ICICI Bank Limited (IBN) Q3 2016 Earnings Report, Transcript and Summary

Ladies and gentlemen, good day, and welcome to ICICI Bank Q3 FY 2016 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 conference over to Mr. N. S. Kannan, Executive Director of ICICI Bank. Thank you, and over to you Mr. Kannan.

Thank you. Good evening and welcome to the conference call on the financial results of ICICI Bank for the quarter ended December 31, 2015, that is the third quarter of the current financial year. In my remarks today, I will cover first the macroeconomic and monetary environment then our performance during the quarter, and finally the performance of our subsidiaries on the consolidated results. Let me start with the first part on the macroeconomic and monetary environment. The global economic environment is challenging, with implications for the Indian economy and corporate sector. The International Monetary Fund has recently reduced the global growth projection for 2016 from 3.6% to 3.4%. Key recent developments globally include; one, the increase in interest rates in the U.S., while most other economies continue to maintain or increase monetary accommodation, leading to pressure on currencies and capital flows; two, the significant slowdown in the Chinese economy and devaluation of the Chinese currency by about 6% cumulatively, which have had the negative implications for global demand and prices; and three, the continuing decline in commodity prices. Crude oil prices are now down around 70% compared to June 2014. Metals are witnessing a sharp downward cycle. India is indeed relatively better placed given its strong external position, government policy measures and capital expenditure and healthy consumer demand. However, corporate sector cash flows and leverage issues continue to be challenging given the gradual progress in cash flow generation from projects, weak private sector investment and the impact of the global factors described above on key sectors. With respect to the monetary policy stance, the RBI has mentioned that developments on commodity prices, implementation of Pay Commission proposals, and its effect on wages and rents, and fiscal consolidation path will be the key factors for future policy actions. With this background, let me now move to our performance during the quarter. First, with respect to credit growth, the Bank's domestic loan portfolio grew by 20.4% on a year-on-year basis as of December 31, 2015, compared to a 11.2% growth in non-food credit for the system as of December 25, 2015. Loan growth for the Bank continues to be driven by the retail segment which grew by 24.0% year-on-year and constituted 43.8% of the total loans as of December 31, 2015. The mortgage and auto loan portfolios grew by 24% and 21% respectively on a year-on-year basis. Growth in the business banking and rural lending segments was 23% and 25% year-on-year respectively. Commercial business loans grew by 11% on a year-on-year basis as of December 31, 2015 compared to a 5% year-on-year growth as of September 30, 2015 and a 13% year-on-year growth as of December 31, 2014. Sorry, the December 31, 2014 number was a 13% year-on-year decrease. The improvement in growth in commercial business loans was primarily driven by pickup in sales activity for the segment. The unsecured credit card and personal loan portfolio at INR142.46 billion as of December 31, 2015 was about 3.3% of the overall loan book. The Bank continues to grow the unsecured credit card and personal loan portfolio primarily driven by its focus on cross-sell. Growth in the domestic corporate portfolio improved to 14.9% year-on-year as of December 31, 2015 from 7.5% year-on-year as of September 30, 2015. The Bank continues to focus on lending to higher rated corporates. A large proportion of the incremental lending was to well rated corporates including public sector undertakings in line with the strategy of the Bank. The SME portfolio grew by 22.9% year-on-year to INR200.87 billion and constituted 4.6% of the total loans at December 31, 2015. In rupee terms, the net advances of overseas branches increased by 2.6% on a year-on-year basis due to the movement in the exchange rates. In dollar terms, the net advances of the overseas branches decreased marginally by 2.2% on a year-on-year basis as of December 31, 2015. As a result of the above trends, the total advances of the Bank increased by 15.8% on a year-on-year basis from INR3.75 trillion as of December 31, 2014 to INR4.35 trillion as of December 31, 2015. Moving now on to 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 14.8% year-on-year to INR1.27 trillion as of December 31, 2015. On a period-end basis, we saw an addition of INR61.98 billion to savings deposits and INR44.12 billion to current account deposits during the quarter. The period-end CASA ratio was 45.2% as of December 31, 2015 compared to 45.1% as of September 30, 2015. The daily average CASA ratio was at 40.7% in Q3 of 2016 compared to 39.3% in Q3 of 2015. On costs, the Bank's cost-to-income ratio was at 32.2% in the third quarter of fiscal 2016 and 35.6% in the nine months ending December 31, 2015, compared to 36.3% and 37.1% in the corresponding periods of fiscal 2015. Excluding the positive impact of the profit on sale of shares of ICICI Life during the quarter, the cost-to-income ratio for the nine-month period would have been 37.4%. During the third quarter, operating expenses increased by 8.5% on a year-on-year basis. Non-employee expenses increased by 12.5% year-on-year in Q3 of 2016 compared to a 17.1% year-on-year increase in Q2 of 2016. The year-on-year increase in non-employee expenses was primarily on account of the larger distribution network and higher retail lending volumes. Coming to credit quality, as mentioned earlier, the corporate sector continues to face challenges due to global and domestic factors. In particular, companies in the steel sector have been significantly impacted by the decline in global steel demand and prices, driven by slowing demand and rising exports from China. Chinese steel exports grew by about 25% during the period January to October 2015, on top of nearly doubling in 2014. During this period, steel imports into India increased by over 40%, compared to the demand growth of about 4.5%. Further, Reserve Bank of India has articulated the objective of early and conservative recognition of stress and provisioning, with a target of completing this process by March of 2017 and has undertaken discussions with the banks in this regard. RBI has discussed loan accounts with banks, including us, and asked banks to review certain loan accounts and their classification over the two quarters ending December 31, 2015 and March 31, 2016. In view of the above factors, the Bank in Q3 of 2016 had gross additions of INR65.44 billion to NPAs, including slippages of INR13.55 billion from the restructured loan portfolio. The increase in the level of additions compared to the preceding quarter primarily comprises loan to a steel company. About two-third of the NPA addition in the quarter relates to cases highlighted by RBI. Additional loans aggregating to a similar amount may slip into NPA in the fourth quarter from the cases highlighted by RBI. About half of these loans are part of the already restructured portfolio of the Bank and relate to power projects. Based on the above, additions to NPAs in the fourth quarter may be broadly at the same level as the third quarter. Deletions from NPA during the quarter were INR5 billion and the Bank has also written off INR6.56 billion of NPAs. We also sold NPAs aggregating to a small amount of INR0.38 billion during the quarter. The Bank's net NPA ratio was 2.03% as of December 31, 2015 compared to 1.47% as of September 30, 2015. The gross NPA ratio was 4.21% as of December 31, 2015 compared to 3.36% as of September 30, 2015. The provisioning coverage ratio on non-performing loans was 53.2% as of December 31, 2015. Including the cumulative technical-prudential write-offs, the provisioning coverage ratio was 64.9%. The asset quality of the retail segments remains healthy and stable. During the quarter, we had gross additions of INR5.84 billion to restructured loans primarily on account of restructuring of one project loan in line with the criteria permitted by RBI. The net restructured loans for the Bank reduced to INR112.94 billion as of December 31, 2015 compared to INR118.68 billion as of September 30, 2015. The aggregate gross NPAs and gross restructured loans increased by INR70.57 billion from INR263.36 billion as of December 31, 2014 to INR333.93 billion at December 31, 2015. If you look at on a net basis, the aggregate net NPAs and net restructured loans increased by INR44.25 billion from INR168.83 billion as of December 31, 2014 to INR213.08 billion as of December 31, 2015. The provisions for Q3 2016 were at INR28.44 billion compared to INR9.80 billion in Q3 of 2015 and INR9.42 billion in Q2 of 2016. During the third quarter, the Bank implemented refinancing under the 5/25 scheme for loans aggregating to about INR4.5 billion and Strategic Debt Restructuring, or SDR, for loans aggregating to about INR16.7 billion. The Bank is currently considering further SDR aggregating approximately INR12 billion, and the 5/25 refinancing aggregating approximately INR7 billion. Finally, on customer centricity, the Bank continues to focus on enhancing its customer service capability and leveraging the increased branch network to cater to the customer base. During the quarter, we added 102 branches and 408 ATMs to the network. As of December 31, 2015, we had branch network of 4,156 branches and 13,372 ATMs. During the quarter, the Bank was adjudged the winner in the