ICICI Bank Limited (IBN) Q4 2016 Earnings Report, Transcript and Summary

Ladies and gentlemen, good day, and welcome to ICICI Bank Q4 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 would now like to hand the conference over to Ms. Kochhar, MD and CEO at ICICI Bank. Thank you, and over to you, ma'am.

Good evening, good afternoon, good morning to all of you depending on which ever location all of you are on. I will just make some brief opening remarks and then as always Kannan will take you through the details of the result. So, I just like to start with -- about the strategic focus that we have been pursuing during the year and during the year, we have been actually having a three-fold focus. First is to continue to enhance the franchise to capitalize on the growth opportunities. Second is to work towards resolution of exposure in the context of the challenges that are there towards -- for the corporate sector. And the third is to maintain and enhance the strength of our balance sheet and our robust capital level. So we made good progress on all these focus areas. As you would have seen from the results, we sustained robust growth in our loan portfolio. The retail portfolio grew by 23.3% and it now constitutes 46.6% of our total loans. The overall domestic loan growth for FY 2016 was 16.4%. This loan growth continues to be backed by very healthy deposit franchise. The savings account deposits grew by 16.9% in FY 2016. We saw an addition of INR193.70 billion to the savings deposits and INR93.50 billion to the current account deposits during the year. The CASA ratio was 45.8% and retail deposits were about 74% of our total deposit. Our retail franchise also continues to grow. We now have a network of 4,450 branches and 13,766 ATMs, a best-in-class digital and mobile platform, and a number of new innovations that we did in the last quarter and the entire year. Coming specifically to credit quality, first of all, I'd like to say that we have completed the exercise of review of classification of cases, highlighted by RBI in the Asset Quality Review, or the AQR. Secondly, we continue to work towards resolution and reduction of exposures through sale of assets and deleveraging, as can be seen already in some of the recently announced transactions. Thirdly, we do recognize that the weak global economic environment, the sharp downturn in the commodity cycle and the gradual nature of domestic economic recovery has adversely impacted the borrowers in certain sectors, like iron and steel, mining, power, rigs and cement. While the banks are working towards resolution of stress with certain borrowers in these sectors, it may take some time for resolutions to be worked out. In view on the above, the Bank has on a prudent basis made a collective contingency and related reserve of INR36 billion during the fourth quarter 2016 towards exposure to these sectors. I just want to emphasize that this reserve is over and above the provision that has been made and required for non-performing and restructured loans as per the RBI guidelines. So we ended the year with a very strong capital position, with a Tier-1 capital adequacy of 13.09% and a total capital adequacy of 16.04%, well above the regulatory guidelines. I would also like to mention that we have decided that the senior management would not receive performance bonus for FY 2016. Performance bonus would however be paid to employees in the grades of Deputy General Manager and below. The Bank's strategic priorities for 2017 also I would touch upon briefly. The way I look at it, I look at the strategic priorities going forward as a four-by-four agenda. Four points on portfolio quality and four points on enhancing franchise. On portfolio quality, first of all, we will proactively monitor the loan portfolios across businesses. And in this context, we have actually provided further information on our portfolio in the key sectors that is sectors of iron and steel, mining, power, rigs and cement in the presentation and Kannan will take you through them. Secondly, we will continue to focus on improvements in credit mix, driven by our focus on retail lending and lending to higher rated corporate. Thirdly, we will focus on reduction in concentration risk. Fourthly, resolution of stress cases through measures like asset sales by borrowers, change in management, and working with various stakeholders to ensure that the companies are able to operate at an optimal level and generate cash flow. So those are the four points on portfolio. The four points on enhancing franchise are that we will continue to sustain our robust funding profile. We will continue to maintain our digital relationship and strong customer franchise. We will continue to focus on cost efficiency and we will continue to focus on capital efficiency and further unlocking of value in subsidiaries. So I would summarize to say that we have during the year completed the RBI's AQR process. We have created a contingency and related reserve over and above those provision requirement of INR36 billion. We have ended the year with a Tier 1 capital adequacy ratio of 13.09%. We have a substantial additional value in our subsidiaries, and given all this above, we are well positioned to pursue our strategy going forward. I will now hand it over to Kannan to take you through with the details.

