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ICICI Bank Ltd
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[Audio Gap]Good evening to all of you. Our board has today approved the financial results of ICICI Bank for the fourth quarter and the year ended 31st March, 2018. As you know that we have been working on our strategic priorities on the 4x4 agenda, covering Portfolio Quality and Enhancing Franchise. So while the fourth quarter results and the numbers are available to you, instead of repeating those numbers, I am actually going to just talk a little bit about the significant progress that we have made in executing the strategy of 4x4. And once I do this, Kannan will actually take you through the details of the results. So over the year, we have actually been able to build a very granular robust and low cost deposit base. The average CASA ratio of the banks has improved from 39.5% in FY '15 to 45.6% in FY '18. The cost of deposits in FY '18, for us, was less than 5%, which is the lowest in the last 10 years, not just on the franchise of the deposits, but we have also de-risked our balance sheet substantially. The proportion of retail loans and total loans have increased from 39% on March 2014 to 56% -- 56.6%, actually, at March 2018. And the proportion of overseas loans has now reduced to 12.6%. We've also changed the rating mix of our incremental portfolio. So about 87% of the disbursements in FY '18 in the domestic and international corporate portfolio were to corporate rated A- and above. We also saw a significant improvement in our concentration risk ratio. Our exposure to the top 10 borrower group as a percentage of total exposure reduced from 20.3% in March '14 to 14.3% as on March 31, 2018. Talking specifically about our exposure to the top 20 borrowers. There's 96% of our exposure to the top 20 borrowers is now rated A- and above category. This was just about 68.7% in March 2014. The Bank's aggregate exposure to power, iron and steel, mining, cement and rigs, which was identified as key factors in the context of the challenging operating environment has reduced from 14.8% of total exposure in March '14 to 10.1% of total exposure at March '18. The bank has played a key role in resolving some of the large asset cases. Recoveries and upgrades from NPS increased from INR 25.3 billion in FY '17 to INR 81.07 billion in FY '18. We also continue to be at the forefront of offering technology-enabled services to our customers. The share of digital channel like Internet, mobile banking, POS and call center, and the total savings transaction has increased to 82% in FY '18. Another significant initiative for us during the last quarter was that we've onboard 250 corporates on our block chain platform for domestic and international trade finance. As you are also aware, since 2016, the bank has unlocked more than INR 100 billion of capital from the subsidiaries and has successfully demonstrated the value creative in these subsidiaries. So the market capitalization of our listed subsidiaries today is in the excess of INR 1 trillion. And our residual stake is valued in excess of INR 600 billion. The bank's capital position is strong, with Tier 1 capital adequacy ratio of 15.9% at 31st March 2018. So as you can see from the above, we have made a significant progress in de-risking the balance sheet. And these steps we have taken in the past few years are affected to impart stability to asset quality as the current cycle abates. Not only that, we have continued to enhance our franchise, and this will enable us to achieve growth in business and core operating profits as we go forward. So we believe, we are well-positioned to grow on core operating profits, while reducing credit costs. So as we look ahead, our bank strategy will be anchored around 3 anchors: preserve, change, and growth. So first of all, we will focus on preserving our robust funding franchise and our digital leadership. So the target is to maintain our average CASA ratio at 45% and the proportion of retail to total deposit at over 70%, even as we continue to grow our balance sheet. We will also continue to preserve the fact that we offer best-in-class digital offerings to our customers and automate internal processes for increased efficiency. Under the second anchor of change, I would like to say that we have adopted a new approach to corporate lending. We have setup hard limits for group and borrower exposures, and these limits are based on rating and track record. The group exposure limits that have a set up, other than from very few selective high-rated corporate, these limits are substantially lower than the regulatory limits. We will also continue to change our loan portfolio mix further as we go forward. And therefore, we've set a target that by March 2020, retail loans as a proportion of total loans would be over 60%. And the proportion of overseas loan portfolio in the total loans will reduce to below 10%. We will also focus on recoveries and resolutions. And by March 2020, we target to bring down the net NPA ratio to around 1.5%. We will also increase our provision cover ratio to over 70% by March 2020, including the technical and prudential write-offs. Our third anchor is growth. And we will, first of all, focus on driving growth in the core operating profits. We will also grow our domestic loans at above 15%, within which, the retail growth would be around 20%. Within the retail, we will target a growth of around 35% in business banking, about 40% in personal loans and credit cards and about 15% in mortgages. And thirdly, we will also continue to grow our group synergies. Because as a group, we have created certain strengths that are unique to us in the form of seeing a financial conglomerate. So our insurance, asset management and securities businesses, we'll continue to focus on the savings and projection opportunities that are rising in the market and will focus on market leadership and value creation. So in summary, through our 3-anchor strategy of preserve, change and growth, we will target growth with quality and sustainability. And with that, we want to get to the part of returning to a consolidated return on equity of 15% by June 2020. Now with this, I will hand over the call to Kannan.
