ICICI Bank Ltd

NSE:ICICIBANK

Earnings Call Transcript 2023-Q4

[Operator]

Ladies and gentlemen, good day and welcome to the ICICI Bank's Q4 FY '23 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. Sandeep Bakhshi, Managing Director and CEO of ICICI Bank. Thank you and over to you, sir.

[Sandeep Bakhshi, executive]

Good evening to all of you and welcome to the ICICI Bank earnings call to discuss the results for Q4 of financial year 2023. Joining us today on this call are Anup, Sandeep Batra, Rakesh, Anindya and Abhinek. The Indian economy has continued to show resilience amidst a volatile global environment. The underlying growth momentum is visible in increasing steel and cement output, GST collections, capacity utilization, rising demand for electricity and travel. The government led CapEx cycle is continuing. Financial stability has been maintained and inflation elevated has moderated from its peak. We will continue to monitor these developments closely. Our strategic focus is growing our risk calibrated core operating profit through the 360-degree customer-centric approach and by serving opportunities across customer segments and ecosystems. We continue to operate within our strategic framework and strengthen our franchise, enhance our delivery and servicing capabilities and expand our technology and digital offerings.

The core operating profit increased by 36.4% year-on-year to INR 138.66 billion in this quarter and increased by 28.1% year-on-year to INR 491.39 billion in financial year 2023. Core operating profit less provisions grew by 34.7% year-on-year to INR 122.47 billion in this quarter and increased by 43% year-on-year to INR 424.73 billion in financial year 2023. The profit after tax grew by 30% year-on-year to INR 91.22 billion in this quarter. For the fiscal year 2023, the profit after tax grew by 36.7% year-on-year to INR 318.96 billion. The Board has recommended a dividend of INR 8 per share for financial 2023 subject to requisite approvals. Total deposits grew by 10.9% year-on-year and 5.2% sequentially at March 31, 2023. Term deposits increased by 17.1% year-on-year and 4.3% sequentially at March 31, 2023. During the quarter, the average current and savings account deposits grew by 8% year-on-year and 1.2% sequentially. The liquidity coverage ratio for the quarter was about 124%.

The retail loan portfolio grew by 22.7% year-on-year and 5.4% sequentially at March 31, 2023. Including nonfund based outstanding, the retail portfolio was 45.7% of the total portfolio. The business banking portfolio grew by 34.9% year-on-year and 7.8% sequentially. The SME portfolio grew by 19.2% year-on-year and 6.2% sequentially. The growth in SME and business banking portfolios was driven by leveraging our branch network and digital offerings such as InstaBIZ and Merchant Stack. The domestic corporate portfolio grew by 21.2% year-on-year and 3.8% sequentially at March 31, 2023 driven by growth across well-rated financial and nonfinancial corporates. The rural portfolio grew by 13.8% year-on-year and 5.5% sequentially. The domestic loan portfolio grew by 20.5% year-on-year and 5% sequentially. The overall loan portfolio grew by 18.7% year-on-year and 4.7% sequentially at March 31, 2023.

We continue to enhance our digital offerings and platforms to onboard new customers in a seamless manner, provide them end-to-end digital journeys and personalized solutions and enable a more effective data driven cross-sell and upsell. We have shared some details on our technology and digital offerings in Slides 17 to 28 of the investor presentation. The net NPA ratio declined to 0.48% at March 31, 2023 from 0.55% at December 31, 2022 and 0.76% at March 31, 2022. During the quarter, there were net additions of INR 0.14 billion to gross NPAs excluding write-offs and sales. The provisioning coverage ratio on NPAs was 82.8% at March 31, 2023. The total provisions during the quarter were INR 16.19 billion or 11.7% of core operating profit and 0.7% of average advances. This includes contingency provision of INR 16 billion made on a prudent basis. The bank holds contingency provisions of INR 131 billion or about 1.3% of total loans as of March 31, 2023.

The capital position of the bank continued to be strong with a CET1 ratio of 17.12%, Tier 1 ratio of 17.6% and total capital adequacy ratio of 18.34% at March 31, 2023 after reckoning the impact of proposed dividend. Looking ahead, we see many opportunities to drive growth in the risk calibrated core operating profit. We believe our focus on Customer 360, extensive franchise and synergy and collaboration within the organization backed by our digital offerings and process improvement and service delivery initiatives will enable us to deliver customized solutions to customers in a seamless manner and grow market share across key segments. We will continue to make investments in technology, people, distribution and building our brand. We will remain focused on maintaining a strong balance sheet with prudent provisioning and healthy levels of capital. The principles of Fair to Customer, Fair to Bank and One Bank, One Team, One ROE will continue to guide our operations. We remain focused on delivering consistent and predictable returns to our shareholders.