Good morning and good evening to all of you. I will now talk in some more detail about our performance and outlook on growth, credit quality, income statement details, subsidiaries, as well as capital. First on growth, within retail, the mortgage and auto loan portfolios grew by 23% and 18% respectively. Growth in the business banking was 15% and rural was 25% on a year-on-year basis. The segment of commercial vehicles and equipment loans grew by 18%. The unsecured credit card and personal loan portfolio was around INR155 billion, which was about 3.5% of the overall loan book of the Bank. We continue to grow the unsecured credit card and personal loan portfolios, primarily driven by our focus on cross-sell. Growth in the domestic corporate portfolio was 7.2%. The Bank continues to focus on lending to higher rated corporates as we mentioned earlier. The SME portfolio grew by 9.8% on a year-on-year basis and it constitutes 4.3% of the total loan book of the Bank. In rupee terms, the net advances of overseas branches decreased marginally by 0.3%. In US dollar terms, the net advances declined more sharply by 6%. Coming to the funding side, we saw an addition of INR73.12 billion to savings deposits and INR16.89 billion to the current account deposits during the quarter. As a result, the daily average CASA ratio was at a healthy level at 40.5% during the quarter and the total deposits grew by 16.6% in the financial year to INR4.21 trillion. Looking ahead on growth for FY 2017, we would target a domestic loan growth of around 18%, driven by 25% growth in the retail segment. Growth in the domestic corporate loans is expected to be 5% to 7% given the Bank's focus on lending to higher-rated corporates and reducing the concentration risk on the portfolio. The SME segment is expected to continue to grow at around 15% and the portfolio of overseas branches is expected to further decline in US dollar terms and we would continue to focus on sustaining a strong funding profile, with an average CASA ratio targeted in the range of 38% to 40%. Moving on to the credit quality, during the fourth quarter, the gross additions to NPA was INR70.03 billion compared to INR65.44 billion in the previous quarter. Slippages from the restructured portfolio were INR27.24 billion in the fourth quarter of 2016, compared to INR13.55 billion in the third quarter of 2016. During the quarter, deletions from NPA due to recoveries are upgrades were INR7.81 billion and the sale of NPAs was INR7.09 billion. The Bank has also written-off INR1.48 billion of NPAs. The net NPA ratio as a result was 2.67% as of March 31, 2016. The gross NPA ratio was 5.21%. The provisioning coverage ratio on nonperforming loans, including cumulative technical and prudential write-off was 61%. Excluding this technical and prudential write-offs, the provisioning coverage ratio was 50.6%. Moving on to the restructured loans, the net restructured loans reduced to INR85.73 billion as of March 31, 2016 from INR112.94 billion as of December. During the fourth quarter, we implemented a Strategic Debt Restructuring, SDR for loans aggregating to about INR12 billion. All these loans were either non-performing or restructured loans. As of March 31, 2016, the Bank had outstanding SDR loans of about INR29.33 billion, again comprising primarily loans already classified as non-performing or restructured. The Bank is currently considering SDR for additional loans aggregating to approximately about INR5 billion. The aggregate net NPAs and net restructured loans increased by INR5.62 billion from INR213.08 billion rupees as of December to INR218.7 billion at March 31, 2016. During the fourth quarter, we implemented refinancing under the 5/25 scheme for loans aggregating to about INR6.8 billion. The outstanding portfolio of loans for which refinancing under the 5/25 scheme has been implemented was about INR42.4 billion as of March 2016. The Bank is currently considering 5/25 financing for further loans aggregating approximately to INR7.5 billion. We expect the challenging operating and recovery environment for the corporate segment to continue in financially year 2017, RBI would continue with this objective of early and conservative recognition of stress and provisioning, and the approach of banks would also reflect a more conservative stance. Slippages from the restructured portfolio are expected to continue, while the banks would continue to work towards the resolution of stresses in the corporate loans, there could always be delays in implementing solutions. Transactions already announced by certain borrowers, along with others under discussion would result in deleveraging of borrowers and reduction of the Bank's exposure. However, in view of the factors mentioned above, there are significant uncertainties around future trends and it's expected that NPA additions will continue to be at elevated levels during the financial year 2017. In the presentation that we have made available to you today, we have provided additional information on the portfolio. There are uncertainties in respect of certain sectors due to the weak global economic environment, sharp downturn in the commodity cycle, gradual nature of domestic economic recovery, as well as high leverage. The key sectors in this context are power, iron and steel, mining, cement and bricks. On slide 28 of the presentation, we have provided the exposure comprising both fund-based limits, as well as non-fund based outstanding to all companies in these sectors that are internally rated below investment grade across our domestic, corporate, SME, as well as international portfolios and to the promoter entities internally rated below investment grade where the underlying partly relates to these sectors. This excludes companies that are already classified as non-performing or restructured. The aggregate exposure to these companies has reduced by about INR20 billion during the financial year 2016, after excluding the impact of the currency depreciation. We are approaching these exposures in the following manner. One, we work with the borrowers for reduction and resolution of exposures through asset sales and deleveraging. Two, we created collective contingency and related results of INR36 billion during the quarter. Three, we maintained strong Tier 1 capital adequacy ratio of 13.09%; and four, holding substantial value in subsidies. Our Insurance Holdings as you know are valued at INR330 billion based on the recently concluded transaction and there is further significant value in the other domestic subsidiaries. And the Bank has a monitoring and action plan with a focus on reducing these exposures and going forward, we will provide a quarterly update on these exposures. Moving on to the P&L details, the net interest income increased by 6.4% year-on-year to INR54.04 billion in the fourth quarter. The net interest margin was at 3.37% in the quarter compared to 3.53% in the preceding quarter. The domestic NIM was at 3.73% in the fourth quarter compared to 3.86% in the previous quarter. International margins were at 1.62% in the quarter four, compared to 1.74% in the preceding quarter. There was an impact of about 10 basis points to 12 basis points on the net interest margin in Q4 on account of non-accrual of income on the higher level of additions to nonperforming assets we have seen. Further, the international margins in the fourth quarter were also lower on account of the bond issuance, expenses and excess liquidity during the quarter. Moving on to the non-interest income, the total non-interest income increased by 46.1% on a year-on-year basis to INR51.09 billion in the fourth quarter. Within this, the fee income was INR22.12 billion. Retail sales grew by 13% on a year-on-year in the financial year and constituted about 65% of the overall fees for the year, compared to 61% in the previous financial year. Corporate fee income continues to remain impacted by subdued corporate activity. Treasury recorded a profit of INR21.9 billion and following the receipt of requisite approval, we have completed the sale of 9% of our shareholding in ICICI General to Fairfax Financial Holdings and 2% of our shareholding in ICICI Life Insurance Company to Temasek. The aggregate profit from both these transactions was INR21.31 billion during the quarter. Other income was INR7.07 billion, the dividend from the subsidiaries was INR4.73 billion and we had exchange rate gains relating to overseas operations of INR2.61 billion during the fourth quarter. Moving on to the expenses, for the full year fiscal 2016, the cost-to-income ratio was 34.7% compared to 36.8% in the previous financial year. Excluding the positive impact of sales of shares of ICICI Life and ICICI General I talked about earlier, the cost-to-income ratio would have been 38.2%. Operating expenses increased by 10.3% on a year-on-year basis, employee expenses increased by 5.3% on a year-on-year basis. The provisions for retirement benefits were lower in fiscal 2016, compared to fiscal 2015 due to movement in the yields. Excluding the provisions for retirement benefits, employee expenses increased by about 8% on a year-on-year basis. During the fiscal 2016, we added about 6,239 employees, primarily in the frontline roles in the retail and rural banking businesses. Non-employee expenses increased by 13.9% on a year-on-year basis in fiscal 2016, primarily on account of larger distribution network and higher retail lending volumes. Moving onto the provisions, the provision for the fourth quarter we're at INR33.26 billion compared to INR28.44 billion in the third quarter of 2016. For the full financial year 2016, provisions were INR80.67 billion compared to INR39 billion in fiscal year 2015. As a result, the Bank's profit before collective contingency and related resource and tax was INR37.81 billion in the fourth quarter of 2016, compared to INR41.24 billion in Q4 of 2015. For the full year fiscal 2016, the profit before collective contingency and related resource and tax was INR157.96 billion compared to INR158.2 billion in fiscal 2015. After taking into account the collective contingency and related resource and tax, the Bank's profit after tax for the quarter was INR7.02 billion and for the full year FY 2016, profit after tax was INR97.26 billion compared to INR111.75 billion in the previous fiscal. Looking ahead, the yield on advances for ICICI Bank in financial year 2017 would be impacted by the shift in the loan portfolio mix towards secured, retail, and higher rated corporates; reduction on yields, where exposure is migrating to stronger sponsors and non-accrual of income on the higher level of additions to nonperforming assets. Accordingly, we expect the net interest margins for fiscal year 2017 to be about 20 basis points lower compared to the Q4 of 2016. With respect to the other operating parameters, we would target double-digit growth in fee income in fiscal 2017 led by retail fees. The overall fee income growth would depend on the market condition, particularly activity in the corporate sector, as well as regulatory measures with respect to various components of fee income. The Bank would continue to focus on cost efficiency while investing in the franchise as required. We expect operating expenses to grow by about 15% during fiscal year 2017. Given the uncertainties around the corporate segment explained earlier, the aging based provisions on existing NPAs, provisions are expected to remain elevated in fiscal 2017. The significant value creation in ICICI Group has been demonstrated by recent transactions and insurance subsidiaries. The Board of Directors of the Bank has today approved sale of part of its shareholding and ICICI Life through an initial public offering by the company, subject to market conditions and necessary approvals. The size and other details of the offer would be determined in due course. Moving on to our subsidiaries, the profit after tax for ICICI Life for fiscal 2016 was INR16.5 billion compared to INR16.34 billion in fiscal 2015. The company continues to retain its market leadership among the private sector players and has an overall market share of 11.3% in financial year 2016. The profit after tax for the ICICI General was INR5.07 billion in fiscal year 2016 compared to INR5.36 billion in fiscal 2015, this is despite the impact of the Chennai floods, higher weather insurance claims and normalization of tax rate in fiscal 2016. The profit before tax increased from INR6.91 billion in fiscal 2015 to INR7.08 billion in fiscal 2016. The gross written premium of ICICI General grew by 20.2% on a year-on-year basis to INR83.07 billion in fiscal 2016 compared to about 13.8% year-on-year growth for the industry. The company continues to retain its market leadership among the private sector players and has a market share of about 8.2% in the fiscal year -- sorry, 8.4% in the fiscal year. The profit after tax for ICICI AMC increased by 32% from INR2.47 billion in fiscal 2015 to INR3.26 billion in fiscal 2016. With the assets under management of over INR1.8 trillion, ICICI AMC has become the largest mutual fund in India. The profit after tax for ICICI Securities was INR2.39 billion in fiscal 2016, compared to INR2.94 billion in fiscal 2015. The year-on-year decrease in profits for ICICI Securities was on account of decrease in brokerage revenues due to lower secondary market retail trading volumes. In line with our strategy of rationalizing the capital invested in overseas banking subsidiaries under the approach to capital allocation, during the fourth quarter 2016, the Bank received further capital repatriation of CAD87.1 million from ICICI Bank Canada, comprising CAD50 million of equity capital and CAD37.1 million of preference share capital. The Bank's totally equity investment in ICICI Bank UK and ICICI Bank Canada has reduced from 11% of Bank's net worth in March 31, 2010, to 4.8% as of March 31, 2016. As per the IFRS financials, ICICI Bank Canada's total assets were CAD6.51 billion as of March 31 2016 and loans and advances were CAD5.75 billion as of March 31, 2016. For the full year fiscal 2016, profit after-tax was CAD22.4 million compared to CAD33.7 million in fiscal 2015. The lower profits were primarily on account of higher provisions on existing impaired loans. The capital adequacy ratio of ICICI Bank Canada was 23.6% as of March 31, 2016. Moving on to ICICI Bank UK, the total assets were $4.6 billion as of March 31, 2016. Loans and advances were $3.14 billion and for the full year fiscal 2016, the profit after tax was $0.5 million compared to $18.3 million in fiscal 2015. The lower profits were primarily on account of higher provisions on existing impaired loans. The capital adequacy ratio was 16.7% as of March 31, 2016. The consolidated profit before collective contingency and related reserve made by the Bank and tax was INR38.85 billion in quarter four of 2016 compared to INR46.29 billion in Q4 of 2015. For the full year fiscal 2016, the consolidated profit before collective contingency and related reserve made by the Bank and tax was INR179.04 billion, compared to INR183.39 billion in the previous fiscal. After taking into account the collective contingency and related reserves made by the Bank, the Bank consolidated profit after tax was INR4.07 billion in the fourth quarter. For the full year fiscal 2016, profit after tax was and INR101.8 billion compared to INR122.47 billion in fiscal 2015. Moving on to the capital, the Bank has a total standalone capital adequacy ratio of 13.09% and on a Tier 1 basis and the total capital adequacy ratio of 16.64%. The Bank's total consolidated capital adequacy ratio was 16.6% within the Tier 1 was 13.13%. The capital ratios are significantly higher than the regulatory requirements. The Bank's pre-provisioning earnings, strong capital position and value created in the subsidiaries, gives the Bank the ability to absorb the impact of a challenging environment while driving growth in identified areas of opportunity. Based on the current regulatory framework and accounting standards, we expect the common equity Tier 1 ratio to be above 11% till March 31 of 2018. So if I sum it up, during the fiscal 2016, we did the following. We achieved continued healthy loan growth, driven by the retail portfolio in line with the capital allocation framework. We maintained a robust funding profile. We commenced value unlocking in our insurance subsidiaries. There was a significant shift in asset quality trends in H2 of 2016 due to global and domestic economic factors and the regulatory approach, which impacted our asset quality ratios, provisions and net interest income. In view of the environmental factors impacting the corporate exposures in certain sectors in the banking system, we made a collective contingency and related reserves of INR36 billion on a prudent basis. We continue to maintain very healthy capital adequacy ratios. So with this remarks, we will all be happy to take your questions. Thank you.

