ICICI Bank Ltd (IBN) 2018 Q3 法說會逐字稿

Ladies and gentlemen, good day and welcome to the ICICI Bank's Q3 2018 earnings conference call. (Operator Instructions). Please note that this conference is being recorded.

I now hand the conference over to Ms. Chanda Kochhar, Managing Director and CEO of ICICI Bank. Thank you, and over to you, ma'am.

Thank you, and good evening to all of you. Our Board has today approved the financial results of ICICI Bank for the quarter ended December 31, 2017. The Bank continues to make progress on the strategic priorities that we had outlined in our 4 x 4 Agenda, which covers portfolio quality and enhancing franchise. I would just like to highlight a few areas pertaining to this quarter in that context.

First of all, talking of loan growth, during the quarter we saw accelerated growth in our loan book, and also the portfolio mix improved further. The domestic loan growth increased to 15.6% year on year on December 31, 2017, aided by strong growth in the retail loan portfolio. The retail loan growth increased to 22.2% year on year on December 31, 2017.

We also saw continued growth in the domestic corporate loans. If we exclude the net NPAs, restructured loans and loans internally rated below investment grade in key sectors at December 31, then the growth in the domestic portfolio, corporate portfolio, picked up to about 15%.

And I would also add that about 88% of these disbursements in the domestic corporate portfolio in the nine months of FY18 were to corporates rated A- and above. The growth in the SME portfolio also accelerated to 15.2% year on year at December 31, 2017. At the same time, there was a reduction in some parts of the balance sheet. The net NPAs, restructured loans, and loans who internally rated below investment grade in key sectors declined by 31% year on year. And the overseas branches portfolio decreased by 14.5% year on year.

Despite the above reductions, the overall loan growth increased from 6.3% year on year at September 30 to 10.5% year on year on December 31, 2017, due to the strong growth in retail, SME, and higher rated domestic corporate loans.

This growth in the loan portfolio continued to be supported by an equally robust funding profile. The CASA ratio was 50.4% on December 31, 2017, and CASA deposits grew by 12.4% year on year at December 31, 2017.

Coming to asset quality, the gross additions to NPAs continued to decline. The addition for Q3 FY18 was INR43.80 billion compared to INR46.74 billion in Q2 FY18 and INR70.37 billion in Q3 of FY17. The net NPAs actually declined in absolute terms during the quarter, from INR241.30 billion on September 30, 2017, to INR238.10 billion on December 31, 2017. The net NPA ratio also declined to 4.2%. And there was a sequential increase of 160 basis points in the PCR on -- to 60.9%, including the cumulative technical/prudential write-offs, which means the balance sheet was getting strengthened further.

The Bank also made significant recoveries from nonperforming loans. The recoveries and upgrades from NPLs aggregated INR11.08 billion in Q3 of FY18.

The core operating parameters of the Bank all continued to improve during the quarter. The domestic NIM was maintained at above 3.5%. As you are aware, in the same quarter last year, the Bank had INR8.92 billion of treasury gains and INR0.82 billion of exchange rate gains relating to overseas operations.

So if we exclude the treasury income and the exchange rate gains related to overseas operations, the core operating profit actually increased by 9.7% in Q3 FY18. It increased from INR45.49 billion in Q3 FY17 to INR49.92 billion in Q3 FY18.

The Bank's capital position also continues to be strong, with a core Tier 1 capital adequacy ratio of 14.19% and Tier 1 capital adequacy ratio of 15.04% at December 31, 2017, including of course the profits for nine months of FY18.

We continue to be at the forefront of offering technology-enabled services to our customers. Debit and credit card transactions continued to grow at a healthy rate of about 40% year on year in the nine months. Over 8.3 million UPI virtual payment addresses have been created using the Bank's and the partners' platforms through December 31, 2017. And during the quarter, the Bank entered into a new partnership for digital lending to launch a product that seamlessly offers digital credit instantly.

We have continued to strengthen our franchise, with a focus on sustainable growth. We are well placed to capitalize on the opportunities arising out of the financialization of savings out of the formalization and digitization of the Indian economy, across the Bank as well as across the entire ICICI Group. And this can be seen in the growth of our retail-oriented businesses. In the corporate business, we continue to believe that additions to NPAs this year would be substantially lower than the additions last year, and the focus is now on accelerated resolution.

We will continue to focus on selective growth. We will pursue new opportunities in this space as they keep arising. We are continuously investing and innovating in technology and the use of digital channels and digital methods to improve our customer experience, as well as our own internal processes.

So with this strong franchise and focus on capital efficiency, we will work towards enhancing our return ratios as we move ahead in the coming years.

I will now hand over the call to Kannan.

Thank you, ma'am. Good evening to all of you. I will now talk about our performance on growth and credit quality. I will then talk about the P&L details, subsidiaries, and finally the capital.

On growth, the domestic loan growth was 15.6% year on year as of December 31, 2017, driven by strong growth in the retail business. Within the retail portfolio, the mortgages and auto loan portfolios grew by 18% and 15% on a year-on-year basis, respectively. Growth in the business banking and rural lending segments was 51% and 25% year on year, respectively. The commercial vehicle and equipment loans grew by 20% year on year.

