ICICI Bank Ltd

NSE:ICICIBANK

Earnings Call Transcript 2020-Q1

[Sandeep Bakhshi, MD, CEO & Executive Director]

Good evening to all of you, and welcome to the ICICI Bank earnings call to discuss the Q1 2020 results. Joining us today on this call are our Executive Directors, Vishakha and Anup; Executive Director Designate, Sandeep Batra; Group Chief Financial Officer, Rakesh; and our Head of Investor Relations, Anindiya. Our core operating profit increased by 21.2% year-on-year to INR 61.1 billion in Q1 of 2020. The core operating profit, excluding dividend income from subsidiaries, increased by 25.3% year-on-year to INR 59.19 billion in Q1 of 2020. We continue to see healthy growth in our funding, as we had expected and indicated earlier. The growth in term deposits has outpaced the growth in CASA deposits, reflecting the systemic trends and the growth opportunity on the credit side for well-capitalized banks with strong customer franchises. Total deposits grew by 20.8% year-on-year from INR 5.5 trillion to INR 6.6 trillion as of June 30, 2019. The average CASA deposits increased by 12.3% year-on-year in Q1 of 2020. On the asset side, the domestic loan book grew by 17.9% year-on-year at June 30, 2019, driven by retail loans which grew 22% year-on-year. The overall growth rate -- loan growth was 14.7% year-on-year. The bank continued its digital initiatives with the launch of Instabiz, designed especially for MSMEs and self-employed customers to enable them to undertake their business banking transactions digitally. Customers can avail as many as over 115 products and services in a digital and secured manner on their mobile phone or through Internet banking. During the quarter, the bank's iMobile app was named the Top Mobile Banking app in India in a report published by Forrester. With respect to asset quality, the gross NPA additions during the quarter were INR 27.79 billion. We had mentioned on our previous call that credit costs in financial year 2020 are expected to reduce significantly compared to financial year 2019 and be in the range of 1.2% to 1.3% of average advances. There would be variance in credit cost across quarters based on the timing of aging base provisions on existing NPAs and the resolution of NPAs. Provisions as a percentage of average advances reduced from 3.67% in financial year 2019 to 2.4% in quarter 1 of 2020. While the NPA additions and gross provisions for the quarter were in line with expectations, recoveries were lower, especially due to the delay in resolution of a steel account in NCLT. The provision coverage ratio, excluding technical write-offs, increased from 54.1% as of June 30, 2018, to 74% as of June 30, 2019. The net NPA ratio declined from 4.19% at June 30, 2018, to 1.77% at June 30, 2019 -- 2020. This is '19 and '20 -- '18 to '19, sorry. The corporate and SME BB and below portfolio was INR 153.55 billion compared to INR 246.29 billion as of June 30, 2018. As we have mentioned in the past, we are not targeting any particular level of loan growth. Our focus is on growing the core operating profit in a risk-calibrated manner. We are seeking to improve our share of profitable market opportunities by making our delivery to the customers more seamless and frictionless through digitization and process improvements. In wholesale banking, we continue to focus on lending to higher-rated corporates and maintaining limits on concentration risk. In Q1 2020, about 88.5% of the disbursements in the domestic and international corporate portfolio were to corporates rated A- and above. We are further refining our approach towards longer-term loans. Our SME portfolio is relatively small, and we have scope to increase penetration in this segment, covering both credit as well as deposits and transaction banking. We focus on granular and collateralized lending. We have recently reorganized our SME business with: The retail business group, focusing on enterprises having a turnover of less than INR 2.5 billion; the mid-market group, focusing on enterprises with turnover of EUR 2.5 billion to INR 7.5 billion; and enterprises with turnover greater than INR 7.5 billion being aligned with the corporate banking group. Our business banking portfolio primarily comprises secured small-ticket lending. We see this as a segment with high potential for growth given our historically lower presence in this segment. The introduction of the Goods and Service tax has given an impetus to formalization and the ability to assess credit in this segment. We're expanding our digital offerings to small business customers. The home portfolio comprises mortgages and loans against property, accounts for about 50% of our retail portfolio and 31% of our overall loan portfolio. This portfolio has performed well across cycles. We monitor the risk of construction delays in properties we have financed and also monitor builders across various micro markets. The credit filters are recalibrated regularly based on the results of this exercise. The loan against property portfolio is granular with conservative loan-to-value and lending based on cash flows of business/individuals with limited reliance on the value of collateral. Among the nonmortgage retail products, the rural portfolio accounts for about 8% of the overall loan portfolio. Within this, gold loans comprise about 2% of the total portfolio and Kisan credit card comprise about 3% of the total loan portfolio. Auto loans and commercial business loans, which includes commercial vehicle financing, account for 5% and 4% of the overall portfolio, respectively. Personal loans and credit cards are about 8% of our overall portfolio. We have grown this portfolio from a low base primarily through cross-sell. The portfolio largely comprises salaried customers. We use multiple credit filters to assess the customers' overall credit behavior. These include models to identify and exclude customers who can potentially get overleveraged. Based on portfolio analytics, we implement necessary mitigants such as revising the target income segments and calibrating sourcing from identified segments or locations. The credit quality of the personal loan and credit card book continues to remain stable. Our approach to retail credit is based on assessment of risk across customer segments and profiles and product categories in a granular and focused manner. Overall, the credit quality of the retail book has held up well. Based on the credit bureau data, our delinquency levels across various products are below industry average. We expect the credit cost to remain within our tolerance levels and our overall outlook on credit costs. We continue to be focused on achieving a consolidated return on equity of 15% by the quarter ended June 2020. With these opening remarks, I will now hand the call over to Rakesh.

