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ICICI Bank Ltd
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Ladies and gentlemen, good day, and welcome to the ICICI Bank Q3 FY '22 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 CEO of ICICI Bank. Thank you, and over to you, sir.
Good evening to all of you, and welcome to the ICICI Bank's earnings call to discuss the results for Q3 of financial year 2022. Joining us today on this call are Vishakha, Anup, Sandeep Batra, Rakesh and Anindya.We hope that you are safe and in good health. The bank's Ultra Frequency Index comprising several high frequency indicators tracked by our Economic Research Group rose from 110.3 in end October to 117.6 in December, indicating a sustained improvement in economic activity. This was on the back of improvement in indicators such as power demand, rail freight revenues, e-way bill generation and labor force participation.While there has been a sharp rise in COVID-19 cases in recent weeks, the impact of the third wave has been mild so far. Vaccination coverage has continued to increase and the Government of India has recently expanded the vaccination program to the age bracket of 15 to 18 and announced a precautionary third dose of vaccine for identified categories. While the trajectory of the pandemic is still evolving and the recent increase in cases has slowed, the pace of economic activities in January, we expect the economy to regain momentum as this wave abates. We would like to thank the medical and health workers fraternity for their tireless efforts in this fight against COVID-19.At ICICI Bank, we aim to create holistic value proposition for our customers through our 360 degree customer-centric approach and focus on opportunities across client and segment ecosystems. Our cross-functional team seek to tap into key customers and market segments, enabling 360 degree coverage of customers and increase in wallet share. We aim to steadily grow our business within our strategic framework and strengthen our franchise delivery and servicing capabilities, backed by a range of digital initiatives.Coming to the quarterly performance against this framework, 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 24.9% year-on-year to INR 100.60 billion in this quarter. The profit after tax grew by 25.4% year-on-year to INR 61.94 billion in this quarter, further enhancing our strong deposit franchise. Growth in deposits were 16.4% year-on-year at December 31, 2021. During the quarter, average current account deposits increased by 33.7% year-on-year and average savings accounts deposits by 24.7% year-on-year. The liquidity coverage ratio for the quarter was 130%, reflecting continued surplus liquidity. Our cost of deposits continues to be amongst the lowest in the system.Growing our loan portfolio in a granular manner with a focus on risk and reward. The retail loan portfolio grew by 18.6% year-on-year and 5.1% sequentially at December 31, 2021. Disbursements across various retail products increased or were at a similar level compared to the previous quarter. The business banking portfolio grew by 38.5% year-on-year and 8.8% sequentially at December 31, 2021. The SME portfolio grew by 34.2% year-on-year and 9.7% sequentially. The growth in the domestic corporate portfolio was 12.5% year-on-year and 9% sequentially at December 31, 2021. The growth was driven by disbursements to well rated corporate and in line with a risk framework. The domestic loan portfolio grew by 17.9% year-on-year and 6.5% sequentially. The overall loan portfolio grew by 16.4% year-on-year and 6.4% sequentially at December 31, 2021.Leveraging digital across our business. Our digital platforms are continuously evolving with the objective of creating end-to-end seamless digital journeys, offering personalized solutions and value-added features to customers and enabling more effective data driven cross-sell and upsell. Our open architecture based mobile banking app, iMobile Pay, offers a wide variety of products, services and features and helps us to acquire new customers. The growth in our SME and business banking portfolio has been driven by our digital offerings and platforms like InstaBIZ and Merchant STACK. Our solutions for corporates comprising our various modular platforms and our extensive client coverage have supported the growth in our average current account deposits.Process decongestion across products and customer segments is a key element of our strategy. We had made detailed presentations on these areas at our Analyst Day in December and have shared some details in Slides 18 to 31 of the Investor Presentation. Protecting the balance sheet from potential risks. Net NPAs declined by 10% sequentially to INR 73.44 billion at December 31, 2021, from INR 81.61 billion at September 30, 2021. The net NPA ratio declined to 0.85% at December 31, 2021, from 0.99% at September 30, 2021. During the quarter, there were net deletions from gross NPAs of INR 1.91 billion, excluding write-off and sale. The total provisions during the quarter were INR 20.07 billion or 20% of core operating profit and 1.01% of average advances. The provision coverage ratio on NPAs was 79.9% at December 31, 2021. In addition, the bank continues to hold COVID-19 provisions of INR 64.25 billion or about 0.8% of total loans as of December 31, 2021.Maintaining a strong capital base. The capital position of the bank continued to be strong with the CET1 ratio of 17.64% at December 31, 2021, including profits for 9 months for 2022. The Tier 1 ratio was 18.81% and the total capital adequacy ratio was 19.79% at December 31, 2021. Further, the market value of the bank's investments in listed entities of the group is about INR 940 billion. Looking ahead, we see many opportunities to grow our core operating profit in a risk calibrated manner.We are reimagining customer journeys with personalized and omni-channel experiences. Our ecosystem-based approach helps our customers to manage their business across the value chain efficiently and has created new opportunities for us across businesses. We are investing in analytics, capabilities and technologies to enhance our customer offerings to customers and to build a robust future-ready architecture. We continue to be guided by the principles of One Bank, One RoE, emphasizing the goal of maximizing our share of target market across all products and services. And fair to customer, fair to bank, emphasizing the need to deliver fair value to customers, while creating value for shareholders. We remain focused on delivering consistent and predictable returns to our shareholders.I now hand the call over to Rakesh.
