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Edited Transcript of ICICIBANK.NSE earnings conference call or presentation 25-Jan-20 11:30am GMT

Q3 2020 ICICI Bank Ltd Earnings Call

Mumbai Jan 29, 2020 (Thomson StreetEvents) -- Edited Transcript of ICICI Bank Ltd earnings conference call or presentation Saturday, January 25, 2020 at 11:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Anup Bagchi

ICICI Bank Limited - Head of Retail Banking & Executive Director

* Rakesh Jha

ICICI Bank Limited - CFO

* Sandeep Bakhshi

ICICI Bank Limited - MD, CEO & Executive Director

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Conference Call Participants

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* Ashish Sharma

ENAM Asset Management Company Pvt. Ltd - Analyst

* Dipan Anil Mehta

Elixir Capital Limited - Chairman of the Board

* Jai Mundhra

Batlivala & Karani Securities India Pvt. Ltd., Research Division - Research Analyst

* Kshitiz C. Prasad

Maybank Kim Eng Holdings Limited, Research Division - Analyst

* Kunal Shah

Edelweiss Securities Ltd., Research Division - Associate Director

* Mahrukh Adajania

IDFC Securities Limited, Research Division - Director

* Manish Ostwal

Nirmal Bang Securities Pvt. Ltd., Research Division - Senior Research Analyst

* Manish B. Shukla

Citigroup Inc, Research Division - VP

* Manoj Bahety

Carnelian Asset Management LLP - Co-Founder

* Mohit Surana

CLSA Limited, Research Division - Research Analyst

* Pavan Ahluwalia

Laburnum Capital Advisors Private Limited - MD & Director

* Rakesh Kumar

Elara Securities (India) Private Limited, Research Division - Senior VP & Analyst

* Saikiran Pulavarthi

Haitong International Research Limited - Research Analyst

* Vishal Goyal

UBS Investment Bank, Research Division - Executive Director and Research Analyst

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Presentation

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Sandeep Bakhshi, ICICI Bank Limited - MD, CEO & Executive Director [1]

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Good afternoon to all of you, and welcome to the ICICI Bank earnings call to discuss the Q3 2020 results. Joining us today on this call are Vishakha, Anup, Sandeep Batra, Rakesh and Anindya.

Our core operating profit increased by 23.8% year-on-year to INR 70.7 billion in Q3 of 2020. The profit after tax was INR 41.46 billion in the current quarter compared to INR 16.05 billion in Q3 of 2019.

We continue to see healthy growth in our funding. As we had indicated earlier, the growth in term deposits has outpaced the growth in CASA deposits, reflecting the systemic trends. Term deposits grew by 23.6% year-on-year to INR 3.8 trillion at December 31, 2019, while average CASA deposits increased by 14.6% year-on-year in this quarter.

On the assets side, the domestic group -- book grew by 16.5% year-on-year at December 31, 2019, driven by retail loans, which grew by 19.3% year-on-year. The overall loan growth was 12.6% year-on-year.

Expanding our digital capabilities and leveraging partnerships are key focus areas for us. We have recently launched India's largest API Banking portal consisting of 250 APIs, which enables developers of business, fintech, corporate and e-commerce start-ups to easily partner with the bank and co-create innovative solutions in a frictionless manner with the convenience of a single portal.

Coming to asset quality. Gross NPA additions were INR 43.63 billion this quarter. As you are aware, during the quarter, there were certain developments with respect to a broking company. Our exposure to the company has been classified as nonperforming and fully provided on a prudent basis. The corporate NPA additions in this quarter also include an exposure to a South India-based industrial company where servicing is regular, but where a refinancing undertaken in 2018 has now been assessed to be restructuring, leading to a classification as nonperforming by lenders to the company. The company is backed by reputed promoters and investors. Recoveries, upgrades and other deletions, excluding write-offs, were INR 40.88 billion in Q3 of 2020. Recoveries and upgrades include a large steel account, which was resolved under the IBC.

The annual supervision process of the bank by RBI for financial year 2019 was concluded during Q3 of 2020. No disclosure on divergence in asset classification and provisioning for NPAs is required to be made in terms of the RBI guidelines.

We had mentioned on our previous calls that credit costs in FY 2020 were expected to reduce significantly compared to FY 2019 and be in the range of 1.2% to 1.3% of average advances. The credit cost for 9 months of 2020 was 1.79% or 41.1% of the core operating profit. As mentioned on our previous call, the credit cost guidance for financial -- FY 2020 assumed a couple of large recoveries, including the steel account, which was under insolvency proceedings. While the steel account under IBC has been resolved, recoveries from other accounts have not materialized in line with expectations. Further, there was some impact on the credit cost due to unanticipated developments with respect to the broking company and the industrial company mentioned earlier. As a result, the credit cost for financial year 2020 is likely to be similar compared to 9 months of 2020.

Overall on asset quality, net NPA declined from 2.58% at December 31, 2018 to 1.49% at December 31, 2019. Despite higher additions to NPAs in this quarter and write-back of provisions on the steel account, the provision coverage ratio, excluding technical write-offs, was 76.2%, similar to the last quarter. We will continue to target a normalized credit cost of about 25% of the core operating profit.

There have been a couple of press articles in the past few months about the potential capital raise by the bank, and we have also been getting queries from investors and analysts regarding the same. We have clarified that we are not in the process of raising capital. You would have seen that the current capital ratios are at a comfortable level with CET1 ratio of 13.62% at December 31, 2019. We'll keep evaluating the capital position and requirements depending on the market conditions, growth opportunities and regulatory development.

As we have mentioned in the past, our focus is on growing the core operating profit in a risk-calibrated manner and delivering consistent and predictable returns to the shareholders.

With these opening remarks, I will now hand the call over to Rakesh.

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Rakesh Jha, ICICI Bank Limited - CFO [2]

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Thank you, Sandeep. I'll talk about the P&L details, our performance on growth, credit quality, performance of subsidiaries and capital position during the current quarter.

Starting with the P&L details. The net interest income increased by 24.3% year-on-year to INR 85.45 billion, driven by both loan growth and an increase in margins. The net interest margin was at 3.77% compared to 3.64% in the previous quarter and 3.40% in Q3 of last year. Interest on income tax refund was INR 0.16 billion this quarter compared to INR 0.42 billion in the previous quarter and INR 0.21 billion in Q3 of last year. The impact of interest on income tax refund and interest collection from NPAs was about 10 basis points this quarter compared to 6 basis points in Q2 earlier this year. The domestic NIM was at 4.04% in this quarter compared to 3.92% in Q2 and 3.72% in Q3 of last year. International margins were at 0.38% in the current quarter.

Total noninterest income was INR 45.74 billion in the current quarter compared to INR 38.83 billion in Q3 of last year. Fee income grew by 17.4% year-on-year to INR 35.96 billion in this quarter. Retail fee income grew by 25.5% year-on-year and now constitutes about 76.5% of the overall fees. Treasury recorded a profit of INR 5.31 billion this quarter compared to INR 4.79 billion in Q3 of last year. Treasury gains this quarter were higher compared to the last few quarters. Dividend income from subsidiaries was INR 3.67 billion in this quarter compared to INR 3.24 billion in Q3 of last year.