I now hand the call over to Anindya.

[Anindya Banerjee, executive]

Thank you, Sandeep. I will talk about balance sheet growth, credit quality, P&L details, growth in digital offerings, portfolio trends and the performance of subsidiaries. On balance sheet growth, Sandeep covered the loan growth across various segments. Coming to the growth across retail products. The mortgage portfolio grew by 17.6% year-on-year and 4% sequentially. Auto loans grew by 23.2% year-on-year and 5.1% sequentially. The commercial vehicles and equipment portfolio grew by 5.2% (sic) [ 5.3% ] year-on-year and 3.8% sequentially. Growth in the personal loan and credit card portfolio was 43.2% year-on-year and 9% sequentially. This portfolio was INR 1,258.96 billion or 12.3% of the overall loan book at March 31, 2023. The overseas loan portfolio in US dollar terms declined by 23.8% year-on-year and 2.6% sequentially at March 31, 2023. The overseas loan portfolio was about 3.3% of the overall loan book at March 31, 2023.

The non-India linked corporate portfolio declined by 52.3% or about USD 336 million on a year-on-year basis. Of the overseas corporate portfolio; about 89% comprises Indian corporates, 7% is overseas corporates with Indian linkage, 2% comprises companies owned by NRIs or PIOs and the balance 2% is non-India corporates. Credit quality; there were net additions of INR 0.14 billion to gross NPAs in the current quarter compared to INR 11.19 billion in the previous quarter. The net additions to gross NPAs were INR 8.73 billion in the retail, rural and business banking portfolio and there were net deletions from gross NPAs of INR 8.59 billion in the corporate and SME portfolio. The gross NPA additions were INR 42.97 billion in the current quarter compared to INR 57.23 billion in the previous quarter. The gross NPA additions from the retail, rural and business banking portfolio were INR 40.20 billion and from the corporate and SME portfolio were INR 2.77 billion.

Recoveries and upgrades from gross NPAs, excluding write-offs and sale, were INR 42.83 billion in the current quarter compared to INR 46.04 billion in the previous quarter. There were recoveries and upgrades of INR 31.47 billion from the retail, rural and business banking portfolio and INR 11.36 billion from the corporate and SME portfolio. The gross NPAs written off during the quarter were INR 11.58 billion. There was sale of NPAs of INR 2.01 billion for cash in the current quarter compared to no sale of NPAs in the previous quarter. Net NPAs declined by 25.9% year-on-year and 8% sequentially to INR 51.55 billion at March 31, 2023. The nonfund based outstanding to borrowers classified as nonperforming was INR 37.8 billion as of March 31, 2023 compared to INR 38.69 billion as of December 31, 2022. The bank holds provisions amounting to INR 20.05 billion against this nonfund based outstanding.

Total fund-based outstanding to all standard borrowers under resolution as per various guidelines declines to INR 45.08 billion or about 0.4% of the total loan portfolio at March 31, 2023 from INR 49.87 billion as of December 31, 2022. Of the total fund-based outstanding under resolution at March 31, 2023 INR 38.33 billion was from the retail, rural and business banking portfolio and INR 6.75 billion was from the corporate and SME portfolio. The bank holds provisions of INR 13.8 billion against these borrowers, which is higher than the requirement as per RBI guidelines. Moving on to the P&L detail. Net interest income increased by 40.2% year-on-year to INR 176.67 billion in the quarter. The net interest margin was 4.9% in this quarter compared to 4.65% in the previous quarter and 4% in Q4 of last year. The net interest margin was 4.48% in FY 2023. The impact of interest and income tax refund on net interest margin was 0 in Q4 of this year and in the previous quarter compared to 1 basis point in Q4 of last year.

