ICICI Bank Ltd

NSE:ICICIBANK

Earnings Call Transcript 2019-Q4

[Sandeep Bakhshi, MD, CEO & Executive Director]

Good evening to all of you, and welcome to the ICICI Bank's earnings call to discuss the Q4 '2019 results. Joining us today on this call are our Executive Directors, Vishakha, Anup and Vijay; Executive Director Designate, Sandeep Batra; CFO, Rakesh Jha, and our Head of Investor Relations, Anindya.As communicated in our previous earnings calls, we are focusing on our objective of growing the core operating profit in a granular and a risk-calibrated manner. Our core operating profit increased by 25.8% year-on-year to INR 60.77 billion in Q4 of 2019. For financial year 2019, core operating profit grew by 16.5% to INR 220.72 billion. We believe that a strong liability franchise is the basis of our strategy, and we have seen a healthy growth in our overall funding. The total deposits increased by 16.4% year-on-year from INR 5.61 trillion to INR 6.53 trillion at March 31, 2019. The term deposits increased by 21.4% year-on-year from INR 2.71 trillion to INR 3.29 trillion. The average CASA deposit increased by 13.1% year-on-year in Q4 of 2019.On the asset side, the domestic loan book grew by 16.9% year-on-year at March 31, 2019, driven by retail. The retail loan portfolio grew by 21.7% year-on-year. The overall loan growth was 14.5% year-on-year. Over 90% of the disbursements in financial year 2019 in the domestic and international corporate portfolio was to corporates rated A- and above.The Board has recommended a dividend of INR 1 per share. The declaration and payment of dividend is subject to requisite approvals. While we continue to build resilient businesses to drive growth in core operating profits in a risk-calibrated manner, we have maintained our focus on addressing the stress in the corporate and SME portfolio originated in earlier years. Our gross nonperforming assets decreased from INR 540.63 billion as of March 31, 2018, to INR 462.92 billion as of March 31, 2019. The gross NPA additions during the quarter was INR 35.47 billion. The gross NPA additions in Q4 2019 include an account in the sugar sector, where the payment obligations are being met, which have been classified as nonperforming pursuant to a regulatory interpretation communicated to banks relating to change in management. For financial year 2019, gross additions to NPAs were INR 110.39 billion, which was significantly lower than the additions of INR 287.30 billion in financial year 2018. The net NPAs decreased by over 50% from INR 278.86 billion at March 31, 2018, to INR 135.77 billion at March 31, 2019. The net NPA ratio declined from 4.77% at March 31, 2018 to 2.06% at March 31, 2019. The provision coverage ratio, excluding technical write-offs, increased from 47.7% as of March 31, 2018, to 70.6% as of March 31, 2019. Including technical write-offs, the provision coverage ratio was 80.7%. The BB and below corporate and SME portfolio has decreased from INR 188.12 billion at December 31, 2018, to INR 175.25 billion at March 31, 2019.The annual supervision process of the bank by RBI for financial year 2018 was concluded during Q4 of 2019. No disclosures on divergence in asset classification and provisioning for NPAs is required to be made in terms of the RBI guidelines.Looking ahead, we will continue to maintain our focus on building scalable and resilient business to drive the growth of risk calibrated core operating profit. We will further strengthen our liability franchise and pursue growth in low capital-consuming businesses. We will align our solutions to provide the full range of banking services and capture the opportunities concentrated around economic ecosystems.We are focused on building our capabilities to understand the changing needs of customers. Our driving force is our strong and talented teams that are responsive and adapt to the new evolving trends. We are continuously reviewing roles and responsibilities, providing opportunities to employees and adding to the talent pool for achieving our goals. We have recently reorganized ourselves to work together seamlessly across functional and departmental boundaries in order to maximize our share of market opportunities. We have moved to role-based designations from grade-based structures and empowered our teams at the local level. We have taken a number of initiatives on the digital front to expand the customer base, smoothen the onboarding process further, enhance the transacting experience and deepen the penetration of our products and services among existing customers. We are striving to make our delivery to the customer more seamless and frictionless by decongesting our processes. We see collaboration and agility in building solutions for customers bringing them -- bringing to them all our products and services in a seamless manner as the key differentiator for achieving our strategic objectives.As we have mentioned on previous calls, we believe we are at the end of this asset cycle and the NPA additions are expected to broadly stabilize going forward. Of course, even over the last few quarters, the system has seen some stress emerging in new segments or specific corporates. We believe that the approach of granular exposure and focus on higher-rated corporates that we followed is standing us in good stead in this environment, and we'll continue this approach.Over the past 4 years, our provisions as a percentage of average advances have been ranging between 2.8% and 3.7%. As a percentage of core operating profit, the provisions have been between 60% and 90%. For financial year 2019, credit cost was 3.7% of average loans and 90% of the core operating profit. While the credit cost would be an outcome of our portfolio mix and credit environment, given our focus on building a granular book and lending to higher-rated corporates, we believe our provisions on a normalized basis should be around 20% of core operating profit or about 1% of the average advances. The credit costs in financial year 2020 are expected to reduce significantly compared to financial year 2019 and move towards a more normalized level. We expect the credit cost as a percentage of average advances, in financial year 2020, to be in the range of 1.2% to 1.3%. Due to uncertainty in the timing of resolution of NPAs, there could be a variance in credit costs across quarters. We continue to be committed to achieve a consolidated ROE of 15% by June 2020. We'll articulate the medium-term ROE target as we start delivering normalized profits during the current year. We look forward to enhancing the shareholder value with support from all our stakeholders. With these opening remarks, I'll now hand the call over to Rakesh.

