Ladies and gentlemen, good day and welcome to ICICI Bank Limited Q2 FY 2023 earnings conference call. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during 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 Chief Executive Officer, ICICI Bank. Thank you, and over to you, Mr. Bakhshi.
Thank you. Good evening to all of you, and welcome to the ICICI Bank earnings call to discuss the results for Q2 of financial year 2023. Joining us today on this call are Anup Bagchi, Sandeep Batra, Rakesh Kumar, Anindya Banerjee, and Abhinek. The Indian economy has seen a robust recovery from challenges posed by pandemic. However, we are currently experiencing volatility in global economy and financial markets, geopolitical tensions, and upward movements in inflation, interest rates, and exchange rates.
The authorities have been taking various measures to address the evolving situation. At ICICI Bank, we aim to grow the core operating profit in a risk-calibrated manner through a 360-degree customer-centric approach and by focusing on ecosystems and micro-markets. We continue to operate within our strategic framework and strengthen our franchise, enhance our delivery and servicing capabilities, and expand our technology and digital offerings.
Coming to the quarterly performance against this framework. First, 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 23.6% year-on-year to INR 117.65 billion in this quarter. Excluding dividend income from subsidiaries and associates, core operating profit grew by 24.4% year-on-year. The profit after tax grew by 37.1% year-on-year to INR 75.58 billion in this quarter. Second, further enhancing our strong deposit franchise. Total period-end deposits grew by 11.5% year-on-year at September 30, 2022. During the quarter, average current account deposits increased by 15.5% year-on-year. Average savings account deposits grew by 16% year-on-year.
Period-end term deposits grew by 10.5% year-on-year and 4.3% sequentially at September 30, 2022. The liquidity coverage ratio for the quarter was about 127%. Third, growing our loan portfolio in a granular manner with a focus on risk and reward. The retail loan portfolio grew by 24.6% year-on-year and 6% sequentially at September 30, 2022. Including non-fund-based outstanding, the retail portfolio was 44.2% of the total portfolio. The business banking portfolio grew by 42.6% year-on-year and 10.8% sequentially. The SME portfolio grew by 26.5% year-on-year and 6.4% sequentially. The growth in SME and business banking portfolios was driven by leveraging our branch network and digital offerings such as InstaBIZ and Merchant Stack.
The domestic corporate portfolio grew by 23.1% year-on-year and 6.8% sequentially at September 30, 2022, driven by growth across well-rated financial and non-financial corporates. The rural portfolio grew by 11.7% year-on-year and 3.8% sequentially. The domestic loan portfolio grew by 24% year-on-year and 6% sequentially. The overall loan portfolio grew by 22.7% year-on-year and 4.8% sequentially at September 30, 2022. Fourth, leveraging digital across our business. We continue to enhance our digital offerings and platforms to onboard new customers in a seamless manner and provide them end-to-end digital journeys and personalized solutions. These platforms also enable us to do cross-sell and up-sell. We have shared some details on our technology and digital offerings in slide 17-27 of the investor presentation.
Fifth, protecting the balance sheet from potential risks. The net NPA ratio declined to 0.61% at September 30, 2022 from 0.7% at June 30, 2022 and 0.99% at September 30, 2021. During the quarter, there were net additions of INR 6.05 billion to gross NPAs excluding write-offs and sale. The provisioning coverage ratio on NPAs was 80.6% at September 30, 2022. The total provisions during the quarter were INR 16.44 billion or 14% of the core operating profit and 0.71% of average advances. This includes contingency provision of INR 15 billion made on a prudent basis.
The bank holds contingency provisions of INR 100 billion or about 1.1% of total loans as of September 30, 2022. Sixth, maintaining a strong capital base. The capital position of the bank continued to be strong with a CET1 ratio of 16.95%, Tier 1 ratio of 17.51%, and total capital adequacy ratio of 18.27% at September 30, 2022, including profits for H1 2023. Looking ahead, we will continue to grow the core operating profit in a risk-calibrated manner. We'll work as one team by facilitating cross-functional collaboration to tap into the key customer and market segments, enabling 360-degree coverage and increase in wallet share. We will continue to make investments in technology, people, distribution, and building a brand.
The principles of fair to customer, fair to bank, and one bank, one team, one ROE will guide our operations. We focus on building a culture where every employee in the bank serves customers with humility and upholds the values of brand ICICI. We aim to be the trusted financial services provider of choice for our customers and deliver sustainable returns to our shareholders. I now hand the call over to Anindya.
