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ICICI Bank Ltd
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Good afternoon to all of you, and welcome to the ICICI Bank earnings call to discuss the Q2 2020 results. Joining us today on this call are Vishakha, Anup, Sandeep Batra, Rakesh and Anindya. Our core operating profit increased by 23.6% year-on-year to INR 65.33 billion in Q2 of 2020. We continue to maintain a stable and healthy funding profile. We are focused on growing retail term deposits and our CASA deposits in absolute terms. During the quarter, savings account deposits increased by INR 120.93 billion to INR 2.3 trillion, and current account deposits increased by INR 140.3 billion to INR 944.31 billion at September 30, 2019. The average CASA deposits increased by 10.9% year-on-year in Q2 of 2020. On the assets side, the domestic loan book grew by 16.4% year-on-year at September 30, 2019, driven by retail loans, which grew by 22.2% year-on-year. The overall loan growth was 12.6% year-on-year. Over the past year, we have taken a number of initiatives on the digital front to expand the customer base, smoothen the onboarding process further, enhance the transacting experience and deepen the penetration of our products and services amongst existing customers. Some of our initiatives such as Amazon Pay credit card and InstaBIZ have seen a lot of interest from customers. While digital transformation remains a cornerstone for driving business and improving efficiency, we are also focused on expanding our physical infrastructure. We are growing our branch network based on the economic activity and growth potential of different locations. We had earlier mentioned that we are looking at opening 450 branches during the year. We added 2 -- we added 346 branches in Q2 of 2020. The branches seek to meet evolving customer requirements with contemporary design, rationalized use of space and dedicated areas for transactions and customer engagement. Coming to asset quality. The gross NPA additions during the quarter were INR 24.82 billion. The NPA additions and gross provisions for the quarter were in line with expectations. The provision coverage ratio, excluding technical write-offs, was 76.1%. The net NPA ratio declined from 1.77% at June 30, 2019, to 1.60% at September 30, 2019. The corporate and SME portfolio internally rated BB and below was INR 160.74 billion as of September 30, 2019, compared to INR 175.25 billion as of March 31, 2019, and INR 153.55 billion as of June 30, 2019. As we have mentioned in the past, 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 customer more seamless and frictionless through digitization and process improvements. We have recently undertaken several initiatives in the SME business to streamline the sales engine, credit processes and underwriting. Through these initiatives, we aim for higher sales velocity, lower and predictable turnaround time and improved credit decisioning. These initiatives have been rolled out in our branches in multiple cities in the last quarter. In our rural business, our strategy involves a comprehensive approach to cater to the needs of semi-urban and rural areas. Our reach in rural areas is supported by a network of branches, on-field staff and business correspondents providing last-mile access in remote areas. Of the branch network of 5,228 branches, nearly half are in rural and semi-urban areas. We have reached in over 1 lakh villages, and we are working to provide dedicated banking services to the customers at their homes in 66,000 of these villages. We have recently partnered with CSC e-Governance Services India to expand rural reach and extend all banking services to the rural customers, including transaction and bill payment services at their doorstep.Our approach revolves around meeting the end-to-end needs of our rural customers and offering a bouquet of services and products to capture the entire value chain. Specific initiatives include the Self Help Group program, which provides zero-balance savings account and term loans for meeting the business requirements of women and solutions for dairy farmers. Digitalization underpins the bank's offerings in rural banking as well. Our unique mobile application called Mera iMobile allows customers to avail more than 135 services, including nonbanking information and agri-related advisory on crop prices, news and weather. The app is available in 11 languages. Till date, the app has processed a total of 30 million financial and nonfinancial transactions. In the corporate banking business, we continue to grow our credit portfolio with focus on granularity, transaction banking and improvement in the credit rating profile. Our aim is to capture the business opportunity across corporate ecosystems. We have dedicated teams of key account managers to cross-sell retail products to employees of corporate borrowers. In commercial banking, we are focusing on leveraging the India-linked trade corridor, driving granular business and increasing client coverage through about 100 dedicated branches. 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.
