ICICI Bank Limited (IBN) Q3 2013 Earnings Report, Transcript and Summary

N. S. Kannan - Chief Financial Officer, Executive Director, Member of Share Transfer & Shareholders/Investors Grievance Committee, Member of Committee of Executive Directors, Chairman of ICICI Securities Primary Dealership Limited, Chairman of ICICI Prudential Asset Management Company Limited, Chairman of ICICI Eurasia Limited Liability Company, Chairman of ICICI Prudential Life Insurance Company Limited, Chairman of ICICI Bank Uk Plc and Chairman of ICICI Lombard General Insurance Company Limited Rakesh Jha - Deputy Chief Financial Officer and Senior General Manager

Mahrukh Adajania - Standard Chartered plc, Research Division Vishal Goyal - UBS Investment Bank, Research Division Kashyap Jhaveri - Emkay Global Financial Services Ltd., Research Division Manish J. Karwa - Deutsche Bank AG, Research Division Abhishek Kothari Rajeev Varma - BofA Merrill Lynch, Research Division Saikiran Pulavarthi - Espirito Santo Investment Bank, Research Division Manish Chowdhary - IDFC Securities Ltd., Research Division Vijay Sarathi - Nomura Securities Co. Ltd., Research Division Sudanshu Asthana - Axis Asset Management Company Limited Hatim K. Broachwala - KARVY Stock Broking Limited, Research Division

Ladies and gentlemen, good day, and welcome to the ICICI Bank Q3 FY '13 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. At this time, I would like to hand over the conference to Mr. N.S. Kannan. Thank you and over to you, sir.