Thank you, Sandeep. I will talk about balance sheet growth, credit quality, P&L details, growth in our digital offerings, portfolio trends, and the performance of 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 20.4% year-on-year and 4.4% sequentially. Auto loans grew by 19% year-on-year and 5.2% sequentially. The commercial vehicles and equipment portfolio grew by 5.6% year-on-year and 0.6% sequentially. Growth in the personal loan and credit card portfolio was 48.8% year-on-year and 11.8% sequentially. This portfolio was INR 1,077.49 billion or 11.5% of the overall loan book at September 30, 2022.
The overseas loan portfolio in US dollar terms declined by 10.4% year-on-year and 19.4% sequentially at September 30, 2022. The decline in overseas book primarily reflects maturities of the short-term India-linked trade book. The overseas loan portfolio was about 4% of the overall loan book at September 30, 2022. The non-India-linked corporate portfolio declined by 47.4% or about $387 million on a year-on-year basis. Of the overseas corporate portfolio, about 84% comprises Indian corporates. 7% is overseas corporates with Indian linkage. 4% comprises companies owned by NRIs or PIOs, and the balance 5% is non-India corporates. On the liability side, Sandeep covered the growth in deposits. During the quarter, we also raised long-term infrastructure bonds as well as refinanced borrowings from domestic financial institutions.
Overseas borrowings declined, reflecting the reduction in assets. Going on to credit quality, there were net additions of INR 6.05 billion to gross NPAs in the current quarter compared to INR 3.82 billion in the previous quarter. The net additions to gross NPAs were INR 5.93 billion in the retail, rural, and business banking portfolios and INR 0.12 billion in the corporate and SME portfolios. The gross NPA additions were INR 43.66 billion in the current quarter compared to INR 58.25 billion in the previous quarter. The gross NPA additions from the retail, rural, and business banking portfolio were INR 36.58 billion, and from the corporate and SME portfolio was INR 7.08 billion.
The gross NPA additions from the corporate and SME portfolio include the impact of rupee depreciation on existing foreign currency NPAs. Recoveries and upgrades from gross NPAs, excluding write-offs and sale, were INR 37.61 billion in the current quarter compared to INR 54.43 billion in the previous quarter. There were recoveries and upgrades of INR 30.65 billion from the retail, rural, and business banking portfolio and INR 6.96 billion from the corporate and SME portfolio. The gross NPAs written off during the quarter were INR 11.03 billion. The bank sold NPAs worth INR 0.94 billion on a cash basis in the current quarter compared to INR 0.13 billion in the previous quarter.
Net NPAs declined by 25.3% year-on-year and 8.4% sequentially to INR 60.99 billion at September 30, 2022. The non-fund-based outstanding to borrowers classified as non-performing was INR 35.16 billion as of September 30, 2022, compared to INR 36.70 billion as of June 30, 2022. The bank holds provisions amounting to INR 20.24 billion as of September 30, 2022, against this non-fund-based outstanding.
The total fund-based outstanding to all standard borrowers under resolution as per various guidelines declined to INR 67.13 billion or about 0.7% of the total loan portfolio at September 30, 2022, from INR 73.76 billion as of June 30, 2022. Of the total fund-based outstanding under resolution at September 30, 2022, INR 47.39 billion was from the retail, rural, and business banking portfolio, and INR 19.74 billion was from the corporate and SME portfolio. The bank holds provisions of INR 20.59 billion against these borrowers, which is higher than the requirement as per RBI guidelines. Moving on to the P&L. Net interest income increased by 26.5% year-on-year to INR 147.87 billion.
The net interest margin was 4.31% in this quarter, compared to 4.01% in the previous quarter and 4% in Q2 of last year. The net interest margin was 4.16% in H1 of 2023. There was no impact of interest on income tax refund on the net interest margin in the current quarter. The domestic NIM was at 4.45% this quarter, compared to 4.14% in the previous quarter and 4.09% in Q2 last year. The cost of deposits was 3.55% in this quarter, compared to 3.46% in the previous quarter.
Of the total domestic loans, interest rates on 44% are linked to the repo rate, 5% to other external benchmarks, and 21% to the MCLR and other older benchmarks. The balance 30% of loans have fixed interest rates. The sequential increase in NIM reflects the impact of increase in interest rates on loan yields, while repricing of deposits occurs with a lag. While policy rate hikes affected so far should further reflect in loan yields, we also expect to see the impact of repricing of deposits in future quarters. Non-interest income, excluding treasury income, grew by 16.8% year-on-year to INR 51.39 billion in Q2 of 2023. Fee income increased by 17.6% year-on-year to INR 44.8 billion in this quarter.