Coming to costs. The bank's operating expenses increased by 20.8% year-on-year this quarter. The employee expenses increased by 12% year-on-year, and nonemployee expenses increased by 26.1% year-on-year. The bank had 100,422 employees at December 31. During the quarter, there was a write-back in provisions for retirals due to increase in yields on government securities. The increase in nonemployee expenses reflect the growth in franchise building in the retail business of the bank. For the 9 months ended December 31, 2019, employee expenses increased by 23% year-on-year, and nonemployee expenses increased by 19.8%. We will continue to make investments in people, technology, distribution and building our brand. Our endeavor would be to ensure that revenues grow at a faster pace than expenses.

Provisions declined by 50.9% year-on-year to INR 20.83 billion in this quarter compared to INR 42.44 billion in Q3 of last year and INR 25.07 billion in Q2 of 2020. This reflects the impact of full provision on the broking company exposure and provision on the industrial company that Sandeep mentioned as well as recovery on the steel exposure under IBC.

The growth in core operating profit and reduction in credit costs resulted in an increase in profit before tax from INR 19.02 billion in Q3 of 2019 to INR 54.65 billion in the current quarter. The profit after tax was INR 41.46 billion this quarter compared to INR 16.05 billion in Q3 of last year. This also reflects the impact of reduction in corporate tax rates in the current fiscal.

Now coming to growth. The domestic loan growth was 16.5% year-on-year as of December 31, driven by a 19.3% growth in the retail business. Within the retail portfolio, the mortgage loan portfolio grew by 15% to INR 1.96 trillion, auto loans by 5%, business banking by 47%, rural lending by 17% and commercial vehicle and equipment loans by 15% year-on-year. The personal loan and credit card portfolio grew by 49% year-on-year, off a relatively small base to INR 583.48 billion and is now 9.2% of the overall loan book.

The SME business, comprising of borrowers having a turnover of less than INR 2.5 billion, grew by 34% year-on-year to INR 217.44 billion as of December 31. The relatively high growth in business banking and SME segment reflects the low base and market share. Our focus in these segments is on parameterized and program-based lending, digital channels, granularity, collateral and robust monitoring.

Growth of the performing domestic corporate portfolio was about 12% year-on-year. The bank is focusing on meeting the commercial banking needs of its corporate clients, including foreign exchange and derivatives, trade finance, payments and collections as well as tapping opportunities across corporate ecosystems, including the supply chain and the employees.

The net advances of the overseas branches decreased by 15.7% year-on-year in rupee terms and 17.6% year-on-year in U.S. dollar terms. The decline in overseas book reflects the maturity of loans against FCNR deposits. As a result of the above, the overall loan portfolio grew by 12.6% year-on-year as of December 31.

Retail loans as a proportion of total loans were 62.6% at December 31. Including the nonfund-based outstanding, the share of the retail portfolio was 52% of the total portfolio at December 31, 2019. The international loan portfolio was 8.9% of the overall loan book at December 31.

Coming to the funding side. Average savings account deposits increased by 11.8% year-on-year, and average [credit] account deposits increased by 23.6% year-on-year during the current quarter. The total deposits grew by 18.1% year-on-year to INR 7.2 trillion at December 31.

Coming to the credit quality. Gross NPA additions during the quarter was INR 43.63 billion. This includes the addition of INR 24.73 billion from the corporate and SME portfolio. There were slippages of INR 7.07 billion from corporate and SME borrowers rated BB and below at September 30, 2019, including INR 2.25 billion on account of devolvement of nonfund-based outstanding to existing NPAS. The balance corporate and SME NPA additions virtually entirely comprise the broking company and the South-based industrial company mentioned earlier.

The gross NPA additions from the retail portfolio was INR 18.9 billion. The credit trends in the overall retail portfolio continue to be stable. The delinquency parameters across vintages in the personal loan and credit card portfolios have been stable and well within the internally defined thresholds. The increase over the preceding quarter primarily reflects NPA additions in the kisan credit card portfolio and the commercial vehicle loan portfolio. As communicated on our previous calls, we typically see higher NPA additions from the kisan credit card portfolio in the first and third quarters of a fiscal year. After considering recoveries and upgrades of INR 7.79 billion, there was net NPA additions of INR 11.11 billion in the retail portfolio this quarter compared to INR 10.02 billion in the first quarter of this fiscal. The KCC portfolio outstanding was about INR 204 billion or 3% of our total loan book at December 31, 2019.

Recoveries, upgrades and other deletions, excluding write-offs, were INR 40.88 billion in the current quarter. Gross NPA deletions during the quarter also include conversion of nonperforming loans of an account amounting to INR 8.45 billion to compulsorily convertible preference shares as a part of the debt-restructuring scheme. The gross NPAs written off during the quarter aggregated to INR 24.6 billion. The bank did not sell any NPAs during the current quarter.

The total net nonperforming assets were INR 103.89 billion at December 31 compared to INR 109.16 billion at September 30, 2019. The net nonperforming assets declined by about 36% compared to December 31, 2018. The gross NPA ratio declined from 6.37% at September 30 to 5.95% at December 31, 2019. The net NPA ratio declined from 1.60% at September 30 to 1.49% at December 31, 2019.

Net investment in security receipts of asset reconstruction companies decreased from INR 32.76 billion at September 30, 2019, to INR 20.87 billion at December 31, 2019, due to the redemption of security receipts related to the steel account, which was resolved under IBC during the current quarter.

The loans and nonfund-based outstanding to borrowers rated BB and below, excluding NPAs, was INR 174.03 billion at December 31 compared to INR 175.25 billion at March 31 and INR 160.74 billion at September 30, 2019, of which the nonfund-based outstanding to nonperforming loans was INR 39.19 billion as of December 31 compared to INR 33.71 billion as of September 30. The bank holds provisions of INR 11.34 billion as of December 31 against this nonfund-based outstanding.

The fund and nonfund-based outstanding to borrowers under RBI resolution schemes were INR 38.94 billion as of December 31 compared to INR 39.29 billion as of September 30. The fund and nonfund outstanding to restructured loans was INR 1.96 billion at December 31. The balance INR 93.94 billion of fund-based and nonfund-based outstanding includes INR 59.78 billion related to cases with an outstanding greater than INR 1 billion and INR 34.16 billion related to cases with an outstanding of less than INR 1 billion.

On Slides 22 and 23 of the presentation, we have provided the movement in our BB and below portfolio during Q3 and 9 months of the current financial year. The rating downgrades from investment-grade categories, excluding fund-based outstanding to accounts that were also downgraded to NPA in the same period, were INR 26.66 billion in this quarter and INR 54.55 billion in 9 months ended December 31. We had mentioned in our previous quarter earnings call that given the macro context, additions to the BB and below portfolio could be somewhat higher over the next couple of quarters. An account in the telecom sector was downgraded in Q3, pursuant to the Supreme Court ruling on AGR-related dues in the telecom sector. Other downgrades were spread across sectors, including in the construction sector.

There were rating upgrades to the investment-grade categories and a net decrease in outstanding of INR 6.3 billion this quarter and INR 32.29 billion in the 9 months.

Lastly, there was a reduction of INR 7.07 billion in Q3 and INR 23.48 billion in 9 months due to slippage of some borrowers into the nonperforming category and devolvement of nonfund-based outstanding to existing NPAs.

The builder portfolio, including construction finance, lease rental discounting, term loans and work capital loans, was INR 230.99 billion at December 31 compared to INR 225.15 billion at September 30. Our builder portfolio is about 4% of our total loan portfolio. The loans to NBFCs and HFCs were about 5% of our total outstanding loans at December 31, and the details are given on Slide 25 of the investor presentation.

