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ICICI Bank Ltd
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I now hand the conference over to Mr. Sandeep Bakhshi, Managing Director and CEO of ICICI Bank. Thank you, and over to you, sir.
Good evening to all of you, and welcome to the ICICI Bank earnings call to discuss the results for Q1 of financial year 2022. Joining us today on this call are Vishakha, Anup Sandeep Batra, Rakesh and Anindya. We hope that you are safe and in good health.The second wave of the COVID-19 pandemic was far more severe compared to the first wave in terms of cases and fatalities and a wider geographic reach. As banking is classified as an essential service, most of our branches were opened even during the months of April and May when containment measures were in place in various parts of the country. Our colleagues have shown resilience and strength and continue to serve our customers. Even in this challenging environment, when a number of our colleagues are themselves impacted by the virus. We are happy to share that now about 80% of the bank's employees have received at least 1 dose of vaccination against COVID-19. We would like to thank the medical and health workers and the other essential workers for their tireless efforts in the fight against COVID-19.With the decline in numbers of COVID-19 cases since June, there has been a gradual easing of restrictions across various states. The Ultra Frequency Index, comprising several high-frequency indicators tracked by the bank's economic research group, which declined from 107.9% in March to 70.9% in May has improved to 99.6% in the first week of July. High-frequency indicators such as power demand, e-way bill generation and the unemployment rate have shown significant improvement in June. Vehicle registrations have also improved in June compared to April and May. Going forward, the pace of normalization and economic activity will depend on the trajectory of the pandemic, the level of containment measures in place and the pace and effectiveness of vaccination.At ICICI Bank, we continue to steadily grow our franchise and maintain our strong balance sheet. One, growth in the core operating profit in a risk-calibrated manner through the focused pursuit of target market segments. Our aim is to achieve risk-calibrated growth in core operating profit through a 360-degree customer-centric approach, tapping opportunities across ecosystems, leveraging internal synergies, building partnerships and decongesting processes.The core operating profit increased by 22.7% year-on-year to INR 86.05 billion in Q1 of 2022. The profit after tax grew by 77.6% year-on-year to INR 46.16 billion in Q1 of 2022.Two, further enhancing our strong deposit franchise. Total deposits grew by 15.5% year-on-year to INR 9.3 trillion at June 30, 2021. During the quarter, average current account deposits increased by 32.4% year-on-year and average savings account deposits by 21.7% year-on-year. Term deposits grew by 8.7% year-on-year. The liquidity coverage ratio for the quarter was 130%, reflecting continued significant surplus liquidity. Our cost of deposits continues to be amongst the lowest in the system. Our digital platforms and solutions, presence in various ecosystems and process decongestion initiatives have played an important role in the growth of our deposit franchise.Three, growing our loan portfolio in a granular manner with a focus on risk and reward. Retail disbursements moderated in April and May, due to the containment measures in place across various parts of the country. With the gradual easing of restrictions, disbursements picked up in June and July. Credit card spends declined in April and May, but improved to March levels in June, driven by spends in categories like consumer durables, utilities, education and insurance.The retail loan portfolio, excluding business banking grew by 20.2% year-on-year and was flat sequentially at June 30, 2021. Credit submissions in the overdraft accounts of business banking and SME customers also picked up in June and July after declining in April and May. Our business banking and SME franchises continue to grow on the back of digital offerings and platforms like InstaBIZ and trade online. The business banking and SME portfolios grew by 53.4% and 42.8% year-on-year, respectively. The Business Banking portfolio grew by 6.3% sequentially, and the SME portfolio saw a marginal sequential decline.The growth of the domestic corporate portfolio was 11.4% year-on-year. The growth in performing domestic corporate portfolio, excluding the builder portfolio was about 15% year-on-year at June 30, 2021. Overall, the domestic loan portfolio grew by 19.6% year-on-year and was flat sequentially. The non-India linked overseas corporate portfolio declined year-on-year and sequentially in line with the approach which we have articulated earlier.Fourth, leveraging digital across our business. Our open architecture-based digital platforms provide end-to-end seamless digital journeys and personalized solutions to customers and enable more effective data-driven cross-sell and upsell. These platforms also enable us to reach out to non-ICICI Bank account holders. We have shared some details on slides 17 to 28 of the investor presentation.We have seen significant increase in adoption of our mobile banking app iMobile Pay with over 2.5 million activations by non-ICICI Bank account holders since its launch 6 months ago. The transactions by non-ICICI Bank account holders in terms of value and volume have grown by 8x and 7x, respectively, in June 2021 compared to March 2021.The financial transactions on our digital platform for businesses, InstaBIZ and our supply chain platform have grown steadily in the past few quarters. The increasing adoption of our digital platforms and growth in the value and volume of transactions supports growth in CASA deposits and provides a rich base for analytics and cross-sell. The value of financial transactions through InstaBIZ more than doubled year-on-year in Q1 of 2022.The value of transactions through supply chain platforms grew by more than 8x year-on-year in Q1 of 2022. We have taken a number of initiatives to offer a convenient and frictionless experience to customers by digitizing the credit underwriting process, with instant loan approvals. The proportion of end-to-end digital sanctions and disbursements across various products have been increasing steadily. About 34% of our total mortgage sanctioned by volume, were end to end digital in Q1 of 2022 compared to 19% financial year 2021. About 46% of personal loans -- personal loan disbursements by volume were end-to-end digital in Q1 of 2022 compared to 42% in financial year 2021. Of the total asset and liability accounts, opened as well as third-party products sold during June, about 40% was end-to-end digital. About 95,000 customers were onboarded using video KYC in June 2021.We continue to strengthen our position in the digital payments ecosystem by building seamless user journeys, facilitating higher transactions throughputs and driving repeat transactions. Our strategy is to participate both directly through our own platforms and partner with third-party players in the P2P and P2M space of the UPI ecosystem. We are seeing high customer engagement to repeat usage of features like Pay2Contact, Scan to Pay and bill payments on iMobile Pay. The volume of transactions through Pay2Contact has grown by over 5x in Q1 of 2022 over Q4 of 2021. The value of UPI, P2M transactions -- P2M transactions more than doubled year-on-year and grew by over 30% sequentially in Q1 of 2022.We have recently launched a digital platform called Merchant Stack, which offers an array of banking and value-added services to retailers, online businesses and large e-commerce firms such as digital current account opening, instant overdraft facilities based on point-of-sale transactions and instant settlement of point-of-sale transactions amongst others. We've also introduced the ICICI Stack for Corporates, which is a comprehensive set of digital banking solutions for corporates and their entire ecosystem of promoters, employees, dealers and vendors. These solutions enable corporates to seamlessly meet all banking requirements of their ecosystem in a frictionless manner. We continue to invest in technology to enhance our offerings to customers as well as the scalability, flexibility and resilience of our technology architecture. We actively monitor and improve our technology infrastructure to minimize disruptions and service to our customers. As a part of our #2025 Technology Strategy, we are creating an enterprise architecture frameworks, spanning digital platforms, data and analytics, micro services-based architecture, cloud computing and other emerging technologies.Five, protecting the balance sheet from potential risks. The measures imposed by authorities in various parts of the country to contain the spread of second wave of the pandemic had a significant impact on collections and recoveries in April and May. We sought to adopt a sensitive approach to the difficulties faced by our customers and prioritize their health and safety as well as that of our employees. Unlike last year, regulatory dispensation such as moratorium, but not available to borrowers this time. This has led to an increase in overdues and gross NPA additions in Q1 of 2022 for the banking system, including us.The gross NPA additions during the quarter was INR 72.31 billion, of which INR 67.73 billion was from the retail and banking and business banking portfolio. The retail and business banking gross NPA additions included additions of INR 11.30 billion from the jewel loan portfolio. Jewel loan is a fully secured product and the loss given default in this portfolio is negligible.In order to be sensitive to the difficulties faced by the customers and give them time for repayment, we have delayed sending the auction notices to customers in default. We expect near complete recoveries from this portfolio in the coming quarters.As mentioned in our previous earnings calls, our aim is to be proactive in provisioning with the objective of ensuring that the balance sheet is robust at all times. We have further strengthened our provisioning policies on NPAs during this quarter. The provisions during