ICICI Bank Limited (IBN) Q1 2017 Earnings Report, Transcript and Summary

Ladies and gentlemen, good day, and welcome to the ICICI Bank Q1 FY 2017 Earnings Conference Call. As a reminder, all participant lines will be in the listen-only mode. And there will be an opportunity for you to ask questions after the presentation concludes. [Operator Instructions]. Please note that this conference is being recorded. I 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.

Thank you. Good evening to all of you. I will make some brief opening remarks and then Kannan will take you through the details of the results. So to start with, I would say that the Bank has achieved a very robust growth in its loan portfolio and has also maintained a strong funding profile during this Q1 2017. Our retail portfolio grew by 22.1% year-on-year and now constitutes 46.4% of total loans. Our overall domestic loan growth was 16.9%, which came at the back of 22% growth in retail and an 11% growth in corporate. On the funding profile, the CASA deposits also grew at a healthy rate of 17.9% year-on-year basis. The CASA ratio was 45.1% and retail deposits now are about 77% of our total deposits. The other important thing that I would point out is that at the beginning of this financial year, we in consultation with McKenzie [ph] focused on reviewing certain parts of our organization structure. So the two key areas of focus for us are scaling up innovations and sustaining our leadership. And the other one is strengthening our credit and risk management. So accordingly we have made the following two key changes in the organization structure of the Bank. First, we have formed a dedicated technology and digital group, which is led by a Chief Technology and Digital Officer, CTDO, who we have appointed and this group is for integrating all technology functions in the Bank across retail, wholesale and SME businesses. The key functions of this group will include further strengthening our digital channels, business intelligence, use of analysis, developing strategic partnerships to maintain our leadership position to the banking. As part of this group, we have also created an innovations lab, which will focus on prototyping, incubating, [indiscernible] strategic digital projects. You would be aware that earlier we had introduced ICICI Appathon to tap into the talent of developers, technopreneurs and technology startups in the country, and we realized that the Appathon actually generated very interesting ideas and we believe that the development of this through solutions making mobile banking simpler and all this will further get strengthened to this focus of ours. The second change that we have made is that we have formed a dedicated credit monitoring group. This is distinct from the client relationship group and distinct from the risk management team. The focus is to enhance and strengthen the monitoring of the entire portfolio across corporate and SME segments. So this group is not responsible for day-to-day monitoring of the portfolio as well as for providing overarching macro-structured inputs for proactive portfolio monitoring, like leveraging analytics, developing predictive models and parameters for early morning signals. The other major thing that I would like to point out was that you would have seen that during this quarter, ICICI Prudential Life Insurance Company has filed the draft red herring prospectus with the Securities and Exchange Board of India for a public offer of equity shares of ICICI Life, representing approximately 12.6% of its equity share capital through an offer for sale by the Bank. On the previous analyst call, I had summarized the Bank’s strategic priorities for FY '17 in the form of four-by-four agenda covering the portfolio quality and enhancing franchise. And just to reiterate, on portfolio quality we had said our four-point agenda would be focused monitoring on loan portfolios across businesses. Secondly, improving the credit mix driven by focus on retail lending and lending to higher agent corporates. Thirdly, reduction in concentration risks. And fourthly, resolution of stress cases through various measures like asset sales by borrowers, change in management, working with previous stakeholders, et cetera. On the enhancing of franchise, our four-point agenda is sustaining robust funding profile, maintaining digital leadership, continuing focus on cost deficiency and focus on capital efficiency and further unlocking of value and subsidiaries. Growth in the first quarter on the various steps that we have taken are in line with these strategic priorities. We are reorienting our balance sheet towards lower risk and more granular portfolio. We believe that we are in position to leverage on the growth opportunities that arise in the coming years, given our strong deposit franchise, given our technology leadership and given our robust capital level and our potential for value unlocking in our subsidiaries. We will continue to make investments to further enhance our franchise. With this, I will now handover to Kannan.

