ICICI Bank Ltd

NSE:ICICIBANK

Earnings Call Transcript 2019-Q1

[Sandeep Bakhshi]

Good evening to all of you, and welcome to the ICICI Bank earnings call to discuss the Q1 2019 results. Joining us today on this call are our Executive Directors, Vishakha, Anup, and Vijay; President, Corporate Centre, Sandeep Batra; CFO, Rakesh; and our Head of Investor Relations, Anindya. We will begin the call by addressing some of the ongoing issues. We will then speak about the strategic priorities for the bank based on the initial few weeks one has spent in the new role, post which Rakesh will brief on the performance of the bank during the quarter. Before we start, we would like to refer you to the statement in our press release and presentation that discusses the risks and uncertainties of forward-looking statements. Starting with some of the key developments during this quarter. The board at its meeting dated June 18, 2018 appointed me as the Wholetime Director and Chief Operating Officer Designate of ICICI Bank. While Ms. Chanda Kochhar, MD and CEO, is on leave, one will be reporting to the board. The management team is fully empowered to lead the bank under the supervision of the board. Further, the board of ICICI Prudential Life Insurance Company has appointed Mr. N. S. Kannan as the MD and CEO of the company for a period of 5 years. There have been a few other changes in the board of the bank. Our previous Chairman, Mr. M. K. Sharma's term ended on June 30, 2018. The Board of Directors have appointed Mr. Girish Chandra Chaturvedi as nonexecutive Chairman effective from July 1, 2018 for a period of 3 years, subject to shareholder approval. He is a retired IAS officer. And during his tenure with the government, he has held several key positions as Secretary, Ministry of Petroleum and Natural Gas; Additional Secondary and Joint Secretary, Department of Financial Services; Chairman of Pension Fund Regulatory and Development Authority; and Government Nominee on the boards of Canara Bank, Bank of Baroda, IDBI Bank, IDFC Ltd., GIC Re, New India Assurance, et cetera. We are happy to have him on board, and look forward to his valuable guidance. As you are aware, the Board of Directors have instituted an inquiry headed by former Supreme Court Judge, Mr. B. N. Srikrishna, to examine and inquire into the whistleblower complaint regarding conflict of interest and other related matters of the MD and CEO. The scope of inquiry is comprehensive and includes all relevant matters. In recent times, you would have seen media coverage on ICICI Bank centered around NPAs and recognition of stress in earlier years. We thought we should put this in context. In the period from 2010 to 2012, the Indian economy saw a strong investment phase. And banks like ICICI Bank, which were involved in project finance, participated in financing this investment activity. These loans subsequently faced significant stress due to many reasons, including a global slowdown and commodity cycles. The regulatory approach also evolved. In 2015, RBI articulated an objective of early and conservative recognition of stress, and conducted an asset quality review of Indian banks. The gross NPAs of Indian banking system increased from INR 1.9 trillion at March 31, 2013, as per RBI data, to an estimated INR 3.6 trillion at September 30, 2015, which was an increase of about INR 1.7 trillion over a period of 2.5 years. Thereafter, in a span of just 6 months, gross NPAs increased by INR 2.5 trillion to INR 6.1 trillion at March 31, 2016. Also up to the year-end fiscal 2015, a loan could be restructured without being classified as nonperforming. However, accounts restructured after April 1, 2015 were required to be classified as nonperforming, except for restructuring of project loans on account of delay in commencement of operations. The manner in which borrower accounts are dealt with, monitored and classified by the banks has evolved. The classification of assets, including assets under various RBI schemes as nonperforming, has been accelerated within the banking system. Various banks, including ICICI Bank, have undergone annual regulatory assessments, and have been required to report divergences in asset classification and provisions assessed by the regulator based on thresholds prescribed in the guidelines. For the year ended March 31, 2017, no such reporting was required to be made by ICICI Bank. As mentioned in our release dated June 22, 2018, the bank had in March 2018 become aware of a whistleblower complaint, which alleged that there were irregularities in the conduct of some borrower accounts, resulting in incorrect asset classification in the past. And as per our understanding, these alleged actions pertain to the period when both the regulatory approach and the approach of banks was evolving. ICICI Bank has had a robust whistleblower policy since 2003, which treats all whistleblower complaints with utmost seriousness, and takes suitable actions where needed. The Audit Committee oversees comprehensive investigation of such complaints with the help of internal audit and external expertise, if required. In this case, an inquiry was instituted, as per the whistleblower policy of the bank, under the supervision of the Audit Committee, and an interim report was submitted to the regulator. The findings of the interim report had no material impact on the financial statements for the year ended March 31, 2018. The bank, at the direction of the Audit Committee, and with the assistance of external counsel, is continuing to analyze all of the allegations made by the whistleblower. As a bank with operations and securities listings in multiple jurisdictions, the bank regularly engages with regulators on various matters. It is fair to assume that the regulator, such as RBI, SEBI, SEC, would be looking into some of these matters. Even before this complaint, the bank has been responding to requests for information from the SEC investigatory staff regarding an inquiry relating to the timing and account of the bank's loan impairment provisions taken under U.S. GAAP. The bank evaluates loans for impairment under U.S. GAAP for the purpose of preparing the annual footnote, reconciling the bank's Indian GAAP financial statements to the U.S. GAAP. The bank has voluntarily complied with all requests of the U.S. SEC investigatory staff for information and interviews related to the bank's U.S. GAAP loan impairment process. The bank has always and will continue to fully cooperate with the regulatory and law enforcement authorities. Since discussions with regulators are confidential, we will not be able to comment further on any ongoing discussion. We would like to take this opportunity to mention that the day-to-day functioning of the bank has been insulated from these events, and there's been no material impact of the developments in the last few months on the business of the bank. One has also met regulators and a few government officials, who have reasserted their belief in ICICI Bank and its franchise. There is passion and desire in all of us to take the bank forward. On one's return to the bank after a hiatus of 8 years, one has spent time with the senior management to discuss the bank's performance and the strategy going forward. We believe we are at the tail end of the NPA cycle. Our gross nonperforming loans were INR 534.65 billion at June 30, 2018, with a provision coverage ratio of 54.1%, excluding technical/prudential write-offs. Going forward, we expect the additions to nonperforming loans to be significantly lower. We will have to closely monitor the BB and below portfolio of INR 264.29 billion (sic) [ INR 246.29 billion ] that we have disclosed this quarter, and the impact of the Revised Framework for Resolution of Stressed Assets issued by the RBI in February 2018. The ICICI Group is a unique franchise with a presence across customer segments, products and geographies, excellent technology capabilities and a diverse talent pool. Our objective is to bring all our capabilities together to be the trusted partner in serving our customers and becoming their banker of choice. We would focus on decongesting some of the processes in order to improve efficiencies and empowering our teams to deliver these objectives. Our focus will be on risk-calibrated profitable growth. The core operating profits of the bank continue to remain strong. However, provisions in financial year 2019 are expected to remain elevated. The bank's priorities would include growing the retail portfolio with a focus on enhancing our customer service proposition. In the last 2 years, retail loans as a percentage of total loans have increased from 42.4% at March 2016 to 57.5% at June 2018. Focus on lending to a highly rated and well-established corporates. As a bank, we are not going to shrivel up and vacate the space when there is an opportunity to work with corporates, who have emerged strong in the last 4 to 5 years. We have earlier disclosed the proportion of incremental lending rated A- and above in the corporate segment. At an overall portfolio level, we have seen the book gradually migrating towards the A- and above rating category. The proportion of A- and above-rated loans to the total loans increased from about 52% at March 2016 to about 63% at June 2018. Closely monitoring the provisioning requirement, the bank has been through an asset quality cycle in corporate lending. Multiple factors have led to challenges in project completion in the last few years. Going forward, we will remain cautious in lending to projects under implementation. And importantly, focus on growing our core operating profits. We look forward to building the business performance and shareholder value with support from all our stakeholders. With these opening remarks, I will now hand over the call to Rakesh.