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

I had a couple of questions. Firstly there, what was your AQR related slippages, same as INR42 billion, INR43 billion or --?

Yes, Mahrukh, last quarter we had mentioned that the slippage was about INR65 billion. Out of that, we said two-third of that amount was related to AQR slippages. And in the quarter, we mentioned that a similar number will be NPL this quarter. So it is the same amount.

And just in terms of your contingency provisions, would it be first -- so I know that you clarified that it's for the stress sectors and you mentioned the stress sectors, but how do we view this as in that, would it -- is this provision to take care of our a large part of slippages that you think would occur next year or I mean how do you view these contingency provisions and any guidance therefore that you can give on credit cost or slippages?

In terms of -- as we explained earlier, the rationale for creation of the reserve is based on some of the uncertainties which are there along these select sectors. So in terms of the portfolio that we have talked about in individual sectors in power, mining, steel, cement, rigs and other entities, these are the exposures that we are currently working on. And in many of them we have seen progress happening in terms of asset sales or change in management being under progress. Some of these transactions, you are aware of, they are kind of progressing. Of course RBI also is kind of looking at banks tightening their asset classification norms. So in the context of all of these things, we thought that as prudent measure, it would be good for us to strengthen our balance sheet by creating these reserves as some provisions which are over and above the NPA and the restructured provisions that we hold. So that is the context in which we have created this reserve against -- in the cases that we have highlighted in our presentation.

Any guidance on credit costs? As in you said credit costs would be elevated. So your normal credit costs are INR80 billion, and then if you add contingency INR116 billion, so elevated…

It's completely a function of what we see in terms of the addition to NPAs in the coming year. So of course one thing that will happen is that, this year's addition to NPAs have been high, so that aging provisions on that will definitely come into the next couple of years. And we would expect some amount of slippages to happen from the portfolio that we have talked about of the borrowers in our presentation. And in fact, we would expect bulk of the slippages that happen from our corporate portfolio to come from this set of borrowers that we have covered. Now we are -- as I said earlier, we are working on various steps in terms of these borrowers. Some of them are progressing quite well. So it's pretty difficult to give up precise estimate on how the things will progress in terms of NPA additions and that's why we're not putting out any specific number there. But overall, given what RBI's approach around this has been and we would also want to be conservative going forward, that is something which one should factor in. But it's difficult to give a precise estimate on the numbers currently.

So in this context, what we thought it's appropriate at this juncture was to talk about this bucket of assets, which we have put out today and focus on each of these assets in terms of the resolution and exact timing of the resolution on how it gets resolved, we'll have to really wait and see. So, as we wait for that, we thought it is appropriate to strengthen the balance sheet. So that is the approach we have taken and the efforts will be on and we will also tell you on a quarterly basis on what happens to the bucket. So, that is the approach we wanted to take at this stage.

Got it. And just in terms of provisioning cover again, sir, would you have a provisioning cover in mind that at all times we would maintain a certain provisioning cover. So, currently excluding the write-offs, it's around 50%, that you had some provisioning cover like 50%, 55%, either excluding or including write-offs in your mind?

It is not provision coverage number that we, in general, target. We have talked about it in earlier that our provisioning is -- on the NPAs is largely based on what the RBI guidelines are in this regard. Based on our past experience and especially the bulk of NPAs where we have collateral on the grounds, we do expect recovery to be there. So we broadly believe that the level of coverage that we hold is sufficient, but indeed with the elevated level of NPA additions happening over the last couple of quarters, the coverage ratio has come down from the level where it was earlier. So I think as the NPA additions at some stage start declining is when we would start seeing an increase in the coverage ratio, but given the overall quality of the NPA portfolio in terms of the collateral which is there. Coverage which is around 60% including the technical write-offs, is something that we believe is sufficient overall.

And I'd just like to add Mahrukh that this reserve that we have created, first of all, we should distinguish between provisions and reserve. So, this is the reserve, the provisions for the year was -- is the -- of other line item, so this reserve that we have created, this is not included in the provision cover.

Correct, absolutely. And just one last question, have you included any benefit from deferred tax in your capital adequacy?

We have done that Mahrukh. We had a couple of these leeway given by the regulator, we have taken advantage of them. So that is reflected in our Tier-1 capital adequacy and the total capital adequacy ratio.

And how much of DTA?

All the different components put together would be about 90 basis points, under 100 basis points, about 90.

Okay. Thank you so much.

On the Tier-1 yes, yes, of course thank you.

Yes, of course. Thank you.

Thanks.

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

Hi. Thanks for taking my question. First of all congratulations I think on the disclosures and also on the contingency provision. I think it's a good move in my view. I think a couple of things. Now, I think we have given the drill down of 46 sectors, which is like you said, that's below investment grade as per the internal ratings. What would be the -- you can say the rest of the below-investment grade number? Like, say, just in terms of percentage exposure?

So that we have not really given out Vishal. So what we thought was that we should focus on what is really an area where we should be focusing in terms of the resolution as well as mutual NPL formation. So we thought that bulk of the NPL will really come out of these six segments we have talked about today. So we would rather focus on this.

Okay. So would you be disappointed if like there are NPAs coming out off, like, outside of this six, these bucket, which you've given, which is like roughly INR440 billion?

No, there will always be some NPL which will come out of this, that is the normal banking thing it'll come out of that. But when we look at the NPL formation on the bulk of NPL, we are sure that we will come out of this segment, these six segments, that is why we have put these. And of course, the restructured amount is there, that is about INR85 billion…

85…

And there could be slippages from that. And that restructured number itself as I mentioned in my speech, it has come down over a period of time.

Fair enough. And also I think it would have been great if you could have given some collateral levels like, in a sense like some collateralization levels for this stressed bucket, which you just discussed, so that we get at least some sense on the loss given defaults eventually, we don't know. So, any sense on that, like any indicative?

Vishal, we'll consider that in future. As of now, we don't have a sector by sector, collateral.

No, not even sector, even let's just talk about this INR520 billion or INR527 billion, we want some sense so that like people can think about the provision cover what do you want to have eventually?

If you move by the sectors itself, you typically see that a sector like steel or power or cement, those will definitely be pretty well collateralized with the land, plant, machinery, which is there. So we are not given any specific numbers on that Vishal.

But in today's day and age, Vishal, I think, collateral apart, it also depends on the time taken to resolve the accessory. Our focus really has been to arrive at resolution and that's what we will monitor.

Okay. Thank you. And one last data point. On life insurance, I couldn't find the NBAP margins. Have you disclosed that or what is the number?

Hi Vishal, Anindya here. No, we have not disclosed that. As we've announced, the Company will now start taking steps towards the IPO. So, I think those disclosures will happen at a later stage.

Okay. And if you permit, I just have one more last question.

Vishal, in terms of the sort of whatever we had expected in terms of the trajectory, which we have articulated in the previous calls and that is continuing. There is no concern whatsoever about the margins. It's just that procedurally we'll have to get all the actuarial and other procedures we'll have to start doing now. That is why it has not been disclosed.

Perfect. And just lastly -- sorry, last question I'm just putting here is, in the NPL formation, can you give us a split between like retail and the corporate like aggregate?

We have given in the presentation the retail NPLs, Vishal. So that has gone up from - gross retail NPAs have gone up from about INR36.9 billion to about INR38.25 billion. The Bulk of the NPA additions are coming from the corporate side only, Vishal. On the retail side, it is extremely stable across each of the segments. So if you look at the additions that Kannan talked about INR70 billion, bulk of it is corporate only.

So even for, basically I want to like -- even between for the full year, but that's okay.

Even full-year, if you look at the gross retail NPAs at the beginning of the year, it was about INR34 billion and now its INR38 billion.

Okay. Thank you. Thanks, all the best.

Thank you.

Thank you. Next question is from the line of Prakash Kapadia from Anived Portfolio Managers. Please go ahead.

Thanks for taking my question. Sir, do we see any spill off of large corporate NPLs struggling to do SMEs and MSMEs as they might face cash flow or liquidity issues?