Good evening. I would now talk about our performance on growth and credit quality during Q4 of 2018. I will then talk about the P&L details, and then capital. First, on growth. The domestic loan growth was 15.1% year-on-year as of March 31, 2018, driven by a 20.6% year-on-year growth in the retail business. Within the retail portfolio, the mortgage and vehicle loan portfolios grew by 17% and 15% year-on-year, respectively. Growth in the business banking and rural lending segments was 40% and 20% year-on-year, respectively. The commercial vehicle and equipment loan portfolio grew by 16% year-on-year. The unsecured credit card and personal loan portfolio grew by 41% year-on-year, off, of course, a relatively small base to INR 302.46 billion, and was about 5.9% of the overall loan book as of March 31, 2018. We continue to grow the unsecured credit card and personal loan portfolio, primarily driven by a focus on cross-sell to our existing customers. Growth in the SME portfolio remained steady compared to the last quarter at 14.7% year-on-year as of March 31, 2018. The SME portfolio constituted 5% of the total loans as of March. We saw continued growth in domestic corporate loans, excluding net NPA, restructured loans and loans internally rated below investment grade in key sectors at the period-end, growth in the domestic corporate portfolio picked up to 17%. At the same time, there was a reduction in some parts of the balance sheet. Net NPA restructured loans and loans to internally rated below investment grade in key sectors as of March 31, 2018, declined by 42% year-on-year. And net advances of the overseas branches decreased by 14.1%. As a result of the above, the overall loan portfolio grew by 10.4% as of March 31, 2018. Coming now to the funding side. We saw a very healthy growth in CASA deposits of INR 292.9 billion in the fourth quarter of 2018 and INR 431.04 billion in financial year 2018. CASA deposits grew by 17.5% year-on-year, and the CASA ratio was 51.7% as of March 31, 2018. On a daily average basis, the CASA ratio was 45.9% in the fourth quarter. Total deposits grew by 14.5% year-on-year to INR 5.61 trillion as of March 31, 2018. Next, moving to credit quality. Gross NPA additions had declined sequentially during the first 3 quarters of fiscal 2018. However, during the fourth quarter, gross additions to NPA were elevated at INR 157.37 billion. This included INR 99.68 billion of loans, which were under RBI schemes are classified standard as of December 31, 2017. The Revised Framework for Resolution of Stressed Assets issued in February 2018 discontinued these schemes. The retail portfolio had gross NPA additions of INR 7.05 billion and recoveries and upgrades of INR 5.59 billion during the fourth quarter of 2018. So of the corporate and SME gross NPA additions of INR 150.32 billion during the quarter, INR 136.35 billion or about 90% were from restructured loans, the drill-down list, accounts under RBI schemes, devolvement of non-fund-based exposures and increase in outstanding due to exchange rate movement in accounts classified as nonperforming in prior periods. The balance included exposure to a borrower group in the gems and jewelry sector, rated BB, which was classified as fraud. The aggregate deletions from NPA due to recoveries and upgrades increased to INR 42.34 million in the fourth quarter compared to INR 11.08 billion in the preceding quarter. The gross NPAs written off during the quarter aggregated INR 29.95 billion. The bank sold gross NPAs for 100% cash consideration aggregated to INR 4.84 billion during the quarter. The provision coverage ratio on nonperforming loans, including cumulative technical and prudential write-offs was 60.5% at March 31, 2018 compared to 53.6% as of March 2017. The Bank's net nonperforming asset ratio was 4.77% as of March 31, 2018. The net standard restructured loans were at INR 15.53 billion, about 0.3% of net advances. The non-fund based outstanding to companies in the restructured portfolio was INR 3.96 million as of March. Loans under the remaining RBI schemes that is a change in management for implementation, fiber 5/25, S4A, et cetera, which had been fully implemented, where INR 30.15 billion as of March 31, 2018. In addition, non-fund-based outstanding as of other than standard restructured aggregated to INR 14.97 billion as of March 31, 2018. Moving on to the drill-down list now. The aggregate fund-based limits and non-fund based outstanding to companies that were internally rated below investment grade in the key sectors and promoter entities, that is the drill-down list, decreased from INR 190.62 billion as of December 31, 2017, to INR 47.28 billion as of March 2018. On Slide 31 of the presentation, we have provided the movement in these exposures between December 31, 2017, and March 31, 2018. There was a net decrease in exposures of INR 8.39 billion. There were rating upgrades of exposures of INR 0.09 billion during the quarter. There was a reduction of INR 122.52 billion due to classification of certain borrowers as nonperforming, including accounts classified under RBI scheme that were classified as standard at December 31. Until December 2017, we were including the non-fund-based outstanding in respect of accounts in the drill-down list, where fund-based portion has been classified as a nonperforming in the earlier periods. At the year-end, we have excluded the same drill down, the same is reflected in the movement of the drill-down list for the fourth