the quarter were higher by INR 11.27 billion due to this more conservative approach. The provision coverage ratio on NPAs was 78.2% at June 30, 2021. Based on its current assessment of the portfolio, the bank has written back INR 10.50 billion of COVID-19-related provisions created in the earlier periods. As of June 30, 2021, the bank held COVID-19 provisions of INR 64.25 billion, which are about 0.9% of our total loans.The overdues in the performing portfolio across various segments were either marginally higher than pre-COVID levels or at pre-COVID levels at the end of March 2021. These increased in April and May due to the second wave of the pandemic and related restrictions.With the easing of restrictions and pickup in economic activity in June, the overdues across various segments of the performing portfolio have declined. We expect further improvement in collections and decline in overdues in the coming quarters. In the absence of regulatory measures such as moratorium, the gross NPA formation due to the recent wave of COVID-19 is being upfronted in the first half of the current fiscal for the system, including us. Based on our current expectations of economic activity and portfolio trends, we expect our gross NPA additions to be lower in Q2 of 2022 and declined more meaningfully in the second half of fiscal 2022.There would also be some additions to the loans under resolution as a part of the various frameworks announced by RBI. We have a robust provision coverage ratio in NPAs. And in addition, we hold COVID-19-related provisions of INR 64.25 billion or about 0.9% of our total loans, to address potential future credit losses arising out of the pandemic and its economic impact. The performance of the portfolio and the strength of the balance sheet give us significant comfort.Six, maintaining a strong capital base. The position of the bank continued to be strong with the CET-1 ratio of 17.01% at June 30, 2021, including profits for the quarter. Further, the market value of the bank's investments and listed subsidiaries is about INR 1 trillion.Looking ahead, we see many opportunities to grow the core operating profit in a risk-calibrated manner. We calibrate our growth in the near term based on operating environment and the future trajectory of the COVID-19 pandemic. We continue to focus on creating holistic value propositions for our customers and capturing opportunities across customer ecosystems, leveraging internal synergies, building partnerships and simplifying processes. We have a wide physical distribution network and our best-in-class digital platforms provide seamless onboarding and transacting experience for our customers.We have opened 8 ecosystem branches that house multifunctional teams required to nurture relationships and bring the entire book of services of the bank to the corporates and their ecosystems. We will continue to make investments in technology, people, distribution and building our brand. We are guided by our philosophy of fair to customers, fair to bank emphasizing the need to deliver fair value to customers while creating value for shareholders. We'll continue to focus on delivering consistent and predictable returns to our shareholders.With these opening remarks, I will now hand the call over to Rakesh.
Thank you, Sandeep. I'll talk about the balance sheet growth, credit quality, P&L details, capital adequacy, portfolio trends and performance of subsidiaries.Starting with the balance sheet growth. The overall loan portfolio grew by 17% year-on-year at June 30. The domestic loan portfolio grew by 19.6% year-on-year and 0.3% sequentially at June 30. Up to the last quarter, we used to report business banking as a part of the retail portfolio. From this quarter, we are excluding it from the retail portfolio and reporting it separately. The retail portfolio grew by 20.2% year-on-year and 0.7% sequentially.Within the retail portfolio, the mortgage loan portfolio grew by 24% year-on-year, rural loans by 24.2%, commercial vehicle and equipment loans by 1.5% and the auto loan portfolio by 15%. Growth in the personal loan and credit card portfolio was 13.5% year-on-year. This portfolio was INR 666.26 billion or 9% of the overall loan book at 30th June.The business banking portfolio grew by 53.4% year-on-year and 6.3% sequentially at 30th June 30. The SME business, comprising borrowers with a turnover of less than INR 2.5 billion, grew by 42.8% year-on-year and decreased by 1.7% sequentially to INR 297.78 billion at 30th June.The growth of the domestic corporate portfolio was 11.4% year-on-year. The growth in performing domestic corporate portfolio, excluding the builder portfolio, was about 15% year-on-year at 30th June, driven by disbursements to higher-rated corporates and PSUs across various sectors to meet their working capital and capital expenditure requirements.The overseas loan portfolio declined by 14.7% year-on-year and increased by 6.7% sequentially at 30th June. The sequential increase in the overseas loan portfolio was primarily due to increase in the India-linked trade finance book. The overseas loan portfolio was 5.4% of the overall loan book at 30th June. The non-India linked corporate portfolio reduced by 58.8% or about USD 1.4 billion year-on-year and 21.6% or about USD 270 million sequentially at 30th June. We have provided the breakup of our overseas corporate portfolio on Slide 16 of the presentation.Coming to the funding side, we continue to focus on growing the daily average CASA balances and retail term deposits. Average savings account deposits increased by 21.7% year-on-year, and average current account deposits increased by 32.4% year-on-year during this quarter. There would be some impact on the sequential growth in the current account deposits in the next quarter due to the implementation of RBI guidelines on opening of current accounts by banks. The total term deposits grew by 8.7% year-on-year to INR 5 trillion at 30th June. Coming to credit quality. The gross NPA additions were INR 72.31 billion in the current quarter compared to about INR 55.23 billion on a pro forma basis in the Q4. The recoveries and upgrades during the quarter were INR 36.27 billion, which is about 50% of the gross NPA additions. The gross NPA additions from the retail and business banking portfolio was INR 67.73 billion in the current quarter compared to INR 43.55 billion on a pro forma basis in Q4. The Retail and Business Banking gross NPA additions included additions of INR 9.61 billion from the Kisan Credit Card portfolio and INR 11.3 billion from the Jewel loan portfolio. As Sandeep mentioned earlier, we expect near complete recoveries from the Jewel portfolio in the coming quarters.We typically see gross NPA additions from Kisan Credit Card portfolio in the first and third quarter of the fiscal year. The gross NPA additions from the Kisan Credit Card portfolio were relatively low last year due to moratorium extended to the borrowers from March to August. The Kisan Credit Card portfolio and Jewel loan portfolio were about 3% each of our total loan portfolio at 30th June. In the retail and business banking gross NPA additions, excluding rural, the proportion of mortgages was similar to what we saw in FY 2021. Commercial vehicles and equipment loans was higher than what we saw in FY 2021 and personal loans and credit cards was lower. The gross NPA additions from the corporate and SME portfolio were INR 4.58 billion in the current quarter compared to INR 11.68 billion on a pro forma basis in Q4 of 2021. Pro forma corporate and SME NPA additions in Q4 included 1 account in the construction sector, which was rated BB and below at December 31 and was classified as nonperforming during Q4 and upgraded in the same quarter post the implementation by all lenders of a resolution plan as per RBI framework.As I mentioned earlier, recoveries and upgrades from NPAs, excluding write-offs and sales were INR 36.27 billion. There were recoveries and upgrades of INR 22.64 billion from the retail and business banking portfolio, and INR 13.63 billion from the corporate and SME portfolio. The recoveries and upgrades in the corporate and SME portfolio during Q1 mainly represent a few accounts, which are upgraded post the implementation of the revision plan as per RBI's framework by all the lenders.The gross NPAs written-off during the quarter was INR 15.89 billion. The bank sold gross NPAs amounting to INR 2.4 billion in Q1. All the sales was on a cash basis. The gross NPA sold during the quarter were entirely from the corporate and SME portfolio.The net nonperforming assets were INR 93.06 billion at 30th June, compared to INR 91.8 billion at March 31. The gross NPA ratio was 5.15% at 30th June compared to 4.96% at 31st March, and the net NPA ratio was 1.16% at 30th June compared to 1.14% at 31st March. The non-fund based outstanding to borrowers classified as nonperforming was INR 41.01 billion at 30th June compared to INR 44.05 billion at 31st March. The bank holds provisions amounting to INR 16.55 billion at 30th June on this non-fund-based outstanding. The total fund-based outstanding to all standard borrowers under resolution as per various guidelines, was INR 48.64 billion or about 0.7% of the total loan portfolio at 30th June compared to INR 39.27 billion at 31st March. Of the total fund-based outstanding at 30th June, INR 21.80 billion was from the Retail and Business Banking portfolio and INR 26.84 billion was from the Corporate and SME portfolio. The bank holds provisions of about INR 9 billion against these borrowers, which is in excess of the requirement as per RBI guidelines. The overdues across various portfolios increased in April and May due to the reasons which Sandeep highlighted earlier. With the easing of restrictions from June, collections and recoveries have improved and overdues have started to decline.We had mentioned in our previous quarter's earnings call that overdues in the performing portfolio across retail EMI products and credit cards, SME and business banking portfolio were either marginally higher or at pre-COVID levels at 31st March. The percentage of overdues in the performing portfolio across most of these segments at June end was similar to or lower than the December 2020 levels. Less than 1% of the performing domestic corporate portfolio was