ICICI Bank Limited (IBN) Q4 2015 Earnings Report, Transcript and Summary

Ladies and gentlemen, good day and welcome to the ICICI Bank Q4 FY 2015 Earnings Conference Call. As a reminder, all participant lines will be in the listen-only mode. There will be an opportunity for you to ask questions after the presentation concludes. [Operator Instructions] Please note that this conference is being recorded. I now hand the call over to Mr. N.S. Kannan, Executive Director of ICICI Bank. Thank you and over to you, sir.

Thank you. Good evening. Welcome to the conference call on the financial results of ICICI Bank for the quarter ended March 31, 2015, that’s the fourth quarter of the fiscal 2015. In my remarks today, I will cover first the macroeconomic and the monetary environment, then we’ll move on to our performance during the quarter including performance on our 5C strategy, then we’ll talk about performance of our subsidiaries and the consolidated results, and finally outlook going forward. Let me start with the first part, on the macroeconomic and monetary environment. Economic conditions remained stable during the fourth quarter of fiscal 2015. Some positive trends during the quarter included moderate inflationary trends with the growth in consumer price index at 5.2% in March 2015; signs of a pick-up in industrial activity, as reflected by positive growth in the Index of Industrial Production; and reduction in repo rate by 50 basis points to 7.5% by RBI. Further the government’s focus on fiscal consolidation and the Union Budget for Fiscal 2016, and the passage of Coal Mines Bill and Insurance Bill during the quarter were positive developments. Moody’s upgraded India’s sovereign rating outlook to positive from stable in April 2015. As per the government’s revised methodology on GDP calculation, GDP growth in fiscal 2015 is estimated at 7.4% compared to growth of 6.9% in fiscal 2014. Moving on to the performance of financial markets, the Bombay Stock Exchange Sensex rose by 1.7% during the fourth quarter, the yield on 10-year government securities declined to 7.74% as of end March 2015, from 7.86% as of end December 2014. Short-term interest rates however remained volatile during the quarter. Since the beginning of April 2015, short-term interest rates have declined by 30 basis points to 40 basis points. Exchange rate moved to INR 62.6 per U.S. dollar at the end of Q4 of 2015 from INR 63.3 per U.S. dollar at the beginning of the quarter. Subsequently, the rupee has depreciated against the U.S. dollar and was at INR 63.4 per U.S. dollar as of April 24, 2015. With respect to the banking sector, non-food credit growth remained moderate at around 10% to 11% on a year-on-year basis throughout the quarter, before increasing to 13.2% year-on-year as of April 3, 2015. Growth in total deposits was at 12.8% on a year-on-year basis as of April 3, 2015. Demand deposit growth remained volatile in the range of 8% to 14% year-on-year growth through the quarter, before increasing to 25% on a year-on-year basis as of April 3, 2015. Given the reduction in repo rates by RBI during the fourth quarter and stable liquidity conditions, most large banks have reduced their base rates and retail deposit rates in April 2015. With this background, let me now move to our performance during the quarter including the progress on our 5C strategy. First, with respect to credit growth, the bank’s domestic loan portfolio grew by 17.8% on a year-on-year basis as of March 31, 2015, compared to 13.2% growth in non-food credit for the system as of April 3, 2015. Loan growth for the bank continues to be driven by retail segment, which grew by 24.6% on a year-on-year basis as of March 31, 2015. The growth in our retail portfolio continues to be driven by secured products with the outstanding mortgages and auto-loan portfolios growing by 26% and 24% respectively on a year-on-year basis as of March 2015. Growth in the business banking and rural index segments was 18% and 35% on a year-on-year basis respectively. Commercial business loans declined by 13% on a year-on-year basis as of March 31, reflecting primarily the rundown of our bought out portfolio. On a sequential basis, commercial business loans remain broadly stable and were about INR 108 billion, as of March 31, 2015. We expect growth in commercial business loans to gradually improve with the recovery in the industrial activity. The unsecured credit card and personal loan portfolio at about INR 109 billion as of March 31, 2015, continue to remain a small proportion of about 2.8% of the overall loan book. So obviously, the growth rate is high due to the lower base. The domestic corporate portfolio growth was 9.6% on a year-on-year basis as of March 31, 2015, compared to a 4% growth we saw as of December 31, 2014. The higher growth at March end compared to December end was primarily on account of lending to higher rated clients including public sector entities during the fourth quarter. The SME portfolio increased marginally on a sequential basis to about INR 172 billion as of March 31, 2015. Growth in net advances of the overseas branches in U.S. dollar terms was at 0.6% on a year-on-year basis as of March 31, 2015 compared to 3.5% year-on-year growth as of December 2014. In rupee terms the net advances of the overseas branches increased by 4.9% on a year-on-year basis due to movement in the exchange rate. The net advances of overseas branches decreased marginally by about 1.6% on a sequential basis in U.S. dollar terms. As a result of the above, the total advances of the banks increased by 14.4% on a year-on-year basis from INR 3.39 trillion as of March 31, 2014 to INR 3.88 trillion rupees as of March 31, 2015. Moving now on to the second C on CASA deposits, the bank continue to see healthy momentum in CASA deposit mobilization. On a period end basis, we saw an addition of INR 43.27 billion to savings deposits. Current account deposits increased by INR 36.04 billion during the quarter. As a result, the period-end CASA ratio improved to 45.5% as of March 31, 2015, compared to 44% as of December 31, 2014. The daily average CASA ratio for the bank increased from 39.3% in the third quarter to 39.9% in the fourth quarter. Moving on to the third C on cost, the bank maintained a healthy cost to income ratio of 36.2% in the fourth quarter compared to 36.3% in the third quarter of fiscal 2015. For the fourth quarter, operating expenses increased by 7.9% on a year-on-year basis. For the full year 2015, operating expenses grew by 11.5% year-on-year and the cost to income ratio was 36.8% compared to 38.2% in the previous year. As mentioned on our previous calls, given the addition of about 14,000 employees in financial years 2013 and 2014, and the bank’s focus on productivity and efficiency the employee base has decreased by about 4,400 people during financial year 2015 to 67,857 employees. This has been achieved primarily by not replacing attrition. While we expect the employee base to increase from this level, we will continue to focus on further enhancing the productivity and efficiency of our employee base as well as the expanded distribution network in order to drive growth. Let me now move on to the fourth C on Credit Quality. As we indicated on our previous calls, the total NPA additions in the fourth quarter were higher than the third quarter primarily due to challenges with respect to one or two large restructured borrowers. During the fourth quarter, we saw gross NPA addition of INR 32.6 billion including slippages of INR 22.5 billion from the standard restructured category to the non-performing asset category. Deletions from the NPA during the quarter were INR 6.54 billion and we have also written off INR 5.95 billion of NPAs. We have not sold any NPAs to asset reconstruction companies during the quarter. The Net NPA ratio was 140 basis points as of March 31, 2015 compared to 112 basis points as of December. During the quarter, we had gross additions of INR 12.47 billion to restructured loans. After taking into account deletions, including the slippages mentioned earlier and the request specific provisioning thereof, the net restructured loans for the bank was at INR 110.17 billion, as of March lower compared to the INR 120.52 billion as of December. Moving onto the provisions, provisions for the fourth quarter were at INR 13.44 billion compared to INR 7.14 billion in the fourth quarter of 2014, and INR 9.80 billion in the third quarter of 2015. As a result, credit cards as a percentage of average advances were at 144 basis points on an annualized basis for the fourth quarter. Provisions were higher in the fourth quarter on account of higher additions to nonperforming and restructured