Thank you, Sandeep. I will talk about balance sheet growth, credit quality, P&L detail, growth in digital offerings, portfolio trends and performance of our 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 23.3% year-on-year, rural loans by 9.4% and auto loans by 11.9%. The commercial vehicles and equipment portfolio declined by 2.8% year-on-year, growth in the personal loan and credit card portfolio was 25.3% year-on-year. This portfolio was INR 797.63 billion or 9.8% of the overall loan book at December 31.The overseas loan portfolio declined by 5.5% year-on-year and grew by 5.1% sequentially at December 31. The sequential increase in the overseas loan portfolio was primarily due to increase in the India linked trade finance book. The overseas loan portfolio was 5% of the overall loan book at December 31. The non-India linked corporate portfolio reduced by 57.8%, that is $941 million year-on-year and 15.8%, that is $129 million sequentially at December 31. We have provided the breakup of our overseas corporate portfolio on Slide 16 of the presentation.Coming to the funding side, average savings account deposits increased by 24.7% year-on-year and 5.2%, sequentially. Average current account deposits increased by 33.7% year-on-year and 11.9% sequentially. This quarter, the flows related to IPOs and capital markets was high and contributed to the average current account balances. Total term deposits grew by 12% year-on-year to INR 5.4 trillion at December 31.Coming to credit quality, during the quarter, there was net deletion from growth NPAs of INR 1.91 million compared to net additions of INR 0.96 billion in the previous quarter. They were net additions of INR 1.26 billion to gross NPAs in the retail and business banking portfolio and net deletions of INR 3.17 billion to gross NPAs in the corporate and SME portfolio. The gross NPA additions declined to INR 40.18 billion in the current quarter from INR 72.31 billion in Q1 and INR 55.78 billion in Q2 this year. The gross NPA additions from the retail and business banking portfolio were INR 38.53 billion and from the corporate and SME portfolio were INR 1.65 billion. There were gross NPA additions of about INR 6.14 billion from the Kisan Credit Card portfolio in the current quarter. We typically see higher NPA additions from the Kisan Credit Card portfolio in the first and third quarter of a fiscal year.Recoveries and upgrades from NPAs, excluding the write-off and sales were INR 42.09 billion. There were recoveries and upgrades of INR 37.27 billion from the retail and business banking portfolio and INR 4.82 billion from the corporate and SME portfolio. The gross NPAs written-off during the quarter were INR 40.88 billion. The bank sold growth NPAs amounting to INR 1.05 billion this quarter on a cash basis.The non-fund based outstanding to borrowers classified as non-performing was INR 36.38 billion at December 31 compared to INR 37.14 billion at September 30. The bank holds provisions amounting to INR 19.57 billion at December 31 on this non-fund based outstanding. The total fund based outstanding to all standard borrowers under resolution as per various guidelines was INR 96.84 billion or about 1.2% of the total loan portfolio at December 31. Of the total fund based outstanding under resolution, INR 64.74 billion was from the retail and business banking portfolio, and INR 32.10 billion was from the corporate and SME portfolio. The bank holds provisions of INR 24.36 billion against these borrowers, which is higher than the requirement as per RBI guidelines. Over 95% of the loans under resolution in the retail and business banking portfolio are secured loans.Coming to P&L details for the quarter, net interest income increased by 23.4% year-on-year to INR 122.36 billion. Interest on income tax refund was INR 1.81 billion this quarter compared to INR 0.30 billion in the previous quarter and INR 1.96 billion in Q3 of last year. The net interest margin was at 3.96% in this quarter compared to 4% in the previous quarter and 3.67% in Q3 of last year. In fact of interest on income tax refunds, our net interest margin was 6 basis points in Q3 compared to 1 basis point in the previous quarter and 7 basis points in Q3 of last year.The domestic NIM was at 4.06% this quarter compared to 4.09% in the previous quarter and 3.78% in Q3 last year. Overseas margins were at 0.28%. The cost of deposits was 3.47% in Q3 this year compared to 3.53% in Q2. The sequential decline in net interest margin during the quarter was mainly due to decline in yield on the advances, partly offset by declining cost of deposits and higher interest on income tax refund. Of the total domestic loans, interest rates on 38% of the loans are linked to repo rate and 7% to other external benchmarks.Non-interest income, excluding treasury income, grew by 24.9% year-on-year to INR 48.99 billion in Q3. Fee income increased by 19.2% year-on-year to INR 42.91 billion in Q3, driven by growth across various segments. Fees from retail business banking and SME customers grew by 16.3% year-on-year and constituted about 76% of the total fees in this quarter. Dividend income from subsidiaries and listed entities was INR 6.03 billion in this quarter compared to INR 3.56 billion in Q3 of last year. The dividend income this quarter includes interim dividend of ICICI General and higher interim dividend from ICICI Securities and ICICI AMC compared to Q3 of last year.The bank's operating expenses increased by 22.4% year-on-year in Q3, partially reflecting the slightly lower base of Q3 last year. The employee expenses increased by 27.4% year-on-year. The bank had about 102,000 employees at December 31. The employee count has increased by about 9,900 in the last 12 months. Employee expenses in Q3 include an impact of about INR 0.69 billion, due to fair valuation of ESOPs granted to all employees post April 1, 2021, for the current quarter as required by RBI guidelines. Non-employee expenses increased by 19.9% year-on-year in this quarter, primarily due to retail business and technology-related expenses. We continue to invest in technology to enhance our offerings to customers as well as the scalability, flexibility and resilience of our technology architecture. The technology expenses were about 8.4% of our operating expenses during the 9 months ended December 31.The core operating profit increased by 24.9% year-on-year and 5.7% sequentially to INR 100.60 billion in this quarter. There was a treasury gain of INR 0.88 billion in Q3 compared to INR 3.97 billion in Q2 and INR 7.66 billion in Q3 of the last year. Treasury income in Q3 of last year included gains of INR 3.29 billion from sale of shares of ICICI Securities. The total provisions during the quarter were INR 20.07 billion or 20% of our core operating profit and 1.01% of our average advances. The provisions this quarter include INR 4.65 billion of higher provisions against security receipts and INR 4.47 billion of higher provision on loans under resolution on a proven basis. There was no right back of COVID-19 related provisions during the quarter.The provisioning coverage on NPAs continue to be robust at 79.9% at December 31. In addition, we hold INR 24.36 billion of provision on borrowers under resolution and COVID-19 related provisions of INR 64.25 billion. The COVID-19 related provisions are about 0.8% of loans. At December 31, the total provisions, other than specific provisions on NPAs, were INR 160.26 billion or about 2% of our total loans. The profit before tax grew by 33.9% year-on-year to INR 81.41 billion in this quarter from INR 60.78 billion in