ICICI Bank - Q3 23/24

Transcript

Operator (participant)

Ladies and gentlemen, good day, and welcome to ICICI Bank Limited, Q3 FY 2024 Earnings Conference Call. As a reminder, all participant lines will be listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during this conference call, please signal an operator by pressing star, then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Sandeep Bakhshi, Managing Director and CEO of ICICI Bank. Thank you, and over to you, sir.

Sandeep Bakhshi (Managing Director and CEO)

Thank you. Good evening to all of you, and welcome to the ICICI Bank earnings call to discuss the results for Q3 of financial year 2024. Joining us today on this call are Sandeep Batra, Rakesh, Ajay, Anindya, and Abhinek. The Indian economy continues to remain resilient, with upward revision in the GDP growth estimate for financial year 2024 by RBI, reflecting the consistent actions and initiatives of the policymakers. As the liquidity and interest rate environment evolves, we would continue to monitor the developments closely. At ICICI 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 opportunities across ecosystems and micro markets. We continue to operate within our strategic framework to strengthen our franchise and expand our technology and digital offerings.

Maintaining high standards of governance, deepening coverage and enhancing delivery capabilities are our focus areas for risk-calibrated, profitable growth. The profit before tax, excluding treasury, grew by 23.4% year-on-year to INR 135.51 billion in this quarter. The core operating profit increased by 10.3% year-on-year to INR 146.01 billion in this quarter. The profit after tax grew by 23.6% year-on-year to INR 102.72 billion in this quarter. Total deposits grew by 18.7% year-on-year and 2.9% sequentially at December 31, 2023. Term deposits increased by 31.2% year-on-year and 4.9% sequentially at December 31, 2023.

During the quarter, the average current and savings account deposit grew by 5.3% year-over-year and 0.2% sequentially. The bank's average liquidity coverage ratio for the quarter was about 121%. The domestic loan portfolio grew by 18.8% year-over-year and 3.8% sequentially at December 31, 2023. The retail loan portfolio grew by 21.4% year-over-year and 4.5% sequentially. Including non-fund based outstanding, the retail portfolio was 46.4% of the total portfolio. The business banking portfolio grew by 31.9% year-over-year and 6.5% sequentially. The SME portfolio grew by 27.5% year-over-year and 6.7% sequentially. The rural portfolio grew by 18.2% year-over-year and 4.6% sequentially.

The domestic corporate portfolio grew by 13.3% year-on-year and 2.9% sequentially, driven by growth across well-rated financial and non-financial corporates. The overall loan portfolio, including the international branches portfolio, grew by 18.5% year-on-year and 3.9% sequentially at December 31, 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-sell. We have shared some details on our technology and digital offerings in slides 15 to 26 of the investor presentation. The net NPA ratio was 0.44% at December 31, 2023, compared to 0.43% at September 30, 2023, and 0.55% at December 31, 2022.

During the quarter, there were net additions of INR 3.63 billion to gross NPAs, excluding write-off and sales. The total provisions during the quarter were INR 10.5 billion, or 7.2% of core operating profit and 0.36% of average advances. The provisioning coverage ratio on NPAs was 80.7% at December 31, 2023. In addition, the bank continues to hold contingency provision of INR 131 billion, or about 1.1% of total loans at December 31, 2023.

The capital position of the bank continued to be strong, with a CET1 ratio of 16.03%, Tier 1 ratio of 16.03%, and total capital adequacy of 16.70% at December 31, 2023, including profits for the nine months ended December 31, 2023. This includes the impact of recent regulatory guidelines on increasing the risk weights on consumer loans and credit to NBFCs. Looking ahead, we see many opportunities to drive risk-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 continue to make tech investments in technology, people, distribution, and building our brand.

We 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 Anindya Banerjee.

Anindya Banerjee (Group CFO)

Thank you, Sandeep. I will talk about loan growth, credit quality, P&L details, growth in digital offerings, portfolio trends, and performance of subsidiaries. Starting with loan growth, Sandeep covered the loan growth across various segments. Coming to the growth across retail products, the mortgage portfolio grew by 15.9% year-on-year and 3.7% sequentially. Auto loans grew by 22.5% year-on-year and 4.5% sequentially. The commercial vehicles and equipment portfolio grew by 14.8% year-on-year and 3.3% sequentially. Personal loans grew by 37.3% year-on-year and 6.4% sequentially, compared to 40.4% year-on-year and 10.2% sequentially at September 30, 2023.