The unsecured credit cards and personal loans portfolio grew by 38% year on year, off of course a relatively smaller base, to INR275.62 billion. And this constituted about 5.5% of the overall loan book of the Bank as of December 31, 2017. We continue to grow the unsecured credit card and personal loan portfolio, primarily driven by a focus on cross-sell to our existing customers.

The SME portfolio growth improved to 15.2% year on year as of December 31, 2017, and this constituted 4.9% of the total loans of the Bank. The net advances of the overseas branches decreased by 14.5% year on year in rupee terms and 9% year on year in US dollar terms as of December 31, 2017. The international loan portfolio has now reduced to 14% of our total loans.

Coming now to the funding side, total deposits grew by 11.2% year on year to INR5.17 trillion as of December 31, 2017. On a daily average basis, current and savings account deposits for the quarter grew by 14% year on year. On a daily average basis, our CASA ratio was 45.7% in the third quarter of 2018.

Moving now onto credit quality, the gross NPA additions were INR43.8 billion in the third quarter. The retail portfolio had gross NPA additions of INR7.93 billion in the third quarter. Of the gross corporate and SME NPA additions of INR35.87 billion, about INR29.79 billion came from loans under the RBI dispensation scheme to the extent of INR20.22 billion; loan to companies internally rated below investment grade in key sectors, or the drilldown list, of INR6.14 billion; restructured loans of INR1.97 billion; and devolvement of non-fund-based exposure and increase in outstanding due to exchange rate movement related to accounts classified as NPA in the prior periods of INR1.46 billion.

The addition to NPAs includes an account in the sugar sector, where a change in management outside of SDR had been invoked, and the promoters had entered into a binding agreement in the second quarter of 2018. We believe that the process will be completed in the next few months. Meanwhile, the account has been classified as a nonperforming loan in Q3 of 2018.

The balance gross NPA additions outside the restructured loans, drilldown list, loans under RBI dispensation scheme, were only INR6.08 billion in the third quarter of 2018 compared to INR21.25 billion in the second quarter of 2018 and INR19.84 billion in the first quarter of 2018. The net standard restructured loans were at INR18.15 billion, about 0.4% of net advances as of December 31, as compared to INR20.29 billion as of September.

The bank has been reporting a further drilldown of the portfolio in the key sectors, as you know. Our approach to the drilldown list has been explained in slide 32 of our investor presentation. The aggregate fund-based limits and non-fund-based limits outstanding to companies that were internally rated below investment grade in the key sectors and promoter entities decreased from INR195.9 billion as of September 30, 2017, to INR190.62 billion as of December 31, 2017. On slide 34 of the presentation, we have provided the movement in these exposures between September and December.

There was a net decrease in exposure of INR4.86 billion, as you can see. There were net rating downgrades of exposures aggregating to INR6.4 billion to below investment grade during the quarter. There was a reduction of INR6.83 billion due to classification of certain borrowers as nonperforming.

The above closing balance amount of INR190.62 billion includes the non-fund-based outstanding in respect of accounts in this portfolio, where the fund-based outstanding had been classified as nonperforming. Apart from this, non-fund-based outstanding to borrowers classified as nonperforming was INR22.02 billion as of December 31 compared to INR21.19 billion as of September. The non-fund-based outstanding to companies in the restructured portfolio was INR4.1 billion as of December 31, 2017, compared to INR4.15 billion as of September.

We go to slide 25 of the presentation. We have provided the details of loans under various RBI resolution schemes as of December 31, 2017. And we have also indicated the amounts under each scheme which are also part of the drilldown list or the restructured portfolio.

Comparative numbers as of September 30, 2017, have been provided on the linked slide number 60. As we can see, there is an overlap of about INR17 billion noted on slide 25, between the loans for which refinancing under 5/25 scheme has been implemented, and loans under the SDR or change in management outside of SDR.

The amount of loans under various RBI resolution schemes, net of overlaps, has reduced from INR135.04 billion at September to INR118.55 billion as of December 31, 2017. The loans under the RBI resolution schemes that are not included in the drilldown list or in the restructured loans has reduced from INR31.54 billion in September to INR18.24 billion as of December 31, 2017.

As of December 31, 2017, the aggregate gross standard restructured loans, non-fund based outstanding to NPAs, non-fund-based outstanding to restructured loans, the drilldown list, and fund-based outstanding on standard loans under various RBI dispensations schemes not included in the above were INR253.82 billion compared to INR274.10 billion at September 30, 2017.

As of December 31, 2017, excluding NPAs, restructured loans, the drilldown list, and the loans under RBI resolution schemes, the maximum single party BB and below rated outstanding was below INR6 billion.

During the second quarter of 2018, RBI had directed banks to initiate insolvency resolution process for certain accounts under the provisions of IBC by December 31, 2017, if a resolution plan where the residual that is rated investment grade by two external credit rating agencies is not implemented by December 13, 2017.