category of Best Website Design in Asia-Pacific at the Global Finance's 2015 World's Best Digital Bank Awards and in the IT Security Initiative Project category at the 11th Annual eINDIA Summit Awards. The Bank continues to be the market leader in mobile banking with a market share of about 27% to 28%, based on the value of mobile banking transactions in October and November 2015. Our digital mobile wallet, Pockets, has seen over 3 million downloads with significant interest from non-ICICI Bank customers. As a result of our constant focus on digital channels, currently over 60% of the 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. Recently, the Bank launched two new digital initiatives to simplify and speed up the assessment for new home loan customers as well as disbursements linked to the construction stage of the projects. The first initiative called the Express Home Loans allows online approval of home loans within eight working hours. This service is available for all salaried individuals, including non-ICICI Bank customers. The second initiative helps individuals taking home loans for under construction projects to get subsequent disbursements through the Bank's iLoans mobile application in a completely paperless manner. Let me now move on to the key financial performance highlights for the quarter. Net interest income increased by 13.3% year-on-year from INR48.12 billion in Q3 of 2015 to INR54.53 billion in Q3 of 2016. The net interest margin was at 3.53% in Q3 of 2016 compared to 3.46% in the corresponding quarter last year and 3.52% in the preceding quarter. The domestic net interest margin was at 3.86% in Q3 of 2016 compared to 3.88% in the corresponding quarter last year and 3.84% in the preceding quarter. Interest income on income tax refund was INR1.23 billion in Q3 of 2016 compared to INR0.64 billion in the corresponding quarter last year and INR0.51 billion in the preceding quarter. International margins were at 1.94% in Q3 of 2016 compared to 1.67% in the corresponding quarter last year and 2% in the preceding quarter. The year-on-year improvement in international margins is largely on account of decrease in cost of borrowings. Moving on to non-interest income. The total non-interest income increased by 36.4% on a year-on-year basis from INR30.91 billion in Q3 of 2015 to INR42.17 billion in Q3 of 2016. With regard to the different components of the non-interest income, the fee income grew by 7.2% from INR21.1 billion in Q3 of 2015 to INR22.62 billion in Q3 of 2016. While retail fees continue to grow at a healthy rate, the growth in the overall fee remains impacted by subdued corporate activity and consequent decline in corporate fee income. Retail fees for the Bank constituted about two-thirds of the overall fees in Q3 of 2016. During the third quarter, treasury recorded a profit of INR14.42 billion compared to INR4.43 billion in the corresponding quarter last year and INR2.22 billion in the preceding quarter. The Board of Directors of the Bank at its meeting held on November 16, 2015 had approved the sale of 6% out of the Bank's shareholding in ICICI Life, comprising the sale of 4% to Premji Invest or its affiliates and 2% to Compassvale Investments Private Limited, an indirectly wholly-owned subsidiary of Singapore-based investment company, Temasek, subject to government and regulatory approvals. During the quarter, the Bank received the approval of IRDAI for the sale of 4% shareholding in ICICI Life to Premji Invest or its affiliates and the profit on sale was INR12.43 billion. Other income was INR5.13 billion in Q3 of 2016, compared to INR5.38 billion in Q3 of 2015 and INR5.5 billion in Q2 of 2016. The Bank received dividends from subsidiaries of INR3.74 billion and had exchange rate gains relating to overseas operations of INR1.43 billion during the quarter. I have already spoken about the trends in operating expenses. As a result of the above trends, the Bank's profit before provisions and tax increased by 30.2% from INR50.37 billion in Q3 of 2015 to INR65.60 billion in Q3 of 2016. The Bank's standalone profit after tax increased by 4.5% from INR28.89 billion in Q3 of 2015 to INR30.18 billion in Q3 of 2016. The return on average assets was at 1.82% in Q3 of 2016 compared to 1.9% in Q3 of 2015. The Bank's total standalone capital adequacy ratio including profits for the nine months ended December 31, 2015 was 16.74% and the Tier 1 capital adequacy ratio was 12.76%. Excluding the profits for the nine months, the total capital adequacy ratio was 15.77% and Tier 1 capital adequacy ratio was 11.79%. I now move on to the performance of subsidiaries and the consolidated results. The profit after tax for ICICI Life in Q3 of 2016 was INR4.36 billion compared to INR4.62 billion in Q3 of 2015. The profit before tax increased by 4.8% year-on-year to INR4.84 billion in Q3 of 2016 from INR4.62 billion in Q3 of 2015. While the profit before tax grew by 8% year-on-year in nine months of 2016, the profit after tax was INR12.47 billion for nine months of 2016 compared to INR12.43 billion in nine months of 2015 due to normalization of the tax charge. The retail weighted received premium for ICICI Life grew by 11.1% on a year-on-year basis in nine months of 2016 compared to a growth of 4.5% for the industry. During the third quarter, the retail weighted received premium for ICICI Life declined by 2.9%. The Company continues to retain the market leadership among the private players and had a market share of about 12.1% in the nine months of 2016. The new business margin based on Indian Embedded Value methodology and target acquisition cost was at 13.8% in nine months of 2016 compared to 13.6% in financial year 2015. During the quarter, the gross written premium of ICICI General grew by 21.3% on a year-on-year basis to INR20.72 billion in Q3 of 2016 compared to about 12.9% 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 9.1% in the nine months of 2016. The profit after tax of ICICI General was at INR1.30 billion in Q3 of 2016 compared to INR1.76 billion in the corresponding quarter last year and INR1.43 billion in the preceding quarter. The decrease in profits was primarily on account of higher claims due to the Chennai floods in Q3 of 2016. The profit after tax for ICICI AMC increased by 22.4% from INR0.67 billion in Q3 of 2015 to INR0.82 billion in Q3 of 2016. With assets under management of over INR1.7 trillion, ICICI AMC sustained its market position as the second largest mutual fund in India. The profit after tax for ICICI Securities was at INR0.55 billion in Q3 of 2016 compared to INR0.76 billion in Q3 of 2015. The year-on-year decrease in profits was on account of decrease in brokerage revenues due to lower secondary market retail trading volumes. Let me move on to the performance of our overseas banking subsidiaries. The Bank's total equity investment in ICICI Bank UK and ICICI Bank Canada has reduced from 11% of its net worth at March 31, 2010 to 5.1% as of December 31, 2015. As per IFRS financials, the ICICI Bank Canada's total assets were CAD6.68 billion as of December 31, 2015 compared to CAD6.47 billion as of September 30, 2015. Loans and advances were CAD5.76 billion as of December 31, 2015 compared to CAD5.61 billion as of September 30, 2015. The profit after tax for Q3 of 2016 was CAD5.4 million compared to CAD3 million for Q3 2015 and CAD6.6 million for Q2 of 2016. The capital adequacy ratio of ICICI Bank Canada was 23.7% as of December 31, 2015. ICICI Bank UK's total assets were $4.70 billion as of December 31, 2015 compared to $4.64 billion as of September 30, 2015. Loans and advances were $3.43 billion as of December 31, 2015 compared to $3.2 billion as of September 30, 2015. The growth in loans and advances was primarily due to lending to select local market corporates, subsidiaries and joint ventures of Indian companies and select multi-national corporations. The profit after tax for ICICI Bank UK for Q3 of 2016 was $0.6 million compared to $6.1 million in Q3 of 2015 and $0.60 million in Q2 of 2016. The lower profits in Q3 of 2016 were on account of higher provisions on existing impaired loans. The capital adequacy ratio was 15.6% as of December 31, 2015. Let me now move on to the overall consolidated profits. The consolidated profit after tax was INE31.22 billion in Q3 of 2016 compared to INR32.65 billion in Q3 of 2015. The annualized consolidated return on average equity was at 13.5% in Q3 of 2016 compared to 15.5% in Q3 of 2015 and 15.3% in Q2 of 2016. Consolidated assets grew 12.9% from INR7.93 trillion as of December 31, 2014 to INR8.95 trillion as of December 31, 2015. The Bank's total capital adequacy ratio on a consolidated basis, including the profits for the nine months, was 16.75% and the Tier 1 capital adequacy ratio was 12.73% as of December 31, 2015. Excluding the profits for the nine months, the consolidated total capital adequacy ratio was 15.81% and Tier 1 capital adequacy ratio was 11.79%. We believe that our current capital position, strong and diversified franchise and large distribution network give us the ability to leverage opportunities for profitable growth across our businesses. During the third quarter, we have achieved robust loan growth backed by a strong funding profile and maintained our operating efficiency. While we would focus on sustaining momentum in these areas, in the near term, non-performing asset additions, as mentioned earlier, and provisioning costs are expected to remain elevated. There will also be some impact of non-accrual of income on the higher level of non-performing assets on net interest margin and net interest income. With these opening comments, my team and I will be happy to take your questions. Thank you.