The bank worked on increasing pricing, further refining credit parameters, and optimizing sourcing costs, resulting in lower disbursements of personal loans during the quarter as compared to the previous quarter. The credit card portfolio grew by 39.5% year-on-year and 11.5% sequentially. The personal loans and credit card portfolio were 9.4% and 4.1% of the overall loan book, respectively, at December 31, 2023. The overseas loan portfolio in US dollar terms increased by 9.8% year-on-year at December 31, 2023. The overseas loan portfolio was about 3.4% of the overall loan book. The non-India linked corporate portfolio declined by 30.4% or about $116 million on a year-on-year basis.

Of the overseas corporate portfolio, about 92% comprises Indian corporates, 4% is overseas corporates with Indian linkage, 2% comprises companies owned by NRIs or PIOs, and the balance 2% is non-India corporate. Moving on to credit quality, there were net additions of INR 3.63 billion to gross NPAs in the current quarter compared to INR 1.16 billion in the previous quarter. The net additions to gross NPAs were INR 23.02 billion in the retail, rural, and business banking portfolio, and there were net deletions of gross NPAs of INR 19.39 billion in the corporate and SME portfolio. The gross NPA additions were INR 57.14 billion in the current quarter, compared to INR 46.87 billion in the previous quarter.

Recoveries and upgrades from gross NPAs, excluding write-offs and sale, were INR 53.51 billion in the current quarter, compared to INR 45.71 billion in the previous quarter. The gross NPA additions from the retail, rural, and business banking portfolio were INR 54.82 billion in the current quarter, compared to INR 43.64 billion in the previous quarter. There were gross NPA additions of about INR 6.17 billion from the Kisan Credit Card portfolio in the current quarter. We typically see higher NPA 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 INR 31.8 billion, compared to INR 30.19 billion in the previous quarter.

The gross NPA additions from the corporate and SME portfolio were INR 2.32 billion, compared to INR 3.23 billion in the previous quarter. Recoveries and upgrades from the corporate and SME portfolio were INR 21.71 billion, compared to INR 15.52 billion in the previous quarter. The gross NPAs written off during the quarter were INR 13.89 billion. There was sale of NPAs worth INR 0.36 billion in the current quarter, compared to INR 1.79 billion in the previous quarter. The sale of NPAs includes INR 0.29 billion in cash and INR 0.07 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 were INR 36.94 billion as of December 31, 2023, compared to INR 38.86 billion as of September 30, 2023. The bank holds provisions amounting to INR 20.61 billion against this non-fund-based outstanding. The total fund-based outstanding towards standard borrowers under resolution as per various guidelines declined to INR 33.18 billion, or about 0.3% of the total loan portfolio, at December 31, 2023, from INR 35.36 billion at September 30, 2023. Of the total fund-based outstanding under resolution at December 31, 2023, INR 27.82 billion was from the retail, rural, and business banking portfolio, and INR 5.36 billion was from the corporate and SME portfolio.

The bank holds provisions of INR 10.32 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 13.4% year-on-year to INR 186.78 billion. The net interest margin was 4.43% in this quarter, compared to 4.53% in the previous quarter, and 4.65% in Q3 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. The impact of interest on income tax refund on net interest margin was 4 basis points in Q3 of this year, compared to NIM in the previous quarter and in Q3 of last year.

The domestic NIM was at 4.52% this quarter, compared to 4.61% in the previous quarter, and 4.79% in Q3 of last year. The cost of deposits was 4.72% in this quarter, compared to 4.53% in the previous quarter. Of the total domestic loans, interest rates on 49% are linked to the repo rate, 2% to other external benchmarks, and 18% to MCLR and other older benchmarks. The balance 31% of loans have fixed interest rates. Non-interest income, excluding treasury, grew by 19.8% year-on-year to INR 59.75 billion in Q3 of 2024. Fee income increased by 19.4% year-on-year to INR 53.13 billion in this quarter.

Fees from retail, rural, business banking and SME customers constituted about 79% of the total fees in this quarter. Dividend income from subsidiaries and associates was INR 6.5 billion in this quarter, compared to INR 5.16 billion in Q3 of last year. The year-on-year increase in dividend income was primarily due to higher interim dividends from ICICI Securities, ICICI Prudential Asset Management, and ICICI Securities Primary Dealership. On costs, the bank's operating expenses increased by 22.3% year-on-year in this quarter. Employee expenses increased by 30.5% year-on-year in this quarter, reflecting mainly the increase in the employee base from the second half of fiscal 2023 onwards. The bank had about 141,000 employees at December 31, 2023.