overdue at June end. As Sandeep mentioned, we expect further improvement in collections and decline in overdues in the coming quarters.Coming to the P&L. Net interest income increased by 17.8% to INR 109.36 billion. Interest on income tax refund was INR 0.14 billion this quarter compared to INR 0.11 billion in the previous quarter and INR 0.24 billion in Q1 of last year. The net interest margin was at 3.89% in Q1 of this year compared to 3.84% in the previous quarter and 3.69% in Q1 of last year. The impact of interest on income tax refund and interest collections from NPAs was about 2 basis points this quarter compared to about 4 basis points in the previous quarter and in Q1 of last year. The domestic NIM was at 3.99% this quarter compared to 3.94% in Q4 and 3.91% in Q1 last year. International margins were at 0.27% this quarter. The cost of deposits was 3.65% in Q1 compared to 3.80% in Q4.Noninterest income, excluding treasury income, grew by 55.7% year-on-year to INR 37.06 billion in Q1, primarily due to the base effect from last year's Q1. Fee income increased by 53% to INR 32.19 billion in Q1. Retail and small business fees grew by 65.4% year-on-year and constituted about 76% of the total fees this quarter. Total fee income declined by 15.6% sequentially, reflecting the decline in investment and borrowing activity by customers during Q1.Dividend income from subsidiaries was INR 4.1 billion in Q1 compared to INR 1.87 billion in Q1 last year. The dividend income in Q1 of this year includes final dividend from ICICI Prudential Life Insurance.On operating costs, the bank's operating expenses increased by 29.9% year-on-year in Q1. The employee expenses increased by 9.6% year-on-year and by 18.2% sequentially. The bank had slightly over 100,000 employees at 30th June. Nonemployee expenses increased by 47.7% year-on-year in Q1 primarily due to the base effect. The nonemployee expenses declined by 8.3% sequentially due to lower business volumes during the quarter, partly offset by expenses like technology and other investments that the bank is making.The core operating profit increased by 22.7% year-on-year to INR 86.05 billion this quarter. There was a treasury gain of INR 2.9 billion this quarter compared to a loss of INR 0.25 billion in Q4 and a gain of INR 37.63 billion in Q1 of last year. Treasury gains in Q1 of last year included gains of INR 30.36 billion from sale of stake in ICICI Life and ICICI General Insurance.The total net provisions during the quarter were INR 28.52 billion. We have further strengthened our provisioning policies on NPAs during this quarter. The provisions during the quarter were higher by INR 11.27 billion due to this more conservative approach.During the quarter, the bank wrote back INR 10.5 billion of COVID-19-related provisions created in the earlier period. This was based on the updated position of various portfolios, underlying these provisions after taking into account the NPAs already accounted for and specific provisions held against the same as well as potential future credit losses arising of the pandemic and its economic impact. The provisioning coverage on NPAs continued to be robust at 78.2% as of 30th June. In addition, we continue to hold COVID-19-related provisions of INR 64.25 billion, which is about 0.9% of loans. We are confident that these provisions will completely cushion the balance sheet from the potential credit losses, which may arise due to the pandemic.The performance of the portfolio and the strength of the balance sheet give us significant comfort. The profit before tax grew by 89.8% year-on-year to INR 60.43 billion this quarter compared to INR 31.83 billion in Q1 last year. The tax expense was INR 14.27 billion this quarter compared to INR 5.84 billion in the corresponding quarter last year. The profit after tax grew by 77.6% to INR 46.16 billion this quarter compared to INR 25.99 billion in Q1 last year. The consolidated profit after tax was INR 47.7 billion this quarter compared to INR 48.86 billion in Q4 and INR 31.18 billion in Q1 last year.Coming to the capital adequacy. The CET-1 ratio, including profits for Q1 was 17.01% at 30th June, compared to 16.8% at 31st March. The Tier 1 ratio was 18.24% and the total capital adequacy ratio was 19.27% at 30th June.Coming to -- on the portfolio. We have been growing our loan portfolio in a granular manner with a focus on risk and reward. Our retail portfolio has been built based on proprietary data and analytics in addition to bureau checks utilizing the existing customer database for sourcing in key retail asset products through cross-sell and upsell and pricing in relation to the risk. Our strong deposit franchise enables us to offer competitive pricing to the selected customer segments.As Sandeep mentioned, disbursements across key retail products declined in April and May. However, these recovered in June and trends in July also appear promising. We continuously monitor the performance at the subsegment level and recalibrate the customer selection and underwriting norms in view of the current operating environment, so as to leverage the demand while operating within our risk appetite.The bank has calibrated its credit filters and underwriting norms following the outbreak of the COVID pandemic last year. With the gradual unlock and subsequent recovery observed, some rollback of the measures were carried out. The bank reviewed the same in view of the second wave of COVID-19 and considering the measures already in place, no significant further action was deemed necessary. However, due to the evolving environment, policy rationalization measures are being continuously taken as per our analysis of various micro segments. We have given further information on our retail and business banking portfolio through slides 34 to 45 of our presentation.The loan and nonfund-based outstanding to corporate and SME borrowers rated BB and below was INR 139.75 billion at 30th June compared to INR 130.98 billion at 31st March, details of which are given on Slide 37. Other than 3 accounts, 1 each in construction, power and telecom, the maximum single borrower outstanding in the BB and below portfolio was less than INR 6 billion at 30th June. At 30th June, we held provisions of INR 9.76 billion, on the BB and below portfolios compared to about INR 3.32 billion at 31st March. On Slide 38 of the presentation, we have provided the movement in our BB and below portfolio during Q1. The increase during the quarter primarily reflects a few accounts which were upgraded from NPA category post the implementation of the resolution plan as per RBI's framework. Except for fund-based outstanding of project under implementation accounts in the commercial real estate sector amounting to about INR 3 billion, all corporate and SME borrowers and resolution were rated below investment grade at 30th June. The builder portfolio, including construction, finance, lease rental discounting, term loans and working capital loans was INR 230.05 billion at 30th June or 3% of our total loan portfolio. As mentioned in our previous calls, our portfolio is granular in nature with the larger exposures being to well-established builders. About 13% of our portfolio at 30th June was either rated BB and below internally or was classified as nonperforming.The total outstanding to NBFCs and HFCs was INR 593.67 billion at 30th June compared to INR 645 billion at 31st March. The total outstanding to NBFCs and HFCs were about 7% of our advances at 30th June. The details are given on Slide 44 of the investor presentation.Our exposure is largely to well-weighted entities with PSUs, long vintage entities owned by banks and well-established corporate groups. The proportion of the NBFC and HFC portfolio internally rated BB and below of nonperforming continues to be less than 1%.Coming to our subsidiaries. The details of the financial performance of subsidiaries is covered in slides 49 and 50 and 69 to 74 in the presentation. Value of new business of ICICI Life grew by 78.1% year-on-year to INR 3.58 billion in Q1. The new business premium grew by 70.6% year-on-year to INR 25.59 billion in the current quarter. The new business margin increased from 24.4% in Q1 of last year to 29.4% in Q1 of current year.The annualized premium equivalent grew by 48.1% year-on-year to INR 12.19 billion in Q1. The protection-based annualized premium equivalent was INR 2.7 billion and accounted for 22% of the total annualized premium equivalent in Q1. ICICI Life had a net loss of INR 1.86 billion in Q1 this year compared to a profit after tax of INR 2.88 billion in Q1 last year.During Q1 this year, ICICI Life had claims on account of COVID-19, net of the insurance amounting to INR 5 billion. Further, at 30th June ICICI Life held provisions of INR 4.98 billion for future COVID-19-related claims, including incurred, but not reported claims compared to INR 3.32 billion at 31st March. The gross direct premium income of ICICI General increased by 13% year-on-year to INR 37.33 billion in Q1 compared to INR 33.02 billion in Q1 last year. The combined ratio was 121.3% in current quarter compared to 99.7% in Q1 last year, primarily on account of the COVID-19 pandemic-related claims. The profit after tax was INR 1.52 billion this quarter compared to INR 3.98 billion in Q1 last year. The profit after tax of ICICI Asset Payment company was INR 3.8 billion in the current quarter compared to INR 2.57 billion in Q1 of last year. The profit after tax of ICICI Securities on a consolidated basis was INR 3.11 billion in this quarter compared to INR 1.93 billion in Q1 last year.ICICI Bank Canada had a profit after tax of CAD 5 million in the current quarter, which was at a similar level compared to Q1 of last year and CAD 5.1 million in Q4. The loan book of ICICI Bank Canada at June 30 declined by 10.4% year-on-year and 1.3% sequentially. ICICI Bank U.K. had a profit after tax of USD 2.9 million this quarter compared to USD 5 million in Q1 of last year and USD 2.8 million in Q4. The loan book of ICICI Bank U.K. declined by 22% year-on-year and about 2% sequentially.As per Ind AS, ICICI Home Finance had a profit after tax of INR 0.17 billion in the current quarter. compared to INR 0.01 billion in Q1 of last year.With this, we conclude our opening remarks, and we'll now be happy to take your questions.
