q2 of 2015 and CAD7.8 million in the first quarter of 2016. The trends in profit of ICIC Bank Canada were similar to first quarter of 2016. The capital adequacy ratio for ICICI Bank Canada was 25.1% as of September 30, 2015.

Moving on to ICC Bank UK, the total assets were $4.64 billion as of September 30, 2015, compared to $4.19 billion as of June 30, 2015. Loans and advances were $3.2 billion as of September 30, 2015, compared to $2.93 billion as of June 30, 2015. The growth in loans and advances was primarily due to granular lending to well-rated multinational corporations, select local market corporations and subsidiaries and joint ventures of Indian companies.

The profit after tax for ICICI Bank UK for the second quarter of fiscal 2016 was $0.6 million compared to $5.1 million in second quarter of 2015 and $0.5 million in the first quarter of fiscal 2016. The lower profits in the second quarter of fiscal 2016 were on account of higher provisions on existing impaired loans. The capital adequacy ratio was 16.3% as of September 30, 2015.

Let me now talk about the overall consolidated profits. The consolidated profit after tax grew by 11.5% from INR30.65 billion in second quarter of 2015 to INR34.19 billion in the second quarter of fiscal 2016. The annualized consolidated return on average equity was at 15.3% in the second quarter of 2016, compared to 15.1% in the second quarter of last year and 15% in the first quarter of the current fiscal year. Consolidated assets grew 9.4% from INR7.78 trillion as of September 30, 2014 to INR8.51 trillion as of September 30, 2015.

The Bank's total capital adequacy ratio on a consolidated basis, including profits for the half year, was 16.87% and the Tier 1 capital adequacy ratio was 12.77% as of September 30, 2015. Excluding the profits for the half year, the consolidated total capital adequacy ratio was 16.17% and Tier 1 capital adequacy ratio was 12.07%.

So in summary, we have continued to pursue our core operating strategies during the quarter. In line with our focus areas, we have; one, sustained the net interest margins; two, maintained a healthy non-interest income; three, sustained the operating efficiency; four, maintained a robust funding profile; and five, continued to achieve strong retail portfolio growth. We will continue to pursue these objectives while closely monitoring the 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. We are well placed with regard to capital required to support our growth and given our current capital position, we believe that we do not need to raise capital till March 2018 based on current regulations.

The Board of Directors of ICICI Bank at the meeting held today has approved the sale of 9% of our shareholding in ICICI General Insurance Company to our joint venture partner Fairfax Financial Holdings Limited, subject to governmental and regulatory approvals. The proposed transaction values the company at INR172.25 billion.

Upon completion of the transaction, the share ownership in the company of ICICI Bank and Fairfax will be approximately 64% and 35%, respectively. The transaction reflects the company's franchise as the leading private sector general insurer in India, the substantial potential for profitable growth of the business and strong relationship between the joint venture partners.

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

Thank you very much, sir. Ladies and gentlemen, we will now begin the question-and-answer session. (Operator Instructions) Mahrukh Adajania, IDFC.

Congratulations. Just had a few questions. Firstly, on the corporate loan growth, that seems to be very strong, which is the case with most private banks. So, is it that state-owned banks are just not being able to take this business or what explains such strong corporate growth?

Look at our domestic loan growth, which was at about 17%. Within that, the retail loan growth was about 25% year-on-year and corporate loan growth is about 8% year-on-year. So, as we have said earlier, for the year, we are looking at growing the corporate loan portfolio in double-digits. So most of the growth that we are seeing coming is from some of the working capital requirements, some of the incremental lending that we are doing to PSU companies and other better-rated companies. So there is -- the growth is still overall a bit sluggish on the corporate side.

Okay. And in terms of 5/25, what's the pipeline and what was refinanced during the quarter?

In terms of 5/25 refinancing, we did about INR20 billion of loans, which were refinanced under the 5/25 scheme.

And any pipeline?

Very difficult to talk about a pipeline here. Unlike restructuring where there is a CDR or that kind of a thing, in this case, as something comes up, we will see that. So there is no specific pipeline (multiple speakers).

Okay. And how many accounts would this be?

