ICICI Bank Q3 22/23 Earnings Call Transcript

Quartr
Provided by Quartr
January 21, 2023

Key Takeaways

  • Core operating profit rose 31.6% YoY to INR 132.35 billion and profit after tax was up 34.2% YoY at INR 83.12 billion in Q3 FY23.
  • Total period-end deposits grew 10.3% YoY and CASA balances increased 10.4% YoY, bolstering the bank’s liquidity franchise.
  • Overall loan portfolio expanded 19.7% YoY, driven by retail loans (+23.4%), business banking (+37.9%) and SME loans (+25%) YoY.
  • Asset quality improved with the net NPA ratio falling to 0.55%, provisioning coverage at 82% and a prudent contingency buffer of INR 115 billion.
  • Net interest margin widened to 4.65% from 4.31% in Q2, reflecting the repricing of loans following repo rate hikes.
AI Generated. May Contain Errors.
Earnings Conference Call
ICICI Bank Q3 22/23
00:00 / 00:00

There are 5 speakers on the call.

Operator

Ladies and gentlemen, good day, and welcome to ICICI Bank Limited Q3 FY 'twenty 3 Earnings Conference Call. As a reminder, all participant lines will be in the listen only mode and there will be an opportunity for you to ask questions after the presentation concludes. To please signal an operator by pressing star then 0 on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr.

Operator

Sandeep Bakshi, Managing Director and CEO of ICICI Bank. Thank you, and over to you, Mr. Bakshi.

Speaker 1

Thank you. Good evening to all of you and welcome to the ICICI Bank earnings call to discuss the results for Q3 of FY 2023. Joining us today on this call are Anoop, 3. Amid the global uncertainty, India's GDP growth has been resilient. The pickup in economic activity is reflected in the expanding purchasing, management's indices, 3.

Speaker 1

GSP collections and other high frequency indicators. Financial stability has been maintained and inflation 3rd. We continue to monitor these developments closely. At ICICI Bank, We aim to grow the core operating profit in a less calibrated manner through a 3 60 degree customer centric approach and by focusing on ecosystems and micro markets. We continue to operate within our strategic framework and strengthen our franchise, to enhance our delivery and servicing capabilities and expand our technology and digital offerings.

Speaker 1

Coming to the quarterly performance against this framework. 1st, growth in the core operating profit in a risk calibrated manner through the focused pursuit of target market segments. The core operating profit increased by 30 1.6 percent year on year. Q1, RMB 32,350,000,000 in this quarter. The profit after tax grew by 34.2 percent year on year to INR 83,120,000,000 in this quarter.

Speaker 1

3. 2nd, further enhancing our strong deposit franchise. Total period end deposits grew by 10.3% year on year and 2.9% sequentially at December 31, 2022. Periodic term deposits grew by 14.2% year on year and 5.3% sequentially at December 31, 2022. During the quarter, the average CASA grew by 10.4% year on year and 2% sequentially.

Speaker 1

The liquidity coverage ratio for the quarter was about 123%. 3rd, 3. Growing our loan portfolio in a granular manner with the focus on risk and reward. The retail loan portfolio grew by 23.4 percent year on year and 4.5% sequentially at December 31, 2022. 3.

Speaker 1

Including non fund based outstanding, the retail portfolio was 44.9% of the total portfolio. The business banking portfolio grew by 37.9% year on year and 5.2% sequentially. 3. The SME portfolio grew by 25% year on year and 8.3% sequentially. The growth in SME and Business Ranking Portfolios was driven by leveraging our bank our branch network and digital offerings such as Instabits and Merchant Stack.

Speaker 1

2. The domestic corporate portfolio grew by 18.2% year on year and 4.7% sequentially at December 31, 2022, driven by growth across well rated financial and nonfinancial corporates. The rural portfolio grew by 12.5% year on year and 3.8% sequentially. The domestic loan portfolio grew by 21.4% year on year and 4.2% sequentially. The overall loan portfolio grew by 19.7% year on year and 3.8% sequentially at December 31, 2022.

Speaker 1

4th, 3 leveraging digital across our business. We continue to enhance our digital offerings and platforms to onboard new customers in a seamless manner, and promoting them end to end digital journeys and personalized solutions. These platforms also enable us to do cross sell and up sell. 3. We have shared some details on our technology and digital offerings in Slides 17 to 28 of the investor presentation.

