ICICI Bank Ltd

NSE:ICICIBANK

Earnings Call Transcript 2023-Q2

[Operator]

Ladies and gentlemen, good day and welcome to ICICI Bank Limited Q2 FY '23 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. Sandeep Bakhshi, Managing Director and Chief Executive Officer, ICICI Bank. Thank you and over to you, Mr. Bakhshi.

[Sandeep Bakhshi, executive]

Thank you. Good evening to all of you, and welcome to the ICICI Bank earnings call to discuss the results for Q2 of financial year 2023. Joining us today on this call are Anup, Sandeep Batra, Rakesh, Anindya and Abhinek. The Indian economy has seen a robust recovery from challenges posed by pandemic. However, we're currently experiencing volatility in global economy and financial markets, geopolitical tensions and upward movements in inflation, interest and exchange rates. The authorities have been taking various measures to address the evolving situation. At ICICI Bank, we aim to grow the core operating profit in a risk calibrated manner through a 360-degree customer-centric approach and by focusing on ecosystems and micro markets. We continue to operate within our strategic framework and strengthen our franchise, enhance our delivery and servicing capabilities and expand our technology and digital offerings.

Coming to the quarterly performance against this framework. First, growth in the core operating profit in a risk calibrated manner through the focused pursuit of target market segments. The core operating profit increased by 23.6% year-on-year to INR 117.65 billion in this quarter. Excluding dividend income from subsidiaries and associates, core operating profit grew by 24.4% year-on-year. The profit after tax grew by 37.1% year-on-year to INR 75.58 billion in this quarter. Second, further enhancing our strong deposit franchise. Total period-end deposits grew by 11.5% year-on-year at September 30, 2022. During the quarter, average current account deposits increased by 15.5% year-on-year. Average savings account deposits grew by 16% year-on-year. Period-end term deposits grew by 10.5% year-on-year and 4.3% sequentially at September 30, 2022. The liquidity coverage ratio for the quarter was about 127%.

Third, growing our loan portfolio in a granular manner with a focus on risk and reward. The retail loan portfolio grew by 24.6% year-on-year and 6% sequentially at September 30, 2022. Including non-fund based outstanding, the retail portfolio was 44.2% of the total portfolio. The business banking portfolio grew by 42.6% year-on-year and 10.8% sequentially. The SME portfolio grew by 26.5% year-on-year and 6.4% sequentially. The growth in SME and business banking portfolios was driven by leveraging our branch network and digital offerings such as InstaBIZ and Merchant Stack. The domestic corporate portfolio grew by 23.1% year-on-year and 6.8% sequentially at September 30, 2022 driven by growth across well-rated financial and non-financial corporates. The rural portfolio grew by 11.7% year-on-year and 3.8% sequentially. The domestic loan portfolio grew by 24% year-on-year and 6% sequentially. The overall loan portfolio grew by 22.7% year-on-year and 4.8% sequentially at September 30, 2022.

Fourth, leveraging digital across our business. We continue to enhance our digital offerings and platforms to onboard new customers in a seamless manner and provide them end-to-end digital journeys and personalized solutions. These platforms also enable us to do cross-sell and upsell. We have shared some details on our technology and digital offerings in Slide 17 to 27 of the investor presentation. Fifth, protecting the balance sheet from potential risks. The net NPA ratio declined to 0.61% at September 30, 2022 from 0.7% at June 30, 2022 and 0.99% at September 30, 2021. During the quarter, there were net additions of INR 6.05 billion to gross NPAs excluding write-offs and sale. The provisioning coverage ratio on NPAs was 80.6% at September 30, 2022. The total provisions during the quarter were INR 16.44 billion or 14% of the core operating profit and 0.71% of average advances. This includes contingency provision of INR 15 billion made on a prudent basis. The bank holds contingency provisions of INR 100 billion or about 1.1% of total loans as of September 30, 2020.

Sixth, maintaining a strong capital base. The capital position of the bank continued to be strong with a CET1 ratio of 16.95%, Tier 1 ratio of 17.51% and total capital adequacy ratio of 18.27% at September 30, 2022 including profits for H1 2023. Looking ahead, we'll continue to grow the core operating profit in a risk calibrated manner. We'll work as one team by facilitating cross-functional collaboration to tap into the key customer and market segments, enabling 360-degree coverage and increase in wallet share. We'll continue to make investments in technology, people, distribution and building our brand. The principles of Fair to Customer, Fair to Bank and One Bank, One Team, One ROE will guide our operations. We focus on building a culture where every employee in the bank serves customers with humility and upholds the values of brand ICICI. We aim to be the trusted financial services provider of choice for our customers and deliver sustainable returns to our shareholders.