[Rakesh Jha, Chief Financial Officer]

Thank you, Sandeep. I'll talk about the P&L details, our performance on growth, credit quality, subsidiary performance and capital position during Q4 of 2019.Starting with the P&L details. The net interest margin was at 3.72% in Q4 of 2019 compared to 3.4% in Q3 of 2019 and 3.24% in Q4 of 2018. There was interest on income tax refund of INR 4.14 billion that we earned in Q4 of 2019 compared to INR 0.21 billion in Q3 of 2019 and INR 0.16 billion in Q4 of 2018. The impact of interest on income tax refund on net interest margin was about 20 basis points in Q4 of 2019. The impact of interest collection from NPAs was about 5 basis points in Q4 of 2019 compared to 17 basis points in Q3 of 2019. The domestic NIM was at 4.12% in Q4 of 2019 compared to 3.72% in Q3 2019 and 3.67% in Q4 2018. International margins decreased to 0.03% in Q4 2019 compared to 0.77% in Q3 2019. Overseas margins in Q3 2019 included the benefit of interest collection from nonperforming loans.The net interest margin in the full year FY '19 was 3.42% compared to 3.23% last year. We expect the NIM to further improve gradually from the FY 2019 level going forward. The NIM will be influenced by NPL recoveries, systemic liquidity, competitive environment and regulatory developments. The timing and quantum of recoveries and interest on income tax refund is uncertain.The total noninterest income was INR 36.21 billion in Q4 2019 compared to INR 56.78 billion in Q4 2018. Fee income grew by a healthy 15.4% year-on-year to INR 31.78 billion in Q4 2019. Retail fee income grew by 15.3% and constituted about 74% of overall fees in Q4 of 2019. Treasury recorded a profit of INR 1.56 billion in Q4 2019 compared to INR 26.85 billion in Q4 2018. The treasury income in Q4 2018, as it would be collect -- included the gains of INR 33.20 billion from sale of shareholding in ICICI Securities. The dividend income from subsidiaries was INR 2.69 billion in Q4 of 2019 compared to INR 2.23 billion in Q4 last year.Coming to cost. The bank's operating expenses increased by 19.6% year-on-year in Q4 2019. The cost-to-income ratio was 44.5% in Q4 2019 compared to 49.9% in Q4 last year. This was excluding gains from stake sale in subsidiaries. During the quarter, employee expenses increased by 24.4% year-on-year, due to higher provision on retirees. This reflected the higher decrease in yields on government securities in Q4 of 2019 compared to Q4 of 2018. The bank had 86,763 employees at March 31, 2019. The nonemployee expenses increased by 16.9% year-on-year due to increase in expenses related to sales promotion, advertisements, launch of new products, sourcing of retail assets and technology.The growth in operating expenses for the full year was 15.2% year-on-year. There are significant opportunities in the market and we would look at making investments for growing the retail franchise, expanding our portfolio and enhancing technology capabilities. Provisions were INR 54.51 billion in Q4 2019 compared to INR 42.44 billion in Q3 2019 and INR 66.26 billion in Q4 of 2018.The bank's net profit was INR 9.69 billion in Q4 2019 compared to INR 10.2 billion in Q4 of 2018. As mentioned earlier, the profit after tax in Q4 of 2018 included gains from sale of shareholding in subsidiaries. The profit after tax was INR 33.63 billion in fiscal 2019 compared to INR 67.77 billion in fiscal 2018. The profit after tax in fiscal 2018 included gains of INR 53.32 billion from sale of shareholding in subsidiary companies compared to INR 11.1 billion in fiscal 2019.Coming to growth. The domestic loan growth was 16.9% year-on-year as of March 31, 2019, driven by a 21.7% growth in the retail business. Within the retail portfolio, the mortgage loan portfolio grew by 19%; auto loans by 8%; business banking by 39%; and rural lending by 16% year-on-year. Commercial vehicles and equipment loans grew by 31% year-on-year. Unsecured credit card and personal portfolio grew by 43% year-on-year, off a relatively small base, to INR 433.20 billion and was 7.4% of the overall loan book as of March 31, 2019. We believe there are significant opportunities to grow our personal loan and credit card book by mining our customer base for cross-sell and leveraging on the technology partnerships that we have recently entered into. The credit quality of the personal loan and credit card book continues to remain stable.Growth in the SME portfolio was 20.3% year-on-year at March 31, 2019. The SME portfolio now constitutes 5.2% of total loans. We saw continued growth in domestic corporate loans, excluding the net NPAs and restructured loans at March 31, 2019. The growth in domestic corporate portfolio was about 14% year-on-year.The net advances of the overseas branches decreased by 2.2% year-on-year in rupee terms and 7.8% year-on-year in U.S. dollar terms. The international loan portfolio was 10.7% of the total loan book as of March 31, 2019. As a result of the above, the overall loan portfolio grew by 14.5% year-on-year at March 31, 2019.The proportion of the loan portfolio rated A- and above increased from 66.3% at December 31, 2018, to 67.1% at March 31. About 90% of the disbursements in FY 2019 in the domestic and international corporate portfolio was to corporates rated internally A- and above.Coming to the funding side. Total deposits grew by 16.4% year-on-year to INR 6.5 billion as of March 31, 2019. CASA deposits grew by 11.7% year-on-year to INR 3.2 trillion at March 31, 2019. On a daily average basis, the CASA deposits grew by 14.2% year-on-year in FY 2019. Term deposits grew by 21.4% year-on-year to INR 3.3 billion at March 31, 2019. On a daily average basis, the CASA ratio was 44.6% in Q4 of 2019.Given the difference in interest rates on savings and term deposits, the growth in term deposits is expected to be higher for the system as well as for us. As a result, the average CASA ratio is likely to decline for banks, including for us. We will be focused on growing retail term deposits and our CASA deposits in absolute terms. Our endeavor would be to maintain a healthy and stable funding profile and our competitive advantage in cost of funds. We will continue to invest in strengthening our franchise further, both from a customer service point of view as well as leveraging technology to offer new products.Coming to credit quality. The gross NPAs decreased from INR 515.91 billion at December 31 to INR 462.92 billion at March 31, 2019. During the Q4 of 2019, the gross NPA additions were INR 35.47 billion. The retail portfolio continued to be stable, with gross NPA additions of INR 8.23 billion and recoveries and upgrades of INR 6.5 billion in Q4 of 2019. As we have mentioned in our previous earning calls, the gross retail NPA additions are expected to be higher in Q1 and Q3 of FY 2020 due to additions -- due to the likely additions from the Kisan credit card portfolio. At March 31, 2019, the Kisan credit card portfolio was about 3% of our total loan portfolio.Of the corporate and SME gross NPA additions of INR 27.24 billion, slippages of INR 18.77 billion were from the BB and below portfolio, which we have disclosed during the previous quarter. These include slippages of INR 0.35 billion due to devolvement of nonfund-based outstanding to existing NPAs and slippages of INR 18.42 billion from other loans rated BB and below. The balance corporate