Speaker 1

3rd, protecting the balance sheet from potential risks. The net NPA portfolio declined to 0.55% 3 at December 31, 2022, from 0.61% at September 30, 2022 and 0.85 percent at December 31, 2021. During the quarter, there were net additions of INR 11,190,000,000 at December 31, 2022. The total provisions during the quarter were INR 22.57 1,000,000,000 or 17.1 percent of core operating profit and 0.93% of average advances. This includes contingency provision of INR 15,000,000,000 made on a prudent basis.

Speaker 1

The bank holds contingency provision of INR 115,000,000,000 or about 1.2 percent of total loans as of December 31, 2022. As we have mentioned during the previous earnings calls, we aim to be 3. Proactive in provisioning with the key objective of strengthening our balance sheet. During the quarter, we have changed our provisioning norms on nonperforming assets to make them more conservative for corporate, SME and Business Banking. This change resulted in higher provisions amounting to about INR 11,960,000,000 in Q3 2023.

Speaker 1

6th, maintaining a strong capital base. 3. The capital position of the bank continues to be strong with a CET1 ratio of 17.09%, the IRR1 ratio of 17.58% and total capital adequacy ratio of 18.33% at December 31, 2022, including profits for 9 months 2023. Looking ahead, we will continue to focus on growing the core operating profit in a risk calibrated manner. 3.

Speaker 1

We will work as one team by facilitating cross function collaboration to tap into key customer and market segments, 2018. In addition to 3 60 degree coverage and increase in wallet share, we will continue to make investments in technology, people, distribution and building of brand. The principles are fair to customer, fair to bank and 1 bank, 1 team, 1 ROE will guide our operations. We focus on building the culture where every employee in the bank serves customers with humility and upholds the value of the brand ICICI. We aim to be the trusted financial services provider of choice for our customers and deliver sustainable returns to our shareholders.

Speaker 1

I now hand the call over to Anandir.

Speaker 2

Thank you, Sandeep. I will talk about balance sheet growth, credit quality, P and L details, growth in digital offerings, portfolio trends and performance of subsidy. 3. On balance sheet growth, Sandeep covered the loan growth across various segments. Coming to the growth across retail products, 3.

Speaker 2

The mortgage portfolio grew by 19.1% year on year and 4% sequentially. Auto loans grew by 22% year on year and 5 3.9% sequentially. The commercial vehicles and equipment portfolio grew by 3.4% year on year and 1.1% sequentially. 3. Growth in the personal loan and credit card portfolio was 44.8% year on year and 7.2% sequentially.

Speaker 2

3. This portfolio was INR 1154.78 billion or 11.9 percent of the overall loan book at December 31, 2022. 3. The OCCI's loan portfolio in U. S.

Speaker 2

Dollar terms declined by 22.1% year on year and 8.7% sequentially at December 31, 2022. The decline in the overseas book primarily reflects maturities of the short 3rd. The overseas loan portfolio was about 3.6% of the overall loan book 3. At December 31, 2022, the non India linked corporate portfolio declined by 42.8 percent or about US285 million dollars 3. On a year on year basis, of the overseas corporate portfolio, about 86% comprises Indian corporates, 3.

Speaker 2

8% is overseas corporates with Indian Linkage, 3% comprises companies owned by NRIs or PIOs and the balance 3% Non India courses. On the liability side, Sandeep covered the growth in deposits. During the quarter, we raised long term infrastructure bonds as 2 as well as resumend borrowings from domestic financial institutions. Overseas borrowings declined reflecting the reduction in assets. We also had bond maturities arising out of older capital instruments during the quarter.

Speaker 2

Credit quality, There were net additions of INR 11,190,000,000 to gross NPAs in the current quarter compared to INR 6,050,000,000 in the previous quarter. The net additions to gross NPAs were INR 9,750,000,000 in the retail Rural and Business Banking Portfolio and INR 1,440,000,000 in the corporate and SME portfolio. The gross NPE additions were RUB 57.23 billion in the current quarter compared to RUB 43.66 billion in the previous quarter. The gross NTA additions from the retail, rural and business banking portfolio was INR 41,590,000,000 and from the corporate and SME portfolios of INR 15,640,000,000. There were gross NP additions of about INR 6 RUB 0.72 billion from the Kitan credit card portfolio in the current quarter.