In fact, as we have articulated in the previous several quarters in our case, some of the impact of receivables getting delayed or some of the vulnerabilities have first been faced by the SMEs actually. Because they are at the most vulnerable and then some of the NPL formation we have seen in the previous quarters have been coming out of SMEs. And as I mentioned, the SME itself in terms of portfolio it's about 4.3% of that overall loan book. So incrementally, we do not expect any significant formation from that portfolio for us.

Okay. Understood. And in terms of your retail focus, we've, obviously, done very well. So just wanted to understand your thoughts, mortgage has to continue to grow at a very rapid pace for us to grow the retail book by 25%. So what is happening on the ground, given the volume decline in property transactions, how do we continue to grow? So is it market share gains, is it newer cities, so if you could share some thoughts on that?

Well, if you look at the market, if you look at the lending by banks to the mortgage segment based on the data which RBI publishes, that continues to be in the range of -- more recent data was a 19% kind of a number, but broadly the range has been between 17% to 19%, kind of a number. So that is the growth, which the entire banking system is seeing today and definitely quite a few of the government-owned banks are not really growing at that pace. So we believe that there is ample opportunity for us to grow the home mortgage portfolio at between 23% to 25% going forward. So while the number of transactions have indeed slowed down in parts of the larger cities and maybe a couple of metros, but in the Tier 2 locations and other cities, the demand continues to be there and we are seeing reasonably good growth to be there. So we are pretty confident of the growth on the mortgage side and as you would have seen in our numbers, the growth in the other segments, also has been pretty strong including the car loans -

Right, exactly, that will be my next question. So these market share gains, will they continue. Is it some DSA tie up, is it market share gain, is it aggressive, is it better pricing, what is helping us in some of the other segments?

So two things, one is that if you look just on the overall growth context. If you look at private banks, I think clearly the opportunity for the private banks to grow is there, because a number of government-owned banks are really not consciously growing today. So you would see that most us are growing at that 24-25% kind of a number. So it's not that one has to really compete away in terms of pricing or going down the credit curve in terms of getting these numbers. In fact, we are being pretty cautious in terms of growing the portfolio profitably. So if you look at our car loan portfolio, we have not grown it as much as some of the other parts of the portfolio. And we cross-sell more and more to our customers, we are seeing increased growth on the personal loans and credit card side, and bulk of that growth is driven by loans and cards being issued to our existing customers.

Internal customers…

That portfolio is growing pretty as well, so overall, the retail portfolio, the momentum, which is there today at 23%, 24% kind of a number. In the near future, we see clear visibility for that growth to continue without kind of compromising at all.

Diluting on any credit standards. Okay great, thank you. All the best.

Thank you. Next question is from the line of Nilesh Parikh from Edelweiss Securities. Please go ahead.

Hi, good evening. Again, I think this is a move in the right direction. The additional disclosure that you've given. So just two questions on that, I think, one in terms of the overall pool of about INR44,000 crores. If you look back, if you can just give some color in terms of when was this exposure originated and second is that a case of old leveraging or it's clearly a business cycle gone wrong?

In terms of origination, bulk of it would be clearly prior to March 2013, in fact, much before that. Because bulk of the growth, which came in was in FY 2011 and FY 2012 on the corporate portfolio. So if you look at the last couple of years, we really have not seen any growth in these kind of exposures. We may have seen some increase in the overall these sectors, because we have lend to the better rated clients in these sectors. But this set of clients, the growth is something which has happened more like three years back and since then, of course, there are quite a few things that we have kind of looked at tightening in terms of our own lending strategy. One of the key aspects has been, on the concentration risk itself where we have put in a lot more of internal limits, which are much more tighter than what RBI prescribes. So that is something which we have put in place and of course the overall corporate loan growth has come down as well in the recent years.

So just to supplement that, clearly the reasons have been as I articulated earlier, the general global economic outlook plus domestic recovery has been quite slow and this got super imposed by the commodity price decline as well as our own issues around the project delays in the country. So these have been the primary reasons, if you look at the sectors itself, you can see that they are largely project infrastructure commodity related sectors. So that has been the primary reason. And if I look at the growth in the corporate portfolio overall since 2013, our growth itself for the portfolio would have been 8-10% kind of a compounded annual growth rate. So much of deceleration has happened post 2013. Bulk of this has been well prior to 2013, I would say.

So when we talk about as one of the resolution mechanism of asset sales and deleveraging. So we clearly are not expecting an improvement in the business cycle. Because if it wasn't more a case of business cycle probably over the next couple of years, part of these problems could get resolved. Right. So it could be a case where there has been an over leveraging, which has happened and that's where the pursuit to reduce the exposures to these -

Yes so some of that has clearly been because of leveraging, but the fact is that, if we are looking at a steel kind of an exposure, clearly the commodity cycle has played a major role and we have also been on our part working with the promoters, and some of the reduction you have seen which we have put out in the slide is also because of the resolution, which has happened and our loans have got paid out. Yes, of course, in this kind of economic environment, the resolution process, [or such a] process can be slow and which had happened. But otherwise, it'll be a combination of little bit of cycle getting better as well as the continued asset sales. Promoters have sold both core as well as non-core assets and our own push has been towards that direction.

Yes, absolutely, therefore whatever reduction has happened in the recent past is mainly by our working with the promoters for them to sell either their core or non-core assets. We have not really seen any commodity price increase or growth really leads towards reduction of that exposure. So going forward as we're seeing what we're focusing on is the action plan that we can work on. If the environment improves, well that could be an added advantage, but right now what we are focusing on is that we cannot predict the environment. Let's focus on the action plan that we can get executed.

So last month there's been a couple of articles that there's been a debt swap for land for the reduction in debt. So are we open to similar kind of deals and how do we kind of look at - as an analyst look at this kind of a resolution taking place where ICICI Bank is actually converting the debt into the fixed assets. So just wanted to hear your thoughts on that?

These kind of things happen on a very selective basis in a few cases…

That to for part exposure.

And that too for part exposure, yeah, you will see one odd case here and there. It's not our primary mode of selection at all. So it's more like we evaluate all the options and if you think that is in the best interest of ICICI Bank, then we look at debt asset swap for a part of the exposure. So it'll be far and few, a few cases here and there on a selective basis, that's how we'll approach debt asset swap.

Sorry, just one last question in terms of the margins, Kannan, you spoke about that margins would be about 20 bps lowered, now I just got bit confused is it Q4 or it's the full year FY 2016?

No, I was talking about outlook for FY17 vis-a-via the fourth quarter of fiscal 2016. Yes, of course, we will endeavor to get the margins up, but the important thing is that we'll have to look at the stopping of accruals you've seen in terms of formation of NPLs and also in terms of our own articulated approach towards the asset quality improvement is to our lending to better rated clients from the corporate, but I think that is something which is worth taking while we sort of expand the quality of our portfolio.

But some reduction in the international because international book will be growing slower, so from a blended mix there could be some upside, which could play out right, because otherwise from a full year basis, what you're guiding for is roughly a 30 bps reduction for FY17?

You are right, on the national side yes our Q4 number was particularly impacted because of two reasons, one is the bond issue expenses, the other is that we are staying liquid in terms of the - in the short term we have been stating liquid. So yes, of course, our endeavor would be to definitely to improve the international margins but overall we thought that we should focus a lot more on the asset quality improvement rather than getting too concerned about the margin at this stage. That's what I meant.

Sure. Okay, great. Thank you very much. All the best.

Thank you. [Operator Instructions] We take the next question from the line of Suresh Ganapathy from Macquarie. Please go ahead.

Yes, hi. I just had one question, a qualitative one, we just want to understand the difference between RBI's asset quality review versus what you are actually quantifying in terms of stress over the course of next one year, because if I were to go by numbers, it's about INR80 billion, which is being classified as stressed as per RBI's asset quality review. But the guidance actually what you are giving is that a lot more is likely to come from the pool of INR40,000 crores plus obviously some additional NPLs, which will come in. So it looks like the review has not been very comprehensive and there is still far more stress existing in the banking sector. Is that the right interpretation that we should take forward?

One thing, which is there is that, indeed RBI had not, I don't think they had said they have done a comprehensive asset quality review, which is taking into account what all could slip over the next two years kind of a thing, they looked at specific assets at a point of time and they had some views on those assets in terms of how the banks were looking at those assets versus what their view was. That is one of the reasons why they have said that they would expect a change in approach, and of course they have changed their approach and banks would have to kind of also follow suit and look at things in a more conservative manner in terms of how the assets are classified. So I think it's not a fair comparison to compare what happened because of the AQR and what is the residual stress, which possibly could be there in the system. That is to my mind the key difference in terms of how AQR looked at it and what banks may be talking about their exposures.

So can I interpret that, has the entire approach become a more subjective approach, because early it used to be a 90-day formula basis the moment it crosses 90-day but now maybe as a bank you might have to take a call on the 80th day or the 75th day that look I'm going to go and classify there is an NPL, is that attitude changing, is that approach changing even in your organization?

