Ladies and gentlemen, good day, and welcome to the ICICI Bank Q3 FY22 earnings conference call. As a reminder, all participant lines will be in a 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 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.
Good evening to all of you, and welcome to the ICICI Bank earnings call to discuss the results for Q3 of financial year 2022. Joining us today on this call are Vishakha, Anup, Sandeep Batra, Rakesh, and Anindya. We hope that you are safe and in good health. The bank's ultra-frequency index, comprising several high-frequency indicators tracked by our economic research group, rose from 110.3 in end October to 117.6 in December, indicating a sustained improvement in economic activity. This was on the back of improvement in indicators such as power demand, rail freight revenues, e-way bill generation, and labor force participation. While there has been a sharp rise in COVID-19 cases in recent weeks, the impact of the third wave has been mild so far.
Vaccination coverage has continued to increase, and the government of India has recently expanded the vaccination program to the age bracket of 15 to 18 and announced a precautionary third dose of vaccine for identified categories. While the trajectory of the pandemic is still evolving and the recent increase in cases has slowed the pace of economic activities in January, we expect the economy to regain momentum as this wave abates. We would like to thank the medical and health workers fraternity for their tireless efforts in this fight against COVID-19. At ICICI Bank, we aim to create holistic value propositions for our customers through our 360-degree customer-centric approach and focus on opportunities across client and segment ecosystems. Our cross-functional teams seek to tap into key customers and market segments, enabling 360-degree coverage of customers and increase in wallet share.
We aim to steadily grow our business within our strategic framework and strengthen our franchise, delivery, and servicing capabilities, backed by a range of digital initiatives. Coming to the quarterly performance against this framework, growth in the core operating profit in a risk-calibrated manner through the focused pursuit of target market segments. The core operating profit increased by 24.9% year-on-year to INR 100.60 billion in this quarter. The profit after tax grew by 25.4% year-on-year to INR 61.94 billion in this quarter, further enhancing our strong deposit franchise. Growth in deposits was 16.4% year-on-year at December 31, 2021. During the quarter, average current account deposits increased by 33.7% year-on-year and average savings accounts deposits by 24.7% year-on-year.
The liquidity coverage ratio for the quarter was 130%, reflecting continued surplus liquidity. Our cost of deposits continues to be among the lowest in the system, growing our loan portfolio in a granular manner with a focus on risk and reward. The retail loan portfolio grew by 18.6% year-on-year and 5.1% sequentially at December 31, 2021. Disbursement across various retail products increased or were at a similar level compared to the previous quarter. The business banking portfolio grew by 38.5% year-on-year and 8.8% sequentially at December 31, 2021. The SME portfolio grew by 34.2% year-on-year and 9.7% sequentially.
The growth in the domestic corporate portfolio was 12.5% year-on-year and 9% sequentially at December 31, 2021. The growth was driven by disbursements to well-rated corporates and in line with our risk framework. The domestic loan portfolio grew by 17.9% year-on-year and 6.5% sequentially. The overall loan portfolio grew by 16.4% year-on-year and 6.4% sequentially at December 31, 2021. Leveraging digital across our business. Our digital platforms are continuously evolving with the objective of creating end-to-end seamless digital journeys, offering personalized solutions and value-added features to customers and enabling more effective data-driven cross-sell and upsell. Our open architecture-based mobile banking app, iMobile Pay, offers a wide variety of products, services, and features and helps us to acquire new customers.
The growth in our SME and business banking portfolio has been driven by our digital offerings and platforms like InstaBIZ and Merchant Stack. Our solutions for corporates comprising our various modular platforms and our extensive client coverage have supported the growth in our average current account deposits. Process decongestion across products and customer segments is a key element of our strategy. We had made detailed presentations on these areas at our analyst day in December, and have shared some details in slide 18-31 of the investor presentation. Protecting the balance sheet from potential risks. Net NPAs declined by 10% sequentially to INR 73.44 billion at December 31, 2021, from INR 81.61 billion at September 30, 2021.
The net NPA ratio declined to 0.85% at December 31, 2021 from 0.99% at September 30, 2021. During the quarter, there were net deletions from gross NPAs of INR 1.91 billion excluding write-off and sale. The total provisions during the quarter were INR 20.07 billion or 20% of core operating profit and 1.01% of average advances. The provision coverage ratio on NPAs was 79.9% at December 31, 2021. In addition, the bank continues to hold COVID-19 provisions of INR 64.25 billion or about 0.8% of total loans as of December 31, 2021. Maintaining a strong capital base.
The capital position of the bank continued to be strong with a CET1 ratio of 17.64% at December 31, 2021, including profits for nine months of 2022. The Tier 1 ratio was 18.81% and the total capital adequacy ratio was 19.79% at December 31, 2021. Further, the market value of the bank's investments in listed entities of the group is about INR 940 billion. Looking ahead, we see many opportunities to grow our core operating profit in a risk-calibrated manner. We are reimagining customer journeys with personalized and omni-channel experiences. Our ecosystem-based approach helps our customers to manage their business across the value chain efficiently and has created new opportunities for us across businesses.
We are investing in analytics capabilities and technology to enhance our customer offerings to customers and to build a robust future-ready architecture. We continue to be guided by the twin principles of one bank, one ROE, emphasizing the goal of maximizing our share of target market across all products and services, and fair to customer, fair to bank, emphasizing the need to deliver fair value to customers while creating value for shareholders. We remain focused on delivering consistent and predictable returns to our shareholders. I now hand the call over to Rakesh.
Thank you, Sandeep. I will talk about balance sheet growth, credit quality, P&L details, growth in digital offerings, portfolio trends, and performance of our subsidiaries. Starting with balance sheet growth, Sandeep covered the loan growth across various segments. Coming to the growth across retail products, the mortgage portfolio grew by 23.3% year-on-year, rural loans by 9.4% and auto loans by 11.9%. The commercial vehicles and equipment portfolio declined by 2.8% year-on-year. Growth in the personal loan and credit card portfolio was 25.3% year-on-year. This portfolio was INR 797.63 billion or 9.8% of the overall loan book at December 31.