This would be three or four accounts. As you know, these are completed projects where financing has been done by banks.

Sure. And just in terms of general insurance, it's a very good deal because the valuations seem to be quite steep right. So, any thoughts on that?

Thank you for that, Mahrukh. Our belief is that given the franchise and the growth potential and the way the company has performed over a period of time, we do believe that it is still hugely under-penetrated market in the country. There is a huge growth potential for the country and if you look at this, the company, their own performance in terms of in various segments in which they're operating, they've market leaders among the private sector players.

I guess the valuation reflects the franchise of the company, the market share and huge growth potential for the industry. And also in terms of the leadership depth, in terms of the investment operations, in all the segments of their businesses, including investment operations, they have a very good franchise and a very good leadership. So, our feeling is that the valuation is really reflective of all those trends.

And because it's sold to your partner, anyway, usually it would be at a discount to whatever is the fair value perceived, right?

No, what we have always told you is that in the case of general insurance subsidiaries, there was no optionality which was there in the agreement. Even in the life company, we have always said that whenever the transaction happens, it always would be at the current market price. So we don't have any agreements which has any specified value upfront and everything would be based -- or the discount or a particular valuation. It is based on the prevailing fair value. So I would say that this valuation reflects the current fair value of the company.

Gaurav Agarwal, E&R Advisors.

Good evening, sir. Congratulations for a good set of numbers. Sir, just want to get more clarity on 5/25 done during the quarter. So these INR20 billion accounts, where they previously restructured accounts or they were standard good accounts?

These will be standard accounts. As I said, these are projects that have got completed and based on the economic life of the project, banks would have provided refinance under the 5/25 refinancing.

So they were not part of your restructured book till the end of Q1 FY 2016, right?

No, they wouldn't be.

They wouldn't be. Okay. And sir, just wanted to have some color on the accounts received from your restructured book. So some INR900 crore of account?

Yes.

So is it only one account or they are some couple of accounts?

Couple of accounts.

And can you just give me some industry-wise details of that?

Specifically, we have not talked about, but in general, in the context of when we talked about the slippages from restructured loans to the NPA category, it has largely be some of the companies in the EPC kind of companies, contractors, that kind of trend had continued. Beyond that, there is no any fresh trend to report currently actually.

No account from the power sector, either from restructure or from fresh slippages, right?

(multiple speakers) only two companies and (technical difficulty) disclose anything specific on that.

Okay.

On the restructured portfolio, as we have said in the past, the largest part of the restructured portfolio has come in from the construction and related sectors and some of the power sector projects.

Okay, sir. Last question is after this import duty being imposed by the government from China imports into India on steel. So are you seeing an improved environment for these companies which are into steel?

We have always had steel kind of industry, when there are solid assets on the ground and the capacity being of a large economic capacity kind of a scale, the long term prospects will have to be good if you look through the cycles in this sector. Of course, this kind of imposition of the duty is quite helpful for the industries, but ultimately, I think full revival with certainty can be talked about only when you get out of the current commodity cycle and overall prices improve, that is what I would say for commodity based [standards].

So according to you, the prices have not improved yet, is it?

Prices still have to still improve, yes.

Thank you. Anish Tawakley, Barclays.

Kannan, I had two questions; one on capital and the other one sort of branch expansion.

Yes.

So, on capital, right, your Tier 1 ratio has actually improved and from that, it would look like the challenge is really deploying capital rather than raising capital. So, in that context, what's the sort of business rationale for the sell down of the General Insurance stake.

And related to that, you are also shrinking the off-balance sheet exposures and the off-shore books. So, are these not even incrementally accretive? I understand the NIM might not be great, but at least, they would have been accretive to profit?

Okay. On the first question on capital, clearly, this monetization which we have announced, which of course, has to consummate after the necessary approvals, that has got nothing to do with our capital availability.

We have always said that in these companies, while we would like to keep the majority, it doesn't mean that we have to continue with the current holding and we have always articulated that at some point in time, we would like to monetize these investments. You should really look at it from that perspective rather than looking at as any capital related event.

And also, I believe that some of the valuation in the overall franchise in the financial services sector that we have, that is probably not adequately understood unless there is really a transaction at the subsidiary level. So this would go towards discovering in the valuation of some of the subsidiaries we have. So, I will put that in that context.