Thank you very much, sir. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions]. Our first question is from the line of Gaurav Agarwal of E&R Advisors. Please go ahead.

Good evening, sir. Thank you for the opportunity. Sir, just wanted a few clarifications on the number you gave on the call. This 5/25 you mentioned, the already done and the one which is expected to be done in Q4, how much is it from the already restructured book?

5/55 refinancing is for the standard loans which is there which is for completed projects. So, that is for standard loans.

So these are all standard loans, right?

That was only INR4.5 billion of loans that we have done on 5/25 refinancing during the quarter.

And, sir, is similar the thing is with SDRs or SDR also…

SDR will predominantly be from the restructured books, yes.

From the restructured book, okay.

Yes.

And, sir, lastly the Q4 slippages as you said it will be in the similar lines as happened in Q3. So may I ask how much would be from the restructured book in Q4, the expected slippages?

Yes. What we have said is that about half of the slippages is expected to be from the restructured portfolio.

Okay. And, sir, post this another one-off kind of a quarter, everything will get normalized that is what the expectation is?

No, see what we have talked about, the actual numbers for Q3 and the expected number for Q4 is largely arising out of the RBI exercise, that's what we have mentioned. So those will be taken care of by Q4 which is – by March 2016 which is the time limit given by RBI. And after that, of course we need to look at our loan growth, we need to look at our environment and see in a normal basis how much we add.

Okay. And, sir, lastly, how big is the steel account exposure, the one which slipped this quarter?

See what I mentioned is that – I won't be able to talk about a specific exposure.

No problem, sir.

What I mentioned was that the aggregate NPA addition of INR65 billion, out of that two-thirds related to the NPA which is highlighted by RBI, which is predominantly, as I said, is to one steel company.

Okay, thank you so much.

Thank you. Our next question is from the line of Kashyap Jhaveri of Capital 72 Advisors. Please go ahead.

Yes, thanks for the opportunity. I had a question on the margin. In this quarter your gross NPA number has gone up by roughly about INR5,500 crores and obviously there would be some day recognition of income on that. And despite that on Q-on-Q basis the margins are relatively sort of down by just about 6 basis points. So what, explains this resilience in the margins?

In terms of the margin, of course the cost of funding has been coming down for us. So while we have seen the impact of the base rate also on the domestic loan portfolio, the funding cost has been coming down for us. And to the point that you said of the non-accrual of income on the NPAs, as Kannan mentioned, going forward there will be some impact of that. So as we get into Q4 we are expecting that there will be some impact of the non-accrual which will kind of coming from Q4.

And of this number which you have mentioned about two-thirds this is what RBI has sort of directed or sort of highlighted that this should be recognized, of this two-third number of INR65 billion, for us how much of this would still be servicing both debt and interest on a standard basis, or would for us all of this would have sort of been 90 days past due anyways? That couldn't be, right?

So it would be a – it's typically not 90 days for certain. You know that these cases were not 90 days as of September or when RBI would have looked at all these cases. So, indeed that is not the case. So as again Kannan mentioned that RBI is being – is kind of expecting banks to be more proactive.

Proactive and conservative and pushing us towards early recognition.

So, would you be able to highlight of this INR4,000 crore plus, how much for us still would be servicing debt and interest?

As we mentioned, it is predominantly one steel exposure in that and it is very difficult to say precisely the number on how much is servicing or not servicing. As I said, many of these cases would not be more than 90 days overdue.

Sure. Thank you so much.

Thank you. Our next question is from the line of Praful Kumar of Birla Sun Life Insurance. Please go ahead.

Hi, thanks for taking my question and appreciate you taking and cleaning up the books. Now, out of your total SMA-2 what is the overlap between, which is already impaired? If you can give us some flow, maybe NPL, restructure, 5/25, SDRs, out of the total SMA-2 how much is already categorized in these buckets?

The banks don't disclose separately the SMA-2 portfolio.

No, I don't want to know the number. Just a percentage of overlap, just if you can give us some sense of how much is already taken that'll be useful to understand.

Without the number, the percentage it's difficult.

That is why what I had mentioned in the opening remarks, you could probably – for the movement over a period, you should probably look at the aggregate net NPA and net restructured. In one form we could say that this is the portfolio which is a little bit vulnerable portfolio. That amount was INR168.83 billion in the last year and it has grown to INR213.08 billion this year, so about INR44 billion of incremental additions to this vulnerable bracket has been there.

Sure. Okay and given the fact that there is a significant bunch income of NPLs in second half this year and given your assumption of provisioning in terms of aging and fresh accretion, can you give us some sense of the credit cost for FY 2017 if you have done some back-of-the-envelope calculations that'll be useful?

FY 2017 I think we would be looking at that and talking about that in the coming quarter.

Sure. All right, thank you so much.

Thank you. Our next question is from the line of Varun Khandelwal of Bullero Capital. Please go ahead.

Yes, hi. Thanks for taking my question. So, I am just trying to read into your NPL numbers and you're saying a large part of this was the steel company that was not overdue as yet, correct?

Yes, what Rakesh mentioned was that when this exercise was undertaken which was starting in the beginning of the quarter through the quarter, during that time it was not necessary that because of the 90-day payment due that these have slipped into NPL. This is coming on account of – of course, there is some inherent weakness in this steel company, given the kind of steel price reduction we have seen in the past and also on the other side is the RBI's philosophy of proactive early recognition which has resulted in this. What he is saying is that not necessarily because it has become a 90-day payment dues what you mentioned.

So, if I just rephrase my question, if RBI had not had this policy that they have come up with, would this steel company have been an NPA or would it not have been an NPA?

That will be a bit hypothetical. I don't think we can say it a bit, but we can only say that given the steel prices, it would have still had vulnerabilities that much we can say. But now that we've classified this it will be hypothetical to say that would it not be really an NPA or not.

Okay. And you're guiding for around INR5,000 crores-odd of NPA for next quarter also, correct?

What we have said was that INR65 billion is the incremental addition to NPL and two-third of that is on account of this – the cases highlighted by RBI. What we said was that the additional loans aggregating to a similar amount may slip into NPA in the fourth quarter from the cases highlighted by RBI.

So, when you say similar, you mean another INR65 billion?

Yes, that is what we really mean.

Okay. And now they were [indiscernible] RBI have…

There will be two components to it, isn't it. There will be one component which is cases highlighted by RBI. In the normal course also there would be some slippages every quarter which you have seen in the past. So, together we are saying that that total number would be similar in the next quarter.

So, we'll look at the gross NPA number of share of late – I mean, say 4.5%, 5% by next quarter, correct?

From the 4.21% levels is that what you are asking?

Yes.

Yes, of course, it will – to some extent, it will depend on the asset growth during the quarter.

