ICICI Bank Limited

Ladies and gentlemen, good day and welcome to the ICICI Bank Q2 FY24 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. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touch tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Sandeep Bakshi, 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 FY2024. Joining us today on this call are Sandeep Batra, Rakesh, Anandya, and Abhinay. The Indian economy continues 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 ITSA 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 opportunity across ecosystems and micro-markets. We continue to operate within a 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 Rs. 137.31 billion in this quarter. The core operating profit increased by 21.7% year-on-year, to 143.14 billion rupees in this quarter. The profit after tax grew by 35.8% year on year to 102.61 billion rupees 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 accounts 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. The retail loan portfolio grew by 21.4% year-on-year and 5.5% sequentially. Including non-fund-based outstanding, the retail portfolio was 46% of the total portfolio. The business banking portfolio grew by 30.3% year-on-year and 10.6% sequentially. The SME portfolio grew by 29.4% year-on-year and 7.2% sequentially. The rural portfolio grew by 17.3% year-on-year and 3.5% sequentially. The domestic corporate portfolio grew by 15.3% year-on-year and 3.1% sequentially. The overall loan portfolio, including the international branches portfolio, grew by 18.3% year-on-year and 5% sequentially at September 30, 2023. We continue to enhance our digital offerings and platforms to onboard new customers in a seamless manner, provide them end-to-end journeys and solutions, and enable more effective data-driven cross-sell and up-sells. We have shared some details on our technology and digital offerings in slide 15 to 26 of the investor presentation. The net NPA ratio declined to 0.43% at September 30, 2023 from 0.48% at June 23 and 0.6% at September 30, 2022. During the quarter, there were net additions of 1.16 billion rupees to gross NPAs, excluding write-offs and sales. The total provisions during the quarter were 5.83 billion rupees or 4.1% of core operating profit and 0.2% of average advances. The provisioning coverage ratio on NPAs was 82.6% at September 30, 2023. In addition, the bank continues to hold contingency provisions of 131 billion rupees or about 1.2% of the total loans as of September 30, 2023. The capital position of the bank continued to be strong with a CET1 ratio of 16.77%, TR1 ratio of 16.86%, and total capital adequacy ratio of 17.59% at September 2023, including profits for H124. Looking ahead, we see many opportunities to drive this calibrated profitable growth. We believe our focus on Customer 360, extensive franchise and collaboration within the organization, Backed by our digital offerings, process improvements, and service delivery initiatives will enable us to deliver holistic solutions to customers in a seamless manner and grow market share across key segments. We will continue to make investments in technology, people, distribution, and building our brand. We will remain focused on maintaining a strong balance sheet with prudent provisioning and healthy levels of capital. The principles of return of capital, fair to customer, fair to bank, and one bank, one team, one ROE will continue to guide our operations. We remain focused on delivering consistent and predictable returns to our shareholders. I now hand the call over to Anandya.

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 US dollar term 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 US$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 1.16 billion rupees to gross NPAs in the current quarter, compared to 18.07 billion rupees in the previous quarter. The net additions to gross NPAs were 13.45 billion rupees in the retail, rural and business banking portfolios and there were net deletions of gross NPAs of 12.29 billion rupees in the corporate and SME portfolios. The gross NPA additions were 46.87 billion rupees in the current quarter compared to 53.18 billion rupees in the previous quarter. Recoveries and upgrades from gross NPAs, excluding write-offs and sales, were 45.71 billion rupees in the current quarter compared to 35.11 billion rupees in the previous quarter. The gross NPA additions from the retail, rural and business banking portfolio were 43.64 billion rupees in the current quarter compared to 50.72 billion rupees in the previous quarter. We typically see higher additions from the Kisan credit card portfolio in the first and third quarter of a fiscal year. Recoveries and upgrades from the retail, rural and business banking portfolio were 30.19 billion rupees compared to 31.4 billion rupees in the previous quarter. The gross NP additions from the corporate and SME portfolio were 3.23 billion rupees compared to 2.46 billion rupees in the previous quarter. Recoveries and upgrades from the corporate and