The overseas loan portfolio declined by 5.5% year-on-year and grew by 5.1% sequentially at December 31. The sequential increase in the overseas loan portfolio was primarily due to increase in the India-linked trade finance book. The overseas loan portfolio was 5% of the overall loan book at December 31. The non-India-linked corporate portfolio reduced by 57.8%, that is, $941 million year-on-year, and 15.8%, that is, $129 million sequentially at December 31. We have provided the breakup of our overseas corporate portfolio on slide 16 of the presentation. Coming to the funding side, average savings account deposits increased by 24.7% year-on-year and 5.2% sequentially.
Average current account deposits increased by 33.7% year-on-year and 11.9% sequentially. This quarter, the flows related to IPOs and capital markets were high and contributed to the average current account balances. Total term deposits grew by 12% year-on-year to INR 5.4 trillion at December 31. Coming to credit quality, during the quarter, there were net deletions from gross NPAs of INR 1.91 billion compared to net additions of INR 0.96 billion in the previous quarter. There were net additions of INR 1.26 billion to gross NPAs in the retail and business banking portfolio, and net deletions of INR 3.17 billion to gross NPAs in the corporate and SME portfolio.
The gross NPA additions declined to INR 40.18 billion in the current quarter from INR 72.31 billion in Q1 and INR 55.78 billion in Q2 this year. The gross NPA additions from the retail and business banking portfolio were INR 38.53 billion, and from the corporate and SME portfolio were INR 1.65 billion. There were gross NPA additions of about INR 6.14 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 quarters of a fiscal year. Recoveries and upgrades from NPAs, excluding the write-offs and sales, were INR 42.09 billion.
There were recoveries and upgrades of INR 37.27 billion from the retail and business banking portfolio and INR 4.82 billion from the corporate and SME portfolio. The gross NPAs written off during the quarter were INR 40.88 billion. The bank sold gross NPAs amounting to INR 1.05 billion this quarter on a cash basis. The non-fund based outstanding to borrowers classified as non-performing was INR 36.38 billion at December 31st, compared to INR 37.14 billion at September 30th. The bank holds provisions amounting to INR 19.57 billion at December 31st on this non-fund based outstanding. The total fund-based outstanding to all standard borrowers under resolution as per various guidelines was INR 96.84 billion or about 1.2% of the total loan portfolio at December 31st.
Of the total fund-based outstanding under re-resolution, INR 64.74 billion was from the retail and business banking portfolio and INR 32.10 billion was from the corporate and SME portfolio. The bank holds provisions of INR 24.36 billion against these borrowers, which is higher than the requirement as per RBI guidelines. Over 95% of the loans under resolution in the retail and business banking portfolio are secured loans. Coming to P&L details for the quarter. Net interest income increased by 23.4% year-on-year to INR 122.36 billion. Interest on income tax refund was INR 1.81 billion this quarter, compared to INR 0.30 billion in the previous quarter and INR 1.96 billion in Q3 of last year.
The net interest margin was at 3.96% in this quarter, compared to 4% in the previous quarter and 3.67% in Q3 of last year. The impact of interest on income tax refunds on net interest margin was 6 basis points in Q3, compared to 1 basis point in the previous quarter and 7 basis points in Q3 of last year. The domestic NIM was at 4.06% this quarter, compared to 4.09% in the previous quarter and 3.78% in Q3 last year. Overseas margins were at 0.28%. The cost of deposits was 3.47% in Q3 this year, compared to 3.53% in Q2.
The sequential decline in net interest margin during the quarter was mainly due to decline in yield on advances, partly offset by decline in cost of deposits and higher interest on income tax refund. Of the total domestic loans, interest rates on 38% of the loans are linked to repo rate and 7% to other external benchmarks. Non-interest income, excluding treasury income, grew by 24.9% year-on-year to INR 48.99 billion in Q3. Fee income increased by 19.2% year-on-year to INR 42.91 billion in Q3, driven by growth across various segments. Fees from retail, business banking and SME customers grew by 16.3% year-on-year and constituted about 76% of the total fees in this quarter.
Dividend income from subsidiaries and listed entities was INR 6.03 billion in this quarter, compared to INR 3.56 billion in Q3 of last year. The dividend income this quarter includes interim dividend of ICICI General and higher interim dividend from ICICI Securities and ICICI AMC compared to Q3 of last year. The bank's operating expenses increased by 22.4% year-over-year in Q3, partially reflecting the slightly lower base of Q3 last year. The employee expenses increased by 27.4% year-over-year. The bank had about 102,000 employees at December 31. The employee count has increased by about 9,900 in the last twelve months.
Employee expenses in Q3 include an impact of about INR 0.69 billion due to fair valuation of ESOPs granted to all its employees post April 1, 2021 for the current quarter, as required by RBI guidelines. Non-employee expenses increased by 19.9% year-over-year in this quarter, primarily due to retail business and technology-related expenses. We continue to invest in technology to enhance our offerings to customers, as well as the scalability, flexibility and resilience of our technology architecture. The technology expenses were about 8.4% of our operating expenses during the nine months ended December 31. The core operating profit increased by 24.9% year-over-year and 5.7% sequentially to INR 100.60 billion in this quarter.
There was a treasury gain of INR 0.88 billion in Q3, compared to INR 3.97 billion in Q2 and INR 7.66 billion in Q3 of the last year. Treasury income in Q3 of last year included gains of INR 3.29 billion from sale of shares of ICICI Securities. The total provisions during the quarter were INR 20.07 billion or 20% of our core operating profit and 1.01% of our average advances. The provisions this quarter include INR 4.65 billion of higher provisions against security receipts and INR 4.47 billion of higher provision on loans under re-resolution on a prudent basis. There was no write-back of COVID-19 related provisions during the quarter.
The provisioning coverage on NPAs continued to be robust at 79.9% at December 31st. In addition, we hold INR 24.36 billion of provisions on borrowers under resolution and COVID-19 related provisions of INR 64.25 billion. The COVID-19 related provisions are about 0.8% of loans. At December 31st, the total provisions other than specific provisions on NPAs were INR 160.26 billion or about 2% of our total loans. The profit before tax grew by 33.9% year-on-year to INR 81.41 billion in this quarter from INR 60.78 billion in Q3 of last year.