and SME slippages largely comprise 1 account in the sugar industry, which Sandeep mentioned earlier.The recoveries and upgrades were INR 15.22 billion in Q4 of 2019. The bank did not sell any NPAs during Q4. The gross NPAs written off during the quarter aggregated to INR 73.24 billion. The provision coverage ratio, excluding technical write-offs, increased to 70.6% as of March 31, 2019. With this, the bank's net nonperforming asset ratio decreased from 2.58% as of December 31, 2018, to 2.06% as of March 31, 2019.As of March 31, 2019, the loans and nonfund-based outstanding to borrowers rated BB and below, excluding NPAs, was INR 175.25 billion compared to INR 188.12 billion as of December 31, 2018. The gross fund-based and nonfund-based outstanding to standard restructured borrowers was INR 5.64 billion at March 31, 2019, compared to INR 5.69 billion at December 31, 2018. The gross nonfund-based outstanding to nonperforming loans was INR 42.2 billion at March 31, 2019, compared to INR 34.08 billion at December 31, 2018. The bank holds provisions of INR 15.91 billion as of March 31, 2019, against the nonfund-based outstanding referred above. The balance, INR 127.41 billion of fund-based and nonfund-based outstanding to borrowers rated BB and below at March 31, 2019, includes INR 78 billion relating to cases with an outstanding greater than INR 1 billion and INR 49.41 billion related to cases with an outstanding of less than INR 1 billion.On Slide 19 of the presentation, we have provided the movement in our BB and below portfolio during Q4 of 2019, which reflects that there were rating upgrades to the investment grade category and a net decrease in outstanding of INR 5.63 billion. The rating downgrades from investment grade categories were INR 8.65 billion and upgrades from nonperforming loans were INR 2.88 billion during the quarter. The downgrades from investment grade categories were granular in nature. Lastly, there was a reduction of INR 18.77 billion due to slippage of some of these borrowers into the nonperforming category.Coming to our exposure to the power sector. Our total exposure was INR 373.91 billion at March 31, 2019. Of the total power sector exposure, about 31% was either nonperforming or part of BB and below portfolio, including loans restructured or under RBI resolution scheme. Of the balance 69% of the exposure, 31% was to public sector companies and 69% was to private sector. Our exposure to public sector companies included about INR 20 billion to state electricity boards. Also, of the balance 69% of the exposure, excluding the state electricity board, about 76% was internally rated A- and above.During the quarter, concerns emerged around one of the major airline companies in India. The loans and nonfund-based outstanding of this airline were already a part of the corporate and SME BB and below portfolio at December 31, 2018. The loans to this borrower have been appropriately classified and provided for by the bank. There would be no further impact in the future quarters from this.As required by the RBI guidelines, we have disclosed our exposure to the IL&FS Group at March 31, 2019. Our entire fund-based outstanding of INR 2.76 billion to the IL&FS Group has been classified as nonperforming at March 31, against which we hold a provision of INR 1.46 billion. Further, we have nonfund-based outstanding of INR 5.45 billion at March 31, which is a part of our corporate and SME BB and below portfolio. We hold provisions of INR 4.68 billion against this nonfund-based outstanding of INR 5.45 billion.The loan, investment and nonfund-based outstanding to NBFCs was INR 293.68 billion at March 31, 2019, compared to INR 256.19 billion at December 31, 2018. Similarly, the loans, investments and nonfund-based outstanding to HFCs was INR 138.58 billion at March 31, 2019, compared to INR 93 billion at December 31, 2018. The loans to NBFCs and HFCs were about 5% of our total outstanding loans at March 31, 2019. Among NBFCs and HFCs, we have focused on lending to well-rated entity with long vintage, PSUs and entities owned by banks and well-established corporate.This is reflected in the increase in outstanding to NBFCs and HFCs during the Q4 of 2019. The builder portfolio, including construction finance, lease rental discounting, term loans and working capital loans, was about INR 196.33 billion at March 31, 2019, compared to about INR 193.55 billion at December 31.Coming to the subsidiaries. The details of the financial performance of subsidiaries is covered in Slides 27 to 28 and 48 to 54 in the investor presentation. I will briefly talk about the major highlights. First, note that the financials of ICICI Securities, ICICI Securities Primary Dealership, ICICI AMC and ICICI HFC have been prepared as per Ind AS. The financial statements of these subsidiaries used for consolidated financials have been prepared as per Indian GAAP.The profit after tax of ICICI Life for Q4 of 2019 was INR 2.61 billion compared to INR 3.41 billion in Q4 last year. The new business margin increased from 16.5% in FY '18; 17% in FY '19. The embedded value, based on Indian embedded value methodology was INR 216.23 billion at March 31, 2019, compared to INR 187.88 billion at March 31, 2018. The protection-based annualized premium equivalent increased by 61.9% year-on-year to INR 7.22 billion and accounted for about 9.3% of the total annualized premium equivalent in FY '19.The profit after tax of ICICI General increased by 7.5% year-on-year to INR 2.28 billion in Q4 of 2019. The combined ratio improved to 98% in Q4 of '19 from 99.5% in Q4 last year. The profit after tax of ICICI AMC increased by 47.6% year-on-year to INR 2.17 billion in Q4 of 2019. The profit after tax of ICICI Securities, on a consolidated basis, was INR 1.22 billion in Q4 of 2019 compared to INR 1.51 billion in Q4 of 2018.ICICI Bank Canada had a profit after tax of CAD 12.6 million in Q4 of 2019 compared to CAD 11.2 million in Q4 of 2018. ICICI Bank U.K. made a loss of USD 25.3 million in Q4 of 2019 compared to a loss of USD 31.7 million in last year Q4. The net impaired loans of ICICI Bank U.K. were $63 million at March 31, 2019, compared to $174 million at December 31, 2018. ICICI Home Finance made a marginal loss of INR 0.03 billion in Q4 of 2019 compared to a profit after tax of INR 0.05 billion in Q4 of 2018. The loss in Q4 of 2019 was due to impairment provision. The total advances were INR 133.33 billion at March 31, 2019. As we have mentioned earlier, we intend to scale up the retail operation of the subsidiary with a focus on specific areas and customer segments. The consolidated profit after tax was INR 11.70 billion in Q4 of 2019 compared to INR 18.74 billion in Q3 of 2019 and INR 11.42 billion in Q4 of 2018.Lastly, on capital. On a standalone basis, the bank had a core equity Tier 1 ratio of 13.64%; Tier 1 capital adequacy ratio of 15.09%; and total capital adequacy ratio of 16.89% at March 31, 2019. On a consolidated basis, the bank's Tier 1 capital adequacy ratio was 14.73% and the total capital adequacy ratio was 16.47%. During Q4 2019, as required by the RBI guidelines, we have transferred INR 12.69 billion from Tier 1 capital to the investment fluctuation reserve, which is now reckoned under Tier 2 capital at March 31, 2019.With this, I conclude my opening remark, and we will now be happy to take your questions.