The number of employees has increased by about 23,600 in the last twelve months and about 1,700 in the current quarter. Non-employee expenses increased by 17.8% year-on-year in this quarter, primarily due to retail business related and technology expenses. Our branch count has increased by 123 in Q3 of 2024, and we had 6,371 branches as of December 31, 2023. The technology expenses were about 9% of our operating expenses in the nine months ended December 31, 2023. The core operating profit increased by 10.3% year-on-year to INR 146.01 billion in this quarter. Excluding dividend income from subsidiaries and associates, the core operating profit grew by 9.7% year-on-year.

The total provisions during the quarter were INR 10.5 billion, or 7.2% of core operating profit and 0.36% of average advances, compared to INR 5.83 billion in the previous quarter. The provisions during the quarter included the impact of INR 6.27 billion, pursuant to the recent RBI circular on investments in alternative investment funds. The provisioning coverage on NPAs was 80.7% as of December 31, 2023. In addition, we hold INR 10.32 billion of provisions on borrowers under resolution. Further, the bank continues to hold contingency provision of INR 131 billion as of December 31, 2023.

At the end of December, the total provisions, other than specific provisions on funded outstanding to borrowers classified as non-performing, were INR 230.25 billion or 2% of loans. The profit before tax, excluding treasury, grew by 23.4% year-on-year to INR 135.51 billion in Q3 of this year. There was a treasury gain of INR 1.23 billion in Q3, compared to INR 0.36 billion in Q3 of the previous year. The tax expense was INR 34.02 billion in this quarter, compared to INR 27.02 billion in the corresponding quarter last year. The profit after tax grew by 23.6% year-on-year to INR 102.72 billion in this quarter. Growth in digital offerings.

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 platforms by our customers. There have been more than 10 million activations of iMobile Pay by non-ICICI Bank account holders at end-December 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, interest 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-built digital solutions to corporate clients and their ecosystem. 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 import transaction life cycle with solutions providing frictionless experience to the client and simplify customer journey. About 72% of trade transactions were done digitally in Q3 of 2024. The volume of transactions through the Trade Online platform in Q3 of 2024 grew by 26.2% year-on-year. We have further simplified cross-border remittance journeys with new enhancements. Smart IRM is a multi-party cross-border inward remittance solution with virtual account architecture, enhanced security features, and remittances reconciliation with payer identification. Smart ORM enables pre-vetting of outward remittance transactions to ensure error-free submission before booking foreign exchange deals.

iLend, the retail lending platform currently enabled for mortgages, is being upgraded on an ongoing basis with new features such as integration with account aggregators, opening up instant paperless savings bank accounts for newly onboarded mortgage customers, and instant property valuation reports for select developers, to provide enhanced customer experience and serve the customers' 360-degree needs digitally. Moving on, we have provided details on our retail business banking and SME portfolio in slides 32-43 of the investor presentation. The loan and non-fund-based outstanding to performing corporate and SME borrowers rated BB and below was INR 58.53 billion at December 31, 2023, compared to INR 47.89 billion at September 30, 2023, and INR 55.81 billion at December 31, 2022.

This portfolio is about 0.5% of our advances at December 31, 2023. Other than two accounts, the maximum single borrower outstanding in the BB and below portfolio was less than INR 5 billion at December 31, 2023. At December 31, 2023, we held provisions of INR 9.25 billion on the BB and below portfolio, compared to INR 8.17 billion at September 30, 2023. This includes provisions held against borrowers under resolution included in this portfolio. The total outstanding to NBFCs and HFCs was INR 784.84 billion at December 31, 2023, compared to INR 837.49 billion at September 30, 2023. The total outstanding loans to NBFCs and HFCs were about 6.8% of our advances at December 31, 2023.

The builder portfolio, including construction finance, lease rental discounting, term loans, and working capital, was INR 456.85 billion at December 31, 2023, compared to INR 430.58 billion at September 30, 2023. The builder portfolio is about 4% of our total loan portfolio. Our portfolio largely comprises well-established builders, and this is also reflected in the sequential increase in the portfolio. About 3% of the builder portfolio at December 31, 2023, was either rated BB and below internally or was classified as non-performing, compared to 3.5% at September 30, 2023. Moving on to the consolidated results. The consolidated profit after tax grew by 25.7% year-on-year to INR 110.53 billion in this quarter.