I now hand the call over to Anindya.

[Anindya Banerjee, executive]

Thank you, Sandeep. I will talk about balance sheet growth, credit quality, P&L details, growth in our digital offerings, portfolio trends and the performance of subsidiaries. Starting with balance sheet growth. Sandeep covered the loan growth across various segments. Coming to the growth across retail products. The mortgage portfolio grew by 20.4% year-on-year and 4.4% sequentially. Auto loans grew by 19% year-on-year and 5.2% sequentially. The commercial vehicles and equipment portfolio grew by 5.6% year-on-year and 0.6% sequentially. Growth in the personal loan and credit card portfolio was 48.8% year-on-year and 11.8% sequentially. This portfolio was INR 1,077.49 billion or 11.5% of the overall loan book at September 30, 2022. The overseas loan portfolio in U.S. dollar terms declined by 10.4% year-on-year and 19.4% sequentially at September 30, 2022. The decline in overseas book primarily reflects maturities of the short-term India-linked trade book.

The overseas loan portfolio was about 4% of the overall loan book at September 30, 2022. The non-India linked corporate portfolio declined by 47.4% or about USD 387 million on a year-on-year basis. Of the overseas corporate portfolio, about 84% comprises Indian corporates, 7% is overseas corporates with Indian linkage, 4% comprises companies owned by NRIs or PIOs and the balance 5% is non-India corporates. On the liability side, Sandeep covered the growth in deposits. During the quarter, we also raised long-term infrastructure bonds as well as refinanced borrowings from domestic financial institutions. Overseas borrowings declined reflecting the reduction in assets. Going on to credit quality. There were net additions of INR 6.05 billion to gross NPAs in the current quarter compared to INR 3.82 billion in the previous quarter. The net additions to gross NPAs were INR 5.93 billion in the retail, rural and business banking portfolio and INR 0.12 billion in the corporate and SME portfolios.

The gross NPA additions were INR 43.66 billion in the current quarter compared to INR 58.25 billion in the previous quarter. The gross NPA additions from the retail, rural and business banking portfolio were INR 36.58 billion and from the corporate and SME portfolio were INR 7.08 billion. The gross NPA additions from the corporate and SME portfolio include the impact of rupee depreciation on existing foreign currency NPAs. Recoveries and upgrades from gross NPAs, excluding write-offs and sale, were INR 37.61 billion in the current quarter compared to INR 54.43 billion in the previous quarter. There were recoveries and upgrades of INR 30.65 billion from the retail, rural and business banking portfolio and INR 6.96 billion from the corporate and SME portfolio. The gross NPAs written off during the quarter were INR 11.03 billion. The bank sold NPAs worth INR 0.94 billion on a cash basis in the current quarter compared to INR 0.13 billion in the previous quarter.

Net NPAs declined by 25.3% year-on-year and 8.4% sequentially to INR 60.99 billion at September 30, 2022. The non-fund based outstanding to borrowers classified as nonperforming was INR 35.16 billion as of September 30, 2022 compared to INR 36.70 billion as of June 30, 2022. The bank holds provisions amounting to INR 20.24 billion as of September 30, 2022 against this non-fund based outstanding. The total fund-based outstanding to all standard borrowers under resolution as per various guidelines declined to INR 67.13 billion or about 0.7% of the total loan portfolio at September 30, 2022 from INR 73.76 billion as of June 30, 2022. Of the total fund-based outstanding under resolution at September 30, 2022, INR 47.39 billion was from the retail, rural and business banking portfolio; and INR 19.74 billion was from the corporate and SME portfolio. The bank holds provisions of INR 20.59 billion against these borrowers, which is higher than the requirement as per RBI guidelines.

Moving on to the P&L. Net interest income increased by 26.5% year-on-year to INR 147.87 billion. The net interest margin was 4.31% in this quarter compared to 4.01% in the previous quarter and 4% in Q2 of last year. The net interest margin was 4.16% in H1 of 2023. There was no impact of interest on income tax refund on the net interest margin in the current quarter. The domestic NIM was at 4.45% this quarter compared to 4.14% in the previous quarter and 4.09% in Q2 last year. The cost of deposits was 3.55% in this quarter compared to 3.46% in the previous quarter. Of the total domestic loans, interest rates on 44% are linked to the repo rate, 5% to other external benchmarks and 21% to the MCLR and other older benchmarks. The balance 30% of loans have fixed interest rates. The sequential increase in NIM reflects the impact of increase in interest rates on loan yields while repricing of deposits occurs with a lag.