[Operator]

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

[Mahrukh Adajania, Director]

I had a question on margin. So you disclosed the lumpy income that you've been booking for margin in the last 2 quarters because of NPA recovery and tax refund. So would it be fair to say that your core margins are around 3.3%? And then would you have enough visibility to ensure that you'll be able to generate 30, 40 basis points of that additional lumpy margins every quarter given the state of [ resolution? ] So that's my first question. And secondly, on overseas NIM, again, they have crashed so.

[Rakesh Jha, Chief Financial Officer]

Yes. So on the first question in terms of margin, so for Q4, we are at 3.72% and that includes 20 basis points of benefit of interest on income tax refund. So if you remove that, it's at around 3.5%. And if you look at for the full year, we are at about 3.42%. So what I would say is that if you look at the full year margin of 3.42%, from that margin is what we would expect to -- or we would target, actually, to improve further gradually in FY 2020, but it will, of course, be subject to what the market conditions are. But that 3.4% is the margin that you can take as the base going forward. On the overseas, I think, every quarter we have been pretty clear in saying that the increase in margin that you saw, for example in Q3, was largely coming from specific interest collection that we had on a couple of large accounts. And without that, even in Q3, the margins would have been negligible. And this quarter, in Q4, the collections were not really there. So the margin has come down to the low level that you see. And going forward, it will take some time for the overseas margin to improve because we have not been growing that book as well. And as you know, if the NPAs are high and, together with that, the book is not growing, it is very difficult for the margins to recover.

[Mahrukh Adajania, Director]

Got it, so whatever recovery of NPLs you had in your interest income, in 4Q was largely domestic, it was not big. It was not as huge as 3Q, but it would have been largely domestic?

[Rakesh Jha, Chief Financial Officer]

Yes.

[Mahrukh Adajania, Director]

Okay. And just one more question on write-offs. They were very high this quarter, so write-offs in NPLs.

[Rakesh Jha, Chief Financial Officer]

Yes. So on write-offs, I would urge you to look at the full year trends, which are there. So for the particular quarter in Q4, yes, the write-offs were more than INR 7,000 crores. But if you look at for the full year, we have done write-offs of about INR 11,000 crores. Last year, we had done about INR 8,600 crores. So it is pretty much in line with that. And if you look at our gross NPA book that we had, the opening book of INR 54,000 crores when we started the year, it has to be seen in that context.

[Operator]

The next question is from the line of Amit Premchandani from UTI Mutual Fund.

[Amit Premchandani, Fund Manager]

I had a question on one of the peer bank had disclosed that RBI had asked them to provide for the land bank they had got against the loan. And we understand that you also have that land bank. I just want to have a status update on that exposure that you have whether you already provided for that.