Thank you, good evening all of you. Welcome to the conference call of the financial results of ICICI Bank for the quarter ended December 31, 2012, which is the third quarter of the current financial year 2013, that is Q3 of 2013. As always, I'll start, and my team will revolve around 4 broad areas: first is the domestic macroeconomic and monetary environment; followed by our performance during the quarter, including our performance on our 5Cs strategy; then, we'll move on to our consolidated results; and finally, the outlook for the full financial year 2013. Let me start with the first part on the macroeconomic and monetary environment during the third quarter. Global financial markets stabilized during the quarter, following liquidity support measures announced by the U.S., Japan and EU, and resolution of the U.S. fiscal cliff for the time being. Domestically, the government continued with policy reforms. Several key measures, such as approval of 51% foreign direct investment in multi-brand retail; announcement of fiscal consolidation roadmap; formation of Cabinet Committee on Investments to expedite investments and projects; partial deregulation of diesel prices; approval of the Banking Laws Amendment Bill 2011 by both the Houses of the Parliament and Companies Bill 2011 by the Lok Sabha; increase in railway passenger fares; and deferral loss with GAAR implementation to financial year 2017. These have been announced since October 2012. These measures, coupled with the global liquidity conditions, resulted in an improvement in market sentiment with the FII inflows improving from USD 8 billion in the previous quarter to USD 10.2 billion in the third quarter and stabilization of the exchange rate over the past few weeks. However, indicators of real economic activity continued to remain subdued. GDP growth for Q2 of 2013 was 5.3%, with the moderation in growth largely driven by subdued industrial sector growth. Cumulative growth in the Index of Industrial Production, IIP, during April to November 2012 was 1% compared to 3.8% in April to November 2011. The growth in IIP has also been volatile, with an 8.3% year-on-year growth in October 2012 followed by a decline of 0.1% in November 2012. Merchandise exports continued to decline for the eighth consecutive month in December 2012. However, the pace of decline of exports has been moderating, with exports declining by 1.9% in December 2012 compared to an average of 12% decline during Q2 of 2013. Growth in imports, which turned positive in September 2012, continued to increase driven by largely oil imports. As a result, India's trade deficit widened to USD 147 billion during April to December 2012 compared to USD 137 billion in April to December 2011, and the current account deficit reached 5.4% of GDP in the second quarter. The rupee depreciated against the dollar by 4% from INR 52.7 per USD 1 at end-September 2012 to INR 54.8 per USD 1 at end-September -- end-December 2012. During the quarter, the moderation of inflation was a key positive, with inflation declining consistently from 8.07% in September to 7.18% in December. This was primarily due to a moderation in manufactured products inflation, which eased from 6.47% in September to 5.04% in December. Core inflation, which is manufactured products excluding food products, moderated from 5.7% in September to 4.2% in December. Systemic liquidity tightened during the quarter on account of seasonal factors, with average daily borrowings by banks under the liquidity adjustment facility, LAF, window from RBI increasing to about INR 937 billion in the third quarter as compared to INR 464 billion in the previous quarter. During the quarter, the Reserve Bank of India provided liquidity support by way of open market operations, or OMO, in government securities of about INR 385 billion and a reduction in the cash reserve ratio by 25 basis points to 4.25%. As a result, interest rates on market instruments like commercial papers and certificate of deposits remained stable during the quarter. The yield on the 10-year benchmark government securities declined by 10 basis points from 8.15% at the end-September 2012 to 8.05% at end-September -- end-December 2012. The RBI, in its third quarter review of monetary policy on January 29, reduced the repo rate by 25 basis points to 7.75% and CRR, cash reserve ratio, by 25 basis points to 4%. In the policy statement, RBI has mentioned that the recent moderation in inflation provides space, though limited, for monetary policy to give greater emphasis to growth risks. The equity market saw a marked improvement during the third quarter, reflecting positive global and domestic developments. We talked about the net FII inflows earlier. As a result, the benchmark BSE Sensex increased by 3.5% during Q3 to 19,427 at end-December 2012 from 18,762 at end-September 2012. Credit offtake from scheduled commercial banks remained moderate during the third quarter on a year-on-year basis. Nonfood credit recorded a 14.9% increase on a year-on-year basis at December 28, 2012 compared to a growth of 15.4% at September 28, 2012, and it was 15.7% increase at December of 2011. Similar trends were seen with respect to deposit growth. Total deposit growth recorded a year-on-year increase of just 11.1% at December 28, 2012, compared to a 13.8% increase at September 28, 2012, and 17% increase at December 30, 2011. Demand deposits declined by 0.5% year-on-year basis at December 28, 2012, compared to an increase of 8% at September 2012. Growth in time deposits decelerated, again, from 14.5% at September 28, 2012 to 12.5% at December 30, 2012. So with this overall background, let me now move to part 2, on the performance of the bank during the quarter. Let me begin with the progress on our 5Cs strategy: first, with respect to the credit growth. The total advances of the bank increased by 16.5% on a year-on-year basis from INR 2.46 trillion at December 31, 2011, to INR 2.87 trillion at December 31, 2012. The growth in total advances was balanced across various loan segments. Growth in the retail portfolio has been increasing steadily over the last few quarters. This trend has continued into the third quarter as well, with the retail portfolio growing by 17.2% on a year-on-year basis at December 31, 2012, compared to 14% year-on-year growth we saw at September 30, 2012. The outstanding retail portfolio of the bank at December 31, 2012 was INR 965 billion. The growth in the retail portfolio was driven by growth in these secured retail lending categories, with outstanding mortgages increasing by 18.6% on a year-on-year basis and auto loans increasing by 25.4%. Growth in the commercial business loans moderated to 7.3% on a year-on-year basis, reflecting the market slowdown being witnessed in this segment. After reducing the unsecured retail portfolio consistently since the financial year 2009, the bank has started to moderately expand this portfolio. Accordingly, the bank's unsecured retail portfolio increased by 12% on a year-on-year basis to INR 39 billion at December 31, 2012, off a relatively small base of INR 35 billion at December 31, 2011. The retail unsecured portfolio, however, continues to remain very small at less than 1.5% of the overall loan book. The increase in the retail unsecured portfolio is predominantly to existing customers of the bank, and the bank has been following several checks, including CIBIL score checks, that is credit bureau score checks, customer income levels and KYC checks. While increasing the volumes in this segment, we continue to be conservative in our approach. The growth in corporate and international portfolio was 15.8% on a year-on-year basis, driven largely by a 26.6% growth in the domestic corporate portfolio. This includes some short-term loans to high-quality corporates that will mature during the year itself. Net advances of the overseas branches increased by 5.7% on a year-on-year basis in rupee terms, primarily due to the movement in the exchange rate. In dollar terms, the net advances of the overseas branches remained stable on a sequential basis and have grown by 2% as compared to December 31, 2011. Moving on to the second C, on CASA deposits. Mobilization of CASA deposits has been challenging for banks during the third quarter, with system demand deposits, as I mentioned earlier, declining by INR 624 billion during the quarter. Despite this, the bank maintained its CASA ratio at 40.9% at December 31, 2012, compared to 40.7% at September 30, 2012. The bank also maintained its average CASA ratio at 37.4% during quarter 3 as compared to 37.5% during quarter 2. During quarter 3, the bank has seen an increase of INR 23 billion in average savings account deposits and a record INR 5.5 billion in average current account deposits as compared to the previous quarter. On an absolute basis, the bank's savings account deposits increased by INR 8.45 billion and the current account deposits increased by INR 18.73 billion in quarter 3. Now to the third C, on costs. For the third quarter, operating expenses, including DMA expenses, were higher by 