Thank you, Sandeep. I'll talk about the P&L details, our performance on growth, credit quality, performance of our subsidiaries and the capital position during quarter 2 of the current financial year. Coming to the P&L details. The net interest income increased by 25.5% year-on-year to INR 80.57 billion, driven by both loan growth and an increase in margins. The net interest margin was at 3.64% for the quarter compared to 3.61% in Q1 of 2020 and 3.3% in Q2 of last year. Interest on income tax refund was INR 0.42 billion this quarter compared to INR 1.84 billion in Q1 and INR 0.05 billion in Q2 of last year. The impact of interest on income tax refund on net interest margin was about 2 basis points this quarter compared to about 9 basis points in Q1 of 2020. The impact of interest collection from NPAs was about 4 basis points this quarter compared to 8 basis points in Q1 of 2020. The domestic NIM was at 3.92% in Q2 compared to 3.93% in Q1 and 3.71% in Q2 last year. International margins were at 0.41% in Q2 compared to 0.33% in Q1 and 0.05% in Q2 of last year. The total noninterest income was INR 41.94 billion this quarter compared to INR 31.56 billion in quarter 2 of last financial year. The fee income grew by 16.1% year-on-year to INR 34.78 billion in this quarter, with the retail fee income growing by 20.5% year-on-year and now constituting about 74% of the overall fees in this quarter. Treasury recorded a profit of INR 3.41 billion this quarter compared to a loss of INR 0.35 billion in Q2 of last year. The dividend income from subsidiaries was INR 3.77 billion in this quarter compared to INR 1.67 billion in quarter 2 of last financial year. The dividend income from subsidiaries in Q2 this year included the final dividend for FY 2019 from ICICI Securities and ICICI Prudential Life Insurance Company. On costs. The bank's operating expenses increased by 24.4% year-on-year in Q2. During the quarter, employee expenses increased by 28.9% year-on-year. The growth in payroll expenses was about 20% year-on-year, which reflects employee additions of about 16,000 over the last 12 months and a normal growth -- the annual normal growth in salaries. The bank had 99,893 employees at September 30, 2019. The nonemployee expenses increased by 21.6% year-on-year in this quarter. Given the business opportunity, we have been investing in people, expanding our distribution network and spending on sales promotion and advertisements. While we will continue to make investments in people, technology, distribution and building our brand, our endeavor would be to ensure that revenues grow at a faster pace than expenses. Provisions declined by 37.2% year-on-year to INR 25.07 billion this quarter, compared to INR 39.94 billion in Q2 of last financial year and INR 34.96 billion in quarter 1 of this year. The growth in core operating profit and reduction in credit costs resulted in an increase in profit before tax from INR 12.56 billion in Q2 of last year to INR 43.67 billion this quarter. The tax expense was INR 37.12 billion during the quarter. Pursuant to the changes in the corporate tax rate, we have decided to exercise the option of lower marginal tax rate of 25.2%. Accordingly, the accumulated deferred tax asset has been remeasured, resulting in a onetime additional charge of INR 29.20 billion in the stand-alone financial results for the quarter. Profit after tax was INR 6.55 billion in this quarter compared to INR 9.09 billion in quarter 2 of last financial year. Excluding this impact of onetime additional charge due to the deferred tax asset, the profit after tax would have been INR 35.75 billion for the quarter. Coming to the balance sheet. The domestic loan growth was 16.4% year-on-year as of September 30, driven by a 22.2% growth in the retail business. Within the retail portfolio, the mortgage loan portfolio grew by 19% to INR 1.9 trillion, auto loans increased by 6%, business banking by 47%, rural lending by 19% and commercial vehicle and equipment loans by 28% year-on-year. The personal loan and credit card portfolio grew by 47% year-on-year, off a relatively small base to INR 524.52 billion and was 8.6% of the overall loan book as of September 30. Given the recent developments around a particular housing finance company undergoing resolutions, I would like to mention that the portfolio we bought from this company is granular in nature and meets our risk return thresholds. Further, the collection for almost the entire portfolio has been taken over by the bank. Last quarter, we had mentioned that we had reorganized our SME business, with the retail business group focusing on the enterprises having a turnover of less than INR 2.5 billion and the mid-market group focusing on enterprises with turnover of INR 2.5 billion to INR 7.5 billion. That was aligned with the corporate banking group. The SME business, comprising of borrowers having a turnover of less than INR 2.5 billion, grew by 30% year-on-year to INR 190.64 billion at September 30, 2019. Excluding the net NPAs and restructured loans as of September 30, 2019, growth in the domestic corporate portfolio was about 7.3% year-on-year. The bank is focused on meeting the commercial banking needs of its corporate clients, including FX and derivative requirements, trade finance, payments and collections. The net advances of the overseas branches decreased by 13% year-on-year in rupee terms and 11% year-on-year in U.S. dollar terms as of September 30. As a result of the above, the overall loan portfolio grew by 12.6% year-on-year at September 30. Retail loans as a proportion of total loans now constitutes 62.1% of the total loans at September 30. Including the non-fund based outstanding, the share of the retail portfolio was 49.9% of the total portfolio at September 30. The international loan portfolio is now 9.8% of the overall book. On the funding. During the quarter, period-end CASA deposit grew by 14.6% to INR 3.2 trillion at September 30. The term deposits increased by 34.9% year-on-year from INR 2.8 trillion to INR 3.7 trillion. The total deposits increased by 24.6% to about INR 7 trillion at September 30. Coming to credit quality. The gross nonperforming assets were INR 456.39 billion at September 30 compared to INR 457.63 billion at June 30, 2019. During the quarter, the retail portfolio saw gross NPA additions of INR 13.23 billion, and recoveries and upgrades of INR 7.14 billion. The increase in additions was generally in line with the growth in the retail portfolio and, as we have mentioned earlier, also reflected the seasoning of the portfolio. Out of the corporate and SME gross NPA additions of INR 11.59 billion, about INR 4.13 billion was due to the increase in outstanding of accounts classified as nonperforming in earlier periods. This INR 4.13 billion included about INR 3.49 billion due to the depreciation of rupee impact on our foreign currency nonperforming loans. Of the balance slippages, INR 3.73 billion were from the BB and below portfolio at September 30. These include INR 0.79 billion of devolvement of non-fund based outstanding to existing NPAs and slippages of INR 2.94 billion from other loans rated