[Rakesh Jha, Chief Financial Officer]

Thank you, Sandeep. Good evening to all of you. I will talk about our performance on growth and credit quality during Q1 of 2019. I'll then talk about the P&L details and capital. Firstly, on growth. The domestic loan growth was 15.1% year-on-year as of June 30, 2018, driven by a 20% growth in the retail business. Within the retail portfolio, the mortgage loan portfolio grew by 16%, auto loans by 13%, business banking by 41% and rural lending by 16% on a year-on-year basis. Commercial vehicle and equipment loans grew by 19% year-on-year. The unsecured credit card and personal loan portfolio grew by 41% year-on-year, off a relatively small base, to INR 326.46 billion, and was about 6.3% of the overall loan book as of June 30, 2018. We continue to grow the unsecured credit card and personal loan portfolio, primarily driven by a focus on cross-sell to our existing customers. Growth in the SME portfolio was 17.1% year-on-year at June 30, 2018 compared to a growth of 14.7% at March 31, 2018. The SME portfolio now constitutes 4.6% of total loans as of June 30, 2018. We saw continued growth in the domestic corporate loans. Excluding the net NPAs, restructured loans and loans internally rated below investment grade in key sectors at June 30, 2018, growth in the domestic corporate portfolio was 16% year-on-year. The net advances of the overseas branches decreased by 9.7% year-on-year in rupee terms and 14.9% year-on-year in U.S. dollar terms at June 30, 2018. The international loan portfolio has now reduced to 12.5% of our total loans. As a result of the above, the overall loan portfolio grew by 11.3% year-on-year at June 30, 2018. Coming to the funding side. We continue to see robust growth in CASA deposits, which grew by 16.1% year-on-year to INR 2.8 trillion at June 30, 2018. On a daily average basis, the average savings account deposits increased by INR 77.67 billion, and the average current account deposits increased by INR 14.36 billion during the quarter compared to Q4 of 2018. The CASA ratio on a daily average basis was 46.1% in Q1 of 2019 compared to 45.9% in Q4 of 2018. Total deposits grew by 12.5% year-on-year to INR 5.5 trillion as of June 30, 2018. Coming to credit quality. During Q1 of 2019, the gross NPA additions were INR 40.36 billion. The retail portfolio had gross NPA additions of INR 11.2 billion and recoveries and upgrades of about INR 4.28 billion. There were gross NPA additions of INR 3.36 billion in the Kisan credit cards portfolio due to the impact of farm loan waivers. This was included in the retail additions that I talked about. At June 30, 2018, the Kisan credit card portfolio aggregated about INR 160 billion, which was about 3.1% of the total loan portfolio. Of the corporate and SME gross NPA additions of INR 29.16 billion during the quarter, INR 18.23 billion were from existing standard restructured loans; the drilldown list; fund based and non-fund based outstanding of borrowers under fully implemented RBI schemes; non-fund based outstanding to existing nonperforming and restructured accounts; and increase in outstanding due to exchange rate movement in accounts classified as nonperforming in prior periods. The balance slippage was INR 10.93 billion. There were a few slippages from the builder finance portfolio during the quarter. At June 30, 2018, the builder finance portfolio aggregated about INR 133 billion. That is about 2.6% of the total loan portfolio. The aggregate deletions from NPA due to recoveries and upgrades were INR 20.36 billion in Q1, including the impact of the resolution of a steel company under the IBC. The gross NPAs written off during the quarter aggregated INR 25.98 billion. The bank's net nonperforming asset ratio decreased from 4.77% as of March 31, 2018 to 4.19% as of June 30, 2018. The provision coverage ratio on nonperforming loans, excluding cumulative technical/prudential write-offs, increased by 640 basis points sequentially to 54.1% as of June 30 compared to 47.7% as of March 31. Including the cumulative technical/prudential write-offs, the provision coverage ratio on NPL improved to 66.1% as of June 30, 2018 from 60.5% as of March 31, 2018. During Q1 of 2018, RBI had directed banks to initiate insolvency resolution process for 12 accounts. At June 30, 2018, the bank had outstanding loans and non-fund facilities amounting to INR 40.59 billion and INR 1.81 billion, respectively, to such accounts. The provisions held against the outstanding loans increased from 52.6% at March 31 to 87.9% at June 30, 2018. The increase in this provision coverage reflects the aging-based provisions, additional provisions during the quarter as per RBI guidelines and resolution of a steel account. The bank has made 100% provision on another large steel account due to aging of the nonperforming loans, even though recoveries are expected in the coming quarters. Further, during Q2 of 2018, RBI had directed banks to initiate the insolvency resolution process for certain accounts by December 31, 2017 if a resolution plan was not implemented by December 13, 2017. At June 30, 2018, the bank had outstanding loans and non-fund facilities amounting to INR 92.92 billion and INR 7.73 billion, respectively, to such accounts. The provisions held against these outstanding loans increased from 47.8% at March 31, 2018 to 60.7% at June 30, 2018. All of the above loans under NCLT are classified as nonperforming. The bank made additional provisions amounting to about INR 7 billion during Q1 of 2019 on the above NCLT cases, and is in compliance with the RBI requirement of a minimum 50% provision on the secured portion of the debt by June 30, 2018. As given in Slide 29 of the presentation, the total non-fund based outstanding to borrowers classified as nonperforming was INR 29.29 billion as of June 30, 2018. The net standard restructured loans were at INR 14.13 billion. The non-fund based outstanding to companies in the restructured portfolio was INR 3.58 billion as of June 30, 2018. Standard loans under the remaining RBI schemes, namely 5/25 and S4A, which have been fully implemented, were INR 18.95 billion as of June 30, 2018. In addition, non-fund based outstanding to borrowers under the S4A, other than standard restructured cases, aggregated INR 14.63 billion as of June 30, 2018. Moving on to the drilldown list. The aggregate fund-based limits and non-fund based outstanding to companies that were internally rated below investment grade in the key sectors and promoter entities, that is the drilldown list, was INR 44.01 billion as of June 30, 2018 compared to the INR 47.28 billion as of March 31, 2018. On Slide 59 of the presentation, we have provided the movement in these exposures during Q1 of 2019. There was a net increase in exposure of about INR 0.03 billion. There were net rating downgrades of exposures of about INR 2.19 billion during the quarter. There was a reduction of INR 5.49 billion due to classification of certain borrowers as nonperforming. As of June 30, 2018, the aggregate fund based and non-fund based outstanding to standard borrowers rated BB and below was INR 246.29 billion. This included gross standard restructured loans, the drilldown list, fund based and non-fund based outstanding of borrowers under fully implemented RBI schemes and non-fund based outstanding to nonperforming and restructured accounts, excluding overlaps, of INR 124.91 billion as of June 30, 2018 compared to INR 133.65 billion as of March 31, 2018. The balance, INR 121.38 billion of fund based and non-fund based outstanding to borrowers rated BB and below, included INR 54.5 billion related to cases with an outstanding greater than INR 1 billion and INR 66.88 billion related to cases with an outstanding of less than INR 1 billion. On Slide 30 of the presentation, we have provided additional disclosures on our power sector exposure. Our total exposure to the power sector was about INR 466.25 billion at June 30, 2018. Of the total power sector exposure, about 30% was either nonperforming, restructured, part of the drilldown list or under an RBI resolution scheme. Of the balance 70% of the exposure, 50% each was to public sector and private sector companies. Our exposure to public sector companies included about INR 21.46 billion to state electricity boards. Also, of the balance 70% of the exposure, excluding the state electricity boards, about 80% was rated A- and above, as per the internal rating. Most of the projects under implementation have been classified as nonperforming, and the exposure to the balance would not be significant at all. We have been cautious in lending to the renewable sector, and the exposure is to borrowers which belong to strong promoter groups. Coming to the details of the P&L. The core operating profit, that is profit before provisions and tax, excluding treasury income, grew by 16.6% to INR 50.42 billion in Q1 of 2019 from INR 43.26 billion in Q1 of 2018. The net interest margin was at 3.19% in Q1 of 2019 compared to 3.24% in Q4 of 2018 and 3.27% in Q1 of 2018. Net interest margin was positively impacted by higher interest collection from nonperforming loans during the current quarter. The domestic NIM was at 3.54% in Q1 of 2019 compared to 3.67% in Q4 of 2018 and 3.62% in Q1 of 2018. International margins improved to 0.3% in Q1 of 2019 compared to 0.04% in Q4 of 2018. The total non-interest income was INR 38.52 billion in Q1 of 2019 compared to INR 33.88 billion in Q1 of 2018. Fee income grew by 15.9% year-on-year to INR 27.54 billion in Q1 of 2019, with the retail fee income growing by 18.4%, and now constituting about 75% of overall fees in Q1 of 2019. Other income was INR 3.32 billion in Q1 of 2019 compared to INR 1.53 billion in Q1 of last year. Other income included dividend income of INR 3.17 billion in current Q1. Coming to costs. The bank's operating expenses increased by 9.3% year-on-year in Q1. Contribution to retiral benefits were lower in Q1 of 2019 compared to the corresponding quarter last year due to the increase in G-sec yields that we saw during the quarter. The cost-to-income ratio was 41.6% in Q1 of 2019 compared to 42.3% in Q1 of 2018. The bank had 83,595 employees at June 30, 2018. Treasury income was INR 7.66 billion in the current quarter compared to INR 8.58 billion in Q1 of 2018. The treasury income in current quarter includes gains of about INR 11.1 billion from sale of 2% stake in ICICI Life Insurance Company. The mark-to-market losses on government securities and fixed income portfolio aggregated INR 2.19 billion in Q1 of 2019. While RBI had allowed the banks to spread such provisioning for mark-to-market losses over up to 4 quarters, the bank provided for this loss in Q1 of 2019 itself. Provisions were INR 59.71 billion in Q1 of 2019 compared to INR 66.26 billion in Q4 of 2018 and INR 26.09 billion in Q1 of 2018. The bank made additional provisions of about INR 7 billion during the cases -- during the quarter on cases referred to the NCLT, as I mentioned earlier. The bank has also made 100% provision on one large steel account due to aging of the nonperforming loan. The bank had a net loss of INR 1.2 billion in the current quarter compared to a net profit of INR 26.05 billion in last year's Q1. The -- coming to the subsidiaries. The performance of subsidiaries is covered in slides 38 to 45 in the investor presentation. The consolidated profit after tax, including the profits of subsidiaries, was INR 0.05 billion in the current quarter compared with INR 26 billion in Q4 of 2018 and INR 11.42 billion in Q1 of 2019. The bank had a standalone Tier 1 capital adequacy ratio of 15.84% and total standalone capital adequacy ratio of 18.35%. The bank's consolidated Tier 1 capital adequacy ratio and the total consolidated capital adequacy ratio was 15.41% and 17.8%, respectively. We will now be happy to take your questions on the current quarter.