Coming to subsidiaries. The details of the financial performance of subsidiaries is covered in slides 31 to 32 and 53 to 58 in the investor presentation. I'll briefly talk about the major highlights. Value of new business of ICICI Life increased by 24.7% year-on-year to INR 11.35 billion in 9 months of 2020. The new business margin increased from 17% in financial year 2019 to 21% in 9 months of the current financial year. The protection-based annualized premium equivalent increased by 65.7% year-on-year to INR 7.64 billion and accounted for 14.1% of the total annualized premium equivalent in 9 months of 2020. The new business premium grew by 19.7% to INR 81.73 billion for the 9 months of 2020.

The gross direct premium income of ICICI General was INR 101.32 billion in the 9 months compared to INR 110.03 billion in the 9 months of the last financial year. Excluding the crop segment, the gross direct premium income increased by 13.2% year-on-year in the current 9 months to INR 100.58 billion, in line with the industry growth. The company's combined ratio was 100.5% in the 9 months compared to 98.7% in 9 months of the last financial year, primarily on account of long-term motor policies and losses, which were there in the previous quarters. The return on average equity on an annualized basis was 21.8% in the 9 months of 2020.

The profit after tax of ICICI AMC increased from INR 1.96 billion in Q3 of last year to INR 3.05 billion in the current quarter. The profit after tax of ICICI Securities on a consolidated basis was INR 1.37 billion in the current quarter compared to INR 1.01 billion in Q3 of last year.

ICICI Bank Canada had a profit after tax of CAD 22 million in the current quarter compared to CAD 14.2 million in Q2 of 2020 and CAD 13.4 million in Q3 of the last financial year. The profit after tax was higher in Q3 due to recoveries from India-linked impaired corporate loans.

ICICI Bank U.K. had a net profit of USD 8 million this quarter compared to USD 11.9 million in Q2 and a loss of USD 14.6 million in Q3 of last financial year. Net profit was higher in Q2 of 2020 compared to this quarter due to recoveries from India-linked impaired loans in Q2.

ICICI Home Finance had a profit after tax of INR 0.03 billion in the current quarter compared to a loss of INR 0.61 billion in Q2 and a profit after tax of INR 0.09 billion in Q3 of last financial year. The consolidated profit after tax was INR 46.70 billion in Q3 of the current financial year compared to INR 11.31 billion in Q2 and INR 18.74 billion in Q3 of last financial year.

Lastly, on capital, as per the Basel III norms, including profits for the 9 months ended December 31, the bank on a stand-alone basis had a CET1 ratio of 13.62%, Tier 1 capital adequacy ratio of 14.98% and total capital adequacy ratio of 16.5%. On a consolidated basis, the bank's Tier 1 capital adequacy ratio was 14.64%, and the total capital adequacy ratio was 16.12%.

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

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Questions and Answers

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Operator [1]

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(Operator Instructions) We take the first question from the line of Mahrukh Adajania from IDFC Mutual Fund.

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Mahrukh Adajania, IDFC Securities Limited, Research Division - Director [2]

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Just had a question on your rating profile of the loan book. So the proportion of A+ has increased significantly, and then AA- and BB+ has reduced. Is that a positive or a negative?

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Rakesh Jha, ICICI Bank Limited - CFO [3]

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So if you look at it, overall, the A- and above, that has increased from 66.3% to 69.8%, and that would definitely be a positive. Within that -- and there has been some reduction in the BBB overall bucket. We have seen some upgrades on the -- from BBB into the A category on the retail side where the ratings are based on the mapping of portfolios. So that would be a positive development in terms of the rating profile, A- and above being higher than the previous quarter.

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Mahrukh Adajania, IDFC Securities Limited, Research Division - Director [4]

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Also, it's the retail. It's mainly the retail portfolio.

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Rakesh Jha, ICICI Bank Limited - CFO [5]

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The improvement in the -- from BBB into the A bucket incrementally has happened on the retail portfolio. Overall, in the corporate portfolio also, the new -- we have given that data that you see at the -- below that table, the 90% of disbursements in the 9 months in order to corporates rated A- and above. So that trend is continuing. In addition to that, this quarter, we also had these upgrades on the retail portfolio.

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Mahrukh Adajania, IDFC Securities Limited, Research Division - Director [6]

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Okay. And any general understanding that you can share on telecom in terms of validity of annual spectrum guarantees, as -- if the company is admitted to NCLT and if it is not?

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Rakesh Jha, ICICI Bank Limited - CFO [7]

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So I think, Mahrukh, the way we are looking at it and we would urge you to look at it, is that there is a guarantee that has been given by the bank and that is the value at risk for the bank, so we will see how it kind of develops. Beyond that, very difficult to comment on this. So there's a guarantee which is there, and you should assume that -- and that guarantee to be at risk for all banks, not just for us.

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Operator [8]

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Next question is from the line of Motilal Oswal from Nirmal Bang.

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Manish Ostwal, Nirmal Bang Securities Pvt. Ltd., Research Division - Senior Research Analyst [9]

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Yes. This is Manish Ostwal, not Motilal Oswal. Manish Ostwal from Nirmal Bang. My question on the other corporate slippages. The corporate slippage and SME portfolio, Slide #20. In that -- in this quarter, we have reported INR 16.86 billion, and these 2, accounts, we have shared broking account and one South Indian industry. Apart from that, any other major industry contributed to this number compared to last quarter? Last quarter, the number was INR 3.73 billion.

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Rakesh Jha, ICICI Bank Limited - CFO [10]

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Yes. So the number that we have given on Slide 20, which is the other -- the INR 16.86 billion virtually entire amount will be these 2 cases. Other than that, it's a very small amount. One more case, it is a very small amount. But these 2 cases account for the -- virtually the higher amount of INR 16.86 billion between the broking company that we talked about and the South-based industrial company. And as we mentioned on the broking company, we have taken 100% provision on that on a prudent basis.

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Manish Ostwal, Nirmal Bang Securities Pvt. Ltd., Research Division - Senior Research Analyst [11]

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Sure. On the second piece on the retail NPA during this quarter, it is around INR 18.9 billion versus INR 13.23 billion, and you said the kisan credit card portfolio and the CV portfolio. So can you give the overall, as a percentage of CV portfolio, how much is NPA on that portfolio till date?

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Rakesh Jha, ICICI Bank Limited - CFO [12]

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So we have not given separately, product-wise, NPL numbers. So we can look at that in future, whether we would be giving that out. But I can say that the increase that you have seen in the gross additions on the retail side, we, of course, have to also look at the dilutions, which have gone up somewhat. The net increase, which is there, has come from the kisan credit card portfolio. We gave the total number there of about INR 3 billion that we have added on the kisan credit card portfolio in the current quarter. And in the commercial vehicle portfolio, we had income increase again. I think all the banks have talked about that. There is some stress on that portfolio. Other than that, the trends have been very stable across the retail portfolio, which I mentioned in my opening remarks.

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Manish Ostwal, Nirmal Bang Securities Pvt. Ltd., Research Division - Senior Research Analyst [13]

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Sure. On the last point on the regulation side, you said that regulation during this year, first 9 months has been below our expectation and because of it, credit cost has increased. So now coming to the fourth quarter, what in -- with respect to power sector and the other than power sector regulation, how is the progress? And what is our net assessment currently?