SME portfolio were 15.52 billion rupees compared to 3.71 billion rupees in the previous quarter. The gross NPAs written off during the quarter were 19.22 billion rupees. There was sale of NPAs worth 1.79 billion rupees in the current quarter compared to no sale in the previous quarter. The sale of NPAs included Rs. 0.14 billion in cash and Rs. 0.53 billion of security receipts. As these NPAs were fully provided, we continue to hold provisions against the security receipts. The non-fund-based outstanding to borrowers classified as non-performing was Rs. 38.86 billion as of September 30, 2023. Compared to Rs. 37.04 billion as of June 30, 2023, the bank holds provisions amounting to Rs. 20.64 billion against this non-fund outstanding. The total fund-based outstanding to all standard borrowers under resolution as per various guidelines declined to Rs. 35.36 billion or about 0.3% of the total loan portfolio at September 30, 2023, from Rs. 39.46 billion at June 30, 2023. Of the total fund-based outstanding under resolution at September 30, 2023, Rs. 30 billion was from the retail, rural and business banking portfolio and Rs. 5.36 billion was from the corporate and SME portfolio. The bank holds provisions of Rs. 11.07 billion against these borrowers, which is higher than the requirement as per RBI guidelines. Moving on to the P&L details, net interest income increased by 23.8% year-on-year to Rs. 183.08 billion. The net interest margin was 4.53% in this quarter compared to 4.78% in the previous quarter and 4.31% in Q2 of last year. The sequential movement in NIM reflects the lagged impact of increase in term deposit rates over the last year on the cost of deposits. Impact of interest on income tax refund on net interest margin was nil in Q2 of this year compared to three basis points in the previous quarter and no impact in Q2 of last year. The domestic NIM was at 4.61% this quarter compared to 4.88% in the previous quarter and 4.45% in Q2 of last year. The cost of deposits was 4.53% in this quarter compared to 4.31% in the previous quarter. reflecting primarily the increase in term deposit rates over the last year, though rates on incremental retail term deposits have largely stabilized. Of the total domestic loans, interest rates on 48% are linked to the repo rate, 3% to other external benchmarks, and 18% to MCLR and other older benchmarks. The balanced 31% of loans have fixed interest rates. Non-interest income, excluding Treasury, grew by 14% year-on-year to Rs. 58.61 billion in Q2 of 2024. Free income increased by 16.2% year-on-year to Rs. 52.04 billion in this quarter. Fees from retail, rural, business banking and SME customers constituted about 78% of the total fees in this quarter. Dividend income from subsidiaries and associates was 6.48 billion rupees in this quarter, the same as due to of last year. On costs, the bank's operating expenses increased by 20.8% year-on-year in this quarter. Employee expenses increased by 29% year-on-year in this quarter. The bank had about 139,000 employees at September 30, 2023. The number of employees has increased by about 29,000 in the last 12 months. Non-employee expenses increased by 16.3% year-on-year in this quarter, primarily due to retail business-related and technology expenses. Our branch count has increased by 174 in Q2 of 2024, and we had 6,248 branches as of September 30, 2023. The technology expenses were about 9.2% of our operating expenses in H1 of this year. The core operating profit increased by 21.7% year-on-year to 143.14 billion rupees in this quarter. Excluding dividend income from subsidiaries and associates, the core operating profit grew by 22.9% year-on-year. The total provisions during the quarter were 5.83 billion rupees or 4.1% of core operating profit and 0.2% of average advances. compared to Rs. 12.92 billion in the previous quarter. The sequential decline in provisions reflects higher NPA additions from the Kisan Credit Card portfolio in Q1 of this year, and corporate recoveries and upgrades, as well as recoveries from return of accounts. The provisioning coverage on NPAs was 82.6% as of September 30, 2023. In addition, we hold Rs. 11.07 billion of provisions on borrowers under resolution. Further, the bank continues to hold contingency provision of Rs. 131 billion as of September 30, 2023. At the end of September, the total provisions, other than specific provisions on fund-based outstanding to borrowers classified as non-performing, were Rs. 229.1 billion or 2.1% of loss. The profit before tax excluding Treasury grew by 35.7% year-on-year to Rs. 137.31 billion in Q2 of this year. There was a Treasury loss of Rs. 0.85 billion in Q2 similar to Q2 of the previous year. The tax expense was Rs. 33.85 billion in this quarter compared to Rs. 24.78 billion in the corresponding quarter last year. The profit after tax grew by 35.8% year on year to 102.61 billion rupees in this quarter. To talk about the growth in digital offering, leveraging digital and technology across businesses is a key element of our strategy of growing the