[Rakesh Jha, Chief Financial Officer]

Thank you, Sandeep. I'll talk about the P&L details, our performance on growth, credit quality, performance of subsidiaries and the capital position. First, on the P&L details. The net interest income increased by 26.8% to INR 77.37 billion in Q1, driven by both loan growth and an increase in margins. The net interest margin was at 3.61% this quarter compared to 3.72% in Q4 of 2019 and 3.19% in Q1 of 2019. There was interest on income tax refunds of INR 1.84 billion this quarter compared to INR 4.14 billion in Q4 of 2019 and INR 0.08 billion in Q1 of 2019. The impact of interest on income tax refund on net interest margin was about 9 basis points this quarter compared to about 20 basis points in Q4 of 2019. The impact of interest collection from NPAs was about 8 basis points this quarter compared to 5 basis points in Q4 of 2019. The domestic NIM was at 3.93% in Q1 compared to 4.12% in Q4 of 2019 and 3.54% in Q1 of 2019. International margins were at 0.33% this Q1 compared to 0.03% in Q4 of 2019 and 0.30% in Q1 of 2019. The bank recently reduced its MCLR by 10 basis points across tenors. Total noninterest income was INR 34.26 billion in Q1 of 2020 compared to INR 38.51 billion in Q1 of 2019. Fee income grew by 10.3% year-on-year to INR 30.39 billion this quarter. The retail fee income grew by 6.6% year-on-year and constitute about 72% of our overall fees this quarter. The lower growth in retail fee income was due to decrease in fee income from distribution of third-party products. Excluding the income from distribution of mutual funds, the fee income grew by 14.3% this quarter. Treasury recorded a profit of INR 1.79 billion this quarter compared to INR 7.66 billion in Q1 of 2019. Treasury income in Q1 of last year included gain of INR 11.1 billion from sale of 2% stake in ICICI Life Insurance Company. Dividend income from subsidiaries was INR 1.91 billion this quarter compared to INR 3.17 billion in Q1 of 2019. The dividend income from subsidiaries in Q1 of 2019 included dividend from ICICI Prudential Life Insurance. Coming to cost. The bank's operating expenses increased by 17.6% year-on-year this quarter. The cost-to-income ratio, excluding gains from stake sale in subsidiaries, was 43.7% in Q1 compared to 46.9% in Q1 of 2019 and 44.8% in FY 2019. During the quarter, employee expenses increased by 29% year-on-year. In addition to the annual increment in salaries and increase in the number of employees, this reflects the lower provisions on retirals in Q1 of 2019, that is last year due to increasing yields during that period. Excluding the impact of the interest rate movement on retirals, growth in employee expenses would have been at 17.7% year-on-year. The bank had 94,057 employees at June 30. The nonemployee expenses increased by 11% year-on-year this quarter. Provisions were at INR 34.96 billion this quarter compared to INR 59.71 billion in Q1 of 2019 and INR 54.51 billion in Q4 of 2019. The growth in core operating profit and reduction in credit costs resulted in a net profit of INR 19.08 billion this quarter compared to a net loss of INR 1.2 billion in Q1 of last year. Coming to the balance sheet. The domestic loan growth was 17.9% year-on-year, driven by a 22.4% growth in the retail business. Within the retail business, the mortgage loan portfolio grew by 19%, auto loans by 6%, business banking by 46% and rural lending by 17%. Commercial vehicle and equipment loans grew by 31% year-on-year. The unsecured credit card and personal loan portfolio grew by 47% year-on-year off a relatively small base to INR 481.36 billion and was 8.1% of the overall loan book as of June 30. Excluding the net NPAs and restructured loans at June 30, growth in the domestic corporate portfolio was about 13.2% year-on-year. The total SME portfolio grew by 23.5% year-on-year at June 30. It now comprises 5 -- about 4.9% of the loan portfolio. The net advances of the overseas branches decreased by 7.5% year-on-year in rupee terms and about 8.2% year-on-year in U.S. dollar terms. As a result of the above, the overall loan portfolio grew by 14.7% year-on-year. Retail loans as a proportion of total loans was 61.4% at June 30. Including the nonfund-based outstanding, the share of the retail portfolio was 48.5% of the total portfolio at June 30, 2019. The overseas loan portfolio was 10.1% of the overall loan book at June 30. Coming to the funding side. The term deposits increased by 33.7% year-on-year from INR 2.71 trillion to INR 3.62 trillion. CASA deposits grew by 8.2% year-on-year to INR 3 trillion at June 30. On a daily average basis, which is the number that we focus on, the CASA ratio was 43.4% in Q1 of 2020. As we have mentioned in our previous earnings call, the average CASA ratio is likely to decline for the banking system, including us. We will be focused on growing retail term deposits and our CASA deposits in absolute terms. Our endeavor would be to maintain a healthy and stable funding profile and our competitive advantage in cost of funds. During the quarter, we reduced the peak interest rate on retail term deposits by 20 basis points to 7.3%. Coming to the credit quality. The gross nonperforming assets was INR 457.63 billion at June 30, 2019, compared to INR 534.65 billion last June. During the quarter, the retail portfolio saw gross additions of INR 15.11 billion and recoveries and upgrades of INR 5.09 billion. The gross retail NPA additions during the quarter included slippages of about INR 4.5 billion from the Kisan credit card portfolio. As we have mentioned earlier, we will continue to see higher NPA additions from this portfolio in Q3 of this year and in the first and third quarter next year as well. Out of the corporate and SME gross NPA additions of INR 12.68 billion, INR 11.63 billion were from the BB and below portfolio. These include INR 5.43 billion