ICICI Bank Limited (IBN) Q2 2016 Earnings Report, Transcript and Summary

Good day ladies and gentlemen, and welcome to Q2 FY '16 Results Conference Call for ICICI Bank. As a reminder, all participant lines will be in the listen-only mode. And there will be an opportunity for you to ask questions after the presentation concludes. [Operator Instructions] Please note, that this conference is being recorded. I now hand the conference over to Mr. N.S. Kannan, Executive Director of ICICI Bank. Thank you. And over to you, Mr. Kannan.

Yes. Thank you. Good evening to all of you. Welcome to the conference call on the financial results of ICICI Bank for the quarter ended September 30, 2015, that's the first quarter of this fiscal year 2016. In my remarks today, I will cover for the macroeconomic and the monetary environment, then we'll talk our performance during the quarter, including performance on our 5C strategy, and outlook quality parameters then finally the performance of our subsidiaries and the consolidated results. Let me start with the first part, on the macroeconomic and monetary environment. Global macroeconomic conditions continue to remain volatile during the second quarter. Three key issues we will focus during the period, one the potential withdrawal of accommodative monetary stance by the US Fed. Two, the economic slowdown and currency depreciation in China and the difference in market volatility and three, continue to weak global commodity prices and currency depreciation in key commodity exporting economies. The International Monetary Fund, IMS, lowered its global growth for Kutch for 2015 from 3.3% to 3.1 largely due to lowering of growth estimates for larger emerging market economies. Coming to the trends in the domestic economy, the Indian economies is better positioned compared to other emerging market economies and weathering the impact of global volatility. Several positive trends continued in the domestic economy during the quarter. The countries external position continue to be strong with the current account deficit continuing at a comfortable levels of below 1.5% of GDP, along with healthy inflow of foreign direct investments. The country foreign exchange reserve improved to US$353 billion covering 10 months of imports. There are broad based easing and inflation during the quarter despite deficient monsoons, the consumer price index decreased from 5.4% in June 2015 to 4.4% in September 2015 There was continued improvement in key domestic growth indicators. We do absorb some green chutes industrial production as measured by index of industrial grew for the 10 consecutive months in August 2015 recording a growth of 6.4%. Capital goods production also continued to record improvements and sales of passenger cars, commercial vehicles remained strong reflecting gradual improvement and demand conditions in the economy. The government’s capital expenditure was 19% higher year-on-year during April to August 2015, compared to a decline of 1.4% in April to August 2014. The Reserve Bank of India reduced their repo rate by basis points to 6.75% on September 2015 following their earlier rate cuts of 25 basis points each in January, March and June. RBI mentioned that it had frontloaded the rate cut in September considering the likelihood of achieving the inflation target of 6% by January 2016. Of course, the focus now shifts to bringing inflation down to 5% by end of fiscal 2017. Indian financial markets remained volatile during the second quarter largely due to global developments. The S&P, BSE Sensex declined by 5.9% during the quarter, the yield on the benchmark government securities entered the quarter at 7.54% compared to 7.86% as of end June 2015. The exchange rate depreciated by 3.1% during the quarter to INR65.7 per U.S. Dollar as of September 30th, 2015. Short term interest rate eased by about 65 to 75 basis points during the quarter, banks continue to reduce that lending as well as deposit rate. Turning to the banking sector trends, non-food credit growth remained moderate at 9.8% on a year-on-year basis as of October 2, compared to 10.6% year-on-year basis as of October 3, 2014. Growth in retail credit continue to remain strong, while growth in credit to industrial services sector remained moderate. Including other sources of funding such as bonds and commercial papers, growth in total funding was higher by about 2.7 percentage points compared to bank credit growth as of in September 2015. Growth in total deposits was 11.3% on a year-on-year basis as of October 2, 2015. Demand deposit growth was 10.8% year-on-year, as of October 2, 2015. With this background, let me now move to other performance during the quarter, including the progress on our 5C strategy. First, with respect to the credit growth; the bank's domestic loan portfolio grew by 17% on a year-on-year basis as of September 30, 2015, compared to 9.8% growth in non-food credit for the system as of October 2, 2015. Loan growth for the bank continues to be driven by retail segment, which grew by 25% year-on-year and constituted 44% of the total loans as of September 2015. The mortgage and auto loan portfolios grew by 25% and 23% respectively on a year-on-year basis. Growth in the business banking and rural lending segments was 22% and 30% on a year-on-year respectively. Commercial business loans grew by 5% on a year-on-year basis, as of September, compared to 6% year-on-year decline as of June 2015. The improvement and growth in commercial business loans was primarily driven by pick in sales activity for the segment. The unsecured credit card and personal loan portfolio at INR128.26 billion; as of September 30, 2015, was about 3.1% of the overall loan book. The bank continues to grow the unsecured credit card and personal loan portfolio primarily driven by the focus on cross- sell. The domestic corporate portfolio growth was 7.5% on a year-on-year basis as of September 30th, 2015, compared to 8.8% growth recorded as of June 30, 2015. The SME portfolio grew by 9.9% year-on-year, to INR176.83 billion, driven by granular, collateral based lending. For the full year 2016, financial year 2016, we expect domestic loan growth to be in the range of 18% to 20% driven by about 25% growth