[Operator]

[Operator Instructions] The first question's from the line of Mahrukh Adajania from IDFC Securities.

[Mahrukh Adajania, Director]

My first question was on the momentum of the drilldown list. So when we [indiscernible] we see slippage down the drilldown list this quarter. I was watching you going ahead. Is most of the recognition from the drilldown done? Or some -- at some point of it, most of it -- at some point of time, most of it will still slip? So that is my first question. And my second question is that not only ICICI, but even Baroda, they reported a huge slippage from existing NPLs. So if you could -- I saw the note on the foreign exchange movement. But if you could quantify how much is it -- or how much of it is because of foreign exchange. And what's really driven this? And another question related to this would be that there is a lot of non-fund exposure associated with various categories of stress loans. So will that also slip anytime soon, say, over the next 3 to 4 quarters? Would most of it eventually slip?

[Rakesh Jha, Chief Financial Officer]

Yes. So Mahrukh, I'll address the 3 questions. On the first one on the drilldown list. In the previous quarter's call, also we had mentioned that this list is off the exposures that are internally rated BB and below. So clearly, there is some risk in this portfolio. There are -- if you look at the portfolio, it has come down now significantly to about INR 40 billion. And there is one large steel exposure, which is there in this, and one large power sector exposure. While we believe that they should remain performing, but one should assume that a BB and below portfolio does have some inherent risk in the portfolio. On the addition to NPLs during the quarter, we had a significant movement in the rupee during the quarter. It depreciated to nearly INR 3. And as you're aware, we have dollars nonperforming loans in our overseas branches, and also some dollar loans given from the domestic, which have turned nonperforming over the past years. And the impact of that was close to INR 10 billion during the current quarter. So the additions that you see of INR 40 billion, nearly INR 10 billion would have been on the movement of the currency. In terms of the non-fund exposure, the risk which is there on the non-fund exposure is pretty much the same as on on-balance sheet exposure. So we should consider it to be of a similar nature in terms of risk. And in particular, like we have highlighted in the past, the non-fund outstanding to existing nonperforming loans is particularly risky because these borrowers are already classified as nonperforming, and it would be fair to assume that, at some stage, the non-fund outstanding could devolve and become a fund based nonperforming.

[Mahrukh Adajania, Director]

Okay. And just one thing on BB. So you have given granularity of the portfolio. And INR 55 billion and INR 66 billion, so one is above INR 1 billion. The other is below INR 1 billion. But this is the first time it's disclosed. What has been the trend in slippage in this portfolio? So is there a lot of lists associated even with the granular account? Or how do we look at it? I mean, what, in your experience, has been the slippage ratio of your nondrilldown or non-restructured BB portfolio?