Q3 of last year. The tax expense was INR 19.47 billion in this quarter compared to INR 11.38 billion in the corresponding quarter last year. The profit after tax as a result grew by 25.4% year-on-year to INR 61.94 billion in this quarter compared to INR 49.40 billion in Q3 of last year. The consolidated profit after tax was INR 65.36 billion this quarter compared to INR 54.98 billion in Q3 of last year.Coming to the growth in our digital offerings, leveraging digital and technology across businesses is a key element of our strategy of growing the risk calibrated core operating profit. We have seen significant increase in the adoption of our mobile banking app, iMobile Pay. There have been 5.3 million activations of iMobile Pay by non-ICICI Bank account holders as of end December. The value of transactions by non-ICICI Bank account holders grew by 73% sequentially in Q3.The value of credit card spends in Q3 was 2.2 times the value of credit card spends in Q3 last year and grew by 27% sequentially. The value of financial transactions on InstaBIZ app grew by about 68% year-on-year in the current quarter. The value of transactions on the supply chain platforms in the current quarter was 3.5 times the value of transactions in Q3 last year. The proportion of end-to-end digital approvals and disbursements across various products has been increasing steadily. About 33% of our mortgage approvals and 43% of our personal loan disbursements by volume were end-to-end digital in the 9-month period. About 95% of the overdraft facilities set up for business banking current account customers were end-to-end digital in the 9-months period.The bank has launched ICICI STACK for corporates and has created more than 20 industry-specific stacks which provide bespoke and purpose-based digital solutions to corporate clients and their ecosystems. The volume of transactions through these solutions in Q3 was 3.7 times the volume of transactions in Q3 last year. The bank recently launched TradeEmerge for importers and exporters across India, offering banking as well as value-added services. This initiative makes cross-border trade hassle free, quick and convenient as it offers an array of services in one place.Coming to the portfolio information at December 31, we have been growing our loan portfolio in a granular manner with a focus on risk and reward. Our retail portfolio has been built based on proprietary data and analytics in addition to bureau checks, utilizing the existing customer database for sourcing in key retail asset products through cross-sell and upsell and pricing in relation to the risk. In the business banking and SME business, our focus is on parameterized and program based lending, granularity, collateral and robust monitoring. We have given further information on our retail and business banking portfolio in Slides 42 to 45 of our presentation.The loan and non-fund based outstanding to performing corporate and SME borrowers rated BB and below was INR 118.42 billion at December 31 compared to INR 127.14 billion at September 30. The amount of INR 118.42 billion at December 31 includes INR 27.97 billion of loans under resolution. The details are given on Slides 40 and 41 of the presentation. Similar to the last quarter, other than 3 accounts, one each in construction, power and telecom sector, the maximum single borrower outstanding in the BB and below portfolio was less than INR 6 billion at December 31. At December 31, we held provisions of INR 15.75 billion on the BB and below portfolio compared to INR 9.6 billion at 30 September. This includes provisions held against borrowers under resolution included in this portfolio.The builder portfolio, including construction finance, lease rental discounting, term loans and working capital loans, was INR 257.53 billion at December 31 compared to INR 228.14 billion at September 30. The builder portfolio is about 3% of our total loan portfolio. Our portfolio is granular in nature, with the larger exposures being too well established builders and this is also reflected in the sequential increase in the portfolio. About 11% of our builder portfolio at December 31, was either rated double BB and below internally or was classified as non performing, compared to 13% at 30 September.The total outstanding to NBFC's and HFC's worth INR 675.86 billion at December 31, compared to INR 605.11 billion, at September 30. The total outstanding loans to NBFC's and HFC's were about 7% of our advances at December 31. The details are given on Slide 47 of the presentation. The sequential increase in outstanding 2 NBFC's and HFC's is mainly due to disbursements to PSU entities, entities having long vintage and owned by banks and well established corporate groups. The proportion of the NBFC and HFC portfolio internally rated BB and below or non performing is less than 0.4% of the portfolio at December 31.Lastly, on the subsidiaries and key associates, the details of the financial performance of the subsidiaries and key associates is covered in Slides 52 to 54 and Slide 73 to 78 in the Investor Presentation. The new business premium of ICICI Life grew by 29.7% year-on-year to INR 102.48 billion in 9-month this year. The VNB margin increased from 25.1% in FY 2021 to 27.1% in 9 months this year. The value of new business increased by 34.8% year-on-year to INR 13.88 billion in 9 months this year. The profit after tax of ICICI Life was INR 5.69 billion in 9 months this year compared to INR 8.96 billion in 9-month of last year. ICICI Life had a net loss of INR 1.86 billion in Q1 this year, primarily because of COVID-19 claims and provisions made for incurred but not reported claims. The profit after tax was INR 3.11 billion in this quarter compared to INR 3.06 billion in Q3 of last year.Gross direct premium income of ICICI General was INR 133.11 billion in 9-month this year compared to INR 105.25 billion in 9 months last year. The combined ratio was 111.0% in 9 months of this year compared to 99.1% in 9-month last year. The profit after tax was INR 3.18 billion this quarter compared to INR 3.14 billion in Q3 last year. Prior year numbers are not comparable due to the reflection of the general insurance business of Bharti AXA in the current period numbers.The profit after tax of ICICI AMC was INR 3.34 billion in this quarter compared to INR 3.58 billion in Q3 of last year. The profit after tax of ICICI Securities on a consolidated basis increased by 42.3% year-on-year to INR 3.8 billion in this quarter from INR 2.67 billion in Q3 of last year. ICICI Bank Canada made a profit after tax of CAD 11.5 million in this quarter compared to CAD 5.1 million in Q3 last year and CAD 8.4 million in Q2 this year. The sequential increase in profit after tax of ICICI Bank Canada is mainly due to write-back of provisions. The loan book of ICICI Bank Canada at December 31 declined by 4.8% year-on-year. ICICI Bank Canada has repatriated CAD 220 million of equity capital to ICICI Bank in January this year.ICICI Bank UK had a profit after tax of $3 million this quarter compared to $2.2 million in Q3 of last year and $2 million in Q2 this year. The loan book of ICICI Bank UK at December 31 declined by 21.3% year-on-year and 2.2% sequentially. As per Ind-AS, ICICI Home Finance had a profit after tax of INR 0.48 billion in the current quarter compared to INR 0.03 billion in Q3 of last year and INR 0.46 billion in Q2 this year. The year-on-year increase in profit after tax is mainly due to decline in cost of funds and lower provisions.With this, we conclude our opening remarks and we'll now be happy to take your questions.
