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ICICI Securities Ltd
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Good day, ladies and gentlemen, and welcome to the earnings call of ICICI Securities Limited for the quarter ended December 31, 2019. We have with us today on the call Mr. Vijay Chandok, Managing Director and Chief Executive Officer; Mr. Ajay Saraf, Executive Director; Mr. Harvinder Jaspal, Chief Financial Officer; Mr. Yagnesh Parikh, Chief Digital and Technology Officer; Mr. Vishal Gulecha, Head of Retail Equities; Mr. Kedar Deshpande, Head Retail Distribution Product and Services group; and Mr. Anupam Guha, Head Private Wealth and Equity Advisory Group. [Operator Instructions] Please note that this conference is being recorded. The business presentation can be found on the company's corporate website, icicisecurities.com, under Investor Relations. I would now like to hand the conference over to Mr. Vijay Chandok for his opening remarks. Thank you, and over to you, sir.
Thank you very much. Good evening to all of you, and welcome to ICICI Securities Earnings Call to discuss updates on our strategy as well as quarter 3 FY '20 financial results. So let me start by saying that it has indeed been an eventful quarter from the perspective of the macro environment, from the industry's perspective as well as from ICICI Securities' perspective as well. So let me first start with the overview of the markets. If you look at the markets, the theme of polarized buoyancy that's taking place in the markets despite weakening macros I think continue to play out. So while NIFTY ended the calendar year on a high note, the broader indices we clearly saw were down for most part of the year, recovering only partly in the current quarter.This really offered some degree of respite to the retail investors and if this kind of a momentum of the broader markets sustains, we feel it will be beneficial for a franchise like ours. So this quarter also witnessed a few important developments on the industry front, which I think I must highlight. SEBI has been consistently working towards creating a framework of protecting the interest of small investors, and in line with that perspective on October 1, 2019, SEBI regulations prescribed prescribing norms and time limits for transferring client securities into the Demat account by the brokers came into effect. Now as a result of this, practices pertaining to the use of client securities and clients' funds came under focus, which resulted in actions being taken by the regulator. It appears imminent that the regulatory direction would continue to be one of protecting the interests of the smaller investors, which we believe is very conducive to an orderly growth of the industry. In our view, these market events have reiterated the importance of factors such as trust, safety and brand in the minds of investors. Again, which I would say is positive for our company and for the industry in general.Further, SEBI also recently introduced a regulation regarding margin norms, which the industry through a committee, of which ICICI Securities is also a part of is seeking clarifications and engaging with the regulators. To sum it up, a slight upturn in the broader market indices as well as a clear flight to brands, which invoke trust are some of the key positives and we would continue to watch developments in the competitive and regulatory space and while we do this, we believe that our 5 pronged strategy positions us very quick to sort of take advantage of the opportunity that comes our way. Against this backdrop, I would say that our company registered a growth in consolidated revenue after a gap of about 4 quarters to INR 422.7 crores or INR 4,227 million. This is for quarter 3 2020. This is as compared to INR 4,047 million for quarter 3 FY 2019, which is a growth of approximately 4%. This was aided by growth in our retail equities business, including brokerage and other allied revenues. Our profit before tax increased by about 17% from INR 1,581 million for quarter 3 FY 2019 to INR 1,851 million for quarter 3 FY 2020, resulting from a growth in revenue and reduction in overall cost by about 4%, which led -- which was led in turn by a 6% reduction in employee expenses as well as an 8% reduction in the noninterest expenses. So the efficiency measures that we have been talking about in the past are, indeed, helping us gradually rightsizing and the quarter end employee count was at 3,955 as compared to 4,077 in quarter 2. So sequentially, we have shown a decline in the employee count by about 3%.Our profit after tax for Q3 FY 2020 increased by 36% to INR 1,372 million compared to INR 1,012 million for quarter 3 FY 2019, which is, of course, partially helped by the lower statutory tax rate. Our return on equity continued to remain robust at about 51% for quarter 3 FY '20.Let's now look at our business performance for the quarter. With respect to client acquisition, our strategy of ramping up scale with quality through our new arrangement with ICICI Bank, along with the product propositions like Prime is showing promising trends. We added approximately about 94,000 new customers during the quarter, growing our operational client base now to about 4.7 million customers. Our activation rates for the bank source lines actually increased and reached 58% driving our absolute number of active net client acquisitions to the bank by about 80%. Another lever that we continue to focus on to ramp up scale is to decongest, simplify and digitize the clients onboarding processes itself. As a part of this initiative, we developed and launched a tab-based account opening for our ground staff in Q4 2019, which has now started contributing close to 39% of our total sourcing. We have now extended the same to the relationship managers of ICICI Bank to source clients, which includes NRI clients for us in the month of December. In quarter 2, 2020, we had rolled out an end-to-end online process for existing ICICI Bank customers, where customers can now open accounts in 20 minutes without any physical intervention. Although still this is a minor contribution to the overall sourcing, we did see an improvement in run rates in the quarter that just ended. So we are continuously working towards designing solutions that help us identify and target distinct customer segments using our domain knowledge and expertise and the technology edge that ICICI Securities has.The next levers that we are focusing on is growing business through partners and alliances. Today, our network has reached 8,600 plus as of December 31, 2020, which has increased by about 33% Y-o-Y. The clients that we have sourced through this network has also gone up by about 45%. We entered into an arrangement for sourcing clients with a couple of ecosystem players who are SEBI registered investment advisers and we are in the process now of integrating these investment advisers