While policy rate hikes affected so far should further reflect in loan yields, we also expect to see the impact of repricing of deposits in future quarters. Noninterest income, excluding treasury income, grew by 16.8% year-on-year to INR 51.39 billion in Q2 of 2023. Fee income increased by 17.6% year-on-year to INR 44.8 billion in this quarter. Fees from retail, rural, business banking and SME customers grew by 19% year-on-year and constituted about 79% of the total fees in this quarter. Dividend income from subsidiaries and associates was INR 6.48 billion in this quarter compared to INR 5.83 billion in Q2 of last year. The year-on-year increase in dividend income was due to higher final dividend from ICICI General and final dividend from ICICI Bank U.K. offset in part by lower dividend from ICICI AMC and ICICI Securities. On costs, the bank's operating expenses increased by 24.2% year-on-year in this quarter.

The employee expenses increased by 21.1% year-on-year. The bank had about 110,000 employees at September 30, 2022. The employee count has increased by about 9,800 in the last 12 months. Non-employee expenses increased by 25.9% year-on-year in this quarter primarily due to retail business and technology related expenses. Our branch count has increased by about 340 in the last 12 months and we had 5,614 branches as of September 30, 2022. The technology expenses were about 9% of our operating expenses in H1 of this year compared to about 8.5% in fiscal 2022. The core operating profit increased by 23.6% year-on-year to INR 117.65 billion in this quarter. Excluding dividend income from subsidiaries and associates, the core operating profit grew by 24.4% year-on-year. There was a treasury loss of INR 0.85 billion in Q2 compared to a gain of INR 0.36 billion in Q1 and INR 3.97 billion in Q2 of the previous year.

The total provisions during the quarter were INR 16.44 billion or 14.0% of core operating profit and 0.71% of average advances. These include contingency provisions of INR 15 billion made on a prudent basis. The provisioning coverage on NPAs was 80.6% as of September 30, 2022. In addition, we hold INR 20.59 billion on borrowers under resolution. Further, the bank holds contingency provision of INR 100 billion as of September 30, 2022. At September 30, 2022, the total provisions other than specific provisions on fund-based outstanding to borrowers classified as nonperforming were INR 200.59 billion or 2.1% of loans. The profit before tax grew by 39.4% year-on-year to INR 100.36 billion in this quarter. The tax expense was INR 24.78 billion in this quarter compared to INR 16.9 billion in the corresponding quarter last year. The profit after tax grew by 37.1% year-on-year to INR 75.58 billion in this quarter.

The consolidated profit after tax grew by 31.4% year-on-year to INR 80.07 billion in this quarter. Coming to the growth in digital offerings. Leveraging digital and technology across businesses is a key element of our strategy of growing the risk calibrated core operating profit. We continue to see increasing adoption and usage of our digital platforms from our customers. There has been about 8 million activations of iMobile Pay by non-ICICI Bank account holders as of end September. The value of transactions by non-ICICI Bank account holders in Q2 of this year was 4.4x the value of transactions in Q2 of last year. The value of credit card spends in the current quarter grew by 4.4% sequentially and 43.1% year-on-year. We saw healthy growth in retail credit card spend driven by increase in discretionary spending, higher activation rates through digital onboarding of customers including Amazon Pay credit cards.

During the current quarter, we closed about 817,000 inactive credit cards as per recent RBI guidelines. The bank has issued more than 3.5 million Amazon Pay credit cards since its launch. We have seen about 195,000 registrations from non-ICICI Bank account holders on InstaBIZ till September 30, 2022. The value of financial transactions on InstaBIZ grew by about 22.8% year-on-year in the current quarter. We have created more than 20 industry specific stacks, which provide bespoke and purpose-based digital solutions to corporate clients and their ecosystems. Our Trade Online and Trade Emerge platforms allow customers to perform most of their trade finance and foreign exchange transactions digitally. About 70% of trade transactions were done digitally in Q2 of this year. The value of transactions through these platforms increased by 70.1% year-on-year in Q2 of this year. We have provided details on our retail, business banking and SME portfolios on Slides 34 to 44 of the investor presentation.