[Operator Instructions] The first question is from the line of Mahrukh Adajania from Elara Capital.
Here, Jewel loans and rural loans, those would -- the Jewel loans and Agri loans would both be part of the rural portfolio, correct?
Yes.
Okay. And even if you -- so I know that you commented that most of it would be recovered. But were these the loans that we lent at high LTV or you never really increased your LTV last year?
So here, the issue is not about LTV. I think like we mentioned, given in the current environment, the collections could not take place. And typically, as you know, in the Jewel loan portfolio, if the loan goes into overdue, you send auction notices to customers. In the current environment, we have not done that in the months of April and May and large part of June as well. So that is something that we have started now in the month of July, and we have already started to see recoveries from this portfolio.From an LTV perspective, the LTV currently, of course, which is allowed by RBI is about 75%. RBI had increased that during the last year, we also had increased our LTV. But as I said, that is not an issue. These loans are completely covered by the value of the gold in the collateral that we have.
Okay. My other question is that even if you exclude Agri and Jewel loan NPAs, the slippage rate is higher because -- and in the [ fourth ] quarter, you had mentioned that mortgage NPLs were also on the -- mortgage slippages were also on the higher side. So does that continue? As in would the slippage ratio in mortgages have increased Q-o-Q? Any color?
So like I said, Mahrukh, earlier, that if you look at the overall additions to the NPAs in the retail portfolio last year, and you compare that with this year first quarter. Last year, as a whole, I'm taking because there were so many moratorium and Supreme Court judgment and all of those issues. So quarter-on-quarter numbers were varying a lot. If you look at it from an annual perspective last year and quarter 1 this year. On the retail side, the trend on -- I would say home loans is pretty similar actually to what we had last year. We have seen higher slippages, relatively speaking to last year on the commercial vehicle portfolio. And on the unsecured side, actually, personal loan credit card, it has been somewhat better than last year. That is what we had seen in the first quarter. And again, the overall numbers have to be seen in the context that -- unlike last year, we did not have any of the regulatory dispensation, which was this year.So we were expecting to see the impact of the second wave in a more upfront manner during the current financial year. And that's what we had seen. So from here on, we should see a decline in the pace of addition to NPAs. Of course, there will still be somewhat elevated in the coming quarter. But again, taking out any assumption on the third wave, we are not kind of factoring that in. But if you keep that aside for a moment, into the second half of the year, definitely, we should start seeing meaningful reduction in the addition to NPLs. And of course, the current environment has also impacted to some extent the collection and the recoveries, which happened from the NPL portfolio. But despite that, if you look at it from the retail portfolio itself, we have recovered about INR 22 billion in the current quarter compared to the additions of about INR 67 billion. So about 1/3 of that overall has been the recovery level from the retail portfolio.
My next question that the retail recovery is actually much higher than fourth quarter when fourth quarter was a much better environment for recovery. So have some classification change, which is why you have higher slippage and higher recovery or its actual recovery and what drew that during the second wave?
So again, as I said, last year, because of the moratorium and all of that, those numbers were up and down during the...
No, I'm talking about fourth quarter only, not. Yes.
Yes. Because the classification of NPLs happened only in the fourth quarter no Mahrukh. The NPAs were not added in the previous quarters at all. So recoveries could not have been there if you look at it. Yes. So Q1, just to say that on Q1, these recoveries are all normal recoveries and upgrades which have happened on the retail portfolio. There is no change in any manner of reporting or any such thing, which is there on the recovery.
And in provisioning, you're pricing your provisioning policy even last year. So why did you need to tighten it again this year? Is it different segments that you had cited or what has been cited now?
So I think there could be a couple of portfolios where we would have tightened in December, and we have done some further tightening this quarter as well. Mahrukh, the way we look at it is purely from a view that we have made it more conservative, we are very conscious about the coverage ratio that we want to maintain on the portfolio.And when the NPA additions are higher, like we had this year on a gross basis, on a net basis, the early buckets, we have increased some of the provision on that. Again, I don't think it reflects anything in terms of our expectation of eventual recovery from these NPL categories in which we have increased the provision. There could, of course, be some delay in recoveries. For example, the level of recoveries that we would be expecting in this quarter sitting in February versus what it turned out to be was definitely lower than what we had thought.There could be some delay in recoveries, which could happen. Otherwise, it is just ensuring that our balance sheet remains strong in terms of the net NPLs that we have in terms of the coverage ratio that we have. So if you look at our net NPAs through the COVID period starting from last year, March 2020, it actually has come down compared to March 2020 in the last 5 quarters. If you look at the net NPA outstanding. So compared to March to June, again, it's like a marginal increase, which is there. So we have looked at all of these aspects as well.
Just 1 very last question that in interest income breakup, the other interest has gone up from like INR 9.8 billion to INR 12 billion. That's normal. Or is there some one-off recovery there?
No. So we called out the collection numbers separately. And as you -- that was not a material number. The other interest income, actually, there were some opportunities for the bank to deploy some of our surplus liquidity in the form of FX loss. So that is something that we had done. So it was just a change in the form of liquidity that we maintained and that shows up as other interest income as swap income instead of in the normal crores would have shown up as either interest income or investments or some other categories. So that is the only thing. There is no one-off there.
The next question is from the line of Nilanjan Karfa from Nomura.
I just want to delve on that last question also on the higher recoveries in the retail and business banking. So obviously, last year, we had a pretty high slippage. I think, between '20 and '21, the retail slippages had more than doubled, so -- but I find it quite curious that while the environment was challenging and collections could not happen, loans could not be given. We had slippages, and we had also collections.So would you elaborate where these -- what kind of slippages actually we had seen last year because I'm guessing if all of these collections would have happened from the last year slippages. Were they -- and therefore color of the recoveries that had actually happened? So that's my first question.