BB and below. The recoveries and upgrades were INR 12.63 billion in this quarter. The gross NPAs written off during the quarter were INR 13.28 billion, and the bank sold NPAs aggregating to INR 0.15 billion during this quarter. The net nonperforming assets were INR 109.16 billion at September 30 compared to INR 118.57 billion at June 30. The net NPAs have declined by about 51% when compared to September 30 of last year. The loans and non-fund based outstanding to borrowers rated BB and below, excluding the NPAs, were INR 160.74 billion at September 30 compared to INR 175.25 billion at March 31, 2019, and INR 153.55 billion at June 30, 2019. The non-fund based outstanding to nonperforming loans was INR 33.71 billion at September 30 compared to INR 36.27 billion at June 30. The bank holds provisions of INR 13.43 billion at September 30 against this non-fund based outstanding to nonperforming loans. The fund and non-fund based outstanding to borrowers under the earlier resolution schemes of RBI was INR 39.29 billion as of September 30 compared to INR 40.03 billion at June 30. The balance INR 85.5 billion of fund-based and non-fund based outstanding to borrowers rated BB and below, excluding the restructured loans, includes INR 46.62 billion related to cases with an outstanding greater than INR 1 billion, and INR 38.88 billion related to cases with an outstanding of less than INR 1 billion. On Slide 20 and 21 of the presentation, we have provided the movement in our BB and below portfolio during the quarter 2 and H1 of this year. There were rating upgrades to the investment-grade categories and a net decrease in outstanding of INR 9.8 billion in Q2 and INR 25.98 billion in H1 of this year. The rating downgrades from investment-grade categories was INR 20.72 billion in Q2 and INR 27.88 billion in H1 of this year. The downgrades during the quarter comprise a few accounts spread across sectors. There was also a reduction of INR 3.73 billion in Q2 of this year and INR 16.41 billion in H1 due to slippages of some borrowers into the nonperforming category from this bucket. The loan, investment and non-fund based outstanding to NBFCs was INR 265.78 billion at September 30, which is at a similar level compared to the June 30 portfolio. The loan, investment and non-fund based outstanding to HFCs was INR 141.31 billion at September 30 compared to about INR 155.16 billion at June 30. The loans to NBFC and HFCs were about 5% of our total outstanding loans at September 30. The builder portfolio, including construction finance, lease rental discounting, term loans and working capital loans, was INR 225.15 billion at September 30 compared to INR 202.49 billion at June 30. The increase in the builder portfolio was due to an increase in outstanding, largely to well-established builders. Our builder portfolio is about 4% of our total loan portfolio. Our exposure to the telecom sector was about 1.8% of our total exposure at September 30. The exposure would predominantly be to the top 2 players in this sector. Coming to our subsidiaries. The details of the financial performance of subsidiaries is covered in slides 29 to 31 and 52 to 57 in the investor 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 have been prepared as per Ind AS. The financial statement of these subsidiaries used for consolidated financials of the bank have been prepared as per Indian GAAP. The value of new business of ICICI Life increased by 20.2% year-on-year to INR 7.09 billion in H1. The new business margin increased from 17% in FY 2019 to 21% in H1. The protection-based annualized premium equivalent increased by 86.8% year-on-year to INR 4.97 billion and accounted for 14.8% of the total annualized premium equivalent in H1 of this year. The new business premium grew by 20.5% from INR 42.77 billion in H1 of last year to INR 51.52 billion in H1 of this year. The embedded value was INR 226.80 billion at September 30 compared to INR 192.48 billion last September. The gross direct premium income of ICICI General Insurance Company was INR 64.40 billion in H1 of this year compared to INR 73.05 billion in H1 of last year. Excluding the crop segment, the gross direct premium income increased by 16.2% in H1 of this year to INR 63.86 billion compared to the industry growth of 14.4%. The company's combined ratio was 101.5% in H1 compared to 100.1% in H1 of last year. This was primarily on account of long-term motor policies and losses from catastrophic events in various states. Excluding the impact of this, the combined ratio would have been 100.1% in H1 of 2020 compared to 99.5% in H1 of last year. The profit after tax increased by 6.1% year-on-year to INR 6.18 billion in H1 of 2020. The return on average equity on an annualized basis was 22.3% for H1. The profit after tax of ICICI Asset Management Company increased from INR 1.96 billion in quarter 2 of last year to INR 3.05 billion in quarter 2 of this year. The increase in profit after tax reflects the benefit of lower tax rate applicable to domestic corporates. The profit after tax of ICICI Securities on a consolidated basis was INR 1.35 billion in quarter 2, which was roughly similar to the number last year same quarter. The company continues to broad-base its business model to comprehensively cater to all investment, protection and borrowing needs of its customers. It is making progress in its strategy of becoming a digitally powered virtually -- virtual financial supermarket and in articulating its strategy and performance to stakeholders. ICICI Bank Canada had a profit after tax of CAD 14.2 million in quarter 2 compared to CAD 12.4 million quarter 2 of last year. ICICI Bank U.K. made a net profit of USD 11.9 million this quarter compared to a loss of USD 14.7 million in Q2 of last year. ICICI Home Finance had a loss of INR 0.61 billion this quarter compared to a loss of about INR 0.06 billion in quarter 1 and a profit after tax of INR 0.15 billion in quarter 2 of last year. The loss in this quarter was due to provisions on the non-mortgage portfolio and expenses on scaling up of business over the last few quarters. The consolidated profit after tax was INR 11.31 billion this quarter compared to INR 25.14 billion in quarter 1 and INR 12.05 billion in quarter 2 of last year. Excluding the impact of onetime additional charge due to remeasurement of accumulated deferred tax assets, the consolidated profit after tax would have been INR 41.01 billion in this quarter. Lastly, on capital. As per Basel III norms, including the profits for the half year, the bank on a stand-alone basis had a CET1 ratio of 13.24%, Tier 1 capital adequacy ratio of 14.62% and total capital adequacy ratio of 16.14% at September 30. On a consolidated basis, the bank's Tier 1 capital adequacy ratio was 14.3%, and the total capital adequacy ratio was 15.81%. RBI during the quarter reduced the risk weights on consumer credit, excluding the credit card receivables, from 125% to 100%. This resulted in an impact of about 25 -- a positive impact of about 25 basis point on the CET1 ratio of the bank. With this, I conclude my opening remarks, and we will now be happy to take your questions.