of devolvement of nonfund-based outstanding to existing NPAs, slippages from restructured loans of INR 1.86 billion and INR 4.34 billion from other loans rated BB and below. The recoveries and upgrades were INR 9.31 billion this quarter. The bank sold gross NPAs aggregating INR 1.77 billion for cash during the quarter, and the gross NPAs written off during the quarter aggregated to INR 22 billion. The net NPAs were INR 118.57 billion at June 30, 2019, compared to INR 241.7 billion at June 30, 2018. As of June 30, 2019, the loans and nonfund-based outstanding to borrowers rated BB and below, excluding the NPAs, decreased from INR 175.25 billion at March 31, 2019, to INR 153.55 billion. The gross fund-based and nonfund-based outstanding to standard restructured borrowers was INR 2.42 billion at June 30 compared to INR 5.64 billion at March 31. The gross nonfund-based outstanding to nonperforming loans was INR 36.27 billion at June 30 compared to INR 42.2 billion at March 31. The bank holds provision of INR 13.51 billion at June 30 against this nonfunded outstanding to nonperforming loans. The balance, INR 114.86 billion of fund-based and nonfund-based outstanding to borrowers rated BB and below, includes INR 71.89 billion related to cases with an outstanding greater than INR 1 billion and INR 42.97 billion related to cases with an outstanding of less than INR 1 billion. On Slide 19 of the presentation, we have provided the movement in our BB and below portfolio during the quarter. We have a rating upgrades to the investment-grade category and a net decrease in outstanding, aggregating to INR 16.18 billion during the quarter. Upgrades include one account in the iron and steel sector. The rating downgrades from investment-grade categories was INR 7.16 billion. The downgrades from investment-grade categories were granular in nature. Lastly, there was a reduction of INR 12.68 billion due to slippage of some borrowers into the nonperforming category. This included case which were downgraded from the investment category. The loans, investment and nonfund-based outstanding to NBFCs was INR 264.85 billion at June 30 compared to INR 293.68 billion at March 31. Similarly, the loan, investment and nonfund-based outstanding to HFCs was INR 155.16 billion at June 30 compared to INR 138.58 billion at March 31. The loans to NBFCs and HFCs were about 5% of our total outstanding loans at June 30. The increase in outstanding to HFCs during the quarter is to companies which are well rated and owned by well-established corporate groups. The builder portfolio, including construction finance, lease rental discounting, term loans and working capital loans, was INR 202.49 billion at June 30 compared to INR 196.33 billion at March 31 and INR 169.9 billion at June 30, 2018. Coming to the subsidiaries. The details of the financial performance of subsidiaries is covered in Slides 27 to 28 and Slide 50 to 55 in the presentation. I will briefly talk about the major highlights: The financials of ICICI Securities, ICICI Securities Primary Dealership, ICICI Asset Management Company and ICICI Home Finance Company having been prepared as per Ind AS. The financial statements of these subsidiaries used for consolidated financials have been prepared as per Indian GAAP. The value of new business of ICICI Life increased by 26.6% year-on-year to INR 3.09 billion in quarter 1 of this financial year. The new business margin increased to 21% this quarter from 17% in FY 2019. The protection-based annualized premium equivalent increased by 87.7% year-on-year to INR 2.14 billion and accounted for 14.6% of the total annualized premium equivalent this quarter. The profit after tax of ICICI General increased by 7.1% year-on-year to INR 3.1 billion this quarter. The company's combined ratio was 100.4% in Q1 this year compared to 98.8% in Q1 of 2019. The return on equity on an annualized basis was about 23%. The profit after tax of ICICI Asset Management Company increased from INR 0.76 billion in Q1 of 2019 to INR 2.19 billion in Q1 of 2020. The profit after tax of ICICI Securities on a consolidated basis was INR 1.14 billion this quarter compared to INR 1.34 billion in the same period last year. ICICI Bank Canada had a profit after tax of CAD 11.8 million this quarter compared to CAD 14 million last year, same period. ICICI Bank U.K. made a net profit of 10.1 billion -- USD 10.1 million in Q1 of 2020 compared to USD 1.8 million in Q1 of last year. ICICI Home Finance had a loss of INR 0.06 billion this quarter compared to a loss of INR 0.03 billion in Q4 of 2019 and a profit after tax of INR 0.23 billion last year in first quarter. The loss in this quarter was due to provisions on the nonmortgage portfolio and expenses on scaling up of business over the last few quarters. The consolidated profit after tax was INR 25.14 billion this quarter compared to INR 11.7 billion in Q4 of 2019 and INR 0.05 billion in Q1 of 2019. The consolidated return on equity on an annualized basis was 8.7% this quarter. Coming to the capital position. As per Basel III norms, including the profits for the quarter, the bank on a stand-alone basis had a CET1 ratio of 13.21%, Tier 1 capital adequacy ratio of 14.6% and total capital adequacy ratio of 16.19% at June 30. On a consolidated basis, the bank's Tier 1 capital adequacy ratio was 14.27% and the total capital equity ratio was 15.87%. As per RBI guidelines from April 1, 2019 onwards, the unrated exposure of borrowers having banking system exposure greater than INR 2 billion is to be risk-weighted as 150% compared to 100% earlier. This has resulted in an impact of about 35 to 40 basis points on the CET1 ratio of the bank. So with this, I conclude my opening remarks and we will now be happy to take your questions.

[Operator]

[Operator Instructions] The first question is from the line of Mahrukh Adajania from IDFC.