[Operator Instructions] The first question is from the line of Mahrukh Adajania from Elara Capital.
Congratulations. My first question is on fee. So the fee growth has been very strong for the second consecutive quarter, would card be the biggest delta and would there be any risk to card fees in the near to medium term?
So the fee growth, Mahrukh, that we have seen has been strong across various segments. It's on the retail asset side, credit card and payments, on the wholesale banking side, small businesses, SME. So we have seen an overall growth across businesses and across products as well. So cards is, of course, an important part of our overall fees and it will continue to be so.
Okay. But any near term or medium term risks that you see to the strength in fee income?
From credit cards you are saying, Mahrukh?
Yes. From cards or any other products, but mainly from cards.
See, nothing specific per se. I think there are definitely some industry trends which are there in terms of lower penal charges and late payment fees and all of that. But overall, we don't see any specific worry. Of course, we have to keep track of any regulatory changes or market changes, so that all is very difficult to predict. But otherwise, I think, across segments, we have been seeing reasonably good growth in fee revenues.
Sure. My second question is on OpEx. So you did give the tax spent for the first 9 months, but just Q-o-Q in the third quarter, in other operating expenses especially, what is the biggest driver? Would it be collection, would it be growth or would it be tech related?
So actually in Q3 what happens, there is always a higher amount of advertisement and promotion and all expenses linked to the festive season. So that every time you will see from Q2 to Q3, the sequential increase, the larger part comes from there. In addition to that, I think, we would have seen increase in the technology expenses. We have been purchasing Priority Sector Lending Certificates, so that cost would have gone up. So these are the costs which would have gone up for us.
Got it. And just again in terms of technology spends, so, say, 8% of OpEx will be 3% of your net revenue for the first 9 months on an annualized basis, whereas there are some international banks who want to spend 8% to 9% of their revenues on tech in FY '22. So what would your future tech sense be? I mean, will it match up to the international banks as in not 8% to 9%, but will it have to move up substantially or you think that most of the high cost investments are already in the vein?
It's the continuing journey on technology and digital and expenses will continue as we expand our offerings. So if you look at the last few years, I think, we have always cited that within expenses, technology has been one of the expenses that have been growing at a faster pace than the overall expenses. So this proportion of 8% or OpEx, if you go back 2 or 3 years, it would have definitely been a lower number. So we'll definitely see some increase in that proportion, but of course we are not looking at 3% of revenues going up to 9% or 10%. I think that's a completely different cost base which is there, a completely different infrastructure which is there, so those numbers may not be comparable for the Indian banks.
Okay, sure. And just one last question on treasury income. Sir, excluding ISEC, it's negative trading day, sir, and it had happened in one of the recent quarters as well, probably in 4Q '21, so what's the accounting there?
Sorry, the gain from sale of ISEC shares was last year Q3, because we have to meet that minimum public shareholding requirement. So that was last year Q3, Mahrukh.
The next question is from the line of Prakash Kapadia from Anived Portfolio Managers.
Congrats for the numbers. Sir, recently, we've been advertising a lot about our date services. So is there a big opportunity to increase market share based on open architecture model like what we have done in retail? Will it be ForEx related and payments driven? And any sense you can give about current market share and the room for growth, because we seem to be doing well?And secondly, on the auto side, we have seen the pre-owned car market has grown 2x of OEM sales in the last few years, so is there an opportunity we are focusing to grow the loan book any tie-ups on the [Technical Difficulty] with Maruti or Mahindra or some of the back up? These are the 2 questions.
Yes. So on the trade side, definitely we see a huge opportunity across our business segments, on the small business side as well as the larger corporate and we have been leveraging our digital offerings also to kind of scale up that business. You would have seen that even in our overseas business, we have seen the increase has come from the trade finance book. Domestically also, both in terms of trade related short-term book as well as LCs -- and they are key contributors for us and the growth there has been quite good for us and we would assume that, that would be -- that would continue to be a strong driver for the fee income as well, which Mahrukh was earlier talking about. And it kind of fits in very well with our overall approach of capturing the entire Customer 360 and the ecosystem.So on the pre-owned cars, clearly that is something where the yields are better and the overall ROE is also -- are better. If we look at it, costs are kind of contained. But definitely there is some bit of higher risk as well. So we would want kind of an optimal proportion of our car loan business to be of PPD owned cars. And so nothing specific to highlight there. We are very happy to grow that business and that proportion for us has been increasing as well. And it is an important component, especially from an overall -- the car loan business profitability point of view, this segment actually provides a higher ROE definitely than the new car loan business.