Right. And RBI has a second list flow which is to be completed by March, 2017. So, impact of that has not been factored into these numbers, correct?

Yes, see, if you look at that case, those are all restructured cases which RBI had talked about restructuring having failed. So, they have said that we have to build up a provision every quarter of 2.5% starting from this third quarter over a period of six quarters and bring it down to 15% provisioning as of March 2017. Since they are restructured cases prima facie, they'll have at least a 5% provisioning. The impact for this year is not going to be there, since it would have been already provided for. For the next year if you look at it, the aggregate number of provision would be of the order off about INR3.5 billion for us.

Okay. So the total impact of the whole RBI thing will be to the tune of…

As I said that $3.5 billion in the overall scheme of – sorry…

INR3.5 billion.

Sorry, I'm sorry, the INR3.5 billion in the context of the overall profit for the year. I was keeping it aside because that is relatively a smaller number. So that is why I was focusing on what has been added in this quarter and the next quarter as having to recognize as NPA.

Right, Right. Okay, thank you very much. That's very helpful.

Thank you.

Thank you. Our next question is from the line of Alok Ramachandran of Future Generali. Please go ahead.

Thank you for taking my question. My call is primarily regarding the UDAY scheme that the Government of India has announced. I just want to know what is the DISCOM exposure that you have in your current books?

It's really a minimal exposure, that's it.

Okay. And since the 50% is going to come in this year of the government loans that is going to come which is going to be at nearly your base rate plus 25 bps and this will be issued as SDL that you will get on your books. So what would you do of these bonds, would you – since they are low-yielding interest income that will come to your P&L, so what would be your – what would you like to do and what is the strategy going ahead?

As I said since our exposure is insignificant the impact of this also will be very insignificant.

What is the amount, could you just…

Not a material amount to talk about it.

But even though it is a non-SLR, so would you like to keep it as an HTM, are you requesting the government for that?

No, no. Since we are not – our numbers are not all significant, we are not making any request in this regard.

All right, sir. Thank you, sir. That's all my questions.

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

Just a couple of questions. Firstly, I just see on all the incremental NPAs it seems that we've done about a 50% provisioning. Just wanted to understand is it your expectation of write-offs that you would have on these accounts or since you have got some one-off gains you're kind of buffering up the balance sheet?

Provisions that we have done on the NPAs continue to be with the same policy that we have been doing in the earlier quarters. So there is no additional provisioning that we have done as such. Some of these cases, especially when they slip into NPA from the restructuring category, the effective date of NPA is from when the loan had got restructured. So the provision requirement upfront becomes a higher number. So that all has been considered and these provisions have…

So to answer your question, if you really look at this additional bucket which I talked about of having been highlighted by RBI, the provision we would have made for that bucket would be clearly above 15%, which is the minimum requirement for NPA, because it would have been considered as if it had become NPL earlier, because of the [indiscernible] failure in some cases.

Understood. Okay. And the second question I had was, I'm just looking at some of the numbers that we've given on the restructured books that we'll have similar slippages and 50% of that will come from the restructured book. We've had a lot of slippage in the last few quarters and also we are seeing that another INR3.5 billion will need to be provided for the rest of the book which is left because that's what they want in terms of accelerated provisioning. So add these numbers up, I think it's INR7,000 crores, INR8,000 crores of the restructured book, which means that almost the whole book looks like delinquent. So I'm just trying to get your sense of the behavior on these accounts.

What RBI has kind of identified across all banks, as Kannan mentioned, we have loans outstanding to those set of borrowers. And if you look at overall, the slippage from the restructured portfolio as you are rightly saying, has been high for banks, including for us. I think overall the portfolio of restructured loans has got impacted clearly by the much slower growth that we have seen in the economy against what was expected at the time of restructuring, plus some of the specific challenges in the commodities or construction and some of these sectors which has played out. So indeed, the slippages have been higher than what we have anticipated in the past.

Last question is the RBI list mostly domestic accounts only and not overseas accounts? I'm asking in context of some of our overseas coal assets we have. So just want to understand that whether the list that RBI has given is mainly domestic exposures?

No RBI has looked at portfolio for all banks and has, I guess, identified these accounts. There is nothing specific that they have done only for domestic or only for overseas. They've looked at the overall portfolio for banks.

Okay. That's good, Rakesh. Thanks, thanks a lot.

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

Just reconciling few numbers, out of the INR65 billion of slippages, you're saying that two-thirds which is like say INR44 billion was from one steel account, is that right?

No, we've not said that. What we said is that out of INR65 billion, about two-third of that is on account of cases highlighted by RBI which predominantly includes one steel exposure. That's what it is.

Okay. So, two-thirds by RBI, INR13.5 billion was from restructured, that is aside of RBI or that includes – that's in with…

There could be one or two…

There could be some common overlaps also there.

Okay. And for the next quarter, you are seeing a similar number, but half of that would come from the restructured book.

So what Kannan was saying that from a RBI point of view, the cases that have been highlighted, it would be a similar number which is there and off that half of that is restructured.

Okay. But if I just exclude that, then your normal run rate of slippages would have been very low because say for two-thirds came from RBI, a little bit from restructured and adjusting for that, then the remaining part of slippages may not be much and once you are done with the March quarter, would it be fair to assume that the slippages actually fall of quite a lot?

So, if you look at even in the current quarter, if you keep aside the RBI identified or highlighted cases, the number is still INR20 billion or so of other NPAs that have got added. So that run rate is still there. And of course going forward, next year it'll be a function of how the economy is, how the commodity sector plays out. And RBI itself has talked about that they're looking at this proactive approach over the next few quarters. So, all those factors, we will have to kind of consider and then reach that conclusion.

Okay. And for the steel exposure, the whole funded, non-funded, overseas exposure, everything has become an NPL now?

For us actually it was virtually most of it was funded exposure. So that is all classified as NPA. Whether it's domestic or overseas doesn't really matter. Once an account is classified as NPA, all facilities are automatically NPAs.

Okay. And lastly I was just going through your numbers, if I just look at your NPLs plus restructured loans plus slippages plus 5/25 and your SDR, I think by March, we will already be clocking about 15%, 16% of your non-retail loan book into that segment. Do you think that there'll be a lot more than that as well to be recognized in the stress category of your corporate book?

So, I hope you'd be adjusting for some of the things like SDR is mostly coming from the restructured portfolio and those kind of things, but broadly what you're saying is that, if you take out the retail portfolio, of course, the numbers for us are high. Going forward, I think, I mentioned the factors which are there, which we still have to take into consideration, some of the sectors like steel, power, construction, the economic outlook, RBI's approach towards this and the portfolio of restructured loans, I think those are the factors that we'll have to consider as we get into next financial year.

Okay. And lastly, out of your – if you could share this number, out of your steel exposure, how much would be now classified as an NPL?

That would be about 13% or so.

13% of your steel exposure?

Yes. Of the – loans to steel sector are classified as NPA as of December 31st.

Okay. Thank you so much, Rakesh.

Thank you. Our next question is from the line of Ravikant Bhat of IDBI Capital. Please go ahead.

I was looking at your standalone numbers and there seem to be – I mean, there has been quite a lot of deferred tax provision reversals this year, particularly in the current quarter – in the third quarter. So if you could just provide some color on what is causing this?

That would be because of the provisions that are there on that, the deferred tax as it gets created.

Okay. So, I mean if the provisioning run rate continues to be similar, we are going to see similar kind of reversals or rather – I mean talking more from a tax rate point of view, your tax rate will continue to be more subdued vis-a-vi FY 2015?

Provisions actually don't have really an impact on the effective tax rate because that's only a current tax versus deferred tax impact. Overall impact on the P&L remains the same. The lower tax rate that you have seen in the quarter is because of the capital gains which we've realized on the sale of stake in ICICI Life Insurance Company and the expected sales in the fourth quarter. So for the year, one has to estimate the overall income composition and based on that the effective tax rate is worked out.