Yes. Nilanjan, so I think this is same as -- in last year, if you look at it, bulk of the NPL additions, it all happened in the March quarter, correct? Of the -- if you look at the Slide 31 of the INR 128 billion of additions that we had, close to INR 100 billion of that was in the Q4 on an actual basis, not a pro forma basis.So the stock of NPLs did go up quite substantially in the last financial year. And as I said, we were expecting recoveries to be pretty high this year. And quarter 1, sitting in February or early March, we would have thought of an even higher number than what we eventually had in the quarter. So the collection, for example, in the first couple of weeks of April was still relatively okay. June, as you mentioned, things started to get better from -- especially from the second week onwards.And again, the retail portfolio, the benefit of the retail portfolio is that it is a very granular portfolio. These are home loans, car loans, personal loans, credit cards. So there will always be additions and deletions that will happen on this portfolio. And again, I don't want to put out a number on this, but if things remain the -- the third wave is not at all as intense as what we saw in the second wave and it's much, much milder. And then we would definitely expect to see better recoveries into the second half of the year as well.
Okay. Maybe I'll need a little more color. But to cut to the chase, I mean, given that we are saying the second half, I think Q2 itself, I think we are calling out to be slightly better in terms of lower additions. Let's keep aside third wave for a while.And then you're saying the second half will be a lot better in terms of additions and collections equally. Would you want to call out that gross additions will be lower than last year? I think last year, we did something around INR 16-odd thousand crores. Would that be the case? Do you want to hazard a guess? And secondly, would you still want to manage 25% provision to keep up ratio?
So on the gross additions, it is difficult to say. Even the fact is that in the first quarter itself, the additions on a gross, gross basis has been INR 72 billion compared to INR 160 billion. Will the additions fall off as sharply as keeping it at the same levels as last year, that tack looks difficult. But again, the way we look at it, and especially on the retail portfolio is that we have to take into consideration the deletions and the recoveries that happen as well because it's a portfolio in which you will see additions and deletions all the while. So even if the gross additions were to be higher than last year, I think if you look at the recovery number, that would also be meaningfully higher than last year. So other than saying that we expect some improvement in the September quarter and then meaningful improvement into the second half of the year. It is difficult to hazard any specific numbers on that. And again, all of this is also subject to how the pandemic plays out from here and so many other factors. This is the best estimate that we can have right now.
So Rakesh, I thought I'll just give a color on the consumer behavior because I think there is an angle of consumer behavior here. See we have seen last time also that the moment there is uncertainty and there is a bit of anxiety, generally the trend is to hoard cash and get into emergency funds. So emergency fund this time around also we saw that there was a shift. And obviously, the bounces and the overdue position worsened in April and May. This is on the asset side. We also saw on the liability side people taking out cash from ATMs and taking the cash and keeping it at home. So we also saw withdrawal. And which is why you will see across the banking system in general the retail FD growth rates have been lower this quarter. Actually we have to see this liability movement, asset movement with the consumer behavior. And as -- and in the first 15 days, 2 quarters -- first fortnight of June also, the anxiety hadn't fully gone on. It is in the second fortnight of June that some bit of confidence started to come back. And once the confidence starts to come back, there is an unwind of the emergency funds that people want to keep. Emergency funds they keep by way of delaying repayments. And also if they have got balances in their liabilities account keeping it in cash because this time around, for hospitalization and buying of medicines, et cetera, actual cash was required, not digital. So it was actual cash was required. So we saw that consumer behavior as well. So which is why you will see that in upgrades, et cetera, if you move a bit also with the sentiments, which is why we saw a higher upgrade in quarter 1. Bulk of it also came in June. So April and May bounce rate and overdue had worsened. June it had improved substantially. July also the trends are better. So I thought I will just overlay the consumer behavior, and what are consumers' thinking and its impact on the asset side as well as on the liability side.
Right. Just a follow-up on this. I mean, given the kind of customers, let's say, these are, obviously, I don't have a lot of color. Do you have to actually go out and collect? Or these are like more saving calls and they end up in...
Yes, yes, yes. No, no, no, very good question. Actually, a very good question. So actually, in the jewel loan, for example, so we have to look at it product by product. So in jewel loans people -- because your jewelry is there with us as collateral, people walk in and pay, most of it. We don't go out and collect. So people walk in and pay generally. So that got impacted more in the first quarter. And then, of course, the issue of auction was there.On the others, most of it, our 90% plus now we are collecting digitally most of the stuff. So we are not sort of sending people and doing all of it. We're collecting digital. And over a period of time for us, most of the collection is also, a, selling is happening to our own consumers. So there are auto debits happening, NACH happening. So bulk of all, it is all digital collection.So our dependence on actually people going out and collecting, it does get impacted to some extent. I will not say that it doesn't, but our dependence on that, let's say, 1 year back or 2 years back, now it's much, much lesser. So to that extent, we are okay. We are more driven by the consumer behavior and the anxiety levels in the market.So if we were to sort of plot an anxiety meter versus movement on the overdue as well as on the liability side, you will see that they are fairly correlated. So I would say that is a much bigger driver than sending people and collecting. Our dependence is much, much less now. And we would continue to make it less and less and less dependent on that.
The next question is from the line of Suresh Ganapathy from Macquarie.
Just 2 questions, rather 3 quick questions. One is to Vishakha, what are you seeing on the corporate side? Because obviously, a lot of people are expecting that credit growth revival in general service system will happen from corporate as the economy gathers steam. So I just wanted to know the outlook on both the working capital as well as CapEx demand, what exactly is the recovery that you're seeing there?And the second question is to both Anup and Sandeep. First to begin with what is the impact of Mastercard? Have you guys assessed? And the other aspect is with these fintechs coming, and you guys also have partnership with them, what is the value add you see in them bringing to you? I mean, what is it that, that you guys can't do that fintech guys are doing it better, be it technology or be it customer segment? Any color on that would be very helpful.
Yes. So Suresh, on the corporate side, you know 2 things, of course, the capital expenditure and the working capital. So let's take Q1 out because in Q1 because the pandemic wave 2 clearly, in April, May, one did see some impact on the capacity utilizations and stuff like that. But if you look at generally in the corporate side, the capacity utilizations have gone up. The commodity cycles are at its peak, and therefore, general requirement of working capital has gone up. And we have seen an improvement in the utilization on the working capital side.Having said that, many of these corporates have actually gone and raised money either in the form of equity because of the buoyant equity markets or they have relied on raising money in form of debt bonds in the market to fund those capital -- the working capital. Going forward, I expect this momentum to continue the way one has seen in the last year. Coming to capital expenditure, I would divide it into 2 parts, of course, the private corporates and the public sector.As far as the private sector is concerned, one must admit that one has not seen much capital expenditure in terms of large projects and so on and so forth. Of course, people have taken the opportunities in the last 2 years to balance their capacities and do a normal capital expenditure or I would say, a slightly more than the normal capital expenditure in the last 9 months or 1 year. But really not anything to expand the capacity. Because typically, the corporate would look at expanding the capacity when they see their existing capacity getting sweat on a consistent basis or a sustainable basis. So that kind of capital expenditure demand I must admit has not been seen from the private sector.As far as public sector is concerned, I think they continue to grow in terms of -- they have their capital expenditure plans, and they've been growing. And we have seen a robust growth, the demand from there. And as we had said in our remarks, we have focused therefore on the large corporates, well-rated corporate and the PSU and the -- you see a growth of almost 15% for us year-on-year in our corporate.