At December 31, 2017, the Bank had outstanding loan and non-funded facilities amounting to INR100.61 billion and INR13.35 billion, respectively. The provisions held against these outstanding loans increased from 31.5% as of September 30, 2017, to 36.4% as of December 31, 2017.

Of the above 18 accounts, insolvency proceedings in respect of 16 accounts have been initiated under the provisions of IBC.

Now moving on to the P&L details, the net interest margin was at 3.14% in the third quarter of 2018 compared to 3.27% in the second quarter of 2018 and 3.12% in the third quarter of 2017. The domestic net interest margin was at 3.53% in the third quarter of 2018 compared to 3.57% in the second quarter of 2018 and 3.51% in third quarter of 2017. International margins were at 0.29% in the third quarter of 2018 compared to 0.95% in the second quarter of 2018 and 0.83% in the third quarter of 2017.

We had mentioned on our last call that margins in the second quarter of 2018 were positively impacted by significant interest collection from nonperforming and other nonaccrual accounts. Further, during the third quarter of 2018, international margins were impacted by higher nonaccrual of interest income on NPAs.

Moving on to the noninterest income, the total noninterest income was INR31.67 billion in the third quarter of 2018 compared to INR39.39 billion in Q3 of 2017. Within this, the fee income was INR26.39 billion in the third quarter of 2018 and INR75.86 billion in the nine months of the current financial year. Year on year growth in the fee income was 8.3% for the nine months of this current financial year. The retail fee income in the nine months of the financial year grew by 13.5% and constituted about 72% of the overall fees.

Treasury recorded a profit of INR0.66 billion for the third quarter of 2018 compared to INR8.93 billion in third quarter of 2017 and INR1.81 billion, excluding the gain on sale of shares in ICICI General, in the second quarter of 2018.

Other income was INR4.62 billion in the third quarter of the current financial year compared to INR5.51 billion in the third quarter of 2017. The bank had no exchange rate gains relating to overseas operations in third quarter of 2018 compared to the gains of INR0.82 billion in the corresponding quarter last year, which was subsequently reversed in the fourth quarter of 2017. Other income included dividend income of INR4.45 billion in the third quarter of 2018.

Moving on to expenses, the Bank's cost to income ratio was at 43% in the third quarter of 2018. Operating expenses increased by 1% on a year-on-year basis. During the quarter, the employee expenses increased by 3.1% on a year-on-year basis, due to lower provisions on retirals during the quarter compared to the corresponding quarter last year. This reflected the increase in yield on government securities in the third quarter this year compared to the decline in yields in the third quarter of last year. The bank had 83,094 employees as of December 31, 2017.

Moving on to provisions, they were at INR35.7 billion in the third quarter of this financial year compared to INR27.13 billion in the corresponding quarter last year. There was a sequential increase of 160 basis points in the provision coverage ratio on nonperforming loans to 60.9%, including the cumulative technical/prudential write-offs, further strengthening the balance sheet.

The bank's standalone profit after tax was INR16.5 billion in the third quarter of 2018 compared to INR20.58 billion in the preceding quarter and INR24.42 billion in the corresponding quarter last year.

Now moving on to the subsidiaries, the profit after tax of ICICI Life for the third quarter of current fiscal was INR4.52 billion compared to INR4.5 billion in the third quarter of last fiscal. The new business margins have been continuously improving from 8% in financial year 2016 to 10.1% in financial year 2017 and further to 13.7% in the nine months of the current financial year.

Profit after tax of ICICI General for the third quarter of this fiscal was INR2.32 billion compared to INR2.2 billion in the third quarter of last fiscal year. The profit before tax grew by 43% to INR3.22 billion in the third quarter of this fiscal compared to INR2.25 billion in the third quarter of last fiscal. The gross written premium of ICICI General grew by 18.1% on a year-on-year basis to INR30.02 billion in the third quarter of current financial year.

Moving on to the ICICI Asset Management Company, the profit after tax increased by 22%, year-on-year basis, to INR1.61 billion in the third quarter of current financial year. With average assets under management of about INR2.9 trillion for the quarter, ICICI AMC continues to be the largest mutual fund in India based on average assets under management for the third quarter of current financial year.

The profit after tax of ICICI Securities on a consolidated basis was INR1.53 billion in the third quarter of current financial year.

The bank's total equity investment in ICICI Bank UK and ICICI Bank Canada has been reduced from 11% of the Bank's net worth as of March 31, 2010, to 4% as of December 31, 2017. ICICI Bank Canada had a profit after tax of CAD8.4 million in the third quarter of current financial year compared to a loss of CAD34.6 million in the third quarter of last financial year. ICICI Bank UK had a profit after tax of USD1.8 million in the third quarter of 2018 compared to USD1.7 million in the third quarter of 2017.

The consolidated profit after tax was INR18.94 billion in the third quarter of 2018 compared to INR26.11 billion in the corresponding quarter last year and INR20.71 billion in the preceding quarter.