Fees from retail, rural, business banking, and SME customers grew by 19% year-over-year and constituted about 79% of the total fees in this quarter. Dividend income from subsidiaries and associates was INR 6.48 billion in this quarter, compared to INR 5.83 billion in Q2 of last year. The year-over-year increase in dividend income was due to higher final dividends from ICICI General and final dividend from ICICI Bank UK, offset in part by lower dividend from ICICI AMC and ICICI Securities. On costs, the bank's operating expenses increased by 24.2% year-over-year in this quarter. The employee expenses increased by 21.1% year-over-year. The bank had about 110,000 employees at September thirtieth, 2022. The employee count has increased by about 9,800 in the last twelve months.
Non-employee expenses increased by 25.9% year-on-year in this quarter, primarily due to retail business and technology-related expenses. Our branch count has increased by about 340 in the last twelve months, and we had 5,614 branches as of September 30, 2022. The technology expenses were about 9% of our operating expenses in H1 of this year, compared to about 8.5% in fiscal 2022. The core operating profit increased by 23.6% year-on-year to INR 117.65 billion in this quarter. Excluding dividend income from subsidiaries and associates, the core operating profit grew by 24.4% year-on-year.
There was a treasury loss of INR 0.85 billion in Q2, compared to a gain of INR 0.36 billion in Q1 and INR 3.97 billion in Q2 of the previous year. The total provisions during the quarter were INR 16.44 billion or 14.0% of core operating profit and 0.79% of average advances. These include contingency provisions of INR 15 billion made on a prudent basis. The provisioning coverage on NPAs was 80.6% as of September 30, 2022. In addition, we hold INR 20.59 billion on borrowers under resolution. Further, the bank holds contingency provision of INR 100 billion as of September 30, 2022.
As of September 30, 2022, the total provisions other than specific provisions on fund-based outstanding to borrowers classified as non-performing were INR 200.59 billion or 2.1% of loans. The profit before tax grew by 39.4% year-on-year to INR 100.36 billion in this quarter. The tax expense was INR 24.78 billion in this quarter, compared to INR 16.9 billion in the corresponding quarter last year. The profit after tax grew by 37.1% year-on-year to INR 75.58 billion in this quarter. The consolidated profit after tax grew by 31.4% year-on-year to INR 80.07 billion in this quarter.
Coming to the growth in digital offerings, leveraging digital and technology across businesses is a key element of our strategy of growing the risk-calibrated core operating profits. We continue to see increasing adoption and usage of our digital platforms from our customers. There have been about 8 million activations of iMobile Pay by non-ICICI Bank account holders as of end September. The value of transactions by non-ICICI Bank account holders in Q2 of this year was 4.4 x the value of transactions in Q2 of last year. The value of credit card spends in the current quarter grew by 4.4% sequentially and 43.1% year-on-year. We saw a healthy growth in retail credit card spend, driven by increase in discretionary spending, higher activation rate through digital, onboarding of customers, including Amazon Pay credit cards.
During the current quarter, we closed about 817,000 inactive credit cards as per recent RBI guidelines. The bank has issued more than 3.5 million Amazon Pay credit cards since its launch. We have seen about 195,000 registrations from non-ICICI Bank account holders on InstaBIZ till September 30, 2022. The value of financial transactions on InstaBIZ grew by about 22.8% year-on-year in the current quarter. We have created more than 20 industry specific stacks which provide bespoke and purpose-based digital solutions to corporate clients and their ecosystems. Our Trade Online and Trade Emerge platforms allow customers to perform most of their trade finance and foreign exchange transactions digitally. About 70% of trade transactions were done digitally in Q2 of this year.
The value of transactions through these platforms increased by 70.1% year-on-year in Q2 of this year. We have provided details on our retail business banking and SME portfolios in slides 34-44 of the investor presentation. The loan and non-fund-based outstanding to performing corporate and SME borrowers rated BB and below was INR 76.38 billion at September thirtieth, 2022, compared to INR 82.09 billion at June thirtieth, 2022, and INR 127.14 billion as of September thirtieth, 2021. The amount of INR 76.38 billion at September thirtieth, 2022, includes INR 21.98 billion of outstanding to borrowers under resolution.
Other than one account in the power sector, where resolution has been implemented as per RBI's COVID-19 resolution framework, the maximum single borrower outstanding in the BB and below portfolio was less than INR 6 billion at September 30, 2022. At September 30, 2022, we held provisions of INR 8.12 billion on the BB and below portfolio, compared to INR 8.61 billion at June 30, 2022. This includes provisions held against borrowers under resolution included in this portfolio. The total outstanding to NBFCs and HFCs was INR 735.73 billion at September 30, 2022, compared to INR 699.72 billion at June 30, 2022. The total outstanding loans to NBFCs and HFCs were about 8% of our advances at September 30, 2022.