The loan and non-fund based outstanding to performing corporate and SME borrowers rated BB and below was INR 76.38 billion at September 30, 2022 compared to INR 82.09 billion at June 30, 2022 and INR 127.14 billion as of September 30, 2021. The amount of INR 76.38 billion at September 30, 2022 includes INR 21.98 billion of outstanding to borrowers under resolution. Other than 1 account in the power sector, the resolution has been implemented as per RBI's COVID-19 resolution framework. The maximum single borrower outstanding in the BB and below portfolio was less than INR 6 billion at September 30, 2022. At September 30, 2022, we held provisions of INR 8.12 billion on the BB and below portfolio compared to INR 8.61 billion at June 30, 2022. This includes provisions held against borrowers under resolution included in this portfolio.

The total outstanding to NBFCs and HFCs was INR 735.73 billion at September 30, 2022 compared to INR 699.72 billion at June 30, 2022. The total outstanding loans to NBFCs and HFCs were about 8% of our advances at September 30. The sequential increase in the outstanding to NBFCs and HFCs is mainly due to disbursements to entities having long vintage and entities owned by well-established corporate groups. The builder portfolio; including construction finance, lease rental discounting, term loans and working capital; was INR 319.63 billion at September 30, 2022 compared to INR 275.69 billion at June 30, 2022. The builder portfolio is 3% of our total loan portfolio. Our portfolios largely comprises well-established builders and this is also reflected in the sequential increase in the portfolio. 6.8% of our builder portfolio at September 30, 2022 was either rated BB and below internally or was classified as nonperforming compared to 8.3% at June 30, 2022.

Finally, on our subsidiaries and key associates. The details of the financial performance of subsidiaries and key associates are covered in slides 48 to 50 and slides 69 to 74 in the investor presentation. The value of new business or VNB margin of ICICI Life increased from 28% in FY 2022 to 31% in H1 of this year. The value of new business increased by 25.1% year-on-year to INR 10.92 billion in H1 of this year. The annualized premium equivalent grew by 10.1% year-on-year to INR 35.19 billion in H1 of this year. The profit after tax of ICICI Life in H1 of this year was INR 3.55 billion compared to INR 2.59 billion in H1 of last year and INR 1.99 billion in Q2 of this year compared to INR 4.45 billion in Q2 last year. The gross direct premium income of ICICI General increased by 17.2% year-on-year to INR 51.85 billion in Q2 of this year. The combined ratio was 105.1% in Q2 of this year compared to 105.3% in Q2 of last year. The profit after tax grew by 32.2% year-on-year to INR 5.91 billion in the current quarter.

The profit after tax includes reversal of tax provisions of INR 1.28 billion. Excluding this reversal, profit after tax grew by 3.4% year-on-year in Q2 of this year. The profit after tax of ICICI AMC was INR 4.06 billion in this quarter compared to INR 3.83 billion in Q2 of last year. The profit after tax of ICICI Securities as per Ind AS on a consolidated basis was INR 3 billion in this quarter compared to INR 3.51 billion in Q2 of last year. ICICI Bank Canada had a profit after tax of CAD 12 million in this quarter compared to CAD 8.4 million in Q2 last year and CAD 7.2 million in Q1 this year. ICICI Bank U.K. had a profit after tax of USD 1.5 million this quarter compared to USD 2 million in Q2 of last year and USD 3.4 million in Q1 this year. As per Ind AS, ICICI Home Finance had a profit after tax of INR 0.6 billion in the current quarter compared to INR 0.46 billion in Q2 of last year and INR 0.40 billion in Q1 this year. During the quarter, we infused INR 2.5 billion of equity capital in ICICI Home Finance to strengthen its capital position and support its growth.

With this, we conclude our opening remarks and we will now be happy to take your questions.

[Operator]

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

[Mahrukh Adajania, analyst]

Congratulations. So my first question is on deposit growth in the second half. Obviously yours is a strong liability franchise, but liquidity is getting tight. HDFC's merger activity will also strengthen in the second half as they run closer to the merger. So how do you see deposit growth panning out? And in terms of further expansion to margin, what is the outlook over the next 4 to 5 quarters?

[Anindya Banerjee, executive]

So on the first part, Mahrukh, as you know, retail term deposit growth for the system in general was quite soft over the last few quarters till the early part of this financial year given the level to which the deposit rates had gone down. But I think maybe as the retail term deposit rates have started to move up, I think from the first quarter of this year we have started to see good traction and momentum in the retail FD accretion. Having said that, of course the pace of increase in the retail FD rates has been much lower than what we have seen in the wholesale deposit market. But I think if we look at developments over the last couple of weeks, we're seeing a more accelerated sort of increase in retail FD rates.

