Ladies and gentlemen, good day, and welcome to the ICICI Bank Q2 FY '24 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Sandeep Bakhshi, Managing Director and CEO of ICICI Bank. Thank you, and over to you, sir.

Thank you. Good evening to all of you, and welcome to the ICICI Bank Earnings Call to discuss the results for Q2 of FY 2024. Joining us today on this call are Sandeep Batra, Rakesh, Anindya, and Abhinek. The Indian economy continued to be resilient amidst the uncertainties in the global environment, reflecting the actions and initiatives of the policymakers. The underlying growth momentum is visible with expansion in manufacturing and services PMI, real estate buoyancy, increasing steel and cement output, higher tax collections, and demand for travel. The government-led CapEx cycle is continuing. Though there has been a pause in the policy rate hike cycle in India, global and domestic inflation and the liquidity and rate environment continue to evolve. At ICICI Bank, our strategic focus continues to be on growing our core operating profit, less provisions, i.e., profit before tax, excluding treasury, through the 360-degree customer-centric approach and by serving opportunities across ecosystems and micro markets. We continue to operate within our strategic framework and strengthen our franchise, enhance our delivery and servicing capabilities, and expand our technology and digital offerings. The profit before tax, excluding treasury, grew by 35.7% year-on-year to INR 137.31 billion in this quarter. The core operating profit increased by 21.7% year-on-year to INR 143.14 billion in this quarter. The profit after tax grew by 35.8% year-on-year to INR 102.61 billion in this quarter. Total deposits grew by 18.8% year-on-year and 4.5% sequentially at September 30, 2023. Term deposits increased by 31.8% year-on-year and 9.2% sequentially at September 30, 2023. During the quarter, the average current and savings account deposits grew by 7.1% year-on-year and 1.1% sequentially. The bank's average liquidity coverage ratio for the quarter was about 122%. The domestic loan portfolio grew by 19.3% year-on-year and 4.8% sequentially at September 30, 2023.…

Thank you, Sandeep. I will talk about loan growth, credit quality, P&L details, growth in digital offerings, portfolio trends, and the performance of subsidiaries. On loan growth, Sandeep covered the loan growth across various segments. Coming to the growth across retail products, the mortgage portfolio grew by 16.2% year-on-year and 4.1% sequentially. Auto loans grew by 24.1% year-on-year and 5.5% sequentially. The commercial vehicles and equipment portfolio grew by 12.3% year-on-year and 4.5% sequentially. Personal loans grew by 40.4% year-on-year and 10.2% sequentially, and the credit card portfolio grew by 29.5% year-on-year and 6.2% sequentially. The personal loans and credit card portfolio were 9.4% and 3.9% of the overall loan book, respectively, at September 30, 2023. The overseas loan portfolio in U.S. dollar terms declined by 6.3% year-on-year at September 30, 2023. The overseas loan portfolio was about 3.3% of the overall loan book at September 30, 2023. The non-India linked corporate portfolio declined by 26.9% or about USD 115 million on a year-on-year basis. Of the overseas corporate portfolio, about 90% comprises Indian corporates, 6% is overseas corporates with India linkage, 2% comprises companies owned by NRIs or PIOs, and the balance 2% is non-India corporates. Moving on to credit quality. There were net additions of INR 1.16 billion to gross NPAs in the current quarter compared to INR 18.07 billion in the previous quarter. The net additions to gross NPAs were INR 13.45 billion in the retail, rural and business banking portfolios, and there were net deletions of gross NPAs of INR 12.29 billion in the corporate and SME portfolio. The gross NPA additions were INR 46.87 billion in the current quarter compared to INR 53.18 billion in the previous quarter. Recoveries and upgrades from gross NPAs, excluding write-offs and sales were INR 45.71 billion in the current…

[Operator Instructions] We have our first question from the line of Mahrukh Adajania from Nuvama.

I just had a question on the sector and then even on margins. So there's a lot of talk going around on unsecured loans, on which segment of unsecured loans is safe and which is seeing higher delinquencies. So what is your -- the sense you make of all this from the bureau data and from your own customer data? That's the first question. And then, in your experience, as veteran bankers, do you think that the stress in one segment, say below INR 50,000, can easily spread to other segments? So that's my first question.