The sequential increase in the outstanding to NBFCs and HFCs is mainly due to disbursements to entities having long vintage and entities owned by well-established corporate groups. The builder portfolio, including construction finance, lease rental discounting, term loans, and working capital, was INR 319.63 billion at September 30, 2022, compared to INR 275.69 billion at June 30, 2022. The builder portfolio is over 3% of our total loan portfolio. Our portfolio largely comprises well-established builders, and this is also reflected in the sequential increase in the portfolio. 6.8% of our builder portfolio at September 30, 2022, was either rated BB and below internally or was classified as non-performing compared to 8.3% at June 30, 2022.
Finally, on our subsidiaries and key associates, the details of the financial performance of subsidiaries and key associates are covered in slides 48-50 and slides 69-74 in the investor presentation. The value of new business or VNB margin of ICICI Life increased from 28% in FY 2022 to 31% in H1 of this year. The value of new business increased by 25.1% year-on-year to INR 10.92 billion in H1 of this year. The annualized premium equivalent grew by 10.1% year-on-year to INR 35.19 billion in H1 of this year. The profit after tax of ICICI Life in H1 of this year was INR 3.55 billion compared to INR 2.59 billion in H1 of last year and INR 1.99 billion in Q2 of this year compared to INR 4.45 billion in Q2 last year. The gross direct premium income of ICICI General increased by 17.2% year-on-year to INR 51.85 billion in Q2 of this year. The combined ratio was 105.1% in Q2 of this year compared to 105.3% in Q2 of last year.
The profit after tax grew by 32.2% year-on-year to INR 5.91 billion in the current quarter. The profit after tax includes reversal of tax provisions of INR 1.28 billion. Excluding this reversal, profit after tax grew by 3.4% year-on-year in Q2 of this year. The profit after tax of ICICI AMC was INR 4.06 billion in this quarter, compared to INR 3.83 billion in Q2 of last year. The profit after tax of ICICI Securities, as per Ind AS on a consolidated basis, was INR 3 billion in this quarter, compared to INR 3.51 billion in Q2 of last year.
ICICI Bank Canada had a profit after tax of CAD 12 million in this quarter, compared to CAD 8.4 million in Q2 last year, and CAD 7.2 million in Q1 this year. ICICI Bank UK had a profit after tax of $1.5 million this quarter, compared to $2 million in Q2 of last year and $3.4 million in Q1 this year. As per Ind AS, ICICI Home Finance had a profit after tax of INR 0.6 billion in the current quarter, compared to INR 0.46 billion in Q2 of last year and INR 0.40 billion in Q1 this year. During the quarter, we infused INR 2.5 billion of equity capital in ICICI Home Finance to strengthen its capital position and support its growth. With this, we conclude our opening remarks, and we will now be happy to take your questions.
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 Mahrukh Adajania from Nomura Wealth. Please go ahead.
Hello. Hi. Congratulations.
Thanks.
Yes. My first question is on deposit growth in the second half. Obviously yours is a strong liability franchise, but liquidity is getting tight. HDFC's merger activity will also strengthen in the second half as they run closer to the merger. How do you see deposit growth panning out? And in terms of further expansion to margin, what is the outlook over the next four to five quarters?
On the first part, Mahrukh, as you know, retail term deposit growth for the system in general was quite soft over the last few quarters till you know the early part of this financial year given the level to which the deposit rates had gone down. I think maybe as the retail term deposit rates have started to move up, I think from the first quarter of this year, we have started to see a good traction and momentum in the retail you know FD accretion. Having said that, you know of course, the pace of increase in the retail FD rates has been you know much lower than what we have seen in the wholesale deposit market. I think if we look at you know developments over the last couple of weeks we are seeing you know a more accelerated sort of increase in retail FD rates.
Therefore I think we will see you know an increase in retail FD inflows as the banking system moves up on the FD rates. We expect to see you know the retail FD deposit growth momentum to continue and to strengthen. On the second part, on margins, I think if we, you know, as I mentioned in the opening remarks, given that 44% of the domestic book is linked to repo, and we will continue to see some benefit on the yield side in terms of the repricing as the repo rate increases. In fact, you know, the last increase, which was on thirtieth September itself will have some impact. We do expect to see funding costs kind of move up you know at a quicker pace than what we have seen so far. Net of that, I think, you know, will be the sort of impact on margins. We'll have to wait and see, you know, how it evolves.