That will actually change two years from now when banks move to IFRS [under NDS], at that point of time, it will be a completely subjective assessment. Currently, it's not that RBI has changed any of its guidelines around the 90-day plus classification, which is there. But they are kind of looking at things like delays in projects and how the borrowers have been getting their funding, are they borrowing from banks to repay other banks. Those kind of additional parameters, subjective elements are definitely things, which have come into it. So I think some of the numbers that banks may be talking about over the next year or two are definitely going to be reflecting an approach, which is more conservative than what was there in the past. So one approach is that from an accounting point of view it's something which does impact the NPA and whatever it is. But from our point of view, we are more focused on how we can ensure how we recover on these accounts and that are the steps that we are taking. And as I mentioned earlier, it's not that all the exposure that we have talked about in these sectors is entirely going to become NPA. That is not the thought at all. We are working on these assets and in many of them we already have plans in place where borrowers have taken steps and we would see those resolutions happening.

Okay. Thanks so much.

Thank you. Next question is from the line of Dharmesh Gupta from Trivantage Capital. Please go ahead.

Thanks for taking my question. My first question is that right now all the big private banks are guiding for growth in the retail assets or highly rated corporate assets. So given that do we see a lot of competition resulting into lowering of margins and is that the reason why you have guided for a 20 basis point reduction in the NIMs. And my second question was that in spite of this focus into highly rated corporate assets, other banks have already achieved or have guided for an incremental NIMs, basically increase in the NIMs. So what kind of color can you throw at that?

As Kannan mentioned earlier, that the yield on advances would be impacted by the loan portfolio mix that we are seeing towards secured retail and high rated corporates, which is happening. But there could be some reduction in yields, where exposure would be migrating to stronger sponsors in some of these locations that we talked about and there would be some non-accrual of income, which would happen because of the NP additions that we had in FY16 which were at higher levels and the NP additions that we see in FY17. So it is a mix of both those things, so the fact that the pricing will be competitive on retail and corporate is also factored in the overall margin that we are talking about.

And can you also give us some sense of how much of your corporate book is the highly rated one and what kind of growth rates are we seeing in the highly rated corporate book?

That will be a bit of a subjective thing in terms of highly rated we have not given those disclosures separately, but overall if you look at the growth that we are seeing today on the corporate portfolio, almost entirely it would be coming from clients in that sense, which would be highly rated clients. Because in some of the other exposures, we are actually actively working in reducing our exposure. So that is offsetting some of the growth that we will be seeing in the better rated clients. A - Chanda Kochhar We just want to clarify that the numbers that we have put out in those key sectors, they include fund base and non-fund based.

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

I wanted to check, so what you're saying is that the watch list for you would be for INR440 billion of these assets that you will watch and INR85 billion of restructured assets. So most of the NPL that probably would come out over the next 2 years, would come out of these say, INR525 billion? Would that be a right way to look at it?

Yes, it's correct.

And all your SMA 2 exposures would be a part of this or most of them?

So there are various cuts in which you can look at it in terms of whether it is SMA 2 or SMA 1 or the others delays in projects or other parameters, so all of that is factored in when we do internal rating of our clients. This is the portfolio which on a regular basis have an independent rating of it, which is done and based on that we have put out these numbers for each of the sectors. So all of those would have got factored in. It's not necessary that all the SMA 2 cases may be here or may not be here. That is not the criteria which is used here.

And when you say resolution, what kind of a timeframe are you looking at? Would it be fair to look at from a perspective that over the next 2 years, either most of these assets resolved or they become NPL? Would that be a right timeframe to look at?

Over the next two years, I definitely think that in terms of the action plans that we have, I would expect most of that, actually almost all of that to materialize over the next couple of years. But in terms of slippage into NPA that we have to see how that kind of plays out. But over the next 2 years, bulk of the resolution that you're looking at, that would play out.

Just a couple of things, I wanted to clarify, so Rakesh mentioned about the approach which has been taken in terms of classifying this, is essentially we have gone by the internal rating on this sector. So when we look at the internal rating, an independent risk management team looks at the internal ratings, which takes into account all the factors including the presence of these cases in the special mention account list, which is sent to RBI. So we have tried to minimize the subjectivity as much as possible in arriving at this list. So that has been our approach in objectively putting out this. Because once I put this out, I should be able to with a fair amount of degree of certainty are put out on a quarterly basis in internally auditable list, that is what we have done in this approach. The second point I want to clarify is that while most of this NPA formation will come out of this bucket, I just wanted to say that we also have specific action plans for borrowers in these sectors and we expect quite a few of these large cases to get resolved through asset sales and change in management. And as you know some of these transactions have already been about announced by the borrowers, so that is how we approach this bucket.

Okay and then against while there could be some slippages also that could come out of this. then would you use that contingent provision that you've made in the fourth quarter against some of the slippages that will probably happen from these accounts or you may want to continue with this contingent provision for some time, just to keep the strength of the balance sheet?

We would, you know, the reserve has been created to utilize it against if we see any of that it's slipping into NPA or getting restructured. So that's something that you should assume in the base case and we will utilize the reserve.

And last just a small clarification, when you say contingent provision, it is contingent on specific account becoming an NPL. So in your mind there would be certain accounts against which you've made this contingent provision. Is that right?

Broadly, what we have, that's why we called it a collective contingency reserve. So it is against this pool of borrowers that we have talked about in slide 28. It's against the fund based and the non-fund based outstanding which we have through the borrowers.

And suppose these accounts were to become NPL, let's say in fiscal 2017, some part of contingent provision which you have already provided for, will be used out.

Yes

Okay and just lastly on the fee front, how much is retail now?

About 65%.

And retail fees are growing at what rate?

About 13% was the growth year-on-year on retail.

In fiscal 2016?

Yes.

Thank you. Next question is from the line of Hansini Karthick from Smart Investment. Please go ahead.

Hi sir, I just have one question, it's actually to confirm the points you stated earlier. One, INR3,600 crores of contingent provisioning that you've made in this particular quarter, if you could give me some amount of guidance as to whether we could see incremental contingencies being provided for in FY17 or this is just a one-time exercise.

I don't think we can talk about FY17, what we would because we ourselves have not planned in terms of whether we would create additional reserve or not in another year. I think what we have done this quarter is to strengthen our balance sheet. On a prudent basis we have created this reserve against this pool of borrowers and going forward if we have any of these assets slipping into NP or restructuring, at that point of time we will utilize this reserve. So in that sense it is something that we have done as a onetime measure as of now.

Perfect. So on the whole can I just assume that your asset quality pressure will remain elevated in FY17 as well.

I think from overall banking system point of view, given what RBI has articulated that they are looking at banks being more conservative in terms of their asset classification and kind of completing that process through March, 2017. So I think it'll be a fair assumption for corporate portfolios of banks.

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

Question again on this drilldown exposure, what I wanted to check is when you've given this for the five six, sectors, are these -- all of them are just a lump of the below investment grade or is there some subjectivity which has gone after that to say that these are very collateralized and not taken in the list.

I think that's why I want to actually clarify that we have not used subjectivity. So these are identified key sectors, which we think have been impacted by those conditions that we spoke earlier. Their indoor sectors we have taken all the exposures, which are below certain internal ratings. So we have not used subjectivity. So it's not to say that we picked the less collateralized and not the more collateralized or we picked the lightly NPAs or not the likely NPAs. We've not used subjectivity in all below a certain internal rating and it includes fund based and non-FIDM based. And in fact, we are working on action plan on many of these to reduce that result.

Perfect, thanks a lot. And ma'am second question is a little more longer-term, in the whole build up in the corporate book, I think one of the things that we see for us is our non-fund based book and there is quite consumption that the corporate book was taking up, was very large and hence even in good times when credit cost was low, probably the return on equity may not have been great, because of the higher capital consumption. Obviously, you mentioned that all these well rated corporate share will likely increase, but still we'll have a large stock of the book, which will still be NP and the risk rate will be very high. So just want to know, say, on a two to three year basis, what kind of reduction on the corporate side will we see in the capital consumption or say RWA to loans or RWA to asset.

We have actually worked our capital allocation exercise, and clearly on that basis we are saying more capital will be allocated to retail and less would be consumed by corporate. Beyond that, I don't know Rakesh how much elaboration you can give on that?

So one thing which we have talked about earlier, also is that, in terms of on the corporate exposure between fund based and non-fund-based, on the non-fund based side, we have been reducing our capital allocation now over the last 3 years. Overall, if I look at it, the non-fund outstanding for us would have remained flat over the last 2 or 3 years. That's something which we have been doing consciously and incrementally as Chanda mentioned, our capital allocation on the corporate portfolio itself is going to be - a bulk of it is going to be the high rated clients. So that is something which will clearly bring down the risk weighted assets, total assets ratio. But yes, in the near term, especially if you to look at the last 12 months or 18 months, there have been significant downgrades that in all banks have seen in their portfolios and the risk rate intensity on the corporate portfolio has gone up for banks including for us, but going forward given the higher growth on the retail side and the higher growth on the better rate declines on the corporate side, we would expect the capital efficiency to definitely improve for the bank.