Moving finally to capital, we had a Tier 1 capital adequacy ratio of 15.04% and total standalone capital adequacy ratio of 18.1%, including the profit for the nine months of the current financial year. The bank's consolidated Tier 1 capital adequacy ratio and the total consolidated capital adequacy ratio, including the profits for the nine-month period, were 14.87% and 17.72%, respectively. The capital ratios are significantly higher than the regulatory requirements.

So to sum up, during the third quarter of current financial year, the Bank has improved the loan growth, has maintained a healthy funding mix, has continued to focus on further enhancing the digital offering, and maintained focus on cost efficiency and capital efficiency. The bank's core operating earnings, capital position, leadership in technology, value created subsidiaries give the Bank the ability to absorb the impact of challenges in the operating and recovery environment for the corporate business while driving the growth in identified areas of opportunity.

With this, I end my opening remarks. We'll now be happy to take your questions. Thank you.

(Operator Instructions). Mahrukh Adajania, IDFC Securities.

Could you quantify divergence has -- the final divergence report is now with you?

So, the annual supervision process of the Bank by RBI for FY17 has concluded during the quarter. The observations regarding asset classification and provisioning do not require any additional disclosures in terms of the RBI circular.

Okay. But would it be possible to quantify so that we can compare with other banks? Because this is a much lower number than what other banks are reporting; so if you could have the number, we could actually compare it.

No. Since it is less than the threshold, we don't need to really -- it's not required to quantify it.

Okay. And the other question I had is just on the steel watchlist. So, over the years, a lot of steel slippage has happened, and yet the steel watchlist is a big enough number. So why would that be the case? I mean, this is throughout the sector, right? Even for the sector, a lot of slippage has already happened in steel. It's INR44 billion.

Yes. So if you look at the overall steel exposure, there are indeed some cases where these are -- as we have said earlier, these are below investment grade loans in our portfolio. So there would not be enough reasons to upgrade these loans into the investment grade category. So in that sense, it's not that all these steel exposures are out of woods. These are the assets we closely monitor. It is not that we expect all of these loans to slip into an NPA state or anything like that; it's just that these are below investment grade loans.

Got it. And my last question is that if you see your provisions, you would be making your NCLT 2 provisions in the March quarter. So why were the provisions high at INR38 billion in this quarter, as in that there were no NCLT provisions; it's generally aging? I mean, is that the normalized level of provisions now?

As we have said earlier, the level of provisions clearly is a function of the NPA addition and the aging of the NPAs. So to that extent it is very difficult to talk about a normalized, consistent number on every quarter basis until NPA additions come down more substantially. So to that extent, this quarter you would have seen that our coverage ratio also has gone up despite the write-offs that we have taken on some of the loans, so that is where the higher provisions are reflecting.

And you are right that the List 2 of the cases directed by RBI to be taken to NCLT. The provisions will be taken by the Bank in the March quarter, as required by RBI.

Where I'm getting at is, well, can we assume that the total level of provisioning in 2H would be similar to 1H, or much higher? How do we think about it?

No, actually only one quarter remains, so in that sense it is very difficult to guide on a specific number. But indeed, in the March quarter, there will be the additional provision that will come in for the List 2 of the NCLT cases.

Okay. So if I can just squeeze in one last question. That the GLF, I mean a lot of banks have openly reported that there was one steel account which was upgraded and downgraded during the quarter for some. And then upgraded earlier -- downgraded earlier, now graded for something this quarter. So what would be our status on the account? Did it follow the same procedure of upgrade and downgrade?

We will not be able to comment on what other banks have commented on, specifically one which is not named.

Yes, but then it is quite obvious (multiple speakers).

We don't comment on specific (multiple speakers).

No, I can only supplement by saying that the recovery you have seen of about INR11.08 billion during the quarter -- that is broad based across several accounts. There is no lumpiness in terms of recovery that I can confirm.

Okay, thank you so much.

Kunal Shah, Edelweiss Securities.

So again coming back to the divergence, just one thing. Even though it is difficult to quantify, but in terms of the treatment -- so whatever would have been the divergence as of March 31 -- how would be the treatment of that as of December 31? So are they already in the NPL, or they would be outside of it?

So, all the asset classification which is required to be done would be fully reflected on December 31.

Okay. So [other than that], it's all reflected in December 31. Okay. And on IBC, so excluding those two accounts which are not been referred, if we are to look at the provisioning, so what would be that quantum if we are to look at it? Because then maybe the additional provisioning might not be needed if we just exclude those two accounts, because on the overall exposure it seems to be 36%. But if we exclude those two accounts, then it could be much higher.

It would not change the number substantially.

Okay, it wouldn't change much. And just lastly one thing in terms of the overseas operations. So the NIMs have been quite lower. So how was the profitability, and what was the reason for this very low NIMs in case of the overseas? So was -- maybe there some reversals out there in the overseas operation? How is it?