Understood. And any sense on that market share, if you could give? We are in low-teens, 3%, 4%, 5% on some of these corporate initiatives which you mentioned and can it grow in the near future?
So we of course track those market share based on various data, but we have not disclosed that per se separately. But the market share would vary anywhere from 5% to up to 15% across the various initiatives that we are doing.
The next question is from the line of Nitin Aggarwal from Motilal Oswal.
Nitin here. Congratulations on very strong results. So the question is on the credit card segment, again like we have reported very strong growth in card spends, and if you can share some light on how the revolve rate are trending in this business now?
So on the credit card essentially there are sort of couple of things that we are doing, which is leading to slightly better growth. One is on the retail segment itself, so we are doing much more intense activity on the portfolio segment in the sense that what are the customer behavior, where are they behaving and if they have spent -- and what was the spends we have to do an activation or spends that we have to do on rewards and other things. We are just ensuring that every rupee that we are spending, it is matching with the customer behavior or what we think will be the customer behavior, so that the return on those investments are good. So we don't see it as expenses, we are actually seeing it as return on investment. Every rupee invested, how much return is going to come from that. So that is one.And second, we also had good help from Amazon, as you know. And Amazon now is the portfolio. Of course, the risk in the portfolio is very little and the spends are also very high and the quality of customers are very high. So not just the Amazon Card, the cross-sell on the Amazon Card, etc. and the profile of customers that you get and the stickiness that you get, the other elite benefits as such. And the third one, there is a nice portfolio that is getting built up on the commercial cards. So these are the 3 big drivers that is happening.Now [Technical Difficulty] as this space increase, we saw a first wave and then the second wave, the revolver actually came down a little bit. And now it is again coming up. We'll have to see on wave 3 how it pans out. But indeed, when at the height of the wave it did -- the revolve did come in and people did get conservative on that and they paid it down. So as of now this is where sort of the situation of cards is. But we are now seeing on the third wave the impact has not been very large and festival season spends have been all very strong and let us see if nothing -- if it doesn't, sort of - how soon Omicron and this wave gets over, I think it will be back to where we were and life will be good.
Okay. So we are not very far from the pre-COVID levels of revolve rate, this is what we can take that?
So from consumer behavior perspective, all I can say is that, whenever there is a stress or fear, the revolve rates actually comes down and not goes up, it comes down and customers don't sort of revolve that much. But as there is normalcy, as customers get more confidence, the revolve rates actually go up.
And second question is on the recoveries that we had during the quarter. What has actually driven this? Because this has enabled like a pretty sharp reduction in our credit cost, it has come down to 1% annualized for the quarters. So has this, like, undershot in terms of the -- like the 1% number this quarter or how do we look at this trajectory going ahead?
No, I will just respond on the retail side and hand it over to Rakesh. So we have been sharing with you a lot of work that we're doing on the pre-delinquency management. So on the pre-delinquency management, there is a lot of data that we have, there is a lot of learnings that we have on predelinquency management that before the bounce itself, which are the customers most likely to bounce and where you should collect and if there is an overdue, which are the sectors, which are the profile of the customers, their cash flows might be coming from the economy. So we try and overlay that as well, so that we are able allocate our energy and efficiency and resources towards collection and that has really helped us and we are improving those models by the day.So more and more data comes, more and more machine learns and more and more better pre-delinquency management is. So I would say that, that would have contributed. That has certainly contributed a lot of our recoveries, because at this point of time [Technical Difficulty], if there is cash which is coming with the customers, it will be depending on who reaches first, so they get repaid. As of stress in the economy comes down, of course, everybody will get repaid. But when there is a stress in the economy and you are going for collection, it is important that if there is one call to be made, which is a customer, where you have the higher probability of collection, the call should go there. So that is a model that we have to continuously keep learning itself with the data that we have. So on the retail side, essentially, those are the recoils.Also, as you know, for us, we have always been maintaining that the consumer behavior also is that it goes overdue, but it comes back. So there are 2 reasons why customers go overdue. One is because of their own cash flow state. The second one sometimes once in a while is on account of intent. Our experience is that the intent percentage is really very, very, very, very, low. Most of the customers, in fact all customers want to pay back and when they want to pay back, it's -- essentially it is a cash flow mismatch that happens. So partly you can give them restructuring, etc., if you think that it is only a temporary loss of income and they're going to come back. And you also do pre-delinquency management and collections data and analytics that you've done, so that you are able to reallocate your resources well for collection. So that has certainly given us [ volume ].On the balance part, I will just request Rakesh to...
I think, as Anup talked about the reasons for the higher level of deletions that we have seen from the NPA portfolio, I think overall in terms of credit cost through the cycle, we have talked about 25% of our core operating profit as the numbers. So near term, of course, it will depend on how things pan out. So we don't want to give any specific guidance on the credit cost per se. But at the beginning of the year and in second quarter, we have said that second half we do expect the level of gross additions to come down from what we have seen in the first half, specifically the first quarter and the trend has been in line with that.
Right. And this level of credit cost, we have reported after making how much of restructured provisions, it's almost like INR 500 crores, am I right?
Yes, INR 4.5 billion. Yes.
Right. Right, because that amounts only 15% of PPOP this quarter then?