And also the last point is on our international banking subsidiaries as a proportion of our total capital allocated that will keep going down. And the domestic subsidiaries do not require capital commitment in many significant manner from us. So as a proportion that also will go down. So directionally, we'll drive towards more capital consumed for retail.

So in terms of numbers when you see that, 2012 to 2015 was a reduction, but 2016 wasn't a reduction from a ratio perspective of the risk rate, mainly because you are seeing the downgrade, which may continue for 12-18 months, and after which you should see a reduction. Is that a fair assessment?

My own sense is that bulk of downgrades…

As you pick up more higher quality assets, in reality you will see the pickup in the short term itself, in terms of risk rate density going down. We will see it in the short-term itself.

So a downgraded asset versus an NPA, you will not see a change in risk weight consumption, is it?

There will be some change, but our sense is that should get offset by the growth that we see on…

Thank you. Next question is from the line of Anurag Mantri from Jeffries. Please go ahead.

Good evening, just trying to understand the quantum of the provision, why the number is around INR36 billion, so if I take overall number of INR440 billion of your watch list, excluding the restructured book and if I in the worst possible case assume, 60% provisioning requirement on that, assuming a 60% gain of PCR and take the total provisions to be around INR260 billion hence, and from that I removed the INR36 billion that you've created, the remaining is around INR230 billion. And you mentioned that your insurance holdings et cetera at around INR330 billion. So why was the quantum of provisioning INR36 billion. Why was it not less or more?

So just before getting into that, if you look at on an overall basis, I think what we are trying to say is that we have done a very objective analysis where we have put out all our below investment grade exposure to these sectors of both fund based and non-fund based outstanding. In many of these exposures we are working towards resolution and in quite a few actually significant progress also has been made.

But this is not a watch list talkings that will become NPA.

So assuming a loss given default or what you said of 60% and all that is not --

From where you are assuming, a 100% will become NPL.

Yes, and as I mentioned also that you yourself know that several of these deals are discussed even in the public domain, in terms of resolution. So to say, straight away applying a LGD on this number is absolutely incorrect.

So that is one. And the second thing is that, the way we would have looked at making -- we have said it's a contingency reserve. So we have not said that whether it is in excess of something or it is short of something that's not how we have looked at it. We have basically looked at it from the point of view of strengthening the balance sheet and on a prudent basis, making this reserve against these exposures which are definitely there in some of these sectors, which are today facing some challenges. So that's how we have looked at it on an overall basis. So it's not something, which has been worked out in the sense that you're talking about.

Sure, understood. Second question is just a couple of data points around this watch list, just to understand the overlaps. So within this watch list, how much would be from the 5/25 or currently SDR book?

All the 5/25 cases would be considered in this -- so all the 5/25 cases that have happened in power, steel, mining, cement, rigs and all considered. In fact all the 5/25 has happened only in these sector. So, it will include all the 5/25 that the Bank has done. SDR anyway is already a complete overlap with restructure and that also is included here. The SDR cases are included here.

So again, actually that's why, there is no subjectivity applied here. All the 5/25 and SDR cases are included in these sectors.

If you look at slide 27 of the presentation, we have put in detail, how -- the point four there says that SDR and 5/25 refinancing has been included completely and it has both fund based exposure and the non-fund based outstandings.

Sure and is there any overlap in the 5/25 book itself? With the -- in the outstanding 5/25 book with the restructured book currently?

No, 5/25 is not --

That's from the standard book. Right and one last data point question on this, any color on how much of this INR440 million would be dollar denominated and how much -- what could be the average or maybe average ticket size of any account in this or maybe the ticket size of the highest exposure within this?

We have not talked about those infamous things.

Your slide 28 mentions that you're excluding impact of currency depreciation, I'm assuming that there are accounts which are -- ?

Of course, of course there are.

It includes entire portfolio, so as I said earlier, we have not just to put into domestic corporation, we put international corporate book, SME book as well as domestic corporate book - so that there is no subjectivity at all in this.

Any color on the proportion of the international corporate book within -- or international exposure within this INR440 billion?

We have not given that separately.

Thank you. Next question is from the line of Gaurav Agarwal from ENR Advisors. Please go ahead.

Sir, I just have a few questions on this drill down exposures. So, in the worst case, what kind of loss given default do you see on these exposures? And sorry if it is repeating with the last participant.

Can you repeat the question.

So in worst case, what is the loss given default in these exposures. So, first of all, when you ask that question you are assuming that all of it is at the end, therefore you are asking a loss given default. I think we should clarify to you the drill down, because we don't want to leave a wrong impression, I think just to talk about the slides 25 onwards, basically what we are saying, if you have the presentations with you, in fact these are five key sectors which we've seen have been impacted either due to the global economic cycle or the slow domestic recovery or the commodity price issues or high leverages. So these are the five sectors, which we think have been impacted on account of that. If you look at, in fact the Bank's exposure to these five sectors over the last five years, as a percentage of exposure, it has constantly been coming down in all these five sectors. Power from 7.1% to 5.4% now; iron and steel from 5.1% to 4.5% and so on. The other three are actually even smaller. If you move to slide 26, we are saying the same thing that proportion of exposure to these key sectors have gradually been decreasing. While on an absolute basis, say, in FY 2016 there was an increase in exposure to these key sectors by INR59.4 billion, but that was entirely in A minus and above category. So how have we arrived at this list of cases? This is not a subjective watch list that is created. We are basically -- if we look page 27, we have picked all cases which are internally below investment grade. So we are talking of further drill down disclosures in our portfolio, we are not talking of creating a subjective watch list and talking about it. We are saying all internally below investment grade companies in these key sectors across domestic corporate, SME, and international branches portfolios have been included. In fact not just that, promoter entities that are internally below investment grade already underlined as partly linked to these key sectors that has also been included. We have included both fund-based limits and the non-fund based outstanding in these above categories. The SDR and 5/5 refinancing is also included. This of course does not include the restructure and NPA which has been disclosed separately. So on that basis, our exposure of that form in these sectors is as follows. The numbers that we have given are purely the exposures in those rated companies in these sector. That is the disclosure that we have made. And then if you go forward to slide 29, no I'm just repeating it, because I think it's important for that clarification, we are saying that we are working with the borrowers for reduction and resolution of exposures through asset sales, through deleveraging. And of course we've created the reserves, which is fine, I'm not getting into that. But the point is that, while it was mentioned earlier, and we said that, that bulk of NPL formation will happen out of this list, but it does not mean that bulk of this list is NPL formation. So, it still means that currently we had action plans on many of these cases to resolve them. However, it's very difficult to commit any percentage. Because, resolutions take time in today's period. And that's why, in fact keeping that in mind, we have created a collective contingency related reserve.

So ma'am, if I were to stretch it a little bit further, so how has been historical experience in terms of your below investment grade trending out to be an NPL? So is there any number which we work upon or when you say bulk of the NPL will come out of this list? What does that mean? It means that 40%, 50% of this can become NPL in the worst case scenario?

So if I look at the past experience in terms of below investment grades, it will be very different across sectors and over cycles. So that may not give a outlook for this set of exposures. At least we would not want to kind of get into that. We have mentioned that on many of these cases, we are progressing in terms of resolution through asset sales, change in management, change in promoters. So that is something that we indeed expect to happen and to recover on our loans in many of these cases. So that's the reason that we have kind of put out this and we will track it on a quarterly basis and report the progress, if any slippages happen, we'll report that as well. If we see recovery, change in management, upgrades, that also we'll report that as well. So I think we will leave it at that.

Sir, just another small query. Your NIM guidance of currently lower, 20 basis points lower, so does it include the impact -- positive impact which will come if you de-grow your overseas book and also the mstellar [ph] impact. So are you considering these two factors while giving out the timing?

Yes, so it considers all these factors.

Thank you. Next question is from the line of Anurag Mantri from Jeffries. Please go ahead.

Okay. And sir, I missed out on the loan growth guidance figure, and retail loan growth figure, so if you can just repeat that number for me. Thank you.

Yes. We said that our target for the domestic loan growth will be around 18%. Retail segment will be 25%. The domestic corporate loan growth is 5% to 7%. Domestic [retail] will be 15% and we said that the portfolio of overseas branches is expected to further decline in US dollars.

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

Let me get a data question out first. If I ignore this restructured and this potential below investment grade portfolio, what normalized slippage rates are you looking at from retail and SME and the rest of the corporate?