[Operator Instructions] We'll take the first question from the line Mahrukh Adajania from IDFC Mutual Fund.
Yes. Congrats. My first question was on the slippage. So if you see the movement in NPLs and the breakdown of your slippage and the movement in BB, is it correct that most of the slippage from BB came from INR 1 billion and below?
So if you look at the slippage from BB and below portfolio, for the quarter, the aggregate slippage was -- it was only INR 3.73 billion. So that would be a fair assumption.
Okay. And the other thing I wanted to check is that -- could you give a sector-wise breakdown of your BB like the broad 3, 4 sectors?
We have not given that. Maybe in future, we could give that. But typically, these will be sectors like construction and infrastructure. These are the sectors which are there in the BB and below. Maybe in future, we would look at giving that out.
Okay. But no color? You did mention that the increase this quarter of INR 21 billion was from various accounts across sectors. But any sectors you could name?
So these would be similar kind of such sectors, which are the infrastructure, construction, some of these. If you look at the aggregate, it was about INR 21 billion. So these are only a few accounts, which are there -- from the corporate side.
Okay. Got it. And just one clarification on the telecom exposure. It hasn't changed much between June and September, while MCA has a charge in -- a big charge in your NIM in August. So this would include all sanctions and charges?
Yes.
We take the next question from the line of [ Ashish Golechha ] from [ Ajit Securities ].
Congratulations, sir, for a very good set of numbers. After you have joined, the perception of investors and employees at ICICI has improved a lot. So my first question was on IBC recovery. Any idea on when do we expect within next 3 to 6 months or how much portion of quantum can we expect with respect to IBC recoveries? And second question was with respect to the telecom portfolio, with respect to the fund base and nonfund base limits, which we have given to the top 2 clients. How are we safeguarding ourselves? Do we have any collateral security with respect to that? Or I mean, how are we safeguarding bank's interest with respect to the 2 telecom exposures where we have 1.8% exposure?
On the first question on IBC, one of the steel accounts is the large exposure that banks are waiting for the resolution. As you know, right now, it is with the Supreme Court. So hopefully, that gets done sometime during the current financial year. There are a couple of other resolutions also that we are working on within the IBC framework and a couple outside as well. We are in multiple-bank situation. We are kind of trying to negotiate a resolution. So if you look at our credit cost for the year, we indeed have assumed some of these recoveries will happen during the year, especially the steel account and a couple of other accounts, which are there. And when we have talked about our credit cost estimate of 1.2% to 1.3% for the financial year, that has been an assumption which has been made. So hopefully, that gets done. If that does not happen and flips into next financial year, there will be some impact, clearly, on the credit cost for the year. So that is where we are on the IBC. In terms of telecom, we would not want to mention about specific companies or specific structures in terms of the lending that we have done. But yes, as we have been saying, we are completely focused on ensuring that we protect the shareholder interest in terms of the lending business that we are doing. And I would leave it at that.
Next question is from the line of Suresh Ganapathy from Macquarie.
Yes. I just had a question again on this credit cost because you are telling that -- of course, you're factoring in some recoveries. And your 1.2% guidance that is just for the entire financial year '20, you mean to say? Or is it the exit quarter run rate? Because the first half, we have delivered a 2% credit cost. So for me to assume a 1.2% number, you are talking about a credit cost lower than 100 basis points in the second half. Am I interpreting -- my interpretation is right or wrong?
So Suresh, even at the beginning of the year, we had said 1.2% to 1.3%. That is the number that we had talked for the financial year. And indeed, that was assuming a couple of large new recoveries, including the one steel account that we talked about. So as you can imagine, in the quarter in which we get recovery from the steel account, the credit cost would become, by definition, quite negligible. So that number of 1.3% that you're talking about or around that is based on the full year number. So it's the exit number. For example -- in Q4, for example, if the write-back on steel account comes, that will be a much lower number per se. So if you look at the incremental addition to NPAs, the trends there, the provisioning on that, that has pretty much been on track, I would say, with what our expectation has been for that 1.2% to 1.3% number. Maybe we would be at the higher end of that range because there have been some changes, as you see, in the overall macro. The RBA guideline came out on June 7 regarding some of the resolution. And if a resolution doesn't happen in a particular case and it doesn't get referred to IBC, you may have to take a higher provision on existing cases. So some of that, we will have to see how that plays out. But you are right that if we don't see the recoveries coming in the current run rate, we would end up closer to 1.8% to 2%. That is a fair assumption. But otherwise, the recoveries, we would expect, hopefully, to get closer to the 1.3% for the [indiscernible].
Okay, fine. Fine. That's very clear. The other thing is this 1.8% total exposure to telecom, it's both funded and non-funded put together, right? And as a percentage of total exposures, right?
Yes. Yes, Suresh.
So can you tell me the absolute number, please, if you don't mind?
It's about INR 20,000 crores.
INR 20,000 crores. Okay. Fine. And one last question on this downgrade to BB and below. I know the problem here is that how do we judge what could be the potential pipeline because this quarter has been a blip. But as you had a INR 20 million, INR 21 billion downgrade in a single quarter to BB and below, I mean, how good is your assessment of the BBB book that we can see -- I'm not telling current run rate, but perhaps such large numbers coming across or it's very difficult to put in a number? We just wanted to know your assessment of the book about BB and below.