[Sandeep Bakhshi, MD, CEO & Executive Director]

So we have that exposure as well. And we have taken provision on that in line with what the RBI, in a suggestion to us, has been. So that has meant that even prior to the March quarter, we were already holding a provision, which was about 50% of the deficit swap that we had done. And we have made further provision, which we have disclosed. If you look at our presentation on Slide 38, we have said that the nonbanking assets acquired in satisfaction of claims were INR 10 billion at March 31, 2019 and December was INR 13.45 billion. So the decline that you see is essentially the provision that we have taken against the deficit swap. And the balance remaining in the balance sheet is about INR 10 billion for us.

[Amit Premchandani, Fund Manager]

And on the nonfund exposure of IL&FS why is it still not an NPL? And the sugar asset that you have declared as NPL, when do you expect it to get upgraded? And you said that Jet you have no further losses [ on the land ] which has defaulted, you have no further provisions to be made. And is that definition right, that 100% have been provided for that?

[Rakesh Jha, Chief Financial Officer]

So on IL&FS, the nonfund -- the way the disclosure and the reporting is, it is nonperforming advances. So we always -- all banks when they report their nonperforming advances, it is only the fund-based advances, which get reported as part of that. Separately, we disclosed to you the nonfund outstanding that we have to NPA accounts. So clearly, the IL&FS, the loan account is a nonperforming. And the nonfund part also is a part of the NPA. It's just that the disclosure on nonperforming advances is only for advances and that's the reason for the separate disclosure on that. In terms of the sugar sector, company where there was a change in management, as you would be aware, there would have been a restructuring as a part of the change in management within the RBI guidelines. And the upgrade, which happens in such cases, typically, after a period of time, unless there's a refinancing or something which happens on this case. We'll have to see how that plays out. So it may not be an immediate upgrade which happens here, but this has been classified NPA in line with the RBI's direction and their interpretation of the guideline. On Jet Airways, first thing is that we never really had a very material exposure in the context of our balance sheet or our overall exposure. So without getting into whether we hold 80%, 90%, 100%, because we don't disclose that on a company-specific basis, I can assure you that going forward, that would -- it would really have no impact on the balance sheet or the P&L for the bank in terms of both the fund-based exposure that we have and any nonfund-based exposure that also we may have.

[Amit Premchandani, Fund Manager]

And the guidance on coverage, are you comfortable with 70% since you have mentioned you will provide 120 to 130 basis point next year, something to do with increasing coverage? Or do you expect slippage run rate to be around 2% and, hence, 120, 130 basis point?

[Rakesh Jha, Chief Financial Officer]

In terms of the coverage at 70% without considering technical write-offs, one would really expect the recoveries of net amount to be there. So I don't think -- on overall basis, of course, the timing of recoveries can vary and can vary a lot, as we have seen in the last couple of years. But the 70% is quite comforting for us that going forward the impact from this book should be -- should not be meaningful for us. So the provisioning, which we are talking about, would largely come from the new NPA additions that we see. And to some extent, there will still be some aging provisions on the existing book. And that's why we had said that the provisioning in FY 2020, will still be somewhat higher than the normalized level.

[Operator]

The next question is from the line of Kunal Shah from Edelweiss.

[Kunal Shah, Associate Director]

So firstly, in terms of the...

[Operator]

Excuse me, this is the operator. Mr. Shah, may we request you to speak closer to the phone?

[Kunal Shah, Associate Director]

Yes. Firstly, in terms of the operating expenses and cost to income, so that's slightly been up and we are seeing almost 20% growth in the OpEx. While there has not been significant branch additions on investment in the franchise as such, so where do we see the overall cost to income settling down for us?

[Rakesh Jha, Chief Financial Officer]

So on the expenses, I would urge you to look at the full year trend, which is there, which is around the 15% growth. And like we have been seeing for the last 2 or 3 quarters, that, clearly, we will continue to make investments be it in people, be it in technology, be it in distribution or brand, so that will continue. And what we will aim for is to grow our revenues at a faster pace than the growth in expenses. So the trend that you see in Q4, I talked about the fact that the employee expenses, year-on-year for Q4, are at about 24.4% growth. And if you look at the nonemployee, it's about 16.9%. So that's a better trend to look at would be the FY '19 growth, which is around 15%, both in terms of the employee expenses as well as on the nonemployee expenses part. But yes, we should expect a midteens kind of growth in expenses. And we would try and aim for the higher growth in our revenues in terms of NII and the fee income.

[Kunal Shah, Associate Director]

So cost to income may be around about 43% to 45-odd percent, is what we are looking? Or maybe we could see further improvement from those levels, what you reported in the...

[Rakesh Jha, Chief Financial Officer]

That we will see that it will be an outcome. I think what we are looking at is that we have to make the expenses that we require to build a bank for the future. And while doing that, we will try and ensure that the revenues grow at a faster pace than that. So that will result in a cost-to-income ratio. We don't have any specific target there for cost-to-income ratio.

[Kunal Shah, Associate Director]

Okay. And secondly, in terms of ROE, so margins, maybe there was some one-off off there but otherwise settling at a better level, growth has picked up during the quarter. Now credit cost would also tend to normalize. So in terms of the ROE target, maybe do we want to revise it? Or we are still looking at only towards the back end of this fiscal wherein we see it moving towards more than 15%...

[Rakesh Jha, Chief Financial Officer]

So I think as Sandeep mentioned that we will articulate the medium-term ROE target as we start delivering normalized profits during the current year. Because if you look at Q4, currently, we are at 3%, 4% for the full year, 3% to 4% ROE. So we would wait for the next 2, 3 quarters to get to some kind of a normalized profit and then articulate the medium-term ROE target. From the near term, we continue to be committed to the consolidated ROE target of 15% by June of 2020.