Retails, what we are seeing currently, the trends are extremely stable in terms of delinquency, the credit cost is running at a very low level. We have seen some normalization happening, because in the past we were getting some write-backs from the provisions that we had made in the earlier cycles. So there have been some increase in terms of cost per se, because of a reduction in write-backs, but the overall credit cost on the retail continues to be significantly below what we would look at as a normalized level. On the SME side, I think as we have talked about, we have seen in the past last two or three years, a significant increase in NPAs is something that we have seen. But we believe that bulk of that has already kind of flowing through the balance sheet. So incrementally, if anything we would see some recoveries coming in from that portfolio. So, I guess, as we have said earlier, bulk of the additions to our NPA as they happen over the next couple of years, would come from the restructured portfolio and these exposures that we have talked about.

Second question kind of pertains to the last thing that you mentioned on the retail. We have some phenomenal years in retail now and very, very unfortunately ICICI Bank has a very checkered past, you would agree to put that, we've got almost every cycle wrong. What makes you believe some analysis, some data, qualitative about your MIS systems underwriting standards that which makes us believe that this 25% growth that you have been kind of suggesting in retail and so far has been doing good, touchwood, but what makes you think that retail is going to not volume blow up all over again.

Yes. If you look at our own retail portfolio growth over a period of time, we have been extremely focused secured retail portfolio and within the secured portfolio, for example, if you look at the mortgages portfolio, which is more than half of our retail portfolio even in the last cycle, the peak credit loss was around 20 basis points. It never underwent any problem on the mortgages side. Our portfolio growth over the last seven, eight years has been predominantly driven by the secured retail loan. On the unsecured loan, predominantly we are doing to our own customers, liability customers and our reliance on DMAs and DSAs has come down quite significantly, our branch-based sourcing has increased across all the products in the retail. So to that extent, reduced reliance DMAs, DSAs, increased sourcing from our own branches, plus more weightage towards the mortgages and automobile loans has really ensured that the retail loan has been grown in a very systematic manner over the last eight years. So that is how we have approached this portfolio. Even from the environment perspective, if you look at it, there has been lots of changes including the institutionalization of credit bureaus, which has helped in terms of growing these portfolios. And what we do as creditor management practice is, constantly look at the month on book curves, vis-a-vis the vintage curves we have seen for each of the products and we are very well below the vintage curves in terms of credit losses, in terms of the development of day past dues. So we are extremely confident in terms of the growth of this portfolio.

And in terms of what we also are able to get in this cycle is that from the credit bureaus, one is able to get the aggregates in terms of delinquencies product wise across banks. So you don't get bank wise data, but you get in terms of cohorts of state government owned banks, private banks and FCs. So that is something which we compare on a periodic basis across again each of our product and in almost all of those products we would be running -- the lowest is what our understanding is based on the data. So compared to the previous cycle, there is actual data which is there with us to compare with other banks and you'll see that what all Kannan talked about in terms of the processes that we put in place is working. So in future, of course, there could always be a cycle in detail that is something which is difficult to predict. But in terms of our own processes and delinquencies and our own underwriting, we are pretty confident. But as you said, I think, as and when the cycle happens only then we'll get the confidence.

Right, Kannan and Rakesh. I'm not debating what you said, but these are all reactive to what we saw during the GFC and post 2008, right. We reacted, we upgraded our systems, CIBIL obviously helped. I'm just trying to see if you have developed any more predictive power into your underwriting skills?

On the retail side, significant progress has happened in terms of our ability to project how the portfolio will behave, of course party held by the - we have bought over the last 15 years. So, as Kannan mentioned, again, for each of these products, and not just at the product level, but at sub-segment level, we would have vintage curves which are there. And based on that, we track the portfolio and they are triggered levels if that would get close to, then we would look at revising our underwriting practices and that is at a very granular sub segment level. But again, as you said, I think as and when the cycle happens only then it will --

Right. And so what you're learning from the current corporate cycle that we're seeing? I mean if you could elaborate, maybe we can take it offline, if it's going too longer, but maybe a couple of points, whether it was some business decision cycle I can understand, iron and steel, nobody could have predicted, but other than that.

One is the clearly the cyclical commodities, which I have already talked about. Second, whether we like it or not given the kind of a project lending you have seen in the economy largely there will be some concentration risk for each of the banks, so maybe there are five, six banks are putting together a large consortium for project lending invariably means that your concentration risk really goes up. So clearly the takeaway has been that the concentration risk will have to be really mitigated. So what we have done over the last couple of years is to put internal limits on what kind of thresholds and limits we should have for the lower side of the investment grade, whatever is there, how much each project we should be taking and also from the borrower growth as we have said in the past, some of the borrower groups are having higher leverage in the group and there has been lot of interconnectedness across the group companies. So that has also been a source of stress. So depending on the experienced track record of the group with banking system and the size of the group, we have put internal thresholds and limits, which we would not like to exceed going forward. So our objective would be that to really produce the granularity and even in the disclosures, we have made in terms of industry-wide disclosures, we can see that on one side while the retail has become a larger part of the portfolio, even if we look at the top 10 exposures, as an aggregate it has really come down over the horizon we have reported from about 60% to 50%. So that is the kind of learning we have essentially arising out of the concentration risk for the Bank. And of course there is an ongoing agenda of improving the rating mix of the portfolios, both by increasing the retail proportion and within corporate looking at the higher rated portfolios, becoming a bigger and bigger percentage of the total loan book. So those are the two, three learnings, I would say, in terms of incremental asset acquisition.

Okay, great and a small last question. I think it was a great statement that you had forgone the performance bonus. Just wanted to check are you putting up clauses like claw back in the future, just to kind of give more support to investors?

We do have, top management claw back is required for the banks is required by RBI. It's a regulatory requirement, which has been - by us for the last couple of years.

Okay. I've mistaken then, thanks so much.

That is already in place.

Thank you. Next question is from the line of Amit Ganatra from Religare Invesco. Please go ahead.

Out of your total slippages for this year, how much has come from corporate, INR17,000 crore, how much has come from corporate?

The line is not clear, but we have not given that numbers separately. But as we said earlier, bulk of the additions is on the corporate side.

Bulk would be like two-third type of -- I mean, almost more than 75%. A - Rakesh Jha Yes, yes.

Yes, yes.

Okay, so 75% to 80% one can consider can be --

We've not given a number on that.

Yes, so I'm just giving a color.

We have given the retail NPAs separately in the presentation, so you could look that up.

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

Thanks for the detailed presentation. Just a question on the exposure watch list that you've given, can you give us a broad division between funded and non-funded, how much of this is funded and how much of it is non-funded?

It includes everything, we have not given that separately. But in terms of the credit risk, it is the same in terms of the fund and the non-fund. So the aggregate number we have given.

Actually I'm asking this because another bank has given a watch list and that watch list was based on funded. So if you can give us a tentative, say, 70/30 or 80/20 it would be --

But that would vary from bank to bank, to corporate to corporate, portfolio to portfolio. So --

But we do believe that the total exposure actually is fund and non-fund.

Credit risk perspective, if you look at it, we think that we should look at it in one block.

Absolutely. And on some of the exposures that you've just given that you are working on some of the deals, say, one deal happened which has been announced a cement deal, but it has not yet been consummated, they have one-year duration still to pending. So that kind of deal will also be part of this exposure, even though the deal has been announced, but you will include it because it's sub-investment.

Those kind of deals, if they are in the sectors that we have talked about, will definitely be included.

It is included.

It is included. That's the reason we are saying that we have therefore not applied any subjectivity, saying, this is likely to get it tied and all that. We're just being very clean and said that, below a certain investment grade, we are including all. Yes, we are working on this resolutions. So these are included.

And ma'am, if I can ask, of this INR440 billion roughly exposures that you have given, what percentage of these exposures, you will be working actively for resolution and what percentage would be just a dump of data, because they are sub-investment grade?

Our endeavor is to work on every single exposure we have put out here, I mean that is the -- there is a -- separate teams have been formed and they're working on each of their exposures I can assure you. So there is no let up. That is why we keep saying that don't start applying LTD starting from this list, it is not something which is a correct thing to do. It's just that some of them will take time to materialize in between they could become NPL and then come back again to a standard asset, so those kind of variations can happen as we move forward. But clearly our internal focus is to put specific people on the job to resolve each of these exposures.

My question was from the perspective that, as you mentioned, there was no subjectivity in this list and this list must also include some of the non-investment grade accounts which are actually completely fine. There is no stress as such, but since you've taken the data and dumped it, you've not applied any subjectivity. My question was from that perspective.

I agree, these are the cases where it is sub-investment grade, but pertaining to these sectors, that is the way we are looking at it. So there could be some cases in the manner you have described. But, we'll have to handle all the cases, given the economic environment, we have to work towards resolving all the cases, yes.

And on the housing finance subsidiary front, any progress on that or what is the status now?

As we have said that, there have been people who have approached us in terms of willing to buy this stake, but we have not yet taken a final decision on this.

Thank you. Next question is from the line of Alpesh Mehta from Motilal Oswal. Please go ahead.