The tax expense was INR 19.47 billion in this quarter, compared to INR 11.38 billion in the corresponding quarter last year. The profit after tax as a result grew by 25.4% year-on-year to INR 61.94 billion in this quarter compared to INR 49.40 billion in Q3 of last year. The consolidated profit after tax was INR 65.36 billion this quarter compared to INR 54.98 billion in Q3 of last year. Coming to the growth in our digital offerings, leveraging digital and technology across businesses is a key element of our strategy of growing the risk-calibrated core operating profit. We have seen significant increase in the adoption of our mobile banking app, iMobile Pay.
There have been 5.3 million activations of iMobile Pay by non-ICICI Bank account holders as of end December. The value of transactions by non-ICICI Bank account holders grew by 73% sequentially in Q3. The value of credit card spends in Q3 was 2.2 times the value of credit card spends in Q3 last year and grew by 27% sequentially. The value of financial transactions on InstaBIZ app grew by about 68% year-on-year in the current quarter. The value of transactions on the supply chain platforms in the current quarter was 3.5 times the value of transactions in Q3 last year. The proportion of end-to-end digital approvals and disbursements across various products has been increasing steadily.
About 33% of our mortgage approvals and 43% of our personal loan disbursements by volume were end-to-end digital in the nine-month period. About 95% of the overdraft facilities set up for business banking current account customers were end-to-end digital in the nine-month period. The bank had launched ICICI STACK for corporates and has created more than 20 industry-specific stacks which provide bespoke and purpose-based digital solutions to corporate clients and their ecosystems. The volume of transactions through these solutions in Q3 was 3.7 times the volume of transactions in Q3 last year. The bank recently launched Trade Emerge for importers and exporters across India, offering banking as well as value-added services. This initiative makes cross-border trade hassle-free, quick and convenient as it offers an array of services in one place.
Coming to the portfolio information at December 31, we have been growing our loan portfolio in a granular manner with a focus on risk and reward. Our retail portfolio has been built based on proprietary data and analytics in addition to bureau checks, utilizing the existing customer database for sourcing in key retail asset products through cross-sell and up-sell, and pricing in relation to the risk. In the business banking and SME business, our focus is on parameterized and program-based lending, granularity, collateral and robust monitoring. We have given further information on our retail and business banking portfolio in slides 42 to 45 of our presentation. The loan and non-fund based outstanding to performing corporate and SME borrowers rated BB and below was INR 118.42 billion at December 31, compared to INR 127.14 billion at September 30.
The amount of INR 118.42 billion at December 31 includes INR 27.97 billion of loans under resolution. The details are given on slide 40 and 41 of the presentation. Similar to the last quarter, other than three accounts, one each in construction, power and telecom sector, the maximum single borrower outstanding in the BB and above portfolio was less than INR 6 billion at December 31. At December 31, we held provisions of INR 15.75 billion on the BB and below portfolio, compared to INR 9.6 billion at September 30. This includes provisions held against borrowers under resolution included in this portfolio.
The builder portfolio, including construction finance, lease rental discounting, term loans and working capital loans, was INR 257.53 billion at December 31, compared to INR 228.14 billion at September 30. The builder portfolio is about 3% of our total loan portfolio. Our portfolio is granular in nature, with the larger exposures being to well-established builders, and this is also reflected in the sequential increase in the portfolio. About 11% of our builder portfolio at December 31 was either rated BB and below internally or was classified as non-performing, compared to 13% at September 30. The total outstanding to NBFCs and HFCs was INR 675.86 billion at December 31, compared to INR 605.11 billion at September 30.
The total outstanding loans to NBFCs and HFCs were about 7% of our advances at December thirty-first. The details are given on slide 47 of the presentation. The sequential increase in the outstanding to NBFCs and HFCs is mainly due to disbursements to PSU entities having long vintage and owned by banks and well-established corporate groups. The proportion of the NBFC and HFC portfolio internally rated BB and below or non-performing is less than 0.4% of the portfolio at December thirty-first. Lastly, on the subsidiaries and key associates, the details of the financial performance of the subsidiaries and key associates is covered in slide 52-54 and slide 73-78 in the investor presentation.
The new business premium of ICICI Life grew by 29.7% year-on-year to INR 102.48 billion in nine months this year. The VNB margin increased from 25.1% in FY 2021 to 27.1% in nine months this year. The value of new business increased by thirty-four point eight percent year-on-year to INR 13.88 billion in nine months this year. The profit after tax of ICICI Life was INR 5.69 billion in nine months this year compared to INR 8.96 billion in nine months of last year. ICICI Life had a net loss of INR 1.86 billion in Q1 this year, primarily because of COVID-19 claims and provisions made for incurred but not reported claims.
The profit after tax was INR 3.11 billion in this quarter compared to INR 3.06 billion in Q3 of last year. Gross direct premium income of ICICI General was INR 133.11 billion in nine months this year, compared to INR 105.25 billion in nine months last year. The combined ratio was 111.0% in nine months of this year, compared to 99.1% in nine months last year. The profit after tax was INR 3.18 billion this quarter, compared to INR 3.14 billion in Q3 last year. Prior period numbers are not comparable due to the reflection of the general insurance business of Bharti AXA in the current period numbers. The profit after tax of ICICI AMC was INR 3.34 billion in this quarter, compared to INR 3.58 billion in Q3 of last year.
The profit after tax of ICICI Securities on a consolidated basis increased by 42.3% year-on-year to INR 3.8 billion in this quarter from INR 2.67 billion in Q3 of last year. ICICI Bank Canada made a profit after tax of CAD 11.5 million in this quarter, compared to CAD 5.1 million in Q3 last year, and CAD 8.4 million in Q2 this year. The sequential increase in profit after tax of ICICI Bank Canada is mainly due to write back of provisions. The loan book of ICICI Bank Canada at December thirty-first declined by 4.8% year-on-year. ICICI Bank Canada has repatriated CAD 220 million of equity capital to ICICI Bank in January this year.
ICICI Bank UK had a profit after tax of $3 million this quarter, compared to $2.2 million in Q3 of last year, and $2 million in Q2 this year. The loan book of ICICI Bank UK at December 31 declined by 21.3% year-on-year and 2.2% sequentially. As per Ind AS, ICICI Home Finance had a profit after tax of INR 0.48 billion in the current quarter, compared to INR 0.03 billion in Q3 of last year and INR 0.46 billion in Q2 this year. The year-on-year increase in profit after tax is mainly due to decline in cost of funds and lower provisions. With this, we conclude our opening remarks, and we'll now be happy to take your questions.