Okay. So if I were to think of FY 2017, then you would more revert back to normal tax rate?

Yes. It would be, again be a function of, if there are no significant capital gains, the tax rates will revert to the normal levels.

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

Just to better understand what RBI is actually communicating to the banks with respect to this loan accounts review, so is it that the RBI is only asking banks to review and to the satisfaction of the central auditors the banks can decide whether the loan is NPL or not, or there is – whatsoever no discretion given by the RBI to the bank? What is the actual communication or what is the thing there?

See, what – I can only repeat what I've said earlier that this exercise was undertaken by RBI. And separately, if you see the RBI press releases as well as the statements in various interviews, clearly banks are being encouraged to conservatively apply the provision – banks are encouraged to do early recognition and based on which to classify certain assets or NPLs. So, as part of this exercise they have highlighted a set of accounts and then based on which banks are supposed to look at those cases and then classify. So the exercise we have conducted is very much in line with that discussion and it has been done in discussion with the RBI as well as with the statutory auditors. That is the only thing we can say. Beyond that, what is the intent and what is exact is not really something which I can comment on.

Okay. Secondly, pertaining to the steel account, this steel account also has got exposure in US, they are making ballots there and I think account has been discussed also among some of the banks. So like if an account is actually NPL then it is a group-wise classification. So are we also taking that US based ballot making steel company where we have got exposure as NPL or not?

As Rakesh has mentioned, when a particular account is classified as an NPL, the particular account means that particular company, and if ICICI Bank has an exposure to that company, that particular company from various locations, including let's say overseas branches in India, if one facility is classified as NPL, all the facilities granted by ICICI Bank to that particular company is classified as NPL. So, there is absolutely no leeway. It doesn't cover the whole group becoming NPL or part of the group becoming NPL. It covers only that particular asset becoming – that particular company, loans to that particular company becoming NPL.

Just one last question regarding the provision increment on the RSA book to 15% by end March 2017, so if – like you know, beyond 2017 because the classification for the satisfaction of RBI is non-performing. So, in FY 2018 the credit cost for those RSA account, restructured as standard account will further go up?

Yes. I mean it really depends on what happens to these accounts in March 2017. Till then, we will have to monitor the performance. As I said, there are two things you will have to keep in mind, in the context of ICICI. On those set of accounts, which are highlighted by RBI, several accounts we have already classified as NPL and that is an ongoing provisions, you see that already incorporates. That in some banks, it may not have been classified as NPLs, but I cannot really comment on it. That is one part and I want to assure you that some of those accounts are already NPA in our books. The second part I want to talk about is that, yes, by the time March 2017 comes, yes we would have built up a 15% provision and depending on whether the restructuring continues to be a failure at that point in time, whether the Company is back on track, that will be – whether that will be really – that will be performing or non-performing at that time one has to assess. But what I mentioned during the earlier question – answer to the earlier question is the fact that the total provisioning incrementally required for FY17 in respect of those assets is about INR3.5 billion, which means that the total value of those exposures which are highlighted is INR35 billion only. So, in the ICICI's overall context, that doesn't seem to be a larger number to bother us, compared to the other two aspects, which we have discussed for this quarter and the next quarter.

Understood, thanks. Thanks a lot.

Thank you. Our next question is from the line of Sanketh Godha of IDFC Securities. Please go ahead.

This is Mahrukh. Just had a couple of questions. Firstly, when you say that you may have some interest reverses in 4Q, then those would not be accounts where 90-day interest is being serviced, but most of 3Q accounts are those where 90-day interest is being serviced. Is that a fair way to look at it?

It may not be that simple, because at the point of classification of a loan as NPA, at that point of time, what is the interest outstanding is what gets reversed. So if a borrower has paid the last two, three installments, that amount can be a small amount. It is more in the subsequent quarter that you see the impact of nonaccrual of interest income. So the impact of what you add in December quarter is kind of fully reflected in the March quarter, assuming that the borrowers are not making interest payment at all. So, that's what I was saying that the impact of this would really be seen in the March quarter and that is true for, in general also. It has nothing to do with these specific cases.

And the other thing I have is that some of these groups are at least claiming that they are going to be doing asset sales. Now you classify a few of them as NPLs. Would the promoter dilly-dally and what would banks do to ensure that he does not do it?

No, it is possible that in one or two cases, here or there, classification of an account as NPA by banks can result in some delays or something. But from the point of view of banks and us, we're pretty focused in terms of ensuring that wherever asset sales or change in management or any other approach that we are following, we would sustain that and ensure that it gets kind of done, irrespective of the loan classification. So, we are progressing on that, in some of these assets, in some of the other assets, which are also there.

Of course you mentioned – you gave a good breakdown of your INR65 billion on slippages, but did you mention anything related to power as well? I think I missed that point.

Sorry, with respect to what?

Power.

Mostly what we said is that – as Kannan mentioned that we expect a similar level, there could be a similar level of slippage next quarter, due to the balance cases highlighted by RBI, which significantly relate to the power sector and about half of that amount is already part of the restructured portfolio.

Thank you. Our next question is from the line of Vikesh Mehta of Religare Capital Market. Please go ahead.

Sir, my question has been answered. Thank you.

Thank you. Our next question is from the line of Seshadri Sen of JPMorgan. Please go ahead.

Firstly, just to reconfirm if I'm reading the Basel III data right. Most of the slippages in this quarter slip straight into D1 and D2, right? That's what the data seems to indicate, about INR33 billion to D1, INR18 billion to D2.

Yes, that data would be correct.

Secondly, what would trigger a reversal of the recognition of these NPAs? So if there are accounts, which presumably were paying interest and principal till last quarter and you've recognized it more as a prudent RBI measure. Then what would be the trigger for a reversal of these back into performing loans, because they're paying interest anyway. So, how have you discussed that with RBI?

Seshadri, as Kannan mentioned that indeed these accounts were weak accounts, so that is something which is clearly there. And for these accounts to get upgraded, I guess it will be a normal, for any other NPA, full payment – repayments if they happen in cash from the operations of the company that is when the accounts can get upgraded.

So just an asset sale or a restructuring of the balance sheet or an equity infusion wouldn't cut it, it has to be a full repayment?

Yes, those are also good sources, because there are external sources coming into the Company in form of cash, which they go into repaying our debt and the interest, it will definitely help, yes.

And would you have to go back to the RBI to take an approval to reverse these accounts, or that's between you and your auditors?

It is between we and our auditors.

Thank you. Our next question is from the line of Ramnath Venkateswaran of LIC Nomura. Please go ahead.

Just wanted to understand this balance sheet clean-up that the RBI was discussing, by March 2017. If the recognition is going to happen by March 2016, what more is left for us to basically go up to March 2017? Is it only that additional provisioning on the restructured book that has been identified or is there something else that – there's going to be another list that's going to come out?

See, the only thing is that, as I said, beyond what we know, we can't really comment on the objections and everything, but you would also see that there are some asymmetric classifications across banks of some of these assets, because what is NPA in one bank may not be NPA in another bank. So I guess, probably, I'm clearly speculating here, I guess probably it is the alignment time, so that the entire system recognizes uniformly all these assets, maybe they will be done over a few quarters. That is the only thing I could think of. But, clearly on the other side, as you rightly mentioned, the cases where there is a restructuring failure, they've given time till March 2017 to take it up – take the provisions up to 15%. So I think these two sort of facts indicate that probably that is why a time of March 2017 is mentioned.

And one more small thing. Now that – because you're aware of the portfolio, these assets that are there and since you're working with it, in terms of understanding what is the loss given default kind of a thing, can you be proactive and provide more for it, say, in the remainder of the year or say, for example, whenever you're getting some of these capital gains, is there a possibility that you could do some accelerated provisioning on that?

That we'll have to see that, but as of now we are planning to make provisions as per our current policy, which is broadly in line with what RBI requires for the corporate loans and on the retail side we'll do some more higher provisioning.