So in the overseas, in the last quarter we had talked about the fact that we had a high level of interest collections from some of the nonaccrual accounts. So that will not have been there in the current quarter. We of course have had NPA additions in the overseas book which are all largely linked to the Indian corporates itself. So that is where the margins have come down. As you know, over the last 12 or 18 months, we have also not been growing the overseas book. So because the level of NPAs are higher and [incrementing] they are not loan to book; what it does is that it kind of impacts the margin more than it would do if we were growing that portfolio at 20% and making new loans at the normal margins. So that is why it kind of shows up as a much sharper reduction than otherwise it would have done.

For the current quarter there was also -- we had a fair bit of liquidity in the overseas branches. We had done a bond issuance. Some of the issuance cost of the bond also comes in upfront. So all of these factors kind of combine to be at about 30 basis points of margin for the quarter.

But indeed, the biggest factor is the nonaccrual of income on the NPAs and other loans which are under an RBI dispensation schemes. So to that extent, it will take time for the overseas margin to recover. But overall, because the book has actually not been growing, the aggregate margins of the Bank are not as much impacted by this as you will have seen for the quarter. Because at the overall level, the margin impact has [brought] -- come from the fact that in the previous quarter we had interest collected on income tax refund which is absent in the current quarter.

But our profitability would have been much lower. So is this a loss in the overseas or they are still a profitable operation, post- this kind of a margins (multiple speakers)?

If you look at our segmental numbers, you would see that on the corporate portfolio at the current point of time on the aggregate portfolio, given the level of provision, it would reflect a loss. But that is not coming from the past book of non-accrual and the provisioning.

In terms of incrementally what we are writing today either on profit side or to whatever limited extent we are growing on the overseas book, there the profitability continues to be healthy. But yes, the past book is impacting that; and that's true for the entire corporate portfolio of all the banks which have been in these loans in the past.

Okay. Yes, thank you, and all the best.

Prakash Kapadia, Anived Portfolio Management Services.

Two questions. On the retail side, are we extract conservative in cross-selling unsecured portfolio and personal loans to our existing ICICI Bank customers still now? Or what the most specific targeting would profile customers which were targeted. Because now we are seeing a very high growth, and some sense on your existing customer base. If I look at there are 40 million account holders, how many of them own a credit card internally? What is the room to grow, and are we comfortable growing this book to, say, beyond single digits of overall advances in the near future?

Overall, if you look at the last two or three years, the book has been growing at a pretty healthy pace. Before that we were not growing that book as much. So indeed, the amount of cross-selling that we were doing across personal loans and credit cards was much lower. So if you look at -- currently about 70% of the business that we are doing is with the existing customers of the Bank. So we believe there is enough scope for us to cross sell and grow the portfolio. In terms of the overall numbers, it is still overall a smaller part of the portfolio. So, a [34%] kind of a growth rate has to be seen in that context.

Sure. I understand that, but is there sufficient room to grow, say, if we have 4 million credit cards out of, say, 4 [crore night] of account holders for savings (multiple speakers)?

Yes. If you look at the kind of a comparison, there will be more than sufficient room to grow. But I guess the issue will be that it's not that true, all the customers will be able to (multiple speakers).

Absolutely. So, say, double for addressable segment, we can double those. So we feel out of 40 million, is 8 million a relevant number which we think can get towards? Some direction sense, not a specific number.

So we of course have those numbers and we have prequalified offers for our customers for credit cards, personal loans, and actually for all the other secure retail products also. We have not disclosed any specific numbers on that per se, because it [will be specific kind of] -- some of these customers will end up maybe using other bank cards also. So that's why it is difficult to give any particular number on that. But there is sufficient room for us to cross sell to our existing customers, specifically because our proportion of these loans and penetration has been quite low in the past.

Directionally we think we can, say, maybe double -- out of that base, we can double the number of credit cards in our risk/reward framework?

We could do that, but we will of course have to keep evaluating how (multiple speakers).

Yes, sure, it's an ongoing process (multiple speakers).

We will -- harder to make such a categorical statement, but yes, there's an opportunity for growth.

And if I looked at the retail after a few quarters, it has grown 22%. So was it low base? What has changed there? Is this kind of growth sustainable? And is it on the back of your focus areas on specific SME or affordable housing? If you could give us some sense.

I think we were -- it's kind of growing at close to 18%, 19%.

Yes, 17% to 19% (multiple speakers).

If you go back to December 2016, there would have been some slower growth that would have been there in that particular quarter because of demonetization. So there will be some impact of that, but we have always said that we should be able to grow it around 20%, our retail portfolio. So we are broadly in the range of 18% to 22%. And depending on the opportunities, we expect to continue to grow at that level. There's nothing specific in that sense which happened differently in the current quarter.

The one book on which we have been focusing and that has grown quite well for us, though again it's a pretty small part of the portfolio, is the business banking portfolio, which has (inaudible). Other than that, (inaudible) is pretty much similar trends to what we have been seeing in the past.

Understood. I'll come back if I have more. Thank you.

Manish Karwa, Deutsche Bank.