in the retail segment. In rupee terms, the net advances of overseas branches increased by 2.4% on a year-on-year basis, due to movement in the exchange rates. In dollar terms however, the net advances of the overseas branches decreased by 3.5% on a year-on-year basis as of September 30, 2015. As a result of the above trends, the total advances of the bank increased by 13.3% on a year-on-year basis from INR3.62 trillion as of September 30th, 2014 to INR4.1 trillion as of September 30th, 2015. Moving on to the second C, on CASA deposits, the bank continued to maintain healthy CASA ratios on a period end basis, as well as daily average basis. Savings account deposits grew by 14.3% year-on-year to INR1.21 trillion as of September 30, 2015. On a period end basis, we saw an addition of INR39.55 billion to savings deposits, and INR72.20 billion to current account deposits during the quarter. As a result, the period in CASA ratio increased to 45.1% as of September 30, 2015 compared to 44.1% as of June. The daily average CASA ratio was at 40.7% in second quarter compared to 39.5% in the second quarter of the last year. On the third C on costs, the bank's cost income ratio was at 37.5% in the second quarter of fiscal 2016, compared to 36.5% in the second quarter of fiscal 2015. During the second quarter, operating expenses increased by 14.9% on a year-on-year basis. The increase in employee expenses was on account of aggregate additional of about 4,970 employees in the first six months of fiscal 2016, primarily in front-line roles in the retail banking business. The annual rate increases affected in April 2015 also contributed to this. The year-on-year increase in loan employee expenses was primarily on account of larger distribution network, higher rate in lending volumes and advertisement campaign expenses in the second quarter. The bank will focus on sustaining the gains made in operative efficiency to maintain the cost to income ratio for financial year 2016 at a similar level as of financial year 2015 driven by efforts for impacting the productivity and efficiency of employee base, as well expanded distribution network. Let me now move on to the fourth C, on credit quality. The bank's net NPA ratio remained was at 1.47% as of September 30, 2015 compared to 1.4% as of June 30, 2015. The gross NPA ratio was at 3.36% as of September 30, 2015 compared to 3.26% as of June 30, 2015. During the second quarter, we saw gross NPA additions of INR22.42 billion, including slippages of INR9.31 billion from the standard restructured category to the non-performing asset category. Excluding slippages on restructured loans in the both quarters, the gross NPA additions declined from INR13.8 billion in the first quarter to INR13.11 billion in the second quarter. Deletions [ph] from NPAs during the quarter were INR7.09 billion and the bank has wrote-off INR8.13 billion of NPAs. The bank did not sell any NPAs to asset reconstruction companies during the quarter. The restructured loans for bank were INR118.68 billion as of September 30, 2015 compared to INR126.04 billion as of June 30, 2015. Provisions for second quarter of 2016 were at INR9.42 billion compared to INR8.5 billion in the second quarter of 2015, and INR9.56 billion in the first quarter of 2016. As a result, credit cost as a percentage of average advances where at 94 basis points on an annualized basis for the second quarter of the current fiscal year. The provisioning coverage ratio on non-performing loans was 57.4% as of September 30, 2015, including cumulative technical prudential write-offs, the provisioning coverage ratio was 69.8%. Asset quality trends in the retail segment continue to be healthy and stable. In the corporate sector there continued to be challenges given the time taken for projects to generate cash flows, and high leverage levels in some companies, banks are working actively to resolve these through asset sales, as well as working with various stakeholders to ensure that the companies are able to operate at an optimal level and generate cash flows. For the full year, financial year 2016 we continue to expect that aggregate additions to restructured loans and NPAs will be lower than that in fiscal 2015. Now on the 5th C on customer centricity; the bank continues to focus on enhancing the customer service capability and leveraging on the increased branch network to cater to the customer base. As of September 30, 2015, we had a branch network of 4,054 branches and 12,964 ATMs. ICICI Bank has always been a pioneer in bringing technology enabled products and services to Indian customers. We have focused on leveraging three current transformational trends in technology, one, mobility, two, digitalization and three, social media to bring value to our customers. The bank has received a number of awards for use of technology across areas in 2015, including Best Technology Bank Of The Year and the Indian Bank Association Technology Awards. Asian Banker Excellence in Retail Financial Services Awards, the winner in categories of business intelligence analytics, enterprise security, virtualization, social media and social cost at the data [ph] Business Technology Awards, sustainable business award for the digital related initiative at our [indiscernible] Accenture Innovation Awards, and winner in the category of revitalizing [ph] technology adoption among large banks at the Institute of Development and Research and Banking Technology awards. During first quarter of 2016, we had upgraded our mobile banking application iMobile, taking the total number of services available on the application to over 100. The new mobile application has been appreciated by customers and we have seen activation of iMobile by customers increasing by about 140% on a year-on-year basis in the first six months of fiscal 2016. It has been robust growth in mobile banking transaction and the bank has emerged as a market leader in this area with a market share of about 32% based on the value of mobile banking transactions of June and July 2015. We continue to strengthen our technology channels or increasing customer convenience and improving the efficiency of our operations. During the quarter we launched Smart Vault, a unique