The only thing I want to highlight in this context is that we have already announced a couple of transactions in terms of sale of shares from the group companies. And as I mentioned in my opening remarks, about INR12 billion of gains has been there in respect of our 4% stake in Life company. So, if the FIPB approval and IRDA approval come on time, in the current quarter, that's the fourth quarter, we will have another INR18 billion of – sorry another INR21 billion of gain to be recorded. So, in the overall context of the PSL, we need to keep that in mind. And as you said, going-forward basis in the future if there are any capital gains, clearly Board will evaluate that option as well.

Because if that – that will help clear the perception or help strengthen the balance sheet further, right. If these are accounts where you perceive to be weak, you can be slightly more conservative and provide more.

No, even in these cases, as Rakesh mentioned to a previous question on Basel III disclosure, even in these cases, some of them have directly gone into a D1 and D2 bucket. So to that extent the provision is much higher than what would have been the provision if it had just about slipped to NPL.

Thank you. Our next question is from the line of Venkatesh Sanjeevi of Pictet Asset Management. Please go ahead.

This is Prashant from Pictet Asset Management. Again, sorry to bother you on the RBI exercise. One thing I wanted to know is…

Sorry to interrupt sir, could you speak a bit louder, we're not able to hear you that well.

So, I just wanted to understand about these NPAs, which have come out after the RBI exercise, when and how do we really upgrade these accounts? I mean, do we need to take permission from RBI to do that?

As I said earlier, there is no need for any permission, but there has to be a payment to institutions have to happen. It will be arising out of the operational performance of the Company, or as we responded to the previous question, any specific asset sale or any other promoter contribution coming into the company and that going into a cash settlement of dues of the institutions, then it becomes zero-arrear situation and it can be upgraded. But that is entirely between the management and the auditors. My understanding is that we don't have to seek a specific approval on a case-by-case basis to RBI.

And second question was, in your experience, I mean does this kind of proactive recognition help or does it hinder the probability of recoverability from such accounts?

Really I can only say that our recovery actions will really continue, whether it is tagged NPA or otherwise. So that we'll do. And then regulator's suggestions and the directions will have to be kept in mind in running our operations as a regulated entity. Those are the only two things I can say. Beyond that it is really a hypothetical to see, whether it would be better to classify it as NPL or otherwise in terms of collection.

Thank you. Our next question is from the line of Mayank Bukrediwala of Goldman Sachs. Please go ahead.

Yes. Hi. This is Tabassum here. Sorry, again have questions on the asset quality. So basically, when RBI came to you and talked about this 150 accounts, say there were 15 of them, are you using any discretion or exceptions or all of these 15 accounts or whatever the number may be, you are classifying it as an NPL in this quarter and the next quarter when you give your guidance of INR65 billion, another NPL slippage in the next quarter?

So we are not able to comment on these 150 accounts or any number of accounts as such. I think what we've said is that RBI had – is asking banks to be proactive and conservative in recognition of stress and making provisions, and to that end, they have highlighted some cases. About two-thirds of the NPL additions in the current quarter relate to such cases and we expect that potentially a similar aggregate amount could be the impact on this account next quarter.

So there's no discretion?

That is really the position.

So there's no discretion?

Beyond that, we are really not able to comment on it. We had – this exorcise has been going on some time. There have been multiple discussions with RBI in this regard and the final situation is as summarized by Anand Dayal just now.

And another question, Kannan you talked about the uniform NPL classification is what perhaps RBI is trying to do over the next year or so. So you would know which accounts have been classified as NPL by the industry. Would we have many accounts or any percentage you can share with us which are still not classified as an NPL by ICICI Bank, but classified by the others as NPLs?

No. See, it'll be too premature to comment. We'll have to see how the situation evolves. It's just the early days. We have seen a couple of banks coming out with the results. So we'll have to really wait and see.

And just one final question on the asset quality is the provisioning requirement in the fourth quarter will perhaps remain as high as what you had this quarter. So, will you be able to postpone it, say, in case the regulatory clearances don't come through and you can't book the capital gains or you will go ahead and make the provisions any which way?

These are not linked. I mean, they are separate line items in the P&L.

Yes, that is true. But, so you don't have a discretion and you will have to basically make the provision?

We have sort of announced that in the call and then during our discussion. So irrespective of any other development, this will be made. And I just mentioned that that deal had been already announced and then the discussions around the approval process is going on and we were successful in getting one approval. So, I just wanted to highlight that that there is a possibility of that happening in Q4. But this provision will be irrespective.

Just one final thing, employee cost, it seems up just 2%. Anything specific there, because it seems quite low, particularly given that the industry is facing a lot of competition from other banks? We have seen other banks report higher numbers.

In terms of the salaries and all that, there is an annual increase that we do every year. So that is fully factored in. Other than that there are two components which are there. One is the retirals. So when the interest rates go up, the values do come down for us. So vis-a-vis last year, Q3 it would be somewhat lower. And then there is bonus that you pay to employees, which is accrued over the year and which can vary across quarters.

Thank you. Our next question is from the line of Deepak Agrawal of Axis Mutual Fund. Please go ahead.

Can you share your exposure to, say, the 10 large leverage groups and basically what percentage of that we would have, say, between an NPA restructured, a 5/25 and an SDR?

It's very difficult to kind of talk about which companies, or borrowers or borrow groups you are talking about, without naming them and disclosing. We have not made any such specific disclosure on this account.

And, sir, how confident are you that we are closer to the peak in terms of the asset quality stress, because we have seen spike in NPAs Q3 versus Q4, so do you think we are largely done or this could continue even in FY17?

As I said, I think we will – we and other banks also will assess FY17 as we go into this quarter. But there are some things that we have to take into consideration, the commodity cycle where it is, the domestic economic growth, it is running a bit slower than what was generally anticipated; approach that RBI has towards asset classification and provisioning by banks. So all of that has to be factored in, and as I said, over the next couple of months we will do that and then have proper assessment for FY17. Before that it will be too premature to kind of conclude…

So in the meantime, while on the restructured portfolio and the NPLs, our collection efforts will continue. We have dedicated teams working on that, that will continue. Second, I think in terms of incremental lending, overall retail growth will always be higher than the corporate growth. So to that extent, the balance sheet will move more towards retail on the asset side. Then on the corporate side, as I mentioned, during the quarter also the kind of growth we have seen is on account of higher rated corporates, including public sector units. That kind of lending will continue. And on the SME side, it has been a granular collateral-based lending. So, those kind of segments we'll focus on and see what happens really going forward. So, I think rather than getting too nervous about what will slip this quarter or next quarter, we thought we should just stick to the strategy as we have done during the quarter and see our best effort in terms of recovery of cases which are restructured and NPLs.

So, just last one thing. You mentioned 13% of our steel exposure has slipped into NPA.

Yes.

So, if I have to say this is the NPA, so how much is the 5/25, SDR, and restructure, so that out of the total book what would that number be, cumulative?

For steel, that would be about 20%.

20% of steel exposure would be among these, so 80% essentially is standard?

Yes.

Thank you. Our next question is from the line of Sumeet Kariwala of Morgan Stanley. Please go ahead.

Hi, Kannan, Rakesh, This is Anil. I had a question, not on asset quality, but on your overseas business. So, just wanted to understand how big of your overseas businesses is in Hong Kong, because you would have seen the volatility in both the CNH HIBOR markets and HKD HIBOR markets? So wanted to understand how exposed are you to that market, either from a lending perspective or borrowing perspective. So the questions are, one is, if possible if you can give what's the size of your Hong Kong branch balance sheet? The second is are you a lender or a borrower from these interbank markets? And third is CNH HIBOR, specifically, has moved up quite a bit and I see that you do raise RMB deposits. Obviously you have some RMB lending in Hong Kong. I am assuming all of that is to Indian borrowers. But given that CNH HIBOR has moved up, are you seeing any stress from the increase in interest rates on those borrowers?

