ICICI Bank Ltd (IBN) 2017 Q4 法說會逐字稿

Ladies and gentlemen, good day and welcome to the ICICI Bank's Q4 2017 Earnings Conference Call. As a reminder, all participants' lines will be in the listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes.

(Operator Instructions)

Please note that this conference is being recorded. I would now like to hand the conference over to Ms. Chanda Kochhar, Managing Director and CEO of ICICI Bank. Thank you, and over to you, ma'am.

Good evening to all of you. First of all, my apologies for starting up little late. A media briefing was going on that went on a little late. I will just make brief opening remarks and then Kannan will take you through the details of the results. Well, to start with, I would say that the ICICI Group has a strong market position, as you know across banking, insurance, asset management and securities. So we are a leader in catering to a full spectrum of customer needs, be it savings, investments, payments, transactions, credit, protection or advisory services, and we continue to build and invest on our franchise. With our large size, our capital base, our robust funding profile, our extensive distribution network, our diversified portfolio and our leadership in technology, we are very well positioned to take advantage of the growth opportunities that we come across in the economy.

During FY17 also we leveraged on this trends for the robust growth across our businesses. So at the beginning of the year, I had summarized the Bank's strategic priorities in the form of 4 x 4 agenda, which covered our focus on portfolio quality as well as on enhancing our franchise. And we continue to maintain our focus on this agenda during the year and have made progress on each of these strategic priorities. I'll just highlight a few key points of the performance during the year. First of all, talking about our funding profile, there was a robust growth in the Bank's CASA deposits during FY17. There was an accretion of INR537.22 billion to CASA deposits. The year-on-year growth in CASA deposits was 27.8% and the Bank's CASA ratio increased from 45.8% on March 31, 2016 to 50.4% on March 31, 2017.

We undertook a number of technology initiatives during FY17 including -- offering many more services on iMobile, on UPI-based payments, the Eazypay mobile application for merchants for collecting payments and now the Mera iMobile mobile application for rural customers. So just talking of new numbers, the number of mobile banking transactions for us doubled in FY17 compared to FY16. The value of mobile banking transactions increased by 168%. The number and value of debit card transactions at POS terminals increased by 75% and 66% respectively in FY17.

Over 3 million UPI virtual payment addresses have been created using the Bank's mobile platform. The Bank had acquired more than 110,000 merchants till March 31, using the UPI application. And digital channels like Internet, mobile banking, POS and call centers accounted for about 79% of the savings account transactions now compared to 71% in H1 2017.

The Bank maintained a strong focus on reorienting its balance sheet towards lower risk and more granular portfolio during FY17. The overall domestic loan growth for the Bank at 14% was about 8% higher than the rate of growth of non-food credit for the banking system for FY17. The growth for the bank continues to be driven by retail business. The retail portfolio for the Bank grew 18.5% year-on-year. The share of retail loans in total loans increased from 46.6% on March 31, 2016 to 51.8% on March 31, 2017.

We continue to focus on resolution and reduction of exposure in identified areas. At the beginning of the year, we had reported the Bank's exposure comprising both fund-base and non-fund based outstanding to companies that were internally rated below investment grade in key sectors, that is power and in steel, mining, cement and rigs and also to promote our entities internally rated below investment grades, where the underlying partly related to these key sectors.

There has been a net reduction in exposure and rating upgrade of INR5,629 crores out of this portfolio during FY17. Current to net additions to NPAs, well these additions to NPAs had been gradually declining in the first three quarters of FY17. The NPA addition declined from INR82.49 billion in Q1 FY17 to INR80.21 billion in Q2 FY17 to INR70.37 billion in Q3 FY17.

During Q4 FY17, however, the additions through NPAs have been elevated. Out of the additions to NPA during the quarter, INR53.78 billion was due to one account in the cement sector. This account was included in the drilldown exposures to key sectors disclosed by the Bank. And M&A transaction has been announced in respect of this Company, while the transaction has received most of the requisite approvals including the NCLT approvals as well, but it is awaiting certain last-mile approvals due to which the transaction could not be concluded by March 31, 2017. As a result, the Bank has classified this account as non-performing as per Bank's application of the relevant RBI guidelines.

Additions to NPA in Q4 2017, excluding the cement account were INR59.11 billion. The bank expects part of this loan to be upgraded on conclusion of the transaction. We continue to demonstrate and unlock the value created in our subsidiaries in FY17 with the successful IPO of ICICI Life in which the bank divested 12.6% shareholding in the company. ICICI Life had a market capitalization of INR575 billion on May 2, 2017 and which values the Bank's current 54.9% shareholding in ICICI Life to INR316 billion.

With respect to the P&L of FY17, I'd like to mention a few points. The net interest margin or NIM for Q4 was at 3.57% compared to 3.12% in Q3 FY17. The NIM for the whole year of FY17 was actually only 12 basis points lower compared to Q4 2016, compared to the outlook of 20 basis points reduction that we had indicated at the beginning of the year. Growth in fee income improved from 3.8% Y-o-Y in H1 FY17 to 10.4% Y-o-Y in H2.

Pre-tax gains from sale of shareholding in ICICI Life was INR56.82 billion. The profit before provisions and tax for the year increased 11%. The profit after tax remained stable year-on-year despite the continued challenges in key sectors and the recovery environment. There was an increase in standalone profit after tax from INR7.02 billion in Q4 FY16 to INR20.25 billion in Q4 FY17. The Bank's standalone earnings per share for FY17 was INR16.84. The Bank has recommended a dividend of INR2.5 per share and an issue of bonus shares in the ratio of one equity share for every 10 shares, including the equity shares underlying ABS. The declaration and payments of dividends and issue of bonus are of course subject to the requisite approvals and the record and book closure dates will be announced in due course.