And therefore, I think we will see an increase in retail FD inflows as the banking system moves up on the FD rates. So we expect to see the retail FD deposit growth momentum to continue and to strengthen. On the second part on margins, I think if the -- as I mentioned in the opening remarks, given that 44% of the book is -- of the domestic book is linked to repo and we will continue to see some benefit on the yield side in terms of the repricing as the repo rate increases. In fact the last increase, which was of 30th September, itself will have some impact. But we do expect to see funding costs kind of move up at a quicker pace than what we have seen so far. So net of that, I think will be the sort of impact on margin. So we'll have to wait and see how it evolves.

[Mahrukh Adajania, analyst]

Okay. And the other thing is in general on loan growth and the ability of consumers to bear the hike, right? Loan growth has been very strong amidst rising rates and it's almost in defiance with the global macro. So are you going to see a slowdown also as a hard landing or how does it shape? Why is the economy or why are consumers showing so much strength as never seen before and better than expected? Does it continue for 2 to 3 quarters?

[Anindya Banerjee, executive]

So I think it starts with the fact, as Sandeep mentioned, that the recovery from the pandemic in India has been quite strong and that is evidenced in a number of indicators, whether it is demand indicators or the resilience and recovery in banks, loan portfolios in terms of the credit performance. So those are all indicators that the consumer is in good shape. In terms of the cost of credit, part of what has happened so far is really a reversion to where the rates anyway were pre-pandemic and during this time incomes, et cetera, would have gone up. But we have to see whether future rate hikes, the extent of pass-through that happens and what impact, if any, that has on the demand. Also it's a competitive environment so banks are offering products to consumers at rates which they feel consumers will have offtake at.

[Operator]

The next question is from the line of Saurabh from JPMorgan.

[Saurabh Kumar, analyst]

Sir, just one question. This contingent provision which you've made, I mean is it fair to understand that you would just target that...

[Operator]

Saurabh, unmute your line for me and go ahead with the question, please?

[Saurabh Kumar, analyst]

Am I audible now?

[Operator]

Yes.

[Saurabh Kumar, analyst]

Okay. So sir, just on this contingent provision, is it fair to assume that I mean you would just target this 2% ROA and effectively that's how the contingent is working or is there any reason you made this?

[Anindya Banerjee, executive]

No, it's not that way. We are looking at basically the overall macro environment both globally and in India in terms of risks to growth, the impact of inflation in interest rates and the geopolitical risk. And we are looking at broad across our portfolio, wherever we feel that the risk markers are higher and some of these risks could manifest. On that basis is how we are looking at the contingent provisions.

[Operator]

The next question is from the line of Krishnan from HDFC Securities.

[Unknown Analyst]

This is more to do with 2 things. One, we have generally seen an environment where loan pricing has been fairly fast because of EBLR, like that's evident. But also what we have observed is that the loan resets are faster. So if the earlier contracted period -- and this is not just true of ICICI Bank, I wouldn't have probably observed this specifically for ICICI Bank. But the system in general has moved from say a quarterly reset to a real-time reset so the day the RBI moves, immediately 50 basis points gets passed on, right? Does the RBI look at the same reset on the way down as well or do you anticipate that banks can continue to go back and forth between real-time reset and quarterly reset when the rate movement is adverse? So that's the first question. The second question is also about deposit mobilization. The fact is you're now at nearly an 86% loan-to-deposit given the kind of demand environment you're seeing. Could pricing be on the deposit side? Could that be -- could we catch up on the deposit side pricing? Could that be faster say towards the end of the year?

[Anindya Banerjee, executive]

So on your first question, Krishnan, we don't have any real-time resets. So our EBLR or repo linked loans reset every 3 months. So there is no next month or immediate reset on our, say, home loans which are linked to EBLR. On the second part, as we spoke earlier also on this call that we have seen more increases in deposit rates more recently than we had seen or larger increases than we had seen say broadly till September. So it would be fair to assume that the repricing of deposits will pick up, as you know, from here on.

[Unknown Analyst]

So just as a related thing on the EBLR, I mean it almost seems like if the RBI does pay 100 basis points incrementally from here till they terminate, right, all of that 100 basis points gets passed on. This is something we have been trying to clarify from other banks as well. I mean it would help if you could share your thoughts. Is there any discretion you can exercise? If you see risk building up, you really don't want to kind of break the camel's back, right? So would I mean bank be able to exercise any discretion saying that there comes a point beyond which I will absorb this on my P&L rather than pass it down further and increase asset quality risk or does that distribution not exist as things stand?

