Rikin Shah

Rikin Shah questioned whether there were additional Priority Sector Lending (PSL) costs due to the declassification of agri loans and any potential future OpEx impact. He also asked about the improving growth momentum month-on-month in Q3 and expectations for Q4 within the bank's risk framework. Lastly, he sought clarification on factors weighing on credit card book growth, specifically if it was merely a decline in transactor loans post-festive season.

Answer

Anindya Banerjee (CFO, ICICI Bank) explained that PSL compliance costs, including buying PSLCs, have generally increased, but this is not specific to the regulatory observation. The bank will work to conform the portfolio to minimize impact. He confirmed a pickup in sequential growth momentum in Q3, which is expected to sustain into Q4, and noted that year-on-year growth rates also reflect recent positive trends. For credit cards, Mr. Banerjee attributed the sequential decline to strong festive spending in Q2, which was repaid in Q3, and expects the book to grow from here, noting improved credit quality across secured and unsecured portfolios.

Rikin Shah inquired about any additional PSL costs incurred in the current quarter or anticipated in future OpEx due to the declassification of agri loans. He also asked if the bank observed improving growth momentum month-on-month in Q3 and if growth is expected to accelerate within the bank's risk framework. Lastly, he sought clarification on factors weighing on credit card book growth, specifically if it's merely a decline in transactor loans post-festive season.

Answer

Anindya Banerjee, CFO of ICICI Bank, explained that PSL compliance costs have generally been rising, but no specific additional cost is being called out for this regulatory observation, as the bank aims to conform the portfolio. He confirmed a pickup in sequential growth momentum in Q3, expected to sustain into Q4, with year-on-year growth also reflecting recent trends. For credit cards, Mr. Banerjee attributed the sequential decline in Q3 primarily to high festive spends in Q2 being repaid, expecting the book to grow from here, noting improved credit quality across secured and unsecured segments.

Rikin Shah asked if a sequential decline in operating expenses (OpEx) is expected in Q3, given that festive and non-salary expenses were front-ended in Q2. He also questioned if the significant drop in retail slippages indicates an improvement in retail asset quality beyond mere stabilization. Additionally, he inquired about the bank's processes for tracking end-use of crop loans and any regulatory discussions regarding PSL classification issues, referencing a peer bank's problem.

Answer

Anindya Banerjee, CFO, indicated that while specific festive/non-salary expense line items might decline sequentially, he does not expect an overall OpEx decline due to continued investment and business growth focus, nor sequential increases at the Q2 pace. Regarding retail asset quality, Mr. Banerjee clarified that it was not considered 'bad' previously, with secured retail being stable or marginally improving for several quarters. He noted that benefits from regulatory and bank actions on unsecured portfolios (PLN cards) are now evident, allowing for renewed growth in those segments. On PSL classification, Mr. Banerjee stated the bank has established processes that are reviewed, with no specific regulatory issues to highlight at this time.

Rikin Shah questioned why the bank's cost of fund improvement was marginally lower than peers, asking if it was due to longer liability duration or higher term deposit mobilization. He also requested quantification of additional provisions made against the one-time recovery upgrade.

Answer

Srinivasan Vaidyanathan (CFO) reiterated that the balance sheet structure, duration, and mix of time deposits and CASA determine cost of funds movement, implying a longer time for full repricing benefits to materialize. He confirmed that INR 1,600 crore was added to contingent provisions and INR 600 crore to general provisions, increasing general provisions to 41 basis points of loans and contingent provisions by 1-2 basis points.

Rikin Shah from IIFL Securities Limited inquired about the recent regrouping of CRB loan classifications, the NPL recognition policy for one-time settlements with standard customers, and the expected trajectory of credit costs.

Answer

CFO Srinivasan Vaidyanathan explained the portfolio reclassifications and stated that the NPL recognition policy for settlements adheres to RBI norms, which typically results in a classification downgrade. He noted that while credit costs remain benign, they are seasonally higher in June and December due to the agricultural portfolio and are expected to revert to the mean over the long term.

Rikin Shah from IIFL Securities Limited asked for clarification on the regrouping of the CRB loan portfolio, the bank's NPL recognition policy for one-time settlements with standard customers, and the expected trajectory for credit costs, which saw a slight increase.

Answer

Chief Financial Officer Srinivasan Vaidyanathan detailed the portfolio reclassifications, noting moves between corporate and retail segments without ground-level staff changes. He confirmed that the bank follows RBI norms, where a one-time settlement typically leads to an NPL recognition. Regarding credit costs, he stated they remain benign but acknowledged a seasonal elevation in June and December due to the agricultural portfolio, expecting an eventual, though not imminent, reversion to the mean.

Rikin Shah asked about the repricing lag for repo-linked loans following a rate change and whether the number of days in a quarter affects reported margins. He also sought to clarify if there was a reversal of Alternative Investment Fund (AIF) provisions during the quarter.

Answer

CFO Srinivasan Vaidyanathan explained that repo-linked loans reprice at different intervals by product, but most reprice within one to three months. He confirmed the number of days can have a minor impact of a couple of basis points on margins. On AIF provisions, he stated there was no significant reversal that impacted the P&L, as the reduction in the provision stock was absorbed by other provisioning needs.

Rikin Shah of IIFL Securities sought clarification on the repricing timeline for repo-linked loans, the impact of the number of days in a quarter on margins, and whether there was a reversal of provisions for Alternative Investment Funds (AIF) in the quarter.

Answer

Executive Srinivasan Vaidyanathan clarified that repo-linked loans reprice based on individual contract cycles, with most repricing within a month or a quarter. He confirmed the number of days can have a minor impact of a couple of basis points on margins. Regarding AIF provisions, he stated there was no significant reversal that impacted the P&L. While the provision stock decreased from ~₹350 crores to ~₹288 crores as some investments matured, the benefit was absorbed by other provisioning needs and did not flow to the bottom line.

Rikin Shah noted the generation of excess liquidity due to the faster normalization of the LDR and asked why the bank did not prepay bond borrowings this quarter, as it has in the past. He inquired if prepayment optionality still exists for the coming quarters.

Answer

CEO Sashidhar Jagdishan responded that the effort to prepay borrowings continues, but it is challenging as a large portion of the inherited HDFC Ltd. borrowings are non-callable and require negotiation. He explained that the bank is also choosing to maintain an adequate liquidity cushion to manage uncertainties around deposit sustainability and upcoming draft regulatory guidelines. However, he affirmed that if an opportunity to prepay arises without compromising this liquidity cushion, the bank will take it.