Yes. So in that sense, actually this quarter we have made 2 provisions. One is the restructured provisions that you referred to, which was about INR 4.5 billion. We have also taken some provision on our security receipt book and another about INR 4.5 billion on a prudent basis. So those 2 provision we have taken additional provision.
The next question is from the line of Naishi Shah from Acko General Insurance.
Congratulations on a great set of numbers. I'm just confused about one of the data points that was shared. You all said that net deletions of INR 1.9 billion from gross NPAs and you clarified that this is not write-off. So then could you please explain what this number is?
So what we gave is, so we have added the gross addition to NPLs was about INR 40.18 billion, so that is a fresh slippages during the quarter. And we had deletions, upgrades, recoveries of INR 42.09 billion, where we would have either recovered the loans in full or we would have recovered the overdue amount in full, so the account would have got upgraded. So the INR 40.18 billion of addition left the gross deletion of INR 42.09 billion is the net addition or reduction in this case of INR 1.91 billion that we refer to and then thereafter we have also done further write-off of INR 40 billion.
Okay. Also from the write-off, could you just tell me how much was from the OTR book?
Sorry, which book?
From the restructuring book?
Write-off from restructuring book would really not be there. We would have seen some slippages. There is actually no write-off would happen from that.
Okay. And what kind of slippages did you all see, if I may ask.
On the restructure, we have seen some -- we have seen some amount of slippage, but we have equally also seen -- actually the amount, which has we have recovered, so roughly about the reduction on the restructured loans about one-third has been because of slippages, 2-thirds has been in recovery. That's the kind of trend that we have seen.
The next question is from the line of Jai Mundhra from B&K Securities.
Congratulations on a great set of numbers, sir. First, sir, if you can share some more details on your fee income, maybe you can give the bifurcation of the fee into maybe third-party related, liability-related fee, credit card or any other bifurcation? I mean…
So we have not -- as you are aware, we don't disclose that. What we do disclose is that, 76% of the fees is coming from the retail, business banking and SME segments. We have not given any further details per se, but in future maybe we look at it. Right now, we have not given any further details.
Second is, on growth in SME and business banking, so, right, we are doing very -- we are putting very strong growth there. I just wanted to check what could be the lending rate here? I mean, even a broad range would be helpful. I mean, what kind of -- I mean, what is the broad range for the loans originated at business banking and SMEs lending rate?
So that rate will actually be a wide range, it will not really be helpful, because it's a wide range. At the -- to the best of the customers, the rate can go as low as 7%. We also do a bit of unsecured there, overdraft and all, where the rates will be well in double digits. So it's a wide range per se.
Sure. Understood. And last question, sir, on the general insurance, so now that we have gone below, I think, 48% or 49%, what is the way forward there? I mean, what is going to be the bank stake? I mean, what is your view on the bank inventory stake there?
As we have disclosed earlier that banks cannot hold between 30% and 50%, so either you have to have it as a 50% subsidiary or you have to hold below 30%. We have got an exemption from the government through recommendation of RBI to hold between 30% and 50% till September of 2023. And so, in the interim, we would need to reduce our shareholdings to 30% in ICICI General, so that could happen through any of the means or we could also always extend that request for an extension of that period. So that is how it will play out.
The next question is from the line of Prakhar Agarwal from Edelweiss.
3 sets of questions to start and few of these follow up to the question that we have referred earlier. So we have been seeing a fairly reasonable growth at least in SME and business banking, would you attribute this to the improving underlying in the segment or it's more to do with the internal changes that bank has been undergoing?
So if you look at the growth in the business banking segment for us, I think, over the last now 4 years or so it has been a very strong growth. SME, again -- or at least in the last 2, 2 and a half years, we have seen that growth. So it, of course, has to do with the market opportunity, which is there for us to grow. But in addition, it also reflects the sharp focus that we have put on these business segments, the fact that we have been leveraging our branches a lot more in the past few years to acquire this business and this also has got driven by the kind of streamlining of processes that we have done in terms of customer acquisition, on-boarding, underwriting, so all of those steps, which we have taken, that kind of enabled us to grow at this pace.The strong underpinning of technology and digital, of course, is there, because that is something which kind of ensures that we are able to attract customers. A lot of this business that we are doing is with existing customers of the bank also. So the focus has meant that as we acquire business from the branches, there have been customers who have had current accounts with us, but we have not had a lending relationship with them. So all of that is something which is really helping us in this growth and we are very focused in terms of ensuring that we meet our return thresholds, we meet our risk thresholds, we look at the granularity, we look at ensuring that there is good collateral widespread across sectors. So all of this is what has really been driving growth for us.
Great. Second bit on fee income. So while you have highlighted that you have seen growth being most declared in nature. Any pocket of pressures that probably you see on the fee income side or any pockets wherein you probably see some pressure points of being compared? Couple of banks have been highlighting that at overall level there are couple of pockets wherein you are seeing pressure points on fee income side?
Yes. So there are actually -- there will always be some element of fee, which will be growing at a lower pace than overall, plus there are always some regulatory changes which keep on coming. So for example, on the lending side, the lending linked fees, that will be growing slower for us, especially on the corporate side as we focus more and more on A and above rated lending business. The lending related fees there is much lesser. The third-party distribution fees for us, that would be growing at somewhat slow pace than the overall fees. So there will be various things. But if you look at previous quarter also, our growth was around 20% or so and this quarter is about 19%.
Prefect. Just lastly in terms of your yields, so probably we have seen couple of quarters wherein we have seen pressure points on yields, despite reasonable favorable mix change. What will you attribute this to? And how do you see your margin is settling in maybe 2 years, 3 years out, anything from that?
So you said margins in what period?
Yields. Yields, if I were to just look at last couple of quarters, we have seen some pressure points on yield on net loans, what would you attribute this to?