digitally using our open API architecture that we also launched earlier this year. This will help us bring new customers to our platform and through this [indiscernible] onto ICICI Securities.Moving to our equity business. Our Prime proposition, which was launched formally in the month of April this year continued to generate encouraging demand. It has not only helped in attracting new customers but is also helping activating dormant or lost customers as we call them. So we opened up this proposition to all customers of the company on 1st October 2019, and the total number of subscribers as on 31st December 2020 were more than -- 2019, sorry, was more than 2.3 lakhs, so we added about 70,000 net subscribers in the quarter as compared to about 60,000 customers in the last quarter. Towards the end of quarter 2 of 2020, we have also rolled out a new pilot offer derivative pricing plan called the Option 20. This was launched with the aim of attracting option traders who form a majority of the F&O market. We are encouraged by the response that we have seen, which is reflected by way of increase in volume of our derivatives business. As a result of Prime, we also experienced better quality of sourcing and as a competence of the introduction of the pilot of Option writing plan called Option 20, our market shares across the equities and the derivative segments in Y-o-Y increased by 80 basis points and 70 basis points respectively. So the equities market share went up by about 80 basis points, and the derivatives by about 70 basis points. So this stood now at about 8.9% for equities business and 8.7% for the derivatives business. Our NSE client base increased by 13% Y-o-Y, and it stood at about 9.6 lakh clients and our market share of active clients in the NSE now stands at about 10%. With the increase in the active clients and volumes coupled with our focus on growing allied equity product revenues like the ESOP finance, MTF business or the Margin Trade Finance business, the Prime subscription fees has helped us offsetting the impact that comes on account of the lower yield on the newer plan, and therefore, we were able to grow our MTF and ESOP books to about INR 11.53 billion as of December, up from about INR 6.8 billion as of September. So sequentially, we have increased it from INR 6.8 billion to about INR 11.5 billion and our interest income from ESOP and MTF grew by 43% Y-o-Y to INR 261 million, while our Prime subscription income grew 37% sequentially to INR 55 million.Consequently, our retail equities and allied businesses revenues increased by 5% Y-o-Y to about INR 2,227 million. This is despite the fact that we have opened up the entire customer base to our Prime product at the beginning of this quarter. On the institutional equity front, revenue declined by 2% primarily due to reduction of traction that we've seen on the block deals.In our Distribution business, our aim is to deepen relationships with clients and maximize wallet share, thereby growing the overall number of active clients. Our mutual fund revenues continue to be under pressure from the regulatory changes and declined by 4% as the base got partially reset to the new regulatory regime. Here, the focus area is to grow net flows and AUM, where we are faced currently with challenges of redemption and lower growth in the gross flows [ itself ]. We believe we can do much better on this front, and we will continue to focus on improving net flow. To offset the impact due to regulatory changes in mutual funds, we have been focusing also on certain nonmutual fund products, which we spoke about in the past call. These nonmutual fund products have grown by 6% this quarter driven by growth in revenue from life insurance, fixed income, products, thereby, partially offsetting the decline in our mutual fund revenue. In our Life Insurance business, we were able to increase revenue by about 16% Y-o-Y to about INR 12 crores or INR 120 million because of increased focus towards protection and traditional products amongst the higher volatility that we have seen in the market. Our approach to deepen relationships with customers and enhance wallet share is by providing them with more and more simple products, which an investor can click and engage with. During this quarter, we also introduced a new product like the ETF Intelligent Portfolio, Automatic Portfolio Evaluation and SIP Protect. With ETF Intelligent Portfolio, the product, which is designed with a view to provide advisory-based capabilities to customers at scale to invest in multiasset buckets of low-cost ETF's based on the client's risk profile. These investments are monitored on a daily basis and allocations adjusted based on market conditions. It provides customers an opportunity to invest across different asset classes: large-cap, mid-cap, government securities and gold through ETF in a single click. The portfolio consists of ETFs, which have a significantly lower expense ratio. SIP Protect as you would all know is a product that along with systematic investment plan provides investor free life insurance covers up to 120x of SIP investments with 70 mutual fund schemes. We are amongst the first online distributors to offer this SIP Protect plan to our customers. Automatic Portfolio Evaluation is a tool whereby customers can upload all their holding statements across different asset classes and also across different distributors onto this tool, which provides clients one view of their investments even though the assets may not necessarily be with ICICI Securities. As we continue to build more and more engagements and simpler digital enabled tools for our clients, we expect increasing the overall level of active customers. In Q3 FY '20, we were able to increase our overall active customers by 9% to 13.9 lakh active customers.Moving to Corporate Finance business. This was a slow quarter with revenue declining 31% Y-o-Y to about INR 176 million due to the market activity in this segment being subdued. We executed 7 investment banking deals in this quarter and have an IPO pipeline as per SEBI filing of 7 deals amounting to about INR 86 billion. We were ranked #1 by value of deals in IPO, which includes InvIT, REIT's, and FPO's as well as among domestic financial advisers by number of deals and merger and acquisition lead status. As far as our treasury income was concerned, treasury income was at INR 176 million. This was up from INR 27 million a year ago. This is aided by higher interest income earned arising from debt positions that we have built given the general interest rate environment. So to sum up, we continued to scan the market environment with sharp focus on execution of our strategy. We believe that the next few quarters will be crucial and will help us set the company and prepare it for the future. I'll end with these words, and thank you for the patient hearing. We are now open for questions and answers that you may have.