17.9% on a year-on-year basis. The bank's cost-to-income ratio declined to 39.5% in quarter 3 of 2013 compared to 40.9% in the previous quarter, and with the cost-to-asset ratio at 1.77% in quarter 3. Let me now move on to the fourth C, on credit quality. The bank saw gross additions of INR 8.5 billion to its overall gross NPAs. Recoveries in quarter 3 were INR 5.67 billion, resulting in net additions to gross NPAs of INR 2.85 billion. The bank has also written off INR 5.2 billion of NPAs during the quarter. The net NPA ratio was 64 basis points at December 31, 2012, compared to 66 basis points at September 2012, and 70 basis points at December 2011. Additions to the restructured portfolio were INR 3.5 billion in quarter 3, offset in part by deletions and repayments during the quarter. As a result, the net restructured loans were stable at INR 41.69 billion at December 31, 2012, compared to INR 41.58 billion at September 30, 2012. The bank has about INR 9 billion to INR 10 billion of loans outstanding to cases that are currently under the corporate debt restructuring mechanism. The provisions for quarter 3 were at INR 3.69 billion, lower on a sequential basis as compared to the provisions of INR 5.08 billion in the previous quarter, which had included substantial provisions made for the media company recognized as NPA in the previous quarter, which we talked about in the last call. Credit costs as a percentage of average advances were at 53 basis points on an annualized basis for quarter 3 and 66 basis points for the 9-month period on an annualized basis. This is after including additional 75 basis points general provisioning for restructured assets as stipulated by RBI. The provisioning coverage ratio, or PCR, was 77.7% at December 31, 2012, compared to the PCR of 78.7% at September 30, 2012. Now to the fifth C, on customer centricity. The bank continues to focus on enhancing its customer service capability and leveraging on its increasing branch network to cater to the customer base. During the third quarter, we added 123 branches to the network, including 101 Gramin branches in unbanked villages across 6 states of the country. With this, the bank has a branch network of 2,895 branches at December 31, 2012. The bank has also recently launched a unique flexible recurring deposit product, called iWish, which allows customers to create their own goals and share them with friends and family on Facebook. iWish provides an easy online interface to track the progress of all goals and manage them from one place. Family and friends of customers can also contribute towards these goals from any bank account using a Visa debit card. The bank's Facebook initiative continues to be appreciated by customers, with a fan base for ICICI Bank Facebook page crossing 1 million fans during the quarter and currently over 1.4 million fans. Having talked about the progress on the 5Cs, let me now move on to the key financial performance of the bank for the quarter. The net interest income increased 29% on a year-on-year basis from INR 27.12 billion in Q3 of 2012 to INR 34.99 billion in Q3 of 2013. The overall net interest margin improved by 37 basis points on a year-on-year basis, from 2.7% in Q3 of the previous financial year to 3.07% in Q3 of the current financial year. On a sequential basis, the net interest margin improved by 7 basis points, from 3% in the previous quarter to 3.07%. The net interest margin on the domestic business increased to 3.47% in Q3 of 2013 as compared to 3.43% in Q2 of 2013 and 2.98% in the corresponding third quarter of last year. The sequential increase has been driven by lower cost of funds during the quarter due to the reduction in term deposit rates since the beginning of the year. The international NIM improved on a sequential basis from 1.22% in the second quarter to 1.31% in the third quarter due to reduction in the excess liquidity maintained in the international branches in the previous quarter, following the large bond redemption we had in October 2012. Moving on to the non-interest income. Overall, the non-interest income increased by 17.1%, from INR 18.92 billion in Q3 of 2012 to INR 22.15 billion in Q3 of 2013. During the third quarter, treasury recorded a profit of INR 2.51 billion as compared to a loss of INR 0.65 billion in Q3 of the previous financial year and a profit of INR 1.72 billion in Q2 of 2013. The profit in the third quarter of 2013 was on account of proprietary trading gains primarily in the fixed income segment. Other income was INR 1.93 billion in Q3 of 2013 compared to INR 2.56 billion in Q3 of 2012. The decline was on account of bank receiving dividends for 2 quarters from ICICI Life in the base quarter of Q3 of 2012, compared to the quarterly dividend that has been received in Q3 of 2013. Fee income increased by 4.1%, from INR 17.01 billion in Q3 of 2012 to INR 17.71 billion in Q3 of 2013. Overall fee income growth continued to remain impacted by lower corporate banking fee income, due to slowdown in new projects and financial closures. During Q3 of 2013, the bank saw a healthy growth in its retail banking fees. I've already spoken about the trends in the operating expenses and provisions while speaking about the 5Cs strategy. Consequent to the financial parameters I described now, the bank's standalone profit after tax increased by 30.2%, from INR 17.28 billion in Q3 of 2012 to INR 22.5 billion in Q3 of 2013. I now move on to the consolidated results of the bank. The profit after tax for the life insurance subsidiary was INR 3.97 billion in Q3 of 2013 as compared to INR 3.67 billion in Q3 of 2012. This level of net profits reflects an annualized return of over 30% on the bank's invested capital in ICICI Life. Following a phase of transition to new regulatory regime, ICICI Life Insurance has started witnessing healthy year-on-year increase in volumes. The new business annualized premium equivalent, APE, for ICICI Life increased by 10.5%, from INR 20.4 billion in 9 months of 2012 to INR 22.55 billion in the 9 months of 2013. The new business margin for Q3 of 2013 was 15%. The retail weighted received premium of ICICI Life increased by 12.7% in April to December of 2012 compared to a 1.2% year-on-year growth for the private sector and 7.6% growth for the industry. During April to December 2012, ICICI Life maintained its market leadership in the private sector, with an industry market share of 6.6% on the basis of retail weighted received premiums. ICICI General Insurance recorded a profit after tax of INR 0.95 billion in Q3 of 2013 as compared to INR 1.01 billion in Q3 of 2012. The company maintained its leadership position in the private sector with overall market share of 9.6% during April to December 2012. As I had mentioned during the earlier quarters' results call, ICICI General is expected to have some impact of the motor third-party business in the fourth quarter, as the liability for the period financial year 2007 to financial year 2012 would have to be actuarially valued, and due to any share of the declined pool accruing to the company. However, despite this impact, we do not expect the company to report a significant loss in the next quarter, and accordingly, the company would be profitable for the full year financial year 2013. Let me now move on to the performance of our overseas banking subsidiaries. As per the IFRS financials, ICICI Bank Canada's profit after tax for Q3 of 2013 was CAD 8.3 million as compared to CAD 6.6 million for Q3 of 2012. Total assets for ICICI Bank Canada were CAD 5.33 billion at December 31, 2012, compared to CAD 5.28 billion at September 30, 2012. The capital adequacy ratio at December 31, 2012 was very high at 34.5%. ICICI Bank U.K.'s total assets were USD 3.98 billion at December 31, 2012, as compared to USD 3.81 billion at September 30, 2012. While working towards capital rationalization, ICICI Bank U.K. has been looking at selective lending opportunities to highly rated entities, including trade and transaction banking products and smaller term loans to multinational corporations and subsidiaries of Indian companies in U.K. and Europe. The profit after tax for ICICI Bank U.K. for Q3 of 2013 was USD 5.4 million as compared to USD 7.7 million in Q3 of 2012. The capital adequacy ratio continues to be high at 31.5% at December 31, 2012. Let me now talk about the overall consolidated profits. The consolidated profits for Q3 of 2013 increased by 21.7% on a year-on-year basis to INR 26.45 billion compared to INR 21.74 billion in Q3 of 2012. In 2009, the bank had set a target, as you know, of doubling its ROE from less than 8% to 15%. At the beginning of the current financial year, we had also indicated our expectation of achieving a consolidated ROE of 15% in the fourth quarter. I'm very happy to report that in Q3 of 2013 itself, the bank has achieved an annualized consolidated ROE of 15.7%. Our outlook for the full year fiscal 2013 continues to be in line with what we have indicated in our earlier calls. So with this, I conclude my opening remarks. My team and I will be happy to take your questions.