Anil, as you know, in our overseas book, including the Hong Kong branch, the bulk of the funding that we have is actually in the form of either capital market issuances that we have done or funds that we have raised from ECAs, which are export credit agencies. And we have a much smaller amount of funding coming in from deposits or other interbank borrowings which are there. So, I don't currently have the exact numbers on this, but it is not anything which is going to be material for us on our overseas book.

No, that's great Rakesh, that is what I hope to hear, because we're just checking it with all the foreign banks that operate in Hong Kong, because some of the foreign banks are facing issues. So thanks.

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

Sir, I would like to know, within domestic advances, SME has grown quite significantly in last quarter. I understand the base is low compared to other corporate and retail, but any reason behind it?

So, as you said, the base is low and we had not been growing the portfolio for some time. The growth here is mainly coming from – we have done some lending in the sort of agriculture cooperative space. We've done some lending more in the services sectors, like hotel and so on. And typically, most of the lending here is relatively smaller ticket. So it's a mix. It's pretty diversified across sectors and is of reasonably high rating quality.

So do you see any traction from particularly this segment like going forward there can be high demand, particularly from SME side?

We should see some traction as the economy continues to gradually improve and given that we have traditionally not been that big in this business and in fact most of our historical SME portfolio was actually more like a small corporate portfolio, we should see this is part of the book at least kind of keeping pace with the overall domestic loan growth.

Thank you. Our next question is from the line of Dhaval Gala of Birla Sun Life Mutual Fund. Please go ahead.

I had a couple of questions, one regarding – I assume that we are not giving any guidance on credit costs for FY17. But just to put it in context, should that number be – as of now, if one has to ask not as a guidance, but more of a trend, should that number be closer to what we would be putting it in FY16, which would be 140 basis points, 150 basis points range, or it should be definitely trending down?

No, instead of estimating and guessing right now, I think it's better that we do a proper assessment and talk about this together with our Q4 numbers.

So why I was asking you this question is, I do not – if one has to look at it from an outside perspective, many of these corporates were not vulnerable or stressed. Say, if somebody has to understand six months back, so maybe we would – if you could get an encouraging perspective from the bank that what could be the LGDs from these corporates or what could be the assessment of actual credit cost, because that helps in understanding, because see, if one has to look at the last six months, we always had been guiding numbers which was much lower than 100 basis points, a number which would have been closer to 100 basis points. So could that type of volume impact could be there even in next year?

I think, we have been of course talking of more like a 100 basis point number, but in discussions we have also been talking about, for instance, the downturn in the commodity cycle and steel in particular being in a much worse position today than it was a year ago. And the fact that that would impact some of the steel companies that are more leveraged. And as Rakesh mentioned, I think we have to look at the commodity cycle, the domestic growth, the pace of the corporate investment and the regulatory approach as well, before we really come to a conclusion. Of course, in parallel to your point, there is no change in our efforts to resolve these assets, whether it is by getting in new funding or a sale of assets or reducing leverage at the Group level in some of the groups and so on. And to the extent that these are productive assets with large facilities on the ground, certainly there should be good prospects of recovery, but there is also a timing issue to that. So just now, it's not really – not be appropriate to kind of give a very clear outlook for next year. We'll have to look at some of these factors and then come to a conclusion.

Yes. I would also sort of supplement that by saying that if we are looking at these kind of projects in the core sector, given that they are backed by plant and machinery and the solid assets on the ground, and the replacement value is also quite high, given the current costs and prices, we think that eventual LGD should be minimal. And we have seen this kind of phenomenon playing out even for a project finance company, in terms of the commodity cycle. If you look through the cycle and then look at eventually what kind LGD, at least this kind of core projects we would say that LGD will be minimal. But it is about the navigating the situation of classification of these assets and making prudential provisions. That is the phase we are going through currently.

And just more of a question, the account which is slipped in this quarter, could that be – would that accompany or – definitely the Group would have larger exposure, but the same segment company would have more exposures which would still running standard through our Company? Why I'm asking is, maybe the facility could be in India and facility could be overseas, and there could be altogether different assets and different companies. So would that have an issue, say, for a classification change in times to come, not in near-term, but maybe could be the medium-term?

I can only repeat what I said that if it is the same company, different exposure from different locations of ICICI Bank Limited, then there is – everything will together be classified as NPL. And I also mentioned in the opening remarks is that it is to a steel company. So that is the only thing that we can mention as of now. Nothing further I have really to add on that.

Thank you. Our next question is from the line of Sandeep Baid of Quest Investments. Please go ahead.

Can you give us some color on the asset quality of your overseas subsidiary? And also if you can give separately the gross NPA figure or the slippages figure for the overseas book?

In terms of the UK and Canada, which are the subsidiaries, the overseas branches are anyway covered in the overall numbers for the parent bank itself. In UK and Canada, we have seen some increase in the impaired loans over the last few quarters, that has mostly been in some of the India-linked assets for both UK and Canada. In the last two or three quarters, the impaired loan number has not increased, but the provisions have gone up for this set of loans. So you would have seen that there has been some higher provisioning that both in UK and Canada we have taken.

Okay. Is it possible to separately share the gross NPA number for the overseas book?

For Canada, it is about…

No the overseas book, not the subsidiaries.

As far as the branches are concerned those numbers are factored into the overall bank number. Don't really give branch-wise breakup in that sense. We could give you the numbers for...

Okay, if you can give it for the subsidiaries.

Canada will be about 3.7% at December 2015, and UK is about 5.9%.

These are the gross NPA numbers?

Yes.

And the net NPA?

We can give that to you – I just don't have it right now, I'll just give it to you.

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

Again, a couple of questions on the asset quality front. Just wanted to understand qualitatively, if you have a corporate loan term lending, working capital lending. Has the RBI differentiated the banks based on these exposure or they say that to a company all forms of exposures have to be declared as impaired? Second question, for the next quarter you said it is from the power sector. Just wanted to understand or reconfirm whether it includes even any form of fuel-related acquisitions that you've done? Third question is on the restructured book. When it slips into an NPA, does the off-balance sheet also gets classified as NPA or not? If possible if you can have a number on this.

On your first question, I think we've said before a couple of times that if a company – if a company is to be classified as NPA, then term lending and working capital both have to be classified as NPAs. There is no concept of a facility-wise NPL; it is a company-wise NPL.

The question is, RBI could have given it to you because you were having a corporate lending. So, your term lending automatically gets classified, whereas banks could just have a working capital lending and they probably are not being – or they have not been told to classify that?

I guess only RBI could be able to answer that one.

Yes, I don't think we will be able to answer it. We don't know exact – but effectively if you are talking about the inherent weakness of the company, the company is inherently weak, that's it. Whether it is working capital or term loan, I don't think it should matter, but really we do not know what has been done by RBI.

On the other two questions?

On the second question, I think what – we spoke of power project. So, I think that [indiscernible] power project. On the third question, the non-fund facilities become fund-based and show up as an additional – if they are related to an NPL, they show up as an addition to the NPL as and when they devolve and become fund based.

But has that been the case in your Bank? Because you had a lot of construction companies, so just trying to understand was the heavy devolvement from the restructured book as well?

I don't put heavy devolvement, but there would have been…

There have been instances, especially in the PC construction companies.

And my last question, do you see [indiscernible] coming now, because some of these very large groups are being declared as impaired by RBI. Some of the SME sectors will also now start feeling the pains again in the next few quarters?

In terms of their suppliers and stuff like that?

Perfect.

Nothing – not specifically. I think in many of these cases, the plants are also running in some way. Of course, the company cash flows are stressed.

Thank you. Our next question is from the line of Kunal Ojha of Emkay. Please go ahead.

This is Umang here. I have a question which is similar to what Deepak had asked. Basically after all the stress that we are recognizing in Q3 and Q4, either in the form of fresh slippages, 5/25 over SDR, if you could just quantify as to what could be the residual exposure of yours to some of the high leverage groups. So I understand that you would like to refrain from giving any specific names, but even overall exposure, without any names, or sectoral exposures could help.

