ICICI Bank Ltd ADR Earnings Call Nuggets: Retail NPLs and RBI Requirements

ICICI Bank Ltd ADR (NYSE:IBN) recently reported its first quarter earnings and discussed the following topics in its earnings conference call.

Retail NPLs

Mahrukh Adajania – Standard Chartered: This is Mahrukh. Just wanted to check a few things. Firstly, in terms of retail NPLs, they have risen quarter-on-quarter, because of the retail – classification of the loan portfolio or…

N. S. Kannan – Executive Director and CFO: That’s right Mahrukh, because – the numbers that we have given in our presentation for Q4, where excluding the rural loans et cetera that we had reclassified into retail. So the main difference is because of the change in plan.

Mahrukh Adajania – Standard Chartered: So most of this would be SME, means most of the increase…

N. S. Kannan – Executive Director and CFO: No, it’s just that both the underlying portfolio size now being reported as retail is larger.

Mahrukh Adajania – Standard Chartered: You said that most of the slippages were SME and mid-sized corporates. So there was nothing lumpy and in terms of SME, is there any geographic bias or any such thing, because SME portfolios are behaving differently across banks. That’s why asking.

N. S. Kannan – Executive Director and CFO: These are largely what we have seen as company specifications, Mahrukh. There is no specific pattern. Typically in cases where the gearing is a little high and there is increase in receivables, those are the cases which have got impacted and in any case if you look at our loan book composition, the SME as a percentage has come down to 4.6% as of June. So, yes, there has been (pain) in that segment in general, but within the – clear there is no specific sector wise trend, it is a company specific.

Mahrukh Adajania – Standard Chartered: And why such a sharp growth in personal loans in this quarter and credit cards, of course of the base is low, but is that the new focus or…?

N. S. Kannan – Executive Director and CFO: It is just the base effect. As I had mentioned earlier also in the call that the percentage growth will be there, but as a percentage of the overall loan book it is still not a very significant amount. Strategy wise, we continue to target our liability customers to sell more cards and other unsecured products and compared to our peak market share, we are starting off a very small base, so the increase looks high percentage increase.

Mahrukh Adajania – Standard Chartered: The buyout was zero during the quarter?

N. S. Kannan – Executive Director and CFO: Some buyout would have been there in the – through the PTC route, but in the loan book, it was close to zero.

Mahrukh Adajania – Standard Chartered: The buyout in the PTC…

N. S. Kannan – Executive Director and CFO: This is from a priority sector requirement and when opportunity is available as and on we need to do, we will look at it.

Mahrukh Adajania – Standard Chartered: The 18% to 20% loan growth will happen despite some amount of buyouts being there in the fourth quarter last year, right?

N. S. Kannan – Executive Director and CFO: Yes, that’s right.

Mahrukh Adajania – Standard Chartered: So it will be on the total portfolio, not just organic, the 20% retail growth is on the total not only on the organic.

N. S. Kannan – Executive Director and CFO: My sense is organic will be higher, but when we say 18% to 20%, it is just a reported number itself will be able to show a growth of 18% to 20%…

Mahrukh Adajania – Standard Chartered: Perfect. In terms of restructuring pipeline?

N. S. Kannan – Executive Director and CFO: Yes, I talked about the number in the call of about INR10 billion to INR11 billion of CDR restructuring and in this operating environment Mahrukh, it’s very difficult to give a full year number, but we want to assure you that close monitoring of the portfolio will continue to be the top most priority given the environment.

Mahrukh Adajania – Standard Chartered: The only concern is that you know like say Lanco, which is being talked about it may not have been referred to CDR yet, but it’s talked about and there will be many such other companies. If the balance sheet is growing, then can the SPVs be far behind?

N. S. Kannan – Executive Director and CFO: Yes, the number which I talked about sort of takes into account what is in the pipeline which you have already mentioned, but of course, we will monitor and we will ensure that our top exposures are monitored even more closely so that we don’t allow slippages.


RBI Requirements

Vishal Goyal – UBS Securities: Question actually is on the credit quality. I think we are still maintaining 75 bps of credit cost guidance, while I think in last three months, I think lot has changed, both on currency side plus RBI stance and I’m sure you must be seeing more pain visible on the ground. So you think there is a need to change this?

N. S. Kannan – Executive Director and CFO: Not at this point, Vishal, we looked at the numbers and again annualization. As I mentioned we have already taken provisions in excess of RBI requirements of about INR2 billion in the first quarter, because of that the number has gone up to 82 basis points on an annualized basis. So considering all this, we are quite happy to be expecting about 75 basis points for the year as a whole…

Vishal Goyal – UBS Securities: So, basically on the provisions, maybe I am going back — but the provisions has like INR5.9 billion. Can you just give us some breakup of that, what it is – you said INR2 billion specific on that?

N. S. Kannan – Executive Director and CFO: INR2 billion, what I said was the INR2 billion specific provisions is — the excess provisions over and above what is required by RBI guidelines that’s what I mentioned. Apart from that this INR5.9 billion would also include normal run rate provisions on a specific basis as per RBI guidelines. It will also include for the restructured assets, if you remember RBI has increased the provisioning requirements. That is also included in the provisioning apart from the general provisions.

Vishal Goyal – UBS Securities: Also, can you just give us some color on the AFS book now with the duration if possible?

Rakesh Jha – Director: If you look at our SLR portfolio, typically we have about around 25% of that portfolio in AFS and about 75% in HTM. So that is and the duration on the AFS portfolio would typically be less than one year that we would be carrying. In addition to that we will of course have some other fixed income investments like corporate bonds or other things which would be in the AFS portfolio.

Vishal Goyal – UBS Securities: So, the corporate bond would be how much, where there some RIDF including in the disclosure, I think you give RIDF and related at (198)…

Rakesh Jha – Director: That is only that PSL shortfall number, which is an investment in RIDF at the lower yield bond, those are not corporate bonds, those are entirely SIDB or NHB or NABARD, which ever are the issuing entities.

N. S. Kannan – Executive Director and CFO: Of course the good news there is that with the Bank rate going up, the incremental investments will fetch a much higher return of 7.25% as against 4% to 5% which we get now.

Vishal Goyal – UBS Securities: That is for incremental stuff…

N. S. Kannan – Executive Director and CFO: Of course.

Vishal Goyal – UBS Securities: But corporate bond book would be how much, Rakesh?

Rakesh Jha – Director: Corporate bond book will be typically about INR150 billion.

N. S. Kannan – Executive Director and CFO: Which has come down during the quarter.

Vishal Goyal – UBS Securities: It would have come down already in the quarter?

N. S. Kannan – Executive Director and CFO: Yeah, because I talked about fixed income gains which now we have been able to sell in the first quarter.