So with this, we believe that we're well positioned to leverage the growth opportunities in the coming years given our strong deposit franchise. As I said earlier, our robust capital levels, our significant value in our subsidiaries. We will continue to make investments to further strengthen our franchise and we will continue to work towards resolution and reduction and strength exposure.

I'll now hand over the call to Kannan.

Thank you, ma'am. I'll now talk about our performance on growth and credit quality. I'll then talk about the P&L details, subsidiaries and finally, the capital. First, on growth, within the retail portfolio, the mortgage and the auto loan portfolios grew by 17% and 14% on a year-on-year basis. At the same time, the Bank achieved robust growth in other segments of the retail portfolio.

Growth in the business banking and rural index segment was 23% and 19% year-on-year, respectively. Commercial vehicle and equipment loans grew by 18% year-on-year. The unsecured credit card and personal loan portfolio grew by 39% year-on-year to INR215.4 billion rupees, and was about 4.6% of the overall loan book at the Bank as of March 31, 2017. The Bank continues to grow the unsecured credit card and personal loan portfolio, primarily driven by a focus on cross sell.

Growth in the domestic corporate portfolio was 5.8% year-on-year. We continue to work towards reducing exposures in sectors impacted by the challenging operating environment. If we exclude NPAs, restructured loans and loans to companies included in the drilldown exposures, growth in the domestic corporate portfolio was significantly higher.

The SME portfolio grew by 17.5% year-on-year and constituted 4.8% of the total loans as of March, 31, 2017. The net advances of the overseas branches portfolio decreased by 20.1% year-on-year in rupee terms and 18.3% year-on-year in US dollar terms as of March 31, 2017.

Looking ahead at financial year 2018, we expect the domestic loan growth at around 15% to 16%, driven by around 18% to 20% growth in the retail segment. We would closely monitor the system growth trends particularly in mortgage lending and calibrate our approach if required. In the Corporate segment, we will continue with our approach of lending to higher rated clients while reducing concentration risk and focusing on resolutions leading to an expected net growth of around 5% to 7% in the domestic corporate loans.

The SME segment is expected to continue to grow by around 15% to 20%. The portfolio of overseas branches is expected to remain broadly stable in US dollar terms. Coming to the funding side, total deposits grew by 16.3% year-on-year to INR4.9 trillion as of March 31, 2017. On a period-end basis, current and savings account deposits grew by 27.8% year-on-year, reflecting an accretion of INR376.08 billion to savings account deposits and INR161.14 billion to current account deposits.

On a daily average basis, current and savings account deposits actually grow higher by 30.9% year-on-year in Q4 of 2017. There was an accretion of INR64.27 billion to savings account deposits and INR84.33 billion to current account deposits in [the fourth] quarter. On a daily average basis, the CASA ratio improved from 44.8% in the third quarter of 2017 to 46.5% in the fourth quarter. We will continue to focus on sustaining a strong funding profile with a high proportion of CASA deposits.

Moving on to credit quality, during the fourth quarter, the gross additions to NPAs were INR112.89 billion compared to INR70.37 billion in the preceding quarter. The gross additions to NPAs in the fourth quarter included slippages from the restructured loans of INR18 billion and slippages out of loans to companies internally rated below investment grade in key sectors of INR79.57 billion including the cement account we talked about earlier.

That's about 90% of the corporate and SME NP additions in the fourth quarter comprised the above categories. The retail portfolio had gross NPA additions of INR4.4 billion and recoveries and upgrades of INR5.24 billion during the fourth quarter. The amount of loans that were eligible for not getting classified as NPA based on RBI dispensation, was about INR2.32 billion. The aggregate deletions from NPA due to recoveries and upgrades increased to INR14.13 billion rupees in the fourth quarter from INR6.25 billion in the preceding quarter. The bank sold gross NPAs aggregating INR0.23 billion rupees and SMA-2 loans aggregating to INR5.83 billion rupees to asset reconstruction companies during the quarter. The Bank's net non-performing asset ratio was 4.89% as of March 31, 2017 compared to 3.96% as of December 31, 2016.

The net restructured loans were at INR42.65 billion rupees, less than 1% of net advances as of March 31, 2017 compared to INR64.07 billion rupees as of December 31, 2016. While announcing our results for the quarter ended March 31, 2016, we had stated that there were continued uncertainties in respect of certain sectors due to the weak global economic environment, sharp downturn in the commodity cycle, gradual nature of domestic economic recovery and high leverage of corporates. The key sectors identified in this context were power, iron and steel, mining, cement and rigs. The Bank had reported its exposure comprising both fund-based limits as well as non-fund based outstanding to companies in these sectors that were internally rated below investment grade across the domestic, corporate, SME as well as international branches portfolio, and also to the promoter entities internally rated below investment grade where the underlying partly related to these sectors.

On slide 42 of our presentation, we have provided the movement in these exposures between March 31, 2016 and March 31, 2017. The aggregate fund-based limits and non-fund based outstanding to companies that were internally rated below investment grade in these sectors and promoter entities, decreased from INR440.65 billion as of March 31, 2016 to INR190.39 billion as of March 31, 2017 reflecting the following aspects: One, there was a net reduction in exposure of INR47.58 billion; Two, there were rating downgrades of exposures segregated into INR6.36 billion to below investment grade during the year; Three, there were rating upgrades of exposures segregating to INR8.71 billion to investment grade during the year and finally aggregate loans and investment exposures to companies classified as non-performing during the year were INR200.33 billion. As I said earlier, please refer slide 42 for further details.