[Narayanan Srinivasa Kannan, Former Executive Director]

So in terms of this portfolio, of course, going forward, we will give you the trend in this portfolio and the slippages that we see from this portfolio. In the past, the reason we had given the drilldown portfolio was because the lumpy exposures were in those sectors of steel, power and mining. In terms of the experience, some of the exposures, which are less than INR 1 billion, would generally not be as lumpy in the slippage experience, may not be in terms of the exposure be as high as what we have seen on the drilldown list. But we would not want to comment specifically whether, based on size, it would end up being different. So that's why we have given the aggregate exposure for BB and below, and pointed out that a lot of it is granular in terms of the exposure. So it is not that it is lumpy in a particular quarter. One can have a large slippage coming from here.

[Operator]

The next question is from the line of Kunal Shah from Edelweiss Securities.

[Kunal Shah, Associate Director]

Yes. So again, to touch upon the question in terms of BB and below, okay, outside of the entire restructure and the drilldown. So in terms of the probability of default if we are to assume, say, in the -- maybe in the exposure, which are restructured and drilldown and, say, the probability of default within this portfolio, would it be at a significant [indiscernible]? Or maybe this is just for the disclosure purpose, wherein you have highlighted that, okay, these are the exposures which are there, but they could still be very well standard accounts going forward as well?

[Narayanan Srinivasa Kannan, Former Executive Director]

So that's why we have kind of made the disclosure completely aligned with our internal ratings of the portfolio and the view on the portfolio. So this is the below investment grade portfolio of the bank. So if you look at the aggregate, this, of course, includes the nonperforming loans also. And I talked about the non-fund outstanding to NPL. They, of course, are much higher risk, where losses have already crystallized. Then you have the restructured loans where the terms have already been changed. There are the RBI schemes, which are there. But again, terms have been changed. So there are various categories which are there, but all of them are below BB. So BB and below. So there is a relatively high risk on the portfolio. But as I said, a lot of the portfolio is indeed granular with individual exposures of less than INR 1 billion in terms of the additional disclosure that we have made.

[Kunal Shah, Associate Director]

Okay. And in terms of greater than INR 1 billion, is there a concentration within the sector apart from the key sectors, which we have been highlighting earlier? Are we seeing apart from that any other sector wherein this concentration is there for this portfolio?

[Narayanan Srinivasa Kannan, Former Executive Director]

In the December quarter results, we have centered our -- the largest outstanding data is less than INR 6 billion on BB other than the drilldown. And then in March, we had updated that one account, which was in the sugar industry, and got upgraded from nonperforming into standard, and would be a part of BB, and is more than INR 6 billion. But other than that one particular account, all the other exposures are less than INR 6 billion in outstanding, even in the borrowers with outstanding greater than INR 1 billion, of INR 54.5 billion.

[Kunal Shah, Associate Director]

Okay. And no specific concentration across the -- in one -- any particular sector?

[Narayanan Srinivasa Kannan, Former Executive Director]

These are spread across sectors. So typically, we already included the steel, power, mining in the drilldown. So this would generally have construction, roads and other sectors, which are there.

[Kunal Shah, Associate Director]

So real estate, and everything would fall into it. So are we seeing net real estate may become a sort real estate?

[Narayanan Srinivasa Kannan, Former Executive Director]

Yes. This is the aggregate portfolio of the bank. So including the builder loans and developer loans, whatever is internally rated as BB and below would be included here.

[Kunal Shah, Associate Director]

Okay. And lastly, in terms of this increase in the coverage. So you highlighted you have done 100% coverage on one of the steel accounts, which is there in NCLT. But still looking at the overall NCLT, maybe the coverage which we are getting of 88%, that seems to be quite high looking at the way the bids have come in. So is it purely on account of that? Or maybe we are seeing a relatively higher -- maybe the laws given before there's -- and that's the reason there has been such an increase in the coverage?

[Narayanan Srinivasa Kannan, Former Executive Director]

The provisioning that we make is as per the RBI guidelines. So as I mentioned on this particular loan, based on the aging of the loan, we had to make 100% provision against the principal. As per the RBI guidelines, it is not based on any expectation per se. As I said, we do expect to recover on the account as well.

[Kunal Shah, Associate Director]

Yes. So one, would be, say, an increase on account of RBI guidelines. But besides that also now we would have instead of just to take care of the loss given default based on bids, which we have received?

[Narayanan Srinivasa Kannan, Former Executive Director]

No. These are based on RBI.

[Kunal Shah, Associate Director]

280, yet it will be purely on account of RBI requirement? Or maybe...

[Narayanan Srinivasa Kannan, Former Executive Director]

Yes, purely on account of RBI requirement because it is one large steel outstanding. That is why the coverage has increased so much. And of course, we also saw the resolution of Bhushan Steel, so which went out of the base itself. And we further provisioned on this one particular account because it went into the bucket which requires 100% provision. So it's based on the RBI guidelines.

[Operator]

The next question's from the line of Vishal Goyal from UBS Securities.

[Vishal Goyal, Executive Director and Research Analyst]

So Sandeep, the first question is actually on the loan growth. So we are seeing, for the system as a whole in the non-retail part also starting to grow, while, for us, the corporate book is still growing at 5% over domestic now. So when do we see this increasing for us?

[Anindya Banerjee, Senior General Manager]

So Vishal, basically, the corporate loan book is the combination of our performing book, the nonperforming book, as well as the exposures that we would have the amount to reduce as we go forward. It is also a function of the provisions that we have made against the corporate book. So the growth that you're seeing on fees of 5% is after considering all that. And therefore, if you actually keep out the drilldowns, the NPL list and the list where we are actually reducing the exposure at cost rate book, has grown by 15%.

[Vishal Goyal, Executive Director and Research Analyst]

Okay, okay. And -- okay. So that is fair. The other question actually I have is on these builder loans and the Kisan credit card. While the reason -- I think just some color on what is happening here. And how should we expect in terms of NPL from these 2 books going forward?

[Narayanan Srinivasa Kannan, Former Executive Director]

On the Kisan credit card, we give the portfolio size which is there. And as you're aware on the Kisan credit card, there is a cycle whereby banks do see in the somewhat higher addition to NPLs in the June and the December quarter. Because it's a half yearly interest payment cycle, which is there. The increase that we have seen is largely coming from the farm loan -- implications of the farm loan waiver, which has happened. And the addition to NPLs on the Kisan credit was about INR 3.4 billion for the quarter. Going forward, as I said, it is cyclical, so the September quarter would turn out to be lower than this in terms of additions. And in the December quarter, again, we will see somewhat higher additions. But it would not be more than what we've already seen in the June quarter. So we are closely monitoring the portfolio and doing whatever best we can do in terms of collection. But this is a portfolio where REs are also quite good over the years. So there is -- there will be some losses, which come in at some periods of time. Otherwise on the portfolio in general, we are quite comfortable given the returns, which are there and of course the risk will play out in the current quarter, and we do expect some addition to be there in the December quarter as well. On the builder loans, as I said, a few accounts did slip into the NPL category in the current quarter. We have been cautious on this segment for some time. We have not really seen the portfolio increasing in the last, now more than 6 quarters or so. And even if we are doing incremental endings, we're looking at doing a lease rental discounting and other products, which are higher-risk category -- which are low-risk category, sorry. So we have kind of not grown the portfolio. Existing portfolio, the -- there are a few accounts which are BB and below but those numbers are not -- one individual loan is not large. And in aggregate also, it's not large. So I don't think that we would really be overly worried on that. But yes, it's a portfolio that we are closely monitoring.