[Kunal Shah, Associate Director]

Okay. And on the power sector side, there is decline in the exposure quarter-on-quarter to the extent of almost like INR 9000 odd-crores. So is this some major repayment which has happened in a particular account? Or what is actually leading to this?

[Rakesh Jha, Chief Financial Officer]

So the decrease that we have seen is primarily coming from some prepayment and sell-downs, especially in a couple of highly-rated PSU entities that we would have done in the normal course, the prepayment that we would have received there or sell-down as a part of our portfolio management. Nothing specific to read into that.

[Kunal Shah, Associate Director]

Okay. Nothing to...

[Rakesh Jha, Chief Financial Officer]

There's no large recovery, which has come out -- anything of that on a stressed loan there.

[Operator]

[Operator Instructions] We'll move to the next question from the line of Manish Karwa from Deutsche Bank.

[Manish J. Karwa, Research Analyst]

My question is on margins. Given the fact that this quarter had a somewhat higher slippage compared to the last 1 or 2 quarters, were there interest rate reversals also which impacted NIMs on the negative side during this quarter?

[Rakesh Jha, Chief Financial Officer]

Nothing much per se because if you look at the NPA addition trend, if you keep out the sugar account that we talked about, which anyway is -- paying on that, nothing significant in terms of reversals, I would say, in terms of comparison to the earlier quarters and this quarter.

[Manish J. Karwa, Research Analyst]

Okay. And the overseas NIM, what would the steady-state NIM, assuming all these one-offs are not there? There is no NPA happening and there is no additional collection that happens on account of that.

[Rakesh Jha, Chief Financial Officer]

Yes. So I think, last quarter also, Manish, we said that if it does not look good, but it is virtually 0 if you were not to consider any of the interest collections. And that's where we are in the March quarter. But again, I would reiterate that it is because we have not been growing that book then we have had NPAs there. So that's how it kind of turns out, unless we grow that portfolio. But overall, the proportion of the overseas loan book in our total loans had also been coming down during this period. So the overall margins have been positive. And even on the overseas business going forward, we are reorienting a lot towards the NRI deposit, NRI remittance fees. Of course, we will still grow the loan portfolio, but the primary focus is more on the retail opportunity through the NRI segment for us.

[Manish J. Karwa, Research Analyst]

Okay. And just 2 small questions on asset quality. On the sugar account, how much provisions did we make?

[Rakesh Jha, Chief Financial Officer]

We have not disclosed that separately. Again -- you would...

[Manish J. Karwa, Research Analyst]

This could be like a 2-year NPA, going back in time?

[Rakesh Jha, Chief Financial Officer]

So as I was saying that if you look at this was -- under a change in management, typically, there is a restructuring, which happens -- which would have happened in this case also. And at that point of time itself the bank would have taken provisions, as per the sacrifice, which was their reward. So we would already be carrying provisions on this and incremental provision because of NPAs would be a smaller amount.

[Manish J. Karwa, Research Analyst]

Okay. And the negative tax rate, is it to do with the higher write-off that we made during this quarter? Or...

[Rakesh Jha, Chief Financial Officer]

So that is more a -- so the tax provision that we make is based on the estimated income and income composition that we have for the year in June, September and December quarter. At March, we do it based on the actual income and the actual income composition, which is there. So indeed, even when we had looked at, state tax in September or December, we would have considered an amount of write-off to be there. So it's more just the final numbers being somewhat different than what we had initially estimated. So again, I would say nothing much to read into there.

[Manish J. Karwa, Research Analyst]

And just, lastly, the general provision, you mentioned is about INR 29 billion, which is on a standard asset. So what is the amount of the specific provision on standard assets that you hold?

[Rakesh Jha, Chief Financial Officer]

Specific provisions will not be much, actually.

[Manish J. Karwa, Research Analyst]

Okay. But there would be some provisions against restructured loans, these are small numbers?

[Rakesh Jha, Chief Financial Officer]

The restructured loans itself, Manish, INR 352 crores now, but those are small amounts. And they are like -- so nothing significant. We'll have some provision maybe INR 4 billion to INR 5 billion, but nothing which is significant.

[Operator]

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

[Nitin Kumar Aggarwal, Research Analyst]

So my first question is if you can share some color on the granularity of your BB and below portfolio, like, how much is the collective size of top 3 or 5-odd accounts there? This quarter, barring the sugar account, almost 100% of corporates, which is [indiscernible] from this portfolio? And secondly, why are we going so aggressive on PCR improvement? Is there some unknown that we are still worried of and, thus, [ strengthening ] the coverage at such a rapid rate?

[Rakesh Jha, Chief Financial Officer]

So on the first one, no, we have not disclosed any top 3 or something, but I think what we have said is that we have INR 78 billion of outstanding to BB and below, which is more than -- individually more than INR 1 billion each. So if you -- and the rest of it is actually less than INR 1 billion, which is about INR 50 billion. So we will have 2 or 3 accounts, for example, which would be more than INR 6 billion, maybe 3 or 4 accounts. We have talked about that in the past, which will be there. We have not disclosed, together, what the size of that is or individually. But yes, there will be 3 or 4 accounts, which will be more than INR 6 billion in the BB and below portfolio. Your second question was on?

[Nitin Kumar Aggarwal, Research Analyst]

Second was on why ICICI being so aggressive on PCR?