My question is on fee income. Like many successive previous quarters also, fee income just is not growing as fast as our loan book is growing, whatever the (inaudible) book is growing, credit cards are growing. Every line item that you see from a balance sheet perspective is doing extremely well, which probably could generate fee income, but it's not reflecting in fee income. In the past it used to be corporate fees that were declining, but is it still the case that corporate fees are still declining pretty fast?

Manish, overall if they have to give us a lot on the fee income, yes, the year on year growth in the fee income was lower at around 6% for this quarter. I would say that that is primarily because of the base effect we had, because in the corresponding quarter last year, if you look at our fee income, that was probably the best quarter in the year. And that was a [demonetization] quarter where we could get more fee income. So that is also acting a little bit against us in terms of the growth which can be put out this time.

And if I look at the fee income sequentially, however, we are quite happy by increasing by 6% on a sequential basis. So I would say -- at last year. So if I could say, look at it on what's importantly, if I look at the fee income growth for a nine-month basis, it is 8.3%. And we continue to expect that the fee income growth for the full year would be closer to double digits. That's what I can tell you. The 6% number I said was), that's the sequential fee income growth last year. So the growth in fee income continues to be driven by the retail businesses. Of course, some decline as we mentioned is there on the public fees, but as we go forward in the subsequent quarters we expect that to be corrected.

And what is the proportion of corporate fees now?

Retail would be about 72%, so the balance is largely corporate.

But isn't this -- was the same number last year also, in 70-30, or it was a lot lower?

Somewhat lower (multiple speakers), based on the second part of 2016.

Okay. And why is there such a fluctuation on your staff costs in this quarter versus the last two quarters?

So as I mentioned, I do see it largely because of the retirals base. We do the actuarial evaluation on the [parents and we] -- given that the kind of yield pickup we are seeing in the government securities, obviously the liability requirements -- actually there is a sort of mild write-back, I would say, of retirals doing that. That has been the decent spot where the staff expenses, the rate has fallen in the quarter.

And next quarter it should come back to normal range, right?

It really depends on the yields at that time, but as we said earlier, the operating expenses that we had -- which we mentioned at the beginning of the year, the growth what we had mentioned (inaudible) including asset backed (inaudible).

So you should look more at the nine months trend. Because for the quarter what's also happening is that if you go back to last year's December quarter, the yields have actually come down quite a bit. So there was an impact there by the retiral cost was higher in last year's Q3 and it's much lower this year, this quarter. So that will certainly correct in the March quarter.

Next quarter.

Okay. And lastly on your overseas margins, unless recovery happens, this 30 basis points of margin is something that probably could sustain till the time recovery happens?

In the --?

In the overseas book.

Yes, in the near term, it would kind of tend to be around that level. Because as I said, it's not that we are also growing that book much in that context. You're right, in the near term it could be around (inaudible).

Okay. Okay, thank you so much.

Ravikant Bhat, Emkay Global.

So you have stayed course on asset quality. Like you had said earlier that the slippages would be significantly lower this year. You seem to be on course to achieving the same. Are you at this time willing to comment how it could be going forward further into FY19? What kind of asset quality trends for this? You could repeat the same statement for FY19 also, that slippage could be significantly better than FY18. Is that a possibility? And also if you could comment a bit also on the drilldown list, since it stayed stable for three quarters now. What kind of behavior you have seen qualitatively within those numbers?

On FY19 it is difficult to comment what -- most likely, as for (inaudible) banks would be migrating to IndAS for FY19. So that would change things substantially. But even if that were not to happen, what we can say is that if we look at these [third] loans that we had talked about -- the NPAs, the restructured loans, the drilldown list, which is the non-fund exposures to these borrowers -- plus the borrowers in which the RBI schemes we have used in our dispensation policy, classification of the loans, that aggregate will, we believe, should not really increase meaningfully from where we are currently. And would see that coming off; that is something we can say confidently.

But in terms of slippages to NPA, for example, some of the drilldown list loans which are there, they are under SDR where there is a timeline by which a change in management has to be done. If that doesn't happen then it would end up slipping into NPA. So it's still kind of difficult to give a specific number on the NPA per se, but the overall stress I think we feel quite comfortable about that. And like we had said in the last quarter, if you look at the below investment grade loans, other than all this entire stress pull that we talked about, then the maximum loan outstanding is less than INR6 billion. So that again kind of gives comfort that there should not be any single large slippage coming from outside of the overall stress portfolio.

Sure. And one quick question on the NIMs. I think at the start of the year you had talked of an exit NIM which would be actually lower compared to where we are currently. Since while answering the previous question you had said that possibly the overseas NIMs where the maximum compression has happened during Q3, or they are likely to stay stable if I understood you correctly. Then can we assume that the NIMs -- that the decline in NIMs has kind of bottomed out and they are likely to stay stable to maybe positive going forward?

(inaudible) the market conditions, we'll have to find a factor in, in the sense that, as you are aware, the LCR requirement for banks has gone up to 90% from January 1. That means that banks will have to maintain an additional amount of liquidity compared to the previous quarter. And plus liquidity overall has tightened somewhat. But we would expect to maintain our margins at around a similar level. They can always see -- some of our downward we would expect to maintain at a similar kind of level, but market conditions will be important to see how things play out over the next few months.