Good evening to all of you. I will talk about our performance and the outlook on the growth, credit quality, and profit and loss account details. Then we’ll move on to the subsidiaries and capital. On growth, within the overall retail growth of 22%, the mortgage and auto loan portfolios grew by 21% and 17% on a year-on-year basis, respectively. Growth in the business banking and rural lending segments was 15% and 24% on a year-on-year basis. Commercial vehicles and equipment loans grew by 21% on a year-on-year basis. The unsecured credit card and personal loan portfolio grew by 43% on a year-on-year basis to INR166.93 billion and this constituted 3.7% of the overall loan book, as of June 30. The Bank continues to grow the unsecured credit card and personal loan portfolio, primarily driven by focus on cross sales. Moving on to the corporate portfolio, the growth in the portfolio improved from 7.2% year-on-year as of March 31, 2016 to 11.2% year-on-year as of June 30. The Bank continues to focus on lending to higher-rated corporate and apply its revised concentration risk management framework for incremental lending. The SME portfolio grew by 2.1% year-on-year and now constitutes 4% of the total loans. The year-on-year growth in SME portfolio was lower due to higher repayments during the quarter. We expect the growth in SME portfolio to improve in the coming quarters. In rupee terms, the net advances of the overseas branches decreased by 1.5% year-on-year as of June 30. In U.S. dollar terms, the net advances of overseas branches decreased by 7.1% year-on-year as of June 30, 2016. Moving to the funding side. On a period end basis, we saw an additional INR39.85 billion to savings deposits during the quarter. The Bank continued to maintain healthy CASA ratio on a period end basis as well as on a daily average basis. On a daily average basis, the CASA ratio was 41.7% in Q1. The total deposits grew by 15.3% on a year-on-year basis to INR4.24 trillion, as of June 30, 2016. We continue to make investments to strengthen our franchise. We have a network of 4,451 branches and 14,073 ATMs and best-in-class digital and mobile platforms with a number of new innovations. iMobile received the highest overall score in 2016 India Mobile Banking Functionality Benchmark study conducted by Forrester. Now let’s move to credit quality. During the first quarter, the gross addition to NPAs, including slippages on the restructured portfolio, were INR82.49 billion compared to INR70.03 billion in the preceding quarter. Slippages from the restructured portfolio were INR13.21 billion in Q1 of 2017 compared to INR27.24 billion in the previous quarter. About 77% of the gross additions to NPAs for the wholesale and SME businesses in Q1 were on account of slippages from the companies internally rated below investment grade in key sectors, the details of which we have disclosed in the previous quarter and slippages from the restructured portfolio. Of the remaining additions, about 30% we expect to be upgraded during the current year itself. The retail portfolio had gross NPA additions of INR6.44 billion and recoveries and upgrades of INR4.25 billion during the quarter, which is in line with the normal business strengths. During the quarter, aggregate deletions from NPA due to recoveries and upgrades were INR7.92 billion. We sold gross NPA amounting to about INR53 billion during the quarter, the net NPA sold amounted to INR22.32 billion during the quarter. The gross shortfall amounting to INR5.26 billion on such sales is amounted to over four quarters. Accordingly, during the first quarter, we have recognized a loss of INR1.32 billion. Further, we have made gain of INR1.53 billion on sale of NPAs to ARCs which is set aside towards the security receipts received on such sales. As a result of this, the Bank's net non-performing asset ratio was 3.01% as of June 30, 2016 compared to 2.67% as of March 31, 2016. The gross non-performing asset ratio was 5.28% at June 30 compared to 5.21% as of March. The provisioning coverage ratio on non-performing loans, including cumulative technical and prudential write-offs, was 57.1%. Moving on to the restructured loans, the net restructured loans reduced to INR72.41 billion as of June 30 from INR85.73 billion as of March. As of June 30, we had outstanding SDR loans of about INR26.39 billion comprising primarily loans already classified as non-performing or restructured. The aggregate net NPAs and net restructured loans increased by INR6.79 billion from INR218.7 billion as of March 31 to INR225.49 billion as of June 30. During the first quarter, we did not implement refinancing under the 5/25 scheme for any loan. The outstanding portfolio of performing loans for which refinancing under the 5/25 scheme has been implemented was about INR27 billion as of June 30. 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, and high leverage. The key sectors in this context are power, iron and steel, mining, cement and rigs. The Bank’s aggregate exposure to these sectors decreased from 15.8% of the total exposure as of March 2011 to 13.3% of total exposure as of March 2016, which further decreased to 12.7% of the total exposure as of June 30, 2016. We have reported our exposure comprising both fund-based limits and non-fund-based limits outstanding as of March 31, 2016. The companies in these sectors that were internally rated below investment grade across the domestic, corporate, SME as well as international branches portfolio and to the promoter entities internally rated below investment grade where the underlying partly relates to these sectors. On Slide 28 of our presentation, we have provided the movement in these exposures between March 31, 2016 and June 30, 2016. The aggregate fund-based limits and non-fund-based outstanding to companies, excluding those who are classified as non-performing or restructured that were internally rated below investment grade in these sectors and promoter entities, decreased from INR440.65 billion as of March 31, 2016 to INR387.23 billion as of June 30, 2016 reflecting the following. One, there was a net reduction and exposure related to the March level of INR3.65 billion, net upgrades of ratings of borrowers of INR4.19 billion together aggregating to INR7.84 billion. Two, aggregate fund-based limits and non-fund-based outstanding to companies classified as non-performing during the quarter were INR45.59 billion. As I said, please refer to Slide 28 for further details. Provisions for first quarter 2017 were INR25.15 billion compared to INR9.56 billion in the first quarter of 2016 and INR33.26 billion, excluding collective contingency and related reserve in Q4 of 2016. Further, during the first quarter, there was a drawdown of INR8.65 billion from the collective contingency and related reserves. We continue to work with borrowers for asset sales, deleveraging, and reduction of exposures. Our focus will continue to be on maximizing the Bank’s economic recovery and finding optimal solutions. It may take time for some of these solutions to be implemented, particularly where mergers or acquisitions are involved. In the interim, the accounting treatment and classification based on applicable regulatory norms may get adversely impacted. We may also consider invocation of strategic debt restructuring in additional accounts to protect the interest of the Bank while resolution plans are being implemented. As we have mentioned earlier, it is expected that NPA additions and credit cards will continue to be elevated in financial year 2017. Let me now move on to the profit and loss accounts. The net interest income was INR51.59 billion in the first quarter. The net interest margin was at 3.16% in the first quarter 2017 compared to 3.37% in the previous quarter. The domestic NIM was at 3.45% in the first quarter compared to 3.73% in the preceding quarter. The international margins were at 1.65% in the first quarter compared to 1.62% in the preceding quarter. As we had indicated earlier, the yield on advances for the first quarter of 2017 was impacted by non-accrual of income on higher level of additions to non-performing assets. Going forward the yield on advances will continue to be impacted by non-accrual of income on non-performing assets and implementation of resolution plans for test borrowers. There was no meaningful interest on income tax refund in the first quarter of 2017 compared to about INR1 billion in the corresponding quarter last year and INR0.7 billion in the preceding quarter. Moving on to non-interest income. The total non-interest income increased by 14.7% on a year-on-year basis to INR34.29 billion in Q1 of 2017. If you look at the components of this non-interest income, the fee income was at INR21.56 billion. Retail fees grew by 11.3% on a year-on-year basis and they constituted about 68.6% of the overall fees. Treasury recorded a profit of INR7.68 billion compared to INR2 billion in the corresponding quarter last year. Other income was INR5.05 billion, the dividend from subsidiaries was INR2.91 billion and the Bank had exchange rate gains of INR2.06 billion relating to overseas operations in the first quarter. On expenses, the Bank's cost to income ratio was at 39.3% in the first quarter of fiscal 2017. Operating expenses increased by 10% on a year-on-year basis. Employee expenses increased marginally by 1.9% year-on-year. Non-employee expenses increased by 15.5% on a year-on-year basis in the first quarter, primarily on account of the larger distribution network and higher retail lending volumes. We will continue to focus on cost efficiency while investing in the franchise as required. The Bank's standalone profit before provisions and tax was INR52.15 billion in the first quarter of 2017 compared to INR50.38 billion in the corresponding quarter last year and INR71.08 billion in the preceding quarter. As you would recall, in the preceding quarter we had gains of about INR21.31 billion from stake sales in our Life and General insurance subsidiaries. I have already discussed the provision for the quarter, so moving on to the profit before tax, the Bank's standalone profit before tax was INR27 billion in the first quarter of 2017 compared to INR1.82 billion in the preceding quarter and INR40.82 billion in the corresponding quarter last year. The Bank's standalone profit after-tax was INR22.32 billion in the first quarter of 2017 compared to INR7.02 billion in the previous quarter and INR29.76 billion in the corresponding quarter last year. Moving on to the subsidiaries. ICICI Life retail weighted received premium increased by 11.1% from INR8.43 billion in the first quarter of 2016 to INR9.36 billion in the first quarter of 2017. The profit after tax for ICICI Life for the first quarter of 2017 was INR4.05 billion compared to INR3.97 billion in first quarter of 2016. The profit after tax for ICICI General increased by 12.9% from INR1.16 billion in the first quarter of 2016 to INR1.31 billion in the first quarter of 2017. The profit before tax grew by 19.3% on a year-on-year basis. The growth written premium of ICICI General grew by 39.3% on a year-on-year basis to INR29.55 billion in the first quarter of 2017 compared to about 16.7% year-on-year growth for the industry as a whole. The company continues to retain its market leadership among the private sector players and has a market share of about 10.5% in the first quarter of 2017. The profit after tax for ICICI AMC increased by 22.5% year-on-year from INR0.80 billion in Q1 of 2016 to INR0.98 billion in the first quarter of 2017. With assets under management of over INR2 trillion, ICICI AMC continues to be the largest mutual fund in India. The profit after tax for ICICI Securities was at INR0.69 billion in Q1 of 2017 compared to INR0.61 billion in Q1 of 2016. Let me now move on to the performance of our overseas banking subsidiaries. Our total equity investment in ICICI Bank UK and ICICI Bank Canada has reduced from 11% of our net worth at March 31, 2010 to 4.7% currently. As per IFRS financials, ICICI Bank Canada's total assets were CAD6.83 billion as of June 30, 2016 and loans and advances were CAD5.77 billion as of June 30, 2016. The profit after tax for Q1 of 2017 was CAD0.9 million compared to CAD7.8 million in Q1 of 2016. The lower profits were primarily on account of higher provisions on existing impaired loans. The capital adequacy ratio of ICICI Bank Canada was 22.5% at June 30, 2016. ICICI Bank UK's total assets were $4.05 billion as of June 30, 2016. Loans and advances were $2.69 billion as of June 30, 2016. The sequential decrease in loans and advances of about $460 million was on account of lower disbursements in the first quarter given the uncertainties in the operating enrolment under limited lending opportunities. Profit after tax in the first quarter of 2017 was $0.5 million at a similar level compared to the first quarter of last financial year. ICICI Bank UK continued to make additional provisions for existing impaired loans. The capital adequacy ratio was 17.9% as of June 30, 2016. The Bank will monitor the developments relating to the UK’s exit from European Union. ICICI Bank UK has hedged all its currency exposures and there was no meaningful immediate impact of sterling depreciation. The impact on the loan and investment portfolio and profitability going forward would depend on the business environment in the UK and the policies that evolve with relation to the exit from the EU. The consolidated profit before tax was INR34.6 billion in the first quarter of 2017 compared to INR47.34 billion in the corresponding quarter last year and INR2.85 billion in the previous quarter. The consolidated profit after tax was INR25.16 billion in the first quarter of 2017 compared to INR32.32 billion in the corresponding quarter last year, and INR4.07 billion in the preceding quarter. Moving to capital, the Bank had a Tier 1 capital adequacy ratio of 13.02% and total standalone capital adequacy ratio of 16.45%, including profits for the first quarter of 2017. The Bank’s consolidated Tier 1 capital adequacy ratio and the total consolidated capital adequacy ratio, including the profit for the first quarter, were 13.06% and 16.44%, respectively. The capital ratios are significantly higher than the regulatory requirements. The Bank's pre-provisioning earnings, strong capital position, and value created in its subsidiaries give the Bank the ability to absorb the impact of a challenging environment while driving growth in identified areas of opportunities. To sum up, during the first quarter of 2017, one, we have achieved continued healthy loan growth driven by the retail portfolio and focused on lending to higher rated corporations. This is in line with our capital allocation and the risk management framework. Number two, we focused on resolution and recovery in the corporate segment. Three, we sustained our robust funding profile. Four, we maintained cost efficiency. And five, we continue to maintain healthy capital adequacy ratios. With this summary, I’ll be happy to take your questions. Thank you.