[Mahrukh Adajania, Director]

Congratulations. My first question was on the BB portfolio. Will your entire exposure, including exposure to operating companies of ADAG, DHFL and Essel put together, be part of the BB? And if not, how much of it would be outside it?

[Rakesh Jha, Chief Financial Officer]

So Mahrukh, you know we do not comment on individual borrowers in terms of this classification. But this is based on our internal ratings of the bank. And the risk department, wherever it feels that there is inadequate comfort in terms of repayment of dues on time, they would classify the account as below investment grade. So that is what we disclose on a consistent basis every quarter.

[Mahrukh Adajania, Director]

So is there any risk for the BB portfolio shooting up? Because these are the most charged accounts, right? So...

[Rakesh Jha, Chief Financial Officer]

I think in the past, also we have mentioned that over the last now 3 to 4 years, we have adopted a policy wherein we have not taken lumpy exposures, especially on the lower-rated corporates. So if we look at the last few quarters as well, our expose -- while we have had some exposures to the companies which have been under stress, in some cases, no exposure also. But we have not had any meaningful exposure or significant exposure to a single borrower over the last few quarters. So that is something which gives us comfort, and that's what we are looking at.

[Mahrukh Adajania, Director]

Okay. And you all -- last quarter, you told about an airline account. Has that slipped?

[Rakesh Jha, Chief Financial Officer]

So that actually would have already slipped and we would have made provisions for that earlier itself.

[Mahrukh Adajania, Director]

Okay. And my last question is that in today's Business Standard, there's an article which has quoted some unnamed sources saying that ICICI Bank will raise INR 15,000 crore in FY '20 of equity capital. Is there any truth to it at all?

[Rakesh Jha, Chief Financial Officer]

So the bank has made absolutely no announcement in this regard at all. You have seen our current level of capital adequacy as well. So we have not made any announcement on this.

[Operator]

The next question is from the line of Manish Ostwal from Nirmal Bang.

[Manish Ostwal, Senior Research Analyst]

My question on the agriculture portfolio quality during the quarter. Your total retail slippage of INR 1,511 crores during the quarter. Out of that, in the Kisan credit card portfolio slippage of INR 432 crores. So one, what is our overall view on this portfolio, whether there will be a further slip -- continuously, these kind of slippages in coming quarters? And secondly, what are the factors contributing stress in this portfolio?

[Rakesh Jha, Chief Financial Officer]

So on this portfolio, we have been saying for now more than a year that there has been stress. It has come from the -- mainly from the farm loan waiver schemes which have happened across different states. And other banks have also talked about this stress. So -- and this is a product in which the payment is on a 6-monthly basis. The -- so that's why in the June and the December quarter is when we see a higher addition to NPLs from this portfolio. Even in the last year's Q1, we had additions which was higher than normal for this portfolio. One thing is that in this portfolio, the loans are priced reasonably well to account for credit losses over a cycle. But typically, the way it happens is that those trade losses do get lumped up in a couple of years. So that is what we are seeing currently. And it's a base case that the additions will indeed be high in December quarter when we announce our results for Q3.

[Manish Ostwal, Senior Research Analyst]

Sure, sir. Secondly, in the initial remarks, and this has commented -- about our bank is not focusing particular on loan growth. In this regard, in this quarter, we have seen the entire growth is coming from the retail book. And out of the retail book, the 98% growth is coming from housing loan, personal loan and credit card portfolio. Given the slowdown in the economy and especially consumer retail -- finance market, can we expect some slowdown in this book also or we can maintain this kind of growth?

[Rakesh Jha, Chief Financial Officer]

I think as we have mentioned that we are not looking at any specific loan growth or any particular segment, where we want to grow. Depending on the opportunity which is there in the market and that opportunity meeting our risk and return threshold, we would be happy to grow the portfolio. On the retail portfolio, especially on the personal loans and credit cards, now it is about 8% of our overall portfolio. And so the growth that we are seeing is coming from a low base. A lot of the new business that we are doing here is with our existing customers through cross-sell, so that again gives us comfort. And the current trends, as Sandeep mentioned earlier, are quite stable on the portfolio. Similarly on the mortgages, if the industry does [ seize for long], maybe they will also see that. But as of now, the growth is there, and we are happy to grow as long as our risk and return criteria are met. And it's not just on the retail side. On the corporate side to some extent, the growth is not as visible. Because if you exclude the NPL and the restructured book, the growth there is running at about 13% overall. Plus, we also do a fair bit of loan syndications. So the opportunity which is there on the corporate side and also is something that we are looking at. Even on the SME side, the growth has been quite healthy. So it's pretty well spread across the portfolio if we look at it.

[Manish Ostwal, Senior Research Analyst]

And last question on the growth of NBFCs-led housing finance portfolio, some of the -- your peer banks have given a cautious view towards the growth of that portfolio; whereas in our book, we have seen that the growth in the NBFC book was with the growth of housing finance companies and builder portfolio. So whether we are completely risk-averse in that segment, or we are ready to -- we are doing some growth on selective basis, what is your overall view on the growth in this portfolio? And secondly, are we seeing the risk levels are increasing? Or it is abating?

[Rakesh Jha, Chief Financial Officer]

Again, our focus is we look at individual companies. And where we are comfortable with the risk, we are happy to lend. It's not that if it's an NBFC, let's just say we will not lend at all. That is not the criteria that we are looking at. So we have seen some growth in the HFC portfolio between March and June, and these would be names with which -- with whom you would be extremely comfortable. So I don't see that as an issue. The NBFC portfolio, we did see some decline. There would have been some repayments that would have happened per se. On the builder portfolio, again, if you look at the last 2 or 3 years, the portfolio has not really grown much for us. It has been -- it was about INR 180 billion 2 or 3 years back. It's today at about INR 200 billion. We did see some increase between March and June of about INR 5 billion to INR 6 billion. Again, the focus here is to limit ourselves generally to the top-tier builders and keep the portfolio reasonably well spread within those builders as well. So it's a very selective approach that we have on this portfolio.