No, sectoral, we of course give all the industry-wise exposures and clearly there are industries like steel or construction where there is stress, all those kind of disclosures are there, which we do on a regular basis as part of either our presentation or in the Pillar 3 disclosures that we put out. I guess the challenge in this highly leveraged groups is that one is not sure of each groups are there. We may communicate something, you may understand something different. So, we don't want to really get into that kind of a thing, but we will see what else we can do to provide more information.

Thank you. Our next question is from the line of Anurag Mantry of Jefferies. Please go ahead.

Firstly, just coming back to the asset quality question, is it safe to assume that at the end of March 2016, after all the classification has been undertaken by different banks, based on RBI's exercise, the asset classifications of the accounts, which have been highlighted by RBI will be the same across all banks?

We really don't know. As of now, whatever little we understand, it may not be the same. But beyond that how the harmonization will be achieved, we cannot really comment on it. We really don't know actually.

Sir, any guidance that you can give us on the fresh restructuring for Q4?

We don't have any pipeline as such.

Another question is that overall the 10% provisioning that you spoke about for FY17 on account of the already restructured assets, do you think that a 10% number would be sufficient for those accounts or ideally you want to provision more for it and hence the costs might go up for that?

As I said already that some of those accounts are already classified as NPL. For that we are doing a age wise provision as required by the IRAC norms. So these INR3.5 billion we've talked about is the incremental provision for those cases which are not yet classified as NPL, so we are hoping that we will monitor the performance and hoping that we may not be required to do further provisioning. But that we will have to wait and see how the performance is till March 2007.

And sir any guidance for loan growth for the retail and the corporate books for this year and for next year?

This year, I think our original sort of expectations continue. We said that we will grow ahead of the system. On the retail side, we are very hopeful of putting out a 25% of growth for the rest of the year, on a year-on-year basis. On the corporate side, it has just started growing. We had said earlier that we would soon like to grow in the teens. That is what we said we will continue. So, on the overall basis, we still believe that our domestic growth will be ahead of the systemic growth. As Rakesh mentioned, when we do a budgeting for the next year, probably we will give a better color on what is the likely growth rate for the next year, around April we will give you a sense on that.

Thank you. Our next question is from the line of Manish Agarwalla of PhillipCapital. Please go ahead.

Just a couple of data points. Can you share the total 5/25 done till date and the number of accounts, and similarly total SDR done till date and numbers of accounts?

Total SDR, loans to companies where we have done SDR is about INR19 billion that happened during the current quarter itself. And the total…

5/25 would be about INR35 billion or so.

And number of accounts, can you share in both the categories?

Not really, we've not really given.

It will be a handful [indiscernible] single-digit number of accounts.

And did you hear anything from RBI regarding additional provisions in SDR or 5/25 going forward?

Nothing that we have been heard from RBI. We don't know what their thinking would be.

And second question is on the security receipt. On a quarter-on-quarter, there is a decline. Is it a write-down or you received the payment on this?

On SRs, it's a mix of both, that we got some redemptions on SR, as well as we had taken some provisions.

So, can you provide the breakup of your provision?

On which one?

Yeah, in terms of NPL standard asset?

It will be largely towards NPLs.

And what would be the M2M on this SR, if you can provide?

The number itself is quite small in the context of the overall P&L. We have not really given that breakup.

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

A question on dividend. Have you thought about reducing your dividend payment in order to conserve capital? Is that something you would want to talk about?

In terms of capital, actually, we are at 12.7% or so, including the profits for nine months. So I don't think that is something which we have kind of looked at.

I'm talking more in the context, let's assume, you don't get the approval of the stake sale, or even otherwise, right, maybe you decide to go ahead and provision little more. Is that something you want to…

As Rakesh said, as of now, we have not thought about it, because the capital adequacy is very comfortable. So it is quite natural, Board will examine it at an appropriate time.

And a question on that uniform NPL. I'm assuming you have to typically, if you declare an asset as whether – whatever classification SMA 1, 2 or NPA, you typically have to do it within a fortnight right? So assuming all the banks declare their earnings next couple of days or so, I am presuming that within a month, you would have a fair idea of where additionally you may need to classify an account as an NPAs, would that be a fair assumption?

You are right, that there is a database, which is there and which banks can access and you understand how various banks are categorizing accounts. But beyond that, it is not really anything more…

No, I mean would you not want to do a pre-disclosure of any kind, if you just see that numbers are changing than what you have currently guided, because clearly you don't have any idea that's what you've been saying?

Yeah, of course, we would not know, as of now how it is going to play out. So as and when we have more formation, of course we will look at it. It is just too premature right now to be able to comment on that.

And sorry, just keeping the last question. Assuming you have got X number of accounts from RBI. Let's assume that's 50. As a percentage, would you be able to tell us how many of those accounts, as a percentage, you have been able to convince RBI that you have a possible resolution?

I think on RBI, Kannan has in various points of time in the last one hour said all that – that has to be said actually.

Thank you. Our next question is from the line of Manisha Porwal of Taurus Mutual Fund. Please go ahead.

Sir, just two questions. One is on your contingent liability, how much of your contingent liability would you have used this quarter and what remains?

Contingent provision…

I'm so sorry, provision, yes.

We've been providing, by and large, as per the RBI norms. So, there is no contingent provision or its utilization.

Yes, we only have a standard asset provision of about INR26 billion or so. That is the only other provision, which is there in the balance sheet.

And, sir, I just wanted to know what additional lending to these accounts would continue after this classification, because there were actually accounts which were continuing with us as standard assets. So would lending to these accounts continue, and in that case, what different treatment would be given to these lendings in terms of rates and the treatment, mostly in terms of the rates would – the rates to them would increase and how difficult it will be for these corporates to then seek loan from other banks, because they are already an NPA in your book?

I think it will really depend on a case to case and the facts of the situation. So if there is visibility on sort of the cash generation or the EBITDA or fund infusion by the sponsor or another investor or some fund coming in through an asset sale and there is a visible plan for the company, banks will look at providing additional working capital or funding or whatever. But yes, definitely the fact that if a larger lender classifies it as non-performing, it'll create more challenge. In terms of rates, in any case it would, I guess, really have to depend again on the overall financing structure and the overall operational plan.

And suppose – now, generally banks used to classify accounts on a 90-day due. So would this RBI list would make you classify the other accounts also based on whatever criteria RBI would have suggested in this circular that we'll – in the sense, if the account is a highly leveraged one, then you would not wait for them to go 90 day due and then recognize. Will it change the way you recognize NPA now, henceforth for other accounts also?

Yes. Again, I'll probably repeat what I said. I don't think RBI is going to come out with any separate guidelines or a circular, that is not our understanding. They will continue to be guided by the IRAC circular, which is currently existing. But in trying to apply IRAC guidelines, as RBI said, it is encouraging banks to follow a more conservative approach, aimed towards early recognition, rather than late recognition. So that will be the only change as I see. I don't think, there's going to be a separate set of guidelines on how to classify going forward.

And just one final confirmation I wanted. You mention that some of these accounts have gone in D1 and D2 directly, did I get it properly?

Yes, you're right. What I've mentioned was that – I think there was a question around our Pillar 3 disclosures, saying that it looks like some of these fresh slippages have straight away gone into a D1 and D2 bucket, which I confirmed that it is. And the reason for that what we had given was that if some of the accounts had slipped from restructured loans to NPLs in this quarter, then the date of NPL becomes the day on which it got restructured, rather than the current date in which it has become NPA. So because of that, automatically the bucket changes. So that is what I clarified.

Thank you. Ladies and gentlemen, that was our last question. I would now like to hand the floor back to Mr. Kannan for his closing comments.

Yes. Thank you once again. It was a long call and thank you for patiently listening in. My colleagues and I will be happy to take any other questions you have offline. Thank you. Bye-bye.

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