Thank you very much. We will 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 answers while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Mahrukh Adajania from Elara Capital. Please go ahead.
Congratulations. My first question is on fees. The fee growth has been very strong for the second consecutive quarter. Would cards be the biggest delta? Would there be any risk to card fees in the near to medium term?
The fee growth, Mahrukh, that we have seen has been, you know, strong across various segments. You know, it's on the retail asset side, you know, credit card and payments, on the wholesale banking side, small businesses, SME. We have seen, you know, an overall, you know, growth across businesses and across, you know, products, as well. Cards is of course an important part of our overall fees and, you know, it will continue to be so.
Okay. Any near-term or medium-term risks that you see to the strength in fee income?
From credit cards, you're saying, Maru?
Yes, from cards or any other product, but mainly from cards.
Nothing, you know, specific per se. I think, you know, there are definitely, you know, some industry trends which are there, you know, in terms of, you know, lower, you know, penal charges and late payment fees and all of that. Overall, you know, we don't see any specific, you know, worry. Of course, we have to keep track of any regulatory changes or, you know, market changes, so that all is very difficult to predict. Otherwise, I think, you know, across segments, we have been seeing, you know, reasonably good growth, in fee revenues.
Sure. My second question is on OpEx. You did give the tech spend for the first nine months. Just QOQ in the third quarter, in other operating expenses especially, what is the biggest driver? Would it be collection? Would it be growth, or would it be tech-related?
Actually, in Q3, what happens, you know, there is always a higher amount of, you know, advertisement and promotion and, you know, all expenses, you know, linked to the festive season. That every time you will see from Q2 to Q3, you know, the sequential increase, the larger part comes from there. In addition to that, I think, you know, we would have seen increase in the, you know, the technology expenses. We have been purchasing, you know, priority sector lending certificates, so that cost would have gone up. These are the costs, you know, which would have gone up for us.
Got it. Just again, in terms of technology spend, say 8% of OpEx would be 3% of your net revenue for the first 9 months on an annualized basis. Whereas, you know, there are some international banks who want to spend 8%-9% of their revenues on tech in FY 2022. What would your future tech spend be? I mean, will it match up to the international banks, as in, not 8%-9%, but will it have to move up substantially? Or you think that most of the high-cost investments are already in the base?
It's a continuing journey on technology and digital and expenses, you know, will continue, you know, as we, you know, expand, you know, our offerings. If you look at the last few years, I think we have always cited that, within expenses, you know, technology, you know, has been, you know, one of the expenses that have been growing at a faster pace than the overall, you know, expenses. This proportion, you know, of 8% or, you know, of OpEx, you know, if you go back two or three years, it would have definitely been a lower number. We'll definitely see, you know, some increase in that proportion.
You know, of course, we are not looking at, you know, 3% of revenues, you know, going up to 9% or 10%. I think that's a completely different, you know, cost base, which is there, a completely different, you know, infrastructure which is there. Those numbers may not be, you know, comparable, you know, for the Indian banks.
Okay, sure. Just one last question on treasury income. Excluding ISEC, it's negative trading gains, right? It had happened in one of the recent quarters as well, probably in 4Q21. What's the accounting there?
Sorry, the gain from, you know, sale of ISEC shares was last year Q3, you know, because we had to meet that minimum public shareholding requirement. That was last year Q3, Maru.
Yeah. Sorry. My bad. Thanks.
Thank you. The next question is from the line of Prakash Kapadia from Anived Portfolio Managers. Please go ahead.
Yeah. Thanks for the opportunity and congrats for the numbers. You know, recently we've been advertising a lot about our trade services. You know, is there a big opportunity to increase market share, you know, based on open architecture model like what we've done in retail? Will it be, you know, Forex related and payments driven? In any sense you can give about, you know, current market share and the room for growth because we seem to be doing well. Secondly, you know, on the auto side, you know, we've seen the pre-owned car market has, you know, grown 2x of OEM sales in the last few years. Is there an opportunity we are focusing to grow the loan book? Any tie-ups on the anvil with a Maruti or a Mahindra or some of these types of things? These are two questions.
Yeah. You know, on the trade side, definitely, you know, we see a huge opportunity, you know, across our business segments, you know, on the small business side as well as the larger corporates. You know, we have been leveraging our digital offerings also, you know, to kind of scale up that business. You would have seen that even in our overseas business, we have seen the increase has come, you know, from the trade finance book.
Domestically also, you know, both in terms of, you know, trade related, you know, short-term book, you know, as well as, you know, NCs and, you know, they are key contributors for us. The growth there has been, you know, quite good for us, and we would, you know, assume that that would be that will continue to be a strong, you know, driver for the fee income as well, you know, which Maru was earlier, you know, talking about. It kind of, you know, fits in very well with our, you know, overall approach of, you know, capturing the entire, you know, customer 360 and the ecosystem.
On the pre-owned cars, you know, clearly that is something where the yields are better and you know the overall ROEs also you know are better you know if the credit costs are kind of you know contained. Definitely there is some bit of you know higher risk as well. We would want you know kind of an optimal proportion of our you know car loan business to be of the pre-owned you know cars. Nothing specific to highlight there. You know, we are very happy to grow that business. That proportion for us you know has been you know increasing you know as well.
It is an important component, especially, you know, from an overall, you know, the car loan business, you know, profitability point of view. This segment, you know, actually, you know, provides a higher ROE, definitely than the new car loan business.
Understood. Any sense on that market share, if you could give, you know, we are in, you know, low teens, 3%, 4%, 5% on the, some of these corporate initiatives which you mentioned. Can it grow in the near future?
We of course, you know, track those, you know, market shares based on, you know, various data, but we have not, you know, disclosed that, you know, per se separately. You know, the market share would, you know, vary, you know, anywhere, you know, from, you know, 5% to up to 15%, you know, across the various initiatives that we are doing.
Thank you. Thank you. All the best.
Thank you. The next question is from the line of Nitin Aggarwal from Motilal Oswal. Please go ahead.