[Operator]

[Operator Instructions] We move to the next question from the line of Kunal Shah from Edelweiss.

[Kunal Shah, Associate Director]

Congratulations for the set of numbers. So firstly, in terms of retail, you said that in Q3, again, we will see in next year as well, we could see some higher slippages on the Kisan credit card. So looking at the quantum, which has been there in this particular quarter, would it be fair to assume that it will be more or less in a similar kind of a range? Or maybe we have provided for most of it in Q1 and the trend should be relatively lower going forward?

[Rakesh Jha, Chief Financial Officer]

I think in this portfolio where we have seen some slippage, we should assume that there could be some increase there. But again, we have to keep in context that after all of this, you're are talking about a INR 4.5 billion slippage on this during the quarter. So if you look at it in the context of that, it's not a very large number. It's just a number, which is there on the portfolio, so we highlight it out separately. But I think, again, in the base case, you could assume that December quarter numbers could be somewhat higher than this also. Last year, the experience was the December quarter number was a bit lower than June. So we will see how it plays out.

[Kunal Shah, Associate Director]

No, so overall slippages, you were adding that it will be significantly lower than what we saw in FY '19. But this time again it was largely led by, say, the retail one, and so it came from BB and below. But run rate is like INR 2,800-odd crore. Then if we, more or less, annualize and assume it to be there, then would the slippages be still like significantly lower? And are we still maintaining our credit cost guidance, so 1.2%, 1.3%.? So maybe Mr. Bakhshi earlier highlighted that there could be volatility in between the quarters, but we are still continuing with the guidance.

[Rakesh Jha, Chief Financial Officer]

Yes. So on the first thing, Kunal, we have for FY 2020 that this financial year, the -- we have said that the provisions will come down significantly from FY '19 to FY '20. The NPA additions, actually, if you look at FY '19, that itself has come down significantly from FY '17 and FY '18; whereas the number in FY '17 and '18 was in the region of INR 25,000 to INR 30,000 crores. The number in FY '19 was already down to INR 110 billion to INR 120 billion. So -- and that, if you look at the slippage in this quarter on a gross level, no, it is up slightly more than maybe around 2% of the opening portfolio. And this is the gross slippage. Of course, against this INR 27 billion, we also have recoveries, which come in every quarter. Some of that is lumpy, so it can vary. But some of it just comes from the retail portfolio, which will come every quarter. So if -- we are expect -- we are not expecting the NPL additions in FY '20 to be significantly lower than FY '19, and that was never the assumption. So because it's already running at 2%, I think in the normal course also it would run around that base.The provisioning for the year, if you look at other quarters, the gross provisions were pretty much in line with what we were expecting. There was really no major surprise there on the provisions -- on the gross provision. What did not happen was a couple of recoveries that we were expecting. So hopefully, that will happen sometime during the latter part of the year. So that is the reason why we are comfortable with that 1.2% to 1.3% credit cost for the year. And of course, the major variable there could be the amount of recoveries that we are able to get compared to what we have planned for. Hopefully, that, that will happen.

[Kunal Shah, Associate Director]

And lastly, in terms of coverage. So are you now comfortable at INR 70 crores simply because they have further increases now, so should we assume that it will settle hereon? And because maybe recoveries also anticipated, so then maybe this could be a comfortable level. Because this coupled with the news of fund-raising, I'm not sure maybe at what level of capital adequacy we are looking to use the funds. But any plan in the next 12 to 18-odd months for fund-raising?

[Rakesh Jha, Chief Financial Officer]

So I don't think, first, the 2 are linked at all. In -- on the provisioning, we were anyway at 70%, which was quite comfortable at March 31. So the way the RBI guidelines work is that for a couple of loans, they would have moved into a bucket, D3 bucket. And that would have meant that we have to move the provision to 100% provision level. And that's the reason why the coverage has gone up. We are not really looking at increasing the coverage from the current level. If it so happens as per the RBI guidelines, that may happen. Otherwise, this level -- in fact, anything close to 70% is extremely comfortable.On the capital, as we responded earlier, there is no announcement that we have made at all on that capital raising. You are aware of our current level of capital position. And of course, the net NPA numbers have anyway come down substantially in terms of the outstanding on the book. The coverage is extremely high, so we don't require capital from that perspective at all. At a future date, if we require capital from a growth point of view, we will look at that. As of now, we are focused on moving towards the target of getting to a 15% consolidated ROE by June 2020.

[Operator]

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

[Suresh Ganapathy, Head of Financial Research]

Maybe this question was answered, but I just want a bit more color from Anup on this. Your competitors have been saying that there are some early warning signals coming in the unsecured portfolio and in general, in the retail portfolio with respect to consumer leverage increasing or frequency of borrowing increasing. Any early signals that you have seen in your portfolio? And what would actually be your view on the retail asset quality because the cycle has been too good to be true for all the players?