Speaker 2

We typically see higher NPE additions from the Kitan credit card portfolio in the 1st and third quarter of the fiscal year. Corporate and SME gross NPA addition includes rupees RMB8.05 billion on account of borrowers that were under resolution at September 30, 2022. The bank held about 35% provisions of its increased borrowings. Recoveries and upgrades from gross NPAs excluding write offs and sales was INR46.04 billion in the current quarter compared to INR 37.61 billion in the previous quarter. 3.

Speaker 2

There were recoveries and upgrades of INR 31,840,000,000 from the retail, Google and Business Banking Portfolio and INR 14,200,000,000 from the corporate and SME portfolio. The gross NPAs written out during the quarter were INR 11,620,000,000. There is no sale of NPAs in the current quarter compared to INR0.94 billion of NPAs sold on a cash basis in the previous quarter. 3. Net NPAs declined by 23.1% year on year and 7.3% sequentially to INR66.51 billion at December 31, 2022.

Speaker 2

The non fund based 2019. Sanding to borrowers classified as non performing was INR38.69 billion as of December 31, 2022, compared to INR35.16 billion as of September 30, 2022. The bank holds provisions amounting to INR19.93 billion 15 as of December 31, 2022, against this non fund based outstanding. The total Undays outstanding to all standard borrowers under resolution as per the earlier guidelines declined to INR 49,870,000,000 or about 0.5 percent of

Speaker 1

3. The total loan portfolio

Speaker 2

at December 31, 2022 from INR67.13 billion as of September 30, 2022. 3. Of the total fund based outstanding under resolution at December 31, 2022, INR 41,900,000,000 was from the retail, Google and Business Banking Portfolio and INR 7,970,000,000 was from the corporate and SME portfolio. The bank holds provisions of INR 15,290,000,000 against these borrowers, which is higher than the requirement as per RBI guidelines. 3.

Speaker 2

Moving on to the P and L details. The net interest income increased by 34.6% year on year to RUB 164,650,000,000. The net interest margin was 4.65% in this quarter compared to 4.31% in the previous quarter 3 and 3.96% in Q3 of last year. The net interest margin was 4.33% in 9M 2023. There was no impact of interest income tax refund or net interest margin in the current quarter.

Speaker 2

The domestic NIM was at 4.79% this quarter compared to 4.45% in the previous quarter and 4.06% in Q3 last year. 3. The cost of deposits was 3.65% in this quarter compared to 3.55% in the previous quarter. Of the total domestic loans, interest rates on 45% are linked to the repo rate, 4% to other external benchmarks and 21% to NCLR and other older benchmarks. The balance 30% of loans had fixed interest rate.

Speaker 2

The sequential increase in NIM reflects the impact of increase in interest rates on loan yields, while repricing of deposits occurred with a lag. We expect to see the impact of repricing of deposits in future quarters. Non interest income excluding treasury income grew by 1.8 3.7 percent year on year to INR 49,870,000,000 in Q3 of 2023. Fee income increased by 3.7

Speaker 1

2023.50 percent year on

Speaker 2

year to INR44.48 billion in this quarter. Fees from retail, rural, business banking and SME customers grew by 7 point 3% year on year and constituted about 78% of the total fees in this quarter. Dividend income from subsidiaries and associates was INR 5 point INR6 1,000,000,000 in this quarter compared to INR6.03 billion in Q3 of last year. The dividend 3. The bank's operating expenses increased by 16.1% year on year in this quarter.

Speaker 2

Employee expenses increased by 17 point 6% year on year. The bank had about 117,200 employees at December 31, 2022. The employee count has increased by about 15,300 in the last 12 months. Non employee expenses increased by 15.4% year on year in this quarter, primarily due to technology and retail business related expenses. Our branch count has increased by about 420 in the last 12 months, and we had 5,718 branches 3.

Speaker 2

As of December 31, 2022, the technology expenses were about 9.3% of our operating expenses in 9M of this year compared to about 8.6 percent in fiscal 2022. The core operating profit increased by 30 1.6 percent year on year to INR 132,350,000,000 in this quarter. Excluding dividend income from subsidiaries and associates, The core operating profit grew by 34.5 percent year on year. There was a treasury gain of INR0.36 1,000,000,000 in Q3 compared to a loss of INR 0.85 1,000,000,000 in Q2 and a gain of INR 0.8 INR8 1,000,000,000 in Q3 of the previous year. The total provision during the quarter, including impact of change in provisioning norms were INR 23,570,000,000 or 17 point 6% of the core operating profit and 0.93% of average advances.