Okay, thanks. The other thing is, in general, on loan growth and the ability of consumers to bear the hike, right? Loan growth has been very strong amidst rising rates, and it's almost in defiance with the global macro. Are you going to see a slowdown also as a hard landing, or how does it shape? Why is the economy or why are consumers showing so much strength as never seen before and better than expected? Does it continue for two to three quarters?
I think, you know, it starts with the fact, as Sandeep mentioned, you know, that the recovery from the pandemic in India has been, you know, quite strong and that is, you know, evidenced in a number of indicators, whether it is, you know, demand indicators or the resilience and recovery in banks' loan portfolios in terms of the credit performance. Those are all indicators that, you know, the consumer is in good shape.
In terms of the cost of credit, you know, part of what has happened so far is really a reversion to where the rates anyway were pre-pandemic and during that time, this time, you know, incomes, et cetera, would have gone up. You know, we have to see whether, you know, future rate hikes, you know, the extent of pass-through that happens and, you know, what impact, if any, that has on the demand. Also it's a competitive environment. you know, banks are, you know, offering products to consumers at, you know, rates which they feel consumers will have offtake at.
Okay, thanks a lot. Thank you.
Thank you. The next question is from the line of Saurabh from JP Morgan. Please go ahead.
Sir, just one question. This contingent provision which you've made, I mean, is it fair to understand that you would just target that down to?
Saurabh, can you unmute your line for me, sir, and go with the question, please?
Yeah. Is it better?
Saurabh, can you hear us?
Am I audible now?
Yes.
Hello. Okay. Sir, just on this contingent provision, is it fair to assume that, I mean, you would just target this 2% ROA and effectively that's how this contingent is working or is there any reason you made this? Thank you.
No, it's not that way. It's, you know, we are looking at basically, you know, the overall macro environment, both globally and in India in terms of risks to growth, the impact of inflation and interest rates, and the geopolitical risk. We are looking at, you know, broad across our portfolio wherever we see that the risk markers are higher and, you know, some of these risks could manifest. On that basis is how we are looking at the contingent provision.
Okay. Understand. Thank you, sir.
Thank you. The next question is from the line of Krishnan from HDFC Securities. Please go ahead.
Yeah. Hi, Mayank. Thanks. This is more to do with two things. One, we've generally seen an environment where loan pricing has been fairly fast because of EBLR linkage. That's evident. Also what we have observed is that the loan resets are faster. If the earlier contracted period, and this is not just true of ICICI Bank, I wouldn't have probably observed this specifically for ICICI Bank, but the system in general has moved from, say, a quarterly reset to a real time reset. The day the RBI moves, immediately a 50 basis point gets passed on. Right?
Does the RBI look at the same reset on the way down as well or do you anticipate that banks can continue to go back and forth between real time reset and quarterly reset when the rate movement is adverse? Right. So that's the first question. The second question is also about deposit mobilization. The fact is you're now at nearly an 86% loan to deposit. Given the kind of demand environment you're seeing, could pricing be on the deposit side, could that be catch up on the deposit side pricing, could that be faster, say, towards the end of the year?
On your first question, Krishnan, we don't have any real-time resets. Our EBLR or repo-linked loans reset every three months. You know, if you know, so there is no you know next month or immediate reset on our, say, home loans which are linked to EBLR. On the second part, as we spoke, you know, earlier also on this call that we have seen, you know, more increases in deposit rates more recently than we had seen, you know, or larger increases than we had seen, you know, till you know say broadly till September. It would be fair to assume that the repricing of deposits will pick up, you know, from here on.
Just on the related thing on the EBLR bit, right? I mean, it almost seems like if the RBI does say 100 basis points incrementally from here till the terminal, right, all of that 100 gets passed on. This is something we have been trying to clarify from other banks as well. I mean, it would help if you could share your thoughts. Is there any discretion you can exercise if you see risks building up, you know, you really don't want to kind of get break this camel's back, right? Would, I mean, banks be able to exercise any discretion saying that there comes a point beyond which I will absorb this on my P&L rather than pass it on further and increase asset quality risk? Or does that discretion not exist as things stand today?
I think that's a hypothetical. I mean, contractually. The loan resets at the spread over the EBLRs, you know, one could if the borrower is able to, for example, look at refinancing at a lower cost from a competing provider, then, you know, that can happen. They can, you know, exit my loan and, you know, go to a competing provider and take a loan at a lower spread. Yeah, so that can happen. In fact, you know, I guess, as the rates go up, you know, that can also be a factor in how, you know, spreads and margins move.