[Rakesh Jha, Chief Financial Officer]

On PCR, actually, I think, we had articulated earlier also that we are looking at 70% coverage ratio as something that we will reach. A lot of this is actually to do with just the aging of the NPLs and then you have the security valuations, which kind of depreciate over time as resolutions don't happen. So a lot of this is to do with that as well. It's not that we have some, kind of, gone out of our way and made a lot more provisions. The other reason also is that we have seen some amount of resolutions also coming in, in FY '19. So 70%, excluding technical write-off, is something which gives us comfort and we have talked about in the past, but it's not that we have taken some huge extra provisions to get there.

[Nitin Kumar Aggarwal, Research Analyst]

Right. And lastly, what's the outlook on the branch expansion plans, because right on deposit side, we have introduced new products to spruce up that growth. But on branches, we have been like going almost stable for last 2 years now. So what is the outlook there?

[Anup Bagchi, Head of Retail Banking & Executive Director]

On the branch -- this is Anup here. On the branch, we had an open mind. Wherever there is economic activity, we will set up a branch. The branches may not be in a very large format branches. It may be a smaller formats at different places. So our mind is open, wherever we see an opportunity of economic activity we do. What we are certainly doing is optimizing the portfolio of the branches that we are -- that we have by shifting the branches to better and better economic activity area and making sure that branches are productive and they are profitable.

[Operator]

The next question is from the line of Pavan Ahluwalia from Laburnum Capital.

[Pavan Ahluwalia, MD & Director]

It was very helpful a couple of years ago when you dimensioned the stress that the bank had in terms of the exposure to certain key stress sectors in the economy. We're now seeing concerns around a new set of sectors, NBFCs, HFCs, possibly, builder finance and in some cases mortgage loans that may effectively end up being builder finance. Have you thought about potentially putting out more granular information, giving us a sense of what your exposure is within these categories, so that in the event that we see stress developing in these categories, we have some sense of how the bank's portfolio perform in these circumstances? So if you take things like Reliance, Home Finance, Reliance Commercial Finance, the DHFL, a lot of names that have been [ reused ] lately. It would be helpful to have some sense of how your exposure breaks down across different types of NBFCs, different types of builder, et cetera?

[Rakesh Jha, Chief Financial Officer]

So what we do disclose, and that's what we had thought will be good, is from June quarter, is overall rating-wide distribution of the portfolio, plus the BB and below rated portfolio, which is there, which would include any of the stress accounts in the sectors that you are referring to. And that's -- it's an internal rating, which is dynamic. So we will see movements in and out of that portfolio. We talked about the airline, for example, which moves into that segment maybe in the December quarter. So that is the key disclosure that we make of INR 17,500 crores, INR 175 billion of BB and below. In addition to that for all the sectors that you have mentioned, we have given our aggregate loans and nonfund outstanding for NBFCs, HFCs, the builder portfolio, the Kisan credit card portfolio. So the aggregate for each of these sectors we have given. And any stress, which is there, gets reflected in our BB and below portfolio. You know maybe going forward, we will see if we can do any further disclosure, but the only thing is that the stress factor at various points of time can keep on changing. People will have different interpretations of that. So we believe, on an overall basis, disclosing the BB and below portfolio, plus the movement in that portfolio on a quarter-on-quarter basis, provide the best color on the portfolio.

[Pavan Ahluwalia, MD & Director]

And have you seen an increase in stress or an increase in addition to the BB, internally-rated BB portfolio from the NBFC, HFC, builder finance book?

[Rakesh Jha, Chief Financial Officer]

So we have seen -- what I mean is builder finance, we would have seen, like, in the June quarter itself, we also had some slippages from that portfolio. Nothing significant, they were -- those were granular accounts. But otherwise, you would have seen accounts move into that. Specifically, on NBFC, HFC, I don't want to mention any numbers or names, but as I said, if we see any -- if we have any downgrades by the internal listing, we would -- it would be shown as part of the BB and below portfolio.

[Operator]

The next question is from the line of Jai Mundhra from B&K Securities.

[Jai Mundhra, Research Analyst]

Sir, in the opening remarks Andy sir mentioned that now you're seeing that NPA should be stabilizing at around these levels. And if I were to look at the corporate slippages, x of the sugar account, they're around INR 1,800-odd crores, and versus our, let's say, our disclosed BB and below book of around INR 175 billion. So how should we read these 2 data points, as NPAs stabilizing and now the stress book still at INR 175-odd billion? So do you see maybe after 4 quarters, this BB and below pool part of it is getting slipped, part of it is getting upgraded? Or do you see -- how do you see these 2 things?

[Rakesh Jha, Chief Financial Officer]

So the BB and below book, if you see at INR 17,500 crores, is now about 3% of our -- or maybe a bit less of our total loans. So as a part of any portfolio, there will always be something which is BB and below. And there will always be movements into the BB and below portfolio because of downgrades, because of upgrades on the NPA category, and slippages happen. So it's more of an ongoing thing. I think -- and the book is reasonably granular now compared to what it was a couple of years back. So you have to look at this in the -- in that overall context, plus there are, of course, recoveries also that will come in. So what we are seeing is that the gross NPA additions in FY '19 itself has stabilized a lot. They're down from INR 29,000 crores to INR 11,000 crores. So going forward, we will see some increase, for example, in retail NPAs, reflecting the growth in the retail portfolio, the composition of the portfolio. And we will see some decline on the corporate and the SME side as well. And it's not that our BB and below portfolio will, at any point of time, become 0 or become even 1% of our portfolio, because there will be movement there. And these are loans, which are today performing, they're paying their dues. Maybe in some cases, with delays, but, otherwise, these are operating, performing companies, which are there.

[Jai Mundhra, Research Analyst]

Sure, sir. And second and last thing, sir, if you can provide some more color on the NBFC, HFC and builder portfolio in terms of the rating -- I mean the rating within that sector or within that builder portfolio as a commercial real estate, how much is -- still there is a project risk? Or any more details there?