Yeah, hi. Yeah, this is Nitin here. Thanks for the opportunity, and congratulations on very strong results. So the question is on the credit card segment. Again, like, we have reported very strong growth in card spends. If you can shed some light on how the revolve rate are trending in this business now.
On the credit card, essentially, there are sort of couple of things that we are doing, which is leading to slightly better growth. One is on the retail segment itself. We are doing much more intense activity on the portfolio segment in the sense that what are the customer behaviors, where are they behaving, and what are spends we have to do on activation or spends that we have to do on rewards and other things. We are just ensuring that every rupee that we are spending, it is matching with the customer behavior or what we think will be the customer behavior so that the return on those investments
Are good. We don't see it as expenses. We are actually seeing it as return on investment. Every rupee invested, how much return is going to come from that. That is one. The second, we also had, you know, good help from Amazon, as you know, and Amazon now is, the portfolio of course, the risk with the portfolio is very little. And the spends are also very high and the quality of customers are very high. So not just the Amazon card, the co-branded on the Amazon card, et cetera, and the profile of customers that you get and the stickiness that you get, there are other allied benefits, as such. The third one, there is a nice portfolio that is getting built up on the commercial cards.
These are the three big drivers that is happening. Now as the stress increased, we saw first wave and then second wave, the revolver actually came down a little bit, and now it is again coming up. We'll have to see on wave three how it is, how it stands up. Indeed, at the height of the wave, it did, the revolver did come in and people did get conservative on that and they paid it down. So as of now, you know, this is where sort of the situation of cards is. We are now seeing on the third wave, the impact has not been very large, and festival season and spends were all very strong.
Let us see if it doesn't sort of, you know, show Omicron and this wave gets over. I think it will be back to where we were and life will be good.
Okay. We are not very far from the pre-COVID levels of revolve rate. This is what, we can take that?
No. From consumer behavior perspective, all I can say is that whenever there is a stress or fear, the revolve rates actually comes down and not goes up. It comes down. Customers don't sort of revolve that much. As there is normalcy, as customers get more confident, the revolve rates actually go up.
Okay. Sure. Second question is on the recoveries that we had during the quarter. What has actually driven this? Because this has enabled like a pretty sharp reduction in our credit cost. It has come down to 1% annualized for the quarter.
Yes.
Has this like undershot in terms of the, like, the 1% number this quarter? Or how do we look at this trajectory going ahead?
No. I will just respond on the retail side and then hand it over to Rakesh. You know, we have been sharing with you a lot of work that we are doing on the pre-delinquency management. On the pre-delinquency management, there is a lot of data that we have. There is a lot of learning that we have on pre-delinquency management that before the bounce itself, you know which are the customers most likely to bounce and where you should collect. If there is an overdue, which are the sectors, which are the profile of the customers where cash flows might be coming from the economy. We try and overlay that as well, so that we are able to allocate our energy and efficiency and resources towards collection. That has really helped us.
We are improving those models by the day. More and more data comes, more and more machine learns and more and more better the pre-delinquency management is. I would say that would have contributed, that has certainly contributed a lot of our recovery. Because at this point of time, as we know, you know, if there is cash which is coming with the customers, it depends on who reaches first, you know, they get repaid. As the stress in the economy comes down, of course everybody will get repaid. But when there is a stress in the economy and you are going for collection, it is important that if there is one call to be made, which is the customer where you have the highest probability of collection, the call should go there.
That is a model that has to continuously keep learning itself, the data that we have. On the retail side, essentially, you know, those are the recoveries. Also, as you know, you know, for us, we have always been maintaining that the consumer behavior also is that it goes overdue, but it comes back. There are two reasons why, you know, customers go overdue. One is because of their own cash flow strength. The second one sometimes once in a while is on account of intent. Our experience is that the intent percentage is really very low. Most of the customers, in fact all customers want to pay back. When they want to come pay back, it is essentially a cash flow mismatch that happens.
Partly you can give them, you know, restructuring, et cetera, if you think that it is only a temporary loss of income and they are going to come back. You also do pre-delinquency management and collections, data and analytics that you run so that you are able to reallocate your resources well, for collection. That has certainly given us a lift. On the balance part, I'll just request Rakesh to.
I think, you know, as Anup talked about the reasons for the higher, you know, level of deletions that we have seen from the NPA portfolio. I think overall in terms of, you know, credit cost, you know, through the cycle, we have talked about, you know, 25% of our, you know, core operating profit as the number. Near term of course it will, you know, depend on how things, you know, pan out. We don't want to give a, you know, any specific guidance, you know, on the credit cost per se.
At the, you know, beginning of the year and in second quarter, we had said that second half, you know, we do expect the level of, you know, gross additions to come down, you know, from what we have seen in the first half, specifically the first quarter. The trend has been, you know, in line with that.
Right. This level of credit cost we have reported after making how much of restructure provisions? It's almost like INR 400 crores. Am I right?
Yeah. INR 4.5 billion. Yeah.
Right. Because that amounts to only 15% of PPOP this quarter then.
In that sense, actually, you know, this quarter we have made two provisions. You know, one is the restructuring provisions that you referred to, which was about INR 4.5 billion. We have also taken, you know, some provision on our security receipts, you know, book, you know, another about INR 4.5 billion on a prudent basis. Those two provisions we have taken as additional provisions.
Okay. Sure. Thank you so much.
Thank you. The next question is from the line of Nisha Shah from Edelweiss General Insurance. Please go ahead.
Yeah, hi. Congratulations on a great set of numbers, and I thank you for this opportunity to ask questions. I'm just confused about, you know, one of the data point that is shared. Y'all said that net deletions of INR 1.9 billion from gross NPAs. You clarified that this is not write-off. Could you please explain what this number is?
What we give is, you know, we have, you know, added up the gross addition to NPLs, which was about INR 40.18 billion. That is the fresh slippages during the quarter.
Okay.
We had deletions, upgrades, recoveries of INR 42.09 billion, where we would have either recovered the loans in full or we would have recovered the overdue amount in full, so the account would have got upgraded. The 40.18 billion of addition less the gross deletion of INR 42.09 billion is the net addition or reduction in this case of INR 1.91 billion that we refer to. Thereafter, we have also done further write-off of INR 40 billion.