Speaker 2

These also include contingency provisions of INR 15,000,000,000 2018. The provisioning coverage on NPAs was 82% as of December 31, 2022. 5. Thank you. Thank you.

Speaker 2

Thank you. Thank you. Thank you. To see increasing adoption and usage of our digital platforms by our customers. There has been about 8,600,000 activations of IMobile Pay by non ICICI Bank account holders as of end December.

Speaker 2

The value of transactions by non ICICI Bank account holders in Q3 of this year was 2.3 times the value of transactions in Q3 of last year. We have seen about 215,000 registrations from non ICICI bank account holders on Instabid till December 31, 2022, the value of financial transactions on SABR grew by about 29.2% year on year in the current quarter. We have created more than 20 industry specific stacks, which provides bespoke and purpose based digital solutions to corporate clients and their ecosystem. Our trade online and trade emerge Platforms allow customers to perform most of their trade finance and foreign exchange transactions digitally. About 71 point 2% of trade transactions were done digitally in Q3 of this year.

Speaker 2

The value of transactions through these platforms increased by 59.3% year on year 20.2021. Standing to performing corporate and SME borrowers rated BB and below was INR55.81 billion at December 31, 2022, compared to INR 76.38 billion at September 30, 2022 and INR 118.42 billion as as of December 21, 2021. The sequential decline was primarily due to slippage of borrowers that were under resolution into NPA and a few repayments during the quarter. The amount of INR55.81 billion at December 31, 2022 includes INR8.79 billion of outstanding to borrowers under resolution. The maximum single borrower 3.8 billion on the BB and below portfolio, compared to INR8.12 billion at September 30, which includes provisions held against borrowers under resolution included in the portfolio.

Speaker 2

The total outstanding to NBSCs and HFCs were INR765.4 billion at December 31, 2022, compared to INR 735.73 billion at September 30, 2022. The total outstanding loan to NBFCs and HFCs 3. The sequential increase in the outstanding to NBFCs and This is mainly due to disbursements to entities having longer vintage and entities owned by well established corporate groups. 3. The builder portfolio, including construction finance, lease rental discounting, term loans and working capital, was INR360 INR 3.11 billion at December 31, 2022 compared to INR 319.63 billion at September 30, 2022.

Speaker 2

3. The builder portfolio is over 3.4% of our total loan portfolio. Our portfolio is largely to well established builders, And this is also reflected in the sequential increase in the portfolio. 5.6% of our builder portfolio at December 34, twenty '22 was either rated BB and below internally or was classified as non performing compared to 6.8% at September 30, 2022. 3.

Speaker 2

Subsidies and key associates. The details of the financial performance of subsidiaries and key associates are covered in Slides 49 to 51 and 70 to 75 in the investor presentation. The value of new business margin of ICICI Life increased from 28% in fiscal 2022 to 32% in 9 months of this year. The value of new business increased by 23 point 2% year on year to INR 17,100,000,000 in 9 months of this year. The annualized 2.

Speaker 2

The profit after tax of ICICI Life was INR5.76 billion in 9M of 2023 compared to INR5.6 to INR9 1,000,000,000 in 9M of 2022 and INR2.21 billion in Q3 this year compared to INR3.11 billion in Q3 last year. The gross direct premium income of ICICI General increased by 16.9% year on year to INR54,930,000,000 in Q3 of this year. The combined ratio was 104.4% in Q3 of Twitter. The profit after tax of ICICI AMC was INR 4,200,000,000 in this quarter compared to INR 3,340,000,000 in Q3 of last year. The profit after tax of ICICI Securities as per India on a consolidated basis was INR 2,800,000,000 in this quarter compared to INR 3,800,000,000 in Q3 of last year.

Speaker 2

ICICI Bank Canada had a profit after tax of CAD11.5 million in this quarter compared to CAD11.5 million in Q3 last year and CAD 12,500,000 in Q2 this year. ICICI Bank UK had a profit of US3.1 million dollars this quarter $2,000,000 in Q3 of last year and $1,500,000 in Q2 this year. As per India, ICICI Home Finance had a profit after tax of INR 1,050,000,000 in the current quarter compared to INR0.48 billion in Q3 of last year and INR0.6 billion in Q2 this year. 3. With this, we conclude the opening remarks, and we will now be happy to take your questions.

Operator

Thank you very much. We will now begin the question and answer session.

Speaker 1

3. 3.