Thank you very much, sir. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions]. We have the first question from the line of Mahrukh Adajania from IDFC. Please go ahead.

Hi. Just a couple of questions. Firstly, in the notes to account on ARC, which you also mentioned during your presentation, what is – so there was a loss on sale and there was a gain on sale; was it? If you could explain.

Yes. So the gross loss which was there, which we have given is INR5.26 billion, which we are amortizing over a period of four quarters. So one-fourth of that was taken in the June quarter. There was also a gain on some of the loans which we sold. As per the RBI guidelines, those gains cannot be booked and need to be set aside as a reserve against the security receipts that we received. Other than whatever the amount is we get on cash, that can be booked but because a larger part comes in the form of security receipts, that is something which has to be kept as a reserve against these SRs. So that was about INR1.5 billion.

Got it. And the other question I had is that you gave the breakdown of slippage into restructured and what slipped from the below investment grade, would there be any overlap in that?

No. As I said that even that list itself, there is no overlap between INR40 billion and the INR85 billion-odd. Those two are separate and these two are also separate.

Got it. And was there any conversion of debt to fixed assets during the quarter?

In some of the cases we indeed have done debt asset swaps over the last 12 months, so that is something which we have done in a few of the cases.

Got it. And just to – one last question. On whatever slipped outside the below investment grade list, what sectors – so those were those small usual slippages or were there any other sectors? Were there any largest corporates there?

No. There is no sectorial pattern also and as I said in my presentation, about 30% of that we will upgrade during the year as quickly as possible.

Okay. Thanks a lot.

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

Hi. So the question is on you mentioned in the presentation that we’ll be looking at on a case-to-case basis looking to invoke SDR along with when we have some of the resolutions which are taking this. Just wanted to understand that and there has been – the jury [ph] is still out about the success of the SDR mechanism. So just wanted to understand the thought process behind this?

Yes, what I had mentioned was that in some of the cases, the resolution may take over a period of time because of the various external dependencies and the approvals involved. So in the meanwhile if bankers will have to protect the interest, in selective cases, we may invoke the SDR, because SDR gives the ability for the standstill while protecting the Bank’s interest and ensuring that the ownership does not go anywhere else. So given that, we said that we will use it on a case-to-case basis. That is what I had mentioned. The objective would be to ensure that there is an orderly resolution as we go along. That is why we said we might invoke SDR wherever we feel it is necessary.

Fair to assume that in those cases, maybe an S4A may not work, because the extent of --

Okay, let me put it this way. On the SDR to answer your previous question also that we have seen some success. I won’t say that success is debatable. It is just that this whole SDR mechanism has been in place for a few quarters, so we’ll have to wait and see how it plays out. But in a large case, we have had full success in terms of implementing our SDR. So we do hope that if we use it selectively, we should be able to implement it. As far as S4A is concerned, the way it gets implemented is quite different from SDR. There, there has to be certain checks and balances in terms of ensuring that at least 50% of the debt is sustainable that too based on the immediate or the immediate future EBITDA basis. So we believe that yes, the backing system may use S4A also going forward but it will be limited to very few cases.