The Bank continues to work on the balance exposures. However, it may take time for these resolutions given the challenges in the operating and recovery environment. Our focus will continue to remain on maximizing the Bank's economic recovery and finding optimal solutions. The exposure to companies internally rated below investment grade in key sectors and promoted entities of INR190.39 billion that I talked about, excludes net exposure of INR4.49 billion to a central public sector owned undertaking engaged in gas-based power generation. This is also given in slide 42. The exposure to companies internally rated below investment grade in key sectors and promoter entities of INR190.39 billion includes non-fund based outstanding in respect of accounts in this portfolio, where the fund based outstanding has been classified as non-performing.

Apart from this, the non-fund based outstanding to borrowers classified as NPA was INR19.32 billion at March 31, 2017, compared to INR15.84 billion at December 31, 2016. The aggregate non-fund based outstanding to companies in the restructured portfolio was INR16.87 billion as of March 31, 2017, compared to INR21.29 billion as of December 31, 2016.

As of March 31, 2017, the Bank had outstanding performing loans of INR52 billion where strategic debt restructuring or SDR has been implemented. In comparison, the Bank had implemented SDR for loans of INR34 billion as of December. The increase in the fourth quarter mainly reflects implementation of SDR invoked earlier in an account in the power sector during the quarter. Of the SDR loans of INR52 billion as of March 31, 2017, 82% or about INR43 billion were loans already classified as restructured or to companies that we're internally rated below the investment grade in the key sectors of power, iron and steel, mining, cement and rigs.

In addition, SDR have been invoked and was pending implementation for standard loans of INR12 billion as of March 31, 2017, of which 55% or about INR7 billion rupees that loans already classified as restructured. The Bank did not invoke SDR for any account in the fourth quarter. The Bank is also implementing a change in management outside of the SDR scheme for loans of about INR51 billion rupees which are already part of internally rated below investment grade exposures in the key sectors mentioned above.

The outstanding portfolio of standard loans for which refinancing under 5/25 scheme has been implemented was about INR27 billion as of March 31, 2017, compared to INR33 billion as of December. The decrease was due to slippage of one account to the non-performing category. Of the loans of INR27 billion as of March 31, 2017, 65% or about INR17 billion were loans to companies internally rated below investment grade in the key sectors mentioned above.

The Bank implemented the scheme for sustainable structuring of stressed assets or S4A for loans of INR3 billion in the construction sector during the fourth quarter. Moving on to the provisions, provisions were INR28.98 billion in the fourth quarter compared to INR27.13 billion in the preceding quarter. For the quarter, there was a drawdown of INR15.28 billion from the collective contingency and related reserve.

During the second quarter of 2017, we had made a floating provision of INR15.15 billion which had been reduced from the gross NPAs while computing our net NPA ratios. The Bank had utilized and allocated this amount for making specific provision for NPAs in the fourth quarter of 2017. For the full financial year 2017, provisions including additional provisions made in second quarter of 2017 were INR152.08 billion. In comparison, provisions and collective contingency and related reserve aggregated to INR116.68 billion in the financial year 2016. The provisioning coverage ratio on non-performing loans including cumulative technical/potential write-offs was 53.6%.

In terms of the RBI circular, dated April 18, 2017, banks are required to disclose the divergence in asset classification and provisioning consequent to RBI's annual supervisory assessment process in their notes to accounts to financial statements. During the supervisory exercise for financial year 2016, which was conducted in financial year 2017, the incremental gross NPAs assessed by RBI amounted to INR51.05 billion. The additional provisioning requirement assessed by RBI was INR10.71 billion with a post-tax impact of INR7 billion rupees on the net profit after tax of the Bank. All these accounts have been classified as NPA by the Bank during financial year 2017; about 40% of the total amount was classified as NPA during the quarter ended June 30, 2016 as per the Bank's application of the relevant RBI guidelines prior to the annual supervisory assessment of RBI. Out of the incremental gross NPAs amounting to INR51.05 billion assessed by RBI, about 84% related to accounts internally rated below investment grade in the key sectors disposed by the Bank and about 7% was from the restructured asset portfolio.

Coming to financial year 2018, we expect the NPA additions for the year to be significantly lower than financial year 2017. We also expect some of the resolutions to get completed and some upgrades on the non-performing assets. Given the uncertainties around the operating and recovery environment for the corporate sector in the aging-based provisioning on existing NPAs, provisions are expected to remain elevated in financial year 2018. We also need to assess the impact of the RBI guidelines requiring banks to consider making provisions for standard assets at rates higher than the regulatory minimum based on evaluation of risk and stress in various sectors. However, we expect the provisions as a percentage of average advances in financial year 2018 to be lower compared to financial year 2017.

Moving onto the other P&L details, net interest income was INR59.62 billion in the fourth quarter compared to INR53.63 billion in the preceding quarter. The net interest margin was 3.57% in the fourth quarter compared to 3.12% in the preceding quarter. The domestic net interest margin was at 3.96% in the fourth quarter of 2017 compared to 3.51% in the preceding quarter. International margins were at 1.01% in the fourth quarter of 2017, compared to 0.83% in the preceding quarter. There was interest on income tax refund of INR2 billion in the fourth quarter compared to INR1.39 billion in the preceding quarter and INR0.73 billion in the corresponding quarter last year.

Further, the cost of funds continued to benefit from the high average CASA ratio in the fourth quarter. The net interest income and the net interest margins in financial year 2018 will be impacted by the competitive lending market due to the slowdown in credit growth, deposit rate, increasing shift of loans to MCLR benchmarks and the base rate benchmark, [corrections] in the base rate and non-accrual of income on non-performing assets and accounts where resolution schemes of RBI are being implemented. The timing and quantum of interest on income tax refund is also uncertain. We will continue to focus on collecting interest on borrowers classified as NPA or under the SDR scheme, however, the quantum of the same is also variable. Overall, our endeavor would be to limit the impact on margins and maintain the net interest margins above 3% during financial year 2018.

