Thank you very much. We will now begin the question and answer session. We have the first question from the line of Mahrukh Adajania from Nuvama. Please go ahead.

Hello, 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 the sense you make 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 50,000, can easily spread to other segments, so that's my first question.

Yes, we track this portfolio quite closely and we have be en 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 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, we have also seen some research which makes this distinction between the smaller ticket size loans and the larger ticket size loan. As far as our portfolio is concerned, we have a very minimal presence in the smaller ticket size se gment. But I think you are 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 focus ed on 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 risks should not be something which would 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 seasoned, even in your portfolio would it be fair to say that there would be a rising delinquencies over the last six months like anything to call out?

There is nothing really to call out, 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 seasoned and some of the higher recoveries coming out of the stock of NPLs that got created during COVID come down, the net additions t o gross NPLs in the retail portfolio will go up, but they have been moving quite in 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 KCC NP Ls, but even on the retail sid e the performance has actually improved slightly.

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

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

Moderator

Thank you. We will take our next question from the line of Saurabh Kumar from JP Morgan. Please go ahead.

Hi sir, just two questions. One is your recovery and upgrade, so your retail slippages are running at 3% and your recovery upgrades are like 60% of that. Is that what you would consider 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 variation quarter- to-quarter.

Okay and the second sir, again back to the PL, the 40% gr owth that you have seen, 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 have 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 one yea r, sir? I mean, if you can give us directional colour?

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

Moderator

Thank you. We will take our next question from the line of Chintan Joshi from Bernstein. Please go ahead.

Hi, thank you for the opportunity. 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 down 5 basis points this quarter, which felt a little low. And cost of deposit yields – cost of deposit has gone up substantially. How much repricing is left on the deposits and on the lending side? And, the second question is, HDFC is growing branches quite aggressively now. It is 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 three-year view?

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 in FY23, 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 term, that repricing impact is playing out throug h 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 yields. But 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 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 FY23. 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 assessment of the opportunity in those micro -markets and the branch capacity we need to add to 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 is kind of aligned to what our growth aspirations are.

Moderator

Thank you. We will take our next question from the line of Rahul Jain from Goldman Sachs. Please go ahead.

Yes, good evening everyone. Actually, I have two, three 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 here anecdotally has started coming through. So, what are your experience in that?

So on mortgages, yes, it has always 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 calibrating our response and trying to make sure that we optimize across the portfolio. But o verall, I think on loan pricing there is a reasonable level of competitive intensity across the system.

Got it. And the reason I was 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 very unsecured while your portfolio is fine, but RBI has found it 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 customers too. So just trying to get some head around as to how the cycle will play out. So while it is looking pretty strong at this point of time, but what RBI and the bureaus are saying in the Prime, Super Prime customers, is there a need for you to increase your secure portfolio at some stage and therefore offer some of the pricing out there? Just trying to understand that how it evolves.

I don't think it is like that so if you look at our secured retail portfolios those are going pretty well ; mortgages 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 is still less than 10% of our loan book. Credit cards, of course, we would want to continue to expand our franchise. For 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. In any case, we are not particularly targeting a certain level of loan growth. If credit conditions are not so favourable in our view and we need to prune it by a percentage point or two that is fine. But , currently there is no softness in the secured loan categories either.

Moderator

Our next question from the line of Kunal Shah from Citigroup. Please go ahead.

Yes, thanks for taking my question. So firstly, in terms of the international NIMs, they have gone up by almost like 56 odd b asis 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 is a small portfolio. Incrementally, mainly what we are doing there is a short-term working capital, trade finance kind of portfolio. So we do that, the funding that is available and the rates that are wherever we see that the lending rates give us appropria te level of spread over that funding particularly for some of the Indian corporates etc ., also in that market the Indian banks tend to be quite competitive. So in the overall scheme of things it does not really make much of a difference.

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 of the segment s 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 leverage to increase the rates if need be or is it extremely competitive from the other players?

So I would want to increase rates on every loan category, every customer given, because as I said, the loan markets across all segments for, I think, the quality of customers that most banks are prioritizing from corporate through SME to retail, 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 favourable credit experience and driven by the entry of new players who were not perhaps present in those segments earlier. 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.

Moderator

Thank you. We have next question from the line of Manish Shukla from Axis Capital. Please go ahead.

Thank you for the opportunity. My first question Anindya is slide 54. There is a five 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 is basis, the computational convention, because the second quarter has one day more than the first quarter. So the interest computation convention led to some decline, but that is mathematical. It will be stable in Q3 and then reverse in Q4. As I said, it may not have made too much impact in this quarter from a yield on advances perspective, but there is significant pricing competition in the market as well.

I appreciate that, Anindya. But the fact that we are still in elevated interest rate environment, I would not have expected it is to go down, especially when slippage are lower. So that is where the question came from.

But four, five basis points can always happen either way. Yes.

Okay. Going back to your comment that full year margin 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 cannot 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 woul d be at a similar level of margins as we were last year. That is what I think we have been consistently saying for the last couple of quarters. Therefore, we are just maintaining the same thing.

Moderator

Thank you. We have a next question from the line of Sameer Bhise from JM Financial. Please go ahead.

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

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

Okay, because say Q1-2023 shows 2.5 million as average ticket size of the home loan, while it is 3.5 million right now. So just wanted to pick your brains on the same? Fine, I will follow up offline. Thank you.

Moderator

Thank you. We have a next question from the line of Ashish Sharma from Enam AMC. Please go ahead.

Yes, hi. Just on the net interest margin, would you be able to sort to differentiate in terms of impact which is because of ICC, incremental cash reserve ratio? So, the NIM compression we have seen something which will not flow through in the next quarter. 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 one or a couple of basis points impact. 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. The second question would be on the personal loan. So given the growth rate, which we are comfortable at this moment , in terms of what regulator is saying, 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 think you already sort of alluded a little bit on the first question. So let's just reconfirm again?

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, our presence in the smaller ticket sizes overall in the portfolio is marginal and over the last few qua rters, we would have been migrating more towards the upper segments. So no concerns on this portfolio that we have. We will continue to monitor the growth, the credit quality and growth trends for our portfolio as well as whatever system data we get and calibrate if we need to.

Moderator

Thank you. We have the next question from the line of Param Subramanian from Nomura. Please go ahead. Mr. Subramanian.

Yes, thanks for the opportunity. So, first question again on the unsecured piece, so we are continuing to see the strong growth at least for us. If you could highlight, explain the disconnect that we are seeing perhaps between the broader trends in consumption in discretionary spend as well as, at least for yourself, t he strong growth that we're seeing in the unsecured piece, personal loans, credit cards, etc. Some of the use cases that have increased over the last few years, if you could highlight some of that, which is driving this 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 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. Secondly, on this recent fine by RBI on the cro ss selling of non - financial products and one or two other reasons. You could speak a little bit about that because, when it had happened for the peer banks, especially on this cross selling of non -financial products that had been taken seriously. So, any c omments there would be useful. Yes, that is it from me, thanks.

So I think, as you are aware, the regulator conducts, inspections and continuous examination of the activities of banks. It is 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 you know action can be taken and penalties can be imposed. As 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.

Moderator

Thank you. 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.

Moderator

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