[Operator Instructions] The first question is from the line of Digant Haria from Antique Stockbroking Ltd.
Congratulations on the good set of numbers. It's good to see that after bottoming out last quarter, we saw some changing trends. So I have 2 questions. One is that we have seen a steady improvement in market share both in cash and equity. So firstly, thanks for providing that data. And just I wanted to understand that this improvement in market share comes out of -- what is a bigger contributor to that? Like is it new client acquisition or is it activating the inactive clients? Or like more activity within the same set of clients? Or is it the Prime and Option 20 plan? Like what are we seeing as the largest driver of this market share gains?
Thanks, Digant. I am going to request Vishal who is also with us to answer. He's the right person to do that.
So Vishal Gulecha. In equity market share, I think the factors which contributed to increasing market shares are multiple. So if you have seen the MTF book has grown -- the MTF and ESOP book has grown this quarter. The MTF is slightly active in the market share tool. The active customers -- we work both on acquisition as well as on the activation of the dominant customers. So again here, it is a combination of the active customers as well as the new acquisition. Also as Vijay briefed that the Prime has been made open to all the existing customers from October 1. So that also kind of helped us in ring-fencing the customers activity with us and also many customers have consolidated their activities with ICICIdirect after subscribing through Prime.In addition to that, the factor, which has worked well in derivatives is Option 20 theme which has not been launched at a larger scale, but still we have reached out to many customers. So that also has positively added to the derivatives market share. So all-in-all, I mean there are 4 things, which I will summarize once again. The MTF and ESOP book, the active customers both through new acquisition as well as various activities on our dormant set of customers. Also opening client to the existing set of customers. So Prime, we have now -- I mean we made it open to each and everyone. Anyone can take, so that has helped. And in derivatives, Option 20 plan has helped us in gaining market share.
Perfect, perfect. So just one follow-up to that. Like are we seeing different levels of activity in the Prime customers versus our other active customers who have not taken Prime? Like are Prime customers naturally more inclined to trade more or have more products? Or it's too early because it's just like 6, 9 months of data that we have?
No. I can say that the activity levels are definitely better than non-Prime customers because customer commitment is there. So we see increased participation in [ markets ] and the consolidation of activities is greater. So you are right in saying that the Prime customers' activities are more than the normal non-Prime customers.
Digant having said that, I'll just add markets have also helped in the last quarter. So we -- it was for a little more [ right ].
Right, right, right. Yes, so Vijay, that was my second question that since now Prime is open to everyone -- anyone and everyone, all these 70 -- 47 lakh customers. Do we expect that broking yield in the next 6 months should show the true picture of where it settles or rather where it exists last quarter?
Healthy adoption has already happened in this quarter, and we see -- actually we want to reach out to each and every customer and whoever is suitable for this kind of plan. You would want them to take this. So in all, this quarter and in the next quarter, I mean we should be able to fairly reach out to all the customers.Today, about 35% of our customers are already ring-fenced by either Prime or prepaid offers. So as we said that about 2.3 lakhs in Prime and about 1 lakh of customers in prepaid. So put together is a 3.3 lakhs kind of a number in the subscription-based plans. So some part, we have already absorbed in this quarter. And some parts, we will absorb as we move forward.
Our next question is from the line of Avinash Singh from SBICAPs.
A couple of questions. The first one on your [indiscernible] protection on SIP plan, so what kind of arrangement with which insurance company have been made? And what is the cost of this protection? So I mean as a percentage of, like of, your revenue from mutual fund distribution? So is this cost meaningful or not that meaningful? So sir, yes, some more color on that.Second question again, continuing on the yield side that I guess, so we had made good progress in the client acquisition, activation and market share and that is, of course, we have been so far able to outpace the deflation cost by the falling yield. But how is the yield trajectory going to be in the next 1 year or so? Because if at all this client activation starts to come in the base and/or market activities grows a bit low, can there be again a further pickup of revenues? So 2 questions.
I will answer. So just to introduce Kedar, who heads the entire distribution business, will step in for the SIP one, and I'll request Vishal to answer for the second part.