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Rakesh Jha, ICICI Bank Limited - CFO [14]

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I think as Sandeep mentioned, very clearly, that the credit cost for the current financial year is likely to be similar compared to the number that we have seen for the 9 months. So to that extent, it's fair to assume that we are not very hopeful of any regulations getting completed in the March quarter. And that is the reason why along with the fact that we indeed have taken higher provisions on the 2 specific accounts that I referred to earlier. So that is the outlook that we have currently. Hopefully, in future, we should be able to get recoveries. But for the March quarter, as of now, we don't see that happening.

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Operator [15]

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(Operator Instructions) Next question is from the line of Kunal Shah from Edelweiss.

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Kunal Shah, Edelweiss Securities Ltd., Research Division - Associate Director [16]

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Yes. Firstly, in terms of the recoveries, both SR and the power sector reduction, which is there in, say, NPL and BB and below, is that also on account of recovery and getting reflected in the corporate recovery and what would be the impact of it, say, on the PPO PBIT? Any impact on NIMs and all?

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Rakesh Jha, ICICI Bank Limited - CFO [17]

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So on the -- so if you look at, we have got recoveries in this steel account in the current quarter. So we have received the cash on that, and we also got redemption on the security receipts that I referred to. So going forward, as we deploy that cash, there will be some impact, improvement on the margins. But the overall number, of course, given our portfolio size, it's not something that will reflect in terms of a significant increase, but there will be a benefit that will come in.

On the other side, there is a reduction on the power sector. The decrease was mainly due to some write-off of the nonperforming loans, which you are seeing. So there have really not been any recoveries per se in the current quarter on the power sector.

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Kunal Shah, Edelweiss Securities Ltd., Research Division - Associate Director [18]

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So this INR 2,000 crores, INR 1,800 crores would be write-off on the power sector side?

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Rakesh Jha, ICICI Bank Limited - CFO [19]

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That is not entirely only power sector. That's the total write-off for the quarter of INR 2,000 crores.

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Kunal Shah, Edelweiss Securities Ltd., Research Division - Associate Director [20]

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Okay. Also, INR 11,000 to INR 9,200 in power sector, so that is, you're saying, primarily write-off?

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Rakesh Jha, ICICI Bank Limited - CFO [21]

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Yes.

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Kunal Shah, Edelweiss Securities Ltd., Research Division - Associate Director [22]

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Okay. Okay. And so this improvement in margin, which is there, that is the core margin, that is what you are suggesting? There is no element of recoveries in this? So 3.64% to 3.77%, that is largely the core margin, excluding the income tax refund?

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Rakesh Jha, ICICI Bank Limited - CFO [23]

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So we have said that there is about 10 basis points of benefit that we have got from the interest on NPL collections, and that would include some interest on the -- from the accounts that we recovered during the current quarter. The income tax amount was negligible. So 10 basis points is there, like we said, it's (inaudible).

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Kunal Shah, Edelweiss Securities Ltd., Research Division - Associate Director [24]

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10 bps is there. Okay. And the second, in terms of for BB and below, you highlighted the telecom and construction. So is this a telecom also getting reflected in the fund based more than INR 1 billion? Or it is primarily in the nonfund-based exposure?

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Rakesh Jha, ICICI Bank Limited - CFO [25]

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So the -- so what we give the breakup of BB and below is the total outstanding. That includes fund-based and nonfund-based. These numbers are including both. And of course, this will show up in the other borrowers with outstanding greater than INR 1 billion on Slide 21.

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Kunal Shah, Edelweiss Securities Ltd., Research Division - Associate Director [26]

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Yes. So I'm saying telecom is not only nonfund-based. There's the one in the fund based, more than INR 1 billion. So it would be fund-based as well? So INR 600 crores is the nonfund-based exposure, and the INR 1,300 crores is the increase in the fund-based of more than INR 100 crores? So would the telecom -- what you are highlighting would have maybe the impact on both of them or it is only nonfund-based?

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Rakesh Jha, ICICI Bank Limited - CFO [27]

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So Kunal, just to clarify, you're talking about Slide 21?

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Kunal Shah, Edelweiss Securities Ltd., Research Division - Associate Director [28]

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Yes.

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Rakesh Jha, ICICI Bank Limited - CFO [29]

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Yes. So the numbers on this table are all including fund-based and nonfund-based outstanding. So other borrowers with outstanding greater than INR 1 billion is both fund-based and nonfund-based. So the INR 46.62 billion and INR 59.78 billion are from (inaudible).

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Kunal Shah, Edelweiss Securities Ltd., Research Division - Associate Director [30]

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Okay, okay, okay. Sorry. Sorry. Yes. So this nonfund-based is largely NPLs, okay, which telecom would not get reflected in that.

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Rakesh Jha, ICICI Bank Limited - CFO [31]

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Includes [non]. And telecom will be reflected in there.

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Kunal Shah, Edelweiss Securities Ltd., Research Division - Associate Director [32]

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I'm sorry. Yes. And any investments in BB and below, which have gone up compared to what it was last time, INR 600, INR 700-odd crores?

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Rakesh Jha, ICICI Bank Limited - CFO [33]

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It is similar. I think last time, we had mentioned, it's around INR 5 billion to INR 6 billion. It is similar. It is actually the same as the September 30, so there is no movement there.

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Operator [34]

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We have the next question from the line of Mohit Surana from CLSA.

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Mohit Surana, CLSA Limited, Research Division - Research Analyst [35]

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Yes. I'm referring to the Slide #19. I just wanted a clarification. The recoveries and upgrades in this quarter include INR 8.45 crores (sic) [INR 8.45 billion] lifting nonperforming loans to -- as a result of debt restructuring in one company. Is this a Karvy data company that we are talking about?

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Rakesh Jha, ICICI Bank Limited - CFO [36]

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No. No. No. Not at all, actually. The company that we have referred to -- obviously, we can't talk about specific companies, but the company that we referred to, no, that shows up in the gross additions. The corporate and SME addition of INR 24.73 billion, that shows up in the addition. This INR 8.45 billion is actually a nonperforming loan, which was already fully provided, which as a part of a debt restructuring scheme, it got converted into preference shares. So technically, it shows up in the movement table, and that's why I wanted to highlight it separately, that it is not actual recovery in the sense of a cash recovery of -- or an upgrade. It has just moved from a loan to a preference share. It was already 100% provided. There is no P&L impact, nor it will show up in the preference shares. This is actually in the power sector, actually. So it's nothing to do with the broking.

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Mohit Surana, CLSA Limited, Research Division - Research Analyst [37]

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Okay. Because I take your exchange filing, and I did not find anything of this sort. Isn't this supposed to be disclosed to exchanges if you are acquiring any preference shares?

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Rakesh Jha, ICICI Bank Limited - CFO [38]

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No. No. Preference share conversion is not required. Equity holdings beyond a certain level need to be disclosed.

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Mohit Surana, CLSA Limited, Research Division - Research Analyst [39]

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Okay. Okay. And just a small clarification on Slide #22. So the downgrades to BB and below exclude the downgrade that can happen from investment grade and subsequently classified as NPL during the same quarter, right? And is there a deviation in the reporting from last quarter? Do -- I mean last quarter, we had a INR 20.72 billion number further downgrade, yes? Yes?

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Rakesh Jha, ICICI Bank Limited - CFO [40]

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This would be comparable to that number. [It's only significance], in addition to this INR 26.66 billion, like we have said on the -- logged on Slide 20, INR 16.86 billion of amount has lifted directly from investment-grade into the NPA bucket, which is virtually entirely the 2 cases that we have referred, the broking company and the South-based industrial company. The INR 26.66 billion has slipped into BB and below. And separately, INR 16.86 billion, as already highlighted, has slipped into the NPA bucket.