Operator

Tuition Q Assembles.

Speaker 1

3.

Operator

First question is from the line of Maruko Chaney from Nomavalk. Please go ahead.

Speaker 3

3. Yes, hi. So I have a couple of questions. Firstly, what would you say that the sequential growth because you Lend to so many segments. The sequential growth has peaked at around, say, 4% Q o Q.

Speaker 3

Would that be a fair assumption? Because there will always be some moving parts. The sector growth is also on a very high deal.

Speaker 2

No, I think it really can't be fiscal year. That way, there are, as we said, moving parts in different quarters. So for example, in this year, the festive season was kind of The split between Q2 and Q3, it started a bit early. So some of the consumption related growth would have happened partly in Q2 is sort of happening fully in Q3. So the way we look at it, I think in terms of if you look at the granular portfolio, Which is retail business banking, etcetera.

Speaker 2

The disbursements volumes are Pretty much holding up and the loan growth will be very an outcome of that. 3. So that's the way we would look at it.

Speaker 3

Got it. And so if loan growth accelerates in the 4th quarter. Would there be enough deposits? I know that you've done borrowings as well, but the deposit growth on an overall basis is 3%, So on a sequential basis, so would it be I mean would there be enough deposits to fund higher growth? How is the system shaping up?

Speaker 2

Yes. I think a lot of focus goes on this year on year deposit growth versus This is the fact that the first two quarters of the calendar year Liquidity in the system itself has come down from INR8 1,000,000,000,000 to under INR1,000,000,000,000. So it has to be seen in that context. I think The way we've analyzed it is if we look at the net increase in the balance sheet, say, in the 3rd quarter, 3. Borrowings represents only about 10% or 11% of that accretion.

Speaker 2

And the balance is really coming through deposits and equity or the profit generation. So we don't Three deposits are funding as a constraint at all. During the quarter, we've grown our total deposit base Moving up, we've seen a pretty healthy accretion healthy increase in the accretion to retail deposits And that momentum is continuing. So we are quite comfortable on the funding side. Got it.

Speaker 2

Got it. And for Q3, we had an LCR of 123% average for the quarter.

Speaker 3

3. Perfect. And my next question is on contingent provision. So few banks Or at least 2 private banks have been telling us that they have some sort of a deadline from auditors or some sort of feedback from auditors That it has to be utilized within a certain period and therefore some of them are paying down contingency provision. So how does that work with you in terms of auditors, time line?

Speaker 3

Because you're just building on the buffer.

Speaker 2

I'm not aware of such a requirement as the way We look at the contingency provisions is that we certainly see the various developments that are taking place both 3. Globally and in India that could impact various parts of the portfolio and then we do an analysis of the portfolio where 3. There is no NPL development currently, but the risk marker could be a little higher than the average. And then that's how we kind of build up on the contingency provision. And that's something that we would keep revisiting every quarter as we

Speaker 3

2020. Okay, perfect. Thanks a lot and all the best.

Operator

Thank you. Next question is from the line of Jagnesh from Incred Capital. Please go ahead.

Speaker 2

Yes. Hi, sir, and thanks for the opportunity.

Speaker 1

I just have Two questions itself. One, as I see it in the presentation, the rise in cost of deposit sequentially Had been somewhere around 10 bps, if I see it correct. So how do you see that coming forward And going forward, how that particular trend looks to be? And second, your cost to income had seen significant improvement of roughly around 38% right now, 38.2. So what kind of trajectory are you seeing it up on this segment also, if you can highlight?

Speaker 1

Thank you.

Speaker 2

2. Yes. So on the first question, I think what has happened in this cycle is that 3. The wholesale deposit rates moved up first pretty sharply starting from May, And we have not been large takers in the wholesale deposit market. The retail deposit rates started moving much more gradually and much, 3.

Speaker 2

Much later. So the larger rise in retail deposit rates has come only actually from September onwards. So if you look at, For example, the peak retail term deposit rate that we are offering today is about 115 basis points compared to what it was a quarter ago. 3. So that is why the repricing of retail deposits is happening with the lag.

Speaker 2

These are more granular in any case, so they do get reprised 3 over a period of time. But as I mentioned in the opening remarks, we would expect to see the cost of deposits Go up at a sharper pace going forward.

Speaker 1

Okay, okay. Understood. And on the first one? On the

Speaker 2

second part, I think 3. We don't really manage to that ratio. We are looking at the overall PPOP and PPOP growth 3. And we continue to invest in technology branches and people. So as it happens this quarter, 3.

