ICICI Bank Limited earnings call

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

My first question was on margins regarding the change in method. Now fourth quarter is the quarter where you see the biggest positive impact of the old method. So your margin decline even adjusted for the interest on tax refund appears to be just four to five basis points. Is that a correct assessment? That is my first question. Or if you could give a like-to-like comparison of margins for the fourth quarter, that would be even better. And then my second question is on growth because that is an obvious challenge for the sector and nothing seems to be growing much other than low yield corporate loans . In home loans, there is intense competition. When do you see growth reviving and where do you see ICICI’s loan growth to settle? Would mid-teens still be possible? Yes. Those are my questions.

Thanks, Mahrukh. On the first one, yes, the reported margin for Q4 would have been a few basis points lower. So, the kind of range that you spoke of is probably correct. But equally, the same Q3 to Q4 spike will not happen in the current year. We will have a more even spread of reported margin through the year. On the growth side, I think as you know, in the first quarter, there have been a number of global events, etc., which I guess had some impact on the sentiment. But the substantial monetary easing that has taken place starting from Q4 particularly and carry ing through into Q1, will also have some positive impact hopefully as we go along. So, I think it is too early to say. We will have to wait for another quarter to really form a view about how it is going to go.

Okay. Thanks a lot. We will take our next question from the line of Kunal Shah from Citigroup. Please go ahead.

So, sorry again to touch upon on margin. Fair to say maybe the unwinding which was expected to come in the first quarter, maybe because of this day benefit that would not have been there in this particular quarter. Otherwise, any which way was like we are comparing 4.41% to 4.34%. So, maybe like four-five basis points of unwinding is not really there in this quarter and thereafter maybe adjusting for interest on income tax refund, we have seen like 14 bps kind of a decline in NIMs on a quarter-on-quarter basis. Would that be correct?

No, that would not be correct because there is no unwinding in the first quarter. NIM typically declines from Q4 to Q1 because of the higher number of days in Q1 and then there is a pickup again in Q4. So, the Q4 NIM, if we had used an equal month basis would have been lower than the reported number of 4.41%. But I think that is why e ven in our previous calls we have focused attention on the previous year’s full year NIM of 4.3% as the anchor for further discussion. But we thought that it would also be good to eliminate that one confusion point.

Yes. So, the only thing was maybe unwinding I just meant to say that the benefit which was there in the fourth quarter that have been relatively lower in the first quarter by say four-five basis points, which goes away, which is not there in the computation now?

No. If you look at, for example, the reported margins for this year and on the new basis and Q1 last year on the old basis are almost the same. There is no real impact. That impact largely comes later in the year. So, the first quarter is not impacted at all. If you are looking at a sequential analysis, then on a like -to-like basis, the reported margin for Q4 would have been a little bit lower.

Yes. So, would that have been like eight -nine basis points, how much it would have been lower?

I think I answered that. The range that Mahrukh quoted was probably the correct range.

Okay. Got it. Perfect. Yes. And secondly, with respect to the credit cost, so we have been indicating that it would normalize in a gradual manner. This quarter would have KCC slippages. But excluding that when we look at the credit cost, so would we say like now we have reached or maybe there is a further normal gradualisation, which has still to happen from the current levels adjusting for KCC? Because we are already seeing like 50, there would be some impact of KCC. So, do we expect further normalization ? Or maybe this is more like clean credit cost, which we are seeing now?

I think we have always said that currently , the underlying level would be more like about 50 basis points. Can that inch up? It could, but I don’t see any major movement.

Okay. Got it. Thanks. Yes. Next question is from the line of Harsh Modi from JP Morgan. Please go ahead.

A couple of questions. First is, if I see your mix on corporate creditors, the AA- mix has been reducing over the last few years and BBB- has been increasing. Is that the sweet spot on RORWA, that ’s why you are doing it? And any risks around that? That is the first one. The second one is on business banking. Very good numbers. What went right? And going forward, if you think about the mix of credit growth over the next, let’s say, a couple of years, where should we see the incremental delta coming from ? Any granularity you can provide would be great.

So, on the first question, I think the decline in the proportion of the very high rated is partly a function of demand and partly a function of pricing. And in some cases, we may have in earlier periods of very easy liquidity built up some portfolio there and that has gradually run off as the funding environment got tighter. Currently, of course, as you would know that overall credit growth itself has come down. And in this particular segment, there is fairly high price competition. So, we would really look at this segment as we look at all the other corporate borrowers from a Customer 360 perspective and look at the totality of our relationship with the borrower. And in that context, if lending makes sense, we would do it. As far as the increase in the proportion, I think we are comfortable with the entire A bucket. So, to answer your question, that is probably the segment where you do have the right balance of risk-reward, although we have competition in those segments also. I think on the lower-rated origination in BBB and below, we have fairly tight controls and limits on how we approach that segment and it is quite calibrated. So, overall, I think the reduction in the proportion of the high rated is really a function of demand and pricing. On your second question on business banking, I think we have spoken about it in the past couple of calls. To keep it short, I would say it ’s a combination of distribution, process and technology, the digital interfaces and capabilities that we offer to the customers and also a fairly tight focus on monitoring of the credit and managing the portfolio in a disciplined way. The last part of your question was around mix going forward. I think basis the visibility and the market share opportunity, one would expect the business banking piece to grow faster than the overall loan book and therefore that proportion should gradually go up.

Right. And one more is on the liability side. It seems you have been gaining market share on CASA deposits nationwide . N ow with rate cuts, how do you see behaviour changing , any early signs of higher degree of competition, more preponderance of sweep accounts and so on and so forth? So, do you see market share stabilizing or you still see CASA market share growing for the Bank over the next, let us say, 12 months period?

So, the current account is purely the result of presence in the transaction flows of corporates, businesses, capital markets players and so on. The savings account is the result of being sort of the primary bank or the transacting bank of the retail customer. And that is how money comes in, goes out and some level of float stays in those accounts. I do not think that there is any particular change in the competitive scenario. If you see in the quarter, I think rate actions taken by all the large banks have been more or less in the same line given the decline in the overall interest rates and the policy environment. And we would continue to focus on this segment through increasing customer acquisition, increasing our share of the customers’ wallet and trying to become the primary banker. So, we would hope that we will continue to do reasonably well. Next question is from the line of Nitin Aggarwal from Motilal Oswal.

Congrats on another set of good numbers. I have three questions. One is around the decline in cost of deposits that we have reported in the quarter. So, it seems fairly sharp 15 basis points decline. So, is it like the unwinding that we have done in respect to the high cost deposits that has resulted in this kind of decline and has it played out fully or this will continue along with the SA cut benefits in Q2 also?

There is no unwinding. As I said, the impact of the equal month convention on the reported NIM for the quarter and other ratios for the quarter is negligible. So, as far as the decline in deposits cost, it is clearly the reduction in the savings account deposit rate, large part of it was 25 basis points that was there in April, the benefit of that has been there for pretty much the full quarter. And then on the higher value deposits, there was another cut in May, which also helped. In addition, of course, for the retail term deposit s also gradually, the incremental rates repricing would reflect. Plus during the quarter, we saw a reasonable reduction in our wholesale deposit book given the continued strong growth in CASA and retail term deposits and the high liquidity that we were runn ing. The runoff of the wholesale deposit book also helped in the funding cost.

Yes. Actually I was referring to the wholesale deposit unwinding that we have done. So, the benefit of that has played out fully in this quarter or do you expect that to continue?

It is difficult to really say. We have not been aggressively raising wholesale deposits. So, as I said in the opening remarks, we would continue to see a gradual benefit of deposits cost repricing in Q2. But there will also be a higher impact of the 50 bps repo cut of June.

Right. And second question, Anindya, is around the unsecured retail growth. So, how are we looking at that segment? Because while we have been able to deliver healthy growth, but because of the systemic softness in the overall credit demand, the overall growth has come down as well. And our unsecured retail segments have not been able to contribute as you know. So, how are we seeing at those segments given the asset quality has seen some stabili sation. So how do we look at those segments in terms of their contribution going forward?

We can do more on both personal loans and credit cards. In personal loans, I think as we may have commented in the past, we are quite comfortable with the quality of origination done over the last 12 to 15 months. So, I think we can see volumes pick up and see some better growth there. And similarly, on cards also going forward, maybe some better customer acquisition is also something we can see. So, I think we are quite focused on both the segments. We could do better there than what we have done in Q1.

Right. And lastly, on the business banking, that is a segment which has been growing very well for us and very good yields. But how do you really ensure that we don’t go on to see some challenges in respect to asset quality because the kind of growth on a very decent base that the segment is at now, so how do we ensure that we don’t get into sort of asset quality challenges in the segment? Any tightening that we have done in the recent quarters? So, we have talked about the underwriting being tightened in the past. Are we looking at this on a continuous basis as the environment is getting tougher around some of these segments?

As I said, we monitor the portfolio continuously. Just to put the numbers in context, if you look at the gross NPA additions to the corporate and business banking portfolios in the quarter were about 10 billion Rupees on an aggregate portfolio of about 5.6 trillion. The business banking portfolio alone is now about 2.7 trillion. So, I think the current sort of credit behavio ur and asset quality is extremely benign. And we will probably see some increase going forward, but credit costs today are negligible. So, they may go up slightly. But the portfolio is granular and tightly monitored.

Right. Thanks, Anindya. This is really helpful.

Moderator

We will take our next question from the line of MB Mahesh from Kotak Securities. Please go ahead.

Anindya, on this question on margins, just on the yield side, with the drop of 25 basis points that you have seen, is it possible to kind of quantify how much of the repo rate cuts have flown through the loan book?

We have not quantified it. If you look at the February cut, I think it would have largely flown through almost entirely. The April cut also would have substantially flown through. Maybe we have a little bit more to happen in Q 2. The June cut , I would say has not flown through much and most of that will come through in Q2.

Sorry, just to answer the previous question, you said that the bulk of the benefit on the cost of deposit side has come from the savings account given that the contribution of wholesale is fairly small?

That is just computable, 25 bps cut on the portfolio that would have yielded a reasonable benefit.

And the second question is on the demand environment. When you say that you are ready to accelerate, portfolio is good, is it a question of demand being an issue on the ground or is it a problem with pricing?

I think maybe there is some pricing, but probably we also need to focus a little more on the distribution and the throughput. I would not say that in some of these segments, it is purely demand , if you are talking about PL and cards. In other segments, of course, overall loan growth in the system is what it is. So that reflects some softness in demand.

Perfect. And last one question. Are you allowed to restructure any standard assets let’s say, in a default book in the SMA -0, 1 and 2, are you allowed to restructure it and classify it as standard?

No.

Okay. Thank you. Next question is from the line of Piran Engineer from CLSA.

Congrats on the quarter. Just firstly a couple of clarifications on previous question. So, Nitin’s question on 15 bps reduction in cost of deposits, that also includes the number of days thing, right? Like core deposit cost would not have gone down 15 bps, correct QoQ?

As I said, the margins for the first q uarter on both basis , there would be a negligible difference, which is what we have mentioned in our opening remarks. Relative to the fourth quarter, the decline in margins would have been somewhat lower on a comparable basis.

But then, Anindya, how do I think about it in the context of you versus peers where your margins are down, say, 5-6 bps, core NIM. HDFC, Axis are down 12-13 bps. Is it just a more delayed pass -through of the repo rate cuts, is that how I should simplistically put it? Because all of you all have cut SA rates at approximately the same time and by the same amount.

I cannot really comment on others. I think , to begin with , we have been always saying that we have to look at the full year margin of last year of 4.3% and the repo rate cut and the lagged repricing of deposits will create some pressure on that. In the first quarter, I think we had the upfront benefit of the savings deposit rate cut, and we also had 6-7 basis points of the benefit of interest on income tax refund. As we go into Q2, the full impact of the 50 bps repo cut of June will come into effect. We will also have some continuing repricing of term deposits as well as the benefit of the savings rate cut that happened in May and June. And then in Q3, I guess, unless there is any change in the policy stance, the benefit of the CRR cut will also kick in.

Okay. That is helpful. Just secondly, if I have to compare retail term deposits today versus wholesale term deposits today and even adjusted for the outflow rate and the LCR competition, would wholesale rates be similar to TD rates now or lower?

No, lower. They would be lower.

It will be lower, right? So, then why are we trimming wholesale deposits when it is lower? That is what I look at.

I think it is a function of the overall liquidity that we are carrying if you look at the CASA and the term deposits. What has gone down is the deposits that were raised in the past at higher rates. If we get deposits at the rates we are quoting now, we will take them.

Lastly on vehicle loans, I mean, our growth has gone down to 2% -3%, of course, demand has slowed down , there is no doubt about it. But it’s not slowed down so much also. Is this more a function of us just being cautious on pricing and that’s why we are choosing not to grow here?

So, the price competition has always been a part of it and of course, the underlying asset class also is not growing at that pace.

Okay, Got it. Thank you.

Moderator

Ladies and gentlemen, we will take that as the last question for today. I now hand the conference over to management for closing comments. Over to you, sir.

Thank you very much for taking time on a Saturday, and we are happy to clear any other doubts offline. Thank you. Thank you. On behalf of ICICI Bank, that concludes this conference. Thank you for joining us and you may now disconnect your lines.