Sure. So when you say similar, you are referring to Q3 blended NIMs, right?

Yes.

That is right, that is right.

Thank you, I'm done.

Rakesh Kumar, Elara Capital.

So, first question is with regards to the credit composition. There has been a continuous rise in the retail loan portfolio, so where would that be maybe one year down the line?

So we do not actually set any proportion targets of what retail should be and what SME should be as a proportion one year down the line. What we focus on is what is the -- how is each of the respective segment growing and what is the right growth that we think in that context we should achieve in each of those segments. So given that, currently the way the industry is growing, our retail portfolio is definitely growing faster than the corporate portfolio. So I think this proportion will go up, but it's not as if we are trying to get to a set target proportion there.

The context for the question is that in the recent PSU bank reform, which the government had come out with the reform plan and all. So apart from six, seven large banks, there will be a certain set of banks which would be doing retail, SME, and agri kind of business predominantly. So the competition of the private banks in the retail segment make it slightly diluted to that extent, maybe, if I'm reading it right. So I am just thinking that if that is to happen maybe in the next two, three years down the line, then what will be the strategy of the private banks in their retail loans?

I can only say that the markets have always been very competitive. Even in the last many years, whether retail or corporate growth, I think the Indian banking industry has been pretty competitive.

Okay. And secondly, the tax thing. Could you touch upon the lower tax rate, like on tax write-back this quarter?

The tax is based on the estimate for the full-year effective tax rate. So it's not -- there's no specific quarter tax rate that we look at. We estimate out the income for the year, and the effective tax rate for the year is what we apply for the nine-month period. So based on that, the rate was lower than what we had estimated in [December]. So there was a write-back [which you can see]. And the overall lower effective tax rate is because of the higher amount of capital gains that we have got in the current year, and what we are expecting in the balance period of the year.

Okay. Thanks a lot.

Adarsh Parasrampuria, Nomura.

A question on risk weight. I'm seeing that with the loan growth, there is no risk weight consumption. Off-balance-sheet risk weights are going down. Would we expect this to continue for the next couple of years, where it will be significantly lower capital consumption?

Again, I don't think we should take a particular quarter and extrapolate it going forward. But directionally, but if you look at the off-balance-sheet, we have said over the last two or three years that we would want the overall non-fund-based business to come down as a proportion. Because as we see the risk-adjusted returns, they have been lowered, and that's what we have done in terms of the capital allocation. And that is what reflects in the current quarter as well.

Otherwise, the on-balance-sheet risk weight asset growth compared to the past will be lower, because on the corporate side we are doing a lot more of better rated exposures. We give some data on our incremental disbursements also that you can see. And the risk weights on -- when we do AAA, AA kind of lending, the risk weights are lower there. Even on the market side, the risk weights are lower for the smaller ticket loans.

So compared to the past, where we used to do a lot more of project finance and others, even BBB kind of lending, the capital consumption should be lower going forward, but you should not take the current quarter as an extrapolation into that.

I was just looking at the last six, seven quarters. Cumulatively it seems to be pretty low capital consumption. So, like, 20,000 crores of risk weight asset on a 70,000 crore loan growth.

Yes. So directionally, that would be the case, because we will grow more in the better rated corporate lines and we will continue to grow in the mortgage.

And second question somewhat related to this, is also that if you -- and based on the last NIMs, fees -- and then we look at the operating profit line to assets, the core operating profit, that's continuously been sliding down. And in which, in other words, it's lower operating profit growth to the asset growth or the loan growth. Have you reached a point in terms of NPA accretion in terms of corporate fees having come down to a point where the operating profit growth can now be in line with balance sheet? Or there are still complications because of which that still will take some time?

I don't think immediately we will get to that level because there is clearly some impact of that; for example, in the overall margins which is kind of continuing. But if you go into the next financial year, I think in terms of fee income and overall translation of loan growth into NII, definitely it would be much better than what we have seen in the last couple of years. Because incrementally the business that we are writing is as comfortable as it was in the past, adjusted for the risk. So we should see an improvement. It's not that we will get to that immediately.

The reason why I am asking this question is that even at the current operating profit level, you try and get to, say, a normalized credit cost, maybe in three, four, five quarters from now. The core ROEs will still be, like, 12%, 13%. I'm just trying to understand when do you kind of -- or what would be the point where you would expect that to significantly move, or this can be a long-term ROE for the Bank?

I think from a longer-term ROE perspective, we believe we should be even more than that. But yes, if you look at a shorter time frame and adjust -- normalize the credit cost, the numbers will be what you are talking about. But we think that, for example, on the margins, as we see some of the recoveries coming from the NPAs, as we see the net NPA ratio coming down over time, the non-accruing part of the portfolio will decline, and that will help in the overall margins for the Bank.

And fee income is something that we have talked about, that in the current year we hope to get double-digit growth on the fee income compared to mid-single-digit in the past. And from there we should see better growth going forward into the next years as well. So in the more medium-term we would expect the ROEs to be better than the 12%, 13% which one can get to by normalizing the -- as and when the credit cost normalizes.