So, of course, the deployment of capital is a separate matter. There, in the near term, given the operating and development, clearly, we want to put more of capital on the retail side. So that is how we are going.

And as Rakesh mentioned a little while earlier, on the corporate side, we should look for more and more opportunities in the working capital space and also working capital and other requirements of corporate in the highly rated corporates including PSUs. Of course, that may not -- from a risk-weight perspective, it may not absorb too much capital but directionally that is how we would like to do it.

On the issue of off-balance sheet issues, largely, one of the areas where we have been focusing on is a little bit of shift away from non-fund based business to fund based business. Why we do that is, because non-fund based business gets to be extremely competitive and also as our cost of funds have been coming down because of our good CASA ratio, we get more opportunities to get into fund based consortium of better corporates.

So that is why you are seeing some kind of a strategic shift over the last two years of a little bit shift towards fund based as against non-fund based. That has also led to the off-balance sheet numbers going down. So this would be the reason.

Overseas, we would clearly go by -- take it as a demand issue because when the corporates always -- as I mentioned, always this is largely India-linked corporates and when an Indian-linked corporate looks at the foreign currency loan, they always look at the cost benefits of doing a foreign currency borrowing as against doing a rupee borrowing. This phenomenon we see normally when the rate start coming down domestically that some kind of shift in demand happen. So, it will be really demand supply from a corporate perspective and of course, our ability to raise funds from our liability perspective. So, it gets calibrated based on those two issues.

Kannan, the second question was on branch addition. This last six months basically, there has been no branch addition in metro and urban areas. What's the plan for the rest of the year?

We've said that every year in the next few years, we would like to do about 10% as branch addition and typically we do it in the --

In the second half, is it?

And then more towards the fourth quarter. So, third and fourth quarter, you will see additions, but we continue to maintain that we will add 300 to 400 branches every year for a couple of years.

So that will be added (inaudible). Okay, great. Thank you so much.

Manish Karwa, Deutsche Bank.

My question was on fees. After a long time, we've seen some better traction on the fee income front. I assume retail would generally be growing well, but is corporate also starting to grow for us now?

It is still in terms of the growth that we're seeing, retail is where the growth is coming. So from Y-o-Y perspective, retail fees would have grown at closer to 15%. The non-retail fees on the Y-o-Y basis would still be down, but as you see sequentially, the fee income levels have started to grow. So if you look at the last four quarters still Q1 actually, the fee income was roughly around INR21 billion mark, so we have seen growth there. So, we believe going forward we should continue to see sequential increase in fee revenues and Y-o-Y growth should also improve.

And when you say sequential revenues both, obviously, on retail, but even on corporate as well?

Corporate is still sluggish and very competitive on the non-fund side as Kannan said.

It is fully coming up.

Okay, that's it from me.

Thank you, Manish.

Adarsh P, Nomura.

Just couple of questions. First one on the refinancing side, was that, you mentioned INR20 billion of refinancing in three, four accounts. I just wanted to check if you can share what your total exposure in these accounts would be because a lot of these accounts are being part refinance?

So, this is the amount that has been refinanced. We've not separately disclosed any aggregate exposures. We talked about the first quarter, during the call, I mentioned that we had under INR10 billion. Now we have talked about INR20 billion. These are the 5/25 re-financings that we have done.

[I also] understand that there are exposure in the system where the debt level with these firms are pretty high but only like 25% or 30% of the overall debt of these companies are getting refinance. I just wanted to check if you can share what the corresponding debt of this overall your exposure would be wherever you're doing refinancing?

So, one is that I don't think -- in all these cases, only 25% whatever, the 25%, 30% of the amount is getting refinanced. Definitely, these are -- the amounts that we have given are for the projects that have got refinanced under 5/25. And in many cases, that is virtually the entire project for the company itself.

Second one was on this UK subsidiary profitability. We've been taking some impairments form the last three quarters. So I just wanted to understand, is it like a specific account where you are taking continuous write-downs or if you can explain that bit a little bit, whether it's going to continue or how do we see that?