[Operator Instructions] We have the first question from the line of Mahrukh Adajania from Standard Chartered.

I just wanted to know that CNBC and other TV channels are flashing some comments on expectations that most of the management is guiding to margin improvement. So how would that be possible enough following the rate environment? I know you have a lag in repricing, but if you could explain in better detail.

Yes, Mahrukh, the outlook continues to be what I had articulated in my earlier calls, that margins, we expect them to hold the margins, and actually, continue to improve them, which we have done in the last couple of quarters as well. The factors which we believe will work in our favor in the short term are the international net interest margins. If you remember, we have gone up to about 1.4% to 1.5% a couple of quarters back, but because of the excess liquidity we were carrying in October for the redemption, our margins had come down to about 1.22% in the previous quarter, and in Q3, to about 1.31%. So we do believe that the normalized level for the kind of business we are doing would be more like 1.4% to 1.5%. So that is going to clearly give us a benefit in terms of overall net interest margins. Even on the domestic lending, we will continue to look at protecting the margins. So our outlook of, over the medium-term, improving our margins will continue.

Okay. But just on the domestic front, if base rates are cut, how will your margins behave like?

Yes, base rate cutting is actually in our hands. So whenever -- we will look at cutting our base rate when we see a sort of moment in our deposit rates. And if we see a moment in deposit rates downwards, we will be happy to cut the base rates. But it will really depend on the deposit rate moment. So in doing so, our endeavor would be to protect the domestic margins.

Okay. And any [indiscernible] pressure on savings deposits growth, any medium term outlook on that?

On savings bank?

Yes, growth in savings deposit.

Yes, the outlook for us is like in the subsequent quarters, we expect the numbers to be higher than what we have seen in the third quarter. In the third quarter, our incremental customer acquisition has been quite robust. We have looked at the numbers, we don't have any concerns on that. Including the fact that during the quarter, the accretion on the daily average basis savings account has been quite positive. That's why we have been able to maintain the daily average CASA ratio at 37.5%. So those are the sort of positives. During the quarter, we also had to contend with the phenomenon of it being a festive quarter, because of this there has been some movement of deposits towards consumption. And that is something which we had to contend with during the quarter. But as I mentioned earlier, we are quite happy with the incremental customer acquisition. We are happy with the daily average accretion to savings account, and we do believe that we will be able to increase the savings account accretion in the coming quarters.

We have the next question from the line of Vishal Goyal from UBS Securities.

My question is actually about the loan growth which we are seeing for next year, and some color on the same, how you think it will be coming through projects or retail or how will it be break down for the loan?

Yes, see, our outlook for the loan growth in the next year, as we had said earlier will -- on the domestic side will continue to be ahead of the systemic loan growth. That is something which we believe that we can achieve. Within the loan growth, the focus would be, on the corporate side, on the working capital loans, which we have seen some pick up. We will also seek to grow the retail even better because if you look at our performance of consumer loans over the last 3 quarters, on a year-on-year basis, we have been improving the growth somewhere about 10% to 14% to 17% now. In the medium-term, we do believe that we have an ability to grow it at about 20% plus. So those 2 areas would be clear focus of the [indiscernible] Project disbursements, et cetera, will really be a function of whether new projects, large new projects, do get announced or not. As of now, we do believe that for the next couple of quarters, we will continue to have disbursements on projects based on the past sanctions we have done. Beyond that, we'll have to really wait and see how the incremental sanctions really develop. On the overseas side, it's going to be pretty much a function of the appetite from the borrowers in terms of their preference of foreign currency loans over rupee loans, depending on the relative industry regimes, plus our ability to raise money market funds. So that, we will calibrate as we go along. But that could -- the outlook for growth on that segment is going to be obviously less than the domestic loan growth rate. So those -- that is the sort of color I can give you today for the loan growth for the next few quarters.