Sure, okay. The other thing is you spoke about some of the resolutions which are work in progress. Some of these deals are very much there in public domain and obviously there is a timeframe that has to go through the entire regulatory channel. But some quantum would help in terms of what is the extent that you may – because some of them have been already been announced, so that’s not contingent on that. So just wanted to get a rough idea how much of that could be – for maybe in the near future it can actually get upgraded because of this or come out of the watchlist?

So given – we can only assure you that in each of the cases, which we have put out in that list, we are working towards solutions. Some of them could be M&A solutions, some of them could be asset sale solutions, it could be other solutions as well. I can only assure you that there are dedicated teams focused on this. And then over a period of time we hope to resolve those things. In terms of predicting exactly how many and by when it will be upgraded that will be very difficult to do given, as I mentioned, the external dependencies including the approvals. So I think we would sort of desist from that, but to give you an assurance to say that in each of these cases, we are working towards resolution of each and every case in that list.

Sure. Just one final question. So when I look at the five sectors that you mentioned, there is exposure to steel which has come off by about 2,000 crores-odd. Now part of that – so basically the assumption is that that’s slipped? And the other question to that is also that if you’ve sold some assets from the steel sector and if they were part of the watchlist, would you now consider the SR that you would have received as a part of the exposure?

During the quarter what we have sold is existing NPAs which were there as of March itself. So we would not have sold on anything from any watchlist – the watchlist in terms of what we’ve given on the slide. Yes, those specific sectors below the investment grade, the list we had put out from that. So we have said in the last time also the way we looked at it is that that does not include the NPLs. What has been sold would have been NPL as of March itself, so that wouldn’t have disturbed this list.

Sure. So the reduction, fair to assume, is on account of slippages, right?

Yes, the movement we have given on the slide.

Sure.

There are three reasons for those reductions, as was mentioned by Kannan also. One is that there is actual reduction and exposure. The second, there is improvement in credit rating, so there is reduction from this list, because they move to investment grade. And the third, of course, is migration to NPA.

Sure, thank you. All the best.

Thank you. The next question is from the line of Prakash Kapadia from Anived PMS. Please go ahead.

Thanks for taking my questions. I have two questions. If I look at the interest on advances, it is up 5% on a year-on-year basis. If you could give us some sense how much it is due to income reversal, yield changes? And when do we see yield on advances growing faster or near double digits for the Bank? That is the first one. And secondly on retail, is there enough room in mortgages and vehicle loans for us to grow and still maintain our credit standards? And with retail growing much faster, what is the cost inflation we would expect at operating level in the remaining quarters of the current fiscal?

In terms of the margins and the yield on interest-earning assets, indeed, the impact that we are seeing is coming because of the non-accrual of income on the NPAs which have got added in the last two or three quarters. So that impact is something which will be there through this year, because as Kannan mentioned earlier, we will be – we still expect to see a continued level of elevated addition to NPAs and credit cost. To that extent, the non-accrual impact will be there through the year. And the reduction in margin that we have seen is kind of largely coming from that. Of course, when you compare the June quarter margin through March quarter, there was also an absence of interest on income tax refund, which would have accounted for about 6 to 7 basis points of decline. The balance would largely be on account of non-accrual offering.

So for your second question on retail, yes, we continued to grow in retail which is a very granular business. And based on our own assessment and all the parameters we monitor, we do not think at all that there is stress in terms of the credit quality. So if you look at our growth of 22% or so, if you look at the systemic growth in the retail portfolio for the banking system, it is more like 19% based on the statistics put out by RBI. So we do not think that there is any aggressive strategy which we are pursuing for grabbing of market share or anything. So in general, the market has been growing and we have been a significant part of the market and credit quality is very stable in the retail business across the segments.

Okay. And last, do you know the cost inflation at the operating level given that retail would continue to remain the focus area and grow faster?

We have said that during the year there will be cost increase coming because of that, because of the branch expansion, the ATM expansion, plus other investments that we are doing on the retail franchise. So for the current quarter, the overall expense increase was about 10% but for the year, we would expect that number to be somewhat higher than that.

Okay. Thank you. All the best.

Thank you.

Thank you. The next question is from the line of Ramesh Rao from Vasisth Capital [ph]. Please go ahead. Mr. Rao, you may go ahead with your question please. I think the participant has moved out of the queue. We’ll take the next question from the line of Adarsh P from Nomura. Please go ahead.

Hi. I wanted to check what’s the breakup of the provisions?

On provision, the large part would be for NPAs actually. There is no relation to the general provision on standard assets because there have been some reversals there with the addition to NPAs that we have seen from the restructured book. So, overall, the provisions are largely for the non-performing assets.

So the other way is, could you give the movement of the NPA provisions, because I believe the write-offs are pretty large, right, 6,000-odd of which there will be some ARC receipts. So I just wanted to understand some part will be a P&L provision, the other would be some write-backs from the contingency and others. So if you can just give me the gross number of NPA provisions?

So if you look at the write-off and sales in terms of the movement of NPA slide that we have on Slide 17, as you said that includes the sale of NPAs also that we have done. In terms of the aggregate write-off for the quarter that would be about INR44 billion, INR45 billion would be the aggregate write-offs which are there during the quarter.

44 billion, 45 billion, is it?

That will also include – when we sell NPAs to ARC, what happens is that the existing provision that we are holding at the time of sale, that gets written off at the time of sale. That results in the piece in the write-off during the period.

Okay, this showed the 45, so which means the NPA provision we had about – the total P&L provisioning was 2,500 crores and then we would have had 800 crores-odd as a write-back from the contingency reserve that we had. I think there will be more provisions towards NPA, right? So just wanted to know that gross number.

Provision in the sense – or the P&L charge you’re saying?

Not the P&L charge, the addition to the NPA provision that we would have had from various sources?

But there are no sources. There is provision made at the P&L --

Yes.

Utilization of the reserve.

Okay. I was saying that you kind of had a 133 billion NPA provisions at the end of fourth quarter and if you had a 4,500 crore write-off, you would have ended up closer to about 9,000 crores. And this quarter we’ve ended with 121 billion, so it means we’ll probably be having a higher than 3,500 crore total NPA provisions, right?

25 billion is the net provision number for the quarter, but we had slightly more than INR8 billion of utilization from the CCRR. Aggregate provisions, as I said, it’s largely almost entirely against the NPAs. So the 25 plus what even are [ph] billion rupees, and that is a number that you are seeing around INR23 billion would largely be against NPA.

Perfect. The second question is relating to the below investment grade book. When I see the mining part of it, it’s come off but I just wanted to understand what’s the – still it’s a pretty large number and most of us are aware that these are two large mining accounts, and what’s the status there and how should one expect write-offs to pan out in these couple of accounts?