quarter of 2018. The total non-fund-based outstanding to borrowers classified as a nonperforming including above of INR 29.8 million as of March 31, 2018. To summarize, as of March 31, 2018, the aggregate gross standard restructured loans, the drill-down list, fund-based and non-fund-based outstanding of borrowers under fully implemented RBI scheme and non-fund-based outstanding to nonperforming and restructured accounts, excluding overlaps, were INR 133.65 billion. At March 31, 2018, excluding NPAs, restructured loans, loans under RBI schemes from the drill-down list, maximum single party, BB and below-rated outstanding, was below INR 6 billion. This does not consider one sugar borrowers, which was classified as nonperforming in the third quarter and subsequently resolved and upgraded to standard category during the fourth quarter. Going forward, during financial year 2019, NPA additions are expected to be significantly lower than financial year 2018. The impact of the Revised Framework for Resolution of Stressed Assets will need to be closely monitored, of course. During the first quarter of 2018, RBI had directed banks to initiate insolvency resolution process for 12 accounts. At March 31, 2018, the bank had outstanding loans and non-funded facilities amounting to INR 60.42 billion and INR 1.94 billion, respectively to such accounts. The provisions held against outstanding loans were 52.6% as of March 31, 2018. Further, during second quarter of 2018, RBI had directed banks to initiate insolvency resolution process of certain accounts under the provisions of IBC by December 31, 2017, if a resolution plan where the residual debt is rated investment grade by 2 external rating agencies was not implemented by December 13, 2017. As of March 31, 2018, the bank had outstanding loans and non-funded facilities amounting to INR 91.87 billion and INR 8.38 billion, respectively, to such accounts. The provisions held against outstanding loans increased from 36.4% as of December 31, to 47.8% as of March 31. All of the above loans are classified as nonperforming. As of March 31, 2018, the banks were required to make a provision of 40% unsecured loans or provision as per extant RBI guidelines on asset classification norms, whichever is higher. The bank holds 100% provision on unsecured loans. Additional provisions of about INR 9.87 billion will be required to be made, over and above the aging-based provisions, against both list 1 and list 2 accounts in the first quarter of 2019. The provision requirement is in line with the RB requirement of a 50% provision on secured portion of debt by June 30, 2018. Moving next to the P&L details. The net interest margin improved to 3.24% in the fourth quarter of 2018 compared to 3.14% in the third quarter of 2018. The domestic NIM improved to 3.67% in Q4 of 2018 compared to 3.5% in the third quarter of 2018. International margins were muted 0.04% in the fourth quarter due to nonaccrual of interest income on NPS. There will be near-term pressure on net interest margin related to the fourth quarter 2018 level due to shift of loans to the MCLR benchmark from the base rate benchmark, reductions in the base rate and non-accrual of interest income of nonperforming assets. Thereafter, as these factors abate on and the reflation come through, we should see an improvement on the margins in the later part in the current financial year. Total noninterest income was INR 56.78 billion in the fourth quarter of 2018 compared to INR 30.17 billion in the fourth quarter of 2017. Within this, fee income grew by 12.6% in the fourth quarter of 2018 to INR 27.55 billion. For the full year, fee income grew by 9.4% to INR 103.41 billion. Within this, retail fee income grew by 15.7% and 14.1% in the fourth quarter of 2018 and the full financial year 2018 respectively. It constituted about 73% of the overall fees in the financial year 2018. Going forward, we would target double-digit fee income in financial year for 2019. The growth in fee income will continue to be driven by retail businesses. Moving on to treasury income. It was INR 26.85 billion in the fourth quarter of 2018 compared to INR 5.03 billion in the fourth quarter of 2017. Fourth quarter of 2018 included gains related to sale of shareholding in ICICI Securities aggregating to INR 33.2 billion. Other income was INR 2.38 billion in the fourth quarter of 2018 compared to INR 0.68 billion in the fourth quarter of 2017. You will remember that there was a reversal of INR 2.88 billion of exchange rate gains relating to overseas operations in the fourth quarter of the previous year, which was recognized as other income in the 9 months of 2017. Other income included dividend income of INR 2.23 billion in the fourth quarter of 2018. Moving on to expenses. Operating expenses increased by 8.2% year-on-year in the fourth quarter of 2018 and 6.4% for the full year 2018. The bank had 82,724 employees as of March 31, 2018. The bank has made significant investments in human resources and distribution in the recent years. Moving forward, the bank would continue to focus on fully leverage existing resources and infrastructure. Accordingly, the bank would target to contain the growth in operating expenses to low double digits year-on-year. The growth would mainly be towards retail franchise and technology capabilities.Moving on to the core operating profit that is profit before provisions, tax, excluding treasury income, it was INR 48.29 billion in the fourth quarter of 2018 