[Vishal Goyal, Executive Director and Research Analyst]

And just lastly, on this -- there was this issue around the use of third-party valuer for valuing the properties, which are used as collateral. So what is your experience on that? While adding, your book is not that big on SME, but I'm sure you also do loan against property and business banking. So some experience from this?

[Sandeep Bakhshi]

So Anup will take this one.

[Anup Bagchi, Head of Retail Banking & Executive Director]

Vishal this is Anup here. See our experience has been okay. We haven't had any sort of bad experience around this. Also on the loan against property as well as our business loans, our ticker sizes are small. And when ticker sizes are small, basically we have not had any -- no issues around this. We have not seen it in the mix. We are generally careful about large properties, and that's one market, et cetera, but that is as per our policy. So it's okay. We haven't seen any untoward things [indiscernible]. But this issue actually, it's more an HFC issue. How these finance companies have had this third-party valuer issue. It's not a RBI banking issue.

[Vishal Goyal, Executive Director and Research Analyst]

No, but the issue has been highlighted by the bank as an issue. I'm just saying basically...

[Sandeep Bakhshi]

No, no. Our experience, they may have had their own specific experience around this. Our experience has been okay so far.

[Operator]

The next question is from the line of Nagraj Chandrasekar from Laburnum Capital.

[Nagraj Chandrasekar]

Two questions. First, we've been hearing from a number of banks that obviously the industry as a whole is seeing some degree of NIM compression. And a lot of bank managements have expressed the hope that they may be able to push up pricing in certain verticals in the next couple of quarters. I'm just curious what is your outlook on that? Do you see pricing moving up on some subset of loans? And if so, where would the industry be able to exert that kind of pricing power? And secondly, you talked about the builder loans that you do. Isn't it the case that a lot of the 10/90 financing that happens where you're technically doing mortgage financing? Is effectively builder financing in the guise of mortgage financing, especially given the new laws because if the builder can't complete the project and the person doesn't get the house, you don't get paid. So effectively, are you not in a large portion your mortgage book taking on builder risk also? And how do you dimension that and think about it et cetera?

[Narayanan Srinivasa Kannan, Former Executive Director]

Just let me just comment on the 10/90. Our exposure to 10/90 is virtually nil actually. We don't do that kind of lending in any large way at all. So we are completely isolated from that kind of risk. Although, the point that you've made is very valid. Having people who do have exposure of that do run the risk that you're seeing. On the NIM compression, I'll just request Rakesh to comment.

[Rakesh Jha, Chief Financial Officer]

So on the NIM compression, the funding cost, as we said, highest gone up for banks from somewhere last year December onwards. And we are seeing banks increasing retail deposit rates as well on the wholesale side, the rates have gone up. Banks have also increased their MCLR during this period, rating from 20 to 30 basis points. We have seen some pass-on of this happening onto the lending side on both retail and corporate segment. Going forward, depending on how the funding cost moves, we believe that in general, banks will pass on that increasing funding cost onto the lending side. There can always be some lead and lag which will happen. Because if you look at the current MCLR regime compared to the earliest base rate regime. In the base rate regime, the reset of the lending rate used to happen immediately for in the following month for bulk of the floating rate portfolio. Under the MCLR regime, most of the lending that banks do is a 6-month reset or a 1-year annual reset which is there. So as the MCLR increases, the impact of that on the lending portfolio takes that 6 months or 12 months to flow through completely. So that is the lag which could come in. But otherwise, our belief is that in general, the banks will be able to pass on the increased funding cost onto the lending side. But yes, I don't think banks will be passing on more than the funding cost increase. So one cannot expect an expansion to come in. But maintenance of NIM from passing on the increase in funding cost is something we believe is the best case.

[Operator]

The next question is from the line of Suresh Ganapathy from Macquarie Capital.

[Suresh Ganapathy, Head of Financial Research]

I have 3 quick questions. One is what is your outstanding ARC -- sorry SR book right now?

[Rakesh Jha, Chief Financial Officer]

Yes, so there was -- we did not do any sale during the quarter. I'll just tell you that it would be the same as where we were in March. It's INR 34.38 billion, which is virtually the same as at March.

[Suresh Ganapathy, Head of Financial Research]

Okay. And any reasons for the delay in publishing the annual report?

[Rakesh Jha, Chief Financial Officer]

So our AGM is scheduled for September 12. So we would be issuing the annual report next week in line with our normal schedule which is there. Of course there are new changes at the board level with the new chairman coming in. So that is why it would have been delayed than usual.

[Suresh Ganapathy, Head of Financial Research]

Okay, fine. And finally, this is a challenge that we all have of course. The banks are going to transition to IFRS next year. Any indication of what would be the sustainable credit cost for ICICI and any specific ROE target that you guys have got over the course of next couple of years that you plan to reach?

[Rakesh Jha, Chief Financial Officer]

So on IFRS, I guess once we have the final details of the full implementation, one can have a better sense on how the credit cost will move. But in general, IFRS requires expected trade loss provision to be done. So based on the past experience, that has to be taken. But I guess we'll just have to wait for the absolute final guidelines on that from RBI to be able to comment how it would be. But of course, inevitably we would expect that credit cost to start normalizing once we move over to IFRS, which as of now is scheduled for April 1, 2019.

[Suresh Ganapathy, Head of Financial Research]

Sir, will the normalization be in double digits or in triple digits?

[Rakesh Jha, Chief Financial Officer]

I don't think we are commenting on that as of now, we'll just see based on the -- it will anyway, it will be triple digit, it will be low triple for sure, but we have not given any specific numbers there as yet.

[Suresh Ganapathy, Head of Financial Research]

Okay, and finally on the ROE target?

[Rakesh Jha, Chief Financial Officer]

ROE target, earlier in the previous call we had talked about a 15% ROE by June 2020. And that is what is our target for ROE. And then as we get to that, beyond that we will see, I believe we would want to have 17% to 18% ROE. But as the first thing we had talked about a 15% ROE by June 2020.

[Operator]

Our next question is from the line of Krishnan ASV from SBICAP Securities.

[Krishnan ASV]

I just wanted to understand, you articulated a vision 2020 in your March 2018 numbers. Since then, there has been a change in the management, in the board. Are you reassessing the vision 2020? Or should we consider that there is a buy in with the new management and the new board on this vision 2020? That's number one. Number two, what is ICICI Bank -- are you looking at tweaking or relooking at your internal process controls? Because there has been a few frequent whistleblower complaints now. So is there a reassessment of what can be done there? Could you just run us past what you have done with your process controls?

[Rakesh Jha, Chief Financial Officer]

So in terms of the vision that we talked about in terms of our objectives for 2020. They were around the 15% ROE target, increasing the provision coverage on the NPL, maintaining the growth in CASA deposits, leadership in technology. So all of that continues to be the objectives for the bank. So the views are kind of quite the same as we talked about in the previous result call and the objectives would pretty much remain the same.