The details of the financial performance of subsidiaries and key associates are covered in slides 46-49 in the investor presentation. The annualized premium equivalent of ICICI Life was INR 54.3 billion in nine months, ended December 31, 2023, compared to INR 53.01 billion in nine months of last year. The value of new business margin was 26.7% in nine months, ended December 31, 2023, compared to 32% in nine months of last year, and 32% in fiscal 2023. The value of new business was INR 14.51 billion in the nine months ended December 31, 2023, compared to INR 17.1 billion in the nine months of last year.

The profit after tax of ICICI Life was INR 6.79 billion in nine months ended December 31, 2023, compared to INR 5.76 billion in nine months of last year, and INR 2.27 billion in Q3 of 2024 compared to INR 2.21 billion in Q3 of 2023. The gross direct premium income of ICICI General was INR 62.3 billion in this quarter, compared to INR 54.93 billion in the same quarter last year. The combined ratio stood at 103.6% in Q3 of 2024, compared to 104.4% in Q3 of 2023. Excluding the impact of Cat losses, the combined ratio was 102.3% in this quarter.

The profit after tax was INR 4.31 billion in this quarter, compared to INR 3.53 billion in Q3 last year. The profit after tax of ICICI AMC, as per Ind AS, was INR 5.46 billion in this quarter, compared to INR 4.20 billion in Q3 of last year. The profit after tax of ICICI Securities, as per Ind AS on a consolidated basis was INR 4.66 billion in this quarter, compared to INR 2.81 billion in Q3 of last year. ICICI Bank Canada had a profit after tax of CAD 15.9 million in this quarter, compared to CAD 11.5 million in Q3 last year.

ICICI Bank UK had a profit after tax of $6.7 million this quarter, compared to $3.1 million in Q3 of last year. As per Ind AS, ICICI Home Finance had a profit after tax of INR 1.86 billion in the current quarter, compared to INR 1.05 billion in Q3 of last year. With this, we conclude our opening remarks, and we'll be happy to take your questions.

Operator (participant)

Thank you very much. We'll now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Participants, you may press star and one to ask a question. The first question is from the line of Umaro Kajania from Nuvama. Please go ahead.

Umang Kajaria (Analyst)

Yeah, hi. I just wanted to know about operating expenses. They've not grown much this quarter, so going ahead, do we expect this kind of growth? Any comments on the OpEx bit? That's my first question, and then I have two more.

Anindya Banerjee (Group CFO)

Yeah. So as far as the operating expenses is concerned, I think if you look at the non-employee expenses, those are really growing in line with the business. And this quarter, of course, the advertising and sales promotion expenses on a year-on-year basis, the growth was on the higher side because of the festive season related spend. While last year, the festive season was, you know, split over Q2 and Q3. So those are really, you know, growing in line with the business. On the employee side, I think is where you've seen in recent, over the last, I would say, couple of years, you know, last maybe six quarters, a pretty high growth because of the increase in the team size of the bank.

But, as you would have seen, in this quarter, the higher net increase has slowed down. I mean, compared to about 10,000, I think 10,000-11,000 in the first half, we were at about 1,700 in Q3. So, you know, we would, I think, not be probably looking at adding the kind of headcount at the same pace. So that will play through into the operating expenses as we go ahead.

Umang Kajaria (Analyst)

Okay, so the headcount additions now will be moderate only, this is not just a one-off?

Anindya Banerjee (Group CFO)

It will not be at the pace that we have seen over the last, you know, over the previous 45 quarters. Yeah.

Umang Kajaria (Analyst)

Got it. And just in terms of LDR, there's a lot of discussion around it already. You are okay, but do you have any path on LDR? I mean, would you like to retain LDR at current levels or bring it down? Any views on that?

Anindya Banerjee (Group CFO)

So the way we look at, you know, the balance sheet and the funding structure, Umaro, is that we look at, I would say, three ratios. Certainly the CD ratio or the LDR, the LCR, which is a measure of, you know, current liquidity, and the NSFR, or the Net Stable Funding Ratio. So the LCR and the NSFR are a little more granular in the sense that they do take into account the nature of assets and liability in terms of, you know, product, counterparty and tenor. So we look at all three. If we look at the, you know, the LCR and the NSFR, we are at a, you know, well above the regulatory minimum. We are, you know, at about 120%.