loans. Provisions in Q4 also include standard as a provisions of about INR 420 million on account of exposure to clients having unhedged foreign exposure. This added about 4 basis points to the analyst provisions to average advances for the fourth quarter. On a full-year basis for financial year 2015, credit cards as a percentage of average advances were at 109 basis points, the provisioning coverage ratio on nonperforming loans was 58.6% as of March 31, 2015. For the full-year fiscal 2014, the aggregate additions to NPAs was INR 45.4 billion, of which fresh NPA addition was INR 38.13 billion and slippages from the restructured loans to the NPA category was INR 7.27 billion. The loans restructured during fiscal 2014 were INR 66.33 billion. So the sum of the loans restructuring during the period and NPA additions, excluding the slippages from the restructured portfolio was INR 104.46 billion for the fiscal 2014, that’s the previous year. In comparison, during current fiscal 2015, the aggregate additions to NPAs was INR 80.78 billion, of this fresh NPA additions was INR 35.49 billion, which is lower than the previous year. However, slippages from restructured loans to the NPA category was INR 45.29 billion in fiscal 2015. Loans restructured during the period was INR 53.94 billion, that’s the some of the loans restructuring during the period on NPA additions, excluding the slippages from the restructured portfolio was INR 89.43 billion, about INR 15 billion lower compared to the previous year. After taking into account deletions and provisioning, the aggregate net NPA revenues on net restructured loans increased by INR 34.82 billion from INR 138.59 billion as of March 31, 2014 to INR 173.41 billion as of March 31, 2015. The aggregate net NPAs and net restructured loans increased by INR 4.58 billion in the fourth quarter. Now moving on to the fifth C on customer centricity, we continue to focus on enhancing our customer service capability and leveraging on our increased branch network to cater to the customer base. During the quarter, we added 200 branches and 360 ATMs to the networks. Accordingly, as of March 31, 2015, the bank had a branch network of 4,050 branches and 12,451 ATMs. We also continue to strengthen our technology channels for increasing the customer convenience. ICICI Bank has always been a pioneer in bringing technology-enabled products and services to the Indian customers. We are focusing on leveraging the three key transformational trends we see in technology, that is mobility, digitization, and rapid growth of social media, so that we can bring value to our customers. Our innovations in recent years include fully automated 24/7 touch banking branches, that banking for seamless and convenient account opening, a refreshed and intuitive Internet banking website, a rich mobile banking application, specific convenient mobile application for ease of information and transactions, and contactless tabs and pay card payments. During the quarter, we launched the digital mobile wallet called Pockets, positioned us India’s first digital bank. Pockets allows any individual whether ICICI Bank customer or otherwise to download and instantly activate on e-wallet. The e-wallet is amongst the India’s most comprehensive wallets, which can be used to pay on all websites and mobile apps in the country. Our Facebook page continued to be appreciated by customers over 3.5 million fans, the largest fan based on Facebook among Indian banks. The bank also launched video banking for NRI customers during the quarter. Using this service, NRI customers can now connect with the customer care representative over a video call round the clock on all days from anywhere using the smartphone. We are now launching an application for Apple Watch, leveraging the emerging trend in variable technology. We will continue to launch new digital banking propositions in the days ahead. Having talked about the performance from the 5Cs, let me now move onto the key financial performance highlights for the quarter. Net interest income increased by 16.6% year-on-year from INR 43.57 billion in Q4 of 2014 to INR 50.79 billion in Q4 of 2015. The net interest margin improved to 3.57% in Q4 of 2015, from 3.35% in the corresponding quarter last year. The domestic net interest margin was at 3.99% in quarter four of 2015, compared to 3.72% in the corresponding quarter last year and 3.88% in the previous quarter. International margins were at 1.71% in Q4 of 2015 compared to the same number in the corresponding quarter last year and 1.67% in the preceding quarter. Net interest income in the fourth quarter includes interest of about INR 1 billion on income tax refund received during the quarter. Total non-interest income increased by 17.5% from INR 29.76 billion in Q4 of 2014, to INR 34.96 billion in Q4 of 2015. Within the non-interest income, the fee income grew by 8.3% from INR 19.74 billion in Q4 of 2014 to INR 21.37 billion in Q4 of 2015. The moderate growth is mainly due to subdued corporate activity and consequent decline in corporate fee income. Retail fees for the bank continue to grow at a health rates and now constitute about 60% of overall fees. During the fourth quarter, treasury recorded a profit of INR 7.26 billion compared to INR 2.45 billion in the corresponding quarter last year and INR 4.43 billion in the previous quarter. Treasury income for the fourth quarter was primarily driven by gains from the fixed income portfolio where the bank capitalized on market opportunities. Other income was INR 6.33 billion in Q4 of 2015 compared to INR 7.57 billion in Q4 of 2014 and INR 5.38 billion in Q3 of 2015. During the fourth quarter, the bank received dividend of about $13 million from ICICI Bank UK and about CAD $19 million from ICICI Bank Canada. ICICI Life did not pay dividends during the fourth quarter of 2015. The Board of ICICI Life at its meeting held on April 24, 2015, has approved dividend, which would be paid in Q1 of 2016. The net exchange rate gains relating to bank’s overseas operations were at INR 1.82 billion in the fourth quarter compared to INR 2.22 billion in the corresponding quarter last year and INR 1.92 billion in the preceding quarter. I’ve already spoken up the - spoken about the trends in the operating expenses and provisions, while speaking about the 5Cs strategy. As a result of these trends, the bank’s standalone profit after-tax, sorry, profit before tax increased by 10.3% from INR 37.4 billion in Q4 of 2014 to INR 41.24 billion in Q4 of 2015. The banks standalone profit after-tax increased by 10.2% from INR 26.52 billion in Q4 of 2014 to INR 29.22 billion in Q4 of 2015. For the full-year financial year 2015, the profit after-tax increased by 13.9% to INR 111.75 billion from INR 98.1 billion in financial year 2014. The return on average assets improved from 1.76% in fiscal 2014 to 1.86% in fiscal 2015. The bank’s capital adequacy ratio on a standalone basis as per Reserve Bank of India’s guidelines on Basel III norms, continues to remain strong. The bank’s overall capital adequacy ratio as of March 31, 2015, was 17.02% and Tier 1 capital adequacy ratio was 12.78%. The bank has been providing fully for any interest income, which is funded through an FITL, that is Funded Interest Term Loan for cases restructured subsequent to the issuance of the RBI’s 2008 guidelines on restructuring. However, RBI has now required similar treatment of outstanding FITL pertaining to the cases restructured prior to the 2008 guidelines. The bank has with the approval of RBI debited the resource by INR 9.29 billion to fully provide for such outstanding in the quarter ended March 31, 2015, as against over three quarters permitted by RBI. These disclosures have also been made by the bank in the stock exchange format. I now move on to the performance of subsidiaries and the consolidated results. On a full-year basis, the profit after-tax for life insurance company was INR 16.34 billion in financial year 2015 compared to INR 15.67 billion in financial year 2014. The profit after tax for ICICI Life in Q4 of 2015 was INR 3.91 billion as compared to INR 3.88 billion in Q4 of 2014. The new business annualized premium equivalent increased from INR 10.81 billion in Q4 of 2014, to INR 15.98 billion in Q4 of 2015. The retail weighted received premium for ICICI Life has grown by 41.3% for the full-year financial year 2015 compared to 1.7% increase in financial year 2014. While the IRDA numbers for the industry are not yet available, we understand that the company has seen an increase in its market share to over 11% during financial year 2015. The new business margin was at 11.4% in Q4 of 2015, based on Traditional Embedded Value or TEV methodology. The