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Operator [41]

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We take the next question from the line of Ashish Sharma from ENAM Asset Management.

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Ashish Sharma, ENAM Asset Management Company Pvt. Ltd - Analyst [42]

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Yes. First of all, congratulations on the great set of numbers. The question is on the fee income part. In the retail fee income, what percentage of fee income in retail is from the credit card? And second would be on impact of the MDR waiver by the government courts. What was the impact of this [theme]? Because one of the peer had highlighted the theme . Can you quantify the theme ?

And the second question would be on the credit growth going forward. I mean assuming the micro environment doesn't change so much, what would be our threshold in terms of growth rate? Can we sustain current trends, both in corporate and retail? That will be all, sir.

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Rakesh Jha, ICICI Bank Limited - CFO [43]

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Yes. So on credit cards, we have not separately given the fee revenues. The retail income has indeed grown in overall, quite well for the quarter. And the growth has come across the credit cards, the retail liabilities business, debit cards, the lending linked, the fees that we earn on processing loans. So the growth has been well spread across.

On the MDR waiver, I guess we will have to see how it plays out. First, there will be some impact for all the banks because of this. But in terms of quantification, as of now, it does not appear to be a very material number per se. But there are definitely other challenges that banks will have with this MDR waiver, and not just banks but the entire system. We have some issues, and we'll have to see how that plays out. But just from a number perspective, as of now, it would not be a very material number in terms of the announcement, which has been made for the RuPay cards and the UPI transactions.

On credit growth, our sense continues to be the same that we have been saying that as long as we see opportunity for growth within our risk parameters, where the return of capital is assured in our assessment and we make adequate returns as per our requirement, we will be happy to grow that portfolio. And we don't have any specific loan growth targets or loan composition targets per se. So as of now, the opportunity was such that we were able to grow at about 16%. You saw the growth on the retail side. Even on the corporate side, we have seen the performing portfolio growing at close to 12%, even after we have stayed away from some of the lending, which is very finely priced as well. So we are looking at it entirely from a contribution to the core operating profit across each of the businesses.

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Ashish Sharma, ENAM Asset Management Company Pvt. Ltd - Analyst [44]

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Okay, sir. And if you can just kind of -- I have a follow-up on the credit card. Is the profitability -- I mean, one of the large peer, which is an NBFC...

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Operator [45]

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(Operator Instructions)

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Ashish Sharma, ENAM Asset Management Company Pvt. Ltd - Analyst [46]

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Sure, ma'am. I'll come back in the queue.

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Operator [47]

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Next question is from the line of Rakesh Kumar from Elara Capital.

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Rakesh Kumar, Elara Securities (India) Private Limited, Research Division - Senior VP & Analyst [48]

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Yes. So the question was related to the retail sector, the retail portfolio growth this quarter. As we see, the growth was quite high in the personal loans and the credit cards and also if we see there is a rise in the gross NPA number sequentially. So it has come from Kisan credit card, as you are saying, but given the scenario, the convention, i.e. right now, and the overall leverage for the retail loans, which I think kind of coming from the RBI data, if you look at last 40 years data, so the customer -- retail customer leverage is all-time high. And we are still growing these books at a much higher rate. So just to hear your input on this.

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Rakesh Jha, ICICI Bank Limited - CFO [49]

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Yes. So the increase in the costs, retail NPLs that you have seen, as I said, it has come from the Kisan credit card portfolio and from the commercial vehicle portfolio, in addition to the normal growth across the other segments. And as I mentioned earlier, the delinquency parameters across vintages in the personal loan and the credit card portfolios have been stable and well within our internal thresholds. A lot of the growth is also being driven in personal loans and credit cards from the existing customers of the bank. And as you know, if you go back 3 years, we were not really growing this portfolio as much. So we clearly see an opportunity for growth to be there. And I would ask Anup to add on to this.

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Anup Bagchi, ICICI Bank Limited - Head of Retail Banking & Executive Director [50]

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So actually, if you see the absolute growth, absolute rupee growth between its -- in this quarter, you will see that it is very broad-based in the sense that if you see personal loan and credit card unsecured, in Slide #12, as the overall proportion of the total growth, you will see that it is a very, very good trend, considering it is less than 1/3. Actually, our collateral book, in absolute terms, has grown in size, and that should give comfort because percentages are looking slightly different because of the lower base. But actually, in absolute basis, the mix is very, very healthy. It would be 1/3, 2/3 between unsecured and secured.

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Rakesh Kumar, Elara Securities (India) Private Limited, Research Division - Senior VP & Analyst [51]

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Hello?

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Anup Bagchi, ICICI Bank Limited - Head of Retail Banking & Executive Director [52]

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Yes.

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Rakesh Kumar, Elara Securities (India) Private Limited, Research Division - Senior VP & Analyst [53]

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More question, if I could ask, pertaining to noncapital book, which has come down quite drastically this quarter on a sequential basis. So this has basically had a relation with the credit growth number. What we are anticipating in the future? Does...

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Rakesh Jha, ICICI Bank Limited - CFO [54]

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What -- which number has come down very sharply?

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Rakesh Kumar, Elara Securities (India) Private Limited, Research Division - Senior VP & Analyst [55]

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This noncapital borrowing number, has come down for -- to INR 522 billion from INR 615 billion. So my question is that are we so -- like, are we going to raise that noncapital borrowing soon? Or are we not that excited about the growth? So how is the scenario?

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Rakesh Jha, ICICI Bank Limited - CFO [56]

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Well, I think we are more excited about the deposit growth that we are seeing in the sense that the deposit growth has been very healthy. And we have been able to bring down our reliance on the borrowings. If you look at the last 12 to 18 months, there has been quite a consistent trend of our borrowings not increasing, while we have seen the deposit growth being very healthy. So it reflects that. Or -- so where we are focused on the borrowings is, one, of course, are the capital instruments which comes as Tier 1 or Tier 2 capital. Then to the extent that we access refinancing from some of the institutions, that is something which comes at a relatively lower cost. Other than that, the other borrowings are generally either short-term borrowings or would be slightly higher cost. So we are quite happy to bring that down and replace that with deposits.

Also, because these numbers would include -- on a period end, it would include borrowings which are short term in nature like a repo borrowing or those kind of things as well, so we are seeing some decline in that, in the noncapital instruments. So I don't think you should interpret this to mean anything from our aspiration of growth or expectation of growth. It is more from our balance sheet management point of view and cost of funds management point of view that we look at these borrowings.

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Operator [57]

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We take the next question from the line of [Ashish Golechha] from [Ajit Securities].

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Unidentified Analyst, [58]

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My question was with respect to BB portfolio. Our BB portfolio has been basically at INR 17,403 crores compared to INR 17,525 crores. So I wondered what is our road map for coming next 3 quarters and next 1 year. First question.

And second question was that in the call, you had said that with respect to the telecom exposure, you have already downgraded 1 account. So wanted to know your views that -- whether we are going to take any provisions with respect to the telecom exposure. Or what is our road map on that?

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Rakesh Jha, ICICI Bank Limited - CFO [59]

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Yes. So on the telecom, the -- what we mentioned that 1 account has been downgraded from investment-grade to below investment-grade. So that does not require any provision to be taken. That's what that downgrade was also off an internal rating of the borrower based on the developments that happened during the December quarter. So that was on telecom.