compared to INR 46.09 billion in the fourth quarter of 2017. For fiscal 2018, the core operating profit was INR 189.4 billion compared to INR 179 billion in financial year 2017. Provisions were INR 66.2 billion in the fourth quarter of 2018 compared to INR 28.98 billion in the corresponding quarter last year. For financial year 2018 as a whole, provisions were 173.07 billion compared to INR 152.08 billion in the financial year 2017. During fiscal 2019, provisions are expected to remain elevated, although lower the financial year 2018. The tax rate for financial year 2018 was 8.8%. The tax rate for financial year 2019 is expected to normalize upwards. The bank's stand-alone profit after tax was INR 10.2 billion in the fourth quarter of 2018 compared to INR 16.5 billion in the preceding quarter and INR 20.25 billion in the fourth quarter of 2017. For the full year 2018, profit after tax was INR 67.77 billion compared to INR 98.01 billion in fiscal 2017. The board has recommended a dividend of INR 1.50 per share. The declaration and payment of dividend is subject to requisite approval. The record/book closure dates will be announced in due course.Moving on to the subsidiaries. The performance of subsidies is covered in Slides 33 to 38 in the investor presentation. The consolidated profit after tax was INR 11.42 billion in the fourth quarter of 2018 compared to INR 20.83 billion in the corresponding quarter last year and INR 18.94 billion in the preceding quarter. For the full year, consolidated profit after tax was INR 77.12 billion compared to INR 101.88 billion in fiscal 2017. In line with a strategy of rationalizing capital, ICICI Bank Canada repatriated CAD 100 million of equity share capital. The bank's total equity investment in ICICI Bank U.K. and ICICI Bank Canada has reduced from 11% of the net worth as of March 2010 to 3.5% as of March 2018. Finally, moving on to capital. The bank had a standalone Tier 1 capital adequacy ratio of 15.92% and total standalone capital adequacy ratio of 18.42% after reducing the proposed dividends for financial year 2018. The bank's consolidated Tier 1 capital adequacy ratio and total consolidated capital adequacy ratio were 15.56% and 17.9%, respectively. The capital ratios are significantly higher than the regulatory requirements. During the fourth quarter of 2018, we raised INR 40 billion by way issuance of additional Tier 1 bonds. With this, we'll now be happy to take your questions. Thank you.
[Operator Instructions] The first question is from the line of Mahrukh Adajania from IDFC.
Yes, my first question is on the recoveries and upgrades. So the significant jump is just on the account of the sugar account? Or...
Yes. The significance [indiscernible] will be a couple of accounts. One is that the sugar account, what you had mentioned, which has been sold out to an international company. The second is, as you know, there's gas-based power plant. There was a [demercant] approval which happened during the quarter of merging the company into a power block and the LNG terminal. So that upgrade also happened during the quarter. Those would be 2 significant items for the quarter.
As well for the year, is that also part of the synergy?
Yes. And as you know, in the initial part of the year, we had cement unit being sold of large borrower. So that is reflected in the overall recovery for the whole year number.
Got it. And now, the other question is on U.K. sub. So any color on why there was a loss there?
Yes. This is essentially because of the increased level of provisioning on the impaired loans, which are largely India link [indiscernible] loans. So it pretty much reflects the local conditions here.
Okay. So it's largely aging? I mean...
Yes. Additional provisions, largely.
Got it. Got it. And just one last question. Does the improvement in yield during the quarter, calculated yields, that would largely be because of the upgrades? Is that the way to look at it? Or...
On the yield on loan advantages, you mean?
Yes, yes.
They would also be at the earlier quarters. That are some collections that we do get on some of the non-accruing loans. So that also will impact a bit.
Your next question is from the line of Ravikant Bhat from Emkay Global.
Yes. One question on an asset that you had acquired in lieu of your claims a couple of years back. So I think that sits in schedule 11 in other assets which was about INR 16.7 billion, and then you've made another acquisition in FY '17. Commutatively, you must still be carrying about INR 25 billion, and that's a freehold land which is waiting to be liquidated. Is this understanding correct?
Yes, that's correct.
And so what's the roadmap for that? So I think it's a couple of years already now since you first got the first parcel. Any progress towards liquidating that?
So we have been exploring options to monetize the [indiscernible] assets that we have. So as of now, there really has not been any material in the amount that we have been able to monetize. But we will -- if you look at it over the next couple of years and see how it proceeds. On an annual basis, we do, of course, have a evaluation done for all the nonbanking assets. And it is in the impairment that is taken as a charge.
Okay. And just to understand its impact, if it all goes through, this will come as a recovery, right? I mean, your rates would come down? Or will this affect the other income?
That will be part of other effects. So we do not have any impact on the [indiscernible] percentage.