company will be separately making disclosures based on Indian Embedded Value or IEV methodology later this week. On a full-year basis the profit after tax for ICICI General increased from INR 5.11 billion in fiscal 2014 to INR 5.36 billion in fiscal 2015. The year-on-year increase in profit before tax was about 33%. The lower increase in profit after tax compared to profit before tax reflects the normalization of tax expenses, which in fiscal 2013 and fiscal 2014 were low due to losses carried forward from the earlier years. The profit after tax increased from INR 0.76 billion in Q4 of 2014 to INR 1.31 billion in Q4 of 2015. The gross premium income of ICICI General decreased marginally by 3.1% on a year-on-year basis to INR 69.14 billion in fiscal 2015, as the company adopted a calibrated approach to growth given the pricing trends in the industry. The company continues to retain its market leadership among the private players. While the IRDA numbers for the industry are not available, we understand that the company had a market share of about 8.3% during fiscal 2015. ICICI Securities and ICICI AMC have continued to see improvement in the performance. The profit after tax for ICICI Securities increased from INR 0.91 billion in fiscal 2014 to INR 2.94 billion in fiscal 2015. The profit after tax for ICICI AMC increased from INR 1.83 billion in fiscal 2014 to INR 2.47 billion in fiscal 2015. ICICI AMC sustained this market position as the second largest mutual fund in India during the fourth quarter of 2015. Let me now move onto the performance of our overseas backing subsidiaries. The bank has continued with the strategy of optimizing the capital in the overseas banking subsidiaries. During the fourth quarter, the bank received a second round of equity capital repatriation of CAD 80 million from ICICI Bank Canada and US$75 million from ICICI Bank UK. Further both the overseas banking subsidiaries paid equity dividends to the parent bank in the fourth quarter. The bank’s total equity investment in ICICI Bank UK and ICICI Bank Canada has reduced from 11% of the net-worth as of March 31, 2010 to 5.6% as of March 31, 2015. As per IFRS financials, ICICI Bank Canada’s total assets were CAD 5.94 billion, as of March 31, 2015, compared to CAD 5.64 billion in December. Loans and advances were CAD 5.17 billion, as of March 31, 2015 compared to CAD 4.97 billion as of December. The increase in loans and advances was on account of higher securitized insured mortgages as of March 31, 2015 compared to December. The profit after tax for the fourth quarter was CAD 7.5 million compared to CAD 11 million for the fourth quarter of 2014 and CAD 3 million in Q3 of 2015. For the full year financial year 2015, profit after tax was CAD 33.7 million compared to CAD 48.3 million for the fiscal 2014. The decrease in profits was on account of higher specific provisions primarily on account of change in risk categorization of a mid-sized India-linked account during the year. The capital adequacy ratio for ICICI Bank Canada was 28.5%, as of March 31, 2015. ICICI Bank UK’s total assets were US$4.13 billion as of March 31, 2015 compared to US$4.17 billion, as of December 31, 2014. Loans and advances were US$3.03 billion as of March 31, 2015 compared to US$2.9 billion as of December. The profit after tax for ICICI Bank UK for the fourth quarter was US$0.9 million compared to US$5.2 million in the fourth quarter of previous year, and US$6.1 million in Q3 of 2015. The lower profits in fourth quarter of 2015 were on account of higher provisions on existing impaired loans. For the full-year 2015, profit after tax was US$18.3 million compared to US$25.2 million for the previous year. The capital adequacy ratio was 19.2% as of March 31, 2015. Going forward, ICICI Bank UK and ICICI Bank Canada will continue to focus on short-term loans, working capital line, trade and transaction based banking products to multinational corporations, select local market corporates on subsidiaries and joint ventures of Indian companies, including through participation in syndication transactions. Additionally, ICICI Bank Canada would also continue to provide securitized insured mortgages to this portfolio. We expect that the approach to lending in ICICI Bank UK and ICICI Bank Canada will also yield synergies for the clients’ Indian banking requirements. The bank and its UK and Canada subsidiaries will also continue to work towards optimizing the capital invested in these subsidiaries further. During the quarter, the bank concluded the sale of its Russian subsidiary. Let me now talk about the overall consolidated profits. The consolidated profit after tax grew by 13.3% from INR 27.24 billion in Q4 of 2014 to INR 30.85 billion in Q4 of 2015. The annualized consolidated return on average equity was 14.5% in Q4 of 2015 compared to 14.2% in Q4 of 2014 and 15.5% in the Q3 of 2015. For the full-year financial year 2015 consolidated profits increased by 10.9% from INR 110.41 billion in financial year 2014 to INR 122.47 billion in fiscal 2015. The consolidated return on average equity was 15% in fiscal 2015 compared to 14.9% in fiscal 2014. On a consolidated basis, the bank’s overall capital adequacy ratio as of March 31, 2015 was 7.2% and the Tier I capital adequacy ratio was 12.88%. In summary, we have continued to pursue our core operating strategy during the quarter. In line with our focus areas, we have one, sustained the improvement in net interest margins; two, maintained a healthy non-interest income; three, sustained improvement in our operating efficiency; four, seen continued healthy trends in CASA mobilization; five, maintained a strong retail portfolio growth; and six, achieved a healthy performance in our non-banking subsidiaries. Based on the performance of the bank in fiscal 2015 the Board of Directors has recommended a dividend of INR 5 per equity share of face value of INR 2 each to shareholders compared to INR 4.6 per equity share for 2014 after adjusting first sub-division of equity shares during the year. Moving now onto the outlook for financial year 2016, we believe that while operating environment in fiscal 2016 is likely to be better than fiscal 2015, recovery in economic activity could be gradual and near-term challenges for the banking system may persist. Our outlook for fiscal 2016 is in this overall context. We expect to sustain domestic loan growth in the range of 18% to 20% driven by about 25% growth in the retail segment. In the domestic corporate portfolio we expect a growth of 10% to 15% driven primarily by increasing lending to higher rated clients. The bank would continue to calibrate corporate loan growth to the trends in the environment. With respect to the overseas branches, the bank would focus on selective lending opportunities and will continue to calibrate growth to conditions in the funding markets. We expect the loan portfolio of overseas branches to grow by about 8% to 10%. We would aim to maintain a stable average CASA ratio in the range of 38% to 40%. We will target to maintain the overall net interest margins in fiscal 2016 at a similar level compared to fiscal 2015 despite declining interest rates. We would target a double-digit growth in fee income in fiscal 2016 led by retail fees. The overall fee income growth would depend on market conditions, particularly activity in the corporate sector as well as regulatory measures with respect to various components of fee income. We will focus on sustaining the gains we have made in operating efficiency, to maintain the cost to income ratio for financial year 2016 at similar level as in financial year 2015. Coming to the asset quality, we expect that the aggregate additions to restructured loans and NPAs in fiscal 2016 will definitely be lower than in fiscal 2015. Restructuring in fiscal 2016 will be limited to: A, restructuring of project loans in line with criteria permitted by RBI; and B, restructuring of other loans, where referral restructuring application occurred before March 31, 2015. Our current restructuring pipeline is about INR 15 billion, based on the above we expect the provisions to be in the range of 90 basis points to 95 basis points of average loans in fiscal 2016. We believe that our strong and diversified franchise, large distribution network and technology capabilities give us the ability to leverage opportunities for profitable growth. We are well placed with regard to the capital required to support this growth and given our current capital position, be believe that we do not need to raise equity capital for the next three years based on current regulations. With these opening comments, my team and I will be happy to take your questions. Thank you.