Yields, so on the lending side, incrementally, clearly there has been a lot of pressure on the lending spreads. I think, given the surplus liquidity in the system and overall loan growth for the system is indeed still running at around at 8%, 9% kind of a level. So that is something which has impacted the yield and it is there for all the banks that we have seen. And in the near term, I think, like we had said last quarter, our first half NIM was about 3.94% and we had talked about protecting our NIM at around that level in the near term and that's what our focus is. There are a lot of moving parts, I think -- on the deposit side, I think the deposit costs have bottomed out for banks.On the lending side, maybe there is still some further pressure, which could be there. The surplus liquidity in the balance sheet, as that keeps on getting deployed, I think that will be a positive as well. And then, of course, how the overall market rates and repo rate move will also impact. Like I said, for us, nearly 38% of our loans are linked to repo rate and 7% to other external benchmarks as well. So these are all the factors that we will have to see. Our objective will be to kind of see and protect our NIMs at the 9-month level where we are.
The next question is from the line of Mahesh M.B. from Kotak Securities.
Just a couple of questions. One, there has been a marked increase in borrowings and we see it in quite a few banks as well. Any particular reason for this?
On borrowings, you would have seen, Mahesh, that we did about INR 8,000 crores of infra bonds during the quarter. So that is something that we had done and -- that actually there is no SLR and CRR, which is applicable as also one gets a benefit on priority sector lending, because that amount gets reduced from the ANBC, while computing the requirement of priority sector. So that is one element.Plus the other thing, which will always be there is that it can always be a balance sheet end number in terms of where you are on the market borrowings, some opportunities at points of time where you can borrow and deploy it. So otherwise, the underlying increase is that INR 8,000 crores of infra bonds that we have done.
Second question, Rakesh, just we've reached a point wherein the recoveries in -- let's say, the recoveries in retail is matching the slippages in retail. So we assume that at a net level the impact at the P&L will be quite negligible and there is no large slippages on the corporate side, especially you've come to a point where credit cost comes off quite sharply. We've also seen ROEs now touching 15%-odd. Internally what is the way forward from here? Do you keep -- do allow the ROEs to inch up? Do you reduce the riskiness of the book by going towards a slightly lower risk segment? Do you invest more? How are you seeing the next few quarters?
Mahesh, I think, we'll have to look at it from a slightly more medium, long-term. In the near term, of course, we have seen a lot of deletions from NPLs coming in. It also reflects the fact that we did add a fair bit of NPLs last year and in the first quarter this year, so this trend at some stage of deletions will definitely slow down as well. So as of now, I think we would kind of stay with what our long-term kind of estimates for credit cost is, in the near term, yes, it could end up undershooting that, that is always a possibility, but let us see.In terms of the point that you are saying on the risk aspect of it, I think that is something which we always look at it from a risk and return thresholds together. So that's why we have been happy to grow credit card book or personal loan book as well. And aside from the fact that because of the pandemic the growth has been much lower over the last 6 quarters or so in this portfolio. But as you are aware, prior to that, that book was growing at close to 40% on a Y-o-Y basis. And as Anup mentioned earlier, as things kind of normalize, unfortunately, the third wave has happened, otherwise things were kind of getting back to a much more normal level. So we would see more increase in some of these segments, where the customers are also happy to take some of these loans, which are more from a discretionary perspective that they take. So we will always evaluate that, Mahesh, on -- in terms of the portfolio.
Perfect. Just -- I'm just kind of giving you an hypothetical question here. If you have a choice, where loan growth is not coming at the margins at which you wanted, but credit cost is falling off sharply, would you go for that loan growth given that the customer segment is less risky?
Yes, we would. So again, it's nothing to do with the historic book. I think one has to look at what you are underwriting on incremental basis. So we look at -- what we look at is the final contribution to the core operating profit and the related credit cost, those are the 2 things that we look at. So especially on the retail side, the net interest income, fees, expenses, sourcing cost, credit cost, all of these are variables which we are happy to use to optimize the return on the portfolio. So that's definitely something that we would look at.
The next question is from the line of Aakriti Kakkar from Goldman Sachs.
Just a couple of questions, actually more products related. So mortgages have been growing nicely last few quarters. So I just wanted to understand there has been a clearly, I mean, a pressure on yields and where the yields are, how you're all thinking about it in terms of making money on this product? And then this question actually is not only about mortgages, but in terms of the cross-sell opportunities that are available to mortgage customers. So I just wanted to understand how do you all see that playing out, because the growth has been strong and this is facing crisis?
So the pricing on the mortgage side, it's always competitive. I think, we are very clear that we don't want to be price leaders in any of the segment, including mortgages. But if you see, the market rates where they are, we would be happy to be at par, because indeed it's a sticky product, you acquired good long-term value customers, so we are happy to match the lending rates which are there. And again, it's not that we will go and do our entire business at the headline rates, which are there, we look at the portfolio, we look at the risk and we kind of work out what are the yields that will work for us from a portfolio perspective. We also factor in the overall customer profitability, not just from the mortgage business, at times we also look at the mortgage plus the loan against property business in aggregate as well to see where our overall returns are.The good thing with the mortgage book is that, all of this is floating rate linked to repo rate, so at some stage as the funding costs go up, those -- these will also kind of go up, but there can definitely be a lag between that happening. So we will continue to focus on the mortgage book and that is an important book for us to grow and we will be competitive in terms of pricing them, though we will not be price leaders.
Just a follow-on, so the customer level profitability also, let's say, over the last 2, 3 years -- has that been -- I mean, you all have been able to maintain that or that is also something to come under pressure?