[Krishnan ASV]

Great. About the second question around the process controls, given the frequency with which ICICI bank has been burdened with whistleblower complaints now.

[Rakesh Jha, Chief Financial Officer]

So we do have a pretty good whistleblower process at the bank. And as is with anything which is raised. That is addressed by the audit committee in a comprehensive manner. So of course there have been these 2 whistleblower complaints which have come about in the last few [indiscernible]. And we are -- the audit committee seized on that and has set up work from internal audit. And as when required from external experts. I'll get Sandeep Batra to also add on to this.

[Sandeep Bakhshi]

Hi Krishnan. We haven't had a whistleblower since 2003. And each quarters our audit committee looks at every whistleblower complaints. The small cases [indiscernible] in case we ready for [indiscernible] which needs to be done at a back level, we do that. I think they will treat these complaints in a very secular fashion and if required -- any specific improvements are required we will [indiscernible]

[Operator]

The next question is from the line of Mayank Bukrediwala from Goldman Sachs.

[Rahul M. Jain, Executive Director]

This is Rahul here. I've got 2, 3 questions. First one is just on this, again going back to BB and below. So this INR 66.8 billion, which is less than INR 1 billion or so. This, ideally should be looked at in context of the SME portfolio that you've got, right? So that would work out about 30-odd percent. Am I looking at correctly?

[Rakesh Jha, Chief Financial Officer]

Not really, because there will be -- within the corporate portfolio, there will be exposures which are below INR 1 billion. There would be builder loans also, which will be less than INR 1 billion and even the business [ lending ]groups, so that is the number which is aggregate. So I don't think you should divide it by a particular business group and then reach a conclusion.

[Rahul M. Jain, Executive Director]

Okay. So essentially what I'm trying to understand, Rakesh, is if one looks at the SME portfolio, how would this proportion would have moved the BB and below kind of exposure in that particular segment? And the remaining portfolio, how has been the quality of that portfolio? Essentially I'm just trying to get qualitative color on that.

[Rakesh Jha, Chief Financial Officer]

On SMS, in the past, we've had higher level of NPLs and we've talked about that. As we mentioned in the last couple of quarters, the view going forward is of a much more stable quality on the SME. And we have been growing the portfolio also at around 17% to 18%. So I would think that it is -- we would expect it to be quite stable. Of course the nature of business in SME is such that there will always be some loans, which will be just about investment grade or below investment grade. But overall on the portfolio, we are quite comfortable on the SME side.

[Rahul M. Jain, Executive Director]

Have you given the outstanding NPL on SME book?

[Rakesh Jha, Chief Financial Officer]

We have not given separately the outstanding on the SME.

[Rahul M. Jain, Executive Director]

Okay. The second question is on, is it possible to get a breakup of -- or maybe the DSA cost which might be included in the nonemployee OpEx?

[Rakesh Jha, Chief Financial Officer]

We have not given that separately, but may be going forward, we will look at it.

[Rahul M. Jain, Executive Director]

All right. The other one is a qualitative question, the last one is. So it will be good to see an increase in LLP this quarter. Now what is your thought process? How we are looking at the LLP going forward in this year? Are we going to have similar rate? Any particular PCR target we've got in our minds that we're targeting by the end of this year? Any color on that will be appreciated.

[Rakesh Jha, Chief Financial Officer]

We have said that over a 2-year period by March 2020, that we would want to have a 70% provision coverage ratio. And we had also said that we will start seeing an improvement in the provision coverage ratio because as the NPL additions slow down somewhat from the earlier periods and we start seeing recoveries. We saw one in the June quarter in terms of the large outstanding NPLs. The provisioning coverage ratio would improve. So I would think that directionally you would see that improving from here on. And the number that we've talked about is 70% by, in 2 years time. But you will see a lot of that increase happening in the near term quarters itself.

[Operator]

Our next question is from the line of Sandeep Baid from Quest Investment.

[Sandeep Baid]

Rakesh, continuing on the provision coverage ratio, you mentioned 70%. Is this including the write-off or this is excluding the write-off? The reason why I'm asking this us because earlier, I think Sandeep, mentioned that provisions will remain elevated in FY '19. Now if you look at your provision coverage ratio at around 66% including the write-off and given that going forward you will have some write-backs as well as the provisions given that you made 100% provision on the steel asset. So I just wanted some more color as to why we are saying that provisions will remain elevated going forward as well?

[Rakesh Jha, Chief Financial Officer]

Yes. So on the coverage actually what will happen is that over the next 2 years, we would expect and hope that a lot of these loans will get resolved. And at the time of the resolution, these write-offs, which are technical in nature will either result in actual write-offs or will result in write-backs. So the 2 ratios would start converging a lot more going forward. So that is on the coverage ratio itself. The reason why the provisions we have said will remain elevated, an example of that was in the current quarter because of the RBI requirement of aging provisions on NPLs based on the time for which a loan is classified as NPL. So if the resolutions are delayed by a few quarters, some of these loans, they get into the next bucket in terms of the provision requirement like we saw in one of the large steel accounts in the June quarter. So that is the reason we expect the provisions to remain high. And plus of course there will also be resolutions that we see from NCLT with all the cases referred there, and maybe some of those cases would also incrementally require provisions. So FY 2019, we have been saying earlier as well that the provision numbers will remain elevated while the NPL additions should come off.

[Sandeep Baid]

Right. And my second question was on your core operating profit. Is there a internal target in terms of the rate at which we want to grow our core operating profit going forward for the next 2 or 3 years?

[Rakesh Jha, Chief Financial Officer]

We have not put out any specific target on the core operating profit as of now. But as Sandeep mentioned, that is a core metric that we will be looking at on a going forward basis. And maybe going forward, we'll see if we want to kind of put out any specific target on that.

[Operator]

The next question is from the line of Nilanjan Karfa from Jefferies.

[Nilanjan Karfa, Equity Analyst]

Most of my questions have been answered. Just a quick one. The retail NPL increase is primarily linked to the [indiscernible], is that the case?

[Rakesh Jha, Chief Financial Officer]

Yes.

[Nilanjan Karfa, Equity Analyst]

Okay. And sorry, in the last quarter, that's Q4, I think in the home finance subsidiary there was also a very large slippage. Could you clarify what that was?

[Rakesh Jha, Chief Financial Officer]

So in the previous [indiscernible] company. Also we had a couple of loans for builders which had slipped in the last financial year. This quarter, there was not really any incremental slippage in terms of [indiscernible]

[Operator]

Our next question is from the line of [ Alel Kala ] from [ Abitibi ] Sun Life.

[Unknown Analyst]

I just wanted to know your sense on slippages for financial year '19.

[Rakesh Jha, Chief Financial Officer]

I think we have said earlier that we would expect the slippages to be clearly be lower than what we have seen in the previous couple of years. And in terms of numbers, we do still have on the existing book a few of the lumpy loans which are there, so maybe if we look on quarter-on-quarter basis, how the trends will be. But in aggregate, we would expect the slippages to clearly be lower. We have not quantified the numbers there.