Moving on to non-interest income, the total non-interest income was INR30.17 billion in the fourth quarter of 2017, compared to INR51.09 billion in the fourth quarter of 2016. Within this the fee income grew by 10.5% year-on-year in the fourth quarter and 7.2% year-on-year for the full financial year. Retail fees grew by 15.8% year-on-year in this financial year. Growth in retail fees was driven by fees relating to debit and credit cards and distribution of third party products. Retail fees constituted about 70% of the overall fees in the financial year.

We would target double-digit growth in fee income in financial year 2018 led by retail fees. 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. Treasury recorded a profit of INR5.03 billion in the fourth quarter. The corresponding quarter last year, treasury had recorded a profit of INR0.59 billion, excluding the gains of INR21.31 billion relating to sale of shareholding in our insurance subsidiaries.

Going forward, treasury income would mainly depend on the trends in the financial market. We will seek to optimize all opportunities in this context and will also look at further value unlocking in subsidiaries. Other income was INR0.68 billion in the fourth quarter compared to INR5.51 billion in the preceding quarter. As per the RBI circular on guidelines on compliance with accounting standard AS-11, the effects of change in foreign exchange rates, the circular dated April 18, 2017 on repatriation of accumulated profits -- running from the overseas operation, the Bank shall not recognize the proportionate exchange gains or losses held in foreign currency translation reserve in the P&L account. The Bank had therefore reversed foreign exchange gains amounting to INR2.88 billion in the fourth quarter, which was recognized as other income in the 9 months of 2017. As communicated on our previous analyst call in January 2017, the Bank did not receive dividend from ICICI Life in the fourth quarter of 2017 compared to the dividend of INR1.38 billion rupees in the preceding quarter, and INR2.1 billion in the corresponding quarter last year.

This is in line with the decision of the Company's Board to consider dividend proposals on a half-yearly basis. Moving on to operating expenses, the Bank's cost to income ratio was at 43.1% in the fourth quarter of 2017 and 35.8% in the financial year 2017. Excluding gain on sale of shares of ICICI Life, the cost to income ratio would have been 45.2% in financial year 2017. Operating expenses increased by 13.5% year-on-year in Q4 of 2017 and 16.3% year-on-year in the financial year 2017.

The Bank added 8,745 employees in financial year 2017 and had 82,841 employees as of March 31, 2017. The Bank has made significant investments in human resources and distribution in recent years. Going forward, the Bank would focus on fully leveraging existing resources and infrastructure. Further, the Bank would also look at implementing additional cost optimization measures during the year, while growing the retail franchise. Accordingly, we would target to contain the growth in operating expenses to a significantly lower level than the 16% growth we had seen in financial year 2017.

The Bank's standalone profit before provisions and tax was INR51.12 billion in the fourth quarter of 2017 and INR264.87 billion in financial year 2017. I've already discussed the provisions for the quarter; the tax rate for financial year 2017 was 13.1%. The tax rate for financial year 2018 would depend on the composition of income for the year, but it's likely to be higher compared to financial year 2017. The Bank's standalone profit after tax was INR20.25 billion in the fourth quarter of 2017, compared to INR24.42 billion in the preceding quarter and INR7.02 billion in the corresponding quarter last year.

For the full year financial year 2017, profit after tax was INR98.01 billion compared to INR97.26 billion in the financial year 2016. Now moving onto the subsidiaries, the new business margin of ICICI Life on actual cost based on Indian embedded value or IEV methodology, improved from 5.7% in financial year 2015 and 8% in financial year 2016 to 10.1% in financial year 2017. The improvement in margins was driven by an increase in proportion of protection business from 1.6% in financial year 2015 and 2.7% in financial year 2016 to 3.9% in financial year 2017. The Indian Embedded Value increased from INR139.39 billion at March 31, 2016 to INR161.84 billion as of March 31, 2017. The Company continues to retain the market leadership among the private players with a new business market share of 12% in financial year 2017 compared to 11.3% in the previous financial year.

The profit after tax for ICICI Life for financial year 2017 was INR16.82 billion compared to INR16.5 billion in the previous financial year. The profit after tax of ICICI General Insurance increased from INR5.07 billion in financial year 2016 to INR7.02 billion in financial year 2017. The gross [written] premium of ICICI General grew by 32.1% on a year-on-year basis to INR109.6 billion in financial year 2017 compared to about 32.3% year-on-year growth for the industry. The Company continues to retain its market leadership among the private sector players and had a market share of about 8.4% in financial year 2017.

The profit after tax of ICICI Asset Management Company increased by 47.2% year-on-year from INR3.26 billion in financial year 2016 to INR4.8 billion in financial year 2017. With the average assets under management of about INR2.4 trillion for the fourth quarter of 2017, ICICI AMC continues to be the largest mutual fund in India.

The profit after tax of ICICI Securities was at INR3.39 billion in financial year 2017 compared to INR2.39 billion in the previous financial year. The profit after tax of ICICI Securities Primary Dealership was INR4.12 billion in the financial year 2017 compared to INR1.95 billion in FY 2016.

Let me now move on to the performance of our overseas banking subsidiaries. In line with the strategy of rationalizing capital, ICICI Bank Canada repatriated CAD65 million of equity share capital and redeemed CAD55.6 million of preference share capital. 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 4.1% as of March 31, 2017. ICICI Bank Canada reported a profit after tax of CAD6.2 million in the fourth quarter. ICICI Bank Canada reported a loss of CAD33 million in the financial year 2017 compared to a profit of CAD22.4 million in financial year 2016 on account of higher provisions on existing impaired loans, primarily India linked loans. ICICI Bank Canada's total assets were CAD6.34 billion and loans and advances were CAD5.59 billion as of March 31, 2017. The capital adequacy ratio of ICICI Bank Canada was 21.8% as of March 31, 2017.