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

So Suresh, first of all, let us split it up into secured and unsecured. For secured, we have seen many cycles, like many other people because we had a previous cycle as well. So secured by now everything has come back. So we have seen that through the cycle. It has been all okay. On the unsecured side, which is where largely the discussions are, our penetration of the customers on unsecured is still very low. That is one. Secondly is that from a proactive perspective what we have been continuing to do is taking all cuts and seeing early warning signals and cutting those segments or geographies or even the collar of salary sectorally quite proactively. So as of this point of time, we are not seeing any stress on our portfolio. We have been also checking with the credit bureau. And as of now, our numbers look good. So there is nothing that we see in the horizon. So there are 2 things about this whole slowdown, et cetera: one is whether we'll be able to get growth; and b, what happens to the portfolio quality. So since we are going off a smaller base, I think we will be able to capture the credit demand quite well by various cuts because we are moving off a small base. If we have a very large base, then we'll see what happens. Secondly, on the credit quality, we have been sort of cutting the weaker profiles quite proactively, which is why the numbers that we have on the credit quality, and we naturally monitor it very, very proactively and regularly. At this point of time, we don't see any stress.

[Operator]

The next question is from the line of Gurpreet Arora from Quest.

[Gurpreet Singh Arora, Senior Analyst]

My first question is related to the cost of funds. I mean we are anywhere around 13 basis points higher than what we had for the full year. If you can highlight what sort of cost of funds are you looking for this entire year.

[Rakesh Jha, Chief Financial Officer]

So the cost of funds will be a function of the systemic liquidity and the competitive pressure on the deposit rate. As I mentioned earlier, we have reduced our retail peak deposit rates by 20 basis points. And then we also reduced our MCLR by 10 basis points. So depending on how the rates move during the rest of the year, we'll see. So what we look at is any increase in cost of funding, which is there. We look at passing that on through MCLR or by increasing the pricing. Similarly, if the funding cost goes down, and the liquidity in the system has increased a fair bit in the last couple of months, and we have seen the wholesale deposit rates come down. Retail deposit rates at times can be sticky coming down, especially because right now, all the private banks or most of the private banks are looking at growing the retail term deposits in a focused manner. So we will see how the retail deposit rates behave. Otherwise, from our point of view, we are focused on the margins and ensuring that our funding cost remains competitive at all points of time. So we will grow our CASA -- daily average of CASA deposits also as much as we can while growing the terms.

[Gurpreet Singh Arora, Senior Analyst]

Yes. The SAL growth for the bank has been in single digit this year on a Y-o-Y basis. I mean this is one of the very rare sights where the SAL base of our bank has grown in single digits. I understand in last quarter you had told about the differential rates between TB and SAL rates and why the systemic growth could -- is a reflection of that. But is interbranch additions, the slow pace of that, also affecting our SAL accretion? Or you don't think that?

[Rakesh Jha, Chief Financial Officer]

So again, on the savings deposits, we are -- like on the current deposits, we are focused on the daily average balance. If you look at quarter-to-quarter, the growth which we saw was around 12% -- well, between 12% to 12.5% for both the current accounts and savings deposits. Yes, the period-end number for selling deposits was lower than March, but we would always focus on the daily average balance per se. Other than that, I think we have clearly planned for the fact that the growth in CASA deposits, the daily average CASA deposits would be lower than the overall deposit growth. And that is something with which we are factoring in, in our base case in terms of the cost of funding and the lending rates. And that is driven by the fact that there is some inclination from the customers to put money into fixed deposits. The current accounts also in the current scenario, are not growing as much. And I think it's the same that you will see across the banking system and across all the banks. Of course, separately, we are looking at adding branches as well, but that's from an overall perspective of not just CASA deposits but the entire business opportunity that we are seeing in various locations. And maybe that will also be helpful for the overall retail franchise growth.

[Gurpreet Singh Arora, Senior Analyst]

Sure. My second question is related to the retail this year. I mean it's been pretty stable for last 1 year. Any thoughts on improving retail PCR?

[Rakesh Jha, Chief Financial Officer]

On retail PCR, so there is a pretty consistent policy that we follow on the provisioning for retail loans, and it's quite comfortable. It's kind of in line with what we would expect to recover on these loans also. And it is clearly more conservative than what the RBI guidelines per se have. And we have also kind of more recently for the rural portfolio made the provisioning a bit more conservative than we were earlier. So that way, we are quite comfortable with the provisioning on the PCR.

[Gurpreet Singh Arora, Senior Analyst]

So the last data-driven question you could help us would be can I get your slippages in Q1 FY '19?

[Rakesh Jha, Chief Financial Officer]

That was about 3.36 -- around INR 3.3 billion, INR 3.4 billion compared to INR 4.5 billion this quarter.

[Operator]

The next question is from the line of [ Sauro Dole ] from [ Clavantage Capital ].

[Unknown Analyst]

Just 2 questions. So one is on the cash use... [Technical Difficulty]

[Operator]

Excuse me, this is the operator, Mr. [ Dole ], we're unable to hear you clearly. Can you please check?

[Unknown Analyst]

Can you hear me now?

[Operator]

Yes, this is better. Thank you.

[Unknown Analyst]

[indiscernible] that the...

[Operator]

Sorry, this is the operator. Mr. [ Dole ], we request you to please rejoin the queue and -- check your line and rejoin the queue, please. In the meanwhile, we move to the next question that's from the line of Nitin Aggarwal from Motilal Oswal.

[Nitin Kumar Aggarwal, Research Analyst]

So I have a question on the recently -- the National Housing Bank has recently requires housing plans companies to stop providing loans to finance subvention schemes. Now how do we read this for banks like us? And how much is our exposure towards such loans? And what has been a growth contribution of such loans in our overall home loan growth?