Okay. Also from the write-off, could you just tell me how much was from the OTR book?
Sorry, which book?
From the restructuring book.
Write-off from restructuring book would really not be there. You would have seen some slippages. No write-off would happen from there.
Okay. What kind of slippages did you all see, if I may ask?
On, on the, uh, restructure-
Restructure.
We have seen, you know, some amount of slippage, but we have equally also seen, you know, actually the amount which we have recovered. So roughly about the reduction on the restructured loans, about one third has been because of slippages. Two thirds has been recovery. That's the kind of trend that we have seen.
All right. Okay. Thank you. That's all from my side.
Thank you. The next question is from the line of Jai Mundhra from B&K Securities. Please go ahead.
Yeah, hi. Thanks for the opportunity, and congratulations on a great set of numbers, sir. First, sir, if you can share some more details on your fee income, maybe you can give the bifurcation of the fee into maybe third-party related, liability related fee, credit card or any other bifurcation. I mean...
You know, we have not, you know, as you're aware, we don't, you know, disclose that. What we do disclose is that, you know, 76% of the fees is coming from, you know, the retail business banking and SME segments. We have not given any further, you know, details, you know, per se. You know, in future, maybe we'll look at it. Right now, we have not given any further details.
Sure. Second, sir, is on growth in SME and business banking. Right, we are reporting very strong growth there. I just wanted to check what could be the lending rate here. I mean, even a broad range would be helpful. I mean, what is the broad range for the loans originated at business banking and SME lending rate.
That rate will actually be a wide range. You know, it will not really be helpful, you know, because you know, it's a wide range, you know. To the best of the customers, the rate can go as low as you know 7%. We also do a bit of you know unsecured there you know overdraft and all you know where the rates will be well in double digits. It's a wide range per se.
Sure. Understood. Last question, sir, is on your general insurance arm. Now that we have gone below, I think 48% or 49%, what is the way forward there? I mean, what is going to be the bank's stake? I mean, what is your view on the bank's eventual stake there?
as we have, you know, disclosed earlier that, you know, banks cannot hold, you know, between 30% and 50%, you know. So either you have to have it-
Right.
as a 50% subsidiary or you have to hold below 30%. You know, we have got, you know, an exemption from the government, you know, through recommendation of RBI, to hold, you know, between 30% and 50% till September of 2023. You know, in the interim, you know, we would need to reduce our shareholding to 30% in ICICI General, so that could happen, you know, through any of the means. Or, you know, we could also always, you know, extend that request for an extension of that period. That is how, you know, it will play out.
Understood, sir. Understood. Thank you very much, sir. Thank you.
Thank you. The next question is from the line of Pranav Aggarwal from Edelweiss. Please go ahead.
Yeah. Hi, sir. Three sets of questions. To start with, and a few of these follow up to the questions that we have referred earlier. We have been seeing a fairly reasonable growth, at least in SME and business banking. Would you attribute this to the improving underlying in this segment, or it's more to do with the internal changes that bank has been undergoing?
If you look at the growth in the business banking, you know, segment for us, you know, I think over the last now four years or so, it has been a very strong growth. SME again for, you know, at least the last, you know, two and a half years, you know, we have seen that growth. It of course has to do with, you know, the market opportunity, you know, which is there for us to grow. In addition, it also reflects, you know, the sharp focus that we have, you know, put on these business segments. The fact that, you know, we have been leveraging our branches a lot more in the past few years, you know, to acquire this business.
This all also has got you know driven by the kind of streamlining of processes that we have done in terms of you know customer acquisition, onboarding, underwriting. All of those steps which we have taken have kind of enabled us to you know grow at this pace. The strong underpinning of technology and digital of course is there because that is something which kind of ensures that you know we are able to attract you know customers. A lot of this business that we are doing is with existing customers of the bank also.
You know, the focus has meant that, you know, as we acquire business from the branches, there have been customers who have had, you know, current accounts with us, but we have not had a lending relationship with them. All of that, you know, is something which is really helping us in this growth. We are very focused in terms of ensuring that, you know, we meet our, you know, you know, return thresholds, we meet our risk thresholds. We look at the granularity. We look at, you know, ensuring that there is, you know, good collateral, widespread across sectors. All of this is what has really been, you know, driving growth for us.
Great. Second bit on fee income. While you have highlighted that you have seen growth being more secular in nature, any pocket of pressure that probably you see on the fee income side or any pockets wherein you probably see some pressure points on fee income side? Couple of banks have been highlighting there, at that overall level, there are a couple of pockets wherein you are seeing pressure points on fee income side.
Yes. There are actually, you know, there will always be, you know, some, you know, element of fee which will be growing at a lower pace, you know, than overall. Plus there are always some, you know, regulatory changes, you know, which keep on, you know, coming. For example, on the lending side, you know, the lending-linked fees, you know, that will be growing, you know, slower for us, especially on the corporate side, you know, as we focus more and more on A and above rated, you know, lending business. The lending-related fees there is much lesser. The third party distribution fees for us, you know, that would be growing at somewhat slower pace than the overall, you know, fees. There will be, you know, various, you know, things.
If you look at, you know, previous quarters also, our growth was, you know, around, you know, 20% or so, and this quarter is about, you know, 19%.
Perfect. Just lastly, in terms of your yields. Probably we have seen couple of quarters wherein we have seen pressure points on yields, despite reasonable reserve and exchange. What would you attribute this to, and how do you see your margins settling in maybe two years, three years out? Anything from that?
Oh, you said margins? In what period?
Oh, yields. If I were to just look at last couple of quarters, we have seen some pressure points on yield on net loans. What would you attribute this to?
On the lending side, you know, incrementally, clearly there has been a lot of pressure on the lending spreads. I think, given the surplus liquidity in the system and overall, you know, loan growth for the system is indeed, you know, still running at, you know, around that 8-9% kind of a level. That is something which has, you know, impacted the yield and it is there for all the banks, you know, that we have, you know, seen. In the near term, I think like we had said, you know, last quarter, you know, our first half NIM was about 3.94%.