On the BB and below portfolio, it's very difficult to kind of give a specific outlook on the INR 174 billion of the outstanding that we have. But if you look at that portfolio, there is a part of it which is the nonfund outstanding to nonperforming loans, which generally would be at higher risk because it corresponds to nonperforming loans, other than in a couple of instances where it would be doing fine. So that generally would be at a higher risk. The borrowers under RBI regulation scheme, again, typically because they have kind of undergone some sort of restructuring in the past and have continued in this bucket, so again, that -- they would carry a reasonable amount of risk in terms of the performance of the portfolio. And one of the borrowers in that is a -- kind of the largest exposure that we have, which we used to disclose in earlier as well.

The other borrowers, less than INR 1 billion, this granular portfolio, we'll keep on seeing movement on that on a quarter-on-quarter basis. And greater than INR 1 billion, this quarter, the telecom addition came in. But otherwise, like we said in our previous call, and I think that situation still remains, is that we would expect just given the overall environment which is there, that there could be higher-than-the-normal kind of downgrades into the BB and below category. So in the first couple of quarters of this financial year, in the first quarter, we had seen about INR 10 billion of downgrades. September quarter, we had seen INR 20 billion, and that's when we mentioned that for a couple of quarters, the numbers could be elevated. And that is -- that continues to be our assessment as of now as well.

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Unidentified Analyst, [60]

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Sir, my question was that on the assessment part, where do you see this reaching a basically constant level? Or where do you see the reduction coming in this going ahead? Because in the last con call, you had said that next 2, 3 quarters, you expected to see some elevated levels, so -- because generally, in banks, you would be doing assessment that where do you see this level is coming lower and lower quarter-by-quarter.

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Rakesh Jha, ICICI Bank Limited - CFO [61]

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Also, it's very difficult to do -- to kind of estimate that on a quarter-on-quarter basis in a corporate portfolio. I think overall number, to give context also, at INR 174 billion, if you look at it from our total loans perspective, total loans and nonfund, it is less than 3%. And at any point of time, there will be some portfolio which will always be below investment-grade. So beyond that, it's very difficult to assess borrower-by-borrower or quarter-by-quarter.

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Unidentified Analyst, [62]

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One last question was with respect to new engines of growth with respect to business banking and SME segment, what is the future road map? Like how do we see our bank -- ICICI Bank growing this segment with respect to business banking and SME segment?

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Rakesh Jha, ICICI Bank Limited - CFO [63]

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I'll let...

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Sandeep Bakhshi, ICICI Bank Limited - MD, CEO & Executive Director [64]

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So business banking and small SME, which is smaller, so our endeavor is to keep bringing down the ticket size, collateralize it very well and have good visibility of cash flows. These are the 3 in a parameterized way we want to move it. So that has been -- we have been doing it for quite some time now. And even with the easing of the portfolio, because some part of the portfolio is well hedged, it is holding up quite well.

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Operator [65]

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We take the next question from the line of Pavan Ahluwalia from Laburnum Capital.

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Pavan Ahluwalia, Laburnum Capital Advisors Private Limited - MD & Director [66]

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Two questions. One, since it looks like you've been very candid in terms of portioning that economic volatility, and obviously, will result in volatility in credit quality, just curious to get your take. In a slightly rougher macro environment, what does that do to your growth targets? And what do you expect the growth engines to be? Specifically on SME and business banking, how is this growth actually playing out? Is this a function of your branch network expanding? Are you going in and taking over clients from PSUs because they're not getting their full limits elsewhere? What is actually leading to the strong growth in this segment, which you call. SME, other people may call mid-corporate because you're obviously one of the largest banks?

The second question is on your expenses. We saw a lowering trend growth in employee expenses and much higher growth in operating expenses. I just wanted to understand what was going on there. And is this a classification issue where you may have changed where you classify some expenses?

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Sandeep Bakhshi, ICICI Bank Limited - MD, CEO & Executive Director [67]

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I think you might have had a chance to look at our investor presentations on the digital day that we did. And much of the answers to your questions actually lie in that presentation. And that is the 2 trends that we are certainly seeing, is that there is a capacity in banking as far as lending to good, quality business banking customers are concerned, and they're certainly looking at a quick delivery. They are certainly looking at a holistic servicing. And with our wide footprint and with the digital solutions, I think they're quite liking the fact that they can save time, get greater efficiency into the businesses. And with decongested processes, we are able to deliver credit very quickly. So I would say that these are the 3 big drivers of growth.

Also, the fact is that our market share there is low, and our base is low. So the percentages look higher. But if you look at in absolute amount also, it is quite healthy. And we see that we are able to apply credit filters, apply a lot of underwriting parameters which are there with us or external signals of underwriting and originate to our branches. We still got -- almost 100% is originated to our branches now, so originate to our branches, take you through credit filters, give higher credit delivery, originate through digital means. And if you see, there is a slide on Instabiz. You will see that it's quite a differentiated solution that we are giving. I think clients are liking it and the clients are moving, also helped and aided by the fact that large part of banking system is also constrained in lending to these equities.

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Pavan Ahluwalia, Laburnum Capital Advisors Private Limited - MD & Director [68]

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So is it safe to assume that most of your clients you're gaining from there or from PSUs or all private sector banks?

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Sandeep Bakhshi, ICICI Bank Limited - MD, CEO & Executive Director [69]

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No. No. No. I think we have studied this. I think it is quite -- it could -- quite widespread. So it is not just PSUs. It is PSUs as well as new private sector as well as old private sectors. And also, what we have done is using our digital capabilities, our GST OD product and the current account OD product, they are also moving quite well. So actually, there is a mix. So when we look at our portfolio, the new to credit, we are able to do it, short-term loans, using up to 100 [cash-to-hand]. [Based on] underwriting, that is holding up also quite well. But it is actually quite widespread. It is not true that it is only PSUs.

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Rakesh Jha, ICICI Bank Limited - CFO [70]

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The other question on the expenses, I think that on the nonemployee expenses, where we have seen a 26% increase during the quarter, I think as we said during the beginning of the year that we are looking at incurring expenses on branch expansions and other business-related expenses. So if you look at the 9-month run rate, it's running at around 20% for both employee expenses and the nonemployee expenses. And this includes expenses which are almost entirely related to the business growth, so credit card business, increasing the reward point expenses, which have happened. We purchased priority sector lending certificates, PSLCs. That has some expenses which comes in. So all of this -- advertisement expenses, which are there, technology expenses, so all of these are expenses which we believe will drive or are driving the core operating profit of the bank. And the focus is to grow the revenues at a faster pace than these expenses.

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Operator [71]

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We take the next question from the line of Kshitiz Prasad from Maybank.

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Kshitiz C. Prasad, Maybank Kim Eng Holdings Limited, Research Division - Analyst [72]

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Just wanted to understand your views on a certain macro parameter is: one, that 135 bps cut in the repo rate, how does that -- has affected the liquidity in the banking system and the linkages of some of these retail products to evaporate? How has been your experience so far as one of the largest banks?

Second is that are you -- is the stress in the NBFC sector easing out? Are you lending to them? Or what is your take on that sector as well? So please if you can elaborate your experience and share with us.