Great. I'm done. Thank you.
Thank you. The next question is from the line of Nitin Aggarwal from Motilal Oswal. Please go ahead.
Yeah, hi. Good evening, everyone, and congratulations on good performance. Two questions, like one is again on the provisions, which was touched upon earlier. Like as a percentage of PPOP, we are tracking significantly lower than the run rate that we have talked about in the past. So core credit costs are running negligible now. So how do you see this? Like, how long can this continue and what will be your strategy in respect to therefore making contingent provisions? So we'll continue to provide more contingent provisions as the provisions to PPOP ratio run slower?
No. As I explained, you know, in response to Saurabh's question, we are not, you know, working out any percentage of PPOP or anything like that. It is entirely based on an analysis of the factors in the global and Indian environment and the portfolios that we have, where perhaps, you know, risk markers are a little higher than the average portfolio. That is where we are on a quarterly basis and continuously reviewing from the perspective of making these prudent provisions.
In terms of how these specific credit costs will shape up, I think, as we have been saying, I mean, based on our current, you know, understanding and expectation in the near term, we would expect them to kind of significantly undershoot, you know, the normalized level. I think the reasons for that are that, you know, we are not seeing really any material NPL development on the corporate side. In fact, we are seeing some recoveries. On the retail and SME side, you know, we are coming off, you know, the pandemic related cycle, so we are seeing actually recoveries out of those portfolios as well. Incremental additions are also well under control. Credit costs, you know, would be, you know, lower than normal for some time.
Right. Secondly, if you can talk about the branch expansion strategy over the medium term, how do you see that? Because competition is talking about a very aggressive branch expansion run rate. How are you looking at it? Any implications on the cost ratio. This quarter the cost ratios have moderated. That was strong revenues, but how do you see these two things going forward?
As far as branches are concerned, I think, as we mentioned, we've added about 340 branches in the last one year. We've added close to 200 branches in the current you know six months itself, April to September. This pace of addition is somewhat higher than what we would have done, you know, in the preceding years. This is based on our own assessment of the market opportunity you know across different markets and micro markets where you know new economic nodes or new nodes of you know residential development are coming up and we need to have a physical presence to service that.
I think one of the other things that we are also doing, you know, as a strategy is trying to move our colleagues closer to the market. That also results in, you know, an expansion of the local footprint. I guess we would continue to, you know, expand our branches on this basis. You would see branch numbers going up over the next couple of quarters as well.
All right. Any color on the cost ratios?
We, you know, really focus on the pre-provision operating profit. That naturally requires, you know, an appropriate management of OpEx, you know, in relation to the revenue. Currently, you know, as you rightly said, the revenue environment is pretty strong, and we feel that there is a lot of opportunity for us to grow our business to expand our franchise, and therefore we continue to invest in that. You know, that's what we would continue to do. If, you know, I think as we have said in the past, if in a quarter or two, you know, cost growth overshoots even revenue growth, we would not worry about it too much. If we find it to be a sustained thing, we can always make some adjustments. Currently, I think we are, you know, looking at investing and expanding the franchise.
Sure. Thanks. Thanks so much, Anindya Banerjee. This is very helpful.
Thank you. The next question is from the line of Sharaj from Laburnum Capital. Please go ahead.
Hello, sir. Thank you for the opportunity. My question is on the contingent provisions again. Is there some specific segment of the book we are providing for against in times of crisis?
No, we look across the portfolios, so it's quite a broad range of portfolios that we look at.
Okay. I was particularly asking from the SME and business banking segment. Would it be fair to expect, this could be hit hard if there was slowdown?
Actually that segment has behaved quite well for us. In fact I would say that you know even if we look at the analysis that we had done at the start of the pandemic when the moratorium was on I think this is one of the segments where the outcomes have probably been a little bit you know overall not you know in line or better. Of course in an environment of you know a lot of macro volatility this could be a segment that will see some vulnerability. If you know as far as the contingent provisions are concerned we are looking at a fairly broad range of portfolios.
Okay. Thank you so much, sir. Congratulations for the results and Happy Diwali.
Thank you. Happy Diwali.
Thank you. Next question is from the line of Rakesh Kumar from Systematix Group. Please go ahead.
Yeah. Thanks a lot, sir, for the opportunity. Just one question I have. This is related to, you know, when we are in a falling interest rate scenario, which is quite far from here, but just to understand what you are thinking about it. The asset quality, you know, trajectory and the EBLR both would not be working as a counter-cyclical thing. What is our thought process here? Because margin would also, you know, taper off and with the fall in the interest rate, there would be asset quality issues also coming up. The EBLR would not help for the system as a whole, I think. Your thoughts on this. Thank you, sir.