So as you would have seen on the UK portfolio, some of the India linked loans, we have had impairments. So why we have not seen, so to say, an increase in the impaired loans for the UK subsidiary in the last couple of quarters, it is more an increase in the provision levels against some of these loans which has happened and that has led to the overall profitability being weak for the subsidiary. So, for the year, yes, it will be fair to assume that the trends that we've seen in the first half would kind of continue into the second half as well.

Okay. So broadly impairment is are not going up but you're kind of topping up the provision level there?

Yes, I would say so.

And I'm just going to squeeze in the last question on the overseas margin again, you've seen a [10, 15 bip] kind of expansion again, just sense of sustainability there. I understand its funding improving but always thought its LIBOR plus funding and lending as well, so at some times, should the yields also go down?

If you look at it on a year-on-year basis, one is that the level of liquidity that we used to have a year back and that has come down significantly as we have kind of optimized the balance sheet and secondly, as Kannan mentioned, on the borrowing side, we have been able to refinance some of those borrowings at a lower rate. So those are the two benefits that we have kind of got. As we have said in the past, I think on a normal run rate basis, 1.8%, 1.9% is the margin that we would expect to have in the overseas branches.

And in the immediate term, it gives me a cushion in terms of the -- given the base reductions we have seen on the domestic side, it gives a cushion in the short term. That's the way we are looking at it.

So the way to understand is, broadly your spread of funding over the benchmarks have gone down and then not the benchmark itself?

That is correct. That is why I mentioned in the opening remarks that it is due to proactive refinancing. Effectively, it means that we have been able to negotiate the spreads down on the borrowing.

Kaushal Patel, IndiaNivesh.

First question is under recent revised guidelines on risk-weight to home loan, I would like to know like the impact on our home loan portfolio and risk weight on capital adequacy ratio?

As of now that -- as of for the September results, those numbers are not reflected because the circular itself makes it effective in the subsequent period. So you will see it going forward. So our sense is that based on the assessment of the home loan portfolio, we think that the Tier 1 impact would be closer to about 15 basis points.

Okay. And next question is on that digital side.

Yes.

We know that on customer facing like we have been aggressive in doing many things, but would like to know your strategy on internal operational side, like how exactly it's going and what's your strategy over there?

So, of course, there are two -- there are sort of three kind of proms to it; one is of course on the -- what you mentioned on the customer facing side, there are several things that we are doing on Internet and mobile.

Second, if we look at our internal processes, there are a number of places where digitization is helping. Two examples; one is our use of tablets for sales on the liabilities side and we are now extending that to other products as well, which basically helps to optimize the process, reduces paperwork and rework and you have automated data flow, so productivity improves and turnaround times improve.

The second part of that is, for instance, in our back offices, operations, shops and so on, we are able to manage higher volumes without really increasing the number of people, again through imaging solutions, workflow solutions and so on.

The third part of it is really on the analytic side where for users of credit analysis or cross-sell et cetera, there also we are making some investment and we are seeing decent results, but I would say that there is a lot more that can be done on that side.

So going forward over a couple of years, we can assume that like there will be increase in productivity and efficiency. So the increasing manpower will not be at the same pace what we have seen?

So, if you really look at it from a manpower facility, we may still add the manpower because we are going to be in the branch addition mode for some time. The other way of looking at it is the cost to income ratio, if I look at that, we expected to definitely not go up, but hopefully to come down from the current level.

Anand Laddha, HDFC Mutual Fund.

Sir, just couple of questions from my side. Just want to understand on the slippages side, sir. If I had to look at restructured book this quarter and slippages and if I had to look at the full book of [INR12,600 crore], last year we did (technical difficulty) fresh restructuring. So if I had to exclude those, I think the slippages from restructure book should come down going forward or do you believe the same run rate can sustain? What's the outlook, sir?

On the restructured loans, as we have said in the past that compared to the last financial year, this year, we expect the amount of slippages to be lower. So if you look at the first half, clearly, the numbers are running at a much lower rate than what we saw in the last financial year when we had a very high addition in the fourth quarter. So, our expectation is that we would end up with a lower amount of slippage from restructuring in the current financial year compared to last year.