risk-calibrated core operating profit. We continue to see increasing adoption and usage of our digital platform by our customers. There will be more than 10 million activations of iMobile Pay by non-ICHA bank account holders as of the end of September 2023. Our merchant stack offers an array of banking and value-added services to retailers, online businesses, and large e-commerce firms such as digital current account opening, instant overdraft facilities based on point-of-sale transactions, connected banking services, and digital store management, among others. We have created more than 20 industry-specific stacks which provide bespoke and purpose-based digital solutions to corporate clients and their ecosystems. Our trade online and trade emerge platforms allow customers to perform most of their trade finance and foreign exchange transactions digitally. Our digital solutions integrate the export transaction lifecycle with solutions providing frictionless experience to our clients and simplify customer journeys. About 71% of trade transactions were done digitally in Q2 of this year. The volume of transactions through the trade online and trade emerge platforms in Q2 2024 grew by 29.7% year on year. Moving on, we have provided details on our retail business banking and SME portfolio in slides 32 to 43 of the investor presentation. The loan and non-fund-based outstanding to performing corporate and SME borrowers rated BBN below was Rs. 47.89 billion at September 30, 2023 compared to Rs. 42.76 billion at June 30, 2023 and Rs. 76.38 billion at September 30, 2022. The increase during the quarter is due to the upgrade of one borrower from non-performing status which has been rated BB on its classification as a performing account. Other than this account, the maximum single borrower outstanding in the BB and below portfolio was less than 5 billion rupees at September 30th, 2023. At September 30th, 2023, we held provisions of 8.17 billion rupees on the BB and below portfolio. This includes provisions held against borrowers under resolution included in this portfolio. The total outstanding to NBFCs and HFCs was Rs. 837.49 billion at September 30, 2023, compared to Rs. 874.18 billion at June 30, 2023. The total outstanding loans to NBFCs and HFCs were about 8% of our advances at September 30, 2023. The builder portfolio including construction finance, lease rental, discounting, term loans and working capital was 430.58 billion rupees at September 30, 2023 compared to 427.12 billion rupees at June 30, 2023. The builder portfolio is about 3.9% of our total portfolio. Our portfolio largely comprises well-established builders and this is also reflected in the sequential increase in the portfolio. About 3.5% of the build-up portfolio at September 30th, 2023 was either rated WB and below internally or was classified as non-performing compared to 3.7% at June 30th, 2023. Moving on to the consolidated results, the consolidated profit after tax grew by 36.1% year-on-year to 108.96 billion rupees in this quarter. The details of the financial performance of subsidiaries and key associates are covered in slides 46 to 49 in the investor presentation. The value of new business margin of ICICI Life was 28.8% in H1 of this year compared to 32% in fiscal 2023 and 31% in H1 of last year. The value of new business of ICICI Life was 10.15 billion rupees in H1 of this year compared to 10.92 billion rupees in H1 of last year. The annualized premium equivalent was 35.23 billion rupees in H1 of this year, compared to 35.19 billion rupees in H1 of last year. The profit after tax was 4.51 billion rupees in H1 of this year, compared to 3.55 billion rupees in H1 of last year. and Rs 2.44 billion in Q2 of 2024 compared to Rs 1.99 billion in Q2 of 2023. The gross direct premium income of ICICI General was Rs 60.86 billion in Q2 2024 compared to Rs 51.85 billion in Q2 2023. The combined ratio stood at 103.9% in Q2 2024 compared to 105.1% in Q2 2023. Excluding the impact of cat losses, the combined ratio was 102.8% in Q2 2024 and 104.3% in Q2 2023. The profit after tax was 5.77 billion rupees in Q2 2024 compared to 5.91 billion rupees is Q2 2023. The profit after tax of Q2 2023 included reversal of tax provisions of 1.28 billion rupees. The profit after tax of ICICI AMC as per NDIS was 5.01 billion rupees in this quarter compared to 4.67 billion rupees in Q2 of last year. The profit after tax of ICICI securities as per NDIS on a consolidated basis was 4.24 billion rupees in this quarter compared to 3 billion rupees in Q2 of last year. ICICI Bank Canada had a profit after tax of 21.1 million Canadian dollars in this quarter compared to 12 million Canadian dollars in Q2 of last year. ICICI Bank UK had a profit of 3.3 million US dollars in this quarter compared to 1.5 million US dollars in Q2 of last year. As per INDS, ICICI Home Finance had a profit after tax of 1.12 million rupees in the current quarter compared to 0.6 billion rupees in Q2 of last year. With this, we conclude our opening remarks and we will now be happy to take your questions.