Thank you very much, sir. Participants, we will now begin with the question-and-answer session. [Operator Instructions] Our first question is from the line of Abhishek Kothari from Quant Capital. Please go ahead.

So, thanks for taking my question. Can I have the break-up of provision expenses for the year in terms of NPA, standard assets and others?

The standard asset provision is about INR 4 billion.

Okay.

And the balance is for NPA and restructured loan. For the quarter, the standard asset provision is about INR 640 million.

And the rest is NPA.

Rest is NPA…

…and restructured loans.

Okay. And so, coming on to your cost to income ratio, you did mention that you would be looking to hire. My number one question is that, in Q4 we added about 200 branches, but there was no movement in cost per se, okay, point number one. And point number two, when you would be looking to hire, what would be the significant increase in employee expenses or the total OpEx that you’re seeing?

We would look at increasing our employee base primarily in the retail and the rural business, so we will have some increases, while it’s difficult to give a specific number maybe about 5% to 7% in increase in employee count is what we could look at during the coming years.

And for this branch expansion that we have undertaken, there hasn’t been significant increase in the expenses, could you throw some light on that?

So the expenses related to branches have definitely happen. Overall, we have been pretty cost conscious over the last several years and that continues to be the case, so that is why in the overall numbers if you look at it, we have been able to maintain and improve our cost to income ratios in the last few years.

So expansion would continue in the same momentum in terms of branches?

Yes, so we would look at increasing our branch network in the current financial year, FY 2016 also.

Okay. Thank you.

Thank you. Next question is from the line of Pankaj Agarwal from Ambit Capital. Please go ahead.

Yes, hello, sir.

Hi.

Hi. Sir, your restructured assets which slipped into NPAs were close to INR 45 billion during the year. Now if I look at it it’s close to like 40% of your outstanding restructured assets at the end of FY 2014 and around 80% of your restructured assets at the end of FY 2013. So don’t you think this number is slightly on the higher side? That is one. And second, how do you expect this ratio to pan out in FY 2016 and FY 2017?

So as we have said in the past - over the last couple of quarters that we are indeed seeing a trend whereby the slippages from the restructured loans has gone up for us and while the slippage was only about INR 7 billion in the last financial year FY 2014, FY 2015 has seen consistent increase in that numbers through the year. So the slippage ratio for us, if you look at it the way we compute for loans that we have restructured over the last several years, that has gone up to about 25% and in the past as we were looking at that ratio kind of to be closer to about 10%, so clearly that number has gone up and we have been planning on that basis. Going forward, in terms of the quantum of slippage that we have seen in FY 2015, and that quantum will certainly not be there going forward, but there could still be some slippages that happen from the current standard restructured loan portfolio.

Okay. Thanks. Thanks a lot.

Thank you. Next question is from the line of Nilanjan Karfa from Jefferies. Please go ahead.

Hi, thank you, sir. So the question is on securities you said gone up by, what, INR 730 million on a Q-o-Q basis. Were there some sales which are of SME I or II category?

We had one sale of SME II category loan during the quarter. It was a small amount and that’s reflected in the increase in the security assets.

Okay. And any loss there so I guess would have been absorbed in the current quarter, is that right?

Yes.

Okay. So second question is, have you already undertaken some refinancing or debt equity swaps, I guess, we know one case? Can you throw some color on that side? And secondly, what’s your expectation going for next year? How much of refinancing will you do? How much of other options that the RBI has provided? To what extent do you think these are going to help the bank not to report these numbers?

I don’t think that, if you are - by refinancing if you’re referring to the 525 guideline, I don’t think that that has anything significant as so far being done by the banking system per se under that guideline.

Okay.

And I guess, there would be a number of projects across the system which will qualify the application of the guideline in terms of the sectors and life of the asset and the economic life of the asset and so on.

Right.

I guess, banks will look at it on a case-by-case basis as we go along.

Okay. So I guess you don’t want to give out a pipeline number of that sort or you…?

There is no such number as of now, frankly.

Okay. And so quickly, two last questions. You talked about an IT refund. I’m guessing that’s a regular occurrence, right?