So Suresh, in terms of the -- so you are talking about the movement into the BB and below book from downgrade [ as opposed ], correct?
Correct. That's right. That's right.
So as you're saying, these [ books ] are somewhat difficult to assess. We report these numbers based on the position at the quarter end. And these ratings are all internal ratings, so we do factor all that is happening across. I think it will be fair to assume that we would not be completely immune to what is happening in the macro today. So I think over the next couple of quarters, would we expect the addition to the BB and below to be somewhat higher than what we have seen in the earlier quarters would be a fair assumption. But it's very difficult to kind of have a precise number on that. In addition, I would say that if I look at the BB and below, even the slippages that have happened into the BB bucket this quarter, very difficult to say. But qualitatively, many of these accounts are accounts which are indeed facing stress, but we expect recoveries to happen. In some of these cases, there are some transactions which are planned. And as and when they happen, there will be recoveries that come in. So it is not -- these are not accounts which would kind of straight away flow into the NPL bucket. But again, it's a qualitative assessment. We'll have to see how it all plays out, so we did not mention it upfront. But overall, I think next couple of quarters, it would be fair to assume that there will be some impact that we see from the macro. And overall, I think given the context of the macro, we are still quite comfortable with that. Downgrades will happen, and there is independent rating assessment that people within the bank do and they will factor in the development that will happen.
Next question is from the line of Manish Ostwal from Nirmal Bang Securities.
Yes. Most of the questions have been answered. Only one question on the operating expenses. In the first half, the operating expenses grew by 21% Y-o-Y. And earlier trend was somewhat soft on the expense side. So can you guide us -- how do you see the overall cost efficiency in the bank going forward in terms of cost-to-income ratio?
Yes. So on the cost, I think at the bank, we are completely focused on the risk-calibrated core operating profit. And that gets driven by where we are on the net interest income, fees and expenses. The increase in expenses that we are seeing currently, a part of it, I talked about on the employee expenses is just because of the fact that yields went up in the Q2 of last financial year and went down this year, so the actuarial valuation kind of impact. So -- but even then, you know, the 24% kind of quarter-on-quarter growth which is there. The run rate, as you said, 20%, 21% is the run rate that we are seeing. We have added employees in our frontline of business, most of them on the retail and the rural side. We have opened new branches, as Sandeep talked about. We are investing in sales, advertisement, promotion in our brand, and you would be seeing some of that, I'm sure. So we are quite -- and technology also, we are investing in as more and more transactions happen digitally.So in the current financial year, I think the cost numbers, the trend would remain like what you have seen in the first half. And we would expect to start seeing benefits from these expenses. I'm not calling those investments because they are in the routine nature of business per se. But the revenues from these expenses would come in, in some cases, instantly; in some cases, with some lag. So if I still look at it from a medium-term perspective, we would definitely look at growing our revenues at a higher pace than the expenses. But this year, indeed, there are some expenses that we are planning in addition of employees, addition of branches, which we had not done for some time in the past. And there is clear business rationale and opportunity mapping, which has been done before we have got into these expenses.
Right, sir. The second is in terms of growth rate of a portfolio, on domestic loan portfolio. So what kind of growth rate we expect, I think, given the slowing economy? And yes, understand the retail portfolio is growing reasonably well, but in the corporate side, some of the peer banks reporting very high growth. So what is your assessment of corporate loan book growth in domestic market?
Again, on the loan growth, the way we are looking at the bank and each of the businesses is looking at loan growth is wherever there is opportunity and which meets our risk and return thresholds, we are happy to grow. So wherever there's any -- the returns would meet as I [ media ] -- or the risk is not something which falls within our [ cadres ], we would not want to pursue that. There is no specific loan growth target or aspiration that we have per se. Retail, I think, in some of the segments, our market share generally has been lower than what you would see our market share in some of the other parts of businesses. So we are kind of still at a relatively lower base, I would say, in things like business banking, credit cards, personal loans. Mortgage is a large portfolio. It's growing well as well. We will definitely see some slower growth on the vehicle business. So overall, we have been running around 20%. And if the opportunity continues, we'll grow at that pace. But if we see any kind of change in equation on risk or return, we would calibrate that growth.On the corporate side, the focus is not just on plain lending. No, it is on growing float income through payment and collection business, growing fee revenues through FX, derivative, transaction banking. So it is looked at on a holistic basis. And what we track is the return that we make with each individual client. So that is the approach, which is there. We are also quite happy to sell down portfolios or get prepayments where the margins are not as high. So you would have seen this also reflect in the overall margin for the bank. We have seen a 30 basis point increase year-on-year for the quarter 2. The quarter 2 margin itself had seen some improvement on the quarter 1. Sorry for a long-winding answer per se, but that is how we are looking at the loan growth.
Mr. Ostwal, do you have any more? Sir, we lost you for -- sir, can you please repeat your question? We lost you for a minute.
Yes. Sir, my question on that -- one data point. Apart from the PCR of 85%, do we have -- or are we holding contingent or floating provision? And if yes, how much?
So we have -- we don't really have much of -- we don't have much of -- actually, we don't have any floating provision. We have some provisions against the non-fund exposure to the nonperforming loans that we talk about in our presentation, about INR 13 billion or so. And then we have the general provision on standard assets.
[Operator Instructions] We take the next question from the line of Nitin Aggarwal from Motilal Oswal.