Yes. So Mahrukh, I think, of course, we track this portfolio quite closely. And we have been doing so for the past several quarters. As far as our portfolio is concerned, we feel that the trends are quite stable. And the credit -- the delinquencies and credit costs are well within what we would have sort of expected them to be. As far as the industry outlook is concerned, I think we have also seen some of the research, which has come out, which makes this distinction between the smaller ticket size loans and the larger ticket size loans. As far as our portfolio is concerned, we have a very minimal presence in the smaller ticket size segment. But I think you're right in the sense that if we start seeing significant increase in delinquencies on personal loans, that would have implications for other parts of the portfolio as well, potentially. But I think if we have kind of focused the portfolio, as we believe we have, on existing customers, on cross-sell, and on customers with credit scores above a certain level, and also properly assessed and monitored their level of leverage and how many loans they are servicing at any point in time, we feel that the risk should not be something which should cause too much concern, but we will continue to monitor this as we go along. As things stand in our portfolio, the numbers are pretty comfortable, and that is why you would have seen us growing the portfolio also at a similar pace this quarter as we have been growing for the past several quarters.

Okay. But as the portfolio seasons, even in your portfolio, would it be fair to say that there would be a rise in delinquencies over the last 6 months? Like anything to call out?

There's nothing really to call out. I mean, if you look at -- for example, we have been saying for the last several quarters that, in absolute terms, as the retail portfolio grows and seasons and some of the higher recoveries coming out of the stock of NPAs that got created during COVID, as that comes through, the net additions to gross NPAs in the retail portfolio will go up, but we have been moving in quite a stable way. And in fact, in this quarter, you have seen it coming down actually sequentially, which is partly due to the absence of -- or I would say, largely due to the absence of KCC NPAs. But even on the retail side, the performance has actually improved slightly.

Got it. And would it be possible to get the average ticket size?

I am sorry to interrupt. I request you to join back the queue, please.

Sure.

No, we have not really given that out. But as I said, our presence in the smaller ticket size would be marginal.

[Operator Instructions] We'll take our next question from the line of Saurabh S. Kumar from JPMorgan.

Just two questions. One is your recovery and upgrades, so your retail slippages are running at 3% and your recovery upgrades are like 60% of that. Is that what you would consider like as a normal run rate in this business now?

I guess so. I mean, as the portfolio grows in absolute terms, it may go up, but we expect these trends to be reasonably stable. There could be some little variation quarter-to-quarter.

Okay. And second, sir, again, back to the PL, the 40% growth that you are seeing, your approval rates on loans will be -- where would this be versus, let's say, 2023 and versus like 2019 in terms of your internal credit filters?

We have not really talked about approval rates and so on. I think we've given our outlook on the portfolio, and we will continue to monitor it as we go along.

Okay. But your credit filters internally have come down over the last 1 year? I mean, if you can give some additional color?

No, I don't think we would have diluted our credit filters. In general, I think we have been focusing on progressively more on the upper end of the spectrum.

We'll take our next question from the line of Chintan Joshi from Bernstein.

I have two areas. One is on kind of lending and deposit yields, and second is on your branch expansion strategy. Lending yields have gone up 5 basis points this quarter, which felt a little low. And cost of deposit yields -- cost of deposits has gone up substantially. How much repricing is left on the deposits and on the lending side? That's the first question. And the second question is, HDFC is growing branches quite aggressively now. It's leaving some of the other private sector banks behind on market share relative to the private sector. How does this impact kind of your branch expansion strategy on a 3-year view?

So as far as the first question is concerned, I think you're aware that the way margins for most banks have moved over the last few quarters is that in fiscal '23, banks saw the benefit of the increase in the repo rate on the external benchmark-linked loans, primarily mortgages and others. And the deposit rate started to also go up last year, but because the deposits are fixed rate, fixed term, that repricing impact is playing out through the quarters and we are currently in the situation where the policy rates are on a pause and therefore, the external benchmark-linked loans are not seeing an increase in yield. But the deposit cost based on, say, the deposit rate increases that took place last year are continuing to reprice as they come up for maturity and so on and so forth. So that is why, in fact, we had articulated even in the call last time that the repricing of the loan book from here on would not be significant, and that is the way that it has played out. We would continue to expect to see some increase in the cost of deposits on the book, and therefore, some moderation in margins over the next quarter or so as well, as we have articulated in the past. But on a full year basis, we continue to expect that the margins would be at a similar level as they were in fiscal '23. On your second question on branch strategy. So we have added about 350 branches in the first half of this year. We are really looking at what is our network across different micro markets and what is kind of our assessment of the opportunity in those micro markets, and what is the branch capacity we need to add to kind of serve that. And that is the basis on which we are adding, not really looking at what any other particular bank may or may not be doing.

That might leave you losing market share relative to the other players? Are you happy with that?

As I said, we are looking at what is our assessment of the market in each place, in each kind of geographical area, and what is the kind of network expansion we need to do based on that. So it kind of is aligned to whatever are our sort of growth aspirations.