locker facility, defend with [indiscernible] robotic technology and high end security to provide customers the convenience of storing and accessing their valuables, 24 hours a day, 7 days a week. We have launched a mobile app with [indiscernible] solution which enables customers to make electronic payments from the smartphones at physical stores for ecommerce and other deliveries at home and to radio and utility builders among others. We are the largest provider of online remittance services to India, and the first to offer remittance service through mobile phone. We have recently launched money to world [ph] of fully online outdoor remittance service through this even non-account holders of ICICI Bank can transfer money online from any bank account in India to any bank account overseas in 60 major currencies. ICICI Bank was the first bank in India to offer banking services to customers on Twitter recently we rolled out a new set of services on Twitter including creating a fixed deposit paying post paid mobile bills and receiving e statements among others. Our digital mobile wallet pocket has seen over 2.5 million downloads, with significant interest from non-ICICI Bank customers. The e-wallet is amongst India's most comprehensive wallets, which can be used to pay on all websites and mobile apps in the country. Our Facebook page continues to be appreciated by customers with 4 million fans, the largest fan base on Facebook among Indian Banks. As a result of our constant focus on digital channels, currently about 61% of total transactions for our savings account customers are done through new age digital channels, and less than 10% of the transactions are done through branches. Transactions of over INR2 trillion are processed annually through the banks internet banking platform and website hits [ph] about 15 million unique visitors every month. In fiscal 2014 we had started facilitating opening of savings account through tab banking platform, the bank has opened over 3 million savings account through tab banking till date, resulting in improved customer service, faster turnaround bank, and better efficiency of operations. Currently about 85% of savings account opened for the household segment every month are through tab banking. The bank has also introduced use of tables and smartphone applications for employees and agents for certain retail loan products. Having talked about the performance on the four Cs, let me now move on to the key financial performance highlights for the quarter. The net interest income increased by 12.8% year-on-year from INR46.57 billion in Q2 of 2015 to INR52.51 billion in Q2 of 2016. The net interest margin was at 3.52% in Q2 of 2016 compared to 3.42% in the corresponding quarter last year and 3.54% in the preceding quarter. The domestic net interest margin was at 3.84% in the second quarter of 2016, compared to 3.84% in the corresponding quarter last year, and 3.90% in the preceding quarter. The sequential decrease in domestic margins is primarily on account of lower tax related interest income of INR0.51 billion in the second quarter compared to about INR1 billion in the first quarter. And also the impact of reductions in the base rate to be affected in Q1 of 2016. We had reduced our base rate by 25 basis points in April 2015, and a further 5 basis points in June 2015. International margins were at 2% in second quarter of 2016, compared to 1.58% in the corresponding quarter last year, and 1.88% in the preceding quarter. The year-on-year improvement in the international margins is largely on account of decreasing cost of borrowings achieved through proactive refinancing. We reduced our base rate by further 35 basis points effective October 5, 2015, while the net interest margins in the third quarter of 2016 could be lower due to this, we continue to target to maintain overall net interest margin at financial year 2016 at a similar level compared to financial year 2015 despite the declining interest rates. Moving on to the non-interest income, the total non-interest income increased by 9.8% from INR27.38 billion in second quarter of 2015 to INR30.07 billion in second quarter of 2016. If you look at the different components of the non-interest income, the fee income grew by 6.3%, from INR21.03 billion in the second quarter of 2015 to INR22.35 billion in the second quarter of 2016. While retail fees continue to grow at a very healthy rate, the growth in overall fee remains impacted by subdued corporate activity and consequent decline in corporate fee income, retail fees for the bank constituted about 65% of the overall fees in the second quarter of 2016. During the second quarter, treasury recorded a profit o INR2.22 billion compared to INR1.37 billion in the corresponding quarter last year and INR2.07 billion in the preceding quarter. Other income was INR5.5 billion in second quarter of 2016 compared to INR4.98 billion in second quarter of 2015, and INR6.73 billion in first quarter of 2016. The bank received dividends from subsidiaries of INR3.61 billion and had exchange rate gains relating to overseas operations of INR1.90 billion during second quarter of 2016. I have already spoken about the trends in operating expenses and provisions, while talking about the 5C strategy. As a result of these trends, the bank's standalone profit before tax increased by 9.6% from INR38.48 billion in Q2 of 2015 to INR42.16 in Q2 of 2016. The bank's standalone profit after tax increased by 11.8% from INR27.09 billion in second quarter of 2015 to INR30.30billion in Q2 of 2016. The return on average assets was at INR1.89% in the second quarter of 2016 compared to 1.82% in the second quarter of 2015. The bank's capital adequacy ratio as per Reserve Bank of India's guideline on Basel III norms, continues to remain very strong, including the profit for the half year, the total capital adequacy ratio as of September 30, 2015 was 16.9% and the Tier-1 capital adequacy ratio was 12.84%. Excluding the profit for the half year, the consolidate total capital adequacy ratio was 16.15% and Tier-1 capital adequacy ratio was 12.09%. I now move on to the performance of subsidiaries and the consolidated results. The profit after tax for ICICI Life in Q2 of 2016 