Let me take the second part of the question. So 1 is the Mastercard impact. The MasterCard impact on us is virtually negligible because for all the bills of Mastercard, we also have Visa, so we will -- we have shifted over to Visas. And Mastercard is very, very little actually. It is in few thousands per month. So it is very, very little. And our flagship, which is Amazon Card runs on Visa, so to that extent sort of large part of the cards is also protected. The second question is very interesting, which is the fintech, and what is it that we get and why banks cannot do. I would say, honestly, that there is nothing technically which a fintech does, which banks cannot do. So what are the positives there and what are the negatives there and what are the learnings for banks and banks like us. I think first thing first, it is -- fintechs, there is a gap on the speed of imagination of the solution. So I would say that, that is the first gap. Fintech, because they are very focused on a problem that they're solving for the customer. Generally, they are first off the block. And for banks, because we look at large breadth and large depth of customers and many problems resolve. Sometimes in the prioritization, some fintechs, not all fintechs, but some fintechs who are very focused on that customer segment, they move off the block first. What is it that banks have to do, a, we have to have our tentacles far and wide, which we have. It is to see that, which problems are getting solved. And are those problems relevant for our customer segments as well. If they are relevant for our customer segment, we have 2 choices, either we build our own or we partner. Generally, our approach is to partner because that is -- they are focused on that solutioning. They have done that solutioning. And we have a much larger customer base to give, and we can scale that up fast. Fintech, we have seen they solve the problem correctly, but they find it difficult -- most of the fintechs, they find it difficult to scale up. Some, of course, they scale up very, very well. So that is one.Second is that how fast can a bank does, because we are very focused on a particular segment, they don't have a complexity of a bank. At times, they can be faster in solutioning, and they could be more flexible and agile. But in the fast and agile, they find it difficult. We have seen our experience they find it difficult to get into adjacencies. They are not able to move into the adjacencies that easily, which is that they focus on 1 customer segment, 1 problem, and that is it, and they are not able to move with us.And on the customer side if we see, customer requires a full solutioning. So if they -- if a solution requires -- if a problem requires 10 solutions, if somebody is giving only 4 solutions, generally, the adoption is not that good. So because customers require 10, so from a bank perspective, we add 4 plus we add 6, so that we are able to give 10. So customer stickiness with us increases. And we have seen it in, for example, iMobile Pay. IMobile Pay, as Sandeep had also mentioned earlier, that within 6 months, these are all non-ICICI Bank customers. There's virtually -- it's all on full, and customers are picking it up on their own. So we are seeing almost INR 4 lakhs per month noncustomers coming -- non-ICICI Bank customers coming in, and it is accelerating.So we look very, very closely on product and ecosystem and then our customer segments it. And that is what we are continuously looking at, and we partner with WIN fintech. We, of course, do our own stuff as well, but we partner a lot of it. And we create our own solutions for that. So from a banking perspective, the big advantage that we have, which many fintechs may not have is our ability to KYC, which is Know Your Customer and know their context, is much, much better than any fintech in a broader sense.In a narrow sense, sometimes banks miss on prioritization. But if we keep our tentacles on, then we don't miss on -- then we become fast followers and we pick it up and we move fast. So I would say that this game of fintech versus bank, 1 is certainly a partnership. Second, our ability to also cross-sell other products to the same customer in banking system is higher than any of the fintechs because they will be narrowing the definition of that.And as I said earlier, that to move across other products or to create a cross-product because they build brands in a very narrow way. Bank branding is wider. So customers also expect that they can take a mortgage also from us and buy mutual funds from us and buy protection for us and take -- and give liabilities to us. That is difficult. It's a brand-building exercise, which is a difficult brand-building exercise. It takes some time to build that kind of broader appeal to the customers.So I feel that at this point of time, anybody who is agile and has tentacles open and is very focused on problem solving for the customers will do reasonably well, and that is what we are attempting to do and learn at all points of time. And we see the product ecosystem fit and the customer segment fit. And we keep on seeing the fit and whatever moves. There are many, many initiatives and many solutions we come out with. It doesn't move, I mean, that fast. So we'll let it be, but there are -- we test and learn and get that feedback.The high-frequency touch with us -- with the bank is generally higher. And so with that digital footprint, we are also able to use them at other places like underwriting, getting the context of the customer, helping them cross-sell. So overall, I feel like if banks are agile, if banks are alert, if banks have their tentacles spread out, we do have a very, very good chance of winning this market for sure. So I would say that, that is one. Of course, on the banking side, we are a regulated entity, many other fintechs are not regulated entities. To that extent, there is some short-term agility or flexibility. It is what they will have. But as they grow up, there will be clamor for regulations to come in. And regulations, they are sometimes good because they increased trust in the system. But sometimes they also open up some small arbitrages, which makes them more flexible for some time at least. So that is a positive. So basically, the aim is evenly spread. And banks have natural advantages on it, and it is for incumbents like us to actually win this market and serve the customers well across -- their needs across their spectrum in a broad way and in a deep way.
I will just supplement to what Anup said, 1 -- Suresh, 1 of the fundamental differences between a bank and fintechs is the liability franchise that we have. And that changes significant proposition. And for us, it is trying to manage scale and complexity, which is of a very, very different order. So as you are aware, we have been focusing on this area and that is part of our disclosures. This time you will see that we almost have about 10, 11 slides that we have put across on various initiatives that we are taking. And we will continue to work on this journey. It is a journey, and we will continue to learn from fintechs.
The next question is from the line of Abhishek Murarka from HSBC.
So 3 quick questions. 1 to Vishakha. So if I look at this resolution framework under COVID, the disclosure that comes in the notes to accounts. And if I compare it to the last quarter of FY '21 end, it is higher by about INR 1,900 crores, out of which about INR 1,600 crores is really coming from corporate loans. Plus on top of it, there's some ECLGS offtake as well in the quarter. So if you could just explain which segments within corporate are you seeing -- is it any particular segment or segments or some mid-corporate or any kind of detail there would be helpful? And I can come back to the other 2 questions.
Yes. Rakesh, I'll just take that question. So in terms of the disclosure, as you know, that is of the cases where the resolution has been implemented. So that is the reason why that number has gone up. And so if you look at our disclosure that we have put out on Slide 32, that gives the total fund base outstanding under various resolution frameworks. And that was about INR 48 billion of loans, excluding the NPAs compared to about INR 39 billion at March 31. And within that, INR 22 billion is retail, about INR 26 billion in corporate. So it is the same set. There's nothing incremental, which has happened on the corporate during the quarter in terms of restructuring at all.
But on a Q-o-Q basis, even if we see this...
So those NPAs got implemented, and those cases got upgraded. So when we explained the BB portfolio increase also, we said that some of these NPAs because they had slipped because the resolution was not implemented by March 31. That got implemented by June 30, and they have got upgraded, show up in this table as well and also in our BB portfolio.
Okay. Okay. Okay. Great. The other question, Rakesh, is in this retail slippages, if I back out the jewel loan and the KCC portfolio, we still have about INR 46 billion there. So could you give some broad sense of what -- how that is split, let's say, between mortgages and auto?
So we don't give a product-wise kind of a breakup. So I don't want to get into that. But like I said, I think the trends across for mortgages is similar to what we saw last year, commercial vehicles, basically vehicles is higher than last year in specific, the commercial vehicle part of it. Personal loans and credit cards is better than last year as per the trends that we have seen in the June quarter on the retail additions other than rural part.
Okay. And if we just look at the vintage of the retail slippages, not the segments, would it have come more from the book, which is, let's say, underwritten in the last couple of years or anything like that?
No. But Abhishek, the loan tenure itself are shorter loan tenures except mortgage, which are longer loan tenure. Just to add to Rakesh's point, on the mortgage side, last year also, it is similar to last year, and it's a very large book for us. And if you look -- if you remember the morat on the mortgage book last year, of the largest mortgage lender, it was substantially higher.The reason is because they are low cost, and they are large EMI. And there is no prepayment. So it is a very good case. If somebody wants emergency fund, I would much rather shift that payment a little bit than others, let's say, PL and credit card and other things, which are more expensive. I'm saying logically, if a client is behaving logically, which normally they do, so that would be the general behavior of a client.