Can we say that working capital, retail and project all will grow at pretty much the same 20% kind of rate? Would they know -- I mean I don't see anything growing faster than that. Product retail will be growing 20%; working capital, maybe around 20%; and project also would reflect the current?

Yes, see, we are a bank who starts with a very lower base of working capital. So normally, even if you do follow the system, our growth rate is normally higher in working capital. That's what I have seen. Project finance growth rate in the past has been much higher than the 20% news I just heard. So over a period of time it may move to the kind of numbers you are talking about. So to answer your question, yes, working capital will be 20-plus clearly. And probably retail, our endeavor would be to take it to 20-plus.

Okay, okay. And one more question on the life insurance company. I think the accounting profit definitely seems to be plateauing. And what is the outlook here? Because I think -- I don't know, the big amount of -- big margin business, I think, is definitely behind, and new business is definitely coming at low margins. So what is the outlook here?

In the foreseeable future in terms of next few quarters, we do expect them to continue to deliver a profit, which will be like a 30% return on the invested capital. So that kind of numbers we do see. Yes, there'll be mutual growth compared to the kind of sharp growth we have seen in the past because we have achieved towards that high level of profitability. Today, we look at it as the next few quarters, getting about INR 750 million approximately of dividend every quarter from that company is something you should expect. So that is the way we are sort of running the company. And this quarter we had a bit higher number at about INR 900 million. But in a ballpark in that range for the next few quarters on a regular basis is something we are expecting.

Is it -- sorry to ask this again. On the accounting profit, will it be tracking the AP growth? Will it be tracking the banking profit because banking profit will be growing much faster.

Yes, we do believe that the banking growth will be faster than the Life company profit growth. And -- but that is something that has already happened in the last few quarters, but that trend will continue.

Your next question is from the line of Kashyap Jhaveri from Emkay Global.

I have a question on your international book. The growth has sort of plateaued, as you said, in constant currency terms in this quarter on a sequential basis. Even if I look at Y-on-Y business, probably the book on constant currency basis would have remained stable or would have declined. Commensurate with that [indiscernible] the numbers which come from RBI in terms of external commercial borrowings, in the last 2 months we have seen by far the highest ECB rating by the Indian corporates. So what is the view on that business, and particularly when other banks are sort of getting aggressive, why are we being a little cautious on all -- or why has our loan growth have been modest on that front?

Our loan growth has been modest on that front because our prepayments out of the past have been very strong for us. If you remember, we had articulated earlier that in this financial year, we levered a payment of close to $2.5 billion from the opening book, and that is something which is playing out. So on the liability side, if we look at it, we had a large bond prepayment of about $2.5 billion. So for us it's starting with the larger book. And even if you do a $2.5 billion kind of incremental disbursement, the book will stay flat. So we are just going through that phenomenon. But in terms of our ability to access resources has only approved today, given this cause from a global perspective. So money is available. The way we are looking at this disbursement [ph] is that it has to be closely linked to our domestic corporate strategy because largely this corporation is borrowing funds, financing [ph] loans through this book is only domestic corporate, so it has make sense from a strategy perspective of funding domestic corporates. Second, it has to make sense from a fundraising perspective. And as I mentioned earlier, our fundraising is quite all right today. So we have to calibrate it depending on the global bond rating environment. Third, is that we are quite disciplined about doing at least 1.4% to 1.5% margin on the incremental business. So I would say that these 3 will build the boundary conditions under which we will grow. So apart from that and our ability to do the business, the demand is not really a problem. These 3 boundary conditions will have to be satisfied for us to expand this book. And that's the way we look at this book.

So if I look at your peers in the same business on the international front, they have actually a slightly bigger sized loan book than what you have at this juncture. And that loan book has sort of grown at about 20%, 30%. But if I take a look at margins, sort of you would have taken over them in terms of margins in this quarter. So I just want to understand in an e-business which is less than 140, 150 basis points we probably would not touch, unless the risk is also commensurate?

Yes, you can assume that anything which is less than 1.4%, 1.5% we will not touch at all. But the way we look at it is that we are in a situation today where our internal assets has really caught up very nicely to the sort of the best in class. So if you have to do that 1.6%, 1.7% of return on assets, I have to be achieving a 1.4%, 1.5% kind of margin on the international book. We are today at no different situation operational profitability compared to what we were about 2 years back. So that becomes a primary consideration for us to drive this business. So you can assume that, that will be the philosophy going forward as well.

And second question is on, you must be looking at sort of data which comes also from RBI, and you must have your own sort of associates in the investment market. What's your outlook on the kind of borrowers there that one can see in the excellent commercial borrowing market? Has the quality deteriorated? Because we see a lot of infra [ph] names and power sector names now in the industrial market, which probably in the local market we probably wouldn't have like them in the bank's loan book. So what's your outlook over there?

No, no. It is -- the quality has not really changed really.

I'm not asking for you. I'm generally asking only from an industry perspective.

[indiscernible] also. I would really look at this business foreign industry as less -- as being quite cyclical depending on the domestic interest rate regime. So in times like this, where you had high domestic interest rate, borrowing money through ECB route even on a fully hedged basis makes more sense, [indiscernible] the economics in that manner. But going forward, depending on what happens to the domestic interest rate regime, this situation can change. So we have to really look at the cyclical business, depending on the flavor of the market, and differential interest rates. And so quality to me is -- I'm not seeing any difference for the industry as well.