I'm not sure I understood the question, but you know, I think that at first, you know, as the repo rate increases, as you know, I think the increases so far have been quite well absorbed. They've been quite well absorbed by the borrowers and really don't seem to be leading to signs of any higher delinquencies. We'll have to, of course, keep monitoring as the situation evolves. I don't think that you know, in a falling rate scenario, there would be any negative impact on asset quality, if at all, as the margin risks could be in the rising scenario. From a bank margin perspective, therefore, it's not really in that sense counter-cyclical because margin, banks' margins would also rise in a higher interest rate scenario.
No, sir. Basically, what I was trying to say that, you know, generally what empirical evidences are there that, you know, when we are in a falling interest rate scenario, basically the NPL rise. When we see the credit growth numbers tapering off and, you know, the interest rate cycle coming down, we see asset quality issues. In those times, because of this EBLR mechanism in place now, you know, loan pricing would also be faster. You know, until unless we change the benchmark itself, like, you know, or if we do some changes there within the EBLR. Actually, because of EBLR linkage, we would have adverse impact on loan, you know, credit yield also, and then we would also have, you know, asset quality issues associated with the fall in interest rate. These two-
I'm not able to draw this. I don't think it's a kind of reverse causation. Typically in a normal cyclical tightening and loosening of monetary policy, we would not see such an impact. It could happen in a, you know, crisis situation, but there it is not, for example, there is a big shock to growth. It is the shock to growth which causes, you know, the NPL and not the reduction in interest rates, which is also a consequence of the shock to growth. I think, you know, if it's a normal calibrated tightening and then unwinding of monetary policy, this should not happen. I will sort of hedge by saying that, you know, we have not really seen a full cycle under the EBLR pricing regime. That is something that we have to see how it goes through both on the way up and the way down in terms of both margins and credit quality.
Good, sir.
Thank you. The next question is from the line of Jignesh from Incred Capital. Please go ahead.
Yeah. Hi. Am I audible?
Yes.
Just one thing I wanted to discuss, similar to what Krishnan was asking earlier. In this interest rate cycle side, can we assume that at least incrementally on the new loans, not on the existing loans, which is repo-linked or, you know, this treasury-linked loans and all? Considering that demand scenario remaining, you know, it becomes a little fragile. In that case, can we take a hit on the spreads just to manage the demand? Is that kind of scenario also likely or the spread generally remains fixed all the time?
I think that's a function of, you know, how the market sort of prices the loans. You know, as we said, it is a competitive market. You know, it's a decision of each lender based on their strategy and their funding cost as to what spread over, you know, the benchmark they offer incremental loans at. If we look at what has happened so far in terms of incremental lending, the pricing would have, you know, the pass-through would not have been uniform for all sort of segments of the market, and we'll have to see how that goes along.
Understood. There is no regulation as such, right? Which restricts you to cut down on your spread. That is what I'm trying to understand.
Not really.
If you want to reduce your spread, that is possible.
If I want, yes.
Perfect. That's answered my question. Thanks a lot, sir, and all the best.
Thank you. The next question is from the line of Nilanjan from Nomura. Please go ahead.
Hi. Thanks for taking my questions. One question was on, you know, this contingency provision build-up. Should we look at, or rather, you know, let me rephrase the question. Do you think your ECL model which you supply to RPI and what we are reading right now, are they sort of, you know, kind of pretty much similar? Is that how we should look at that number?
Not really. I mean, this is not modeled on the same basis as either that. You know, whenever we move to that, we will have to see how to transition this, sir.
Okay. The reason is, you know, if I just go back, you know, last 40, 50 quarters, I think, given that we did not have so much, you know, contingent and floating provision reserves, our credit costs have roughly, I think, averaged around, maybe 170, 180, excluding some of the high periods. Is that something we should look at? I mean, because we are sitting on the other side of the table. How should we think about this number?
See, I think unfortunately the environment has been volatile, so we have not seen in that sense, you know, a stable cycle. My guess is that, you know, given our overall risk appetite on the corporate side and sort of the focus on, you know, granularity and on the retail SME side, you know, the long-term averages may not be, you know, as effective a guide as to the future sort of credit costs. I think we have to go through, you know, some period of time before we see how that settles.