Yes. Congratulations on strong results. I have a question on the term deposit growth, which has been very strong for us over the recent quarters. So firstly, what is like driving this 35% Y-o-Y growth? And separately, how has been the traction in FD, extra and other innovative deposit products that we have introduced like over the past couple of quarters? And how do we account for the extra benefits of life insurance, health insurance? So does this cost shows up in other expenses?
So one on the overall term deposit growth, a lot of it -- actually, most of it has come from the retail term deposits. And I think we have mentioned earlier also that over the last now 5 to 6 quarters, we have been focused a lot on growing the retail term deposits. We had earlier mentioned that the aggregate retail deposits that we raised in FY '19 was more than what we have raised in the previous couple of years, and that momentum has continued into this financial year as well. And it is not that we are pricing our retail deposits at anything higher than what the peers are. In fact, here we are kind of leading also in reducing the term deposit rates.So we feel quite comfortable that in terms of the loan growth opportunity, which is there for us, and we believe over the next few years, it is a significant opportunity that we have. From a funding point of view, we are quite comfortable in terms of raising term deposits, raising CASA deposits and, most importantly, raising it at competitive cost of funds.On some of the other products that we have launched on the fixed deposit, and we have also kind of launched some products on the savings deposit side, I think a lot of it has been very recent events which have happened. So in terms of numbers, we are not really talking about those numbers yet. It does create an interest and excitement and makes people more aware about this product and the additional facilities that they can get with this product because finally, we do believe that the customer is looking at liquidity as an important factor, along with the returns. And FD is a critical product from that point of view. The cost, which is there for all the add-ons that we have, that are all accounted for in the respective quarters, and that would show up as part of expenses. It's not a very large number, Nitin.
Okay, okay. And secondly, 2 data point questions. One is on the retiral provisions quantum that we have made. And are we fully provided? And second is the outstanding BB and below investment book.
Yes. So we have -- we don't disclose separately the retiral provision per se. But what we do is that at any point of time, we do a quarterly actuarial valuation. So the numbers, and that's why, maybe to some extent, our numbers are more volatile because this quarter, for example, the yields went down a bit. So we would have got a higher hit, while same quarter last financial year, the yields had gone up, and we would have got some saving on that account. So as of September 30 or as of any quarter end date, we are always fully provided for our obligations around pension, gratuity, leave, all of that. We don't disclose that number separately. Maybe, again, we'll consider looking at that in future.Your next question was -- sorry, I missed that.
The outstanding BB and below investment book.
So we don't have any significant book there. It's a small book. It will be about INR 6 billion to INR 7 billion. So it's not something material at all.
We take the next question from the line of Nilesh Soman from Keynote Financial.
Sir, my -- I'm having 2 questions for you. First question is that any new product launching in this quarter? And second one is that expansion plan regarding adding the new branches in this quarter?
In terms of new branches, we have talked about adding about 450 branches during the year. A lot of them we have already opened, as Sandeep mentioned earlier.On new products, that is something that we do on an ongoing basis. There is no specific plan around that. We just talked about some of the new initiatives, innovation that we have done around the fixed deposit product. So that is something which you will see on an ongoing basis.
We take the next question from the line of Tejas Badheka from HSBC.
I just wanted to check that what would be certain numbers around the real estate exposure that you were just mentioning, which is one in the news right now. If you can just give some numbers around it?
Real estate, in terms of the portfolio...
The one which is in news recently, which was, you said that it's quite granular in nature and has been meeting the retail ratios at your end.
Sorry, I did not get the question.
Can you talk -- could you be a little more elaborate on some numbers around the exposure to Indiabulls Group or one another group which are in the news right now? Or is there any way we can have a look at those numbers...
So I think one way, which I can -- so we don't at all talk about individual borrower exposures to them. But I think on an overall basis, we have mentioned in the past that in our NBFC/HFC portfolio, we don't have any material exposure or any large exposure to any of the companies which are under stress or supposedly under stress. So that is something that we have said. But beyond that, we have not commented on individual borrowers per se.In addition to that, I -- earlier, I had talked about the fact that we have purchased portfolios from some of the NBFCs and HFCs. And this one particular HFC, which is currently undergoing resolution, we had purchased portfolios, and those portfolios were completely granular. And what we have done is that we have also kind of moved the collection on this portfolio largely in-house at the bank. And the portfolio is doing fine. So we don't have any specific concerns on that portfolio.
We take the next question from the line of Prasheel Shah from CapGrow Capital.
So one of your peer banks recently said that they were facing some stress in the MSME sector. So what is your feedback on the same?
Which sector, sorry?
MSME.
MSME.
Yes.
So actually, we are not really seeing that in our portfolio. So I can talk about our portfolio. So that will kind of reflect largely in the business banking portfolio that we have and maybe the lower end of the SME portfolio that we have. We are seeing pretty stable trends. But again, you have to look at the fact that our portfolio size per se relative to our overall loan portfolio has not been that large. So we are tracking that as of now, and we are quite comfortable with the trends that we are seeing. And we are not seeing actually any change in trend at all.
We've just lost the line for the current participant. We take the next question from the line of Saikiran Pulavarthi from Haitong Securities.
Just quickly on the business banking and personal loans. The growth has been pretty strong, both year-on-year and quarter-on-quarter. Considering the environment, how confident you are? And what are the thought process of growing this book at this point of time?