The domestic NIM was at 5.02% this quarter compared to 4.79% in the previous quarter and 4.12% in Q4 of last year. Of the total domestic loans: interest rates on 46% are linked to the repo rate, 3% to other external benchmarks and 20% to MCLR and other older benchmarks, the balance 31% of loans have fixed interest rates. The cost of deposits was 3.98% in this quarter compared to 3.65% in the previous quarter. The sequential increase in NIM reflects the impact of increase in interest rate on loan yields. While repricing of deposits occurs with a lag, we expect to see the cost of deposits continuing to increase in future quarters. Noninterest income excluding treasury income grew by 11.3% year-on-year to INR 51.27 billion in Q4 of 2023. Fee income increased by 10.6% year-on-year to INR 48.30 billion in this quarter. Fees from retail, rural, business banking and SME customers grew by 14.8% year-on-year and constituted about 80% of the total fees in this quarter.

Dividend income from subsidiaries and associates was INR 2.73 billion in this quarter compared to INR 2.32 billion in Q4 of last year. The dividend income this quarter included interim dividend from ICICI Prudential Asset Management and dividend from ICICI Bank Canada. On cost, the bank's operating expenses increased by 26.7% year-on-year in this quarter. The bank had about 129,000 employees at March 31, 2023. The employee count has increased by about 23,200 in fiscal 2023. Employee expenses increased by 40% year-on-year in this quarter. During the quarter, the bank took a more conservative approach on certain assumptions underlying the provisions for retirement benefit obligations, which resulted in an additional expense of INR 3.35 billion. Nonemployee expenses increased by 19.6% year-on-year in this quarter, primarily due to retail business related expenses and technology expenses. Our branch count has increased by about 480 in the last 12 months and we had 5,900 branches as of March 31, 2023.

The technology expenses were 9.3% of our operating expenses in this fiscal year compared to about 8.6% in the last fiscal year. The core operating profit increased by 36.4% year-on-year to INR 138.66 billion in this quarter. Excluding dividend income from subsidiaries and associates, the core operating profit grew by 36.9% year-on-year. The core operating profit increased by 28.1% year-on-year to INR 491.39 billion in the full year FY 2023. The total provisions during the quarter was INR 16.19 billion or 11.7% of core operating profit and 0.7% of average advances. These include contingency provisions of INR 16 billion made on a prudent basis. The total provisions during FY 2023 decreased by 22.9% year-on-year to INR 66.66 billion. During the year, the bank made contingency provisions of INR 56.5 billion and the impact of change in provisioning norms for corporate SME and business banking NPAs to make them more conservative was about INR 11.96 billion.

The provisioning coverage on NPAs was 82.8% as of March 31, 2023. In addition, we hold INR 13.8 billion of provisions on borrowers under resolution. Further the bank holds contingency provision of INR 131 billion as of March 31, 2023. At March-end, the total provisions other than specific provisions on fund-based outstanding to borrowers classified as nonperforming was INR 226.35 billion or 2.2% of loans. Core operating profit less provisions grew by 34.7% year-on-year to INR 122.47 billion in Q4 of this year. There was a treasury loss of INR 0.40 billion in Q4 compared to a gain of INR 1.29 billion in Q4 of the previous year. The tax expense was INR 30.85 billion in this quarter compared to INR 22.05 billion in the corresponding quarter last year. The profit after tax grew by 30% year-on-year to INR 91.22 billion in this quarter. The profit after tax grew by 36.7% year-on-year to INR 318.96 billion in FY 2023.

The consolidated profit after tax grew by 27.6% year-on-year to INR 98.53 billion in this quarter. The consolidated profit after tax grew by 35.6% year-on-year to INR 340.37 billion in FY 2023. Moving on to growth in our digital offerings. Leveraging digital and technology across businesses is a key element of our strategy of growing the risk calibrated core operating profit. We continue to see increasing adoption and usage of our digital platform by our customers. There have been more than 9 million activations of iMobile Pay by non-ICICI Bank account holders as of end March. The value of transactions by non-ICICI Bank account holders in Q4 of this year was 1.3x the value of transactions in Q4 of last year. We have seen about 225,000 registrations from non-ICICI Bank account holders on InstaBIZ till March 31, 2023. The value of financial transactions on InstaBIZ grew about 22% year-on-year in this fiscal year.

We have created more than 20 industry specific stacks, which provide bespoke and purpose-based digital solutions to corporate clients and their ecosystems. Our Trade Online and Trade Emerge platforms allow customers to perform most of their trade finance and foreign exchange transactions digitally. About 70% of trade transactions were done digitally in Q4 of this year. The value of transactions done through these platforms in Q4 of this year was 1.7x the value of transactions in Q4 of last year. Recently the bank launched Startup Ecosystem Banking to cater to the banking needs of startups across their lifecycle through its domestic and international network and branch at GIFT City. The bank offers comprehensive solutions in the areas of treasury, transaction banking, lending, managing foreign direct investments and regulatory compliances along with personal banking services for employees and founders.