As Kannan mentioned during his speech that we are looking at each of these accounts in terms of how we can move towards resolution. And we expect that during the current year, we should be able to take some concrete steps in each of these cases in terms of moving towards resolution. Now whether the resolution gets completed this year or it kind of spills into next year is going to be a function of various things. So that’s how we are looking at it. And the mining loans that you’re referring to would be no different than each of the other loans in this category or drilldown that we have given.

Perfect. And so my last question is on margins. So we’ve seen like a 20 bip contraction like what you had guided from the 4Q levels. Do we expect that now broadly we should have a stable trajectory or if slippages keep increasing, margins from 1Q level also keeps sliding down?

So it is something which we will have to see. It will be a function of what is the kind of NPA additions that we see during the rest of the year. And as we are saying, the impact will almost entirely be because of non-accrual of income. On the other aspects in terms of cost [indiscernible] incremental lending, I think we are pretty confident that we will be able to maintain our margins or improve. But the non-accrual of income is something which will impact us through the year, so we’ll have to see how that kind of pans out during the year.

And as a part of the resolution recovery strategy, there would also be endearment to collect interest in NPL accounts as well.

And in the third quarter when we had some higher slippages, we didn’t see a NIM impact and it came through in the fourth and probably in the first quarter. So would you say that the NIM impact that we’re seeing now in this quarter already takes into consideration the slippages that we had in this quarter, or it will come with a lag as well?

So what does happen is that with function of the loans that slip into NPA. At the point of slippage into NPA, what is the accrued amount of interest and how much of it has already been collected in cash. So depending on what is the amount of equity interest, it could be anywhere between 90 days to up 180 days. So that’s why on a quarter-on-quarter basis, the numbers can move up or down. I would say that largely the impact would have been taken into consideration in the current quarter of the additions that we had definitely in the March quarter, and to a large extent for this quarter as well.

That’s helpful. Thanks a lot, Kannan and Rakesh.

Thank you.

Thank you. We’d like to request the participants to please limit your questions up to two per participant. If you have a follow-up question, we request you to please rejoin the queue. We’ll take the next question from the line of [indiscernible]. Please go ahead.

Hi. I just wanted some color on the overall loan growth target plus drivers for corporate lending in the domestic book? And my second question would be some guidance on credit costs and NIM for the year? Thanks.

Yes, on the loan growth, as we have said, the retail portfolio will continue to lead the loan growth for the bank. And currently it is growing at around 22% or so. And then going forward, we do believe that loan growth of around this or slightly higher will be sustainable. That is our outlook on the retail. And within that, mortgage will continue to be a large proportion of retail mix. And from a percentage perspective, obviously, the unsecured loan credit card will show a higher percentage because of the no-base effect. That is the outlook on the retail side. On the corporate side, as we have said in the earlier call, the endeavor has been to improve the growth to the double digits maybe by mid-teens or so has been the objective. That is what is playing out as we speak now. Larger disbursements have been to working capital demand, including higher rated corporation PSUs. That kind of a higher rating mix of the corporate loans will continue going forward. SME, as I mentioned, there have been some repayments because of which the growth was muted. If you see the previous quarter, we were growing SME at around 15%. So again, the endeavor would be to pick up the growth from here on SME. And we have also very consciously granulized the portfolio over a period of time. So we would see that kicking in as we move along. International, the outlook is somewhat muted. So we will – the growth rate of international would be lesser, flattish to a little bit percentage growth. So that is how we are looking at the different components of the loan book.

Understood. And guidance on credit costs and NIM overall?

We have not given any specific number on the credit cost for the year.

Okay.

Other than stating that it will continue to be at elevated levels, and we have seen that in the current quarter also. On NIM, as I said, the core business is doing pretty well on the retail lending side, on the incremental corporate lending that we are doing and the funding side as well, including CASA we have seen pretty robust growth. However, the non-accrual of interest income on addition to NPAs, that I think will still impact us rest of the year. So, again, we have not given any specific number for the year.

Okay, fair enough. Thanks.

Thank you. The next question is from the line of Suresh Ganapathy from Macquarie. Please go ahead.

Hi. Just a couple of questions. On this 27 billion of 5/25 for refinancing that you have done, are these all perfectly normal standard assets or a part of restructured assets will also be a part of this?

So, Suresh, this will be – the outstanding number we have talked about not done during the period, so it is an outstanding number. And it will be part of the restructured portfolio.

Okay. So there are no standard assets here, normal standard assets?

Rakesh is just checking.

INR27 million is standard, so we had some --

So can you just classify that again, sorry?

Let me – the flexible restructuring of INR27.13 billion will be part of the standard portfolio.

And it is not a part of the restructured assets and not a part of this. So the 70-odd restructured assets, 27 will not be a part of that, right?

That is correct.

Okay. So these are over and above the restructuring assets?

That’s correct, yes.

Okay, so that’s clear. Now any fresh restructuring you have done this quarter?

Sorry.

Any fresh restructuring?

Any fresh restructuring during the quarter --

We have done one case of INR500 million, INR600 million.

Yes, it’s not material.

Okay, 50 crores, 60 crores, yes. And then just finally from an outlook perspective, if I look at just roughly the numbers, 80 million to 1 billion you said is slippages and 45 billion actually has come from this watchlist. So that’s roughly from a proportion perspective of 55%. My worry here, Kannan, is that 45% is actually coming from your non-watchlist accounts, which is a pretty large number. How should we read this, because there seems to be a portfolio outside watchlist also which is contributing heavily to the NPL scenario at this point in time?

Yes, Suresh, let me just explain it. When we said the bulk of the NPL will come from a particular portfolio, we said that that will come from this INR440 billion which we had laid out as well as the INR85 billion of restructured. So those were the two areas from which we said bulk of the NPL will come. So we have not called it a watchlist really. What we have said was that we look at those five sectors plus another sector, which we believe are undergoing stress and out of that, we took a clinical cut of whatever is investment grade. That is how that 440 was arrived at. So when we said the bulk of the NPL will come from, we said will come from a, the INR440 billion and b, the INR85 billion from restructured. So if we look at our total slippages of 82, you’ll have to keep out the retail slippages because that itself is about INR6.5 billion on a quarterly basis and that gets updated also. So that is why when we looked at the balance INR76 billion and then when we looked at what has come out of these two portfolios, 77% has really come out of this.

Okay.

So I always said that the bulk of it will come in, it doesn’t mean that 100% will come from that. At the same time, bulk we believe that 77% has really come out of that. And also on the balance, we didn’t see any sectorial pattern and as I said the balance which has slipped also, 30% of that we have clear visibility of that’s getting upgraded. And when it will get upgraded we’ll have to really look at. Our endeavor will be to upgrade as fast as possible.

And just one thing on the portfolio that we are tracking in terms of the drilldown exposure on Slide 27.