Moving to ICICI Bank UK, the total assets were USD3.49 billion as of March 31, 2017. Loans and advances were USD2.36 billion compared to USD2.34 billion as of December 31, 2016. ICICI Bank UK reported a loss of USD16.1 million in financial year 2017 compared to a profit of USD0.5 million in financial year 2016 due to higher provisions on impaired loans. The capital adequacy ratio of ICICI Bank UK was 18.4% as of March 31, 2017.

The consolidated profit after tax was INR20.83 billion in Q4 of 2017, compared to INR4.07 billion in Q4 of 2016. For the full financial year 2017, the consolidated profit after tax was INR101.88 billion in financial year 2017 compared to INR101.80 billion in financial year 2016.

Finally, moving on to capital, the Bank had a standalone Tier-1 capital adequacy ratio of 14.36% and the total standalone capital adequacy ratio of 17.39% as of March 31, 2017, after reducing the proposed dividend for financial year 2017. The Bank's consolidated year on capital adequacy ratio and total consolidated capital adequacy ratio were 17.26% and 14.39% respectively. Actually, the consolidated Tier-1 capital adequacy ratio was 14.39% and the total consolidated capital adequacy ratio was 17.26%.

The capital ratios are significantly higher than the regulatory requirements. During the quarter, the Bank raised INR34.25 billion by way of issuance of additional Tier-1 bonds. So finally to sum up, the Bank has maintained the focus on its strategic priorities covered in the 4/4 agenda during financial year 2017, which resulted in; one, healthy portfolio growth driven by retail business; two, robust growth in CASA deposits; three, continued technology leadership, its strong growth in usage of digital channels; four, reduction in exposure to below investment grade rated companies in the key sectors on the related promoter entities; five, demonstration of significant value in insurance subsidiaries; and six, continued cost efficiency and capital efficiency.

The Bank maintained stable profits in financial year 2017 as the elevated level of provisions and decline in net interest margins that offset by healthy domestic portfolio growth, and increase in non-interest income driven by improvement in fee income growth as well as gains on sale of shareholding in ICICI Life. The Bank's pre-provisioning earnings capital position and value created in the subsidiaries give the Bank the ability to absorb the impact of challenges in the operating and recovery environment or the corporate business while driving growth in identified areas of opportunity.

Overall, the Bank's retail business is granular and is growing at a healthy pace. The Bank is growing the wholesale business in a selective manner within the strategic priorities. While the Bank has a diverse revenue streams across its businesses, the provisions on corporate loans, dividends from subsidiaries and capital gains may not be uniform over the year. Hence, there could be variations in the level of quarterly earnings during financial year 2018.

With this, we'll now be happy to take your questions. Thank you.

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

Firstly, I just heard the SMA-2 -- sale of INR5.8 billion, what else was sold?

We talked about -- that number you talked about is the sale from the SMA portfolio. Apart from that -- from NPL it was INR0.23 billion to asset rate, not a significant amount at all for asset [reconstruction].

Where an, that was write-off so high in the quarter?

For doing a write-off Mahrukh, we follow our write-off policy and if you see across the quarter, we have been having write-offs, the exact amount of write-off would depend on a particular exposure, if the larger case gets written off it, sort of goes up and vice versa. So, if more of a policy-based write-offs being done over the quarter and that we get tax break, if you write-off the loan, so that is also a factor.

So, these were earlier provided for loans, which were close to 100% provided for annual written-off during this quarter?

Yes, it's mostly yes.

Okay. And that's why the tax expense is low?

No, tax expenses, the reason is different because if you look at the year as a whole, significant amount of gains we booked in the ICICI Life IPO. So, those gains were effectively zero-tax capital gains. So if you look at the composition of the income, the effective tax rate because of that was lower for financial year 2017. That's why I made a statement that the tax rate for financial year 2018 would be higher.

I guess, I had one last question. as there appears to be a big slippage in (inaudible) of the cement account from the watch list, so would that be one lumpy account or --

Yes.

One lumpy account. And what would be regain slippage for the quarter, just wanted to know slippage outside the watch list -- the drilldown list, sorry?

Retail would be INR4 billion Mahrukh.

And the rest would be -- okay, cool. Thank you so much.

Cyrus Dadabhoy, Anand Rathi.

I just wanted some guidance on the loan growth and what's your sense on the non-watch list slippages for the next year? You said it's going to remain elevated, but lower than this year.

Yes, what we said on the slippage was that for the year as a whole, the overall slippages will be significantly lower than last year, and as we have said earlier that bulk of the slippages we always assessed be from the drilldown list, but not to say that all the slippages will be from that. There could be a few accounts from non-drilldown which could slip during the year.

On the loan growth, as I had mentioned in my remarks, the domestic loan growth for us would be about 15% to 16% is what we are expecting and within that, the retail will grow ahead of that rate, at around 18% to 20% growth, and overseas, we expect to be a flattish in the US dollar terms. Those are the three specific thoughts we have in terms of the loan growth.

I understand. And the corporate you've said, 5%, right for next year?

So when we look at the corporate has got a base of some of this loans in this stress sector. So if you look at it as a whole, what I said was that the net growth would be about 5% to 7%, but again, if you really look at the incremental disbursements largely we are doing A minus and above rated companies, decidable part of the corporate portfolio, we expect the loan growth to be much higher than that number.

Nilesh Parikh, Edelweiss.

This is Kunal over here. Just with respect to interest expense, which is actually down quarter-on-quarter in absolute terms, so this is largely, purely on account of deposit repricing or there is any extraordinary element out over here.