During the quarter, the bank launched an array of digital solutions for capital market participants and clients of custody services. These solutions enabled various participants; including brokers, portfolio management service providers, foreign portfolio investors, foreign direct investors and alternative investment funds; to seamlessly meet all their banking requirements. We have provided details on our retail business banking and SME portfolio in Slides 34 to 45 of the investor presentation. The loan and nonfund based outstanding to performing corporate and SME borrowers rated BB and below was INR 47.04 billion at March 31, 2023 compared to INR 55.81 billion at December 31, 2022 and INR 108.08 billion at March 31, 2022. The sequential decline was primarily due to prepayments and repayments during the quarter. The total outstanding of INR 47.04 billion at March 31, 2023 includes INR 7.74 billion of loan and nonfund based outstanding to borrowers under resolution.

The maximum single borrower outstanding in the BB and below portfolio was less than INR 5 billion at March 31, 2023. At March 31, 2023 we held provisions of INR 4.09 billion on the BB and below portfolio compared to INR 4.48 billion at December 31, 2022. This includes provisions held against borrowers under resolution included in the BB and below portfolio. The total outstanding to NBFCs and HFCs was INR 834.90 billion at March 31, 2023 compared to INR 765.4 billion at December 31, 2022. The total outstanding to NBFCs and HFCs were about 8% of our advances at March 31, 2023. The sequential increase in the outstanding to NBFCs and HFCs was mainly due to disbursements to entities having long vintage and entities owned by well-established corporate groups. The builder portfolio; including construction finance, lease rental discounting, term loans and working capital; was INR 398.87 billion at March 31, 2023 compared to INR 360.11 billion at December 31, 2022. The builder portfolio is about 4% of our total loan portfolio.

Our portfolio largely comprises well-established builders and this is also reflected in the sequential increase in the portfolio. About 4.6% of the builder portfolio at March 31, 2023 was either rated BB and below internally or was classified as nonperforming compared to 5.6% at December 31, 2022. Finally, moving on to subsidiaries and key associates. The details of the financial performance of subsidiaries and key associates are covered in Slides 49 to 51 and 71 to 76 in the investor presentation. The VNB margin of ICICI Life increased from 28% in FY 2022 to 32% in FY 2023. The value of new business increased by 27.8% year on year to INR 27.65 billion in FY 2023. The annualized premium equivalent grew by 11.7% year-on-year to INR 86.40 billion in FY 2023. The profit after tax of ICICI Life increased by 7.6% year-on-year to INR 8.11 billion in FY 2023 compared to INR 7.54 billion in FY 2022. The profit after tax grew by 27% year-on-year to INR 2.35 billion in Q4 this year compared to INR 1.85 billion in Q4 last year.

The gross direct premium income of ICICI General was INR 210.25 billion in FY 2023 compared to INR 179.77 billion in FY 2022. The combined ratio was 104.5% in FY 2023 compared to 108.8% in FY 2022. The profit after tax was INR 17.29 billion in FY 2023 compared to INR 12.71 billion in FY 2022. The profit after tax in FY 2023 includes reversal of tax provisions of INR 1.28 billion. The profit after tax was INR 4.37 billion this quarter compared to INR 3.13 billion in Q4 last year. The profit after tax of ICICI AMC was INR 3.87 billion (sic) [ INR 3.85 billion ] in this quarter compared to INR 3.57 billion in Q4 of last year.

The profit after tax of ICICI Securities as per Ind AS on a consolidated basis was INR 2.63 billion in this quarter compared to INR 3.40 billion in Q4 of last year. ICICI Bank Canada had a profit after tax of CAD15.6 million in this quarter compared to CAD4.3 million in Q4 last year. ICICI Bank UK had a profit after tax of USD5 million this quarter compared to USD3.1 million in Q4 of last year. As per Ind AS, ICICI Home Finance had a profit after tax of INR 0.96 billion in the current quarter compared to INR 0.53 billion in Q4 of last year.

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

[Operator]

[Operator Instructions] We have our first question from the line of Mahrukh Adajania from Nuvama.

[Mahrukh Adajania, analyst]

Congratulations. My first question is on outlook for margins. Obviously the margin achievement for FY '23 has been phenomenal. Would you have a threshold below which you think margins won't fall? Obviously margins are peakish for the sector. So could you give us a band in which you would like to hold margins even if they are not sustainable at these levels? That's my first question.