Okay. And slippages from the normal book, [INR13 billion] run rate this quarter would sustain? What's the outlook on that also?

It's a bit difficult to give outlook on a quarterly basis. As Kannan mentioned earlier, on an overall basis, in aggregate, for NPL and restructure, we expect the amount to be lower than what we had in the last financial year. On a quarter-on-quarter basis, it can be higher or lower because some of these are corporate exposures and that can be lumpy.

But if I had to look at overall ground level things, do you believe second half FY 2016 would be better than first half FY 2016?

In terms of?

In terms of the stress asset or in terms of paying in the large corporate or mid corporate, do you generally believe the second half would be better for corporate India compared to first half or would you believe the same level of [pain] will sustain?

I think, we have said earlier also that in the current financial year, that stress will be there for the banks. I think there are some underlying improvements that is happening, but it will take some time to kind of show up in improved cash accruals and more a deleveraging for some of these corporates, some asset sales have happened, but that all is progressing. It'll take some time.

Okay. Second on the retail side, this could be the eighth or ninth quarter for us for 25% growth on the retail book. The mortgage book has also been growing very well. If you can give some color, how much of the book has been generated from the branch or DSA, what is the growth rate that it can sustain going forward?

In the near term, we believe that we should be able to sustain this kind of growth that we have seen at 25% coming from mortgages, car loans, unsecured loans also offer lower base, but they are growing pretty well. The rural portfolio has also been growing quite well. So in the next few quarters, we believe we should be able to sustain this level of growth.

In terms of the proportion of business coming from branches, it varies from about 20% or so on the car loan side, on mortgages, it will be about 30% or so, on the rural side, it is much higher proportion. But on a continuous basis, that proportion in general across the products has been increasing.

Right. And last question, if you permit me.

Yes, go ahead.

We have seen lot of -- on the credit card side, we've seen lot of banks offering various incentive schemes like 10% cash back, but in all that, we haven't seen ICICI Bank anywhere. So is it a strategy not to participate or I just wanted to have some understanding and color on the same?

I don't think there's any strategy not to participate. I'm sure going forward you will also see us participating. It's just that we are pretty selective about where we want to spend money and what is the return that we would get from there, but as we grow our -- especially the credit card portfolio, debit card portfolio, you will see us also participating (multiple speakers).

In fact, you would have seen this recent announcement and a campaign which is going on for the festive season, where based on the amount of spend, we do give to the customers from a loyalty -- from a perspective of spending, several gifts have been announced. So there is a campaign currently running in fact. So we would definitely be there to take advantage of this.

Okay. My question more was from e-com company, we have seen that Flipkart and Amazon sale and we haven't seen [ICICI Bank] in that participating. So just [as a query], thought of asking your view?

Yes, sure. But, we do that, whatever makes sense for us, we will definitely do.

Seshadri Sen, JP Morgan.

I just had a question on fees. So, I'm noticing this interesting pattern over the last two, three years where your fees sort of jump up in the second quarter and then flat line for another four quarters and jump up again. Is it just sort of, is there any seasonality to it? It's happened again this year for the third year in a row. Is there any seasonality to it or it's just sort of coincidence, would you add some color on that?

More of a coincidence.

Coincidence, there is no specific driver.

[I'll get corrected] this time.

Okay. So, you're seeing this 6% Q-o-Q growth this quarter being a more sustainable trend, I'm not saying that [you're going to go 25], but you're seeing more incremental sequential growth from here?

Sequential growth, we will see. At what percentage, we will have to see how that goes, but we would expect sequential growth from this level and there is nothing specific in the second quarter for us.

Secondly, on the corporate growth, if you see the incremental accretion to corporate loans, you are lagging behind many of the larger banks. Has there been any larger run-downs that you've seen in this quarter from your corporate book and your pace of gross addition is similar to the other private bank, but it's just that the run downs are dragging the headline number or just that your acquisition of new loans is also a little more cautious than the others?

We have had some prepayments also coming in from some of the large borrower groups in the first half of the year, especially in the second quarter also. Incrementally, we have been originating loans. I think over the second half of the year, we would expect the corporate loan growth to pick up from us, again the sectors or the segments, as Kannan mentioned, working capital, some of the higher rated companies in the private sector and some of the PSUs is where we are looking at opportunities.