Speaker 2

The OpEx growth was a little lower on a year on year basis than the trend that we've seen over the last couple of quarters. And so 40% has come down to cost to income has come down to 38%, but It's going to be in that range, I would say, around 40%. I don't think we are looking at any major movement there. 3. Understood.

Speaker 2

And just one quick thing, this contingency provision is RMB150 1,000,000 right now in December. Is there any target that this You want to get into such

Speaker 1

a balance or it can be varying every quarter? I mean any specific number in your mind or how does it work? No, we

Speaker 2

don't have any specific number in our mind. It's something that we keep assessing on a quarterly basis.

Speaker 1

Thanks a lot for this, sir. All the best.

Operator

3. Thank you. Next question is from the line of Manish Chukla from Access Capital. Please go ahead.

Speaker 2

3. Yes. Good evening and thank

Speaker 1

you for the opportunity. So on first question is loan to deposit ratio. If I were to adjust the historically high level of international loans Probably on domestic book, you will be close to peak LDR that you'll be. So going back to the earlier question, while I'll appreciate the borrowing part, Till what level are you seeing in the LDR and beyond which deposit growth could start becoming a concern for loan growth?

Speaker 2

Yes, you're right. If you leave aside the overseas balance sheet, the loan to deposit ratio is at As you know, it's 85%, which is at the higher end of the historical range. But we don't see, as I explained earlier, deposit growth really as a constraint. I think if you look at the accretion to deposits on a quarter on quarter basis, it has been going up quite smartly as we have 3. We moved the rates in line with the system broadly.

Speaker 2

We were slower in the initial part of the year because we were, as you know, had significant excess liquidity to start with. 3. But while there is a natural level at which the loan to deposit ratio will settle, again, 3. We don't sort of over worry about it because as we've mentioned in the past, a 3 month wholesale deposit Makes that ratio lower, whereas we are refinance borrowing makes it higher. So we would look at the overall quality of funding.

Speaker 2

3. But the all forms of wholesale funding are essentially the marginal source of funding. The core funding remains the retail deposits, and we are seeing pretty healthy momentum there.

Speaker 1

Yes. Moving on to loan growth, if we look at it, the personal and credit card book today is more than 21% and growing much faster than the overall loans. Fair to assume as long as the credit costs remain low, you would still be okay if the share continues to rise? 3.

Speaker 2

Yes, we are quite comfortable with this portfolio and we have seen it through the COVID period as well, The borrower behavior and we have no concerns as such on this portfolio. If at all on the personal loan side, I think the concern is a little bit on the pricing where the market has I'm quite competitive, but from a credit perspective, we are very comfortable on both portfolios.

Speaker 1

Sure. Those were my questions.

Operator

Thank you. 3. The next question is from the line of Adarsh from CLSA India. Please go ahead.

Speaker 1

Hi. And then I just wanted to check on the fee growth. Is this 3% fee growth a Fairly widespread representation of growth or because of 3rd party's lower insurance 2 different elements would have a different growth trajectory and how does one see from a medium term perspective?

Speaker 2

So there are actually quite a few factors here, the others. One is that we don't particularly focused on it as a line item because we are focused on the overall sort of PPOP risk calibrated PPOP construct as our guiding metric. There is if we look at the fee numbers for this quarter, again, there is some 3. Impact of the festival seasonality, there is, as we rightly pointed out, the growth there in the 3rd party distribution led fees, which one would have to adjust for. In addition to that, I think if we look at a couple of other areas, For example, the loan processing fees where there is, a, a competitive element and b, we also We are more focused on making sure that we have the appropriate loan yield rather than maximizing upfront fees.

Speaker 2

3. In certain cases, in certain products from our overall perspective of customer fairness, We have also rationalized or reduced substantially the agreed penalties like the prepayment premiums and foreclosure charges on certain categories of loans. For example, as you know, a personal loan or an auto loan, which is At least somewhat seasoned our business banking there. The borrower has been with us for a couple of years and For whatever reason wishes to exit, we would charge a lower or more penalty. It's the day we would look at it because it's the border relationship which is important.

Speaker 2

So in all of these, I guess if we adjust for all of these, the fee growth would be 3. A few percentage points higher than what is the reported number. Having said that, of course, there are areas where we can do better. I think, for example, FX or transaction banking, these are some of the areas where we believe we have excellent platforms and We need to leverage those to grow our share and our revenue. But that's the overall kind of way in which we would look at it.