On the credit to deposit ratio, I think a couple of things. One, typically, you know, a bank with a higher level of capital would tend to have also a higher, you know, CD ratio mathematically. When we look at our CD ratio, we also look at the overseas operations and the domestic balance sheet separately, because they are managed separately. And, you know, in the overseas operations, we have relatively limited deposit-taking capability. Of course, now the impact is much lower than it used to be, say, 7-8 years ago, because that portfolio has come down to, you know, less than 5% of our overall portfolio, but it does have, you know, a percentage point of lower impact.

As far as you know, the bulk of the balance sheet, which is the domestic balance sheet, of course, you know, deposits are our primary source of funding. Along with capital, in addition to that, we always try to optimize between the wholesale deposit taking and the more stable, you know, wholesale sources like refinance and and bonds. So, in general, if you look at it over a longer period of time on the domestic balance sheet, our CD ratio has kind of hovered around the mid-80s, other than, you know, periods of very high liquidity and very low loan growth, like the pandemic. So that is kind of the way in which we manage it, looking at all these three ratios on an ongoing basis.

Umang Kajaria (Analyst)

Got it. Assuming that rates will remain stable, would you say that your margins have now bottomed out and this would be the level at? Or is deposit competition too strong to say that, assuming no change in policy rates?

Anindya Banerjee (Group CFO)

So, on the deposit side, I think the retail deposit rates have remained stable for a fair period of time now, at least the peak rates, although I think at various points of time, banks have moved up and down in certain other buckets. Of course, in Q3, I think given the overall liquidity environment, we did see some amount of hardening of the wholesale deposit rates, which is reflected in the CD rates and also, you know, the rates being quoted for, you know, high value kind of deposits.

And, you know, I think if you look at even currently, systemic liquidity is running at a negative, so I guess that scenario will stay, you know, for some time until you know, maybe a monetary policy starts to turn a little more accommodative. So, that's on the deposit rate side. From a margin perspective, I guess, you know, we have said, we had said in the past that we expect the full year margin this year to be at a similar level than last year. And that implies some further, you know, margin compression in Q4, but it should be, you know, much lower than what we have seen.

I think Q3 was already, you know, much lower than Q2, and it should be lower than what we have seen in Q3.

Umang Kajaria (Analyst)

Okay, thanks so much. Thanks a lot.

Operator (participant)

Thank you. I request all the participants, please restrict to two questions per participant. Next question is from the line of Abhinek Murarka from HSBC. Please go ahead.

Abhishek Murarka (Analyst)

Yeah, hi. Thanks for taking my question. So two questions, one on asset quality. So if I see your slippages in retail, rural business banking, that has gone up, even if I knock off the Kisan Credit Card slippages. So can you explain where that has come from? And similarly on the recoveries and upgrade in corporate and SME, is there any kind of one-off or what, what's happened there? That also improved actually, so.

Anindya Banerjee (Group CFO)

Yeah. So, I think as far as the retail side is concerned, nothing specific to call out. I think, it's really spread across products, and if you look at the delta relative to the size of the portfolio, it is, not, very high... Not particularly, meaningful. So I, as we have been saying, we would expect, you know, the net additions and both the gross and net additions on the retail side to gradually normalize upwards, both as the portfolio grows and seasons. And I'll, you know, on the corporate side, we did have, you know, one or two larger, sort of upgrade, this quarter.

But in a way, the benefit in provisioning terms of that was kind of offset by the provisioning on the AIF, so investment. So, you know, taking it all together, if we look at kind of the credit costs, you know, if you look at the provisioning for the quarter and eliminate, you know, maybe a very chunky corporate upgrade, eliminate the AIF provisioning, and really try and look at an, you know, an adjusted number, it would be still below kind of maybe 50 basis points of loans and about 10 basis points of the PPOP. So that is, you know, the context in which we would look at the NPL formation and recoveries from our planning and just capitalized perspective.

Abhishek Murarka (Analyst)

Yeah. Sort of extending that, does it mean that even in the next few quarters we should continue to see, you know, credit costs in that range? Because you have enough PCR anyway, and that can come down a little bit. So credit costs can remain low for, let's say, next 3-4 quarters. Is that a fair conclusion?