[Anindya Banerjee, executive]

I don't think that we can really give a band. Our effort first of all would be to continue to grow our liability franchise in a healthy way across optimizing quantum and cost because that is really the starting point and then price lending in an appropriate fashion while of course looking at the entire ecosystem and customer level profitability. And also manage interest rate risk and earning rate risk on the balance sheet as best we can while having to work with the fact that the requirement of pricing a large part of the lending to external benchmark does create this cyclicality. And then we will see where we emerge out of it. Our endeavor of course would be to protect our operating profitability as far as we can.

[Mahrukh Adajania, analyst]

Sure. And I have another 2 questions. Firstly on OpEx, would you have any branch addition plan or target for next year? How many branches do you plan to add?

[Anindya Banerjee, executive]

So if you see, Mahrukh, this year the pace of branch addition has picked up significantly. We have added 480 branches in the year and out of that, 180 has come in the fourth quarter. So I think that's kind of a starting run rate and we should see significantly higher branch additions next year than what we have seen this year.

[Mahrukh Adajania, analyst]

Okay. And my last question is on the insurance subsidiaries. So after RBI's approval to HDFC yesterday, would you review your plans for your stakes in your insurance subsidiary? I mean how do you view your stakes now after what happened yesterday?

[Anindya Banerjee, executive]

I think we have -- as you may have seen, we have received an extension of the timeline required for compliance with the BR Act to September 2024. So we have sufficient time to think things through and take the appropriate course of action. So that's what we will do.

[Mahrukh Adajania, analyst]

Okay. But there is no firm thought already that you would not now want to increase stakes in subsidiaries or any such thing, right? It's open for review and discussion.

[Anindya Banerjee, executive]

I'll just repeat that we have a 1.5 year to comply with the requirements of the Act, which require us to either be above 50 or below 30. So we'll see over this period of time what to do.

[Operator]

We have our next question from the line of [ Hirenkumar Thakorlal Desai ], an Individual Investor.

[Unknown Attendee]

So I have 3 questions. One has been NIM related question is answered. So deposit growth has [ peaked ] a little bit in comparison to advance growth. So is there some strategy you have in place to kind of...

[Anindya Banerjee, executive]

So I think we have pretty comfortably funded a 20% loan growth with our level of deposit growth while maintaining pretty healthy levels of liquidity. We started the year with significant excess liquidity and as we ramped that down, we have increased the deposit growth. So if you look at the second half of the year, deposit growth has been approximately I think 3x of what it was in the first half and that momentum is continuing. So we don't have any concerns on that front.

[Unknown Attendee]

So the follow-up to that is do we believe that we are somewhere close to peak in deposit rate or bank may help increase it further?

[Anindya Banerjee, executive]

I think that really depends on the policy, how the policy rates move and how different banks position themselves in a competitive context. I think currently for the last couple of months rates have been quite stable and we don't see any major trigger.

[Unknown Attendee]

Okay. And one last question is so we have seen a jump in provision. So is there some sign of asset quality issue that you see or it's purely, I mean, just a prudent provisioning given that we are having very good margins and profitability?

[Anindya Banerjee, executive]

Actually on a full year basis, our provisions have declined by more than 20% and this is despite making contingency provisions on a prudent basis of INR 56.5 billion as well as the impact of the change in our provisioning norms to make them more conservative, which was about INR 12 billion. So excluding these 2, our provisions for the year would actually be negative. So we are not seeing any uptick in provisions at all.

[Unknown Attendee]

Sorry to persist, but my question was more on Q4 of the corresponding [indiscernible].

[Anindya Banerjee, executive]

So again in Q4 we made total provisions of INR 16.19 billion, of which the contingency provision itself was INR 16 billion. So excluding that, the provisions were negligible.

[Unknown Attendee]

No, I get that. But contingency also is I mean just that there is nothing more to read into it.

[Anindya Banerjee, executive]

No, it is a part of our approach of being prudent and strengthening the balance sheet.

[Operator]

We have our next question from the line of Abhishek Murarka from HSBC.

[Abhishek Murarka, analyst]

So the first question is going back to NIM, we see that your yield on funds or yield on advances is still growing at 50 bps, 60 bps Q-o-Q even though your cost of funds now is increasing at a faster pace. So when does this inflection happen? And on an average, do you think in FY '24 over '23 your NIMs will move up still or do you think that on average it would be, let's say, flattish?