I think like what we have said earlier that on the -- a lot of these portfolios, we are focused on our existing customers. We are kind of ensuring that the process for on-boarding customers has eased up. We are using, wherever possible, Insta products to reach out to the customers. So we are quite comfortable with -- and the result -- the growth that we see is an outcome in terms of, we are not really diluting any of our credit underwriting norms or return expectations. If anything, we may have tweaked something to make it a bit tighter. So we are quite comfortable, and we remain -- we, of course, are tracking the environment. And if at any point of time we believe that we need to change our approach here, we would. We're looking at doing that. But as of now, we are quite comfortable with the growth that we are seeing.
And the second thing is that when I look at your segmental PBT, after long time, wholesale banking had turned profitable. Would you like to comment on the profitability going forward, especially from the corporate banking side, at what levels it could settle on a sustainable basis?
I think -- that I think we will take that maybe a couple of quarters later. I think there are still some provisions, which will come in. We talked about that earlier, that there will be provisions that come in. And hopefully, that gets offset by the recoveries, which come in. But if the recoveries don't come in, the credit cost could be higher. So I think there will be a couple of quarters more of provisions that would be there. And beyond that, from a operating income perspective, I think the entire drag of nonperforming assets will also kind of come off by the time we end the financial year. We are seeing reasonably healthy growth on the fee revenues. And we have focused a lot on, as I said, payment collection and some of the other products as well other than lending. So we are quite optimistic about the growth in the wholesale banking segment. But I think you will start seeing much more consistent numbers there from the next financial year, maybe in the second half also, if we see the right path. But those are lumpy, so that's still conditional.
Okay. Just a couple of data keeping questions, sir. Adjusted for retiral provisions, what will be the cost growth for this quarter? And the second thing is on the HFC side. There is a meaningful reduction in the capital adequacy ratio. Would you like to comment on that?
So on expenses, essentially, the employee expenses that you're seeing at about 28%, 29%. If you were to look at only the payroll expenses, excluding these retirals, the increase would have been around 20%. So as I said, there is a run rate of around 20%, 21%, which is there on expenses. So that is it.On the housing finance company, from a capital point of view, it would reflect the fact that, as I mentioned earlier, that they have made a loss during the quarter. So that would be the main reason for that. And I think there is a certain approach that the company has on its business. I think they are in a phase of transition as they kind of build their book. So again, this year is not something that we are kind of focused on from a outcome perspective on profits per se. But the way they are building the business, I think, from next year, you will start seeing much more stable numbers from them.
Next question is from the line of Anand Laddha from HDFC Securities.
Rakesh, just wanted to [ try and see ], now the repo-link loan has been launched, say if I had to look at say, the repo-link home loan size as a bank, the gap between you and the largest public sector bank is significantly higher. How do you see you would be able to compete with them and able to grow the housing loan portfolio?
I think our approach once this market benchmark linked product had come in, is to kind of look at it over the next 3, 4 months and understand how the market pans out for this product. So we have not really been aggressive in terms of pricing of this product. We would want to be competitive as long as it meets our return threshold. Risk-wise, we are absolutely comfortable.I think maybe in a couple of months down the line, once we have a much better sense of how the market rates are moving, how these benchmarks are moving and the deposit rates, then we would look at how to price it differently, if at all, we would want to. But overall, if you look at the portfolio on the housing side, I think over time, we have also been doing a fair bit of loan against property business as well. And with that mix, overall, even if we see somewhat lower growth in the save money in our mortgage business, we are fine with that. If that is not meeting our return threshold, that is something which will be there. But we do believe that it's a transition phase again, and next 3 months, I think we will have a better sense of how the repo rate has been closed.
No, my question was because our, currently, repo-link loan are higher than our existing MCLR linked loan. So I was just wondering...
They are actually quite similar. So when we had launched it, it would have been somewhat higher it would have appeared. But when the RBI cut the repo rate in October, on October 4 or 5, post that our rate also came down 25 basis points. So I think as of now, they are quite similar in terms of the earlier rate.
Okay. And do you think -- so today, the provision is repo plus spread and then the credit spread. Any -- at any given point of time, can you change these spreads? Or does this product remain fixed for the next 2 to 3 years?
The RBI guideline is very clear on this. So if you have taken a loan linked to repo rate, then as a customer or a bank, we cannot change that spread unless there is a change in the credit -- some parameter for the borrower. Or once in 3 years, RBI has given that option or opportunity for banks to change this rate.
Okay. But as a bank, every quarter, can you launch a new scheme or a new rate product? Like today, there's repo plus 300 plus 15 basis point. Next month, can you launch repo plus 280?
You can do that. But -- so there's nothing from RBI which says that new customers, the pricing cannot be different. So that can always be there.
Okay. And lastly, one more question. The CAD growth has been very significantly high this quarter. Is there any one-off? Or how do one should look at a CAD growth for us? And if you can also give some color on the PSL, how we are on the PSL target for this quarter or for first half?
Yes. So on the CAD, on the current account deposit side, again, I think you should look at the daily average balance. And there also, for the quarter, we have done quite well. The growth has been above 15%. And I think the efforts that we have been taking on the business banking side, on the self-employed segment and on the corporate side on payment collections, all of that, along with some -- on the government segment as well. So all of that has reflected in the growth that we are seeing on the current account side.
Perfect. On the priority sector?
On priority sector, it is a running target, which is there. I think the overall priority sector, we are always comfortable. I think the sub targets, it's a trade-off between how much risk you want to take versus the target. So last year, our overall allocation of the RIDFs because the shortfall had come down for us, we had purchased PSLCs in the market. So this year, again, we will see how it plays out.