We'll take our next question from the line of Hardik Shah from Goldman Sachs.

This is Rahul here. Am I audible?

Yes.

Yes. Actually, I've got 2, 3 questions. Number one, can I just get your thoughts on the competitive dynamics, particularly in mortgages and deposits, because clearly, the systemic growth has not been very strong in mortgages, and of course, some pricing pressure you hear anecdotally has started coming through. So what are your experiences in that?

So on mortgages, yes, there is -- I mean, it has always, Rahul, as you know, been a competitive segment, and it continues to be so. So we do have players offering, in particular segments that they are targeting, pretty competitive rates. But we are sort of calibrating our response and trying to make sure that we optimize across the portfolio. But overall, I think on on-loan pricing, there is a reasonable level of competitive intensity across the system.

Got it. And the reason I'm asking is, of course, credit cost has been extremely benign. So do we choose to pass on some of that and strengthen the position in the secured portfolio, because clearly unsecured -- while your portfolio is fine, but RBI had founded out, everybody across the board has been saying that the portfolios are fine, but when we speak to some of the bureaus, they do tell us that there's been some downgrades in super prime, prime customers, too. So just trying to get some head around as to how this cycle will play out. So while it is looking pretty strong at this point of time, but what RBI is saying, what the bureaus are saying in the prime, super prime customers, is there a need for you to increase your secured portfolio at some stage and therefore offer some of the pricing out there? Just trying to understand that how it evolves.

So I don't think it is like that. So if you look at our secured retail portfolios, those are going pretty well. Mortgage is growing at 16%, 17%. Auto is growing above 20%. Commercial vehicles, which was flat or growing just about in single digits for a long time, this quarter the year-on-year growth is more like 14%. Our SME and business banking portfolios are growing at the 30% kind of level. So I think we have pretty broad-based growth and certainly, we are not reliant on personal loans for growth. It's still less than 10% of our loan book. Credit cards, of course, we would want to continue to expand our franchise. Personal loans, we will continue to monitor the portfolio and whatever comes through our credit filters in the customer segments that we are comfortable with, we will take that. So in any case, we are not particularly targeting a certain level of loan growth. If credit conditions are not so favorable in our view, and we need to prune it by a percentage point or 2, that's fine. But there is no, currently, in that sense, softness in the secured loan categories either.

[Operator Instructions] We move on to our next question from the line of Kunal Shah from Citigroup.

So firstly, in terms of the international NIMs, they have gone up almost like 56-odd basis points. Are we seeing -- obviously, the portfolio is quite small now, but eventually, when we look at it, is this a steady state in the overall? Or maybe we see further improvement in the NIMs as well looking at the rates globally?

I think it is not particularly consequential, Kunal. That's a small portfolio. Incrementally, mainly what we are doing there is short-term working capital, trade finance kind of portfolio. So we do that basis the funding that is available and the rates that are -- wherever we see that the lending rates give us appropriate -- some level of spread over that funding. Particularly for some of the Indian corporates, et cetera, that market also, the Indian banks tend to be quite competitive. So in any case, in the overall scheme of things, it doesn't really make much of difference.

Yes. And secondly, in terms of the unsecured. So if you look at the retail slippage run rate which is there, any change in mix between the secured and unsecured incrementally? And is there a need to increase the rates in any segment of the personal loan portfolio, either maybe due to the industry delinquency levels or what we are seeing? And is there enough -- or maybe if you talk about the competitive intensity even within the PL, is that giving us any kind of a leverage to increase rates it need be, or it's extremely competitive from the other players?

So I would want to increase rates for every loan category and every customer, because as I said, the loan markets across all segments for, I think, the quality of customers that more banks are prioritizing from corporate through SME to retail, the rate environment is -- the pricing environment is competitive. As far as the personal loans are concerned, I mean you are aware that rates in that segment have come off meaningfully across over the last few years, I guess, driven by the favorable credit experience and driven by the entry of new players who were not perhaps present in those segments earlier. So it continues to be a profitable portfolio. So we will see it as we go along. And as long as we are able to get volumes in our chosen customer segments, we will keep looking at it. Otherwise, we can always prune it if required.

We have our next question from the line of Manish Shukla from Axis Capital.

My first question Anindya is Slide 54, there is a 5 basis points Q-o-Q decline in yield on loans when slippages have declined quarter-on-quarter. What kind of explains that?

So largely, I think it's basis the computational convention. Because the second quarter has one day more than the first quarter, so the interest computational convention lead to some decline, but that's mathematical. It will be stable in Q2 and then reverse in Q4.