[Anindya Banerjee, executive]

So if you look at it, I think in this quarter we had the benefit of repo rate hike which took place in December, which fed through into the external benchmarking portfolio. Our yield on investments has also gone up as we have increased our government bond portfolio at higher yields and we've also seen a repricing of our floating rate bond portfolio. At the same time, the deposit costs have also started to reflect the higher deposit rates or the higher rates at which deposits are being raised incrementally. So I think we would believe that the NIMs are at kind of peak levels and from here, we should see a moderation. Of course it's difficult to give a very precise outlook on that so I wouldn't want to get into the level of NIM for next year. As I said, our focus will be on growing the business in a sustainable way.

[Abhishek Murarka, analyst]

So Anindya, just taking that forward, do you think then the loan growth will become more operative to drive PPOP growth because NIM should largely moderate from here and then there's more pressure to maintain a, let's say, 18%, 19% loan growth and do you think that's possible?

[Anindya Banerjee, executive]

I don't think we would see it as a pressure to do anything. I mean we would believe that there is sufficient opportunity for us to grow and that we are quite comfortable from a funding perspective to support that level of growth. But yes, mathematically growth in earnings would be more driven by growth in the business than any increase in margins for sure.

[Abhishek Murarka, analyst]

Right. And your loan growth outlook for next year, can you share? I mean do you think the system growth is going to slow down from here and how are you going to be placed relative to that?

[Anindya Banerjee, executive]

I think that most of the analysts are predicting or forecasting a slowdown in system growth, which is where we have ended the year at whatever 15%, 16%, may come down by 2 percentage points, 3 percentage points. From our perspective, we continue to see pretty strong momentum across the retail products and that we have seen in the fourth quarter as well. And in certain customer segments such as SME and business banking for example, we continue to have a market share that is lower than our overall market share and there is a higher growth opportunity for us. And for most of these segments, as we spoke about in the call, we believe our product offerings and our digital offerings are pretty strong and we are growing our distribution as well. You would have seen the employee count additions that we have done and what we've spoken about branches. So we are, I would say, pretty optimistic on the growth outlook.

[Abhishek Murarka, analyst]

Sure. So you should be able to hold on to, let's say, current growth rate given all these efforts that you're taking?

[Anindya Banerjee, executive]

We don't target a particular level of loan growth. But I mean I'm not seeing anything today, which suggests that there could be any material drop or that we would not be able to grow our business or that demand would be inadequate.

[Abhishek Murarka, analyst]

Got it. Do you mind if I squeeze in one very quick question, if that's okay?

[Anindya Banerjee, executive]

Yes, please.

[Abhishek Murarka, analyst]

So just on this branch addition, you said it's going to go up significantly. If we look at 480 branches roughly that you have added, that's around 9%, 10% of your opening branch count. Do you think this run rate will go up as in you will end up adding maybe 15% of your current branch count or do you think this run rate remains the same?

[Anindya Banerjee, executive]

No, it could go up as well.

[Abhishek Murarka, analyst]

Okay. And the hiring is in anticipation of that because the employee per branch has gone up?

[Anindya Banerjee, executive]

Yes. So branch, there may not be that way a direct correlation. We would be hiring across a range of functions including for example credit, frontline sales, technology, product teams and so on. But yes, obviously given the level of hiring that we've done in the last 6 months, we would expect those to become productive over the next year.

[Operator]

[Operator Instructions] We have our next question from the line of Kunal Shah from Citigroup.

[Kunal Shah, analyst]

Congratulations on good set of numbers. So firstly on the operating profit given that NIM trajectory could slow down, there could be some moderation in the overall industry-wide credit growth and since we are investing into the franchise as well. So maybe in terms of what we have been highlighting with respect to 20% operating profit growth all through over past several years. Maybe what are the levers available just to ensure that the operating profit growth sustains in that range or there should be definitely a moderation, which we should see over next couple of quarters?

[Anindya Banerjee, executive]

I think what we have seen on the operating profit growth has really been an outcome of business that we have done, underwriting that we have done, our liability profile and our approach to overall profitability. I think when we really adopted operating profit as the main operative metric for us, we were making significant provisions on our historic NPL book and now if we look at it, that is largely addressed. And given the kind of provisioning policies that we have now where there is very little lag between an asset turning delinquent and -- or over 90 day and getting provided for, the operating profit less provisions is a pretty accurate reflector of the earnings of the business or the growth and quality of the business. So that's one thing to keep in mind. Of course as you would know and as we have discussed in the past, the kind of margin expansion that we have seen this year will not be there next year and there will be some pressure on margins, but that hopefully will get addressed along with growth.