There is no extraordinary element. As you saw the CASA average ratio on the accretion to deposits has been quite high and the funding cost has also come down, so it is essentially on account of no extraordinary items really there.

No extraordinary. So, this is sustainable and this is what the run rate could be going forward based on the maintenance of the entire CASA ratio?

As we have said that CASA ratio focus will continue. Our endeavor would be on an average basis, maintain this kind of CASA ratios going forward.

And secondly, when we look at it in terms of the overall watch list, so the way it has moved from say, FY16 to FY17, larger part of that has slipped into NPLs. So, what is the, maybe, looking at the developments over last one year, how do we look at the outstanding watch list which is there today, maybe out of INR19,000 crores odd . What are the expectations in terms of the positive developments or maybe the larger part of this will also slip into NPL in FY18?

As we said that we are working on each of these cases in the drilldown list, in terms of pushing for a resolution and recovering our [monies] and we have said in the past also that the exact timing of the recovery cannot be determined or in between technically if some of those assets slip in, they may slip in and subsequently we may do the recovery. This is what is exactly happening in the case of the cement asset we talked about.

So, looking at the balance also, there are -- for some of the large cases, there are clear resolutions, which we are pushing ahead with and specifically one of the cases -- large cases which we talked about in the public domain, there is a clear resolution, which is underway.

So, we do believe that yes, with the same outlook, I can continue to give to say that, yes, we will push on the resolution. Some of them will get resolved. Some of them could slip into NPL before it gets resolved. So, that is the kind of, but the good news is that we did not add to that pool and also the number also has come down INR190 billion from about INR440 billion we started out with. So, that way, the progress has been quite okay.

And lastly, in terms of any guidance on credit cost, you highlighted it will be lower as compared to that of FY17, but may be any number you would want to put over there in terms of what's the outlook for FY18?

I don't think it'll be proper to put a number, because as I said, there are some moving parts in terms of resolution, having to make some provision, having to look at provisions in the context of regulation. So, all those things, will really drive the like the credit costs. I would say that it will be lower and limit there and then see how it goes. Our endeavor will be to -- as I said to be lower than the previous year in terms of credit costs.

Pavan Ahluwalia, Laburnum Capital.

You mentioned the cement account and you said that it would likely get resolved. Could you give us a sense of what exactly is holding it up? What the realistic time period is that it'll take for resolution? And also why only part of the account would be upgraded, could you just explain how that works? And the second question is in response to the RBI circular of last month, I think you'd said -- I wasn't quite sure of the wording of what you've said. Where you said that all such cases have been recognized as NPAs, should we take that to mean that there isn't really anything that would be classified as an NPA under the RBI's norms, which you haven't classified or that there is no divergence between the norms?

So, first of all on the cement case, actually -- in fact, a lot of progress has been made. There is a whole lot of approvals that are required in India to complete the transaction. So, after the definitive agreement from both the buyer and the seller and the SEBI notification, both the boards approved the deal, after that the competition commission approval has been received, after that the creditors and shareholders' approval has been received, after that actually it went to the High Court for getting the approvals, but that was -- it was during that time that everything from High Court was shifting to NCLT.

So, it shifted to NCLT and now NCLT Mumbai, NCLT Allahabad, everybody has approved it. The only thing that is pending now is the transfer of mines in the name of the new buyer. And there are about 18 mines for the company and it needs approvals from four states. This is actually supposed to be quite technical in nature because once the shareholders and the creditors approve it, the states generally transfer the mines, unless they have some other issues to be settled with the buyer or the seller. So, those applications have been made, but it's going to probably take its own time, which is expected in general to be 90 days once an application is made.

So, definitely within the next two to three quarters this will be completed?

Yes, yes, of course. We should actually think of two quarters if things go well, not even three.

Okay. And why only part of it -- why would only part of it be upgraded, because all of it was standard until recently, right. So, why would only part of it be upgraded?

Because -- as per the buyer and seller agreement, the buyer is going to take only part of the loan, which belongs to the cement division.

And any idea what portion of it that would be, would be half, more?

About half, I would say, will move with the cement assets.

And the other half would be non-performing and that will be attached to other assets that the seller is not selling?

That's correct. And it will be secured as well as there could be cash flow servicing there.

And could you let us know on that RBI circular?

So RBI -- let me just elaborate, for any financial year ending March, the RBI inspections happens physically in the next financial year. So in this case or the position as of March 31, 2016, the RBI inspection took place during the financial year 2017 over several months. So, when they finished the report and came back to us, they give what according to them should have been the NPL as of March 31, 2016. So that difference between what we assessed and what they assessed was INR5,100 crores or INR51 billion, what I had mentioned. So all of this has been made NPL during the financial year 2017 starting actually in the first quarter even before their inspection started for the financial year. So -- to your question I can confirm to you that all these assets which have been highlighted by RBI have been made the nonperforming assets by the end of financial year 2017.

Got it. And so going forward this should not really have any material impact?

We don't know. See, what we'll -- this particular number will not have any impact whatsoever, but every year this inspection continues for the position of previous March -- previous financial year.

So, it is possible that next year the RBI could show up and say, look, we think these accounts that in 2017 you didn't recognized as NPA should be recognized and get you recognize. (multiple speakers)

It's a normal ongoing process --

But that happens every year --

It always happened and every time it happens and it gets adjusted typically in the subsequent financial year. This time RBI said you put out that number in the public domain. That is the only difference --

It also says that you have to give out the divergence between your norms and the RBI's norms. Where can we find that?

The RBI has got a circular on income recognition and asset classification. So in that circular there are norms which are there which is typically 90-day plus et cetera, and then there are some subjective interpretation of some of these guidelines. So on that basis, we apply the process, our own internal auditors check it and the statutory auditors check it and we put out our financial year, then RBI inspectors come over the next several months and then they could come and say that you should have probably classified a few more assets as NPL. That is when this diversion arises (multiple speakers) okay. But don't they also say that you have to disclose your norms and where they diverge from the RBI and included in the notes to accounts, because that's what your release says?