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Rakesh Jha, ICICI Bank Limited - CFO [73]

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So as you know, from October, all banks have been making loans, the home loans and other MSME loans, the floating rate loans linked to the repo rate. So of course, it is too short a time period to kind of fully assess the impact. Until now, of course, the repo rate movement, there has not been much of a movement which has happened in that sense. So we are quite fine with our experience until now. Our belief is that over the cycle, I think it will all average out and it should be fine. But there will be -- there could be periods of time when the movement in repo rate and the underlying funding cost for banks may not be fully aligned. So there could be some quarters in which it could impact positively or negatively. That we will have to see how it progresses.

On the repo rate cuts by RBI, I think that has happened. And more importantly, over the last now 6 to 9 months, RBI has also ensured significant liquidity in the system. So the system has significant surplus, and that has reduced the funding costs, the wholesale deposit costs. Banks have been able to reduce their retail deposit costs as well. And we have been reducing our MCLR, which is the benchmark rate as and when we review it on a monthly basis. So that is something which will continue to flow through. Again, it's a function of how RBI assesses and decides on the rates and liquidity going forward.

On the NBFC and HFC portfolio, we have given our outstanding to these sectors in our presentation. So we are quite happy to link to NBFCs and HFCs because a number of them are doing pretty fine and extremely well, actually. And given any opportunity for lending that we see where the risk is within our threshold and returns are adequate, we are quite happy to make loans to them. So as I said, currently, about 5% of our loans would be to NBFCs and HFCs.

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Operator [74]

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We take the next question from the line of Dipan Mehta from Elixir Capital.

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Dipan Anil Mehta, Elixir Capital Limited - Chairman of the Board [75]

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Yes. So my question is regarding the increase in the NPLs.

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Operator [76]

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Sir, this is the operator. I'm so sorry to interrupt. Sir, your audio is breaking up. We're unable to hear you well.

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

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Jai Mundhra, Batlivala & Karani Securities India Pvt. Ltd., Research Division - Research Analyst [77]

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Sir, if you can sort of give sectoral -- at least if you name the sector in this INR 174 billion book, apart from telecom and construction, so probably -- and if you have the broad percentage.

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Rakesh Jha, ICICI Bank Limited - CFO [78]

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So it is -- so it will essentially be power, telecom, so infrastructure, if you look at it broadly, power, telecom, maybe some road or something like that and construction. I think these are -- these will account for nearly 2/3 of the INR 174 billion. And then there will be borrowers across sectors.

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Jai Mundhra, Batlivala & Karani Securities India Pvt. Ltd., Research Division - Research Analyst [79]

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Sure, sir. And sir, do you have any standard ICA pipeline or wherever you have signed or are likely to sign the cases for ICA for the standard category?

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Rakesh Jha, ICICI Bank Limited - CFO [80]

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We, of course, are working on that as the guidelines, and we don't disclose separately the pipeline and what all we have signed per se. But that is something which in the normal course of business, the corporate underwriting team would be doing.

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Jai Mundhra, Batlivala & Karani Securities India Pvt. Ltd., Research Division - Research Analyst [81]

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Sure, sir. And last question is, sir, I mean if you can quantify as to what percentage of your personal loan and credit card is coming from existing liability customers and how much is roughly open market. Yes.

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Rakesh Jha, ICICI Bank Limited - CFO [82]

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So it remains 65% to 70% would be existing customers of the bank.

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Jai Mundhra, Batlivala & Karani Securities India Pvt. Ltd., Research Division - Research Analyst [83]

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In both PL and CC?

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Rakesh Jha, ICICI Bank Limited - CFO [84]

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Yes, broadly.

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Operator [85]

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We take the next question from the line of Manoj Bahety from Carnelian Capital.

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Manoj Bahety, Carnelian Asset Management LLP - Co-Founder [86]

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First of all, congratulations to the ICICI Bank team for a decent set of performance. So I have a couple of questions. First question is like when I was hearing the con calls of other ICICI group companies, everybody was talking like the kind of higher synergy benefits which has started flowing in terms of their higher businesses and all from ICICI Bank. So is there some change which has happened recently? And how ICICI Bank is seeing these kind of synergy benefits flowing into the fee income? Also, if you can quantify like what proportion of your new income is coming from ICICI group companies.

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Rakesh Jha, ICICI Bank Limited - CFO [87]

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Yes. So I think the focus that the bank and the group companies have on leveraging the synergy, I would say that has got enhanced a lot in the last 2 or 3 quarters. And as we have mentioned earlier, in terms of the -- our approach on the core operating profit and the "one bank, one ROE" focus that we have, where we look at all the business groups and the group companies and see how we can leverage relationship to make the maximum value for the group and the bank, so that is -- that has meant that all the teams are -- within the bank and with the group companies are working together in terms of all the products and services. So of course, from the bank's point of view, these are -- the focus is not just on third-party distribution and making fees. So that is one of the elements which is there. So as long as those products make good sense for the customer, we are happy to sell that and make revenues there. But that is not something which is a core driver, I would say, of fee revenues. So it's more about leveraging the opportunity which is there across the group.

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Manoj Bahety, Carnelian Asset Management LLP - Co-Founder [88]

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Okay. Okay. And my second question is like, if I look at the current state of economies, the kind of job losses which are happening and the kind of stress which is there across sectors, which are like job creators, and at this time, like when the retail loans are growing, so what are early signals which you will be watching like while creating or writing or scaling up the retail book to ensure that the kind of credit cost guidance which you are giving, so -- in that, I just wanted to understand like what kind of early signals you will be watching while writing the retail books.

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Rakesh Jha, ICICI Bank Limited - CFO [89]

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So from our point of view, we look at all the data that is available from the larger system. But we indeed focus a lot in terms of our own portfolio. We look at -- so for each of the portfolio, each of the segments, we have internally defined thresholds and that we look at on a regular basis, on a month-on-month basis. And if we see any trends, which are not in line with our expectation, we take proactive steps for each of the portfolios. And this is happening at a product level, at a customer segment level, at a geographic level. And that is the best way to kind of look at it and look at the early bucket delinquencies as well.

In addition to that, of course, we -- one is able to get a lot of data from the credit bureaus also, and that gives an overall sense of how the portfolio for the market is behaving. We also, of course, factored in that, like we discussed for our personal loan, credit card business, a lot of the business is coming from our existing customers where we have a lot more data on the customers compared to what you otherwise would have. And for the sourcing that we are doing from outside also, we would look at the various parameters that are available. And some of the partnerships that we have done, like, say the Amazon partnership, it will help us source credit cards from new-to-bank customers with some parameters being available through that partnership. So that is how we are looking at it. And I think as we mentioned earlier, as of now, we are seeing quite stable trends across most of the portfolios, other than the commercial vehicle and the Kisan credit card portfolio.

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Manoj Bahety, Carnelian Asset Management LLP - Co-Founder [90]

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So as of now, you are not seeing any early signs of problem or trouble, right, on the retail or SME portfolio.

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Rakesh Jha, ICICI Bank Limited - CFO [91]

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As I said, excluding the Kisan credit card portfolio and the commercial vehicle portfolio, we are seeing signs which are quite stable across the unsecured portfolio or the new car loans or mortgages.

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Operator [92]

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We take the next question from the line of Saikiran Pulavarthi from Haitong Securities.

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Saikiran Pulavarthi, Haitong International Research Limited - Research Analyst [93]

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The margins in the FY '20 has been more broadly in range, between 3.9% to 4%. Do you -- what I can say, where do you see this stabilizing over a period of time? Do you see any further scope of improvement as such?