[Unknown Analyst]

Just a question -- this question was with the perspective that now that we have started reporting the BB and below book, could you tell us how much of this would be under stress or you would expect -- how should one read into your disclosure of the outstanding book, which is excluding all our various classifications?

[Rakesh Jha, Chief Financial Officer]

I think what we have put out is how we look at it internally, which is that these are loans which are below investment grade. So they are relatively higher risk in terms of possibility of default compared to the investment grade portfolio. Very difficult to then start differentiating in terms of the individual loans which are in this category. The one challenge, which has been there in the past for the bank, has been the shared lumpiness of these BB and below exposures. And by giving this data we are also just trying to say that if you look at the additional BB loans that we have put out, more than half of that is less than INR 1 billion. And even what is more than INR 1 billion, other than this one sugar company, which got upgraded into this category, the rest of it is less than INR 6 billion in terms of outstanding. And we have separately also discussed in the past that incrementally over the last year or 2, our focus has been to move away from lumpy lending. So that is the context of it. In terms of slippages from this portfolio, we have put this out and we'll put this number out consistently on a quarter-on-quarter basis like we used to do for the drilldown list and I'm sure with that you will have a sense on how it looks.

[Unknown Analyst]

Last question on this piece was, if you look at slide #28, fairly difficult to gauge that how much of A- of our loans has slipped in the past to, say, a BB and below. So maybe if you could tell us how...

[Rakesh Jha, Chief Financial Officer]

I can give you some...

[Unknown Analyst]

Quarterly trends and how much addition happened in this book and how much reduction happened through upgrades and also through NPA classification?

[Rakesh Jha, Chief Financial Officer]

I'll do it, then we can get into each individual category and the transition metric for that. But I can give you a qualitative view that in past our experience has been that A- and above internally rated loans, we have seen much lower, very low amount of slippage coming in from that portfolio. There have been some borrowers, for example, where there have been instances of fraud, which can happen to any rating category. But other than that, we have been extremely positive about the A- and above rating categories. And these are internal ratings. So in that sense extremely consistent from the way that we look at it. And this is a portfolio that we are looking to grow across our businesses. We will of course do some lending below this category this also, as long as we get the right return for that and as long as it is not lumpy. So that is how we are looking at it. And I think A- and above, I think I can assure you that the experience of the portfolio has been quite good, even in the current cycle itself if you look at it.

[Sandeep Bakhshi]

Well, a lot of our loans stay on for this finance, for example, on the multi-commodities side of it would have been in the investment grade category itself. That's in the BBB bucket and they were lumpy and that over time slip into the BB and below. It's how the portfolio has moved in the past.

[Unknown Analyst]

Because it was difficult to understand this 28% being starting at the BBB+, BBB, BBB-. So maybe we'll not be -- at least I am not able to gauge -- so maybe in the next quarter, would you give us the movement between say the numbers for BBB+ or anything BB and above? Addition, deletion?

[Unknown Executive]

We would...

[Unknown Analyst]

Maybe that assessment is that does this number go up in the next quarter, go down in the next quarter and how was experienced versus last year, same time?

[Rakesh Jha, Chief Financial Officer]

We will -- anyway you will have general -- the stock of that number will be the outstanding stock and the NPA amount also will be there. So one will be able to gauge from there what would be considered the normal additional information we can give you.

[Unknown Analyst]

And just a last question, what will be outstanding provisions which you will be carrying on all non -- not classified NPA but classified stressed loans. So is it like drilldown list that is for -- in the SDRs and anything on the non-fund based?

[Rakesh Jha, Chief Financial Officer]

Now what has happened all -- these loans, which are there are largely now classified, actually all of them are classified as NPAs itself. So the provision that you're seeing, while corporate is now is part of the NPA provision and then we have the outstanding general provision on standard assets, which we have given separately, which is about INR 26 billion. Aside from that, the provisions will not really be…

[Unknown Analyst]

And just from an outstanding -- last question understanding from the point of view of IFRS implementation, if it is supposed to be done hypothetically 1st of April 2019, based on 1st of April 2018, would it be fair to assume that your ROE number excluding 15% in first quarter is next year first quarter itself?

[Chanda Deepak Kochhar, MD, CEO & Director (Leave of Absence)]

We will have to see [indiscernible] how it will play out. There's too many moving factors to comment on that. Once we have the final guidelines of RBI, then we can -- and so it's -- it will be appropriate to say that indeed, it will result in a lot of normalization on the earnings itself. But a specific number is difficult to comment upon right now.

[Operator]

Our next question is from the line of Amey Sathe from Tata Mutual Funds.

[Amey Sathe]

A question from my side. One is on the long-term trajectory for the bank say 2 years here down the line. Considering now retail book is almost 58% vis-à-vis 37% in sales [ 5 15 ] plus higher proportion of AA and our record corporate. So is it fair to say that we are -- the ROE of 1.3, 1.4 is more realistic compared to 1.6 that we are assuming has been reporting?

[Unknown Executive]

We have talked about an ROE target, which is there, which we are looking at 15% by June 2020 and then in the interim of course there will be some changes that will come about because of IFRS. So difficult to comment on the specific numbers. But in terms of the composition, we would expect that, indeed, there will be the credit cost through the cycle on the portfolio that we are building currently on retail, on corporate and SME. Should be lower than what we have seen in the past. That is something that we can say on the specific ROE numbers, we will just have to wait and see.

[Amey Sathe]

Okay. And second, on sales coverage of 70%, any thoughts on subsidies stake sales and do we need to do any more stake sales in this year?

[Unknown Executive]

There is nothing specific that we are looking at doing in the current year from subsidies stake sales. We have done this 2% in ICICI Prudential Life Insurance, which we would have been required to do at some stage given the public float requirement which is there for the company. But it's the holding that we have in all these companies and we would always want to maintain that flexibility of selling if we wanted to. But there is no plan as such on this.

[Operator]

Our next question is from the line of M.B Mahesh from Kotak Securities.

[M.B. Mahesh, Senior Analyst]

Just a couple of questions, back again to the same slide on the rating. You have indicated that the total outstanding loan book is about INR 5.1 trillion, and you said 9% of it is BB and below. You have an outstanding stock of net NPL, which is about INR 242 billion, which definitely means that the book which is BB and below which is not rated in that NPL is about INR 223 billion. The corporate and SME book which you reported on the next slide is about INR 246 billion, and this includes fund and non-fund based exposure. If you could just kind of subtract the 2, it's about INR 23 billion, which translates into non-fund base exposure. But it's in that slide, you reported about INR 48 billion as non-fund base exposure. Just trying to reconcile these 2 numbers that you have reported out there.

[Unknown Executive]

We could do that off-line reconciliation. But those numbers are accurate, maybe because of the simple -- BB and below unrated is a separate category. And we have given the non-fund outstanding. Also we could reconcile it.

[M.B. Mahesh, Senior Analyst]

But it doesn't add up now, okay, INR [ 563 ] billion that you reported in that slide, if I do it in to 9% and minus the net NPL that is the one which is yet to be recognized as stress, right? As NPL? That's right, right?

[Unknown Executive]

Yes. But that [ 8 ] that is -- I'm saying because it is a similar number, no Mahesh? [indiscernible]

[M.B. Mahesh, Senior Analyst]

That is actually double and the problem with that is that this INR 246 billion will have nonfund base exposure, which is sitting in other sectors as well.