The loans that have been prepaid, are they from sort of lower rated corporates or high rated corporates, project loans, some color on that or working capital?

It's a mix. In this current quarter, there would have been some of the lower rated clients and also we have been able to get (inaudible) based on the asset sales that have happened.

(multiple speakers) which have happened.

M. B. Mahesh, Kotak Securities.

There're couple of questions from my end. One is on the general insurance business sale that you've done. Kannan, you mentioned that one of the key point was to establish a pricing around the entire insurance business itself. Just wanted to understand why did you want to lead this entire transaction because there was no necessity at this stage for you to do so, given the fact that the P&L, there is no requirements from a capital standpoint and you could have as well waited for some more time before you see the entire movement? Correspondingly on this itself, how are you going to utilize the entire gains and if you could also quantify what the gains looks like for this particular transaction?

Lots of questions. So, first of all, I want to just repeat what I said that this event is not triggered by any of the capital requirements or anything from the parent side. As we have always said that we would like to monetize this investments from appropriate point in time, which will also help in setting a benchmark on the value created in the subsidiaries. So, I want to tell you that even after the sale we continue to hold a very significant percentage of the share capital. It's about close to -- approximately 65% we hold. So that is a very -- that shows the commitment and we'll continue to hold that kind of level currently. So, this is one part I want to mention. So, please do not think that it is triggered by any capital or any such thing. And you're talking about (multiple speakers).

Sorry, we're asking the reverse. We know that the capital is not required, then why do a transaction in the first place?

As we said that it is something which is where we get the good valuation for this and it discovers the valuation and also monetization which we have been articulating is a strategy that we will [monitor] and we have also said that we'll continue to hold the majority. So, you should just look at it in line with that strategy and the constant communication we have done in this context. So that is how I will put it, and the gain, the pre-tax gains will be pretty much around [INR15 billion, so that is INR1,500 crores], that is the number. And then --

Utilization?

It will go through the income statement, but still the only thing is that you will have to wait for the approvals to happen before the transaction can be completed.

In the same way, the utilization, we meant was would you move it through the provisions to improve your coverage levels or do you think it can move to the ROEs?

See, it will go through the P&L as a profit and then the board will decide at the appropriate time when the transaction gets completed.

Okay. The second question is on the restructuring, would you just quantify what was the fresh restructuring for the quarter and also how do we read the SDR news that we seem to be getting recently, how does that effect your entire portfolio?

Yes. So, one is on this incremental restructuring, it is insignificant. Now, we talked about the 5/25, so that is something which Rakesh mentioned but incremental restructuring has been quite insignificant, in fact, the outstanding restructured loans, net of provisions, has come down to about INR120 billion. Then, what was the next question you talked about?

No, because -- see, if I look at INR126 billion last quarter and there is deletion from the restructured book of [930, so we reached that number to close to about 116, whereas we've closed the quarter at 119].

A little bit of movement here and there. Other than that, we had very small asset, one thing was restructured, but there is nothing significant to report. That is what I mentioned.

There was no repayment upgradations as well?

There will be some movements, but it takes some time.

And in terms of new additions (inaudible) it would about INR1 billion or so, as you can see from the movement itself.

Perfect.

Nothing significant to report really. The SDR, the way you should look at it is that the SDR bucket will really come primarily from the restructured outstanding. So, any SDR or anything done typically would be part of the restructure outstanding which we talked about in any case. In the genuine cases where we believe that together lenders can take a significant equity and effect the change of management, it will be used selectively in those cases.

So that is the way you should look at it here and then the good benefit from the banks (technical difficulty) it gives us some time for us to stabilize the operations and get a new buyer so that the management can be revived. So in those kind of cases, it will be selectively used.

Thank you. Ladies and gentlemen, due to time constraint, that was the last question. I would now like to hand over the floor back to Mr. Kannan for his closing comments. Over to you, sir.

Thank you. I think we have been able to answer all the questions which you had and in case you have any residual questions, my team and I will be happy to answer you offline. Thank you once again for participating in the call. Good night.

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