[Kunal Shah, analyst]

Are there any levers with respect to either the fee income or maybe some other line items, which can provide incremental delta?

[Anindya Banerjee, executive]

I don't think we are looking at it on a line item theme of fee income. We see a lot of opportunity in the market and that is what we would try to capitalize on and look at the overall kind of earnings performance of the business, including credit costs.

[Kunal Shah, analyst]

Sure. And lastly, in terms of the overall term deposit growth, if you can throw some color in terms of how much has been, say, from the retail side and how much was wholesale because there was a strong growth which was there in this quarter?

[Anindya Banerjee, executive]

We are focused mainly on the retail and more granular deposit growth. We have not really been large takers of high value bulk deposits.

[Kunal Shah, analyst]

Okay. So larger part of the growth is retail?

[Anindya Banerjee, executive]

Yes.

[Operator]

We have our next question from the line of Nitin Aggarwal from Motilal Oswal.

[Nitin Aggarwal, analyst]

Congratulations on very strong performance. So one question is like on the trend in recoveries and upgrades, what is really driving this and what have we changed in our underwriting approach to enable like negligible credit cost on successive basis? While the entire system is reporting a very benign credit cost, but numbers for ICICI with almost 0 to negligible credit cost is way better than everybody else.

[Anindya Banerjee, executive]

See, this year 1 aspect that we have benefited from is pretty strong recoveries on the corporate side. We were able to complete the resolution of some of the older corporate NPLs and that's why we strip out the corporate and retail additions and deletions for you and those deletions on the corporate side would also reflect into some level of write-backs. On the retail side, I think our experience with the portfolio has been pretty good both in terms of the performance in terms of overdues and bounces and so on and at the same time, also in terms of the collections of delinquent accounts. Again because we have accelerated our provisioning on these portfolios significantly, they become delinquent; we provide and then as the collection efforts continue, the customers become regularized again. So when we have a granular portfolio, a lot of delinquency and recovery can happen in a much quicker manner than in a larger chunkier corporate portfolio where it can take several years to resolve an account.

[Nitin Aggarwal, analyst]

Right. And secondly, while Anindya, you talked about the growth opportunities in the retail business, but how do you see the growth prospects in the corporate banking going into FY '24 and FY '25?

[Anindya Banerjee, executive]

Very difficult to predict. I think this year of course as you would have seen, our corporate banking -- our wholesale banking growth has been higher than in the previous years. I think for the system also, there has been a recovery in corporate credit growth I guess post the turn in the monetary environment and some shift from bond markets to banks. We are seeing certain new opportunities for lending in some of the sectors like NBFCs, real estate which has become a significantly stronger sector in the last 3, 4 years. So there are those opportunities. The public sector companies continue to invest as well. So these are some of the opportunities which are there. And we really look at sort of for each corporate client, what is the overall ecosystem opportunity and lending is a part of that.

[Nitin Aggarwal, analyst]

Right. And lastly, if you can just share some color on the treasury losses? This quarter very small treasury loss of INR 40-odd crores. Some split of this if you can share?

[Anindya Banerjee, executive]

So actually we don't really look at booking large treasury gains in our core SLR and other portfolios. We had on other portfolios some profit, but we had a mark-to-market on our security receipts portfolio, which the security receipts with underlying assets that we would have sold to the asset reconstruction companies over the years. So there was a small negative on that account, which gets reflected in the treasury line item.

[Operator]

We have our next question from the line of Saurabh S. Kumar from JPMorgan.

[Saurabh Kumar, analyst]

So just on this [indiscernible] so this 75%, 80% recovery rate that we're seeing in the retail rural business, is that you think normal or is it just sort of COVID we are just experiencing the strong momentum? I'm just asking that the gross number is maybe 2.5% and it is extremely low. So is this net number sustainable is the question?

[Anindya Banerjee, executive]

So I think we have always been saying that the net additions in retail will go up and they have actually gone up. But probably if you look at the gross additions and gross deletions for the quarter, the deletions which are accounted for by very old NPLs would not be much. In fact now we have in addition to pretty accelerated provisioning, we have fairly accelerated write-offs as well. So I think this level of deletions is, I would say, not abnormal. But having said that, as the portfolio grows and seasons, we will see an increase in the net additions as well.