So the SIP Protect is a product, of course, by the AMCs and they are factoring a few basis points expense out of their own income to provide a term insurance -- group term insurance for the clients. So for the customer, there is no hidden cost or incremental cost and it comes as a value-added product.It also ensures that the customer stays long and stays invested for a longer period with the fund. So it is a win-win for everyone. So it's a very beautifully packaged offering, helps the clients get a insurance cover by -- in the duration that SIP is on and helps the AMC to increase the longevity of the clients. So there are no expenses at ICICI Securities' end at all.
Okay. Okay, okay. So how many AMCs are currently offering this product in your platform? So I mean off course, I can see 79 mutual funds or scheme or something, but how many AMCs so far have onboarded?
There are 4 AMCs right now. Others are in the process of filing their product and in the -- maybe in a year's time, all product -- all AMCs will have a product in this area.
So this is Vishal. I will reply to your second question. On ease on the equity business, so in terms of the volatility in revenue, yes, this is part of the market. So if markets are subdued, you will see the decline in revenue also as this is invested [indiscernible] with ICICIdirect.Even in lower market, the volume depends on 2 things. One, how cash market is doing, and secondly, how is the volatility in derivatives market. So with lower markets also if the volatility is supportive, we continue to generate good volume. So again is a function of how much cash you do, how much [ intraday ] you do, how much derivatives you do. So very difficult to predict at this point of time that how the yield will take shape, but in debt market conditions the factor to focus up on, again, is the market share. I mean that's a true indicator of saying that what we are up to, whether we have gained market share or whether we have lost market share. So otherwise, I mean the volatility in revenue is going to be a phenomena of this industry.
And Avinash, if I may add, this is Harvinder here. So you discussed earlier also the way we look at our increased business is more of a revenue potential from a client rather than a yield. And in that area, what we have seen is that there is a proposition like Prime. We have been able to attract the right quality of the customer. So what we are more excited about in fact is the quality of the customers coming in is improving, another attention is similar or improved, then the lifespan of the customer actually is a big positive, which will emerge for sure going forward. So that is internally actually the approach and as a result of that, what you have seen that we are broad basing revenue, trying to get more from the customer and that is the way we look at it.
[Operator Instructions] Next question from the line of SivaKumar from Unifi Capital.
This year, we saw the YTD growth in the active clients at a very strong number of almost 14% for December '19. So we also noticed that there's a consolidation happening in the brokerage business. So are you seeing this traction continuing subsequently even in 2020? And how long is this runway going to be in terms of grabbing market share from the marginal players?
So Vishal here. See Option 20 is at its very early stage so we have not even made it open to all the customers. So so far, the traction in active customers you have seen that has largely come from price and all the activities we are running with the Prime proposition. So Option 20 uptick we have seen in volumes and market share, but in terms of number of customers, I won't say that it has a very, very significant contribution in that count.
Right. Sir, you were commenting on the broking yield going forward. We also noticed that some of the discount brokerages have kind of increased their lowest brokerage. So do you think you have kind of bottomed out in kinds of offering the lowest brokerage for various clients. Do you think from now on you should either stay stagnant over these levels or maybe increase marginally from here on?
Honestly, if I can -- this is Vijay here. Honestly, this is something that we keep watching and sort of observing competition very closely. Having said that, whether this has bottomed out, whether they will increase further, whether they will stop increasing and reduce further is something which only they can answer this question. Let me tell you 2 things. One is for us, discount broking is not a new phenomena. We have been facing discount broking for 5 years and even probably before that, but greater intensity probably in 5 years. There are more than 100 discount brokers in India. You probably heard of only 3 or 4. So discount broking is not new. It is -- for us it is today BAU, business as usual. So we have that as being as a competition as much we have nondiscount broking as a competition, so that's how we look at it. Our job is to ensure that we identify our customer, right customer, decongest process, simplify process, focus on ensuring that he gets what he wants, focus on ensuring that we are continuously adding value and helping him do the right investment. We are not worried about 1 quarter, 2 quarters. We are more worried about ensuring that the customer is happy with us because that is how we will continue to sustain our business. We clearly see that, as a strategy, we want to decongest to -- I would say reduce our dependence on just equity market. That is why we were adding a lot of nonequity-related revenue -- revenue -- nonequity I would say products for our customers. Customer is an affluent customer. His needs after all are similar. Apart from investment, he also needs protection. Apart from protection, he also needs loans. So all these products are available. So the idea is to get him more and more diversified and as like Harvinder said, look at more -- not just a single line item of fees, but look at a more broader revenue at a client thing, which is to get revenues from those areas, which is actually relevant to his life at that stage of his life. There's no point doing business with him just because a company or a firm or a entity wants revenue beyond their existing quarters. We should do what is right for the customer. That is the culture. That is the philosophy we will try. We will not get too swayed by this -- anything that happens, we are sticking to [ this one ].
Got it. And one last question on the operational efficiency. Is there more headroom to be achieved over here?
We will continue to do that. It will remain a focus area.
Next question is from the line of Atul Mehra, Motilal Oswal Securities Limited.
[ This is Atul from ] [indiscernible]. Sir, just one question in terms of...
I'm sorry to cut you. You're sounding too low.
Is it audible now?