was INR4.15 billion compared to INR3.99 billion in the second quarter of last year. The retail weighted received premium for ICICI Life grew by 21.2% on a year-on-year basis in H1 [ph] of 2016, compared to a growth of 0.4% for the industry. The company continues to retain its market leadership among the private players, and has seen an improvement in its market shares to about 12.4% in the first half of 2016. The new business margins, based on Indian Embedded Value methodology and target acquisition cost was at 13.8% in the first half of 2016, compared to 13.6% for in the whole of financial yea 2015. During the quarter, the gross return premium of ICICI General Insurance company grew by 22% on a year-on-year basis to INR19.99 billion in Q2 of 2016, compared to about 11.7% year-on-year growth for the industry. The company continues to retain its market leadership among the private players, and has a market share of about 9% in H1 of 2016. The profit after tax for ICICI General was at INR1.43 billion in Q2 of 2016, compared to INR1.58 billion in the corresponding quarter last year and INR1.6 billion in the previous quarter. The year-on-year decrease in profits was primarily on account of higher operating expenses in Q2 of 2016 on account of increasing retail business for the company. ICICI Asset management company and ICICI Securities have continued to see strong performance, the profit after tax for ICICI AMC increased by 35.5% from INR0.62 billion in Q2 of 2015 to INR0.84 billion in Q2 of 2016. With assets under management of over INR1.5 trillion, ICICI AMC sustained its market position as the second largest mutual fund in India during the first half of 2016. The profit after tax for ICICI Securities was at INR0.6 million in Q2 of 2016 compared to INR0.68 billion in Q2 of 2015. Let me now move on to the performance of our overseas banking subsidiaries. The bank's total equity investments in ICICI Bank U.K. and ICICI Bank Canada has reduced from 11% of the network as of March 31, 2010, to 5.2%, as of September 30, 2015. As per IFRS financials, ICICI Bank Canada's total assets were C$6.47 billion as of September 30, 2015, compared to C$5.9 billion as of June 31, 2015. Loans in advances were C$5.61 billion as of September 30, 2015 compared to C$5.21 billion as of June 30, 2015. The increase in loans and advances was on account of higher securities insured mortgages as of September 30, 2015, compared to June 30, 2015 and also the impact of movement in the exchange rate that is depreciation of Canadian dollars we saw with the US dollar. The profit after tax for Q2 of 2016 was C$6.6 million, compared to C$9.2 million for Q2 of 2015, and C$7.8 million in the first quarter of 2016. The trends in profit of ICICI bank Canada was similar to first quarter of 2016. The capital adequacy ratio for ICICI Bank Canada was 25.1% as of September 30, 2015. Moving on to ICICI Bank U.K., the total assets were US$4.64 billion as of September 30, 2015, compared to US$4.19 billion as of June 30, 2015. Loans and advances were US$3.2 billion, as of September 30, 2015 compared to US$2.93 billion as of June 30, 2015. The growth in loans and advances was primarily due to granular lending to well rated multinational corporations, select local market corporation and subsidiaries and joint ventures of Indian companies. The profit after tax for ICICI Bank U.K. for the second quarter of fiscal 2016 was US$0.6 million compared to US$5.1 million in second quarter of 2015 and US$0.5 million in first quarter of fiscal 2016. The lower profits in the second quarter of fiscal 2016 were on accounts of higher provisions on existing impaired loans. The capital adequacy ratio was 16.3% as of September 30, 2015. Let me now talk about the overall consolidated profit. The consolidated profit after tax grew by 11.5% from INR30.65billion in second quarter of 2015 to INR34.19 billion in the second quarter of fiscal 2016. The annualized consolidated return on average equity was at 15.3% in the second quarter of 2016 compared to 15.1% in the second quarter of last year and 15% in the first quarter of the current fiscal year. Consolidate assets grew 9.4% from INR7.78 trillion as of September 39, 2014 to INR8.51 trillion as of September 30, 2015. The bank's total capital adequacy ratio on a consolidated basis, including profits for the half year was 16.87% and the Tir-1 capital adequacy ratio was 12.77% as of September 30, 2015. Excluding profits for the half year, the consolidated total capital adequacy ratio was 16.17% and Tier-1 capital adequacy ratio was 12.07%. So in summary, we have continued to pursue our core operating strategies during the quarter. In line with our focus areas, we have one, sustained the net interest margin, two, maintained a healthy non-interest income; three, sustained the operating efficiency; four, maintained a robust funding profile and five continue to achieve strong retail portfolio growth. We will continue to pursue these objectives, while closely monitoring the corporate asset quality trends. We believe that our strong and diversified franchise and large distribution network give us the ability to leverage opportunities for profitability growth across our businesses. We are well placed with regard to capital required to support our growth and given our current capital position we believe that we do not need to raise capital till March 2018 best on current regulations. The Board of Directors of ICICI Bank at the meeting held today has approved the sale of 9% of our shareholding in ICICI General insurance company to our joint venture partners Fairfax Financial Holdings Limited., subject to governmental and regulatory approvals. The proposed transaction values the company by INR172.25 billion. Upon completion of the transaction, the share ownership in the company of ICICI Bank and Fairfax will be approximately 64% and 35% respectively. That transaction reflects the company's franchise as a leading private sector general insurer in India, the substantial potential for profitability growth of the business and strong relationship between the joint venture partners. So with these opening comments, my team and I now will be happy to take your questions. Thank you very much.