Okay. No, but when you realize -- I mean, you're saying it will also not have any impact on the income statement?
The other effects go down, [indiscernible] be able to deploy the funds better but otherwise the other effects goes down correspondingly.
The next question is from the line of Sri Karthik from Investec.
So a couple of questions from my end. Any particular reason why the international -- so any guidance on the international margins?
On the international margins. As we had stated earlier in the quarter also, clearly, there's a lot of pressure which has come about because of the addition to NPAs that we have seen in the overseas branches book. And that has impacted the margins for the -- so going forward, in the current financial year, for FY '19 also, clearly, there will be pressure on the overseas margin. And specially, because we are not growing that book. So in that context, any impact which is there becomes more material.
And as we mentioned earlier, the salary becomes about 12.5% of a loan book. And our 2-year path is bring it 10% or below. So on that, I think we do not materially impact the overall NIM of the bank going forward.
So any particular reason why this conscious decision to bring down the international books? Because some of the peer private banks have been growing this at a significantly fast pace. So we're clearly losing market share out here. Why is this capital allocation decision?
No. I think our own way of looking at this book is on that demand for such foreign currency loans. As you know, largely, this book has been in the past to India's related entities. So A, it depends on the demand/supply for the foreign currency loans arising out of Indian [indiscernible] entities. And B, our own approach to this portfolio has been viewed around [indiscernible] our own overall concentration strategy. So if you had a larger exposure to the group it is having a presence internationally or wanting a [indiscernible] foreign currency loan, obviously, they would like to reduce the existing exposure, which is largely driven by our own risk mitigation strategy and the demand in the market.
Got it. And the one of IT refund during the quarter is about INR 2.2 billion?
No, not for this quarter. That was -- That was, I mean, for the year as a whole, if I remember right. I'll just confirm that number.
Okay. And you've given specific guidance in terms of margins set for the first half, and continue to decline and then start to improve. If you could be a bit more specific in terms of numbers?
Sorry. I just finished -- I am sorry, I was focused on the income tax refund question of yours. The interest on income tax refund for that quarter of 2018 fiscal year is probably INR 0.16 billion. The number of INR 2 billion you've talked about is the corresponding quarter last year number.
Last year, got it, sir. And specific guidance in terms of margins outcome?
The margins, as I mentioned in my remarks, there could be some immediate pressure, given the migration of some of the loans to NPL, of possible reduction in the base rate, et cetera. But as I said, that the latter part of the year, the current fiscal, it should improve, that's what we have indicated.
So nothing specific in that case?
So nothing specific beyond that.
The next question is from the line of Manish Ostwal from Nirmal Bang.
Yes, and my question is regarding this year's credit cost, you said it is relative to hitting the recommended dividend for FY '19. And secondly, one another comment was the net NPA will be significantly lower than the FY '18 level, so could you quantify certain numbers on these items?
So see we have not been able to -- we have not quantified really the exact number of slippages. But as I mentioned that the amount will be significantly lower this year compared to last year. But as MD mentioned in the opening remarks, that we need to -- we have laid all the cards for ourselves, there are 2 parameters that you will have to keep in mind. One is that the 1.5% net NPA ratio in 2 years’ time that is by FY '20 end. And also, we talked about the provisioning coverage ratio improving to 70% plus. So what about the credit costs will be [indiscernible]
Okay. And secondly, sir, what is happening in the overseas margin? Almost collapsed in 1 year, whether this is -- now it is bottoming out or it will decline further?
Okay, [Ragesh just clarified], saying that it has been on account of nonaccrual and there has been some prepayment of higher rating loans also. Those have been the contributing factors for it to come down. So the overall impact on the banks then will be mitigated somewhere by the proportion of international loans going down -- going forward. As MD mentioned, we are targeting reduction of the overseas book to below 10% of the overall loan book. So by that time, I know, this should sort of wash away. So that is what we are expecting.
Okay. And last question on the fee income side. When it is compared to other retail banks, especially large retail banks like [agency], the fee income growth even with a strong franchisee and the cross-selling product for the group, our income growth is very weak, so whether we can improve in FY '19 or this kind of growth will depend...
No, of course, we will -- we want to improve and we expected to improve. But as we had mentioned earlier, one of the big drags for us has been the corporate fee income growth on a year-on-year basis. We were partly compensating it through the increase in the retail fee income growth. And during the last call also, we specifically mentioned that the fourth quarter fee income is expected to be in a comfortable double-digit, that is what has happened. Having achieved double-digit in a single quarter and having achieved about 9.5% growth in fee income for the fiscal year as a whole. Our endeavor would be going forward to increase the fee income growth rate to double digits in fiscal 2019, et cetera. And sorry, thanks to this kind of a relative growth in the segment, the retail is now constituting 73% of the fee income.
[Operator Instructions] We move to the next question from the line of Kunal Shah from Edelweiss Securities.