We had talked about, you know, protecting our NIM at around that level in the near term, and that's what, you know, our focus is. There are a lot of moving parts I think, you know, on the deposit side. I think, you know, the deposit costs have bottomed out for banks. On the lending side, maybe there is still, you know, some further pressure which could be there. The surplus liquidity in the balance sheet, you know, as that keeps on getting deployed, I think that will be a positive as well. Of course, you know, how the overall market rates and repo rate move will also impact.
Like I said, you know, for us, nearly 38% of our loans are linked to repo rate and 7% to other external benchmarks, you know, as well. These are all the factors that we will have to see. Our objective will be to kind of see and protect our NIMs, you know, at the 9-month level, you know, where we are.
Perfect. Thanks for that. Thanks a lot, guys.
Thank you.
The next question is from the line of M.B. Mahesh from Kotak Securities. Please go ahead.
Good evening, sir. Just a couple of questions. One, there has been a marked increase in borrowings, and we see it in quite a few banks as well. Any particular reason for this?
On borrowings, you would have seen, Mahesh, that we did, you know, about INR 8,000 crore of infra bonds during the quarter. So that is something, you know, that we had done and, you know, that actually there is no SLR and CRR which is applicable. As also, you know, one gets a benefit on priority sector lending because that amount, you know, gets reduced from the ANBC while computing the requirement, you know, of priority sector. So that is, you know, one element. Plus the other thing which will always be there is that, you know, it can always be a balance sheet and, you know, number, you know, in terms of, you know, where you are on the market borrowings.
There are some opportunities at points of time where you can borrow and deploy. Otherwise, the underlying increase is that INR 8,000 crore of infra bonds that we have done.
Okay. Second question. Just, we've reached a point wherein the recoveries in retail is matching the slippages in retail. We assume that at a net level the impact at the P&L will be quite negligible and there is no large slippages from the corporate side. Essentially, you've come to a point where credit cost comes off quite sharply. We've also seen ROEs now touching 15 odd %. Internally, what is the way forward from here? Do you allow the ROEs to inch up? Do you reduce the riskiness of the book by going towards a slightly lower risk segment? Do you invest more? How are you seeing the next few quarters?
Mahesh, I think, you know, we'll have to look at it from a slightly more, you know, medium, you know, long term. You know, in the near term, of course, you know, we have seen a lot of, you know, deletions from NPLs coming in. You know, it also reflects the fact that we did add a fair bit of NPLs, you know, last year and in the first quarter, you know, this year. This trend at some stage of deletions will definitely slow down as well. As of now, I think, you know, we would kind of stay with, you know, what our long-term, you know, kind of estimates for, you know, credit cost is.
In the near term, yes, you know, it could end up, you know, undershooting that. That is always a possibility. You know, let us see. In terms of the point that you are saying on, you know, the risk aspect of it, I think that is something which, you know, we always look at it from a risk and return, you know, thresholds, you know, together. That's why, you know, we have been happy to grow, you know, credit card book or personal loan book, you know, as well. Aside from the fact that because of the pandemic, the growth has been much lower over the last, you know, six quarters or so in this portfolio.
As you are aware, you know, prior to that book was, you know, growing at, you know, close to 40% on a YOY basis. As Anup mentioned earlier, you know, as things kind of, you know, normalize, unfortunately the, you know, third wave has happened, otherwise things were kind of, you know, getting back to a much more normal level. We would see, you know, more increase in some of these segments, you know, where the customers are also, you know, happy to, you know, take, you know, some of these loans which are more from a discretionary perspective, that they take. We will always, you know, evaluate that, Mahesh, we on in terms of the portfolio.
Perfect. I'm just kind of giving you a hypothetical question here. If you have a choice where loan growth is not coming at the margin that you want it, but credit cost is falling off sharply, would you go for that loan growth given that the customer segment is less risky?
Yeah, we would. Again, it's, you know, it's nothing to do with the historic book. You know, I think, you know, one has to look at what we are underwriting on an incremental basis. We look at, you know, what we look at is the final contribution to the core operating profit, you know, and the related, you know, credit costs. You know, those are the two things that we look at. Especially on the retail side, you know, the net interest income fees, you know, expenses, sourcing costs, you know, credit costs, all of these are variables, you know, which we are happy to use to optimize the return on the portfolio. That's definitely something that, you know, we would look at.
Okay. Thanks a lot.
Thank you. The next question is from the line of Aakriti Kakkar from Goldman Sachs. Please go ahead.
Yeah, hi, good evening, everyone. Just a couple of questions, actually more product related. Mortgages you know have been growing nicely you know last few quarters. Just wanted to understand you know there's been a you know clearly I mean pressure on yields and where the yields are. How are you all thinking about it in terms of you know making money on this product? And then this question actually not only about mortgages, but in terms of the cross-sell opportunities that are available to mortgage customers. Just wanted to understand how you all see that you know playing out, because the growth has been strong you know and this is taking pricing.
The pricing on the mortgage side, you know, it's always, you know, competitive. I think, we are very clear that we don't want to be price leaders, you know, in any of the segments, including mortgages. You know, if we see the market rates where they are, we would be, you know, happy to be at par because indeed it's a sticky product. You know, you acquire, you know, good long-term value, you know, customers. We are happy to match the lending rates which are there. Again, you know, it's not that we will go and do, you know, our entire business at the headline rates, you know, which are there.
We look at the portfolio, we look at the risk, and we kind of, you know, work out, you know, what are the yields that will, you know, work for us from a portfolio perspective. We also factor in the overall, you know, customer profitability, not just from the mortgage, you know, business. At times, we also look at the mortgage plus, you know, the, loan against property business, in aggregate, as well to see, you know, where our, you know, overall, returns are. The good thing with the mortgage, you know, book is that, you know, all of this is floating rate, you know, linked to repo rate.
You know, at some stage, as the funding costs go up, you know, those yields will also, you know, kind of go up. There can definitely be a lag between, you know, that happening. We will, you know, continue to focus on the mortgage book, and that is an important book for us to grow. We will be competitive in terms of, you know, pricing there, though we will not be price leaders.
Just a follow on. The customer level profitability also, let's say over the last two, three years, has that been, I mean, you all have been able to maintain that or that has also sort of, you know, come under pressure?