Yes, it's okay, go ahead.
[ This is Atul from ] [indiscernible]. Just one question. During this quarter, you saw one new player in this space in the form of Bajaj Finserv where they've launched this plan of INR 500 annual subscription for the brokerage. So how do you see competition coming from some of these credible players. So they're not like any other perhaps player but maybe a more well reputed name and more credible, with the ability to give financing in a large form. So how do you think the value proposition changes for some of your plans with a player like Bajaj Finserv?
Certainly, I think we really respect Bajaj as a very, very fine company. They have I would say clearly excelled on use of digital methods of servicing, acquiring and dealing with customers. Certainly, they are very, very credible name, credible brand, credible distribution, credible capability, there is no question about it. We do believe that they should be watched very carefully. Having said that, we also point that there is a specific nature of our industry, customer, and the nature of this industry and customer is that if you provide the right kind of experience to the customer, he speaks it and I think that is the strength. The fact that we happen to have been in this business for longer period of time, thanks to a very big advantage to us. There is a merit of incumbency, as they call it. I think we enjoy that merit of incumbency. We have a relationship with our customers who sees us as a first player with an investment to reenter DNA. That's also important. You could be having a great, I would say lending DNA, but it's a very vastly different when you actually think of yourself as an investment entity because I've seen both ends of the spectrum. They are very different. You have to have a very different mindset when you are dealing with investment as compared to dealing with, let's say, lending side. So we'll see how it plays out. We haven't yet seen any material impacts in the marketplace. But having said that, because of some of the reasons that I just mentioned, we would certainly watch them very closely and our endeavor would be also to be nimble in the marketplace. The moment we find that there is a need for us to do something to ensure that our customers continue to get the most competitive proposition, we'll do that. We'll do that. I think at this stage, we are okay.
Okay. And sir in that context, would you -- so like you had Prime as a value proposition now. So in that context, do you think maybe a Prime, maybe in the future, where you would want to go back to your subscription-based model of virtually where there's no brokers but there is money to be made in the other financial products that you would cross-sell, deal financing or be it other fee-based products? So do you think it will get there in the next 1- or 2-year's time when the [ vendors to ease progression ]?
Honestly, I find it very difficult to answer that question because if you're asking me whether is that thought in the works, it is not a thought in the works. We will see what needs to be done to ensure that we are -- we continue to remain relevant and meaningful in the marketplace, we will do that. But clearly, right now, the focus is on something else. The focus is on broad basing and reducing our dependence on one line item or few line items and making it a lot more broad-based. Our intention is right there right now. So let's focus on that. We are not thinking of any other area simply. So 5 points that I have said in my earlier calls, meetings et cetera with all of you, those 5 things are what we are focused on, the company is focused on, the Board keeps tasking us on that, and we continue to focus on [ that side ].
Right. And sir just one final question in terms of loan product origination that we are trying to do for our customer base. So what has been the progress on that count if you could talk about it a little bit?
The loan origination, today, we have sort of both digital as well as physical. Personal loans, credit cards, home loans, these are the 3 I will say main items. We're still think that it is very young today, very early days. Is it growing? Yes, it is growing. Every month we are seeing an improvement over the previous month. But has it become meaningful to -- I think still it has got its way to go. Again like I said that clients will need to start getting more used to us as a lending provider. It's not easy despite having such a strong brand, such a strong presence, such a strong penetration. Clients also don't automatically see us as a natural provider of loans. So it will take some effort and time from our side, and we are focused. But having said that, every month, we are seeing an improvement.
Got it. And sir, maybe one final question.
I'm sorry to cut you Mr. Mehra. I'll have to ask you to come back in the question queue. [Operator Instructions] Next question is from the line of Madhukar Ladha from HDFC Securities.
Congratulation on better core operating performance, broking has done well this quarter. I have a couple of questions. First one is that we've seen a very sharp rise in the margin funding and reserve funding book from about INR 680 crores to INR 1,153 crores in just over a quarter. So what do you think is a sustainable level? And how do you see this piece of your business? This book growing over the next, 2, 3 years?
So I'll tell Vishal to take it.
Madhukar, Vishal here. So I think still this market is not at a complete maturity level. So at what level of maturity are we, it's very difficult to tell, but I definitely see as market doing better both the books will help us in growth, both in terms of lending book as well as in the equity business. So last quarter, couple of things we did. MTF was made open on the stock exchange so that has a better depth and liquidity. So that helped us in getting a better market share. And with markets doing better, the stock book also -- naturally, stock book also starts performing better. So [ more ] shape and sustainable level, I think the market will definitely play an important role in this. But having said that, the proposal should be strong and I feel we should continue to reach out to the customer and they should benefit with these 2 propositions.
Can you split the book into how much is margin funding and how much is ESOP?
So Madhukar at this point in time we have not done that. Going forward, we can do. But actually, both the books have seen reasonable growth as Vishal mentioned, as part of our strategy within the equities business also to diversify into various type of products and both of them offer us an opportunity to have a NIM kind of income with a ring-fenced end use and a collateralized security. So I think it's a good aspect of our equities business and both of the books are doing well. We're also seeing it actually more as a wealth product, particularly the ESOP. And that helped us get a very, very high-quality customer.