[Anindya Banerjee, executive]

So I think that's hypothetical. I mean contractually the borrower is required to sort of -- if the loan resets and is spread over the EBLR, one could -- if the borrower is able to for example look at refinancing at a lower cost from a competing provider, then that can happen. So they can exit my loan and go to a competing provider and take a loan at a lower spread. Yes, so that can happen. And in fact I guess as the rates go up, that can also be a factor in how spreads and margins move.

[Operator]

The next question is from the line of Nitin Aggarwal from Motilal Oswal.

[Nitin Aggarwal, analyst]

Congratulation on the performance. 2 questions like. One is again on the provisions which was touched upon earlier. Like percentage of PPOP, we are tracking significantly lower than the run rate that we have talked about in the past and so core credit costs running negligible now. So how do you see this? Like how long can this continue and what will be our strategy in respect to therefore making contingent provisions? So we'll continue to provide more continued provisions as the provisions to PPOP slow?

[Anindya Banerjee, executive]

No. So as I explained in response to Saurabh's question, we are not working out any percentage of PPOP or anything like that. It is entirely based on an analysis of the factors in the global and Indian environment and the portfolios that we have where perhaps risk markers are a little higher than the average portfolio. That is which we are on a quarterly basis and continuously reviewing from the perspective of making these prudent provisions. In terms of how the specific credit costs will shape up, I think as we have been saying I mean for -- basis our current understanding and expectation, in the near term we would expect them to kind of significantly undershoot the normalized level. I think the reasons for that are that we are not seeing really any material NPL development on the corporate side. In fact we are seeing some recoveries. And on the retail and SME side, we are coming off the pandemic related cycle so we are seeing actually recoveries out of those portfolios as well. And incremental additions are also well under control. So credit costs would be lower than normal for some time.

[Nitin Aggarwal, analyst]

Right. And secondly, if you can talk about the branch expansion strategy over the medium term. How do you see that because competition is talking about a very aggressive branch expansion than that? How are you looking at it? And any implications on the cost ratio? This quarter the cost ratios have moderated backed by strong revenues, but how do you see these 2 things going ahead?

[Anindya Banerjee, executive]

So as far as branches are concerned, I think we mentioned we've added about 340 branches in the last 1 year and we've added close to 200 branches in the current 6 months itself April to September and this pace of addition is somewhat higher than what we would have done in the preceding years. But this is based on our own assessment of the market opportunity across different markets and micro markets where new economic nodes or new nodes of residential development are coming up and we need to have a physical presence to service that. I think one of the other things that we are also doing as a strategy is trying to move our colleagues closer to the market. So that also results in an expansion of the local footprint. I guess we would continue to expand our branches on this basis. So you would see branch numbers going up over the next couple of quarters as well.

[Nitin Aggarwal, analyst]

Right. And any color on the cost ratios?

[Anindya Banerjee, executive]

We really focus on the preprovision operating profit and that naturally requires an appropriate management of OpEx in relation to the revenue. Currently, as you rightly said, the revenue environment is pretty strong and we feel that there is a lot of opportunity for us to grow our business, to expand our franchise and therefore, we continue to invest in that and that's what we would continue to do. And I think, as we have said in the past, if in a quarter or 2 cost growth overshoots even revenue growth, we would not worry about it too much and if we find it to be a sustained thing, we can always make some adjustments. But currently I think we are looking at investing and expanding the franchise.

[Operator]

The next question is from the line of [ Sharaj from Laburnum Capital. ]

[Unknown Analyst]

My question is on the [ company ] growing value. So is there some specific segment of the book we are providing for against in times of crisis?

[Anindya Banerjee, executive]

No. We look across the portfolio so it's quite a broad range of portfolios that we look at.

[Unknown Analyst]

Okay. I was particularly asking from the SME and business banking segment. Would it be fair to expect this would be hit hard if there's a slowdown?

[Anindya Banerjee, executive]

So actually that segment has behaved quite well for us. In fact I would say that even if we look at the analysis that we had done at the start of the pandemic when the moratorium was on, I think this is one of the segments where the outcomes have probably been a little bit overall in line or better. But of course in an environment where there are -- in an environment of a lot of macro volatility, this could be a segment that will see some vulnerability. But as far as the contingent provisions are concerned, we are looking at a fairly broad range of portfolio.

[Unknown Analyst]

Okay. Congratulations on the results and Happy Diwali.

[Operator]

Next question is from the line of Rakesh Kumar from Systematix Group.