Okay, fair enough. Second question is, you know, is this we seem to be some bit of disconnect. You know, when we look at other sectors, other companies talking about, you know, discretionary spends dropping, vis-à-vis, you know, banks sort of, you know, guiding to extremely strong, you know, forecasts. How do we rationalize both of these side? Or are we missing something in this whole picture? Is it just inflation which is playing out? Broadly, you know, how, in terms of your risk management policies, are you, have you begun tightening some of the screws once again?
I don't think, on the second one, that, you know, we continuously review and make whatever micro-level changes we need to make, but there is no sort of broad brush tightening that we are doing. In terms of the first one, it's difficult to really answer that question. I think from our side, it's data. For example, if you look at the credit card spend data which is being published, you know, by the you know, at a systemic level, that is showing, you know, the trends in growth. Quite transparent in that sense.
Okay. All right. Yeah. Thanks so much.
Thank you. Next question is from the line of Seshadri Sen from Alchemy Capital . Please go ahead.
Hi. Can you hear me?
Sorry, sir. Audio is not very clear.
Yeah. Give me a second. Is this better?
Yes, sir. Thank you.
Yes. Yes.
Hi, Anindya. Thanks for taking my question. The first one is on credit card, and I'm seeing a sharp jump quarter-on-quarter in the credit card outstanding. How have the underlying metrics in terms of revolvers and EMI and transactors behaved over this quarter? I know you don't disclose, break it out, but just in terms of trends, have there been any significant shifts in the trend given the sharp jump in the overall book?
I think that what happened really was, without getting into numbers, that we saw a pretty strong growth in the retail spend and some rationalization of corporate spend. Retail spend growth would probably be, you know, higher than the average, and that is what translates into, you know, a book, so I don't think that there is any real change in the revolver levels.
Understood. Okay. Both revolver EMI have been largely stable. There's not been any movement in either direction.
Yeah, nothing to call out certainly on the revolver side.
Understood. Thank you. Secondly, I know a couple of people have asked this before, but just want to revisit the net interest margin cycle in terms of how it plays out. When do you expect that the. You know, we are now at the point in cycle where assets are repricing faster than liabilities. That tends to reverse at some point. When do you see, you know, is it, you know, FY 2024 or sooner than that trend starts to reverse? Or do you think that given your loan mix changes, and I'm seeing your loan book, there's significant acceleration in some of the high-yield segments, that that should take care of any reversal that happens at that point?
We'll have to see. I mean, you are absolutely right that, you know, more durable changes in bank margins come from either loan mix or funding mix or, you know, asset quality. We'll have to see. I mean, I think that, as we explained, you know, given the three-month reset structure, and if you look at the repo rate hikes which have happened and which are expected, you know, there will be, you know, some upward movement of these even from here on. At some point the funding costs will catch up. I guess it will happen sometime in the next few quarters.
Understood. Okay. Thanks. Thanks, Anindya, and all the best.
Thank you. Next question is from the line of M.B. Mahesh from Kotak Securities. Please go ahead.
Hey. Hi. Good evening. Just two questions from my side. First one on the deposit side again. When you look at these CASA balances, especially on the SA side, and you look at the salaried accounts, from a broad perspective, has the average salary at the retail level gone up? If yes, when you look at the numbers, how much would that number look like? Just a ballpark number to understand how much of this interest rate hike can be offset by higher incomes that the consumer is seeing today.
We have not really given such an analysis, Mahesh, so I wouldn't be able to give you.
Recently, Mahesh, I think.
I'm talking about the direction mostly, not so much about specific numbers at least. Sorry.
No. I was saying, Mahesh, we have not given, you know, any data like that. As you know, I think there's a lot of data which has, you know, come out saying that the average salary increase has been in the region of 10% or so. That will be reflected, you know, for everyone in general.
Yeah. You would say that the number which is floating around in the public domain broadly reflects what you're seeing as well, or you wouldn't have done that analysis as well, or?
Yeah. It'll be because that is our actual data which is there, no. It is, it will reflect.
Okay. Just another question. This one bank one ROE target that one has, it's been now three to four years since you've seen this. How has the attrition level been at the bank? Has it gone up, gone down? If you could just kind of broadly comment about it.
No. Attrition rates in the financial sector over the last 12-18 months for all entities, whatever the approach to, you know, performance management they may follow, has gone up substantially. I don't think there is anything idiosyncratic with us.
Okay. Perfect. Thanks.
Thank you very much. I now hand the conference over to Mr. Sandeep Bakhshi for closing comments.
Happy Diwali to everyone, and wishing you the very best. Thank you so much.
Thank you very much. On behalf of ICICI Bank Limited.
Happy Diwali. Happy Diwali. Happy Diwali.
On behalf of ICICI Bank Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.