[Rakesh Jha, Chief Financial Officer]

So on the builder portfolio, the comfort that we derive is that it is well spread across builders and largely restricted. Any exposure that is slightly high would be on very well-established builders. As I said, we have seen some slippages in June quarter, and we have been closely monitoring the portfolio. Since then, other than very small slippage here or there, the portfolio has been stable. But yes, overall, there is a concern on the portfolio at a system level, and we are monitoring it closely. On NBFC and HFC, it's very difficult to give further granularity. We give our total outstanding on a quarterly basis. The increase that we have seen, for example, in the March quarter, is largely to very well-rated established entities. And the -- again, the exposure, the larger exposure that we have will all be to very well-rated, very well-established NBFC, HFC with very strong backgrounds. Will we have exposure here or there, which is marginal in nature, which could be potentially under stress? That is always a possibility, but overall, we are very comfortable on the portfolio.

[Jai Mundhra, Research Analyst]

Sure, sir. And just a clarification, you mentioned the recent rating action, which has happened to some of the -- to one of the large NBFC in one of the stress group that you feel is already taken into your BB and below book, which is being reflected in INR 175-odd billion.

[Rakesh Jha, Chief Financial Officer]

You're talking about which listing?

[Jai Mundhra, Research Analyst]

So you said that all the stress on the rating action that has happened of late, that is now being reflected in the standard BB and below book. So I was just checking if the rating action that has happened in the month of April, I believe, and maybe there was concern earlier also. Is that a part of BB and below book now?

[Rakesh Jha, Chief Financial Officer]

We disclose our book on a quarterly basis. The book is as of March 31. I would not want to go into individual borrowers, how they are categorized. As and when there is any downgrade that we have internally, we put that in that portfolio and disclose it. So that is the way we are doing it. We will not be able to comment on individual exposure as to where they are placed. As I said, it's -- on an overall basis, we are quite comfortable with the NBFC and the HFC portfolio. If there are any downgrades, we will reflect that and we'll show it as a part of the portfolio.

[Operator]

The next question is from the line of Anand Dama from Emkay Global.

[Anand Dama, Research Analyst]

I wanted to understand that the overseas book is now roughly about 10%, 10.5% of the book. Retail is growing pretty strong for us. And I'm sure the corporate also will pick up, that's what you are already saying, that you want to grow that [ health of the ] corporate book. So what kind of a growth number should we expect going forward in FY '20 and FY '21?

[Rakesh Jha, Chief Financial Officer]

I think you should look at the FY '19 number of domestic loan growth, which was around 17%. If you look at -- this is the growth in the net book, we have had a very high level of provision. If you look at it on a gross basis, it's around 19%. So that is an indicator of where we have been growing. So we don't have any specific targets on loan growth across segments or overall. Depending on what the market opportunity is, what is the competitive level in terms of pricing and profitability that we see, and of course, most importantly, how is the funding profile that we are able to get and maintain on CASA and retail term deposits. That will determine the growth that you see. So it should be a healthy growth. We have not put out any specific numbers on that.

[Anand Dama, Research Analyst]

Sir, do you think that rundown on the overseas corporate book, should be now done?

[Rakesh Jha, Chief Financial Officer]

So even if it is not -- even if it is done, we don't really see that portfolio growing significantly. It would still be, I guess, flat or a marginal, kind of.

[Anand Dama, Research Analyst]

Sure. Sir, another thing is on the asset qualities. So are you picking any signs of stress, particularly, into our unsecured loan portfolio or into our vehicle financing portfolio as such?

[Rakesh Jha, Chief Financial Officer]

On the -- overall, the retail portfolio, we are finding the trends to be quite stable in terms of the delinquencies across portfolio. In the past, we have mentioned about the Kisan credit card portfolio as one portfolio where we have seen some increase in delinquencies. Other than that, trends are quite stable. We, of course, are very closely monitoring the entire portfolio, including the unsecured personal loan and credit card portfolio. But as I said earlier, our portfolio of unsecured and personal loans and credit cards is only 7%, 7.5% of our total portfolio. Our market share there is not a very large market share. It is in no way commensurate to the liability franchise that we have. Incrementally, what we are growing, a lot of it is coming from our existing customer franchise. So you will have to look at our portfolio in that context. Nevertheless, we are very closely monitoring the portfolio, and we are not seeing any meaningful change in trends in terms of delinquencies on a static basis or on live basis.

[Anand Dama, Research Analyst]

Sure. And sir, the question to Mr. Bakhshi. So basically, as you said, that we have actually implemented now the role-based designations. And there are other structural changes also, which ICICI is now undertaking. So how is the response internally among the employees, particularly, post the March performance and appraisals and all would have been done?

[Sandeep Bakhshi, MD, CEO & Executive Director]

We're inclined to believe that it is positive because what happens is that a large number of people sees the opportunity to have a much wider participation in the roles and opportunities. So I would -- I'm sort of optimistic about the role-based changes that we have made.

[Anand Dama, Research Analyst]

Okay. So in that case we shouldn't expect any big ticket changes happening into the top line?

[Sandeep Bakhshi, MD, CEO & Executive Director]

This is the biggest change because at the end of the day, the change actually goes across the length and breadth of the company. And it's a deep structural change in terms of the -- as I said from the standpoint of roles, designations and the way they function internally.

[Operator]

Thank you. With this, I now hand the conference over to the management for the closing comments. Over to you, sir.

[Rakesh Jha, Chief Financial Officer]

Thank you. And if there are any residual queries, you can always reach out to me or Anindya.