Anindya Banerjee (Group CFO)

We don't really give forward-looking, you know, thing, but I would say that, yeah, I mean, I don't see anything imminently that would, you know, cause it to spike up. There will be some gradual normalization upwards.

Abhishek Murarka (Analyst)

Got it. And my second question, just on cost of deposits. If you can share, you know, maybe your incremental cost of TDs or incremental cost of deposits, anything that you may have handy, that would be helpful.

Anindya Banerjee (Group CFO)

We will not, we don't publish those numbers, Abhinek.

Abhishek Murarka (Analyst)

Okay, got it. Got it. Got it. Thank you, and all the best.

Operator (participant)

Thank you. Next question is from the line of Rikin Shah from IIFL. Please go ahead.

Rikin Shah (Senior Analyst)

Thank you for taking the question. I just have one question on cost of deposits. If you could just qualitatively comment as to the repricing on the existing book of TD. Would you say that by 4Q, a large or most of it would already be repriced into the P&L, or it could flow into 1Q as well?

Anindya Banerjee (Group CFO)

There could be some flow into 1Q as well, but, I think, you know, most of it should be done in Q4. There could be some flow into 1Q as well.

Rikin Shah (Senior Analyst)

In this quarter, it increased 20 bps QOQ, so in terms of the quantum, should it be kind of, slowing down from the current run rate?

Anindya Banerjee (Group CFO)

I would guess so.

Rikin Shah (Senior Analyst)

Okay, fine. Thank you, sir. That's all.

Operator (participant)

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

Kunal Shah (Equity Research Analyst)

Thanks for taking the question. So the question is on yield. When we look at it, in fact, the rise in some of the high-yielding portfolio, sequential growth has been strong, and we would have increased the rates, even suppose the tweaking of the risk weights by RBI, but still, overall yield on advances are down. So just want to understand on that bit. And this entire NBFC, rundown which has been there, is it like we tried to pass it on in terms of the rates and then there were repayments, or we have been conservative post the risk weight stance from RBI?

Anindya Banerjee (Group CFO)

So on the first question, I think, part of the impact on the advances yield is because of the addition to the KCC NPL. So basically, what happens is that, you kind of have to, you do recognize, a year's worth of, interest income, so that does impact the yield on advances. In other, you know, other parts, one, if you look at the share of the high-yielding portfolio, it is still, not that, not that high, and we have been and we have seen decent growth in mortgages and auto and so on, and, and also on the corporate side, so, which continue to be, you know, pretty competitive.

So I would say the yields have been broadly stable, and to some extent, any mixed benefit that could have come has been offset by the non-accrual on the KCC loan. On the... Sorry, the second question was on the NBFC exposure. No, I don't... Yeah, I mean, I guess, you know, that we keep looking at the various exposures from a risk-reward basis. I mean, we did not have any credit concern on these exposures, but they were, you know, finely priced exposures and, you know, we have, therefore, you know, the borrower, couple of borrowers prepaid, and we were quite okay with that.

Kunal Shah (Equity Research Analyst)

How much rate pass on was there in NBFC?

Anindya Banerjee (Group CFO)

Well, it would really depend on the client. I don't think there is any rule of thumb in that sense. I would, as you see the book itself, I mean, even adjusting for this prepayments, you know, has not really grown much during the quarter, so there would not have been any very large lending that would have happened afresh.

Kunal Shah (Equity Research Analyst)

Okay. Okay, yeah. Thank you.

Operator (participant)

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

Nitin Aggarwal (Head of BFSI Research)

Yeah, hi. Thanks for the opportunity, and congrats on good results. So, one question again around the yield and as to really how do you look at the competitive intensity in unsecured products? And even in the mortgage, are you seeing that lenders cutting down on spreads because the repo rates have been unchanged, but are the rates, like, seeing some moderation there? And so basically, going forward, how do you see the unsecured loan mix also moving for the bank? Because until now it has been growing very steady, and some other private banks are indicating that they continue to drive that up. So what will be our approach on the unsecured loan mix? So these two questions.

Anindya Banerjee (Group CFO)

So, I think as far as the competitive intensity in rates, that is kind of continuing. I mean, we'll have to see if things change in Q4, but certainly in Q3, across most of the products, mortgages and corporate lending, we continue to see a fair degree of competitive intensity. The way we look at it is, you know, to try and, you know, be disciplined in our pricing and to kind of look at the customer and see what are the, what is the total relationship value that we can have with the client and their ecosystem, and then take a call on the loan pricing.