Thank you very much, sir. [Operator Instructions] We have first question from the line of Mahrukh Adajania from IDFC. Please go ahead.

Congratulations. So just had a few questions, question, first is on corporate loan growth that seems to be very strong, which is the case at most private banks. So is it that state owned banks are just not being able to take this business or what explains that strong corporate growth?

Our domestic loan growth which was about 17%, within that the retail loan growth was about 25% year-on-year and corporate loan growth is about 8% year-on-year. So as we had said earlier, for the year we are looking at growing the corporate loan portfolio in double-digits. So most of the growth that we are seeing coming is from some of the working capital requirements, some of the incremental lending that we are doing to PSU [ph] companies and other better rated companies. So there is – the growth is still overall a bit sluggish on the corporate side.

Okay. And in terms of 5/25, what's the pipeline and what was refinance during the quarter?

In terms of 5/25 refinancing, we did about INR20 billion of loans which were refinance of the 5/25 scheme.

And in the pipeline?

Very difficult to talk about the pipeline here, unlike restructuring where there is CBR or that kind of a thing. In this case, I have something up, we'll see that. There is no specific pipeline that’s really been there…

Okay. And how many accounts would this be?

This would be three or four accounts. As you know these are completed projects where refinancing has been done by banks.

Sure. And just in terms of general insurance, coming it to very good deal, whether valuations seem to be quite steep, right. So any thoughts on that?

Thank you for that Mahrukh. But no, our belief is that given the franchise, the growth potential and the way the company has performed over a period of time, we do believe that it is still surely [ph] under penetrated market in the country, that if its shoots growth potential for the country. And if you look at this – the company, their own performance in terms of in various segments in which they are operating they've been market leader among the private sector players. I guess the valuation reflects the practice [ph] of the company, the market share undershoots growth potential for the industry. And also in terms of the leadership back, in terms of the investment, operation, in all the segments of their business is including investment, operations, so they have a very good franchise and a very good leadership. Our feeling is that the valuation is really reflective of all those trends.

Regardless to you partner, anyway usually it would be at a discount to whatever is the fair value perceived, right. So…

No, what we have always told you is that indicates of general insurance subsidiaries, there is no optionality which was there in the agreement. Even in the life company we have always said that whenever the transaction happens it always would be at the current market price. So we don’t have any agreement which has any specified value of trend and everything would be base or the discount on a particular valuation. It is based on the prevailing fair value. So I would say that this valuation reflects the current fair value of the company.

Okay. Perfect. Thanks so much.

Thank you.

Thank you. [Operator Instructions] We move on to the next question, that’s from the line of Gaurav Agarwal from E&R Advisors. Please go ahead.

Hi. Good evening, sir. Congratulations for good set of numbers. So I just want to get more clarity on 5/25 done during the quarter? So this 20 million accounts were they previously restructured accounts or they were standard good accounts?

This can be standard accounts, as I said these are projects that have got completed. Based on the economic life of the project, banks would have provided a refinance under the 5/25 refinancing scheme.

So they were not part of your restructured book till the end of Q1 of '16, right?

They wouldn’t be.

They wouldn’t be. Okay. And Sir, just wanted to have some color on [indiscernible] from the restructure book, so is the INR900 of account…

Yes.

So is it only one account or there are some couple of accounts?

Couple of accounts.

And can you just give me some industry wise details of that?

Specifically we have not talked about, but in general, in the context that we talked about the slippages from restructure loans to be NPA category…

Yes.

This largely been you know, some of the companies, and the EPC companies, contractors, that kind of trends had continued. Beyond that, there is any fresh them to report currently actually.

No accounts from the power sector, either from restructure or from fresh report, right? A – Unidentified Company Representative: We have disclosed, again there is only two companies, I don’t see if I can disclose anything specific on that.

Okay. A – Unidentified Company Representative: On the restructured portfolio, as we had said in the past, the largest part of the restructured portfolio has come in from the construction and [indiscernible] sector and some of the power sectors, you know, projects.

Okay. Okay. So last question is after this import duty being imposed by the government from China, importing to India on steel, so are you seeing any improvement environment for these companies, which are into steel? A – Unidentified Company Representative: We've always said, steel is kind of industry where we can get solid FS [ph] on the ground and the capacity being of a large economic capacity kind of a scale, of them prospects will have to be good if you look through the cycles in this sectors. Of course this end up imposition of the duty is quite handful for the industries. But ultimately I think full revival with fraternity can be talked about only when you get out of the current commodity cycle and overall price had improved. That is what I would say for commodity base industry.

So according to you the prices have not been approved yet, is it? A – Unidentified Company Representative: Yes, we'll have to [indiscernible]

Okay. Thank you so much, sir.

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

Thanks for taking my question. I had two questions, one on capital and the other one for branch expansion.

Yes.

So on capital, right, your Tier-1 ratio has actually improved and from that it would look like the challenge really deploying capital rather than raising capital. So in that context, what's the sort of business rationale for the fell down of the general insurance stake? And related to that I mean, like, you're also shrinking the off balance sheet exposures and the off shore books, so are these not even incrementally accretive, I understand the NIM not to be great, but at least we would have been accretive to profit?

Okay. The first question on capital, clearly this monetization which we have announced which of course to consummate after the necessary approvals, that has got nothing to do with our capital availability. We have always said that in these companies, so while you'd like to keep the majority, therefore means that we have to continue with our current holding and we have always articulated that at some point in time we would like to monetize this business. You should really look at it from that perspective, rather than looking at it – look at that saving capital relate event. And also I believe that some of the valuation in the overall franchise in the financial services sector that we have, that is probably not adequately understood, unless there is really a transaction at the subsidiary level. So this would go towards discovering the valuation of some of the subsidiaries we have. So I will put that in that context. So of course, the deployment of capital is a separate matter, in the near term given the operating environment clearly we have – we want to put more of capital on the retail side. So that is how we are going. And as Rakesh mentioned a little while earlier, on the corporate side we should look for more and more opportunities in the working capital space, and also working capital and other requirement of corporate’s in the highly rated corporate's including PSUs. Of course, that may not – from a discreet perspective there are not too much capital, but directionally that is how we would like to deploy it. On the issue of off balance sheet issues, largely we are one of the areas where we have been focusing on is a little bit of shift away from launching this business to fund this business, why we do that is, because non-funding business gets to be extremely competitive and also as our cost of funds have been coming down because of our good CASA ratio, we get more opportunities to again take fund base [indiscernible] for better corporations. So that is why you are seeing some of kind of a strategic shift over the last two years of a little bit shift towards fund this, that’s against non-fund this, that is also let to go balance sheet numbers going down. So this would be the reason. Overseas, we would clearly go by – take it as a demand issue, because when the corporate’s always you know, as I mentioned, they are always – this is largely India linked corporate’s and when an Indian linked corporate’s looks at a foreign currency loan, they always look at the cost benefits of doing a foreign currency borrowing, as against doing rupee borrowings. This phenomenon you see normally when the rates cuts are coming down on domestically that some kind of shifting demand happens. So it will be really demand, supply from a corporation perspective, but of course our ability to raise to funds from our liability perspective. So it gets calibrated based on those two issues.