Yes, yes. Understandable. So second question is, this quarter also saw Karvy going down and a lot of problems with smaller brokers who indulged in not exactly ethical practices. I would want to understand how do you see this benefiting large brokers such as you? And can you also sort of quantify any substantial benefit that you have already received so far. So in terms of client and insurance? In terms of securities getting transferred into your Demat? Any? And how do you see the next 2, 3 quarters because of this?
Yes. So Madhukar like I said earlier in my call, things like this is actually very unfortunate from a customer's point of view. It's very unfortunate development. It actually infused a sense of fear, so the immediate reaction is of fear and anxiety. But then when some kind of a normalcy returns to the mind, there's a flight towards quality, towards comfort, towards brand. So I think there's a very natural migration of desire to be with someone whose is established, someone whom they are comfortable with, someone whose brand is well known. There is a tendency because they realized that it's better to deal with somebody who they can trust rather than deal with somebody who is offering a very low e-cost service where I cannot trust. So clearly, all players with this kind of advantage with end governance will benefit everyone in the marketplace and I think there are large number of people to benefit.Secondly, when it comes to our own business and the kind of specific impact that you're asking, we are not -- we don't want to look at one event as in isolation. We focused on our strategy. That strategy helped us gain market share and client share in Q2. That time there was no such incident. We continue to show that growth in Q3. So for us, it is not just some event which is helping us improve. It is a approach that is helping us improve. We remain -- stick to that approach. These events will come, these events will go. It doesn't matter. I mean beyond a point we will certainly play a tactical position rather than when required, but I don't think we as a company want to get too fixated with this one event and get lost in this. We will focus on our strategy, which is helping us improve the market share and that is more important for us.
Understood. So last question, any guidance.
I'm sorry to cut you. I'll have to ask to come back in the question queue for a follow-up question. The next question is from the line of Nischint Chawathe from Kotak.
Two things. One was on your mutual fund commission yields, would it be kind of fair to say that these are sort of now stabilized here on?
Yes, Nischint, that would be a fair statement. This is as far as we see, so if you see last couple of quarters we have been at about 61 basis point. So this factors in both the changes upfront as well as the TR impact. So yes, fair to say. Obviously, we'll watch for a couple of quarters, but that would be a fair assumption with whatever is known as of now.
Sure. And in terms of your lending book, which is essentially the margin and ESOP, I mean how do you really see this? Is it kind of -- and sort of a one-off kind of additional line of revenue? Or is it a client acquisition strategy? Or how do you really see this?
So I'd say it is a combination of both, Nischint, to some extent. So one, obviously, as I said that within equities business, it offers us an opportunity to diversify the sources of income and provides us with earning based revenue stream.It also keeps an active client engaged as Vishal also alluded to earlier in the call. Also it gives us access to some of the affluent profile of customers and that is also -- all these objectives -- I really like this kind of a book and happy with the book.
What kind of a yield do we charge on this book?
So NIM, let's say, would be -- depends on -- roughly, let's say, in the range of 4% to 5% would be the NIM.
But 4% to 5%, is that -- I mean I'm just trying to ask in terms of what are you charging the customer? Is it like 12%, 14%? Because, I guess, NIM would be a function of leverage and balance sheet and your funding cost, et cetera, et cetera, so.
So there are different plans, and depending on what plan you take, the interest will also be charged. So in time, we'll have 3 plans and on these 3 plans, the interest rate ranges from 8.9% and it goes up to 14%. So I mean these are the offers which we have on most of our customers. So finally, it will depend on which card you take.
Sure. That gives me an idea.
[Operator Instructions] Next question is from the line of Piran Engineer from Motilal Oswal Securities Limited.
Congrats on the quarter. I'm sorry, my questions are a bit basic, but out of the 94,000 new customers added this quarter, how many would be through the bank partnership?
So the substantial portion has come from bank. So close to about 80% of these customers would have been brought by bank to ISEC.
And in the past, how was it?
So it is similar -- I mean if you look at it, Piran, it would be similar posting. If you go back way into the past, let's say, 5, 6 years then it could be probably 90%, 95%, but I think 80-20 would broadly be in this range for last couple of years at least.Going forward, as we have discussed in the last couple of quarters earnings call as well, our strategy is to actually expand the sources of customer acquisition. So bank, definitely, we are focusing on getting quality customers over there, getting NRI customers over there, how do we penetrate deeper over there. That's the strategy with bank. We are focusing on strategic partnerships. We are focusing on digital acquisitions, so we embarked on a completely online process about couple of quarters back, 3 quarters back. That has started seeing some traction. Although it's a small base, but that is something, which will scale up. Those are some of the things that we are looking at for growing the sources of -- different sources of client acquisitions. So going forward, definitely, we should see it changing.
Okay. Fair enough. And just one accounting question, the subscription fees that you all charge for Prime, do you all -- is it in...
Amortized. Amortized over 12 months.