And just squeezing in the last question, 25,000 crores of -- like, you mentioned the non-NPA stress book, right? What part of it is where you would not be accruing interest, and where are you accruing interest? Just to get some sense of what's left in terms of the NIM impact.

So if you look at the, for example, the -- so there are various parts of the portfolio, so we can just take it part by part. If you look at the restructured loans, it's about [INR20] billion. On that, as long as the borrower is paying interest as per the restructured terms, then it is not [called] and 90 days overdue. We would be accruing interest.

On the drilldown list, which is the larger part of the portfolio, to the extent that those loans are under the RBI schemes which are there, it would not be accruing interest on books so that the SDR which have been implemented or a change in management there has been done. So on those loans, the (inaudible) exposure will not be accruing interest. So that you can actually see in the presentation; those numbers are there as to how much of the loans are there in these schemes.

Understood. Thanks, Rakesh.

Nilanjan Karfa, Jefferies.

Is it possible to get a sense of the -- of the total corporate book, how much is below investment grade, a percentage number at this point?

We have not even disclosed that separately. So what we have given analysts is the same disclosure as we have given in the past quarters. That is for the identified five sectors. And for the balance, like we have said in the last quarter, that the loan outstanding is not greater than INR6 billion for any single borrower.

Okay. All right, yes. Thank you so much.

Manisha Porwal, Taurus Mutual Fund.

Actually my question has been partly answered. But then just through -- at the cost of repetition, I just wanted to understand how are we looking at the loan growth on the corporate side, given that the retail portfolio is already catching up pace? And this I'm again asking on the basis of the certain reform measures which were announced at the recap of PSU banks. Where they had been restricted from the -- a number of banks in the consortium had been restricted. And their exposure had been restricted to 10% in a consortium, especially for big corporate loans. So just wanted to understand, for a bank as big as ICICI, how important is the corporate growth now? And what is the opportunity for you all to grow that book?

Clearly on an incremental basis, there are opportunities which are there in terms of lending to PSUs, increasing the working capital requirements of some of the corporate. Plus there could be a fair bit of refinancing which happens as some of the stress cases get resolved. So to that extent, there are a lot of opportunities. What we will do is that we will look at the portfolio composition. We'll try to keep it much more granular than in the past and to better rated clients. And that's why we've disclosed our disbursements to A- and above clients for the period, which is close to 88% to 90%.

So as long as we are able to get good margins on this business, which is a function of how competitive the market scenario is, we are happy to grow this portfolio. And we believe that opportunities going forward will be there for us to -- not just to earn margins, but also to making up fee revenues from the corporate exposure. So, it's something that we will continue to grow going forward as well.

Okay. To that, if you can just specifically tell exactly -- there is a consortium with only six, seven members. Like, viability of -- how does the viability of a lending change for a private banker, in the sense of -- just trying to understand, like, but is it a restriction in the number of banks in a consortium to the six or seven? Could it be the PSUs are restricted? So, it will reduce our opportunity or it will really, like, improve it for private banks? Is this a kind of restriction from -- it will not allow many -- the risk to be spread across. So, would that be a good thing or a bad thing?

I guess there is enough opportunity for private banks. So it depends on if it is a good-rated client, where the working capital limits have to go up. And some members of the consortium are not able to do that. Then some of the other banks, including private banks, can pick up that share. Of course, in PSU banks, SBI is as active as it was ever, so that's a large part of the overall PSU bank share, where we don't think there will be any change in the market dynamic. But for some of the smaller PSU banks, there would be an impact, and private banks will have some ability to take benefit of that opportunity.

Okay. Can I add one more question? These IBC accounts have a time bound resolution to them. So of the 18 accounts in IBC for ICICI, how does the trajectory or the scenario build out in the sense -- how far is the first resolution? And what are the timelines where we can see some actual big accounts getting resolved or -- because resolution is a key thing for --?

As per RBI's first list, which was where banks had to file with NCLT, those cases got admitted sometime in July. So the process allows for 180 days, which can be extended by 90 days. So effectively, 270 days is what ideally I think one would expect resolutions to come in. So one would see that by, I guess end of March, April, we will start seeing the resolutions in kind of -- getting concluded. Of course, thereafter, they will have to get implemented as well.

As of now, in a few cases, the Committee of Creditors has started receiving the bids. That has happened for the few of these cases in the first list. For the second list, the banks have filed with NCLT only towards the end of December, early January. So the admissions would be more in January. So that will extend up to September, October, based on the 270-day timeline.

Okay, okay. Thanks. That's it from my side. Thanks.

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

Thank you. As we summed up in our earlier presentation, that we've been following our -- or focusing on our 4 x 4 Agenda. And during the quarter, we improved the loan growth and maintained a healthy funding mix, and continue to focus on our digital franchise and on capital efficiency. So we will continue to keep focusing on our 4 x 4 Agenda and keep moving on the same path. 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.