Yes.

We have also listed down that there is about INR20 billion of non-fund-based exposure to borrowers already classified as NPA, which we are closely monitoring for potential development. So that is also a part that – one you’d consider as a part of the overall drilldown, this non-fund exposure that we have to an existing NPA and the restructured portfolio there. These are the buckets from where the bulk of the additions would come from the corporate and the SME segment. The retail numbers are pretty normal in terms of what we have been seeing --

And we didn’t see any real pattern of that normal run rate getting changed in the quarter on the retail side.

Okay, that’s very clear. Thank you so much.

Thank you.

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

Hi. So firstly on NIMs, like this quarter, domestic NIMs was down 30 basis points. Would you say that it’s largely because of non-accrual or apart from the 5, 6 basis points of the income tax refund that you didn’t get? But apart from that, everything is from non-accrual or genuine pressure on the basic business as well?

No, it’s mainly non-accrual.

And the income tax fees.

And the income tax fees and we don’t see any real pressure more than what it was earlier on the business side. And funding cost where liquidity is very comfortable, the deposit rates are very benign. So we don’t see any pressure on just the funding or the lending side otherwise.

And this is non-accrual or you have also made some more reversals as well?

I think Rakesh mentioned it earlier on the NPL accounting, so that is really the – apart from the interest which is collected in cash, whatever is accrued in respect of the NPL slippage just get reversed. So that is part of this net interest income line.

Okay. And second, the asset sale that we have done, we have done at 15-85, as in 15% cash and 85 SR?

Yes, that’s correct.

Okay. And so this will include, what, all sectors or any one or two particular sector that you would have sold?

This would be actually a set of loans across sectors. There are no sectors specific.

Okay. And lastly, you used INR8 billion of contingency provision, which means that INR28 billion of contingency provision is still pending, which you may use probably when more NPLs get recognized over the course of the year?

Yes. So the collective contingency and related reserve is essentially held against the exposures that we lift on in the drilldown list which is there on Slide 27. So as and when we see slippages from that portfolio into NPA or restructuring or any provision requirement, which comes about, that is when this provision will get realized.

Okay. So this 36 billion is against the watchlist only, right?

On the rest of the portfolio within these sectors also we really don’t believe that there should be any --

Okay. Thank you so much.

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

Hi. On Slide 27, could you clarify what these meant by all those number on point four? There is already an exposure outstanding of 20, then what is 33?

20 is the number that we had given in March also, which pertains to exposure to borrowers which are already NPA, and which we are closely monitoring for potential development. In addition to that, there is INR13 billion of more non-fund-based outstanding to borrowers which are already NPA. So that is the only difference. The aggregate number is 33, which includes the 20 mentioned in the first part of the table.

So basically it means off the 33, 13 is already classified as an NPA?

No, all these are non-fund based, so there is no question of classifying them in the loan book. It’s just that we have highlighted saying that there is INR13 billion other than just INR20 billion of non-fund-based exposure to those cases the fund based of which has been classified as NPA.

Okay. And so therefore what do you think is the chance of development of the entire 33 billion?

We keep monitoring this, because since the fund-based exposure has become NPL, then we closely monitor this for any potential development. That is why the last time we had put out this number as a separate for loan.

Right. And so related to this only, so when we talk about this watchlist, funded side you have given us a limit-based – you have included the limits. So how is the limit conversion happening on the non-funded side? It will be actually good to understand vis-à-vis the outstanding non-fund, what is the limits that we have to some of these entities?

The drilldown that we have given that already includes the non-fund-based outstanding. I don’t think that during the quarter, we would have seen any meaningful change in that number.

Not in the outstanding, I’m talking about the limit?

I think that we should focus on the aggregate number because the risk, which is there, pertains to both the fund and the non-fund part of the book.

Rakesh, I understand. What I’m saying is we’ve added – obviously we have added apples and oranges, but on the oranges we have taken what I can see. What I cannot see is the limits? And there will be conversions from the limits to outstanding on the non-funded side as well.

We really don’t expect anything meaningful to kind of convert from an unutilized limit on these cases, because they are pretty activity monitoring it and we would not really be releasing fresh limits for almost all these borrowers. So that should not be a concern.

I’m sorry, I’m probably nitpicking. What do you mean by monitoring? If something has to go bad, it will go bad. How do you protect?

This is the limit which is there, so it’s an unutilized limit. So the non-fund-based outstanding which is there, if you have given a performance guarantee, a financial guarantee or issued an LC, that is something I cannot do anything about in terms of managing the risk on that. It’s already outstanding with me. The unutilized limit which is there is firstly it would not be a large number for these cases. And even if it is there, we would really not be – in most of these cases, for example, cancelling those limits or not allowing the borrower to utilize those unutilized non-fund-based limits or even fund-based limits.

Okay, that’s helpful. Secondly, could you clarify what is our accrual basis on this watchlist? Is it accrual or is it cash basis right now?

It is accrual.

Okay. Can I get some understanding about – if you start doing this on a cash basis, at least one of the other new bank has been doing it for a while now, would you consider that as a prudent measure?

Yes, but again you’re really talking about if it gets unpaid for 90 days, it becomes NPL. So then there is no question. I don’t think one can keep on accruing forever. And also that is why we have given you a comfort of giving this aggregate number on a quarter-on-quarter basis so you also can see that we are not adding to the numbers in this list. So that is how we are working. So it’s a matter of time. I don’t think that we can keep on accruing without classifying it. So it’s just 90 days. The endeavor would be to collect interest in every single case and the interest collection comes in here. But, yes, there is an automatic second balance here if it is more than 90 days, it becomes NPL. And for your comfort we have started giving the aggregate number as you can see. And as you can see from the aggregate numbers, we have not really added too much in terms of the outstanding going up in these assets.

Okay, great. And if I can quickly slip a third question. When I look at the total exposure for the Bank and split it by at least the 10 top sectors that has been put out, there has been a significant decline on a sequential basis. Unfortunately, you don’t provide y-o-y. I don’t have exposure percentage on a y-o-y basis. It kind of highlights what you are doing in terms of maybe following a concentration risk or something. My worry is are you losing out on choosing risk probably at this right time?

On Slide 23 where we have given the sector-wise exposures, you would find that the decline in exposures between March and June has largely been in the Bank’s exposure that we have. We had a very high level of liquidity at March 31. So some of them would have been lying as balances with banks in domestic and overseas for that particular day or two. So that is the amount which has reduced between March and June. Otherwise, we continue to grow really well on the retail side. And even on the corporate side you would have seen that this quarter our growth picked up and gone into double digits, and we are pretty confident that given the pipeline of business that we see, which is there, that we should be able to grow that portfolio pretty well. And we are pretty confident with the entire framework that we have put around the concentration risk and other tightening that we have done to be able to grow in the corporate here as well. So I don’t see that is a concern. The specific movement in the quarter is more related to a bank exposure which you see have come down from being 8% of total to about 6% of the total.