Yes. So in terms of the promotion of the lower rate mortgage, we have not accruing any interest income fee now? So is it only to NPLs or even from the watch list that there is a group wherein they are not accruing the interest.
No, it is -- only the NPLs, obviously, are not accruing in any way, it will in February 12 guidelines. There is no investment session available. So all of those accounts have already been accounted at NPLs at March 31.
Okay. So whatever would be the incremental collections which will come, is that the only positive lever, which will be there in terms of the overall case going forward.
So when the recoveries come from this portfolio, that is the positive lever from it.
Okay. And the 2 things with respect to NPL slippages, so we definitely highlighted in terms of exposure. But when we look at the claims, which are being filed by the clients, in fact, so there is significant difference, okay? So maybe our exposure is INR 6,200 crores. But if we take the accumulative claims from ICICI Bank, that is still like INR 18-odd thousand crores. So there would be accrued interest and royalties, everything, but when we look at the resolutions of this, so on this INR 6,200 crores, the provisioning is INR 3000crores. But the claim amount is INR 18,000 crores. So then how should we look at in terms of maybe any further hit on this post to the resolutions, which will come in from this cases?
The gross and net are also from our exposure to specific cases to what I have previously mentioned that is subject to exposures so we[indiscernible] should go by that. When it comes to recovery, also further provisioning I have [indiscernible] mentioned. So your question is about the gross claims, which we filed before NCLT. As we rightly mentioned, that up to a cutoff date it will [indiscernible] also includes the accruals and everything. All the other charges are [indiscernible] documentation will be included in that. In some cases, it is also possible that the borrower is also[in the impression of sort of] a guarantor to some of the facilities of ours. So typically, what we do is that we remove the guarantee and then make sure that we, our claims are properly set up in NCLT, because the company would have been a guarantor to those exposures also. So typically, that number what you're saying would be a combination of all these factors. So I would say, that from our decision-making in terms of accepting a particular resolution or in terms of what should be provided in the future, we have been largely go by the gross and net numbers, which we have -- I have talked about.
Okay, okay. And any reason for consuming this provision on gems and jewelry from -- directly from the networks or was it just because it was a fraud? That’s the reason..
So we have gone by the RBI circular, which clearly says that, partly you can take it through the P&L and that the balance parts can be also from the reserves, which in the future will sort of reverse. So that is the treatment, we have used as for the RBI circular on the fraud cases.
The next question is from the line of Amit Premchandani from UTI Mutual Fund.
Sir, is there any communication from the regulator about the conflict of interest issue as reported by the media?
No communication to us, but that's what we can say now.
And sir, what is the tenure of the current chairperson? And what is the process of reappointment of the chairperson?
The -- typically RBI gives an approval for chairperson for 3-year period. And that is -- as per the resolutions, we have sent to the shareholders also, that term ends on June 30 of 2018.
Next question is from the line of Vishal Goyal from UBS Securities.
So one question, actually is on -- what is -- you gave those 4, 5 sectors below investment grade exposure. So what is the below investment grade exposure for the other sectors? If you can give a number on that?
We have not done that. We keep evaluating for the future, but we have not done it.
Next question is from the line of Manish Karwa from Deutsche Bank.
So my question is on your guidance of 15% consol ROE. Roughly this will work to about 12%, say, standalone or the core bank ROE. Even after cleaning up everything, moving towards the 70% coverage ratios, you're still seeing that your ROE will only be like 11% to 12% only by 2020? That sounds a very little [lower] number because at that point of time, probably your credit cost should be like in the 60-70 basis points kind of zone as such. Is there something that is missing? Or it's just a broad number that you put out as of now?
If you look at the difference between the standalone and the consolidated ROE, it may not be as high as you're assuming it to be. Because indeed, in the standalone profits of the bank, we also get the dividends from the subsidiaries. So the net difference between the standalone and the consolidated ROE will only be as much as 3%. So the bank's stand-alone ROE will also be closer to 15% than the 12% number that you are seeing. Once we reach the consolidated ROE of 15%.
Okay. And any reason why the payout ratio is a bit low? Is it just to conserve capital? Or is there anything else?
No, it's as per the RBI guidelines based on the capital adequacy and NPA numbers, there is a payout grid which is...
15% is the payout grid, and then RBI asked 15% as the payout grid and we have followed that.
The next question is from the line of Prashant Jain from HDFC Mutual Fund.
Anand Laddha here. My question is similar with the -- hello?
Yes, yes, Anand.
Historically, sir, we used to guide ROE within -- for 18% on ROE. You end up -- you have IFRS bank decision on the number as guided for 18% ROE. Is it that we are getting into extra conservative and guiding for 15% ROE? Or despite the fact, we believe so by 2020, your provisioning cost should normalize?