It's amortized. Okay.
Next question is from the line of Prateek Pradhan (sic) [ Prateek Poddar ] from Nippon India Securities.
This is Prateek Poddar from Nippon India Mutual Funds. So just one question. Could you just talk a bit about Options 20? What is this product then?
Yes. So as this time still it is at a very early stage. And we have not made it public, which is again on invitation basis, right now. So basically, in derivatives, we are charging INR 20 per order. And then within that order, INR 5 per lot. So that's the broad construct of the scheme. So if anyone is placing order in 4 lots in options then he will be charged INR 20 plus 4 lots multiplied by INR 5. So INR 40 will be the brokerage for that particular order.
So INR 20 is -- Okay. Okay. I understood. Okay. Okay. Understood. And sir, could you also -- I mean it's too early I know, but how was during the traction of initial lead indicator for the new initiatives which you have launched in terms of ETF Intelligent Portfolio because that's quite interesting? Could you just -- is there any traction? And how do you plan to scale this up?
So ETF Intelligent portfolio is a brand new launch, actually, so you'll have to wait at least a quarter.
We will take a quarter or 2 and then reassess.
And sir, last question, branch fantastically gone -- got down the branch count from 190 to 170. Congratulations on that. How much more is it possible for you to get this down to? I'm just trying to understand is this -- is there still a lot of lever or cost efficiencies left in this part of the...
Yes. So not -- what we had said -- we have given the guidance of about 175 by end of the year, so it's pretty much there. Obviously -- I mean this is one area that we have focused on as more and more adoption of...
We'll constantly evaluate [indiscernible]. I mean there is no target that we have said that it should become x or y. We'll evaluate, where we've seen that value is not coming on a sustained basis then twe will have to answer why it's not coming and what can they do otherwise?It's broadly what we have aspired for, in round one we are more or less there, little bit here or there will happen, but it's more or less there.
Appreciate. Sir, the -- only the question was -- what I was trying to understand was, is there more room left for digitization of operations and other areas such that you can bring down the cost further down so that the breakeven points go down?
[indiscernible] Clearly our efforts on cost as I said in one of the earlier questions will continue. We will look at all areas, digitization, synergies, branch network, everything, every area that is there. We will certainly impact productivity, [ everything ].
Okay. And sir, do you -- last question, sir, 35% of your active NSE clients are mostly Prime?
Prime and I'll correct you, Prime and Prepaid.
Yes, Prime and prepaid. So the question was once you see this move further up to 50, 60, 70, does that mean market share moves up further? Or it's a trade-off between market share and yields where the market share will move up but the yields will collapse? Is that the way to think about it?
No. So we are not just chasing the market share. Let me tell you that. We are chasing the right customers. We are not putting our numbers. We don't want to sort of get fixated with the numbers which will make us do incorrect things. Good customers we want, we see that we will want to do it. And we get a sense of that customers through the kind of analytics that is possible today. So -- and we are looking at really lifetime value. So it's not really about similarly looking at one item or looking at it from a short-term perspective or looking at it as a market shares similar number. Value [indiscernible], we will focus on that. Lifetime value [indiscernible], we will focus on that because for us it is customer for life that is what we want, I believe.
Our next question is from the line of Aditya Jain from Citigroup.
Just a quick clarification. The yield of 8.9% to 14% that you mentioned earlier, so was that on the MTF product I assume? And if that's the case then what is the rough range for the ESOP product?
So that's the range for MTF product. And for ESOP, I mean depending on the tenure of the loan, on the size of the loan, the rate differs from 1% to another. So there is timing. We look at opportunity and then accordingly we go for the rate fixation.
The next question is from the line of Utsav Gogirwar from Investec Capital.
On the head count, we have actually reduced the head count both on a Y-o-Y and a sequential basis. Just want to understand in which part? Is it a front end? Back end? And how much do we plan to cut down the head count in the coming quarters? Any color on this will be helpful.
So Utsav, as Vijay also referred earlier, it's more of an approach -- it's a productivity-based approach. At times, it could be of a function -- exploring synergies using a function. At times, it could be introducing or using technology to enhance productivity. At times, it could be getting more productivity or optimizing these. So all these levers is what we keep on doing, so it's not a target, ...
But it's a mindset is of growth and efficiency. So it is not that we are shrinking. I mean that's not the mindset with which we're approaching. We're approaching with a mindset of efficiency. We find that even through new digitization and centralized -- the up-chop. Today, we are deep inside. It automatically reduces people. This as an example I'm saying.So the head count is becoming more efficient, it decongests the process, it brings on cost and it improves customer experience. Just as a very simple example.So we are not setting a target. We are focused more on understanding processes. We are focused more on then saying that whether that process makes sense or are we over-capacitized there and can be simplified. So it's an ongoing journey. So we keep discovering this and it's a full-time effort, full-time job in that direction. So if I put a number, we will do wrong things. I don't want to do that. I want to look at processes and then approach it through processes. You'll find that some of our training programs today, for example, are physical. Can we digitize them, which means can we make it more convenient to our customer -- to our employees and customers that we deliver so that he can take, at this time, his place, keep coming back to it rather than having a classroom-oriented training, which is typically a expensive affair. If the answer is yes, then we'll reduce it. That doesn't mean we are shrinking numbers, we are actually making it more efficient and improving the revenue cost and [ resources ].