I mean, we, in general, are not particularly focused on loan growth, so in that sense, we are able to calibrate our pricing decision. Sorry, what was your second question? I-

Nitin Aggarwal (Head of BFSI Research)

Yeah. So just related to this, like, has your aggregate mortgage portfolio yield come down over, say, the second quarter?

Anindya Banerjee (Group CFO)

No, it could not have, because the incremental business takes time to feed through. I, you had another question after the yield competitiveness. I'm sorry.

Nitin Aggarwal (Head of BFSI Research)

That was, like, on the unsecured loan mix, how do you see that trending further?

Anindya Banerjee (Group CFO)

So on the unsecured loan mix, I think as far as personal loans is concerned, as we have mentioned, you know, we have taken some steps in terms of refining the credit parameters. Basically, in any portfolio, you have certain cohorts which contribute more to the delinquency, and you try to figure out what are the origination markers of those cohorts and then cut origination in those particular segments, which is what we've done. And we've also, you know, rationalized, for example, sourcing payouts, as well as we've moved the pricing on personal loans by by maybe 30-35 basis points. So I, I would expect that you know growth in that portfolio may continue to moderate a little bit even from a current level.

But, you know, from an overall P&L impact, I would think that it should not have much of a P&L impact because, you know, in any product or business, it's not just about the yield and the margin. You know, hopefully, if we are managing the sourcing cost well, and that will, you know, contribute to profitability, and hopefully if we are, you know, reducing in the right cohorts, that will contribute to credit costs, you know, doing better as well.

Nitin Aggarwal (Head of BFSI Research)

Right. Around credit costs, any comments on that?

Anindya Banerjee (Group CFO)

No, I think I spoke earlier in relation to your question. I mean, I do agree that there is some noise in that line item this quarter because of the AIF and the large corporate recovery. But if one kind of tries to even that out, as I said, we are would be at about maybe 50 basis points of loans and, you know, 10% of the PPOP. So it is quite well contained and sort of within our risk appetite.

Nitin Aggarwal (Head of BFSI Research)

Okay, sure. Thanks, Anindya. Thank you so much, and wish you all the best.

Operator (participant)

Thank you. Next question is from the line of M.B. Mahesh from Kotak Securities. Please go ahead.

M.B. Mahesh (Executive Director and Senior Equity Analyst)

I think just, sorry, Anindya, just two questions. One is on slide 34. There has been a drop in the double-A kind of rated portfolio, and an increase in the triple-B part of the portfolio. Could you kind of explain that?

Anindya Banerjee (Group CFO)

Yeah. So, actually, Mahesh, I think two things largely explain that. One is that, you know, the reduction in the NBFC portfolio, you know, most of our NBFC portfolio is well rated, rated A and above. So, as a result of the reduction in that portfolio, we would have seen some reduction in the outstanding in the higher-rated category. And the second factor was that we had one of the larger upgrades of NPL that we had, you know, got rated in the triple B family on upgrade. So one is a sort of, I would say, you know, positive movement from a capital and profitability perspective, the other is a positive movement from a credit perspective.

But yeah, because of those two, the mix does look slightly different, you know.

M.B. Mahesh (Executive Director and Senior Equity Analyst)

Okay. Second question, is there a interest reversal impact on account of the KCC portfolio, which is meaningful?

Anindya Banerjee (Group CFO)

We've not really given a number. I mean, that's part of the sort of margin happens every first and third quarter, so no, we've not called out that number separately.

M.B. Mahesh (Executive Director and Senior Equity Analyst)

Anindya, just qua, I didn't get the line of thought. On the unsecured loans, are you saying that things have started to worsen, or you say that, it is at the margin remaining more or less the same?

Anindya Banerjee (Group CFO)

I think it is remaining more or less the same. I mean, we have been looking at that portfolio very closely. As I said, you know, in any portfolio, at any point of time, there's always a bottom cohort which one could sort of do without. And given the overall commentary on the unsecured and the increase in capital charge and so on, we have, you know, tried to sort of trim that part of the portfolio.

M.B. Mahesh (Executive Director and Senior Equity Analyst)

Thank you.

Operator (participant)

Thank you. Next question is from the line of Chintan Joshi from Autonomous. Please go ahead.