Yes, as I have mentioned, we are targeting this number by June of 20. That doesn't mean that it will not expand beyond that. So we will first work towards this and then see how it goes from there.
Perfect. And I also wanted a sense what could be the interest reversal on NPA this quarter?
We don't give that number separately in terms of the interest reversal.
The next question is from the line of Dhawal Dalal from Edelweiss Mutual Fund.
Hello, am I audible? Sir, I just wanted to know on the asset quality fee details, which you have given about INR 133-odd billion pending assets, how much -- what is the expectation from the management and how much of this would flip? And also, is there any further other sectors, which are not part of our drilldown list, which are below rated or BB or below related that could be part of your NPL recognition in next financial year? And any guidance on credit cost partially embedded for the next financial year, with F '19, basically.
No, we haven't given any specific number in terms of guidance for next year. But as Kannan mentioned earlier, we do expect a significant decline in terms of the addition to NPL. And we're also expecting, in a while, that credit cost will continue to be elevated, it will be lower than what we have seen in FY '18. In terms of...
May be -- we're thinking that you have not given the guidance, I understand. But it's been our common call process to mention that it will be lower than this financial year and it's not been the case for the last 2 financial years. So just wanted to understand, how do you look at F '19?
Yes, so in FY '18, of course, in the March quarter, there was an additional impact, which came because of the February 12 guidelines of RBI. So that is something, which happened in FY '18. For FY '19, given the, as you talked about INR 133 billion of loans, which are there that includes the non-fund outstanding as well. So the amount of loans, as Kannan said, has clearly come down substantially over the last 12 months. And that is what gives us the comfort that the level of addition in FY '19 should be lower than what we have seen -- significantly lower than what we have seen in FY '18. Of course, there will be cases, which are below investment grade other than what is covered in this particular slide in the presentation. And there would be additions, which would happen from outside of the selected sectors that are there. So that is the other query that you have.
And there, we had given a gentle sense about the single borrower maximum exposure that is one disclosure we have made, which is less than [ INR 6 billion. ] We have also seen -- we're not seeing any sectoral patterns there to be included specifically in the drilldown list or anything. So one slippage which has happened during this fourth quarter is at gems and jewelry case, which is a borrower-specific issue, which we have already talked about. So I don't have any...
Are you also considered the non-fund-based limits when you talk about the single borrower case more than [ INR 6 billion ]?
[ INR 6 billion ] is a number that we've talked about [indiscernible] and that includes the outstanding non-fund and non-fund-based outstanding to the borrower. In this particular quarter, as you are aware there is one case, which Kannan mentioned about upgraded, which was the [indiscernible]. So that number would be a little higher than the [ INR 6 billion ]. Otherwise, all the other loans, which are below investment grade outside the selected sectors are below INR 6 billion in terms of the outstanding loans and outstanding non-fund-based.
And just to complete that, I have a follow-up question. Speaking of others, there is [ INR 133 billion] data given on Slide 24 of your presentation. [indiscernible]
We are not saying that. We are saying that we are closely monitoring each of this and as Rakesh mentioned a part of this is also non-fund-based exposure.
And last point here. When we look at consolidated 15% ROE for FY '20, what is the likely expectations of credit cost that could be building right now in that sense?
So ROE of 15% that we have talked about for June 2020, that would mean the credit cost to be more at a normalized level. The normalized level could be in the region of 80 to 100 basis points of average loans. But of course, you will have to see how things even develop from there. And it is based on the current RBI guidelines and current accounting standards. But that would be the general expectation as we have again mentioned. We have talked about this number in the past.
The next question is from the line of Sameer Bhise from JM Financial.
Just a quick data question. What's the effective provision on standard assets outstanding number this quarter in [FY '18].
On Slide 21, we have given the outstanding general provision on standard assets, which is INR 25.91 billion.
Yes, but it also says that it excludes specific provisions against standard assets?
That would -- yes, so we have not disclosed that. Definitely, we can put that out separately later.
Okay. Just one question -- if I look at the breakup of [INR 103 billion] of various impaired assets, where does that would sit on that slide?
If you ask this project, that has been upgraded. And that would be a part of this. there is a [ 525 ] refinancing which has happened. So that will be a part of the other loans in the RBI schemes, not included above.
Okay. And the sugar account, is that your standard account?
Yes, that is correct. Because one of the [FX changes] have been fully implemented.
Okay. And this time we haven't received the pie chart on the breakable of your loans, if you could share that?
Yes, we haven't reviewed that.
Next question is from the line of [indiscernible].
[Operator Instructions] The next question is from Mahrukh Adajania from IDFC.
Sorry, I just wanted some clarification, again, on the U.K. thing. So there would have been a fair share of international NPAs even in 4Q, right? It would just not be aging? Is that fair assessment?