Okay. Second, going back to...

And as I said, it may not have made too much impact in this quarter in terms of -- from a yield on advances perspective, but there is significant pricing competition in the market as well.

I appreciate that. But the fact that we are still in an elevated interest rate environment, I would not have expected yields to go down, especially when slippages are lower, so that's what the question came from.

But 4, 5 basis points can always happen either way.

Yes. Going back to your comment that full year margins should largely be similar to last year. Full year last year, we were at 4.5%. First year is -- first half this year is 4.65%. That implies a 4.35% for second half. Is that the way to look at it?

We can't give a specific number. As I said, we do expect margins to moderate further from the Q2 level. And hopefully, the extent of moderation could be somewhat lower. And we would be at a similar level of margins as we were last year, and that is what I think we've been consistently saying for the last couple of quarters. So we are just maintaining the same thing.

We have our next question from the line of Sameer Bhise from JM Financial.

Just a quick question on the mortgage portfolio. So if I see the presentation a few quarters back, say, a year back, the average ticket size on the portfolio was roughly INR 25 lakhs. It's right now at INR 35 lakhs. Does the sizable increase look okay? Or is there something more to read into it?

I don't recall the INR 25 lakh number. I think it was always INR 30 lakh odd. But yes, there would have been some increase in the average ticket size, that looks okay.

Okay. Because, say, 1Q '23 shows INR 2.5 million as average ticket size of the home loan, while it's INR 3.5 million right now. So just wanted to pick your brains on the same. Fine, I'll follow up offline.

We have our next question from the line of Ashish Sharma from ENAM AMC.

Just on the net interest margin being -- would you be able to sort of differentiate in terms of impact, which is because of ICC, incremental cash reserve ratio. So the NIM compression we've seen something which will not flow through in the next quarter. So any comment on that?

So ICC would have been a small impact. As I mentioned, if you look at the sequential impact, there would have been some 2, 3 basis point impact of the absence of interest on income tax refund. The ICRR would have had maybe a couple of basis points impact. But the larger impact would have -- the day count would have had some impact. But the larger impact would have been the repricing of deposits that we have spoken of earlier.

Okay. Okay. And second question would be, Anindya, on the personal loan thing. So given that our growth rate, which we are comfortable at this moment, so in terms of what regulator is saying, so I mean, I think they also have clarified the issue is on the growth part. So I mean, from a delinquency perspective, we aren't seeing anything. I mean, I think you already sort of alluded a little bit in the first question. So just reconfirming that.

I didn't allude little bit. I alluded considerably. As I said, we are comfortable with our portfolio. We believe we have underwritten it well. The delinquency levels on the portfolio are not disturbing us, but we will continue to monitor it as we go along. As I said, over the last few quarters, we've been, in any case, not present at -- our presence in the smaller ticket sizes overall in the portfolio is marginal. And over the last few quarters, we would have been migrating more towards the upper segment. So no concerns on this portfolio that we have. We will continue to monitor the credit quality and growth trends for our portfolio as well as whatever system data we take and calibrate if we need to.

We have our next question from the line of Param Subramanian from Nomura.

So first question, again, on the unsecured piece. So we're continuing to see the strong growth at least for us. If you could highlight -- explain the disconnect that we're seeing perhaps between the broader trends in consumption in discretionary expense as well as, at least for yourself, the strong growth that we are seeing in the unsecured piece, personal loans, credit cards, et cetera. Some of the use cases that have increased over the last few years, if you could highlight some of that, which is driving the strong growth that we're seeing. That's the first question.

So I wouldn't really want to talk more about the unsecured piece. I don't think that our, for example, market share in credit card spend has increased dramatically. So there is enough growth happening across the system in these categories, and we are not particularly divergent, so no further comment that I have to make on that.

Okay. Fair enough. And secondly, on this recent fine by RBI on certain -- basically on the cross-selling of nonfinancial products and 1 or 2 other reasons. Can you speak a little bit about that, because when it had happened for the peer banks, especially on this cross-sell of nonfinancial products, it had been taken pretty seriously. So any comments there would be useful. Yes, that's it for me.

So I think, as you're aware, the regulator conducts inspections and continuous examination of the activities of banks. It's a heavily regulated activity. And while we try and maintain as best levels of compliance, we can, from time to time -- in any bank, there are misses, for which this action can be taken and penalties can be imposed. As is stated in the public release, these relate to 2020 and 2021. And we have taken the necessary corrective action, as we have said in our release. So nothing more to add on to that.

Ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to management for closing comments. Over to you.

Thank you very much for taking time out on a Saturday evening, and have a good weekend.

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