Actually, customer level profitability on the retail side that we look at, you know, so it basically, you know, we have bands of profitability that we have, and we track that very closely, the respective retail branches and the zonal heads. We try and kind of move the customers up those profitability bands. There it definitely is helpful, you know, when you are able to sell more products and services to the customer.
Overall, I think, you know, hopefully, you know, now we are seeing at a slight uptick in deposit rates. Maybe the lowering of mortgage rates will be kind of, you know, hopefully behind us, but let's see.
All right. The other question actually was, again, going back to credit cards and just looking at your slide 30, I think the spend market share has really picked up nicely. But the number of cards like, you know, in a particular band of 17%-18%. So does it mean that, you know, the spends, you know, Anup talked about the partnership, you know, of Amazon has been pretty good. So the card, you know, has become more productive. You know, per card spends, you know, the market share gain over there is much higher.
Just trying to understand, you know, what explains the sharp, you know, pickup in the market share on spends versus the cards in force and how much more traction would be there on a go-forward basis?
As I said earlier, there are three key drivers. There is normal retail where portfolio management or sharper portfolio management is driving the spend. Amazon, the good thing is that the activation rates are quick. If there is a card and, you know, customers generally immediately start the spends. Really the S-curve is very steep. That is the second thing and third is on the commercial card side also there is an improvement. These are the three drivers of card spends. They seem to be quite secular and customers are activating. I must also add, you know, to what Rakesh was saying, that overall I think the diversification of customers because of whatever is happening with the banks and with the help of all of you and the brands.
Because bank changes is increasing, we are sensing that. Customer's propensity to also take out cards or come to us and do more business with us, that is also increasing. That is also overall, I must say, helping the bank. Of course, you know, while we are working hard, but I must say that customers are also tilting a bit towards us because of the brand and because of the positivity of the brand. It is what it is.
This Amazon is 2 million cards, which is roughly 17% of the total cards issued, if I'm not wrong. In spends, would it be a much higher number, like north of 20%-25%? Fair to assume that?
Yeah. The propensity of Amazon customers to spend more is higher.
Understood. Okay, thanks, Anup. Just one last question, Rakesh. The write-offs are pretty sharp this quarter. What explains this, you know, kind of write-offs and, yeah. Which product segment would have driven this?
You know, there is no specific explanation per se, but we know indeed, you know, we had, we have, you know, a high level of provisions against the gross NPAs, and that's what, you know, we have written off. A fair bit of that will be also against the retail NPAs. You would have seen the gross retail NPAs have also come down, you know, December over September.
No specific product, it's just across the board?
It is across, you know, the retail across the products.
Got it. Thank you so much.
Thank you. The next question is from the line of Nilanjan Karfa from Nomura. Please go ahead.
Hi, Rakesh. I'll go back to the question of Mahesh, if you frame it a little differently. I mean, I think what struggles is, you know, obviously the credit cost is going down quite sharply. Given the construct of the loan book, everybody seems to believe that as the repo rate kicks in, we will get a benefit. Cost ratios are broadly going to be okay. Unfortunately, I mean, reality is banks is a cyclical business. The problems that I potentially see, and I'm probably stealing this answer, is a very lopsided kind of a growth in the overall system loans. Plus I, you know, in my opinion, it looks to me that, you know, there is banks are enjoying a very, you know, good pricing power, at least at this point in time.
Would you therefore want to believe or give us a sense that it is probably the margins which have a fair amount of pressure going forward? That could also come from your perspective, you know, because if growth remains like this, you know, banks would typically prefer to get into a volume-driven growth than a unit economics of the growth.
Nilanjan, I think, you know, overall, you know, clearly there will be, you know, pressure on lending yields and lending spreads. We have seen that, and, you know, especially now with the deposit costs kind of bottoming out across the banking system. There is still surplus liquidity which is there in the system. You know, that is definitely in the near term, that is going to be the scenario. One has to kind of, you know, manage, you know, through that period. Anything specific that you want to say?
Also, I'll just add that, you know, at this point of time, I think pricing pressure is there and the yields are low because ten-year government security is at 6.60 and mortgages are at 6.70. I don't remember very many years where the delta between the mortgage pricing and ten-year was so low. Although, of course, you know, this is resettable and this is one year and all of it, but it's finally a long-term floating rate. If you look at the rate at which a good SME customers are getting, that also a spread over government securities is quite competitive.
Anup, just-
We have to see.
Sorry to interrupt. Do, by any chance, would you want to consider that, you know, forget, you know, not just ICICI Bank, I mean, in general, given the spread gaps that you're talking about, we are taking in risks which might materialize in the longer term?
No, from bank perspective, I think, you know, we will be very careful on recalibration. It is very difficult to comment on other people. From our perspective, we will be very careful about recalibration.
Okay, I'll do it offline. Just one additional question on the ECLGS portfolio. Any clarity on what is the total stock of loans at this point? How has this total stock of loans behaved? How much has it come down? How much of that has slipped in this quarter, in the December quarter?
No, in terms of numbers, I think, you know, it would be pretty similar to, you know, what it was in September. In terms of the portfolio, I think, like we said last time, you know, our approach was one where we wanted to, you know, kind of use this facility with businesses, you know, where the model was not broken and, you know, we had, you know, visibility in terms of repayments, you know, from the businesses. Of course, you know, the companies that have taken ECLGS would have had, you know, some amount of stress.
Overall, if one looks at this portfolio, you know, maybe the delinquencies or the overdues could be somewhat higher than the overall book, you know, for banks. But in our case, you know, there's nothing, you know, we are not overly worried on this portfolio. You know, there would be somewhat higher numbers that we see here, but nothing more than that.
Okay, Rakesh. I mean, just it was very specific to this quarter. Have you seen any slippages coming through? Because I think we are more or less done with one-year moratorium.
Nothing material, I would say.
Okay. All right, yep. Thank you.
Thanks. Thank you.
Thank you. Ladies and gentlemen, due to time constraint, we take that as the last question. I now hand the conference over to the management for their closing comments. Over to you.
Thank you everyone for joining this Saturday evening. We'll be happy to take, you know, the remaining questions separately.
Thank you. Ladies and gentlemen, on behalf of ICICI Bank, that concludes this conference. We thank you all for joining us, and you may now disconnect your lines.