Yes, in terms of the additions that we had in NPAs during Q4, there would be loans somewhere overseas [indiscernible]. Sorry, you are asking about U.K. U.K., there would have been some addition, which would have happen. But as Kannan mentioned, there were also provisioning, which happened on the interest income side of that.
Next question is from the line of Dave Nagy, an individual investor.
Sir, we're not able to find the person to whom to contact in the Investor Relations department, sir. And that we have made so many mails and sir, they have been unanswered. If you can help us on this and we'll be fine.
Yes. I'm sorry about that. So we will let you know the phone numbers and e-mail IDs to whom you can send your queries. And can you also just send us your number, so that we can put you in our mailing list as well.
Okay. But I will just mark the mail with Investor Relation. If you can give your email and your number, I will just contact on that?
You can -- it's 26537131, Ms. Anindya Banerjee. This is Mumbai number.
Our next question is from the line of M. B. Mahesh from Kotak Securities.
Just a couple of questions. One, on the watch list that you -- on the drilldown list that has been mentioned. Just trying to understand on the steel exposures, just trying to see how comfortable are you today in this book as compared to where you were probably a few quarters back and the possibility of a default here? Second, on the non-fund-based limits, can you just kind of broadly indicate how -- what looks like they probably default in that particular book as well? And third, the guidance that you've given on the ROEs, you include the possibility that IFRS will be implemented from FY '20 in your numbers, why 1.5% net NPA?
Right now we're talking based on the current guidelines and accounting standards. So we have not factored in [NDS] as of now in the numbers that we have talked about. On the drilldown list and the steel sector exposure within that, it is -- because these are below investment grade loans is the reason why we are disclosing that as a part of the drilldown list. So there's definitely risk, which is there to this portfolio. But given the performance of the steel sector more recently, we would resume that it's not that bulk of this exposure should slip into NPL/credit cost.
And the non-fund-based limits?
The non-fund-based limits, if we're talking about the INR 29.8 billion, which we have given on that side as the non-fund-based outstanding to non-performing assets, that of course, would be relatively a higher risk. Because that is pertaining to accounts, which are already classified as non-performing. So I would say that risk there will be -- clearly be on the higher side.
Sure. And one final question, is the retail at this point of time touching closer to a 15% ROE?
We don't disclose segmental ROEs separately. But if you look at the segmental numbers that we disclosed, it is -- in terms of profitability, it has been doing well as it may come from the profits of the business.
The next question is from [indiscernible] from [indiscernible].
Just relating to the 28 accounts and the 12 accounts of coverage that you provided, is that gross of write-off or net?
That is a net of write-offs.
Okay, right. And sir, secondly, just wanted to understand on the CV financing portfolio, like you mentioned you grew 16% year-on-year, so would there be some market share losses on that side?
We believe we have been growing slightly higher than the overall market in the CV business.
Next question is from Nilanjan Karfa from Jefferies.
Sir, on the June 2020 ROE expectations, what kind of cost income ratio do you forecast?
Cost-to-income ratio, of course, in most recent quarters has been impacted by the lower level of core income that we have had. And of course, it has also been positively impacted by the treasury gains, especially in the quarters in which there have been stake sales of subsidiaries that have happened. So on a more sustainable basis, 40% is a cost-to-income ratio or something below that is what we would be looking at targeting.
Okay, because you're currently at about 44% already -- a little north of [42%] on a core basis, right?
We would expect -- overall, in 2, 3-year period, the income growth will be better than we have seen in the last couple of years, while continuing to have the control on cost that we have witnessed over the last couple of years.
Sure. And then, Rakesh, could you have comparable of Slide 24 for the December quarter, exactly line by line, how favorably have we accounted?
I don't have it right now. But the aggregate number we had mentioned in the last quarter was about [ INR 250 billion ]. So the big change which has happened in this list would be in the drilldown list coming down from the [ INR 190 million ] to [ INR 47 billion ] is the big change from the INR 250 billion number on [ INR 133 billion. ]
And why there's reluctance, if I can ask, in disclosing the below triple -- BB and below accounts? I mean, what are you worried about? I mean if you have -- if you believe this is what the total quantified NPL's are? Or the stresses and this is where you expect the slippage is from? I don't see why you should stop from disclosing that number?
There is no specific worry that we have on disclosing BB and below for the other sectors. The fact that we have not disclosed that separately, and the same will continue for this quarter. We'll continue to evaluate that and see if we need to disclose that separately.
Ladies and gentlemen, with this, I now hand the conference over to the management for their closing comments. Over to you.
Thank you. I think we have covered most of the questions. And as I said in the beginning, I repeat again, that we've made a lot of progress on our derisking of the balance sheet and enhancing our franchise over the past 4 years. And we would continue to focus now, and we would now focus on our strategy, which is on 3 anchors of preserve, change and grow. Thank you.
Thank you very much, ma'am. Ladies and gentlemen[Audio Gap]