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

This is Anup. So this subvention scheme, first of all, introduced to, I don't know, to HFCs. Our exposure has been very, very small. It is only limited exposure [indiscernible] mentioned. So we have not been very active on the subvention that you talked. So to that extent, it doesn't impact us because even if there is a credit demand [ it opens up ] because HFCs, they're not lent to subvention scheme, but overall, we are not doing subvention in any meaningful way at all.

[Nitin Kumar Aggarwal, Research Analyst]

Okay. Okay. And secondly on the attrition line, like the gains looks to be relatively muted versus how the -- you have modeled it. So any MTM losses on corporate bonds also that you have adjusted for in this quarter?

[Rakesh Jha, Chief Financial Officer]

So there will be -- some mark-to-market losses would have been there on bonds, which have been taken. It's not a very large number per se. The [ crazy ] gain that you see is largely from the proprietary position. We really have not made much sales from our HTM portfolio. But there were some mark-to-market losses, nothing which is very significant.

[Nitin Kumar Aggarwal, Research Analyst]

Okay. And lastly, the tax rate this quarter has increased to 32%, which is the highest in last many quarters. So has this normalized now? And will this sustain at these levels?

[Rakesh Jha, Chief Financial Officer]

So the quarter's tax rate is an estimate of the full year tax rate, and that is as per the accounting standard requirement. So it will be fair to assume that this is the full year tax rate that we are expecting. So in the past few years, we have had gains from some of the stakes in subsidiaries, which has kind of made the tax rate lower. Currently, other than the dividend income that we get from subsidiaries, most of the other income would be taxed at the marginal rate.

[Operator]

The next question is from the line of Pankaj Agarwal from AMBIT Capital.We move to the next question from the line of Saikiran Pulavarthi from Haitong.

[Saikiran Pulavarthi, Research Analyst]

Just 2 questions. As we are seeing some moderate [indiscernible] being comfortable, looking beyond FY '21, if you have to look at your business model and then try to understand, what should be your sustainable credit cost going forward?

[Rakesh Jha, Chief Financial Officer]

On the credit cost, we are currently targeting to get to a more normalized number from where we are. So for the current year, we have talked about 1.2% to 1.3%. Otherwise, we would -- we are fighting for our credit cost to be about 20% of the core operating profit is how we are looking at the credit cost. That would roughly translate to around 1% of the loan portfolio, but it will be a function of the -- as you know, the business mix. So as of now, the unsecured part of the portfolio, for example, is 8%. Mortgage is a pretty high proportion of the portfolio. On the corporate side, we have been improving the rating profile. And you have seen the overall rating profile for the loan portfolio also improving. So all those things, we'll have to see how it plays out. But we would aspire to be at around 20% of the core operating profit, which should be equal to around 100 basis points of average loans.

[Operator]

The next question is from the line of Rahul Jain from Goldman Sachs.

[Rahul M. Jain, Executive Director]

Just wanted some texture on our -- the builder portfolio book. Is it possible to get some more color as to the breakup between the LRD versus construction finance? And within construction finance, what could be the exposure to the MMR NCR regions?

[Rakesh Jha, Chief Financial Officer]

So I think the key is that over the last 3 years, we have kind of continuously highlighted that this is a portfolio on which we are cautious. And so what we have done is, one is that we would not have a very high exposure to individual builders. And more recently, the lending that we have done, say, over the last 12, 18 months, would have a fair amount of lease -- LRD. Also in that side of that, it was not a meaningful proportion of this portfolio. And the portfolio is pretty well spread across as well. So that's why we are relatively quite comfortable on this portfolio. There could be some slippages. We have seen that happen in the past. Last year, in June quarter, we had some slippages from this portfolio. But again, those slippages have been within our expectation and within what we price on to these loans. So more than that, we have not been kind of exposed in terms of exposure to individual geographies.

[Rahul M. Jain, Executive Director]

And is it possible to know the outstanding nonperforming in this book and deals in this book?

[Rakesh Jha, Chief Financial Officer]

We have not disclosed that separately.

[Rahul M. Jain, Executive Director]

Okay. The second question is on the retail housing book. Is it possible to get some color as to how the 30-day past due would be moving in this portfolio?

[Rakesh Jha, Chief Financial Officer]

That is something which we track on a regular basis. We have not been disclosing the SME 1, SME 2, those kind of accounts' past due. But as earlier, Sandeep mentioned and Anup also mentioned that if you look at our trends on delinquency, they are clearly better than the industry average.

[Rahul M. Jain, Executive Director]

Okay. Okay. Got it. Just one last question. In terms of branches and employee additions throughout the year, how many branches do you plan to add over the next 9 months? And similarly, how many more employees to do we plan to add?

[Rakesh Jha, Chief Financial Officer]

In terms of branches, about 400 to 450 branches is what we are looking at. Depending on how the opportunities are and what the locations are, we'll kind of be in that kind of a range. Employees, we have added in the current quarter, you would have seen the numbers gone up to 94,000. Almost all the employees have been added in the front line of the business, and that is what we are focused on. And there's no specific number that we have in mind in terms of for the rest of the year per se.

[Operator]

And the next question is from the line of Rohan Mandora from Equirus Securities.

[Rohan Mandora, Analyst]

First, on the origination with NBFCs, if you will give color why we are excluding that? And what category of NBFCs you will be doing -- working with? And what kind of growth do you expect there? That is one. And second, in terms of our lending to AAA and AA, some color on how the [indiscernible] the wallet sharing goes for accounts with more than last 6 to 9 months.