So, yes, I mean, regular sometimes, irregular sometimes. Regular, some quarters it come up. Nothing unusual about it, but some quarters we do get it. It’s about a INR 1 billion for the first quarter.

So is that one of the reasons why the margins have went up or…?

No, no, even otherwise it would have gone. See, this is would have on an overall basis made a difference of only about 7 basis points to our margins. Even otherwise the margins would have gone up.

What is the reason? Is there any specific…?

No, it’s just that cost of funds has been under control and we have seen some pickup in the yield on interest earning assets. So nothing specific, it’s been a conscious strategy of improving our net interest margins.

Okay. And lastly, so you talked about a guidance on asset quality. So do you mean the gross addition to impaired assets will be less than sum of INR 80.78 billion plus INR 53.94 billion, is that how you’re looking at asset quality for next year?

Yes, that’s what I said. I said, definitely that will be lower than that amount, that’s what I mentioned.

Okay. So the number is INR 80.78 billion and not INR 45.29 billion, which is just the slippage from restructure?

Correct.

Yes.

Yes, great. Thank you so much sir.

Thank you. Our next question is from the line of Rakesh Kumar from Elara Capital. Please go ahead.

Yes, thanks a lot for the opportunity. The one question regarding that this quarter of improvement in the margin has actually come from the credit yield. So the one thing is that next year of like - we have already cut the base rate. So here onwards there would be a pressure on the yield side.

Yes.

So like the stability in margin what we have projected for this year, how we are going to achieve that, this is coming from the credit composition or like what is the like strategy behind it?

On the margins, actually if you look at the increase which just happened this quarter, as Kannan explained, about 7 basis points to 8 basis points kind of has come from the interest or income tax refund. For the balance of the increase that you’re seeing on the overall interest earning assets, a part of that has come from the mix change, because if you look at our domestic book that kind of entire growth between Q3 and Q4 has happened in our domestic loan book while the overseas loan book has remained flat. And even the other interest earning assets which typically earn lower, so for example, the investments and other interest earning asset, they have also remained flat vis-à-vis Q3. So that is the reason for the increase in the margin. Going forward, while immediately, of course, there will be an impact of the base rate reduction that we have done in the current month, but the deposit costs also we have reduced on the retail side. So that will also start showing up with some bit of line, so that is why, we believe that we should be able to maintain in our margin, because overall, the mix benefit will continue into FY 2016 also, because the overseas book will grow at a lower pace than the domestic book.

Secondly, again on the - from the credit yield perspective like suppose the kind of delinquency kind of slippage we have seen, are those come from entirely from the standard book rather than coming from the U.S. structure standard book? So would that have impacted our margin much more, because your - straightaway your standard account is becoming some-standard [ph]. So if the composition of slippages suppose changes next year then and the interest earning assets would come down to that extent and margin would get impacted, so like any thought over it?

Critically, it is correct that, if that happens. But overall as Kannan mentioned that, we are indeed expecting the level of NPA additions and restructured loans to be lower in FY 2016 versus FY 2015. So that should not be as big a factor for margins in FY 2016.

Okay. Thank you. Thanks a lot.

Thank you. Our next question is from the line of Amit Premchandani from UTI Mutual Fund. Please go ahead.

Good evening, sir. Thank you for the opportunity. Can you just help us explain the FITL accounting before 2008 and after 2008, and what is the impact on the NPL recognition, as well as NII because of this difference in accounting our FITL?

So prior to 2008 when banks, where restructuring loans, and if funded interest term loan was granted by banks, there was no requirement to reverse that income. The post 2008 is when the guideline came is required that all restructuring is done post 2008 and FITL is created then banks need to make a provision against that. So as we have mentioned a our press release that the FITL pertaining to loans restructured prior to 2008, which was not provided for at that point of time is what RBI has required to be provided for. And that is something which RBI allowed us to do over three quarters through results, because it pertains to a past period - past periods actually. So we have decided to take that upfront in one quarter and that is the impact on the results that we have seen for the quarter.

As to your question on NPA, that does not any implication on NPA, because this borrowers have since been upgraded. These are all, as Rakesh mentioned, these are all restructuring related to pre-2008 days. But, in fact, the much prior to 2008, the borrowers have since been upgraded, so the impact what you have taken will get reversed as the FITL’s are repaid as per the contractual maturities.

So this 900 does not include a specific account, it includes many accounts?

Meaning, it is not just one account, there are multiples accounts. [Multiple Speakers] There are many accounts on this.

These are all old restructuring which was done. Under 2008 August, circular of RBI was very clear that this was applicable only for the restructuring done prospective after that date. However, RBI, in fact, said that should be taken in respect of the previous also, so being a prior period item, it went through the results. And as Rakesh mentioned, we didn’t want to exercise the option of doing it over three quarters, we just thought that we should take the knock and more, so that’s what we have done.

And so this INR 22 billion of slippage from restructuring, any sectoral composition, would be very helpful. And there was one account, which was kind of talked about that interest has been converted into equity, any color on that account, what is the status of that?

On the - first one on the restructured portfolio, as we have said in the past, these are corporate exposures and so that these would be very small number of corporates that would have slipped into a piece of restructuring, so it is not really a sectoral…

More of whatever specific issue. And then I had mentioned it in the last call specifically that one or two large accounts, we are monitoring and that could slip it that is what has happened, that slippage has happened.

Okay. Thank you, sir.

Thank you.

Thank you. [Operator Instructions] Our next question is from the line of Suruchi Jain from Morningstar. Please go ahead.

Hi. This is Jain, two questions. Firstly, on the overall credit off-take environment I understand them slow. But is there a reason why you didn’t see, say, deposit growth outpacing loan growth, because we’ve seen that for some of the other similar size banks and what are you doing to basically grow deposits?

On deposit, growth that we have seen during the quarter and for the year, what we have consciously done is that while we have grown our CASA deposits as much as possible to our branch network, and also the retail term deposits have grown quite well. On the wholesale deposit side, we have continued in order to see to consciously see a reduction in the level of wholesales deposits. We have instead raised some amount of funding through the infrastructure eligible financing that RBI allowed, so we did about INR 60 billion to that. We’ve also done some amount of refinancing that is available from some of the institutions like SIDBI and NHB, which again comes at a lower cost. So overall from a cost optimization perspective, we have raised these in the form of borrowings instead of wholesales deposits. Otherwise, the growth that we are seeing on the deposit side - CASA is growing at around 15% or so, and even the retail term deposits would have grown at that base or higher, it’s just because of the calibration that we have consciously done on the wholesale deposit side that the overall deposit growth appears to be lower. So going forward, for example, into FY 2016, we would expect the growth in deposits to kind of broadly keep pace with the loan growth, except to the extent that we will see continue to raise some amount of funding through the eligible bonds.