Yes, that’s right. By the way, what is the services finance? It is like micro-finance?

That will include all financial entity, so it will include non-bank finance companies, it will include housing finance companies, it will also include --

Will that also include our exposure to our own subsidiary into this?

At [indiscernible], yes.

Will there be a large portion or --?

Not really. We would have some funding to our company, but that will not be a large portion.

Okay, great. Thank you so much guys.

Thank you.

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

Hi. I just have a few questions. One, just on the movement of the SR. If I remember correctly, Kannan, did you indicate [indiscernible] the reduction on the gross NPA was about 5,300 crores due to sale to ARC?

Yes.

You sold it at a net – the NPA reduction was 22,230 crores.

Gross NPA reduction was 5,300, net NPA production was 2,200.

And it was sold at a loss of 530 crores?

So the gross loss was 530 crores. There is also a profit on some of these assets which we are not permitted to take into the P&L.

Perfect. This 2,230 crores minus 530 crores reaches to a number like 1,700 crores. So that is the actual value of the sale.

No. In the sense that, like Anindya mentioned that there will be some assets which will have a positive also. So actual value of the sale would be adjusted for that, but that cannot go into the P&L.

Perfect. I'm just trying to understand the worst case scenario is that the number could be about 1,800 crores. Just trying to understand, if 1,700 crores against this, the gross loss is about 5,300 crores. So the asset sale was sold at about 30%?

Yes.

A third of that, okay. The second question is that, in response to an earlier one, the SDR in the last quarter was indicated that all was restructured. You had about 29.3 and it said all restructured. Today you're saying 27 billion, which is all standards. So just trying to understand.

No, we never said. I think that the mention of 27 million on standard was with reference to 5/25, not SDR.

Mahesh, they happen to be the same numbers. That is the only thing. The 5/25 refinancing which is there in the books today is INR27 billion. Those are not covered as part of restructured is what we had said. The SDRs that we have done till date is largely loans which were already restructured. There are one or two cases which could be standard in that, but the bulk of that is already NPA or restructured.

The two numbers are similar, that’s why.

Okay. Perfect. And there was an indication in the last quarter that 5 billion of SDR and 7.5 billion of 5/25 was pending?

Yes. So in terms of the SDR, I think that that would have happened. 5/25, we have not done anything in the current quarter.

Okay. And last, just two qualitative questions. One, international NPA, if you can – international portfolios NPA if you can provide off a domestic standalone bank? And Kannan has indicated last time the fee income both grow at the double-digit. In FY '17, it seems to kind of deteriorated further from levels that we were, and what's happening on this front? That's it. Thanks a lot.

What is NPA, we have not given separately. It seems in future we can give that separately, Mahesh. On the fee income, indeed, we have seen reasonably good growth on the retail side around 11%, 12%, and we would expect that growth to clearly increase during the rest of the year, as we go into the quarter. On the corporate side, as we reorient our overall business, we are continuing to see a decline in the overall fee income which is there on the corporate side. To that extent, the aggregate fee growth, you are right, is kind of running below our expectations currently at about 2%. We are hopeful that we should see an improvement from this in the coming quarters. But yes, it is clearly running below our expectations.

The reason I am asking is that what is driving the maximum slowdown in fee income in that space on the corporate side, because broadly the corporates has not grown. The loan book is still growing. You are seeing some activity in the portfolio.

If we look at, for example, on the corporate side you would have seen it even in some of the disclosure we make on the capital if you look at the risk-weighted assets. So we really have not seen any increase on the non-fund-based businesses in this quarter or over the last year or so. But clearly some of those revenues have come down. Some of the lending linked fees also has come down incrementally, as we have said, for the last year or so that we are doing a lot more of high-rated clients where those kind of opportunities are much more limited. So a part of it is also a result of the reorientation of the incremental business that we are doing. But even taking that into consideration I think we are running below what our expectations for the year were.

Perfect. Thanks.

Sir, are you done with your questions.

Yes, I’m done.

Thank you. Reminder to the participants to please limit your questions up to two per participant. If you have a follow-up question, we request you to please rejoin the queue. The next question is from the line of Krishnan ASV from Motilal Oswal Securities. Please go ahead.

Hi. I have two questions both related to slides 27 and 28. So on Slide 28, I just want to understand the second row item there, the net rating upgrade to investment grade. It's a very small proportion of the 440 billion today, but just wanted to understand since these are internal ratings, what is really driving these upgrades? That's part one.

Yes, the company performance. So we are really talking about a couple of cases, we are not talking about several cases. In a couple of cases, the company performance has become better and they are regular in meeting the payment. And as you know, the capacity utilization on other things have increased on that basis. The risk management team had upgraded some internal rating. So we are really talking about one or two cases nothing more than that.

No, so I'm not looking at the numbers per se. I just wanted to understand the philosophy behind what might be driving these upgrades since these are internal ratings?

Yes, I agree but we focus rating model and it’s a normal process of rating review happens by the risk management team on that basis.

Great, thanks. My second question is on Slide 27. There is a row item around promoter entities. That number has inched up a little bit sequentially from the March quarter to the June quarter. Are these exposures usually ring fenced [ph]?

The increase would not really be that we have disbursed any fresh money, but some of these are foreign currency denominated. So currency depreciation would have had some impact. It would be those things. We would not have really given our fresh look.

Okay. Sorry, I couldn't quite understand.

No, what Anindya was saying was that it is – to your question of whether it has ring fenced, clearly no. On this list we are extremely careful about lending any further money. On the specific question of promoter entities, he was saying that the movement could be because of the exchange rate fluctuations and not because of lending additional monies to those companies. Some of these are denominated in foreign currency.

Right. So it can't be that incrementally lend fund-based in type of disbursement and that can be rooted to pay one of those other sectors. That can't quite happen anymore, right?

If it happened, we would have seen it in terms of movement. Clearly that is something which we have not done.

Correct, okay. So, that's ring fenced. Great. Fine, that's helpful. Just one last question around the 5/25 in SDR, have we done anything incremental during the quarter in terms of what is the movement of the 5/25 in SDR during the quarter?

5/25 we have not done during the quarter.

SDR is marginal.

SDR was marginal. Of course there are cases in which banks have invoked SDR which is not yet kind of implemented by banks. There are a few cases, which are there, which we’ll kind of – we’ll see as they get implemented.

Great, very helpful. Many thanks.

Thank you.