[Saurabh Kumar, analyst]

Okay. Second sir, is on this RIDF so your reduction, which we have seen year-on-year, is this mostly [indiscernible] of loans? The RIDF?

[Anindya Banerjee, executive]

So this is basically the net maturities. So we have had more maturities of our RIDF investment than the incremental investments that we have been called upon to make.

[Saurabh Kumar, analyst]

Okay. So incrementally, you must be meeting the requirements even at this growth. Will that be a fair comment?

[Anindya Banerjee, executive]

So we do meet the overall requirement. We have some shortfalls in a couple of the subcategories and we do have some RIDF calls as well, but those are quite moderate and the maturities out of past years RIDF portfolio have exceeded that.

[Operator]

We'll take our last question for today from M.B. Mahesh from Kotak Securities.

[M. B. Mahesh, analyst]

Anindya, just 2 questions. One, when you look at the mortgage part of the book, could you just tell us how have you kind of worked through the borrowers with respect to the increase in interest rates?

[Anindya Banerjee, executive]

So the standard structure of floating rate home loan in India is that when the interest rate rises, the EMI -- the tenure gets extended subject to certain cutoffs which could be in terms of age or certain criteria that are defined for the various customers. And similarly when the interest rates decline, the tenure gets shorter and customers also understand this cycle pretty well. So in the current cycle of course given the sharp increase in benchmark rates over a relatively short period, a fairly large part of the portfolio would have seen an EMI increase, but that has happened.

[M. B. Mahesh, analyst]

Okay. And a second question is that if you look at the increase in, let's say, CASA ratio, does that growth slowdown reflect anything about the underlying customer profile in the sense that are you seeing salary credits or savings credits kind of significantly slowing down for rural in the portfolio? As a consequence of it, you should see a slowdown in the sector quite soon?

[Anindya Banerjee, executive]

No, I don't think so. I think what has happened is that we had 2 years of extremely strong growth and probably this is the year when our segment of customers has seen a consumption recovery and so on. The second is of course as interest rates go up, you would see some shift from SA to FD. And those seem to be the 2 main factors, the base effect and the rise in interest rates on the savings account side. On the current account side actually when we look at the average growth, it has been a little bit better although again the circumstances in terms of tight liquidity and so on are not that conducive to current account growth, but we have been able to offset some of that with the digital propositions and getting more flow through the bank.

[M. B. Mahesh, analyst]

Perfect. And one last data keeping question. Have you reported the LCR issue?

[Anindya Banerjee, executive]

Yes, I think Sandeep mentioned it. It was 124% for the quarter.

[Operator]

We'll take our one last question from Adarsh Parasrampuria from CLSA.

[Adarsh Parasrampuria, analyst]

[Audio Gap]

[Operator]

I'm sorry, sir, your voice is breaking. I'm sorry, sir, we're unable to hear you?

[Adarsh Parasrampuria, analyst]

So yes, just my question on fees.

[Operator]

We could hear you now. Can you repeat?

[Adarsh Parasrampuria, analyst]

Anindya, if you can, the question is on fees. We did have a bit of clean-out on fees in the sense that we got choosy in selling insurance, we let go of some prepayment charges and all. Just wanted to understand is that part of the base or it still takes a little bit time before we get to normal fee growth?

[Anindya Banerjee, executive]

I would think maybe in the second half, it is largely part of the base. Insurance of course has been something that has been coming down over the last couple of years and the other charges, et cetera, is something that we rationalized through the year. So it should probably be -- we should probably be closer to the base in that way.

[Adarsh Parasrampuria, analyst]

And one question is you did say you'll add employees, but when I look at the other expenses ex the employees has had a decent growth over the last couple of years, right, in the accelerated technology spend. As NIM slows down, is that a lever or because you add branches and given the profitability is too strong, that should not be used as an ROE lever.

[Anindya Banerjee, executive]

No. So I think we have consistently said that we believe that there is a good market opportunity for us and we will not -- we will continue to invest in that. And if for a couple of quarters operating expenses growth is higher than revenue growth, we would not really worry about it too much as long as we have a sustainable path. So we'll have to just look through that.

[Operator]

Thank you. I would now like to hand the conference over to management for closing comments.

[Anindya Banerjee, executive]

Thank you, as always, for sparing time on a Saturday and we'll be happy to take other questions that you have after the call. Thank you.

[Operator]

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