Okay. And just one clarification on why you’ve included the tax refund in the NII and not an exceptional line?

It is as Kannan mentioned earlier, while the timing of that is not something, which is consistent, but that interest income tax refund is something that we do get on a quite a regular basis. So it is something which, for example….

And it is interest income after-tax paid in advance.

Okay. Okay, and just to check…

…segment and every year of few quarters we do get this. So it’s not exceptional in that sense, I mean, it is, I mean, we do get it from quarter to quarter, we do get this interest.

So would you say once every year you get it?

I mean, we have announced it earlier also. This year itself it came in about three quarters if I remember right.

Yes. So if you look at the last full-year, for example, it was about INR 1.8 billion of interest income tax refund. This year is about closer to INR 1.5 billion of interest income refund, because the number for the quarter was about INR 1 billion, that is why Kannan highlighted it while talking about NII.

Okay. And just a quick question on in terms of branch expansion, I know, you’ve already mentioned that you will be looking to grow branches further. But any annual run rate that you could provide on an ongoing basis, would really help?

I think today we are just over 4,000, 4,050, so probably under 10% increase in that number is what we would be looking at.

So that would be a 10% every year?

Although we look at it year by year…

For the time being we are looking at, say, 400 for the next couple of years. And then we will look the stock and see how many more we need and where, so…

It’s not 400 for this year, but it’s just 400 over the next couple of years?

No, no, it is 400 per year for the next couple of years. And at the end of that period, we will take stock and see whether we need to increase that, decrease that, and how the variable channels are playing out.

Okay. And if I may just one last question, is there anything that you are changing on your underwriting side that would maybe prevent these future restructurings on your loan book. I understand some of it is unavoidable, but is there anything that you are changing at the loan origination standpoint?

The couple of areas we are working on, one is, if you really look at the some of the causes for this kind of asset quality development, has been in areas, where the construction type of companies, where there are lots of receivables to be received on the principles, things have got delayed and because of that it has put pressure on those construction companies and it has led to the development of guarantees as well. So that is one sector, where one has to be a bit careful in terms of lending going forward. The second area would be that - I mentioned in the context of the corporate loan quality, which we have done in Q4 also we have implemented some more, is that the overall rating mix we will like to - push it towards a better rating mix by focusing on corporate lending to higher rated corporates. The third area where we have done some work and we will pursue that into the year is overall concentration risk, where I had also mentioned in the context of our restructured loans that there is some lumpiness in terms of one or two assets slip it creates a bit of volatility in the provision. So that kind of situation we would like to minimize going forward. So incrementally we are looking at tighter concentration thresholds, so that anything above a particular number gets highlighted and escalated to the higher level committees. These are the three ways in which we are trying to address the issue. And of course with the revival of the economy again it should lead to improvement in asset quality. So those are the things we are focusing on.

Okay. And just a clarification in the construction companies, are you seeing - you’re going to stop doing any lending in that area or you’re just going to do it a little - maybe later in the project when less…?

We will do. We will look at those credit ratings carefully. We may stipulate in some cases some kind of an additional security, because these kind of companies are asset-light companies. So we will not stop, but we would be a bit more selective in terms of our financing.

Okay, great. Thank you so much.

Thank you.

Thank you. Next question is from the line of Mahrukh Adajania from IDFC. Please go ahead.

Yes, hi. So just a couple of questions, just in terms of the slippage from restructure, so these would be necessarily be accounts that have come out of moratorium, right? It will not be something that you feel will come out of moratorium, but will still not survive. So is there any early identification or this would be aged accounts only?

It would typically be accounts that have come out of moratorium.

Okay. And following-up on an earlier question, because already a large part of the FY 2013, I mean, the slippage to restructured as percentage to the FY 2013 book is anyway a big number. So could we say that it’s really peaked now, at least the slippage from restructure, so I know that you said that total stressed loans will be lower Y-o-Y, but I mean, will it be substantially lower, because already a large portion has been recognized as NPL?

Yes, see, if we’re looking at the percentage for the quarter, Mahrukh, definitely it will be lower, because as I said - I always mentioned earlier, if I look at the numbers currently, the highest of the restructured loan would probably be about 5% of the restructured loan outstanding. So that would be the maximum kind of a number of a single asset. So that kind of situation we do not think will arise. I agree with you.

So you’re saying that your standard restructured loan, the biggest amount would be 5%, something like that?

Yes, something like that, the topmost amount will be of the order of magnitude of 5% or so, because I said that the net restructured outstanding is INR 110 billion as of March 31, 2015. On that number if you put an order of magnitude of 5% will be the single largest restructured asset. So obviously, the slippages cannot be as lumpy as it has been in the past.

Got it. And the other thing I wanted to check is that just in terms of again this FITL, so currently you recognize it on the NII and then provision for it?

Yes, yes.

Okay. And just one last question, in terms of extending liquidity support or extending additional credit facilities. So when you do that to an existing borrower, when the consortium does that it basically happens on the same charge, right? So you just extend the charge on the same assets or to a higher limit, right? There is no - usually, no additional security, because it’s not restructuring, is that correct?

No, I mean it depends on what the bankers, want and what the borrower has to offer. So I don’t think it is - there is any rule that there will be no additional security, but it could be on the same assets or it could be on - with some additional security coming in as well. It depends on a case-to-case basis.

Okay. Thanks. Thank you.

Thank you. Next question is from the line of Manish Karwa from Deutsche Bank. Please go ahead.

Yes, hi. On this FITL thing, does it also mean that your restructured loans are lower by INR 9.6 billion?

No, as Kannan mentioned these accounts had already been upgraded. So they don’t form part of the restructure portfolio. Upgraded and we are really confident of recovering the money and it will get reversed so…

No, so when you reverse your - when you charge it against your reserves what is the second entry that you’re passing, what is getting reduced on the assets side then?

The funded interest term loan, which is lying in the - which was lying in the advances book.

So advances growth is lower to that extend, but not restructured loan.

Okay. And last call we had mentioned that the restructured pipeline is somewhat on a higher side and then actually what has come about. Does it mean that the outlook is slightly better or the restructured things that you were expecting have actually become NPLs or recognized as NPLs during this quarter?

I guess, it’s a mix of both. So some of the restructuring has kind of not got completed in the March quarter, so that will happen going forward. And as Kannan mentioned - talked about the pipeline of restructuring, so it would be part of that pipeline. And couple of restructurings have not kind of being transpire…

We been able to - may not be required at all. So they dropped out of the pipeline also.

Okay.