Okay. And lastly, on the power sector resolution, what sort of resolution do you expect in next 1 or 2 quarter? What is your power sector NP and how much of the same do you expect will get resolved?
Power sector has been a long-drawn story. I don't think we have any specific expectations on that. There are a couple of cases on which banks are working, nothing which is bilateral here. So we will see. I don't think that one can be too optimistic on the power sector resolution as of today.
Next question is from the line of Gurpreet Arora from Aviva Life Insurance.
Yes. Can you hear me?
Yes.
Hello?
Yes, sir. We can. Please go ahead.
Yes. I have a few quick questions. A few quarters back, Sandeep had alluded to disclosing or detailing out the medium-term ROE trajectory. So are we ready to discuss on that? And is the bank looking at any stand-alone ROE targets and so forth? That's my first question.Second question is you, in your opening remarks, said about the retail slippages. If you could elaborate a little bit more and a little bit give a granular flavor with respect to what segments are doing well and what segments are contributing to these slippages. And what sort of retail credit cost is there in your mind that you would want to maintain?And last question is have you done any portfolio buyout in the first 6 months of this year?
So on ROE, I think we have said that 15% consorted ROE by June is our first target. And as we get to that, then we will talk about a more medium-term or long-term basis. If you look at the numbers more recently, we are heading in that direction, but still, clearly some distance away from getting there. So that was on the ROE.On the retail slippages, talked about the numbers, gross addition of about INR 13 billion, recoveries and upgrades of about INR 7 billion. So these numbers are pretty -- if you look at our net increase or the net addition is about INR 6 billion for the quarter. So there's nothing specific per se, which is there. Generally, the trends are stable. I think other banks have talked about some increase on the commercial vehicle, commercial equipment portfolio, which would be true for all the banks, including for us. But otherwise, it is quite stable. And you can look at the numbers that we have disclosed. Even on the outstanding basis, the gross NPAs on retail portfolio is around 2%, slightly below that. The net is around 0.8%, 0.9%. Overall, stable trends that we are seeing.On the credit cost, it's a bit difficult to say because it will completely be a function of the portfolio composition per se. We have talked about in the past -- yes, in the past, we have talked about that the provisions to core operating profit around 20%, 25%, which translates to about maybe 1% of credit cost is on the portfolio. Within that, if the composition of retail mortgages are high or business banking is high or personal loan is high, we'll have to see how that plays out.And on portfolio purchases, in this quarter, we have not done much. We would have done some portfolio buyouts in the June quarter, but the larger part had been done in the second half of the last financial year.
Okay. One last data keeping question. What's the outstanding provision on standard assets as on September end?
It's about INR 30 billion -- INR 30.9 billion.
We take the next question from the line of Krishnan ASV from SBICAP Securities.
Yes. So just one bit on your ICICI Home Finance subsidy. Just wanted to understand in terms of impairment recognition, is there a service consistency but you are now able to build...
Not able to hear you. Can you just repeat? We're not able to hear you clearly.
Yes. Is this better?
Mr. Krishnan ASV, I would request you to please use the handset mode while speaking as your audio is not very clearly audible.
Is this better?
Yes.
So my first question was about your ICICI Home Finance portfolio. Is there a certain element of uniformity that you are building towards in terms of income recognition and asset classification in that portfolio? And how far are you from establishing that uniformity between the Home Finance subsidiary and your normal ICICI core lending operations?
So in terms of -- you're talking about the NPA classification, so there, actually, it is quite the same as what is for the bank. I think where we have seen some slippages, it has been on the non-mortgage portfolio. And that is where the credit cost has come in. And also, over the last 3 or 4 quarters, we have been expanding from a growth point of view. So again, largely on a planned basis, for this year, we were expecting profitability to be on the lower side as we make investment for our future growth in this company. On NPA recognition per se, it is pretty much the same as the bank. Of course, they are on Ind AS. So there are no other differences vis-à-vis the banks per se.
We take the next question from the line of Nilanjan Karfa from Jefferies.
Rakesh, a question on the Slide 24 and specifically related to the incremental downgrades that we have seen in the BB and below book. How different is it versus if you have to map your -- map the book to an external rating? And so for example, the entire BBB, that's a 30-odd percent. How different will this be if it is mapped to an external rating?Related question is how -- would you have seen the gap versus external rating widen or narrow over, let's say, the last 4 to 6 quarters?
It's a difficult one to answer. So I can give you a more generic answer to say that, in general, we find that in many cases, our internal ratings are lower than the external ratings. It would not be true for all cases but on a more generic basis. In many cases, we find that our internal ratings are indeed lower. But the challenge is that not all the exposures are externally rated. So if you see our -- the disclosure -- the risk weights for some of it, we don't have external rating available itself. So to map that is going to be difficult. But in general, I would say that there is -- these ratings on an average would clearly be lower than what you see from the external rating agencies, but it may not be true for all the cases. And generally, on the lower ratings side, which hit BB and below there, the ratings would kind of be more aligned to accelerating [ itself ].
Okay. Okay, sure. And a data question, I mean would you want to disclose how many standard accounts on which we have signed ICAs, both on number and amount-wise basis?
That would have been very fine to disclose. I don't have the number of hand. So we will...
Ladies and gentlemen, that was the last question. I would now like to hand the conference back to the management for closing comments.
Like it's a Saturday afternoon and [Foreign Language] Diwali. So wishing you all a very happy Diwali. Thank you very much.
Thank you.