Next question is from the line of Manish Poddar from Nippon India Mutual Fund.
Can you give some thoughts on this MTF book? What is the limit you can go to because early the cash on books as on September end was about INR 1500-odd crores? So is there a thought to leverage the balance sheet or how do you want to go about it?
So 2 things. One is regulatory. We can go to up to 5x of net worth. So that's the regulatory gap. Within that is a scale which is associate and we are comfortable with. I don't think we have precised an internal limit for that, so we can scale that up. We have good amount of regulatory headroom.
Next question is from the line of [ Deepak Advani ] from [indiscernible] Capital.
Congrats on a good set of numbers. I have a couple of questions. First is regarding distribution arrangement with IBANK customers, I mean the customers that come through IBANK. So I understand there is no distribution revenue share, but who pitches to those customers? Is it you who gets the right to pitch to those customers for any distribution part? Or is it the bank who has the right to pitch to the customer or both of you are pitching to the customer at one point?
No. No. No. So we have a very clear, I would say, agreement with the bank. It's a formal agreement, under which any customer that is acquired through the bank arrangement, there's sharing on the -- as far as the distribution is concerned, the coverage will be open to ISEC only after T plus 24 months.
T plus 24 months.
Within T plus 24 months, if the customer digitally comes and stays with us, everything comes to ISEC. However, if he breaks, but he does business with the bank, it goes to the bank. After 24 months, we have full access to the customer. And it is for our relationship managers' capability to get him completely in ISEC.
So T plus 24 months, you cannot get any distribution products or...
Not physically, not through an RM, but digitally if it happens, then it is ICICI Securities.
So is it -- do you pitch the product digitally to the customers through emails or anything like that?
So we have the platform available for him, and most of our products are available online and we do see that we are able to generate active interest at times and that is one of the -- part of our strategy that how do we engage customers in a more digital no-touch/low-touch manner. So those are the things which work. And as far as customers' choice is concerned, if he chooses an online platform or chooses to interact with us on our platform, that portion of distribution revenue is up.
All right. Understood. I have another question regarding what is the distribution client penetration, right? For example, whatever clients you have, 4.7 million, how much -- how many of them have taken any distribution product from you? What is the kind of penetration in terms of...
So the total number of active clients that we have of the 4.7 lakh clients being defined as trailing 12-months whoever have given us some revenue or transaction, that's about 1.4 million. So 1.4 million would be a mix of distribution as well as all products that we offer. That's the kind of penetration that we have.
So if I want a number of distribution clients in this 1.4 million, how much would that be?
So -- see, we have not shared that number, but it is fair to say that 9.3, which is NSE [ active ] -- 9.6 rather which is NSE [ active ] minus 14 lakhs, which is the total number of customers, belong to nonequities. There will be some in the BSE active. You take that out as well. So the rest of it is pure distribution.
So definitely the number of distribution clients would be 13.9 minus 9.6 definitely would be distribution. Within the 9.6 also there will be a fair share of penetration of distribution product, but it does not put out...
We are not disclosing that number in the statement.
Okay. And one last thing, what is the kind of hit rate that you get when you now go about pitching distribution products to the client? So for example, if you switch to 10 clients, how many of them end up taking your products?
So if -- so our module is a more of online plus off-line kind of a model. We do engage on both counts. So it'd be difficult to say, I mean or imagine it like digital-only model. So there will be clients who would come and trade on us on mutual fund transactions, a lot of them happen online. It'd be difficult to quantify it like that.
Will it be possible for you to give me a break up of online, off-line clients in distribution? How much -- how many of them have come online and how many of them come off-line?
In terms of, let's say, transaction, equity transactions, 95% of our transactions happen online. But in terms of clients, yes, we have not put out that number.
There is another data that we have shared, which I'll bring up again. Out of the total 1.4 million, what is actively covered to relationship managers is in the region of around 1 -- nearly you can say about nearly 2 lakhs. So 2 lakhs have a physical RM providing coverage to them, right? So nearly 1.2 million customers have a pure digital coverage. So 2 lakhs is what is getting a physical coverage. These physically covered customers actually do transactions with us, which also is enabled through a physical engagement of RM, but 90% or more of those transactions also happen through the digital platform. So there's a physical engagement but the digital transaction orientation.
Sir, the line for the participant got disconnected. Ladies and gentlemen, that was the last question for today. I'll now hand the conference over to Mr. Vijay Chandok for closing comments.
Yes. So just wanted to thank everyone for going through our total investor call as well as the presentation of our quarter. We also look forward to continuously engaging with you on an ongoing basis. I do hope you will continue to follow up with us with whatever questions you may have. We can always do that separately. Thank you very much, once again, and good evening and good year to all of you going forward. Thank you.
Thank you very much. On behalf of ICICI Securities Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.