Yes. So it’s a little better outlook but couple of things has got postponed and so…

Sure. And lastly on the fee front, I think generally compared to competition we are still lagging on the fee growth, while the last few years have been tough for us. Do you think that now we probably see much better trends, and then can we expect a double-digit kind of fee growth going from here?

Clearly, clearly, that is the - the internal targets are even higher than what I had sort of indicated to be a double digit-target for fee growth. One, retail, continued momentum is there, that is a positive. On the corporate and SME and other portfolios the base effect will work in our favor. So we are definitely targeting double-digit growth of fee income.

Okay. And lastly, due to the higher slippage, did we have some interest reversals also?

That will always happen.

Okay. But is it a big number to talk or…?

Which is just the - interest accrued typically for the last 90 days or something which gets reversed, whatever is not been received in cash, but that’s a consistent number every time. So it’s an exceptional thing that…

Okay. Thank you.

Thank you.

Thank you. Our next question is from the line of Anish Tawakley from Barclays. Please go ahead.

Hi, thanks for taking my question. Two questions, one is the non-funded risk weighted asset have been almost flat this year. And so just in this context, right, one is why are you not growing this and what’s the plan for the future. And is the plan is not to grow these then - I was little surprised that you didn’t raise the dividend because if these are not going to grow then capital consumption will probably be lower. So if you could talk about why these are not growing, what’s the profitability in these, and if the plan is not to grow then, why not dividend out more? It would be helpful. The second was just a factual question on the INR 11,000 crores of restructured assets, how much will leave the moratorium this year?

So on the first one in terms of the non-fund book I think over the last two years we have said that that the growth in the non-fund book for us will be lower than what we see on the funded side. In terms of overall profitability, indeed, the pricing is extremely tight on the non-fund based business. So in the past, for example, say, seven, eight years ago, we used to do a lot more of non-fund based business on the corporate side. Because on - in terms of funding cost we were not as efficient, as CASA ratios were lower. Over the last few years, our CASA ratios have gone here running at 40% average CASA level. So that’s means that on the fund-based book we are able to make better returns. And in terms of the overall return on risk weighted assets, as it’s something which we believe will be helpful for us to increase that number. I don’t think it’s directly linked a higher dividend payout ratio or anything like that. If we look at the payout ratio for us, it could be amongst the highest within the banks. And we have looked at consistent payout ratio through the cycle. So we don’t look at changing that. And as Kannan mentioned, we believe that over the next three years, we have sufficient capital for growth, and indeed RBI has been tightening lot of capital requirements and we have to keep that also in mind.

So that is - in terms of, are you seeing this off-balance sheet RWA that should remain flattish for the next few years as well?

We will see their opportunities will grow also, so I will not want to commit on that, I’m just explaining how we have looked at in the last two years, and I don’t think that will change suddenly, but it could change going forward. As of now it is right that we will look at a higher growth on the fund-based RBA versus the off-balance sheet RWA.

And second question was, you have 11,000 crores of standard restructured assets, how many will exit the moratorium this year?

We have not given any specific numbers on that, actually I don’t even have it off-hand. But overall, as we have said, typically, the moratorium, which is given by banks ranges between four to six quarters, so that is how you could look at it.

And I mean, if but number is not there, like as you are tracking the - even last - you had the different sort of slippage rate earlier and it’s gone up….

Yes.

Expected to reverse back or remain high?

So as we said, we simply don’t expect the same level of amount of restructured loan slipping into NPLs next year as we have had this year. And that is now factored into the overall outlook that we gave that the additions to gross NPA than restructured loan in the next quarter would definitely be lower than this year.

Okay. Thanks.

Thank you. Next question is from the line of Vishal Goyal from UBS Securities. Please go ahead.

Hi. Just wanted some color on the relapse from restructuring in this quarter, which is like INR 45.3 billion in terms of sectoral breakdown and also for your outstanding restructured loans, or would there be some sectoral color?

INR 45 billion is the number for the year or?

Full-year, full-year yes.

So I think we have said that there is what Rakesh have spoke about it a short while ago that these are basically corporate account. So there is no real specific sectoral buyers, some of the accounts are relatively larger. On the last call, we have spoken about one or two large accounts being vulnerable and likely to slip possible that we could slip and some of that has come through. In terms of the composition of the overall restructured portfolio, as we said in the past, it’s again diversified across a range of sectors, but there is concentration in areas like construction, the construction EPC is clearly one area, which has a sizable share.

Okay. And any breakdown which you can provide in terms of rating mix of your portfolio, so that we can understand whether like things are improving or deteriorating or how you are changing your credit?

We don’t provide the rating mix of the portfolio.

Great. Thank you.

Thank you. Next question is from the line of Roshan Chutkey from ICICI Prudential. Please go ahead.

Thanks for taking my call - taking my questions. So firstly, has there been any traction on conversion of data stress borrowers to equity, since the SIDBI is in the guidelines?

So those guidelines RBI has announced, but I don’t think SEBI has - I don’t know whether SEBI has notified. I think they have disclosed what their board has approved, but I’m not sure that they have actually notified anything. But to answer your question, it has not happened in a meaningful manner.

Okay, sure. And can you comment on the decline in overall PCR?

It’s a function of the much higher NPA addition that we had this quarter compared to the last few quarters. And as we have said, these provisions that are made by banks at over a period of time, so we will see improvement in PCR happening once the pace of NPA additions slows down. So we expect the FY 2016 additions to be lower, we should start sometime during this FY 2016 start to see PCR stabilizing.

Okay, okay. And just one last question, what is your overall - what’s your subsidiary strategy now if I see kind of network declining and then you have back out of Russian subsidiary also?

As far as the Russian subsidiary is concerned, as you know clearly that was a business that we have been scaling down for some years now, because the original pieces of presence in that market has not worked and the market has been volatile. And particularly for this year, you are aware with the - both issue, your political issue than the commodity price issues that the economy has faced challenges. But the good thing was that we had anyway invested a relatively small amount of capital there, and we had also scaled down the business significantly. I think the last reported numbers were asset sizes of about $100 million, so we will be able to exit it quickly. In terms of UK and Canada, I think what we have said is that we, of course, who plan to maintain our presence there. However, in the change regulatory environment the kind of business that we can do there don’t require…

Hello, Mr. Kannan. Participants please continue to stay connected while we reconnect the lines to speaker. Participants, we have the line connected back for the speakers. Sir, you may go ahead.

I’m –I apologize the line seems to have dropped. So as everything on UK and Canada, while we continue to maintain our presence there in the changed regulatory environment, the companies there don’t meet so much capital. And so we have with regulatory approval being reducing the capital in a - there in a gradual manner, so that the capital is right-sized for the kind of business that we can do, so that is the approach there.

And also on the overseas side, are you increasingly funding the local market, or is it for the Indian borrowers there?