Chintan Joshi (Indian Financials Analyst)

Thank you. So can I just follow up on that unsecured point you made? So you mentioned that some cohorts you are seeing different delinquency trends on unsecured. If you were to do cohorts by time of origination, you know, is the recent kind of origination seeing different delinquency trends? So not breaking cohort by quality, but by time. Are you seeing any difference?

Anindya Banerjee (Group CFO)

Yeah, I think the markers we look at are more in terms of, you know, the characteristics of the customer, and you know, how, you know, try and find wherever, you know, if we are able to look at delinquency in terms of the characteristics of the customer and see what kind of loan borrowers are contributing more to delinquency. It's not to do with time as such.

Chintan Joshi (Indian Financials Analyst)

If you do look at time, is it similar trends so far? As, say, a loan given at the end of, you know, COVID and versus kind of in the last six months?

Anindya Banerjee (Group CFO)

I don't think we have really commented on that.

Chintan Joshi (Indian Financials Analyst)

Okay. The other question I had was on cost of deposits. It increased 19 basis points quarter-on-quarter. You know, you are indicating some more NIM pressure, but I doubt, you know, you're referring... Like, if I think about the exit run rate, if I keep NIMs flat on a FY 2024 versus FY 2023 basis, then it would be kind of 4.2. But that, that- I don't think that's what you're trying to imply. So if I break that down a little bit more, could you give some color on how much more repricing is left on the deposit side that we can factor in?

Anindya Banerjee (Group CFO)

We've not given really how much more repricing on the deposit side. I think what we said is that there will be some more increase in the cost of deposits in Q4 and possibly a little bit into Q1 as well. It should be less than what we have seen, and the NIM impact should also be less than what we have seen in this quarter.

Chintan Joshi (Indian Financials Analyst)

Okay. A final quick one: Any, any indication on branch expansion number for FY 2025?

Anindya Banerjee (Group CFO)

No, not really. I think, this quarter we added about one-

Chintan Joshi (Indian Financials Analyst)

One twenty.

Anindya Banerjee (Group CFO)

123 branches. So, as we have said in the past, we follow a pretty bottom-up approach. I mean, it's the people closest to the market who kind of recommend branch openings, and then we do some assessment and open it. So we are not holding back on any branch opening, but we don't have a particular branch opening target either.

Chintan Joshi (Indian Financials Analyst)

Thank you.

Operator (participant)

Thank you. Next question is from Param Subramanian from Nomura. Please go ahead.

Param Subramanian (Research Analyst)

Yeah, hi. Thanks for taking my question. So on the average, CASA ratio, so if you look at it quarter-on-quarter, we are not seeing any, you know, letup in the pace at which it, this is moderating. So any, you know, indication on where you see this, say, bottom out or starting to pick up? Or, you know, or do we have to wait for a much more, looser, liquidity environment like you were alluding to earlier? Yes.

Anindya Banerjee (Group CFO)

So, Param, I think this is something we are seeing to varying degrees across the system, across all banks. I think, in our context, we are probably doing relatively better on the current account side. I think our payment products and payment platforms are contributing to that, to higher float balances. On the CASA side, I think it's much more the function of interest rates and consumption. So, I guess, you know, I don't have an answer at the moment. I think we will have to wait for a couple of quarters and, you know, eventually see how things pan out next year as liquidity sort of normalizes in the system.

Param Subramanian (Research Analyst)

Got it. And then, yeah, just one more question, I mean, around this, but, how are we geared towards, say, government spend coming back? How much is that? You know, if you can give some direction number as a percentage of our deposits, say. So when that comes back, how does that help you in terms of, CASA as well as overall deposits? Yeah.

Anindya Banerjee (Group CFO)

So we don't take. I mean, our focus as far as the government is concerned is more from providing solutions which enable them to manage their cash flow and, you know, provide MIS reconciliation, digital solutions. So yeah, that, the flow of that money through our system does create float. It is a, you know, some part of our base, but one caveat is that the government is also becoming progressively more efficient in the way, in terms of the way in which it manages its finances. So, you know, I don't think one can rely too much on idle government money lying with you in CASA form.

Param Subramanian (Research Analyst)

Okay. Thanks a lot, Anand, yeah, thanks a lot. Yep.

Operator (participant)

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

Anindya Banerjee (Group CFO)

Thank you very much for taking the time on a Saturday evening, as always, and happy to speak on any other clarification. Thank you.

Operator (participant)

Thank you very much. On behalf of ICICI Bank Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines.