ICICI Bank Limited analyst Q&A

My first question is on the standard asset provision. So, what is the size of the portfolio on which these provisions were to be made? And what will be the impact on operating expenses now that you have that much lower priority portfolio? Also, what was the classification issue? As in, I mean, what was non-compliant about the classification? So, that's my first question. And my second question is on margins. So, obviously, margins are he ld steady. There is a rate cut and there is again aggressive competitio n in mortgage pricing. So, how do you view your margins from here on? Is there some amount of deposit repricing still left , which will help hold up margins at these levels in the near future? So, those were my questions.

So, coming to the first set of questions, I think, as we have said, following the supervisory review, the regulator has directed us to make this provision of Rs. 12.83 billion, and that is what has been communicated and we have made it. The underlying portfolio that we need to work out and resolve in terms of ensuring conformity with the PSL guidelines would be between, Rs. 200 to 250 billion or so. And as far as the cost aspect is concerned, we will be working to bring this portfolio into conformity with the regulatory expectations and thereby minimize both the provisioning and the PSL impact. On the underlying issues, I think those are really observations made by the regulator as part of its inspection process. So, we wouldn't want to go into those details, but the outcomes are what we have reported. Coming to your next question on margin, as you rightly said, if we look at the current quarter, Q3, which has gone by, we did have the impact of repricing of loans, both on account of repo and MCLR. And we also had the seasonally higher non-accrual impact on the KCC NPAs. This was offset by some amount of deposit repricing and also the benefit of the CRR cut. If we look ahead into Q4, I think that level of non-accrual will not be there. We will see the impact of the repo repricing as well as MCLR on the flo ating rate loan book, the repo cut which happened in December in particular. But at the same time, we should continue to see some amount of repricing of the retail deposits. So, overall, we would stay with our view that the NIM should be range-bound from here on.

Okay. Thank you. Thanks a lot.

Thank you. We'll take our next question from the line of Rikin Shah from IIFL Capital. Please go ahead.

I had three questions. So, the first one is on, I just wanted to understand, was there any additional PSL cost due to the declassification of this agri-loans as non- PSL? Was there any cost in the P&L this quarter or any potential cost in operating expenses in the quarters to come? So, that's first. The second one is on the growth. So, just wanted to get a sense, are you seeing any momentum of growth improving, i.e., even on month-on-month basis during Q3? And would you expect now the growth to improve from the current levels, within the constraints of your quality and risk framework? And the third one, specifically on the credit card. So, what is weighing on the overall credit card book growth? Is it merely a decline in the share of transactor loans following the festive pick -up in Q2, or there is more to read into it? Those are my questions.

So, first, in general, the cost of PSL compliance has been going up. We do meet a part of our PSL obligations by buying the priority sector lending certificates, and the cost of those has steadily gone up over the last few quarters. So, part of the increase, for example, or the level of operating expenses over the last couple of quarters has been due to that. But I would say that is not being done specifically in the context of this regulatory observation. That is something we keep looking at on a totality basis and analysing what is the most efficient thing to do in terms of meeting the priority sector lending requirements. As far as this particular observation is concerned, as I said, we would be working to kind of bring this portfolio into conformity with the regulatory expectations and thereby minimize the impact. And so, I would not want to call out any additional cost, etc. at this juncture. We will assess it in totality and see where we go , and try to absorb it in the P&L. So, that was the first one. Your second question was on growth. So, clearly we have seen a pickup in the sequential growth rate in the fourth quarter vis -à-vis the third quarter, despite the rundown in cards, which I will come to separately, certainly there has been a pickup in moment um. And we see that momentum sustaining into the fourth quarter as well. Even the year -on-year growth rate, which is impacted by the trailing four quarters has picked up in the current quarter, reflecting more recent trends. And I would expect that to continue into Q4 as well. On the credit card specifically, we had a very strong book growth sequentially in Q2 because of the last week festive spends, which were billed and repaid in the current quarter. So, that is the main reason for the movement in the current quarter. We feel that the book should grow from here on. In both credit cards and PL, one thing, as we have been saying, that the quality of credit has certainly improved. So, if you look at our aggregate retail NPLs, excluding the KCC, have come down in terms of NPL formation. And we are pretty comfortable with the quality now across secured and unsecured. In personal loans also, a very small uptick, but there has been an uptick in Q3 on the year-on-year growth and the sequential growth. So, we are quite positive on what we are underwriting. And it's a question of leveraging our franchise to grow these businesses. Of course, there is price competition across the board, but that's something we will have to keep optimizing and managing.

So, just a clarification on the first one. While you are not calling out any additional operating expenses-related costs due to this regulatory observation, there would be this Rs. 200 billion-250 billion of the loans which are now declassified as PSL. So, to meet that shortfall, would you be requiring to do more of RIDF bonds or PSLC? Or do you think that the organic PSL generation itself will take care of the shortfall and hence no additional cost impact?

So, the first step is that we will work to bring this portfolio into conformity with the PSL requirements. And that is how we will minimize the shortfall and the impact thereof. That would be the first objective. Thereafter, we will assess overall, as we do in any case on an ongoing basis, that to the extent after organic and inorganic generation of priority sector loans, whether we should buy PSLCs or we can live with some amount of RIDF call, that is an analysis that we anyway do on an ongoing basis. And over the years, we have improved our PSL compliance. So, our RIDF book outstanding currently , on a relatively larger balance sheet, is down to one-third of its peak levels.

Got it, sir. Thank you. And congratulations, Mr. Bak hshi, for the appointment. Thank you.

Thank you.

Thank you. Next question is from the line of Kunal Shah from Citigroup. Please go ahead.

A couple of questions, sorry, again, to harp upon on the credit card side. But even now, when we look at the portfolio, it is almost at a similar level to where we were in June. In fact, like hardly any growth out there over and above June. And this kind of a trend we had not seen in the earlier years during the festive wherein it tends to run down. So, any particular cohort or maybe like the transactor proportion significantly going up, which is leading to this?

So, the transactor portion has gone up for across most players. In our case, there is nothing specific other than the fact that we had an unusually strong growth in Q2, and that has got an offset in Q3.

But how should we compare it with first quarter or maybe Q4 end? Because since Q4 end also, there is a decline in the portfolio, and even from first quarter, it has just been flat over two quarters, despite this trend going up?

See, as we have said in the past, we are not looking at credit card just as a product portfolio in itself, but really as part of an overall customer offering , and most of our new launches are aimed at enriching the offering to attract good customers and really be able to bank them on a 360 basis. But as I said, in this quarter, the book decline is more one -off and we should see it gradually improve from here on.

Sure. And secondly, on the corporate side, so significant traction on a quarter-on- quarter basis. And within the risk framework or maybe on a risk -calibrated operating profit level, earlier it was thought that maybe PSU entities would not be giving us that kind of a benefit or operating profit. And we are seeing the increase in the BBB proportion as well. No doubt you have earlier alluded that , that's because of the business banking. But is the larger part of the growth on the corporate also coming in that segment of BBB or not really?

No. If we look at our approach to the corporate sector - to the corporate loan growth, one, corporates are well-funded and have multiple sources of funding, to the extent that they are accessing bank funding, we are very happy to participate. It has been very price competitive. So , we do look at what is the overall relationship with the corporate. And wherever we have a franchise and we want to build a franchise, we do participate quite actively. One of the things that has changed maybe relative to the past couple of quarters is kind of the settling of the benchmark because a lot of the lending is happening at external benchmark linked rates. So, the settling of the benchmark kind of gives us more confidence to price and lend. From a credit quality perspective, we are quite comfortable with these rating grades. And, we have our own limits on BBB, for example, origination both in terms of aggregate and in terms of borrower size , and we are within those frameworks. So, we are quite comfortable with the quality.

Sure. And lastly, on overall operating expenses growth, now getting closer to like, say, 13% odd, we had seen operating expenses growth being contained almost in a single digit. So, you indicated some cost of compliance being there , but is there any other element? And would we see cost almost settling in a similar level? Or there are maybe cost containment levers which are available and it should grow below the balance sheet growth?

We will see whatever is necessary to maximize kind of the overall PPOP. I don't expect, cost to go up at the pace at which they had gone up maybe till a couple of quarters ago. If you would see, sequentially this quarter, other than the impact of the Labour Code, costs would have come down marginally on an absolute basis. So, we will work towards maximizing the PPOP and not really cutting costs per se but definitely leveraging it as well as we can. Of course, one thing is that, as far as the Labour Code is concerned, what we have accounted for is really the additional estimates of liability as they stand today. On an ongoing basis , for all companies and banks, the code will marginally increase the recurring operating costs, but that's something we'll have to just absorb as we go forward.

Okay. Got it. And congratulations Bakhshi sir for the reappointment.

Thank you.

Thank you. Next question is from Nitin Aggarwal from Motilal Oswal. Please go ahead.

Hi. Good evening and thanks for the opportunity. I have a few questions. One is on the BB segment. And if I look at the growth in the business banking has been like moderating for quite some time now. We have earlier already talked about that it is a conscious kind of a moderation that we are showing to while the quality overall remains strong. But how are we looking at this on an incremental basis? Do we now look to relax some filters? Has the growth rate now bottomed out? Some color around this?

No, business banking, we are at full steam. Actually, the moderation in the growth rate is really just a function of the base. Even this quarter, on a year-on-year basis, we have grown at 22% , a nd even the accretion this quarter is close to the accretion we've seen on the corporate side probably. The portfolio in itself now is actually larger than the corporate portfolio slightly. So, we are not holding back, and we believe that there is enough untapped space for us to do. As the portfolio grows, the growth rate, will normally moderate. The portfolio quality has also held up well. So, we are quite happy with growing this portfolio.

Okay. And likewise on the unsecured, Anindya when you said that growth rates in credit card and PL will get better. Do you see this like now moving above the overall loan growth or it will just be a recovery from where we are? Because we are currently at a very, very muted levels. Some colors to that?

I think that will take some time. When overall loan growth is 11.5% and personal loan is growing at 2%, it would be foolhardy to say that it will cross that level, but we definitely believe it should pick up from these levels.

Right. And one on this standard provision that has happened, like earlier also we have seen this happening in another bank. So just curious to know, like, are large private banks more vulnerable to this RBI directive? I mean, whatever led to this directive from the RBI, are large private banks more vulnerable? Or you can see some things happening for PSU banks also?

I really can't comment. We have to take the observation that has been given to us, comply with it and resolve it as best as we can.

Okay, great. Thank you so much. Thank you. Next question is from MB Mahesh from Kotak Securities. Please go ahead.

There are just two questions. One is on this low growth in deposits on the savings account side. If you could just kind of comment what's happening there?

Yes. So actually, over the last two quarters, our growth in the retail savings account, the individual savings account has continued to be quite strong, adjusted for seasonality. That growth typically is much better in the first and second quarters because the salary accounts see a pickup in terms of the year - end payments and so on. But we, even in this quarter, have seen a pretty strong growth in the retail savings account. Over the last two quarters, we have seen a reduction in balances in what we call the institutional banking savings accounts, which is essentially the government entities, the government schemes or departments that we bank. There the floats, the amounts have come down in absolute terms, which has resulted in a lower growth or flat on the overall savings. But the retail savings continues to do quite well. In fact, both the retail savings and the retail term, as well as the c urrent account, all have done we are quite happy with the way they are performing. The institutional SA has proved a bit of a dampener on the overall numbers. That's not that large a proportion of our deposit base, and hopefully, this impact will moderate going forward , but it has been an issue in the last couple of quarters.

Okay. When you say the corporate deposits are not a large number, it's more than a double-digit number that we are talking about here?

Yes, the institutional savings account would be 10% -12% now or definitely less than 15% of the average SA base.

Okay. The second question is the share of AA and let's say, the high investment grade, how much are you willing to take it lower as per your internal expectations?

See, we are quite comfortable with the A family and above. I think that historically, those ratings have proved to be reasonably stable and that is also where we find better risk-adjusted return. So, we are not hung up particularly on the AA, AAA part of it. And as I said, on the BBB, we have to do it selectively and really look at the counterparty carefully and operate within our limit framework.

Okay, sir. Thanks a lot.

Thank you. We'll take our next question from the line of Param Subramanian from Investec. Please go ahead.

Congratulations to Mr. Bakhshi. But my first question is related to that. So , what is the thought process behind the Board seeking a two -year extension as opposed to a full three-year extension? Because there is nothing holding us back from a regulatory perspective. So how should the stakeholders read into that? Yes, that's my first question.

So, I think the Board in consultation with the CEO have decided on a two -year appointment. As you know the current term itself ends in October 2026. So, from now till the end of the renewed term is almost three years. And nothing really further to add to that.

Fair enough. So just if I can follow up on that. So, one might read into it that this might be his last term. So that's sort of, that's the sort of signal that comes through. So, anything you want to add to that?

No, as we said, we have three years to go. So, in a lighter vein, we ’ve hopefully addressed the speculation around October ‘26. And I think it's too early to speculate about October ‘28.

Okay. Thank you. Very helpful answer. Second question, this is on the results. So, we saw a quarter-on-quarter yield on advances decline of about 21 basis points. Is this almost entirely the KCC reversal impact? This quarter impact would have been minimal.

No, there would have been multiple things. So, for example, if you look at the repo cut, which happened in June, while all loans would have repriced some in July, some in August, and some in September, the portion which repriced in September would have seen only one month of impact in Q2 and two months of impact or the full impact in Q3. Similarly, our MCLRs have also come down. We are down by about 75 basis points in this rate cut cycle. So, that would also have progressively impacted the portfolio as it repriced. So, those would be equally relevant as far as the yield on advances is concerned.

Fair enough. Thanks, Anindya. So, it means the KCC is not as much?

As we said, just to be clear, to avoid confusion, the RBI observation on standard asset provisioning has no impact on asset classification. On a regular basis in Q1 and Q3 of every year, we see seasonally higher NPLs on the rural product, which is what leads to the non -accrual, and that has happened this year in Q3 as it happened in Q1 and as it happened in Q3 and Q1 of last year at the normal level. In addition, of course, we have had this whole repricing impact of the loan book, both the external benchmark-linked book and the MCLR linked book.

Got that, Anindya. Very clear. Last question, if I may, on the fees, right? So, I mean, core fee has been sort of soft at 6% YoY. So, how should we look at it? Will this pick up when the retail loan growth eventually starts picking up? Or is unsecured or credit cards the number to track?

So, in this quarter, the cards and payments piece has been something which has been a bit of a drag in terms of year-on-year growth in this number, that we hope will pick up. Loan growth also should contribute, although a lot of the loan related fees, the processing fees and so on are under some competitive pressure. But hopefully, we would want to grow this number from here on. One good thing is that it's an extremely granular number. As we have said, 78% of the fees even in this quarter were from the retail, rural and business banking portfolios. And even the corporate fees are transaction banking-oriented fees.

Fair enough. Thank you so much. Congrats on the quarter.

Thank you. Thank you. We'll take our next question from the line of Suresh Ganapathy from Macquarie Capital. Please go ahead.

Yes, Anindya, what is your LCR this quarter?

126%.

Okay. And post the new April 2026 guidelines, would it go up or go down?

It will be kind of similar.

Okay. Flattish kind of a level. So, would you want to maintain around current levels LCR or what exactly do you guys consider? I mean, the normative level.

I think that we kind of have a certain funding structure and we maintain a certain amount of liquidity as a cushion. And that results in this number. So, can it go up down 2 -3 percentage points? It could. This is, of course, the number that we report is the average for the quarter. So, in every month, there would be periods when it, for example, goes down to 120 or something like that. But yes, at an average level, this is probably an okay level, somewhere above 120 or higher. We don't have a strict policy on that, but that's where we've been operating.

Okay. So, my final question is related to this , because if you look at it on a YoY basis, the deposit growth has lagged loan growth. We have seen a rising LDR. So, is LDR a constraint or is just a mere outcome ? As long as you maintain all these ratios intact, even if it goes up, it doesn't matter for the management or the Board. Is that the way we should look at it?

See, LDR is a function of what is the liability structure on the balance sheet and banks with higher capital ratios, higher capital levels, higher net worth as a proportion of loans can afford a higher LDR. And it's also a function of the regulatory pre-emption. So, this quarter, for the entire system and for us and most banks, the LDR would have gone up because of the CRR cut. Given the current level of capital that we hold and the regulatory requirements of liquidity, this is an okay level. I don't see it going up from here. It can moderate marginally, but we are quite comfortable at this level. In terms of our funding side, as we always say, we want to maximize the retail deposits and CASA. And then we look at the different types of wholesale funding available, which could be refinance, bonds, wholesale deposits and so on. And our reliance on wholesale deposits is pretty moderate.

Okay. Thank you, it’s clear. Thank you. Ladies and gentlemen, we'll take that as the last question for today. I now hand the conference back to management for closing comments. Over to you, sir.

Thank you very much for joining us on a Saturday evening, and we'll be available to take other questions. 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.