What they have said in terms of disclosure requirement that circular is also there on their website which is dated April 18, 2017. What they have asked us to do, asked the banks to do, is to put out a table which gives what is the assets to non-performing loans as per our assessment, what is it as per their assessment, what is the provisioning differences in relation to the profits. They have given a table, which is what we have put out.

And then where is that table?

The table will be in our notes to accounts. But the numbers of that have been already summarized in the disclosures we have made today.

But where -- is it in the notes that you released to the exchange?

No, it will come in the notes to the accounts -- (multiple speakers) numbers of the [INR51] million and the provisioning et cetera, what we've put out on this call.

Okay, so that the rest, we will get in the annual report basically?

Yes. That's right.

Okay, thank you.

Vishal Goyal, UBS Securities.

Hi and thanks for the additional disclosures. Just couple of questions. One, I think we had recovery and upgrade of INR14 billion and I'm sure it'll be -- lot of will be corporate, any color on that sector? Something from where do you see recovery upgrade?

Vishal, the recoveries are from some of the smaller exposures and it also would include -- there has been appreciation in the rupee. So, some of the foreign currency loans, the outstanding amount would have come down, that typically shows up as a deletion or recovery. So, that is also a part of that INR14 billion, so I would not say that there is any significant uptrend in the recovery, actual recovery numbers yet.

Okay. And on this -- Rakesh, we report this 20-F, may we give this below-investment grade number for the overall company and that was I think around [INR]900 billion or so, how does that number change now, over a year?

So, we will be giving that together with a 20-F filing, that's a consolidated numbers for the Group. So, we won't be able to give that number now. But overall, as you know, in terms of -- there would not really be very significant downgrades into the below-investment grade category, but we don't have that exact numbers now. We will put it out as a part of the 20-F.

And lastly from -- so what do you mean to say is like there is no big change, correct? That's what should be the takeaway?

No. So -- I don't think that -- it's a consolidated number, we have not yet put out that number. I was just saying, in general that there would not be significant downgrades into the below-investment grade category.

How much do we have provisions against the 5/25 SDR for basically non-NPL restructuring including all of those?

In September, we had made this provision against our restructured in the SDR loans -- all the loans to outstanding, we have taken it to 15% of the amount. So, against all standard restructured loans and all the SDR loans, which were there as of September 30, we had made a provision of up to 15%. On the 5/25 loans, there is no additional provision that we hold it'll essentially be the RBI general provision, which typically is 0.4%. So, overall if you look at the provisions that we hold in addition to whatever the minimum RBI requirements are there in terms of the percentage of our restructured SDR and other loans that would roughly be about INR10 billion to INR11 billion.

Suresh Ganapathy, Macquarie.

Just couple of questions. One is, right now the outstanding floating provisions, contingency provisions, everything is fully utilized and it down to zero, is that the right interpretation?

So the floating provision, it was always netted off against the NPAs. So it has been utilized and allocated to specific non-performing accounts during the quarter. And as you said the -- CCRR what we were holding that is also been utilized, so there is no outstanding. As a reply to the earlier query, that we would still have some additional provisions that we hold of RBI guidelines, which were made as of -- in the September quarter, so the residual amount would be about INR10 billion to INR11 billion.

That's on SDR and standard restructured assets?

Typically on those (Multiple speakers).

Okay. And the other thing is -- two questions. One is, there is a lot of confusion regarding this IFRS and we would likely to give some guidance in the sense we are not expecting how exactly is the impact going to be, but at least, whether it would be significantly below the current reporting that you have been doing, what would be the change, whether the provisions could materially alter, that's one thing. And the second aspect is -- I agree this INR190 billion is the drilldown list, but there could be -- would there be corporates outside this INR190 billion group, which are large enough, which you have not recognized, which are technically not below investment grade, but could be problematic and you would have not be necessarily included. So could that be some kind of a worry for you guys?

On Ind-AS -- IFRS, I guess, what banks are also waiting for is RBI to put out some guidelines around the expected loss. So, as you said, the key impact of IFRS would be on the classification of accounts into the three categories which are there -- the stage one, stage two and stage three; stage three being equivalent to the impaired loans on the expected loss basis.

So it will be fair to assume that -- for example, in terms of the loans classified as stage three loans that there will be an increase for banks, because all the restructured loans, the FDR loans which today enjoy a standstill benefit under the RBI guidelines typically those benefits will not be available. So in terms of the numbers which are being disclosed, I'm sure we can add up and reach to those kind of numbers, but in aggregate a lot of that will come in the stage three of the classification and then the expected loss provision again will definitely be higher than what the current RBI guidelines require, because that is how the IFRS requirement is.

I think banks will have to rely a lot on their internal rating models and expected loss model and that is something on which banks including us are currently working upon. So it's a bit too early to kind of give specific quantitative numbers around it. But we'll see how we can give some details through the year.

And the last one, that INR190 billion number --

INR190 billion, I think your assumption is fair that there would be below investment grade loans, which are there outside of these sectors. The reason we had kind of that -- sectors and identified included this in our disclosure was because we had more lumpier loans in these sectors and these sectors were under stress. But individual borrowers, it is definitely possible and at least the case that we will have some of them below investment grade in other sectors also and couple of them could be lumpy, a couple of them are -- talked about in some of the other sectors. But overall as I think we have said in the earlier calls also that there would be additions which come outside of this INR190 billion and a couple of them could be lumpy cases as well.

Rakesh Kumar, Elara Capital.