Okay. And then the second question was on branch addition, I mean, this last six months basically there is been no branch addition in metro and urban areas, what's the plan for the rest of the year…

Yes, so I said every year, say on the next few years we would like grow about 10% as branch addition and if you are seeing typically now, we don’t tend…

In the second half, is it…

And that not move towards the fourth quarter. So third and fourth quarter you will see additions, but we continue to maintain that we will now add 300 to 400 branches every year for a couple of years.

Okay. So that will be added. So it’s just been. Okay, great. Thank you so much.

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

Yes, hi. My question was one fees, after a long time we have seen some better traction on the fee income front. I assume retail would generally be growing well, but is corporate also starting to grow for us now?

So it is still in terms of the growth that we are seeing, retail is – where the growth is coming, so from via-via perspective, retail fees would have grown at closer to 15%. The non-retail fees on a via-via basis would still be down. But as you see sequentially the fee income levels have started to grow. So if you look at the last four quarters, till Q1 actually the fee income was roughly around the INR21 billion mark. So we are seeing growth there. So we believe going forward we should continue to see sequential increase fee revenues and via-via growth should also improve.

And when you say sequential revenues, both on, obviously on retail, but even or corporate as well?

Corporate is still sluggish, and you know, very competitive on the non-fund side…

It is only coming up.

Okay. Okay, that’s it. That’s from me. Thank you.

Thank you, Manish.

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

Hi. Jus couple of questions, first on the refinancing side, was that, you know, you mentioned 20 billion of refinancing in three, four accounts, just wanted to check if you can share what your total exposure in these accounts would be because a lot of these accounts are being part refinance, so… A – Unidentified Company Representative: So these are the – this is the amount that has been refinanced, we have not separately disclosed any aggregate exposures.

We talked about in the first quarter, during the call I mentioned that they are under INR10 billion, now we have talked about INR20 million. These are 5/25 refinancing that we have done.

Yes, I was – I didn’t still understand that, there are exposure [ph] system where you know, the debt level assumes pretty high, but only it’s like going for that 30% of the overall debt of these companies are getting refinance. So I just wanted to check if you can share what the corresponding net of business. Overall your exposure would be, wherever you are doing refinancing? A – Unidentified Company Representative: So one is that, I don’t think in all these cases only 25% and whatever that 25%, 30% of the amount is getting refinanced. Definitely these are – the amounts that we have given are for the projects that have got refinance in the 5/25 and in many cases that is you know, that virtually the entire project for the company fell.

Okay. Second one was on this UK subsidiary, profitability, we've been taking some impairments for the last three quarters, so I just wanted to understand, is it like a specific account where you are taking continuous write-downs or if you can explain that bit – a little bit, whether its going to continue or how do we see that? A – Unidentified Company Representative: As you have seen on the UK portfolio, some of the India link loans, we have had impairment. So in widely I've not seen so to say an increase impaired loans for the UK subsidiary in the last couple of quarters. It is more an increase in the provision levels against some of these loans which has happened and that has led to the overall profitability being weak for the subsidiary. So for the year and it will be fair to assume that the trends that we have seen in the first half, would kind of continue into the second as well.

Okay. So, broadly impairment are not going up, but you're kind of popping up the provision level there? A – Unidentified Company Representative: Yes. I would say, so.

And if I could squeeze in the last question, on the overseas margin again, you've seen 10, 15 book kind of expansion again, just sense of sustainability there, I understand its, you know, funding improving, but always thought is LIBOR plus funding and lending as well. So at sometimes should the yields also go down? A – Unidentified Company Representative: If you look at it on a year-on-year basis, one is that, the level of liquidity that we use to have a year back and that has come down significantly as we have kind of optimized the balance sheet. But secondly, as Kannan mentioned, on the bordering side we have been able to refinance of those borrowings at a lower rate. So those are two benefits that we have kind of like. As we have said in the past, I think on a normal run rate basis 1.8%, 1.9% is the margin that we would expect to have in the overseas branches.

And then there maybe a term rate, it gives me cushion in terms of the – given the basic introduction we have seen the domestic side, it gives a cushion in the short term, that’s the way we are looking at it.

So the way to understand, is broadly your spread of funding over the benchmarks have gone down and then not the benchmark it says?

That is correct. That is why I mentioned, in the opening remarks. That it is due to proactive refinancing, effectively it means that we have been able to negotiate breakdown on the bordering.

Perfect. Thanks a lot.

Thanks.

Thank you. Next question is from the line of Kaushal Patel from IndiaNivesh. Please go ahead.

Hello.

Yes.

Thank you, sir, for taking my question. First question is under different revised guidelines, on risk weighted, it means to home loan, I would like to know like the impact on our home loan portfolio and risk weighted on capital adequacy ratio? A – Unidentified Company Representative: Yes. See as of now that for the September results those numbers have not reflected, because the circular itself makes effective in the subsequent period. So you will see it going forward.