[Rakesh Kumar, analyst]

So just 1 question I have. This is related to when we are in a falling interest rate scenario, which is quite far from here, but just to understand what you're thinking about it. The asset quality trajectory and the EBLR, both would not be working as a countercyclical thing. So what is our thought process here? Because margin would also taper off and with the fall in the interest rate, there would be asset quality issues also coming up. So the EBLR would not help for the system as a whole I think. So your thoughts on this.

[Anindya Banerjee, executive]

I'm not sure I understood the question. But I think that first, as the repo rate increases as you know, I think the increases so far have been quite well absorbed by the borrowers and have not -- clearly don't seem to be leading to signs of any higher delinquencies and we'll have to of course keep monitoring as the situation evolves. I don't think that in a falling rate scenario, there would be any negative impact on asset quality, if at all, the margin risks could be in the rising scenario. From a bank margin perspective, therefore, it's not really in that sense countercyclical because bank's margins would also rise in a higher interest rate scenario.

[Rakesh Kumar, analyst]

No, sir. Basically what I was trying to say that generally what -- in case the [indiscernible] are there that when we are in a falling interest scenario, significantly the NPA rise. And when we see the credit growth numbers tipping off and the interest cycle coming down, we see asset quality issues. And in those times because of this EBLR mechanism in place now, loan pricing would also be faster until and unless we change the benchmark itself like or if we do some changes there within the EBLR. So actually because of EBLR linkage, we would have adverse impact on loan credit yield also and then we would also have asset quality issues associated with the falling interest rate.

[Anindya Banerjee, executive]

So I'm not able to draw this -- I don't think it's a kind of reverse causation. So typically in a normal cyclical tightening and loosening of monetary policy, we would not see such an impact. It could happen in a crisis situation, but there it is not there. For example there is a big shock to growth, but it is the shock to growth which causes the NPL and not the reduction in interest rates, which is also a consequence of the shock to growth. So I think if it's a normal calibrated tightening and then unwinding of monetary policy, this should not happen. But I will sort of hedge by saying that we have not really seen a full cycle under the EBLR pricing regime. So that is something that we have to see how it goes through both on the way up and the way down in terms of both margins and credit quality.

[Operator]

The next question is from line of Jignesh from InCred Capital.

[Jignesh Shial, analyst]

Am I audible?

[Operator]

Yes.

[Jignesh Shial, analyst]

Just one thing I wanted to discuss similar to what Krishnan was asking earlier. So in this interest rate cycle side, can we assume that at least incrementally on the new loans not on the existing loans, which is repo-linked or these treasury-linked loans and all, considering that demand scenario remaining -- becomes little fragile. In that case, can we take a hit on the spreads just to manage the demand? Is that kind of scenario also likely or the spread generally remains stretched all the time?

[Anindya Banerjee, executive]

So I think that's a function of how the market sort of prices the loans. As we said, it is a competitive market so it's a decision of each lender basis their strategy and their funding costs as to what spread over the benchmark they offer incremental loans at. And if we look at what has happened so far in terms of incremental lending, the pricing would have -- the pass-through would not have been uniform for all sort of segments of the market and we have to see how that goes along.

[Jignesh Shial, analyst]

Understood. But I mean there is no regulation as such, right, which restricts you to cut down on your spreads? That is what I'm trying to understand. So intermittently if you want to reduce the spread, that is possible.

[Anindya Banerjee, executive]

If I want -- yes.

[Operator]

The next question is from the line of Nilanjan from Nomura.

[Nilanjan Karfa, analyst]

One question was on this contingency provision buildup. Should we look at -- or rather let me rephrase the question. Do you think your ECL model, which you supply to RBI and what we are building right now, are they sort of kind of pretty much similar? Is that how we should look at that number?

[Anindya Banerjee, executive]

Not really. I mean this is not modeled on the same basis as either as that. But whenever we move to that, we will have to see how to transition this.

[Nilanjan Karfa, analyst]

Okay. The reason is if I just go back last 40, 50 quarters, I think given that we did not have so much contingent and floating provision figures, our credit costs have roughly I think averaged around maybe [ 170, 180 ] excluding some of the high periods. So is that something we should look at? I mean because just we are sitting on the other side of the table. So how should we think about this number?

[Anindya Banerjee, executive]

See, I think we have to -- unfortunately we are not -- the environment has been volatile so we have not seen in that sense a stable cycle. But my guess is that given our overall risk appetite on the corporate side and sort of the focus on granularity on the retail SME side, the long-term averages may not be as effective a guide as to the future sort of credit cost. But I think we have to go through some period of time before we see how that settles.