Speaker 2

So it should Hopefully, improve from the current level over a period of time, but there are many things we are doing within that to make sure that Rather than just fixated on this number, we really manage it in a way that contributes to the sustainable growth of the client side.

Speaker 1

3. Got it, Anand. And my second last question is for 2024 and 2025, If you think about margins picking us out at some point, next year would be a relatively tough year The second is you have leveraged on the OpEx side because the last 2 to 3 years OpEx post COVID has been there's been a lot of investments. So just wanted to understand if that leader can be of use when margins kind of normalize.

Speaker 2

3. So of course, this year, we are seeing the benefit of repo rate hike while the interest rate Interest costs are moving up only with some lag and that is leading to a higher operating profit growth than would have featured in anyone's projections or estimates. And some of that will get adjusted next year, but we will see 3. As we go along, it depends on how we look at incremental lending and funding and The leader that we have to try and optimize the balance sheet and of course all other elements of Of the PTOP. So we'll take that as it comes.

Speaker 2

And is OpEx,

Speaker 1

The investments done in the last few years at a point where that could be a lever or continued investments would continue, so OpEx unlikely to be an ROA lever.

Speaker 2

So I think it's a question of choice. It is a very controllable lever, A large part of it. But as we have said in the past, since there are a couple of quarters, operating growth is running ahead of revenue growth because we are continuing to invest in a sustainable way, we will not worry about it too much.

Speaker 1

Got it. Thank you and all the best. 3.

Operator

Thank you. Next question is from the line of Saurav from JPMorgan. Please go ahead. 3.

Speaker 1

Yes, sir. Two questions. One is, Is it the quarter end ICR? And the second is, can you explain the positioning, timing you have done in the corporate and administrative?

Operator

Thank you.

Speaker 2

Sorry, I didn't get the second part.

Speaker 1

The policy tightening you have done on the corporate and SME side.

Speaker 2

Yes. So we have not reported the quarter end the SCR. The reporting is 3. On a quarterly average basis, but I would say it would be broadly at similar levels. The What the trajectory that liquidity follows is that it's pretty typically pretty strong at month end.

Speaker 2

Then during the month deposit withdrawal 3. Happens, say, on the savings side during in particular quarters, there are advanced tax outflows and so on When the system goes tight on liquidity and then it builds up again. So that's why we look at the average, but the quarter end would not be materially different From the reported number of 123% average for the quarter. On the The provisioning policy, so Saurabh, as you know, the RBI norms prescribe a minimum provisioning policy. And on the retail and rural loans, We already follow a more conservative provisioning norm where we provide for NPAs on a more accelerated basis.

Speaker 2

For the corporate SME and Business Banking portfolios, thus far we were applying the RBI norm, And we thought that it would be prudent to do some acceleration there as well, 3, both in terms of the period over which we need over which we reach 100% coverage and also in the earlier buckets. 3. So that is the tightening that we will have.

Speaker 1

Okay. Maybe. Sir, can I ask one more? Just on your card

Speaker 2

Just on growing the profitable market share or the high quality market share, I think we have We've seen a decline in our commercial card market share over the last couple of quarters in terms of 20 10, but we are quite happy with the way our retail card spends are shaping up. Not targeting a particular level of market share Overall, but just looking at higher quality spend growth, and that is broadly moving in line with what we would want it to. 3.

Speaker 1

Got it. Thank you. Thank

Operator

you. Next question is from the line of Abhishek from HSBC. Please go ahead.

Speaker 4

3. Hello. Yes, good evening and thanks for taking the question. So the first question is actually if you could Share some commentary on the loan growth outlook for FY 2024. Do you think it will moderate from here or You can still look to deliver similar kind of growth.

Speaker 4

And also what will be the growth of CapEx next year? Do you think there's a real possibility of CapEx improving or it's just I mean, it may not pick up from there?

Speaker 2

I we will have to wait and see, Abhishek, because clearly on the corporate side, the loan growth This year partly has come from because of the sharp pricing of liquidity and some shift from bond markets and so on. And we have seen higher borrowings or higher appetite for borrowings through some of the segments like NBFCs, which explain a reasonable portion of the corporate loan growth. As I said, our Retail loan volumes are quite steady. So that's part of the growth should sustain. On the corporate side, I think we will have to Wait and see.