Okay. Okay. So I was just trying to get at whether we have seen a bit of growth in the last 1, 1.5 years, and maybe it's the seasoning in that portfolio, which is driving slippage. Is that the case? Or is it just purely because of the...
No, no, I don't think it is. Not really is an issue actually. We have seen those cords. I don't think seasonally is the issue. It is just circumstances of the second wave and the anxiety and all of it mostly. Commercial vehicles, when the input costs are high and you cannot pass it on, so there is obviously a mismatch in the cash flows. But then our book, we have not grown the book, and it's not a very large book for us.
The next question is from the line of Mahesh M.B. from Kotak Securities.
Just 1 question for me to Anup. Anup, just trying to understand, just kind of taking the question from the previous one forward. If the customer does -- in the recoveries that you have done this quarter, especially, let's say, in mortgages, have you had to see a fairly large credit cost or do you think that the LTV was good enough that you had to make very limited provisions out there from a write-off perspective?
No, no. In general, Mahesh, even in 2008, we didn't lose anything on the mortgage side. One is our LTVs are well controlled, number one. And number two, many of them, most of them, in fact, they are either customers are staying there, so it's an SORP, the self-occupied residential property or that is the source of income, and they would not want it to get mortgaged and sold and all of it. So essentially, that is the situation actually on the market side.So there is no loses as such, which has come in mortgage when you sell. Actually, we don't have to sell. In mortgages, the fact is that even in 2008, why I'm saying 2008 is because it was a bigger cycle. That we didn't have to sell that much actually to recover. And even when we have sold -- I mean, again, it is all past because we'll have to see if we have to sell what happens. There is no great loss or anything like that. Credit costs are very, very low. Plus, our provision coverage ratio is very good. So actually, I would say that for a mortgage kind of business, this kind of provision coverage ratio, certainly, we'll do better than with high probability and high confidence, of course.
Second question, just that -- given the fact that you've been a little bit more -- let's say, you just kind of giving a little bit more of a helping hand to borrowers today. If the customer does remain in the NPL book, but is starting to repay the loans. And given the fact that he may not be able to pay all the installments to term standard, your first option is to continue with the borrower or you would want to kind of take some actions on this?
No. I mean what action to take. I'm not clear actually on the question.
It is essentially a recovery activity through an auction of the underlying property or the vehicle or any kind of auction?
No, no, no. Okay, okay. I got it. I got it. See, our -- basically, the stance we have is not to take the collateral and sell and recover, okay? That is not the first choice we have. Our first choice always is that customer should keep the collateral, and they should pay us back. So that is our first stance. And generally, we have seen that, that is how it generally happens. So there are cases -- so we assess, whether it is a complete loss of income or it's a temporary loss of income. If it's a complete loss of income and customer says that there is no way in which I can pay you and here is the collateral I'm willing to give then we will take that action. But that's not the preferred route for us. And we have seen that in most cases, in fact, in majority of the majority of the cases, it is circumstantial and not intent or anything like that. It is circumstantial. And it goes ebbs and -- and with the ebb and flow, it happens, and people do pay back. And we don't have to keep the collateral and do.Any case, economically also seizing the collateral and selling is a more involved process. If it is a vehicle, then it depreciates. If it is a real estate now, sale is low, commercial real estate sale will be slow, et cetera. So that's not our preferred mode of recovery. Our preferred mode is that customer should pay back.
The next question is from the line of Manish Ostwal from Nirmal Bang.
I have only 1 question. In your initial remarks, you said that in quarter 2, the slippage will be lower and meaningful reduction will happen 2H FY '22. So in this quarter, we have some write-back also in COVID-related write-back. And there is some INR 1,100 crores of additional provision because of change of policy. So my question is how do you read the write-back in the context of the pandemic situation of pandemic and our assessment of the overall credit slippage and the credit cost for the full year?
Yes. So the -- right, the COVID-related provision that we are holding, we would reassess it on a quarter-on-quarter basis, depending more on how the pandemic -- the status of the pandemic. For example, in December quarter itself, we had utilized about INR 18 billion from these COVID provisions. And until February, we were actually definitely thinking of -- or planning to utilize more in the March quarter. But that changed post the second wave coming in towards the end of March, and we actually made a further INR 10 billion of provision. This quarter, we have reassessed and based on the portfolio, which is there based on the NPA slippages that we have seen from the portfolio, the provisions that we hold there plus the expectations for the rest of the year, we believe that the provision that we are holding currently of INR 64 billion or so is more than adequate. So that is an assessment that we will have to kind of do on an ongoing basis.
But since we have write-backs, so can we read the current quarterly trend of the provisioning will sustain in the coming quarters? Or how one should read it?
Yes. It's -- so indeed, in this quarter, we had an additional provision, like you said, of INR 11 billion (sic) [ INR 1,100 billion] also coming in because of the change in the policy that we have for NPAs. And that is not something which one would be doing on an ongoing or a recurring basis. So aside from that, hopefully, into the second half of the year, one should see provisions coming off. But very difficult to say. Our approach is that at all points of time maintain a balance sheet, which is strong in terms of coverage ratio, net NPL levels. So that is something that we will continue to factor in. But directionally, given what we are seeing on the NPL additions, it should mean that the provisions -- the gross provision should also come off.
The next question is from the line of Adarsh Parasrampuria from CLSA.
Question is on margins. The performance has...
[Operator Instructions]
So my question was on margins. It's been exceptionally strong. So I just wanted to understand that actual growth is low, corporate pricing is weak, and you had a very strong improvement in margins maybe because of loan mix and liability. Are we at peak margins or we expect the bank can sustain these levels of margins?
So on the margins, I think like we have been saying our approach is to kind of see what best we can do. I think the most important part of the margin is the deposit franchise and the cost of funds, cost of deposits that we have. We have seen that decline in the June quarter as well, the cost of deposit about 15 basis points. I think the cost is now coming down to a bottom because incrementally the deposit rates have not come down for a while. So it will bottom out soon.On the yields, it has been very competitive. I think across retail and corporate, the business teams have been very conscious about the trade-off, which is there between growth margin, profitability. Of course, the risk part of it as well. And especially on the corporate side, we have looked at the growth in a manner, which is supportive of margins and operating profit. So that is something that we will continue to do. This quarter, I guess some of the liquidity did come off for us. That would have helped a bit. We also got some bit of higher yield on the surplus liquidity. I mentioned earlier in response to Mahrukh's query that we had put some of our liquidity through FX swaps, where the yield was a bit higher. But those are not very significant numbers in the overall context. I think the risk to margin will continue to be from competitive pricing.And secondly, I think our balance sheet now we have a fair bit of market benchmark linked loans in the portfolio. And if we see any change in our funding cost or deposit rates without commensurate change in repo rate by RBI, that would be a risk factor as well.
Got it, Rakesh. And the second question is, how do you retain, which is normalized in the second half? How do you see the risk on the SME side because that service still has got a lot dispensation around...
Adarsh, we can't hear you clearly, actually. We heard the word SME, but nothing around that actually.
Sorry. I will just repeat. The SME portfolio has got a lot of dispensation in the last few quarters and continues now. So what's the risk from that portfolio in the second half when retail normalizes? How are you evaluating any context to how the portfolios are performing there?
Yes. So if you look at the business banking and the SME portfolio, so we have described how that portfolio has been constructed. The business banking portfolio, the ticket size is pretty low. It is pretty well collateralized. Last year through the moratorium and after that also the trends were quite stable, continue to be the same. The overdue levels from that portfolio is pretty much the same as we have had in the past. So quite comfortable on that.SME is slightly larger ticket size than the business banking portfolio. So of course, with a slightly larger ticket size, the collateral levels are not the 100% that you have in business banking. So to some extent, SME does have a bit of higher risk than business banking. But again, in terms of the numbers that we are seeing till now, there is nothing that we are finding, which would be of a big worry. There have been some increase in the overdue book in the June quarter compared to where we were in the March quarter, but that was to be expected. And a lot of that is in the early bucket, and we would expect that to resolve also. So we could see -- we would be quite comfortable on this book as we are seeing it currently.