Okay. Just as a continuation of the comment that you made. If you could just help us with in terms of borrowing costs for corporate overseas. What could be latest spreads over LIBOR and the ForEx hedge cost?

See if you look at earlier, 5 year, MIBOR type of thing, today's will be about 6.5%. So we are really talking about a 6.5% LIBOR swapping to 6.5% on a MIBOR basis, plus you add the credit spread. So it's really a good corporate, that's what's called cheaper than doing on domestic borrowing.

You said 6.5% is the total. Is this cost including hedging?

Yes, at LIBOR.

Plus LIBOR?

[indiscernible] swap plus LIBOR.

Swap plus LIBOR. Then you start depending on the credit rating of the company.

That would be from 300 to 500 [indiscernible] .

500, and if you look [indiscernible] the ECP guidelines today for 5 years, it is LIBOR plus 5 caps. So you have to look at it between 3% to 5%, as Rakesh mentioned, LIBOR adding 6 .5% on MIBOR basis. And for several corporates, it does make sense today.

[Operator Instructions] We have the next question from the line of Manish Karwa from Deutsche Bank.

My question is on your staff cost. Sequentially, if I look at it on an absolute basis, your staff cost if coming down. And even your cost-to-income on an overall basis have declined despite the fact that our retail disbursement and retail loans have been growing. Now is it just because of the bonus provision that will get corrected in the fourth quarter? Or we should read something else on the cost-to-income front?

The cost income front, there are 2 reasons for ratio coming down. On the denominator impact, our incomes as you have seen, have been quite robust, including some of the areas like Treasury income. We had a very healthy year-on-year and sequential movement. So that has really helped in terms of the denominator impact on the cost-to-income ratio. If you really look at the numerator impact, I don't think there will be any bump up in the fourth quarter on account of bonus or any other bonus type of expenditures. That may not be there. But the variations we are looking at quarter-to-quarter in terms of staff expenses have been predominantly on account of pension valuation, which does get done based on several parameters. So that is the only variation we see. Apart from that, it has been a smooth kind of numbers across quarters. So I don't -- there is no specific pattern beyond the 2 specifications I talked about.

Okay. So going by what you're saying, most likely the cost-to-income should sustain at around 39%, 40% range?

Yes, see, as we have said earlier for the year as a whole, we still want to be between 41% and 42%. That's the kind of numbers we have talked about. As of now, I would stay with that. And if we are able to prove it, it is well and good.

And also one more question on your overseas banking subsidiaries. Despite things getting better in the overseas market, our ROEs in those subsidiaries still continue to remain fairly low. Now over the next 1 or 2 years, do we see ROEs in those businesses improving or we will be saddled with these low ROEs for a pretty long time?

Our endeavor would be to improve the ROEs over a period of next 3 years to anything between 10% and 15% depending on the geography. But organically, expanding the loan book to achieve that is going to be quite difficult. So what we will seek to do is through a combination of identifying India linked, trade type of opportunities, we will grow the book. At the same time, we will also look at regulation taking dividend from those geographies. And also look at -- also incorporate capital rationalization with the approval of the respective regulators. So it has to be a combination of a little bit of organic growth in our 2 areas, which fits in with our strategy, and a little bit of dividend and capital -- dividend -- getting dividends and a bit of capital rationalization subject to regulatory approvals. We think that this combination of these 3 things will only lead to achieving an acceptable ROE. But I just want to assure all of you that this is something which we continuously are focused on in internally and continuously discussing it. So hopefully, we'll be able to push those numbers to higher levels from where they are today.

And lastly, what would be your outlook on fee income? That number has just continuously remained pretty low on a growth perspective.

Of fee income, yes, the growth was only about 4% on a year-on-year basis for the quarter. The outlook in the medium term is to endeavor to get the growth [ph] close to the balance sheet growth. That sort of continuous. That outlook in the medium-term continuous. In the short term, we would continue to push things like ForEx, CapEx and banking and third party [indiscernible] distribution on the retail side. Those would be the areas. On the corporate side, given that the project new -- big, new project sanctions are still not happening, we would still have a weakness in that particular front-end fee type of revenue stream. So we are quite prepared for that. And then we're trying to push all the other line items to get to close -- to get the growth close to the balance sheet type of growth in the medium-term. So that's the kind of outlook we can see.

Okay, so next year, fiscal year '14 or fiscal year '13, hopefully we should see a much better growth, which will be much closer to balance sheet growth?

Definitely a better growth. But depending on the environment we'll have to assess whether we are able to do these balance sheet kind of growth levels. But definitely much better growth that we have so far this year.

We have the next question from the line of Abhishek Kothari from Violet Arch Securities.

I joined the call late. Could you give me the CDR in pipeline?

CDFRS, what we had mentioned was that we have about INR 9 billion to INR 10 billion of our loan yet to be restructured. We would have expected some of that restructuring to happen in the third quarter itself, but because of the packages being worked on out various stages, we could not implement it. So that is the number we are seeing happen over the next quarter or so. So that's the number we have.

And the current quarter, the slippages there? I mean, just run me up -- run through the break up of NPLs?