In the branches, it’s a large fee. The loan book continues to be largely fee for the Indian companies either for their operations in India or their operations overseas. In the subsidiaries, we do some local - a fair amount of local lending as well. For instance, in Canada, we do the in short mortgage business. And in UK and Canada, what we do, Indian companies operation is there as well as select local companies who have - who are investing into India, or have some trade linkages with India.

Okay. Thank you so much.

Thank you. Next question is from the line of Adarsh P from Nomura. Please go ahead.

Yes, Hi, Kannan, and Rakesh. Question on the performance of the subsidiary lending business, you mentioned that, you’ll add some provisioning hit there. Just wanted to understand whether that continues in FY 2016, or you all think these were like more the one-off cases there?

Provision - for example, in Canada, the level of India linked exposure, which is there is - has become pretty low, given a lot of repayments that have happened over the last few years. So we don’t expect any meaningful provisions to come in the Canadian book. In UK, we still have a reasonable amount of India linked exposures. And so while we have not seen an increase in the level of impaired loans, say, in this March quarter, but some amount of provisioning requirement has gone up, so that’s something that we will have to track into FY 2016 also.

Okay, understand that. The second question related to our credit cost guidance. We will be kind of maintaining 90 bps, 95 bps credit cost guidance. If we look at the this year, we will stuck to that number, but it come at a cost of going down about 10 percentage points on coverage. So when we are guiding for next year, does that assume some bit of drawdown on coverage, or you think that we are –we should be like flattish on coverage, because that’s like a 30bps, 40 bps on loans?

On the coverage ratio actually whichever we don’t plan for the coverage ratio. The coverage ratio is the result of the NPA additions that we see on the recoveries that we see, because we have a consistent provisioning policy. If we were - would have added the amount of NPAs that we did in FY 2015, our coverage ratio would have moved by this, whether it’s not at all linked to the guidance that we had in the - panning to kind of stick to the guidance that we had, in fact, we ended up with higher provisions and what we had targeted initially for that. So the provisions will be completely a function of the level of additions that we see. So while the level of additions in FY 2016 will be lower than what we have seen in FY 2015, the numbers would still be higher than say a normalized level. So to that extent the coverage ratio would not be a significant improvement in FY 2016.

Okay, because I think we’re still maintaining our delinquency guidance. And within that because the restructuring is coming to an end…

Yes.

It could imply that probably it will be more slippages than restructuring in FY 2016, which probably requires higher provisioning, so asking in that context.

No, actually the restructured slippage requires a higher provision, because it typically happens on the date of restructuring.

Yes.

So it can be either ways actually. So as I said, we don’t really plan for a coverage ratio, but say, we do look at the coverage ratio to see that on an aggregate overall basis that we should be expecting to recover whatever is the net book value in our books of the NPAs. But we don’t plan for a coverage ratio on a quarter-on-quarter basis.

Perfect. And last question on the corporate growth side, I just wanted to check, in the last couple of quarters you mentioned that we are not finding the pricing on some of the refinancing deals available attractive. So are we revisiting that, or it’s still not remains - still not enough, it’s not attractive enough for you?

No, I think we have said a couple of months ago as well that, whatever growth was there in the corporate side was coming from either working capital or from refinancing which would happen at varying yields, but that our growth of 4% that we reported as of December was indeed below normal and we would expect to normalize closer to the system growth 9%, 10% by March, which is what we have done. So I think if you look at this quarter or corporate book has grown sequentially as there is year-on-year by 9% to 10%. And I think at least this level of growth will continue going forward, could go up a little bit.

Perfect. Yes, that’s about it. Thanks a lot.

Thank you.

Thank you. Next question is from the line of Rohit Shimpi from SBI Mutual Fund. Please go ahead.

Yes, good evening. You had earlier spoken about several quarters back about targeting 18% return on equity. Just wanted to get your sense on, so over the medium term what kind of levers now do you have to get that. You’d reckon that return on assets, return on risk assets could improve or do you see that, that is more a function of running down current Tier 1 ratios, if you could elaborate on that please?

It will be a mix of both, so if you look at our Tier 1 we are at about 12.8% and there is three years of growth where we can look at in terms of balance sheet without requiring any dilution. On the return on risk-weighted assets one is the capital optimization. Partly we talked about it, when we talked about off-balance-sheet and the non-fund based business and the return there being lower. And we are going that book at a lower pace. Similarly, we have been repatriating some of our excess capital from UK and Canada, growing our domestic book at a faster pace compared to the overseas book, so all of these things would help in the improvement of ROE. From a ROE perspective the credit cost currently is running now much higher than the normalized level especially if you look at a quarter like the current quarter. So overall we would expect the credit cost to normalize down from this level. Margins, we are confident of kind of maintaining broadly, where we was for FY 2015 going forward in the near-term. Cost ratios or - and fee income as Kannan mentioned there is some scope to improve the pace of growth there. So we should be able to see some growth in return on assets. And that together with increase in leverage of the balance sheet should help us to get to the 17% to 18% ROE that we have talked about.

So capital raising, what Tier 1 or CET1 do you have in mind?

When?

For capital raising, for what say actual for Tier 1?

So right now, as we said for the next three years we are not looking at capital raising at all.

But in that assumption, are you saying is, what, a 10%, a 11% Tier 1, what’s…?

So I would say, because we are at such a high level that we are really not focusing too much on that but it will be - at least a double digit is a minimum requirement today from a market perspective.

Sure. Thank you so much.

Thank you. Our next question is from the line of Prashant Kumar from Credit Suisse. Please go ahead.

Hi. Thank you for taking my question. My question is again related to the problem asset addition guidance only. So what we have said is that fresh problem asset addition for next year shouldn’t be more than around INR 87 billion that we’ve seen in this year. And on top of that we have some broader idea of the restructuring pipeline. So I just wanted to understand that based on that can we get the guidance for NPL addition, as well do we have guidance for NPL addition for the next year as well, given that restructuring wouldn’t be - won’t be available next year?

Separate guidance as such I think we have been talking about you know the number of NPL plus restructure, and NPL plus restructure net of slippage from the second to the first. And we believe that on those parameters next year will be lower than this year. Within that it is - we did not really given any separate for the breakup.

Okay, got it. Thank you, sir. Thank you for the information. Thanks a lot.

Thank you. Participants, that was our last question. I now hand the floor back to Mr. N. S. Kannan for any closing comments. Thank you and over to you, sir.

Thank you. Thank you all of you for your time and then if any further questions are there, we could answer them offline. Thank you. Bye-bye.

Thank you. Ladies and gentlemen, we conclude this conference call. Thank you for joining us. You may now disconnect your lines. Thank you.