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

Hi. My question was related to your retail loan growth. So if I look at overall banking system is growing at around 19% and bases are growing even at a faster rate. So if I look at the total system, it's growing probably at the fastest rate in the last five, six years. So it's more demand because definitely economy has slowed down over the last three, four years or is it just because lenders are more open to lending?

I don't think it is to do with lenders being more open to lending. I think that there is demand which is there. For example, in the housing segment itself, while the amount of the investment kind of thing by consumers has come down, but genuine demand is there and the amount of lending that banks and [indiscernible] are doing in Tier 2, Tier 3 locations, that has sustained pretty well. So that has seen an increase. On the unsecured side, personal loans and credit cards, I think the way the credit bureau has evolved, that has given banks a lot more confidence to do lending there. So over the last two or three years, you have seen that growing as well. On the commercial vehicle side, we clearly are seeing an improvement in the underlying business demand this year. So, again, the growth this year will be better than what we saw last year. Car loans is pretty much I would say kind of flat in terms of the demand incrementally. So overall, if you look at each of the underlying businesses within retail and also the rural part of it, I think there is clearly genuine demand which is there. And that is driving that 17%, 18% growth that you see at the banking system for this segment.

Are there any parameters which you are watching just to ensure that risk is not building up in the system and on your own loan book?

One, of course, is very specific to the portfolio. We track the positive portfolio, what is the expected vintage curve that we had and how it is kind of behaving actually in terms of the past. So those trends are pretty stable and within our expectations – actually well within our expectations. So there is nothing really to worry from that point of view, but we also look at it from an external perspective. So indeed some of the portfolios, for example, like loan against property where there is a lot of talk about that there could potentially be some stress there, we are tracking that portfolio closely. But as of now, we don't really see any worry there on the portfolio. The mortgage portfolio, car loans, the unsecured part of it, each one of those segments are doing pretty well in terms of any of the credit parameters that we see.

Okay. Thank you very much.

Thank you. The next question is from Gaurav Agarwal from E&R Advisors. Please go ahead.

Thanks a lot for the opportunity. So just a small clarification. Last quarter your 5/25 refinance stock number was 4,200 crores, is it? And it has come down to 2,700 crore.

Yes.

So how's the movement being there? Has it slipped to NPA or is it upgraded?

It would have slipped into NPA, you won't really have an upgrade out of 5/25.

So it is 1,500 crores. So if I look at your NPA slippages, so some part has come – so was it a part of your watchlist, is it?

It would have been in the drilldown exposure that we handed out.

Sure, got it. Thank you so much, sir. That’s all.

Thank you. The next question is from the line of Adarsh P from Nomura. Please go ahead. Adarsh, your line is unmuted, you may please go ahead. The participant has moved out of the queue, we’ll take the next question from the line of Alpesh Mehta from Motilal Oswal. Please go ahead.

Hi. Good evening. First question is on the employee expenses this quarter. Again, it has been in the low-single digits. So what's a view on that front? Would that come back to the double digits or do you expect it to be at the current levels?

For the year, as I said earlier, I think overall expenses you will see a higher trend than the 10% that we had for the current quarter. A part of that increase will also come about in the employee expenses. So broadly speaking of which we would have had an increase in average salaries for employees, which could have been around somewhere between, say, 8% to 10%, plus we would be looking at adding employees during the year. In the first quarter itself, we have added about 3,000 to 3,500 people. So it would be fair to assume that there would be an increase in the employee expenses.

Okay. Secondly, about the coverage ratio over the quarters we have seeing that the coverage ratio is dropping. So any guidance on that front that we would be comfortable at around 50% or 45%, something like that?

So in terms of the coverage ratio this quarter, as we said earlier, there has been a higher amount of write-offs which have happened on the portfolio plus also for the loans that we sold down. So to that extent, the coverage ratio has come down. We also have the coverage ratio where we give including the technical write-offs, that is something which is still closer to 50%. So it’s difficult to give a specific number in terms of target that we would have on the PCS. Some of the movement is a result of the write-offs and the loan sales that we have done.

Okay. And what's the share of retail fees as a proportion of overall fees now?

Around 70%.

Around 70%. And when I look at the top 10 sector exposures, the retail exposure if I reverse calculate the numbers, there is a difference between the retail loans and the retail exposure of almost 550 billion. What would that be for?

A couple exposures really. I think one of the items would be, for example, in credit cards there would be limits which are there. So there would be those kind of differences, because what we gave in the loan portfolio outstanding is what you’re talking about. Credit card limits will be one – obviously difference that will be there.

And the outstanding versus limit, what you got, 18%, 20%, in case of a credit card portfolio?

I don't have a number ready on that, but they would also be – for example on home loans where we have sanctioned home loans and it was [indiscernible] over a period of time as the construction happens. So this will be those kind of items.

Okay, but the products would be the same. There is no additional product in case of a exposure list versus the outstanding?

No. No additional product.

And from a dissolution perspective, so we have seen almost 12% reduction into the fund-based watchlist. Based on the behavior of that portfolio, where do you see that number going by end of this year? Would that be around – because we were expecting roughly the large part of the stress to come in the first half of the year? Is it still fair to assume that out of that watchlist, the major proportion of the stress should be in FY '17 as compared to in FY '18?

As we have said that these slippages, whatever we could see from this drilldown list, we said it will happen over a period of two years. That is what we had mentioned. And within two years, it could get up frontend with what we had mentioned earlier. Beyond that, as I said, every single case we have been working towards resolution, that depends on when the resolutions materialize or in between the resolution if they slip into NPL, it really depends on that. So I'm sorry, I have to just repeat what I said earlier, but that is how we are looking at this portfolio, not in terms of dissolution rate or anything like that.

And lastly, just two more clarification. One when we report the top key sector exposures, so for example in the current quarter, the iron and steel exposure has come down from 425 billion to around 370 billion. So any sale to ARC or anything we will remove from the balance sheet, it will not be included over here, right. SRs will not be included in this exposure?

Yes, but as we have mentioned, those sales have been out of the opening NPLs which anyway was not part of drilldown.

Okay. And lastly the entire SDR book is NPLs for us and only 27 billion of 5/25 is the standard --

Here more, as we said, would largely be either NPL or restructure and maybe one or two accounts, which would be either NPL or restructure.

Perfect. Thank you so much.

And 5/25 is standard.

Perfect. Thank you so much. All the best.

Thank you.

Thank you. Ladies and gentlemen, that was the last question for today. I would now like to handover the floor back to Ms. Kochhar and Mr. N. S. Kannan for his closing comments. Over to you.

Thank you. We explained how we are following our four-by-four agenda and how we are on the path of strategic focus that we have identified. And I think we have covered a lot of details in the questions, so thank you very much.

Thank you.

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