Actually customer level profitability on the retail side that we look at, it's basically one has bands of profitability that we have and we track that very closely, the respective retail branches and the zonal heads and we try and kind of move the customers up those profitably -- profitability bands and there it is -- definitely is helpful when you are able to sell more products and services to the customers. So overall, I think, hopefully, now we have seen a slight uptick in deposit rates or maybe the lowering of mortgage rates will be kind of, hopefully, behind us, but let's see.
The other question actually was again going back to credit cards and just looking at your Slide 30, I think the spend market share has really picked up nicely, but the number of cards like in a particular band of 17% to 18%, so does it mean that the spends -- Anup talked about the partnership of Amazon has been pretty good. So the card has become more productive, per card spends, the market share gain over there is much higher. So if this it, I'm just trying to understand what explains the sharp pickup in the market share on spends versus the cards in force? And how much more traction would be there on a go-forward basis?
So as I said earlier, there are 3 clear drivers. So there is normal retail, where portfolio management are sharper, portfolio management is driving the credit. Amazon, the good thing is that the activation rates are quick. So if there is the card and customers generally immediately start the spends. So really the S-Curve is very steep. So that is the second thing. And third is on the commercial card side also, there is the improvement. So these are the 3 drivers of card spends and they seem to be quite secular and customers are activating.I must also add to what Rakesh was saying that overall I think the dispensation of customers, because of whatever is happening with our banks and with the help of all of you and the brand, because brand salience is increasing, we are sensing that. Customer propensity to also take out cards or come to us and do more business with us, that is also increasing. So that is also overall, I must say, helping the bank. So of course, while we are working hard, but I must say that customers also tilting a bit towards us, because of the brand and because of the positivity of the brand at this point of time.
And then just Amazon is 2 million cards, which is roughly 17% of the total cards issued, if I'm not wrong, but in spends would it be a much higher number like north of 20%, 25%, if it's fair to assume that?
The propensity of Amazon customers to spend more is higher.
Just one last question, Rakesh. The write-offs, pretty, pretty sharp this quarter, what explains this kind of write-offs and yes -- which product segment would have driven this?
[ Revenues ] have driven revenues, specific exclamation per se, but we know -- indeed, we had -- we have a high level of provisions against the gross NPAs and that's what we have written-off. A fair bit of that will be also against the retail NPAs. You would have seen the gross retail NPLs have also come down December over September.
So no specific product across the board?
It is across -- on the retail, across the products.
The next question is from the line of Nilanjan Karfa from Nomura.
Rakesh, I'll go back to the question of Mahesh, but frame it a little differently. I mean, I think, what struggles is -- obviously the credit cost is going down quite sharply. Given the construct of the loan book, everybody seems to believe that as the repo rate kicks in, we will get a benefit. Cost ratios are broadly going to be okay. So -- and, unfortunately, I mean, the reality is, it binds with the cyclical business. The problems that I potentially see and I'm probably seeing in this answer is a very lopsided kind of a growth in the overall system loans.Last -- in my opinion, it looks to me that there is -- banks are enjoying a very good pricing power at least at this point in time. Would you, therefore, want to believe or give us a sense that it is probably the margins which have fair amount of pressure going forward. That could also come from your perspective, because if growth remains like this, you -- banks would typically prefer to get into a volume driven growth than a unit economics of after growth?
Nilanjan, I think, overall, clearly, there will be pressure on lending yields and lending spreads, we have seen that, and especially now will be the -- with the deposit costs, kind of, bottoming out across the banking system, but there is still surplus liquidity which is there in the system. So that is definitely in the near term, that is going to be the scenario. So one has to kind of manage through that period. Anything specific that you wanted to…
Also, I'll just add that at this point of time, I think, pricing pressure is there and the yields are low, because 10-year government securities is at 6.50% and mortgages are at 6.70%. I don't remember very many years where the mortgage is -- the delta between the mortgage through delta, which will not stay within the mortgage pricing and 10 years are so low, although of course this is [ retraceable ] and this is one year and all of it, but finally a long-term floating-rate. And if you look at a rate at which a good SME customers are getting, that also -- a spread over government security is quite competitive. So [indiscernible] have to see.
Anup, just -- sorry to interrupt. By any chance, would you want to consider that, forget -- not just ICICI Bank, I mean, in general, given the spread gaps that you are talking about, we are taking in risks, which might materialize in the longer term?
No, from bank perspective, I think, we will be very careful on risk calibrated. So it is very difficult to comment on other people. From our perspective, we will be very, very careful about risk calibrated returns.
Okay. I'll do it offline. Just one additional question. On the ECLGS portfolio, any clarity of what is the total stock of loans at this point? How has this total stock of loan behaved? How much it has come down? How much of that has slipped in this quarter, in the December quarter?
In this, in terms of numbers, I think it would be pretty similar to what it was in September. In terms of the portfolio, I think, like we said last time, our approach was one where we wanted to kind of use this facility with the businesses where the model was not broken and we had visibility in terms of repayments from the businesses. Of course, the companies that have taken ECLGS would have had some amount of stress. So overall, if one looks at this portfolio, maybe the delinquencies or the overdues could be somewhat higher than the overall book for banks. But in our case, I think, we are not overly worried on this portfolio. There would be somewhat higher numbers that we see here, but nothing more than that.
Okay, Rakesh. I mean, just it was very specific to this quarter, have you seen any slippages coming through? Because, I think, we are more or less done with one year moratorium?
Nothing material, I would say.
Ladies and gentlemen, due to time constraint, we take that as the last question. I now hand the conference over to the management for their closing comments. Over to you.
Thank you, everyone, for joining this Saturday evening. We'll be happy to take the remaining questions separately.
Thank you. Ladies and gentlemen, on behalf of ICICI Bank, that concludes this conference. We thank you all for joining us, and you may now disconnect your lines.