Okay. A – Unidentified Company Representative: So our sense it that based on the assessment of the home loan portfolio, we think that the Tier1 in fact would be closer to about 15 basis points.

Okay. And next question is on that digital side, we know that on customer facing like we have been aggressive and doing many things, we would like to know your strategy on internal operational side? Like how exactly it’s going and what your strategy over there? A – Unidentified Company Representative: So, there are – of course, there are tools that sort of creep kind of from to it, one is of course on the, what you mentioned on the customer facing side, there are several things that we are doing Internet and mobile. Second, if we look at our internal processes, there are a number of places where digitization is helping, two examples, one is our use of tablets for fields on the liability side and we are now extending that to other products as well, which basically heads to optimize the process, reduces paper work and re-work and you have automated data flow, so productivity improves and turnaround times improve. The second part of that is, for instance in our back offices, the operation shops and so on. We are able to manage higher volumes without any increasing the number of people. Again, by through imaging solutions, work flow solutions and so on. The third part of it is really on the analytic side, where for users of credit analysis or cross sell et cetera, there are also we are making some investment and we are seeing decent results. But I would say that there is lot more that can be done on that side.

So going forward for couple of years, we can assume that like, that will be increasing productivity and efficiency. So the increase in manpower will not be at the same pace what we have seen? A – Unidentified Company Representative: Yes, so if you really – but from a macro perspective we may still add the manpower because we are going to be in the branch addition mode for sometime. The other way of looking at is that the cost to income ratio, if I look at that, we expected to definitely not go up, but hopefully to come down from the current levels.

Okay. Thank you, sir.

Thank you.

Thank you. Next question is from the line of Anand Laddha from HDFC Mutual Fund. Please go ahead.

Hello, sir. So just couple of questions from my side. Just want to understand on the slippage side, if I look at restructure book this quarter 9 million of slippages, and if I look at the full book of the year 600 crore, last year we did [indiscernible] restructuring. So I had to exclude those, I think the pages from restructure book you have come down going forward or do you believe the same run rate can sustain, what's the outlook? A – Unidentified Company Representative: On the restructure rules and we have said in the past that compared to the last financial year, this year we expect the amount of slippages to be lower. So if you look at the first half, clearly the numbers are running at a much lower rate than what we saw in the financial year, when we had already high addition in the fourth quarter. So our expectation is that we would end up with a lower amount of the slippage on restructuring in the current financial year compared to the last year.

Okay. And just on the normal book, the 13 billion under this quarter would sustain or what's the outlook on that also? A – Unidentified Company Representative: So its big difficult to give outlook on the quarterly basis, as Kannan mentioned earlier, on an overall basis in aggregate for NPL and restructure we expect the amount to be lower than what we had in the last financial year. On quarter-on-quarter basis, it can be higher or lower because some of these are corporate exposures, and that can be lumpy.

And if I look at overall ground level things, do you believe second half FY '16 would be better than first half FY '16? A – Unidentified Company Representative: In terms of?

In terms of gain in the large corporate or mid corporate, do you generally believe that’s going be better for corporate India compared to first half or would you believe that the same level of then will sustain? A – Unidentified Company Representative: I think we have said this earlier also, that into current financial years, there is – that stress will be there for the banks. I think there are in some underlying improvements that is happening, but it will take some time to kind of show up and improved cash accruals and more dealer rising for some these corporate’s and assets sales have happened but that all is pause, I think it will take some time.

Okay. Second on the retailing side, this could be the eight or nine quarter for us for a 25% on a retail book, but longer you can also been growing very well. Can you give some color for how much of the book has been generated from the branch or do you say what is the growth that it can sustain going forward? A – Unidentified Company Representative: In the near term we believe that we should be able to sustain this kind of growth that we are seeing that 25% coming from mortgages, car loans, unsecured loans also offer lower base, but they are growing pretty well. The rural portfolio has also been growing quite well. So in the next few quarters, we believe we should be able sustain into this level of growth. In terms of the proportion of business coming from branches, it varies from abut 20% or so on the car loan side, on mortgages it is – it will be about 30% or so. On the rural side it is much higher proportion. But on a continuous basis that proportion in general, across the products has been increasing.

All right. And last question if you permit me? A – Unidentified Company Representative: Yes.

We have seen lot of on the credit card side, we've seen lot of banks offering the tender scheme like 10% cash back, but in all that we haven’t seen ICICI Bank anywhere. So is it a strategy not to participate or just wanted to have some understanding and color on this thing? A – Unidentified Company Representative: So I don’t think there is any strategy not to participate, I am sure going forward you will see us participating and in fact we are pretty selective about where we want to spend money and what is the return that we get from there. But as we grow our – especially the credit care portfolio, debit card portfolio, you will see us also participating…

And in fact you would have seen this recent announcement on the campaign which is going on for the festive season, where based on the amount of spend we do give again, to the customers some loyalty from the perspective of spending, so where we'll give certain amount. So there is campaign currently running in fact, so we would definitely dare to take advantage of this.

Okay. So my question more was e-com [ph] company, we have seen that we've got an Amazon sale, and we haven seen I Bank [ph] in that participating. So just as I thought of asking your view? A – Unidentified Company Representative: Sure. But we do that enough there, whatever makes sense for us we will definitely do.

Okay. That’s all matter. Thank you. A – Unidentified Company Representative: Thank you.

Thank you. Next question is from the line of [indiscernible] from JPMorgan. Please go ahead.