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Rakesh Jha, ICICI Bank Limited - CFO [94]

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So I think we would, of course, still be looking at, from a business mix perspective, if some improvement can come in, if -- from pricing loans in some of the segments in a better manner, we can come up with some improvement in the yields. On the funding cost, also, we'll see if we can optimize further. On the flip side, I think a lot of the benefit of -- on the funding cost has come in. I think if you look at the benchmark rates for us, it has come down a fair bit in the last few months. So going forward, in the next 6 to 9 months, we will see some of the MCLR-linked loans getting reset at a lower level, which would be about maybe 40 basis points lower level because of the decline in the MCLR, which has happened. So there will be a lot of moving parts which are there.

Of course, in this quarter, we also had about a 10 basis point benefit from the NPL interest collections as such. So it's very difficult for us to give a number. What we can assure is that we are focused on the core operating profit and improving that. And as a part of that, margin is a key driver for that as well. But depending on how significant the liquidity in the system remains, how much the loan demand and competition which is there, so we'll have to see all that aspects as well. And at some stage, what will also happen is that the deposit rate cannot reduce beyond a certain level. So already, I think we have reduced our deposit rates quite sharply even on the retail side. The peak rate that we offer is 6.4%. So from here on, it may not be as a rapid reduction that we would see, as we have seen until now. So that is the other flip side which is there. So these are the drivers, and we have to see how it plays out.

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Saikiran Pulavarthi, Haitong International Research Limited - Research Analyst [95]

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Got it. And the second question is some of the select portfolios, especially in the last 2, 3 years, came off from a low base, and then you were playing the penetration story. But even if I look at on the growth rate's perspective, they are pretty much high growth rates. How do you see this from the risk perspective, primarily on not being much seasoned and probably some of these customers came in for the first time in some of the select products? Would you like to take a pause, maybe lowering the growth rates? Or do you think that is not needed, and there is further long headway for the penetration to the existing customers in some of these products?

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Sandeep Bakhshi, ICICI Bank Limited - MD, CEO & Executive Director [96]

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I think 2 things. One is, I would still say that we have some way to go as far as optimal penetration of these products to our customers. If you look at a very large peer bank, our -- on the liability side, our bases are quite similar. But if you look at the asset side, we are quite under-penetrated. So that is one. The second one is that I think with the -- in the last 4, 5 years, I think there are a lot more signals on credit underwriting. So that may fit -- I will not say safer, but it certainly gives a higher level of confidence on underwriting on the unsecured part.

Third, I would say that base is low, and so percentages look high. But we have to look at absolute levels. And that would be a good way of looking at it because our objective is to create a very balanced book. Actually, if you look at our book, only 1/3 will be coming from unsecured of the total incremental. While if you look at many other peers, upwards of 50%, 60% comes from unsecured. To that extent, we want to create a book which is more broad-based, which doesn't have concentration risk because each of our businesses has 3/4 -- 3/4 percentage of the overall book, actually. We don't have a book which is very, very high concentrated on one. We also look at capital allocation properly and low-ROE businesses when NIMs are very low. That cannot absorb too much of credit costs. So we also look at lesser capital to areas where we think that the capital deployment will not give us adequate returns. So that means one must have some impulse fees so that in a volatile situation, at least one can absorb it positively. Even when we look at our KCC portfolio, because it is priced properly, actually across the cycle, we make a decent ROE on the KCC portfolio as well, even though we are well aware that it hurts at this point of time and the costs are slightly higher. But over a cycle, we have seen that it works out well if we have enough margins to take the cushion.

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Saikiran Pulavarthi, Haitong International Research Limited - Research Analyst [97]

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Got it. One last question. Just there is more improvement in the Tier 1, primarily the CET1. I think the risk-weighted assets growth has been pretty lower than versus the balance sheet growth. Can you just explain what's the reason behind this?

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Rakesh Jha, ICICI Bank Limited - CFO [98]

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So on the CET1, of course, during the quarter, the profit also has got added. So this is including the profits for the 9 months and for the quarter. So that has led to an increase in the CET1.

On the risk-weighted assets, there is nothing specific in this quarter which has changed between September 30 and December 31. It would just be based on the rating of the -- on the corporate side and the portfolio on the retail side that we have grown.

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Operator [99]

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We take the next question from the line of Manish Shukla from Citigroup.

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Manish B. Shukla, Citigroup Inc, Research Division - VP [100]

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Sir, what could be the CET1 threshold at which you would want to start evaluating a capital raise? Would it be 13%? Or would it be lower?

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Rakesh Jha, ICICI Bank Limited - CFO [101]

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I think the evaluation of a capital raise, in that sense, happens at all points of time per se. But you would know that at what level private banks generally look at a capital raise. So we don't have a particular threshold in mind at which point of time we'll start evaluating or start raising capital. I think our response, which came in, was in the context of the press articles which had come out. And that's why we kind of clarified that we are not in the process of raising capital. And we have a pretty comfortable level of CET1 ratio at December 31. And like any bank, we will keep evaluating the capital position and requirements depending on the market conditions, growth opportunities and regulatory developments. Beyond that, it's very difficult to comment.

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Manish B. Shukla, Citigroup Inc, Research Division - VP [102]

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Got it. And on consol ROE for the quarter, you already had 15.5%. Would you like to give a new number there, which will you aspire for?

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Rakesh Jha, ICICI Bank Limited - CFO [103]

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So on -- in the quarter, I think we indeed have got some benefit from the write-backs on the steel account, which happened. Of course, there was an offsetting incremental provision, which also came on a couple of accounts that we talked about. And the treasury income was somewhat higher than what you would expect in a normalized quarter. So I think from a run rate basis, maybe we are still a couple of quarters away in terms of being there, in terms of the number that we have talked about of 15%. So we are -- we will stay with 15% for June 2020 as what we are looking forward to.

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Operator [104]

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We take the last question from the line of Vishal Goyal from UBS.

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Vishal Goyal, UBS Investment Bank, Research Division - Executive Director and Research Analyst [105]

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One question. One is on the NBFC and HFC. Any of those basically on the current NPA in this quarter? Taking out any de-formation, do we have NBFC/HFC?

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Sandeep Bakhshi, ICICI Bank Limited - MD, CEO & Executive Director [106]

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No. I think on the corporate side, we've talked about the 2 accounts actually, and that consumed the bulk of the addition which are there, the broking company and the other industrial company.

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Rakesh Jha, ICICI Bank Limited - CFO [107]

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And in terms of the other -- on HFC, which is there, which has been under resolution and all of that, you would -- that has been classified sometime back. We didn't have a loan there. We had some investments which is classified and provided for actually quite some time back.

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Vishal Goyal, UBS Investment Bank, Research Division - Executive Director and Research Analyst [108]

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Okay. Great. And the second is on the capital repatriation plan from the U.K. and Canada. Anything on that?

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Rakesh Jha, ICICI Bank Limited - CFO [109]

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I think we have a strategy there in terms of the growth that we are looking at. So of course, they would not be requiring any fresh capital. And if at any stage there is a surplus in terms of capital that we see there, they could look at repatriation. But as of now, there's nothing which is on the anvil, I would say.

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Operator [110]

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Well, that was the last question for today. I would now like to hand the floor back to the management for closing comments.

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Rakesh Jha, ICICI Bank Limited - CFO [111]

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Thank you for attending the call on a Saturday. If there are any further questions, you can reach out to me or Anindya. Thanks.

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Operator [112]

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Thank you.