We take the last question from the line of Jai Mundhra from B&K Securities.
One question on merchant acquisition business, which we have given a reasonably good retail, and it looks like this is a clear focus area. If you can highlight what is the existing merchant base? How much is the addition on a monthly basis? And do you think that you are the late entrant here? And if you could also talk about the digital store management? I mean, it looks very interesting. Are you managing this thing or this is just tie up with some other fintech? So, yes, first question on this merchant acquisition business.
Yes. So I will just expand your question a little bit. See there are 3 kinds of large flows that are happening. There is a large corporate ecosystem where the flow happens, dealer, vendors, their own working capital, that to happen. Second one is the flow that happens on our BLG, SMEAG, and our trade customers who may have taken credit, may not have taken credit, but both of them are essentially B2B type.Now you have this merchant, which is a B2C. When I am saying C, it is the last leg, is essentially with consumers, and there is a payment leg involved. So you will see that most of the servicing on the merchant side essentially happens on the payment side. So with the payment -- so first the flow happens to you. So that is 1 movement that happens. So there is a large consumption basket, which moves on savings account to current account or reduction in OD, et cetera, essentially to the business side every month, and that is where the flow is. Now this flow, a, we have a decent market share there. So it is not right to assume that we have low market share. We have a decent market share, but the other players were stronger than us for sure in this space. One big opportunity that is now coming is that there is a divergence because there is a -- the number of payment modes have increased, number one. And number two, if we look at the consumer behavior that we are seeing, we are seeing they are trying to pay, Pay to Contact UPI payment, et cetera, those are also exploding. So P2M transactions are exploding, and Sandeep talked about it in the opening remarks how our P2M is moving. And sequentially, it is jumping. The other thing that we can do, the new Merchant Stack that we have come out with and the super current account, we are giving instant settlement. Instant settlement is something which is of great value to the customer. And the reason why we are able to give instant settlement also is because the whole ecosystem belongs to us, both on the savings side as well as on the current account and the merchant side.So that is one way of capturing this because there are new modes of payment, which is happening. That opens up newer ways of capturing that opportunity. The second one, of course, is that through aggregators, one captures that opportunity and you tie up with aggregators. And there you partner with aggregators and then you capture this.The third, of course, is the traditional POS method. We think that on a POS perspective they will be with very large retailers. As you go smaller and smaller and smaller, things will move towards scan and pay and other more contactless methods. And that is where 1 big opportunity is this. From our perspective, that is the way we will be sort of thinking through this thing and making sure that the smaller merchants have a very, very strong proposition why they should deal with ICICI Bank. We will partner. We will create our own solutions, and we'll make them more efficient and effective. And we will have more digital footprint. We'll be able to lend them.So essentially, everything we'll be able to do as against some other players who might just be helping them with payment or some other players who will be helping them just with lending. And at this point of time, bank will be slightly better placed on lending if on as digital footprint and underwriting method because we have more data about our own clients. At this point of time, it is moving at a fast phase. I think it's a very interesting area and an evolving area and not fully solved for. So that is the problem that we are trying to solve for, and we think that there is a good play there.
Right. But sir, any vision? I mean, how -- what is the base -- merchant base as of now? And how big could it be?
So merchant base just to give you some sense, there is no sort of direct data available, but we would think that they will be close to 2 crore merchants of all shapes and sizes; small, big, very large, et cetera, et cetera. Of which may be 80 lakhs to 1 crore could be reasonably sized merchants. That is -- but there is no estimate available.We are sampling, and I'm just giving you a data. It may be off 2 percentages here and there. But there is no real, real data available. But I think that would be the size. Our also estimate, again, take it with a pinch of salt because there is no such data available. The movement -- monthly movement from savings account on the consumption per month ranges between INR 2 lakh crores per month to around INR 2.5 crores per month. So that is the kind of movement that happens from the savings account to the merchant account every month across all payment modes.So this is across all payment modes. We might not have captured some, but that is our best estimate. We don't know. This estimate could be higher, certainly not lower, but it may be slightly delta high. So that is the kind of money movement that is acting. But as you know, only in payment, there is not that much of value as in profit pool available only in payments. So one has to put the payment because without payment you don't get the data and then using underwriting cross-sell other products to make -- try and generate profit pool out of that. And banks have -- we are in a unique position because we are afloat, and with that float you make some money. Many other players in the market may not be able to make money through the float alone because they don't run a liability-type franchise. So that is the magnitude.So I thought I'll just give you some sense, maybe INR 2 crore total -- total, total INR 1 crore could be -- INR 80 lakh to INR 1 crore could be some estimate. Don't hold me to estimate because these are not sort of -- these are our estimate from our own sampling. It will give you some sense. And certainly INR 2 lakh crore plus movement from -- on consumption from savings account to merchant accounts per month across all payment modes. So I am just sizing -- trying to get -- actually size the market for that.
Sure, sir. That's very helpful. Second question that is on floating rate book. So I think Rakesh mentioned that now the floating repo rate/CIBIL-linked loan is around 54%. And that is a huge number. Limited understanding suggests that I think Rakesh also mentioned that in -- I mean, this should be link accretive in the hardening cycle provided RBI also increases repo rate. But any thoughts as to what could be the unwanted consequences because I suspect that the liability may not be this dynamic at this point of time?
Yes. So the risk here is essentially that our deposit rates or deposit costs go up prior to RBI increasing the repo rate. So there will be -- the lead and lag problem will be there. And so over the cycle, hopefully, it should average out. But it is possible that it's not something, which happens. It should happen anytime soon. But when the tightening happens, the market rates could go up before the repo rate at points of time that happens, especially on the wholesale deposit side. So that is the risk of mismatch because liability side, like you rightly said, that is all fixed rate deposits or CASA deposits. There is no floating rate liabilities, which are there. So we'll have to manage that as and when that plays out. But as I said, over the period, it should average out, but there could be a lag in that.
Right, sir. And last thing on business banking, SME, you've bifurcated. I mean you have cut out business banking from retail. As of now, this proportion is around 5% of the book. Not a guidance, but I mean a 2, 3 years' vision as to how big can this be? I mean business banking SME, if you have a number there as a portion of total bank's loan?
Yes. So in terms of proportion, we don't have any target there, but in terms of the business opportunity for both the Business Banking, SME segment, we believe there is a huge opportunity. Our own market share in this segment in the past has been somewhat lower than the share that we have in other businesses, plus all the initiatives that we have been taking. And Anup talked about many of them. On the digital and technology side, I think that is really enabling us to grow, not just on the lending business, but also the current account and FX and transaction banking. So it's a portfolio on which we believe there is a lot of opportunity. We don't have any specific growth or portfolio composition that we want to reach there.
Right, sir. And the last data keeping question, sir. If you can bifurcate the restructuring -- so you have given the outstanding restructuring. Is this the -- I mean, what is the -- what was restructuring done in 1.0 and 2.0? And is there any residual pipeline for 2.0?
This 1.0, 2.0 is all so distinct, that's why what we have given on Slide 32 is just aggregate restructuring, whether 1.0, 2.0, project under implementation, extension of DCCO, MSME scheme. There are so many schemes so we thought it was just better to give an aggregate number of standard loans, which are restructured and outstanding as of the date. Going forward, I think like we mentioned that we will see some restructuring happening in the 2.0 on the retail side, for example. It could be for some of the existing NPAs or for new loans. So in the September quarter, we will see some increase on account of that.
I would now like to hand the conference over to the management for the closing comments. Over to you, sir.
Thank you, everyone. It got a bit late today on Saturday. Sorry for that. And for any follow-on questions, you could reach out to us. Thank you.
Thank you. All the best.
Thank you.
Thank you. Ladies and gentlemen, on behalf of ICICI Bank, that concludes this conference. Thank you all for joining us, and you may now disconnect your lines.