Hi. Good evening, everyone. Just kind of question on fee, so I am noting – just noticing this interesting pattern over the last two, three year, where your fees sort of jump up in the second quarter and then flat line for other quarters and jump again. Is that just sort of, like, is there any seasonality to it, or its just happened again this year for the third year in a row. Is there any seasonality to it or its just sort of coincidence, would like some color? A – Unidentified Company Representative: More of coincidence…

There is no specific driver… A – Unidentified Company Representative: Wait, I'll get corrected this time.

Okay. So you are seeing this 6% Q-o-Q growth this quarter being a more sustainability, I am not saying that you are over 25, but are you seeing more incremental sequential growth from here? A – Unidentified Company Representative: Yes, so sequentially growth we would have seen more percentage, seeing all that gross, but we would expect sequential growth from this level and there is nothing specific in the second quarter for us.

Okay. Great. And second on the corporate growth, if you are seeing incremental accretion to corporate loans, you're lagging behind many of the larger banks. Has there been any large run down that you’ve seen in this quarter if from your corporate book and your pace of growth addition is similar to the other private bank, where it just had the run down, they are dragging head light number, its just that your acquisition of new loan does also a little more cautious than the other? A – Unidentified Company Representative: We have had some prepayments also coming in from some of the largest borrower groups in the first half of the year, especially in the second quarter also. Incrementally we have been originating loans, I think over the second half of the year we would expect the corporate loan growth to pick up from us, again the sectors or the segment as Kannan mentioned, working capital sort of high, high rated companies in the private sector and some of the PSUs is where we are anywhere looking at opportunities.

Okay. And the loans that have been prepaid are they from sort of higher, lower rated corporate’s or high rated corporate's project loan, some color on that, the working capital? A – Unidentified Company Representative: Its mix, current quarter they would have been lower rated clients and also we have been able to get prepayments based on that.

Thank you so much.

Thank you.

Thank you. Next question is from the line of MB Mahesh from Kotak Securities. Please go ahead.

Good evening, just a couple of questions from my end. One is on the general insurance business sale that you've done, Kannan you mentioned that one of the key point was to kind of establish a pricing around the entire insurance business. Just wanted to get a sense why did you want to leave this entire transaction because there was necessity at this stage for you to loose, given the fact that the P&L [ph] there is requirements from a capital standpoint and you could have actually waited for some more time before you see the entire movement. Correspondingly on this essence, how are you going to utilize the entire liens and if you could also quantify what the gains looks like for this particular transaction?

Okay. Lot's of questions. So first of all I want to just repeat what I said, that this event is not triggered by any other capital requirements or anything from the parent side. As we have always said that we would like to monitor you base investments, at some appropriate point in time, which will also help in setting up bench mark on the value created in the subsidiaries. So I wanted to tell you that even after the sale we continue to hold very significant percentage of the share capital, it about close to 60% – approximately 65% we hold. So that is a very – makes sure it’s a commitment and we'll continue to hold that kind of level currently. So this is one part I want to mention. So please do not thing it is any capital or any such thing. And the…

Sorry, we are asking, we know that the capital is not required, so then why do a transaction in the first place?

As we said, it is something which is we get a good valuation for this, I am going to disclose the valuation and also monetization, we say we have been articulating as part of our strategy that we will monitor and we are also said we'll continue to hold the majority. So, you should just look at it in line with that strategy under constant communication we have done and this context. So that is so I will portray. And the gain, the pre tax gains will be pretty much around INR15 billion, so that’s 1500 crores, that is the number. And them…

And utilization?

It will go through the income statement, but the only thing is that you will have to wait for the approvals to happen before the transaction can be completed.

All right. In the same way we utilization you meant, or would you move to the provisions to improve your coverage levels or do you think it can move to the ROEs?

See, it will go through the P&L as a profit, and then the board will decide that appropriate time when the transaction gets completed.

Okay. The second question is on the restructuring, would you just quantify what was the fresh restructuring for the quarter and also how do you read the SDR news that we seem to be getting recently, how does that affect your entire portfolio?

Yes, one is on this incremental restructuring, it is been significant and we talked about the 5/25, so that is something which Rakesh had mentioned, incremental restructuring has been quite significantly and the outstanding research loan, network provisions are come down to about INR120 billion. Then what was the next question, you talked about?

No, because see if look at 126 billion last quarter, and there is a deletion from the restructuring book of 930, so we reached that number to close about 116, the I guess we have closed the quarter at 119, so…

A little bit of movement here, but other than that we had very small asset on thing what's restructured, but there is nothing significant to report there, that's what I…

There was no repayment, up gradation as well?

It will take some time… A – Unidentified Company Representative: And in terms of new addition, it would be about INR1 billion or so as you can see from the movement itself.

Perfect, perfect.

I think nothing significant to report really.

Okay.

The way you would – you should look at it is that the SDR backend will really come primarily from the restructured outstanding. So I [indiscernible] particularly would be part of the restructuring spending which we talked about in case. And in the genuine cases where we believe that together lenders can take a significant equity and they affect the change of management, so it will be used to selectively in those cases.

So that is the way you should look at it?

And then good benefit from the banks, it gives us some time for – as to stabilize the operations and get a new buyer so that the management can be revised, so in those cases it will be selectively used.

Okay. Thanks a lot.

Thank you.

Thank you. Ladies and gentlemen, due to time constraint that was the last question. I would now like to hand over the floor back to Mr. Kannan for closing comments. Over to you, sir.

Yes. Thank you. I think we have been able to answer all the questions which you had. In case you have any further questions, so my team and I will be happy to answer you offline. Thank you once again for participating in the call. Bye-bye. Good night.

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