Current quarter, we had a gross -- additions to the gross NPL of about INR 8.5 million we had. And we had about INR 5.7 billion of deletions leading to a net NPL ratio of 0.64%.

So recovery, where to that you know?

INR 5.7 billion.

Total?

Yes, for the quarter.

And just wanted to know this INR 3.5 billion that you added to restructure, what was the largest account and the sector?

We don't give specific largest account numbers. But you could...

In terms of amount?

In terms of -- it was -- this time it was 7 [indiscernible] actually.

We have the next question from the line of Rajeev Varma from Bank of America Merrill Lynch.

I just wanted to know -- you have been having this discussion I guess in the past with the Canadian authorities on their capital. I was wondering, where are you on that now? I mean, any progress? And I got a second one on the repayments on the international book. How much are the repayments for this year? I mean just -- I mean, for -- actually for this calendar of fiscal '14?

On the Canadian issue which you talked about, I can only say that we continue to discuss and the period of the next 12 months to 18 months, we are hopeful of getting something. But in between, if you remember we got a dividend payout of about INR 1 billion. We're hoping that, going forward, another INR 1 billion we can get. Depending on when they give the approval, it can come in that particular quarter. So about INR 1 billion per annum of dividend is something which we are looking at in the immediate term. But these are all regulatory discussions, so we can't be sure of the timing of such decisions. But we will continue to engage them, and we are very hopeful. That's all I can say. On the repayments on the overseas branch's book, about -- close to about $2 billion is the repayment we see for fiscal 2014. And again, you know that, that amount is matched on both sides. That is -- the elements quite match, so about $2 billion is what we'll review [ph].

Your next question is from the line of Saikiran from Espirito Santo.

Sir, your capital consumption in the last 7 quarters have not been in sync with the balance sheet. Just wondering like why is it so, and then how it might pan out going forward?

Couple of things are there. One is that in terms of efficiency of capital, we have tried to get more and more of our portfolio externally rated. So that has helped. And secondly, on the -- in addition to the [indiscernible] on the market risk side, we have not seen -- we will not see commensurate increase in the risk-weighted assets as happened on the balance sheet in the site. If you saw in the current quarter the Tier 1 actually went up compared to September. The only thing to keep in mind is that typically the dividend payout will come in, in the March quarter. So in the last quarter of the financial year, we do see a more substantial drop in the Tier 1 ratio.

Okay, yes. But this quarter leads would be attributable to the fact of like what you mentioned on the rating of your portfolios in the [indiscernible]?

This quarter in specific was just the addition of the profit for the quarter. And there was actually some decline on the risk-weighted assets equally for the market risk side.

Understood. And just a couple of data core points. What will be your outstanding builder loan portfolio? And also on the auto side, what will be the outstanding dealer portfolio?

The builder loan portfolio continues to be in the region of about 3% of the loan book.

And on the vehicle loans, what will be the outstanding dealer's portfolio?

Less than 1% of total loans.

And also if you can help us with the provision break up. In terms of provision break up, the NPL provisions as a level of standard of inclusions and then other miscellaneous ones.

Of the total provisions, actually, it is -- we have made general provision on standard assets and including the increase on the restructured loans. So that was about INR 1 billion. The rest of the other [ph] provision is almost all for specific provisioning against NPL.

The next question is from the line of Manish Chawdhary from IDFC Securities.

Just a couple of questions from my side. Firstly on the asset quality this quarter, could you give us some flavor in terms of what is from corporate and how much from retail? And secondly on the fees, I mean, you had mentioned earlier that retail fees are very much healthier than corporate. Could you give us an indicator of growth rates on each of these segments if possible.

On asset quality, we actually don't give specific break up into each of the categories. But as we have said in the past and Kannan mentioned early, we have seen slippage mainly on the SME side which has been coming through in the last several quarters. Given that our overall portfolio in the SME segment is about 5% of the total loans, it doesn't impact us on an overall basis. But we have seen slippages on the SME portfolio. That has continued. On retail side, gross slippages are there but we have kind of an equal in number, which is kind of going -- getting recovered as well. So on a net addition basis, it is close to 0, but there will definitely be some gross addition and growth deletion on the retail side. Corporate side, really we have not seen any material slippage at all during the quarter.

Secondly on the fee side, if you could give us relative growth rates on the fee income between corporate and retail?

So fee income, as again Kannan mentioned, that in the corporate side we actually would see a year-on-year decline on the fee income side. So -- which is mainly coming through the lending linked fees, the loan processing fees, indication fees. Those fees have come down, while we have continued to grow the commercial banking and FX fees. Overall, despite reasonably good growth on the effects of commercial banking on the corporate side, we have seen some decline on the overall corporate fees. For the retail fees, across various categories, the growth has ranged between 10% to 20%. And at the higher end, we have seen the 20% kind of growth on the third party distribution and FX fees.

We have the next question from the line of Vijay Sarathi from Nomura.

Is it possible for you to share the new customer acquisition per quarter? On the retail side? On the banking side?

We are not disclosing that. Generally, that's the only reason. So maybe going forward, we will look at doing that.

Your next question is from the line of Sudanshu Asthana from Axis Mutual Fund.