[Unknown Executive]

Mahesh, if I can just reconfirm to you that INR 246.29 billion is fund and nonfund based outstanding for all BB and below. And if you take the fund based off this cash plus the NPAs that we have reported, it's BB and below in the table. We would separately reconcile if you would want to do that for the numbers.

[M.B. Mahesh, Senior Analyst]

Okay, so just kind of adding to this question. How do you rate -- you have just indicated in the table that the retail book has been taken at a product level and you just added to the respective sectors. If I -- where do you put the critical sector like housing in your portfolio? Or everything is A rated and above? The reason I'm asking this question is your total outstanding retail book has grown from 47% to 58% from the time you made this presentation, which is about 12 percentage points. That is almost equal into the increase in the A rated and above.

[Rakesh Jha, Chief Financial Officer]

So yes, so what we do is that on the -- so all of these are based on the internal ratings that the bank has. And based on the past data, we would have an experience of the property or default for each of the rating categories, Mahesh. So based on that, what the listing does is that maps the retail portfolio, all to their respective internal rating categories to have a consistency in the overall portfolio ratings. So each of the portfolios which are there on the retail side will get mapped to a particular rating category. And that rating category, the retail portfolio, for example, a mortgage of course will be in the AA- and above. And of course the loan credit card will typically be in a BBB kind of category. So that will be spread across these rating categories, based on the analysis that the listing does of the probability of default on that portfolio and mapping it on to the internal rate.

[M.B. Mahesh, Senior Analyst]

Okay, okay. Just one clarification to Vishal here. You indicated that you have some portfolio which will run down in some portfolio which is kind of growing. Can you broadly tell us what is this mix between the books? Because we are just trying to see when does the overall loan book start to grow at some particular point in time on the corporate side at rate which is closer to the industry?

[Rakesh Jha, Chief Financial Officer]

As I mentioned in terms of the number, the -- so what will happen is that in this current year, we will see the resolutions and the provisions still coming in. So you will see the much more normalized growth on the corporate side, which Vishal had referred to at about 15% to 16% starting to reflect the overall numbers for the bank from the next financial year because a lot of the resolution and provisioning will happen during the current year itself. So it will get closer to the overall growth, will get closer to the performing book growth in the next financial year. This year, it will still lag the growth that we see in the performing loans.

[M.B. Mahesh, Senior Analyst]

Then I have to ask one question, sorry for this. What will be the total NPL case exposure that you will have in your portfolio outside the NCLT 1 and 2? On the defined 1 and 2 list?

[Rakesh Jha, Chief Financial Officer]

We have not given that number separately. But that is not a very large number because there are all these large cases where they're being kind of directed by RBI. We will have some cases but I don't have the number ready with me. It will not be a large number.

[Operator]

The next question is from the line of Manish Agarwalla from PhillipCapital.

[Manish Agarwalla, Co]

Can you give us your SME 1, SME 2 book?

[Unknown Executive]

From the stress point of view, to kind of look at the portfolio, we have given the aggregate BB and below portfolio. We have not given separately the SME category of the portfolio.

[Manish Agarwalla, Co]

Or say, to get some sense on this BB, I'm sorry to dwell again on the subject. Can you give some sense out of this funded BB and below book, what would be, say, SME 1 and 2? Some sense on that? Because that will be very helpful for us.

[Unknown Executive]

We have not disclosed that separately, but we can look at -- for that on a going forward basis. So what we have done is that given the entire BB and below portfolio, at a particular point of time, there'll be some loans can be SME 1 or 2 bucket but they may not be in any of those buckets. So that will not be -- does not differentiate too much in the portfolio. We have given the aggregate BB and below portfolio.

[Operator]

And the next question is from the line of Anand Laddha from HDFC Mutual Fund.

[Anand Laddha]

A couple of questions from my side. Just want to understand, there have been talk of integrated agreement among banks. Just want to understand what's the status of ICICI Bank? And if ICICI Bank is part of the same -- what sort of resolution do we expect in the coming quarters or coming 6 or 12 months? Also if you can share your outlook on the margins? And this quarter, there has been resolution of one last steel account. If you can quantify what proportion of interest income, because of this resolution, has been recognized in this quarter.

[Anindya Banerjee, Senior General Manager]

So yes, we have got that approval so we will sign this if there is an agreement. And we think it's a good step because as you know, on February 12, we had actually withdrawn on the [indiscernible] including the [indiscernible] in particular. So at the moment, there is no extra -- the framework for resolving the assets that's in the banking system, particularly in the absence of the common documentation between the banks. So we think it is a good step and I think the first cases that have been discussed right now are the cases which will be reported immediately to probably the NCLT, so we are discussing 2 of those cases. I think this is a good system and that you will find a lot of resolutions attempted as we go forward..

[Rakesh Jha, Chief Financial Officer]

On the margin. In the current quarter, in Q1, we did see some positive impact of high interest collection from nonperforming loans. So that would have positively impacted the margin by about 10 basis points or so. And that is something which may not repeat on a every quarter basis. And so because of that there would be pressure on the overall margin downwards. But on a core basis, as I mentioned earlier, we believe that the funding cost increase, we should be able to pass it onto the lending side. So it will just be that the collection of interest from NPLs could be lower going forward, because we had a large collection in the current quarter which benefited by 10 basis points.

[Anand Laddha]

If you can quantify what could be that amount?

[Rakesh Jha, Chief Financial Officer]

About 10 basis points is the impact that we were about positive in the current quarter on the NPL interest collection, and that number has varied in the past. It has been in some quarters a couple of basis points, has been as high as 12 to 14 basis points also.

[Anand Laddha]

And one last question. In the build-on exposure, there is still an iron and steel exposure, what we understand is that there has been a rating upgrade for a large steel company in Q1. So do we expect in our case also this account to move to BB or better in the corporate?

[Rakesh Jha, Chief Financial Officer]

It is currently BB rated so it will go out of the drilldown list if it gets upgraded to BBB-. So that is something which our independent risk team evaluates on a regular basis. So it's very difficult to comment on that. So they will do their evaluation like they do for any other loans. And if at any stage they believe it should be investment grade it will be upgraded. That is -- we can't comment on the timing of that upgrade or if at all that upgrade will happen.

[Anand Laddha]

But it is not linked to any external upgrade of the account?

[Rakesh Jha, Chief Financial Officer]

These are all internal ratings by the independent risk team of the bank.

[Anand Laddha]

Okay. And just to understand, this steel account which you had a deal on, there were a couple of accounts? Or only just one account?

[Rakesh Jha, Chief Financial Officer]

In terms of?

[Anand Laddha]

In terms of steel exposure, is this exposure to a couple of accounts or is this just 1 single account?

[Rakesh Jha, Chief Financial Officer]

No, the steel exposure is to more than 1 account. But the very large part is to one of the borrowers .

[Operator]

Ladies and gentlemen, that was the last question. I'll now hand the conference over to the management for closing comments.

[Unknown Executive]

Thank you so much.

[Operator]

Thank you. On behalf of ICICI Bank [indiscernible]