Just, firstly, if you can provide us with the moment of provisions -- NPA provisions from end December to end March, outstanding provision has come down from INR179 billion to INR171 billion?

Essentially there was this write off which we have done, we talked about. So, that would have reduced the outstanding stock of provisions against NPA. And then we have made the additional provisions during the quarter from the P&L, which we talked about that close to INR29 billion, so that is where the movement would happen between December and March.

And this GP, the general provision number, which has come down, that would be basically due to the restructured loans, which has actually come down after the slippage?

Yes, that would --

So, that would be the only reason?

Yes, so there will be some impact of exchange rate in terms of the -- the stock of loans also, but occasionally we restructure this.

Okay, thank you.

Nitin Aggarwal, Antique Stock Broking.

Hi, Kannan. You indicated that overseas business will remain stable in dollar terms versus 18% to 20% decline this year. So, does this also imply that we are not looking at any further capital repatriation over the next fiscal?

See, the number I talked about in terms of flattish growth rate is in respect of our overseas branches, which are part of the parent, and on the capital repatriation, we will continue to talk to the regulators in Canada, for example. But the pace and the amount will be difficult to predict now, it depends on regulatory discussions because they have been given us approval for large capital repatriation in the past. So, while we pursue the discussion, I cannot tell you how much and when it will come.

Okay. And secondly, you talked about like implementing management change outside SDR for loans almost INR51 billion. So, any more color on this in respect to timelines and the potential recovery as this could significantly impact the slippage rate from the drilldown list?

See, again, as I said, we have just done it. So, there is a little bit of time available for impact effecting the management change and improving the operations and so on. So, if we do have time, we will have to work. We will have to do a lot of work in terms of making sure it happens, but -- since we just started the process, we do have some time available for us to work it out.

So, you're saying that we will formally need to invoke SDR on these accounts? To process --

Invoking is in the form of management change in terms of transfer of shares from the existing promoter to an institution. So, that process is currently going on.

Okay. And will this drilldown list be completely dissolved in FY18? Or is there is a possibility that it may linger on next year also, because we have certain like lumpy assets below investment grade outside this also?

Yes, that is true, but the point is that, as I said earlier, this -- while the effort will be on in terms of resolution and recovery, it will be very difficult to predict given the recovery environment and so on whether it will get fully dissolved and when it'll get fully dissolved completely. So we'll have to really wait and see, meanwhile our efforts will be on.

And lastly one small question, what is the interest recovery amount from the NPLs, which has like led to this jump in interest income for us?

We cannot give you that number.

Sorry, come again, please.

We don't give that number separately.

Manish Karwa, Deutsche Bank.

My question is on margins, in the fourth quarter, the one-off element was only the tax thing only in terms of your NII or there was something else also that is leading to such a sharp jump in NII?

As Kannan mentioned there was collections from some of the loans, which are non-performing; that also was there.

But was that substantial enough?

Yes, it was meaningful, that's why we mentioned. In terms of the margins, I think overall -- Kannan talked about the outlook for the next year -- I think we should look at the quarter's margin more like from a full-year perspective where we are. So there was the benefit of interest on income tax refund and some higher collection from the NPAs, which is not something which will repeat on a quarter-on-quarter basis.

But still from a [3.57] you adjusted by 10, 20 basis points for this quarter. The number that we are talking about of 3% plus margin is a very sharp decline from 4Q margin. While I understand there will be few reasons for that, but isn't in the 3% kind of a number that you talked about is too conservative on margins? Because the benefit of CASA deposits and all probably should hold reasonably well in FY18 as well.

If you look at Q4 CASA ratio, daily average balance as we mentioned was in 46% or so. So of course we have to see whether that ratio is maintained through the year or not. But there is definitely going to be an impact on the lending yield because there is significant repricing that is happening on the home loan portfolio as the MCLR has declined that incremental rates are lower. So -- and we would expect that to kind of continue through the year just given the kind of competition, which would be there and the low level of trade growth that we see in the system. So we are kind of factoring that. Suppose there are quite a few variables in terms of how the CASA deposits move, how the deposit rates itself move and on the lending side -- what is the intensity of the competition. Just looking at the fact that the overall credit growth for the system may not pick-up very sharply, it will be a gradual increase that we see from the current level, the pricing will continue to be extremely competitive and that's something that we are kind of factoring. And as you said, current quarter numbers does include about 12 basis point to 13 basis point of benefit on the interest income tax refund itself and plus some additional benefit on the collections from the [NPAs]. If you look at -- for the year kind of a margin, which was about 3.25% or so against that we are saying that we would be above 3% for next year.

And on the watch list, which is now remaining INR190 billion, you mentioned about INR51 billion off loans where change of management is happening, about INR17 billion of loan is where the 5/25 has been implemented and there is an additional INR30 billion loans of promoter entity where the deal has already been announced, is that the right reconciliation and probably these may see some resolutions faster and the remaining probably could see downgrades happening, is that the right way to look at it?

Yes, So I think you've got the numbers right. I think SDRs will be the other.

And lastly would you also say that outside the watch list slippages that you've had in fiscal 2017 versus what you'll have in fiscal 2018 that number also would be substantially down?

We have only spoken of the total NPL additions outlook, as you said there are of course cases outside of these sectors as well and some of them could be lumpy, so we've not really broken it up, but overall we expect that the NPL additions would be significantly lower.

Thank you. Ladies and gentlemen, this was the last question for today. I would now like to hand over the floor to the management for their closing comments. Over to you.

Well, thank you. Sorry for having kept all of you back till late, but -- thank you for all your questions. And as I summarized earlier that given our current trends, we are well positioned to take advantage of the growth opportunities that arise and we'll continue to focus on our 4/4 agenda, which is around continuing to enhance franchise and continuing to work on portfolio quality. Thank you.

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