[Nilanjan Karfa, analyst]

Okay. Fair enough. Second question is there seems to be some bit of disconnect. When we look at other sectors, other companies talking about discretionary spends dropping vis-a-vis banks sort of guiding to extremely strong forecast. How do we rationalize both of these side or are we missing something in this whole picture? Is it just inflation which is playing out? And broadly how in terms of your risk management policies are you -- have you begun tightening some of the screws once again?

[Anindya Banerjee, executive]

So I don't think on the second one that we continuously review and make whatever micro level changes we need to make, but there is no sort of broad brush tightening that we are doing. In terms of the first one, it's difficult to really answer that question. I think from our side and it's not -- it's data. For example if you look at the credit card spend data, which is being published by the -- at a systemic level, that is showing the trends in growth. So it's quite transparent in that.

[Operator]

Next question is from the line Seshadri Sen from Alchemy Capital. Sorry, sir, audio is not very clear.

[Seshadri Sen, analyst]

Is this better?

[Operator]

Yes, sir.

[Seshadri Sen, analyst]

The first one is on credit cards and I'm seeing a sharp jump quarter-on-quarter in the credit card outstanding. How are the underlying metrics in terms of revolvers and EMI and transactors behaved over this quarter? I know you don't disclose, break it out. But just in terms of trends, have there been any significant shifts in the trends given the sharp jump in the overall book?

[Anindya Banerjee, executive]

I think that what happened really was, without getting into numbers, that we saw a pretty strong growth in the retail spends and some rationalization of corporate spend. So the retail spend growth would probably be higher than the average and that is what translates into the book. So I don't think that there is any real change in the revolver level.

[Seshadri Sen, analyst]

Okay. So both revolver and EMI have been largely stable. There has not been any movement in either direction.

[Anindya Banerjee, executive]

Yes, nothing to call out certainly on the revolver side.

[Seshadri Sen, analyst]

Understood. And secondly, I know a couple of people have asked this before, but just want to revisit the cycle in terms -- the net interest margin cycle in terms of how it plays out. When do you expect that the -- we are now at the point in cycle where assets are repricing faster than liabilities. That tends to reverse at some point. When do you see -- is it FY '24 or sooner than that that trend starts to reverse or do you think that given your loan mix changes, and I'm seeing your loan book there is significant acceleration in some of the high-yield segments, that that should take care of any reversal that happened at that point?

[Anindya Banerjee, executive]

We'll have to see. I mean you're absolutely right that more durable changes in bank margins come from either loan mix or funding mix or asset quality, but we'll have to see. I think that as we explained given the 3-month reset structure and if you look at the repo rate hikes which have happened and which are expected, there will be some upward movement even from here on. At some point, the funding cost will catch up. I guess it will happen sometime in the next few quarters.

[Operator]

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

[M. B. Mahesh, analyst]

Just 2 questions from my side. First one on the deposit side again. When you look at these CASA balances especially on the SA side and you look at the salaried accounts, from a broad perspective has the average salary at the retail level gone up? If yes, when you look at the numbers, how much would that number look like? Just a ballpark number to understand how much of this interest rate hike can be offset by higher incomes that the consumer is seeing today?

[Anindya Banerjee, executive]

We have not really given such an analysis, Mahesh, so I wouldn't be able to give you.

[M. B. Mahesh, analyst]

I'm saying the direction mostly, not so much about specific numbers at least.

[Anindya Banerjee, executive]

I was saying, Mahesh, we have not given any data like that. But as you know, I think there's a lot of data which has come out saying that the average salary increase has been in the region of 10% or so. So that will be reflected for everyone in general.

[M. B. Mahesh, analyst]

Yes. So you would say that the number, which is floating around in the public domain, broadly reflects what you're seeing as well or you wouldn't have done that analysis as well?

[Anindya Banerjee, executive]

Yes. It will be -- because that is the actual data which is there so it will reflect.

[M. B. Mahesh, analyst]

Okay. Perfect. So just another question. This One Team, One ROE target that one has, it's been now 3, 4 years since you've seen this. How much of attrition -- how has been the attrition level at the bank? Has it gone up, gone down? If you could just kind of broadly comment about it.

[Anindya Banerjee, executive]

No. So attrition rates in the financial sector over the last 12 to 18 months for all entities, whatever the approach to performance management they may follow, has gone up substantially and I don't think that is anything to do with us.

[Operator]

Thank you very much. I now hand the conference over to Mr. Sandeep Bakhshi for closing comments.

[Sandeep Bakhshi, executive]

So Happy Diwali to everyone and wishing you the very best. Thank you so much.

[Operator]

Thank you very much. On behalf of ICICI Bank Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.