Just first question is from your iron and steel and the power sector book, what is the existing stress which is already recognized, either in the form of NPLs or the restructured loan?

NPL, restructured loan are outside of this list.

In terms of iron and steel, it will be about -- it is about 18% of the exposure which would relate to NPA and restructuring, actually about 19%.

I believe 18% is for iron and steel right?

Yes.

And power sector would be again 18%, 19%, same number?

Power sector will be much smaller number. That is about 6% or so.

Secondly, in the past conference calls, we have been talking about EPC and deconstruction kind of exposures which is leading to the higher NPLs, which does not have any mention into this -- the exposures that you have a close watch on. So is it fair to believe that large part of those exposures which was stressed has already been recognized and there is no need to include them over here?

If you look at the construction sector, fair degree of addition to NPAs from that sector. And we also have done restructuring of some of those borrowers, including SDR in one particular case, which has happened and it's a successful change in management that we have done there. So, what is there now is more of some of the smaller cases which are there. So it is not something which would have much of a worry in aggregate going forward. You are right and if you look at the portfolio itself of NPA and restructured, construction in the past has been --

I'm not figuring in the list, because it's already part of NPL or restructuring, that is the reason of leaving it out, otherwise sector I agree with you.

And a last two questions, one is related to the -- this year, we had a one-off gain of around INR35 billion, INR36 billion, is that the thought process that in future if we have one-off gains and we would be utilizing that for contingency provisions? And lastly, for Ma'am, in March we had a lot of meetings with some of the large highly levered borrowers, so if you can share any details related those meetings that would be very useful.

Just before that on your first query, the contingency reserve that we have done on a prudent basis, that is not really linked to the gains that we have gained during the year, whatever gains made in the third quarter, while we have made the reserve in [Technical Difficulty] has a direct linkage between the gains, but yes, from an overall viewpoint, it has been done to strengthen the balance sheet as you said.

I think on the various meetings, of course, a lot of this joint lending forum or meeting that been held, to find solutions to these large exposures, but I must say that irrespective of those meetings, we at ICICI have in any case been focusing on arriving at solutions. So a lot of work is happening, it's about sale of, in some cases, non-core assets, sale of core assets in some cases. I would say that now a lot of the action has begun on identifying buyers in many cases. But we have to remember that in today's overall economic environment, there are actually less buyers. So in that sense, it just takes much longer for the deals to go through and that too at the right economic value. So we also have to be very conscious and careful that as we drive towards solutions, we should not achieve fire sales and destruction in value, we should achieve optimum value, so I think that kind of line that we are trading, but I would just like to see that a lot of work is actually happening in this direction. Results do take time.

Just to pitch in one more question. Over the last three, four months we have seen a significant improvement in the iron and steel sector. So in your assessment, what was the situation four months back, and now and what could be the loss given default in this kind of exposures. I know it is corporate specific, but if you can give some qualitative comments on this.

Qualitatively things have improved in the last four months. We have seen EBITDA generation coming through quite - but as you rightly said LGD etcetera is very difficult to determine today as a little bit of up cycle is going on. We'll have to wait for it to sort of pan out. And secondly as you rightly said, borrower specific LGD could be different. So, one has to wait and see, but I can say just to give a qualitative color, things are clearly improving in that sector.

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

Yes, I just two follow-up questions. The first one is that you talked about resolution of an SDR that's not already in the numbers, right? As in that is the account upgraded from the status it was or?

That was in the context of constructions sector that was asked.

Right, but is that account still a restructured account or -?

It is a restructured account, which is under progress in terms of the change in --.

Okay, so it's under progress, it will be up. Okay. And the other thing I wanted to check is we had discussed a bit of this even on the last call, that there are these accounts that have become NPLs in the AQR and banks are working hard towards their resolution. But what in terms of additional funding to these accounts, because even if say one or two banks decide, but the others don't contribute then it's going to be difficult to really keep these accounts in a good shape and ensure that they are sold in a good shape.

No, that's clearly, I think a fact today. And that continues to be one of the challenges, when I said that we have to ensure that we find optimum values and not disruption in value. So it is a known fact that even decision making across the banking industry is low and therefore willingness to provide additional funding to some of these cases is not there. So yes as we are finding solutions, we are kind of struggling through all these issues.

So that's why now, when I made my remarks also I said that we expect a challenging operating recovery environment in the corporate segment to continue and we said, specifically that while RBI will continue with the objective of early and conservative recognition of stress and provisioning, the approach of banks would also reflect a more conservative stance. So that is something which we have to be alive to that.

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

A few questions from my end. In continuation of some of the earlier questions, if you can give a broad understanding between what it looks for the fund and non-fund, because not every non-fund based exposure has to move into an NPA if the fund based exposure defaults because unless the TLC dissolves, then it may not necessarily move into an NPA. If you could give us some clarity that will be helpful. Second is that, if you can move the numbers, because if I look at the numbers that you provide in terms of exposure, that is materially higher than what the loan book looks like because of the non-fund based, just if you can reconcile how the numbers look like?

In terms of overall, you are talking the aggregate exposure, the [9.9]?

Yes, so you have 4.3 as a loan book, so we are all working with, if you're working with INR44,000 crore as a number, wouldn't it be useful to give the outstanding as well sitting against it.

As you know, we report the aggregate exposure every quarter in the Pillar 3. So that's what we have done this time also, so what it includes is the gross advances, it includes, it will also include balances at banks, which is there in the balance sheet, it will include the non-SLR investments, it will include derivative outstanding, it will include LC, BG and others outstanding plus it will also have undrawn limits which are there which could be fund based or non-fund based, all of this aggregates to the overall exposure that we report of INR9.4 trillion.

Correct. The reason I am asking is that if I look at, let's say, this INR44,000 crores, which has been given out there, see this number is materially higher because it includes a non-fund based. So that's why we are just trying to understand.

And you're also right that as the classification happens into NPA, frankly first, only the fund-based is classified as NPA, and non-fund based only if and when it evolves to become a fund-based. So you are right. But our view has seen that if you look at the credit quality, well, the credit quality of that asset spend is similar, whether the exposure there is fund-based or non-fund based so you can call this a more conservative disclosure, but we believe that when we look at credit quality of a particular case, then it has to be overall.

You still do not want to kind of put a number to it?

No, we are not giving a break-up between funds and all.

My second question is, for the quarter, the slippages which has happened, if you could give some level of clarity around it. And the reason for the tax reversal and also the timelines for the insurance listing.

Slippages for the quarter, Mahesh, if you recall where we had announced our last quarter results, we have said that in Q3, we had INR65 million of slippages of which roughly two-thirds of our case is highlighted by RBI and we expect that a similar amount of cases highlighted by RBI could potentially slip in Q4 and that those were likely to be existing restructured accounts from the past sector. And that is pretty much how it has played out as you would have seen the slippage from restructured in [20] and has actually increased in Q4 and indeed, a significant part of that has come from the power sector.

So it is predominantly power, is it? Of the INR70 billion that we are talking about?

Power and there is some steel as well.

Okay. And the timelines for insurance listing as well as a tax rehearsal?

There is no tax rehearsal, I mean there are two aspects to that. One is that tax provisions are made on the basis of an annual estimate of income. In this quarter, for the year, we had the capital gains and those are taxed at a lower rate. And also as the provisions and contingency reserve that we created in the quarter resulted in a deferred tax asset creation. And on the timeline for the IPO, it would be the first of one of the first IPOs in the life insurance sector. It will require approval of both IRDA and SEBI, they would both need to get too comfortable with the actuarial report and so on. So it will be a slightly long process. Our endeavor would be to conclude it this year.

Ladies and gentlemen, with this I now hand over the floor back to Ms. Kochhar and Mr. N. S. Kannan for his closing comments. Over to you, sir.

Yes, thank you. I think we've covered most of the questions as all of you were asking the questions, and I'll just reiterate saying that, we've been very focused in our approach in FY 2016 as well and the same focused approach continues in FY 2017. What we have endeavored to do is to continue to enhance our franchise through the funding mix, the cost efficiencies, capital consideration and so on. And at the same time look at portfolio quality through continuous monitoring and working towards resolution, while simultaneously changing the mix of the incremental sanction, so that we can change the credit mix. Here we have attempted to give you a more detailed drill down of our exposures in some of the key sectors, which are today facing some challenges on account of the overall environment. And our approach here is that we are clearly working on an action plan on these cases. We are working towards reduction and resolution of these exposures, on a quarterly basis, we will come back to you with the progress that happens here. But in the meanwhile on a prudent basis, we've considered it prudent to actually create this collective contingency reserve of INR36 billion and we are again sitting with a capital base, which is very comfortable and much more than the required regulatory requirements. And at the same time, we have a lot of value in the subsidiaries. So, I think we are quite kind of equipped to run first to the growth opportunities as they come and to pursue the action plans that we have laid out for resolution. Thank you.

Thank you. 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.