I just wanted to understand the general growth which is coming in, in the credit book. If I look at 12 months, you've done a delta of almost INR 40,600 crores of credit. Out of that if I remove the overseas book which is seen because of the dollar movements of INR 4,000 crores, so your core growth is around INR 36,500 crores, out of which, the corporate book has grown by INR 21,700 crores approximately. So that's almost 60% of incremental growth. So I wanted to understand that if you look at this number, which is a 33% growth on the corporate book, how much has come from disbursements made for projects that were sanctioned? How much has come through new loans being disbursed? And how much has come through working capital? Because if I remove the international book then you have a 20% growth in credit. But the incremental disbursement on that part of the book, 60% comes from the corporate book. So I just wanted to get an idea on that. And the second part of the question is that, your housing volumes are increasing more and CVs have fallen. So will retail growth be dominated by housing and non-CDR 2?

On the 9-month growth in the corporate loan book during the previous call in September...

I'm thinking the 12-month period. I mean December to December, 12 month volume.

Great. So we had said that during this period, during the year, we typically do a reasonable amount of short-term lending to corporate, which matures out before the end of the financial. So the growth that you see during the year would typically be higher than when we end up for the year. So for the year, we are looking at corporate growth to be in the region of 20% to 25%. So the growth that we have seen till now, we have seen increase in the short term loans to the higher-rated clients. As Kannan mentioned earlier, we have seen reasonably good growth on the working capital side of it. Of course, our overall share in the fan base working capital has been on the lower side in the past. So we have seen good growth there. On the project finance, from the past sanctions we have seen disbursements coming in. Really nothing much on the incremental side. So it has been a mix of, I would say, these 3 elements of working capital or the other short-term loans that we do, which are less than 6 months or 1 year in maturity. And the increase in the project finance disbursement from the existing...

Could you give us a number on how much has been disbursed on past projects over the last 12 months rolling? That could you give us a fair idea about what has happened to short-term loans or working capital.

Yes. So we actually do not give specific breakups into that -- those...

But on a percentage basis if you would just tell us how much it was.

We don't give a specific number, but as I said that overall the working capital book would've grown at higher than the growth that we have seen for the corporate book. If you are comparing, say, March to December, then the one more element which will be there is that in March we had sold down a part of our corporate loan portfolio as part of IDBC. We have done about INR 45 billion, which came back into the portfolio in September quarter. So that increase is, in that sense, not an additional credit that we had taken, but that was something which had sold down as part of IDBC for 6 months and came back in the book. That was the other element. And project finance, as I said it's only happening from the past disbursement. So that growth on that book will not be more than 20% or so.

Could you just comment on the retail, please?

Retail, yes, you're right that, going forward, if you look at the near term, the growth will be driven largely by mortgages and then the car loans. On the commercial vehicle side, clearly we have seen that incremental disbursement volumes have come down for us as it has happened in the market as well. So while we would be quite keen to grow the commercial vehicle portfolio, but in the current environment, in the near term, it does look like that the book, the portfolio growth will be lower than what we see on mortgages and passenger cars.

We have the last question from the line Hatim Broachwala from KARVY Stock Broking.

There are a lot of competition increase in the retail segment. So are we worried about compression in margins in this segment?

Yes, it continues to be a very competitive segment. And actually we have seen that play out in the last 3 quarters. Some of the banks have been aggressive on the mortgages side and the automobile loans. But overall perspective, we have been looking at the incremental yields, but we do believe that we'll be able to maintain the margins. The approach we have taken is that, in the automobile segment for example when it was very competitive, we thought that rather than chasing the market share, we should just continue to look at our volumes. And if we are satisfied with some base level of volumes, it is quite fine. And also, we should remember that we are operating at the market share of about 8% to 10% across products. To be able to maintain this kind of market share and probably slightly to grow it to be in line with the lower 20% growth aspiration, we don't have to really chase market share by undercutting. So I think given our aspirations of about 20% in retail and given the fact that our market share is lower at about 8% to 10%, and given that we also are pushing an agenda of margin improvements for the bank as a whole, we don't think we need to really compromise on volumes.

Also, we're seeing a good amount of improvement in the quality for past many quarters? How do we see going ahead?

As I mentioned earlier, the provision cost is pretty much under control. We do think that earlier expectation of that being less than 75 basis points of average loans, that is something which we don't have to revise, of course. If you look at the infield ratios are very comfortable. Again, we don't expect that increase to sort of move up significantly. The only area where have been watching closely is the restructured assets. Well, so far, that has held off very well. As I mentioned, about INR 9 billion to INR 10 billion of loans are yet to be restructured. So that is the only area where I can see some kind of addition to this portfolio. But overall when look at the performance of past restructured assets and so on, we don't have any big concerns. So I would say that it is an environment to bear. For our book we are seeing a stable asset quality. That's how I summarize it. But the need to monitor closely is very much day-to-day given the operating environment. A stable business, close monitoring, That's how I will summarize the situation.

I also missed NIMs on the domestic side?

For the quarter, the NIM on the domestic book came in at 3.47%.

I would now like to hand the floor back to Mr. N. S. Kannan for closing comments. Over to you, sir.

Yes, thank you. And thanks to everyone for joining the call. And my team and I will be available to take any further questions off-line. Thank you, bye-bye.

Thank you, sir. Ladies and gentlemen, on behalf of ICICI Bank, that concludes this conference call. Thank you for joining us. You may now disconnect your lines. Thank you.