[Rakesh Jha, Chief Financial Officer]

Yes. I'll take the second one, and then Anup will talk about the first one. In terms of the AAA, AA, if the borrowers are accelerated, as you know, the capital requirement is much lower, 20%, 30% risk weight. So -- and our funding cost also has become quite competitive over the last few years. So in combination of lending and other services that we provide, which would be FX or other payment and collections, we kind of target to get to a hurdle return on equity. In these borrowers, I guess, the challenge is more of getting the absolute amount of return. Given the lower level of capital which is required, ROE is something which we are able to get close to a threshold. If you are starting a relationship, of course, you'll start off at a lower level. But we are quite focused on the other opportunities other than lending itself. The other thing that we have been doing is that in some of the nonfund products, the pricing is not as good in terms of the ROEs that we target. So there, we have been not growing as much or, in fact, converting some of those nonfund into fund-based opportunities with a better margin. So that's what we are seeing there. Anup, why don't you talk on the coordinations?

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

Right. So on the coordination models, our general approach is that we are quite have not picked between organic book and inorganic book. And so to us, it is like an extended distribution but with a controlled credit. So the credit norms and the credit filters is something that we would monitor and we would innovate, share with them, so that we get obviously which passes our credit filter. But we see them as an extended distribution up. And net of OpEx, net of cost of origination, we will look at it vis-à-vis our portfolio that we originate. And then we have seen that in certainly, certain segments, their OpEx are competitive than us, and so that will split. And so that is the [indiscernible] origination. So that is our agenda on origination strategy. And in addition to that, we have direct assignment, and we do a have [indiscernible], which we do competitively.

[Rohan Mandora, Analyst]

And so what does the portfolio phase of this origination look as of now?

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

So we do not have a target as such on the book. So we are not moving with any target. We are moving with partnerships. We are moving with opportunities. And it depends on how much we are able to originate but through our credit filters.

[Rohan Mandora, Analyst]

Okay. Actually, so one of the larger banks here [indiscernible] in the same year, one in the rural geographies for new business. So how do we look at that space right now? And in terms of the pecking order like vis-à-vis sales, unsecured retail, SME, where were we placed at that business origination and focus?

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

So for us also we have a fair amount of large branch network within the SME and rural space. And we are seeing that in as far as unsecured funds or even for other assets. They are good businesses to do, and we have decongested our processes to make the credit delivery very easy. And to that extent, we see that the pickup is quite good in those geographies. Also because of credit flow in those geographies is also lower and less competitive than the credit flow in the [indiscernible]. So for us, it's an important market. And -- but if you look at overall market from a card perspective and term-deposit perspective, the tenor on rural has lower proportion. But on a savings-account perspective, we have a very, very large retail. So 40% of the overall deposit savings is deposit. License [indiscernible] and rural, but it is much, much lesser as far as the deposit in current accounts is concerned. So that will all be focused. So where there is an economic activity, we are there and we pick up those roles.

[Rohan Mandora, Analyst]

So from an asset perspective, our focus is mainly from [indiscernible] perspective and not from an asset perspective. Would that...

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

No. [indiscernible] asset perspective as well because the economic activity means assets and liabilities. In private banking, there's assets as well as equities in many different...

[Operator]

The next question is from the line of Rakesh Kumar from Elara Capital.

[Rakesh Kumar, Vice President and Analyst]

So just a couple of questions as far as assortments. Firstly, the overseas loan book composition, which has come down over the period of time and we have seen good increase in retail loans portfolio, so what is the target that we have in the -- for the overseas loan book, which is not in percent?

[Rakesh Jha, Chief Financial Officer]

As we have said in the past that we will be focused on growing the domestic loan portfolio. So we don't have any specific number target for where the overseas book should go down to. But in the past, we have said that as a proportion because it would not likely grow at the same pace as the domestic book, it would come down for us.

[Rakesh Kumar, Vice President and Analyst]

Yes. Look, the reason was that it has a direct and a strong correlation with the margin enhancement. So that was the reason I was just trying to know this.

[Rakesh Jha, Chief Financial Officer]

Yes. So as I said, just the proportion will come down because, over time, the domestic loan book will grow at a faster pace. And overseas where we have opportunities linked to credit that we are comfortable with in terms of risk and return is only what we will look at. Otherwise, on the overseas business, we have been repositioning to focus a lot more on the NRI deposits and remittances as the key focus area for us; and then of course, the trade financing linked to India and other foreign flows that come into India or go out of India; plus the MNCs, which are there in India. So these are the key areas on which we are focused. So the -- compared to the earlier periods when we were focused on maybe a bit more on the term lending within the overseas branches, that is not a key focus area for us. So it's right to expect that the proportion would come down. We don't have a specific number where we kind of watching.

[Rakesh Kumar, Vice President and Analyst]

Understood, sir. Just one -- second question and the last one. We have seen a strong retail term deposit growth, and ICICI Bank U.K. subsidiaries operations total loan growth is a bit tepid. So what is the plan there, if we can know?

[Rakesh Jha, Chief Financial Officer]

So in terms of the -- on the growth, again, if you look at the last couple of years, the U.K. subsidiary had made a loss mostly because of the provisioning, and a fair bit of which was on the India-linked loans per se. So I think that is kind of somewhat now behind us, and it made a profit for the quarter. Going forward, we are looking at some segments of loans that we are comfortable growing. And we would kind of look at getting to a 8% to 10% ROE in the subsidiary, and that's what we are focused on.

[Operator]

Thank you. Ladies and gentlemen, with this, I now hand the conference over to the management for their closing comments. Over to you, sir.

[Rakesh Jha, Chief Financial Officer]

I would like to thank you all for joining the call on a Saturday evening, and thank you for your support for ICICI Bank.