Speaker 2

We will just look at our own analysis of Risk reward and profitability and how to optimize our PPOP that will be our guiding factor without targeting a particular level of loan growth. But I at least on the retail SME Business Banking side, I don't see a challenge in the loan volumes. Okay. And On the CapEx, clearly a fair amount of CapEx is happening, which is being Undertaken and funding by the government and the public sector. There is investment happening from the private sector in real estate 3.

Speaker 2

And there is some amount of investment happening from the private sector in infrastructure and In that phase as well, but so far it has not been at the level which would move the needle on domestic loan growth. We'll have to see how it shapes up. In the while it's good from a credit perspective, The issue from a loan demand perspective is that most corporates are extremely well funded and liquid And are therefore able to undertake some amount of investment without having recourse to banks. So what is coming to banks is more With annual momentum.

Speaker 4

Right, right. And assuming that its loan growth, let's say, moderates a little bit next year and you also Sorry, it's all coincides with MIM's normalizing as well. What can we do on the rest of the Lines like sea or, cost to protect Ethiopian Road.

Speaker 2

We will have as I said, we will see it as it comes. 3. Once again, we are I have not seen a sharp deceleration in loan growth. As I said, we 3. As you know, has been growing the balance sheet that our loan growth has been quite sustainably in the high teens.

Speaker 2

Of course, when the system don't work itself, it will reach mid to higher teens. It runs about 20%. So it may come off a little, but That's okay. And we would look at ways to achieve 3. A stable level of profitability.

Speaker 2

Current year's operating profit growth is, of course, Much higher than what the normal level would be because of the sharp rise in interest rates. But 3. I think there are many levers available in the balance sheet of the P and L, which can be optimized.

Speaker 4

Absolutely. Just a very quick question on fees. I understand that you've changed a lot of rates on fees. But From the current point onwards, should we track loan growth and loan mix? Or do you still see more fees getting rationalized and therefore You could still continue to see some pressure on fee 2 assets or fee 2 loans?

Speaker 2

No, I don't think that it will Reached the level of loan growth in a hurry.

Speaker 4

Okay. So basically more rationalization could come?

Speaker 2

No, it's not a question of just of rationalization. I think there are many parts to the fee income. There is a part linked Cards and payments, there is loan processing fee, there is FX, then there is the liability related fees and 3rd party distribution. These would be the broad categories. Each of them has a different dynamic And a different sort of influencing factors at various points in time and we have different strategies for each line item.

Speaker 2

So it's difficult to say to just link it to loan growth in that sense.

Speaker 4

Got it, got it. Thanks so much and all the best. Thank you.

Operator

Thank you. The last question is from the line of MB Mesh from Kotak Securities. Release. Go ahead.

Speaker 1

Hi. Just two questions. 1, if we just kind of call out, are you still seeing recoveries coming in From previously written off accounts and if that is moving still favorably in your provisioning line.

Speaker 2

Yes, we have seen some recoveries coming in from the older NPLs that were Well provided on maybe partly written off and that is has contributed Pradeep, the lower provisions were actually if you look at for this quarter excluding the Impact of the change in norms and the contingency provision, we have a net write back of about INR 4,400,000,000. So it's a bit that we have seen 1 or 2 large corporate recoveries.

Speaker 4

Okay. So the

Speaker 1

question on this, if If you keep interest rates where we are today, when does cost of funds starts hitting As you go forward. And if yes, how much how should we model over the next few quarters on this number? It's

Speaker 2

difficult for me to say how you should model it, but my I guess it should start showing up to some extent in Q4 and more so in Q1.

Speaker 1

And how much of hedging you have available on the new side if interest rates are very likely?

Speaker 2

We would have for Q4, there's actually the December hike We'll play out over Q4 for that.

Speaker 1

Okay. And you're saying that the peak cost of funds starts hitting you from 1Q of next year?

Speaker 2

Yes, it will happen over a period of time. And of course, the balance sheet Doesn't remain static in that sense. We also have some ability to manage Asset and Agility, the investment portfolio and so on.

Operator

Okay. Thanks. Thanks, Anish. 3. Thank you very much.

Operator

I'll now hand the conference over to the management for closing comments.

Speaker 2

3. Thank you all for spending time on a Saturday evening, and my colleagues and I are available to move for any further questions.

Operator

20. Thank you very much. On behalf of ICICI Bank Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines.

Operator

Thank you.

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