Ladies and gentlemen, good day, and welcome to ICICI Bank Limited Q3 FY23 earnings conference call. As a reminder, all participant lines will be in listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during this conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Sandeep Bakhshi, Managing Director and CEO of ICICI Bank. Thank you, and over to you, Mr. Bakhshi.
Thank you. Good evening to all of you, and welcome to the ICICI Bank earnings call to discuss the results for Q3 of FY 2023. Joining us today on this call are Anup, Sandeep Batra, Rakesh, Anindiah, and Abhinay. Amid the global uncertainty, India's GDP growth has been resilient. The pickup in economic activity is reflected in the expanding Purchasing Managers' Indices, GST collections and other high-frequency indicators. Financial stability has been maintained and inflation. We continue to monitor these developments closely. 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 a 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 31.6% year-on-year to INR 132.35 billion in this quarter. The profit after tax grew by 34.2% year-on-year to INR 83.12 billion in this quarter. Second, further enhancing our strong deposit franchise. Total period end deposits grew by 10.3% year-on-year and 2.9% sequentially at December 31, 2022. Period end term deposits grew by 14.2% year-on-year and 5.3% sequentially at December 31, 2022. During the quarter, the average CASA grew by 10.4% year-on-year and 2% sequentially. The liquidity coverage ratio for the quarter was about 123%.
Third, growing our loan portfolio in a granular manner with a focus on risk and reward. The retail loan portfolio grew by 23.4% year-on-year and 4.5% sequentially at December 31, 2022. Including non-fund based outstanding, the retail portfolio was 44.9% of the total portfolio. The business banking portfolio grew by 37.9% year-on-year and 5.2% sequentially. The SME portfolio grew by 25% year-on-year and 8.3% sequentially. The growth in SME and business banking portfolios was driven by leveraging our bank, our branch network and digital offerings such as InstaBIZ and Merchant Stack. The domestic corporate portfolio grew by 18.2% year-on-year and 4.7% sequentially at December 31, 2022, driven by growth across well-rated financial and non-financial corporates.
The rural portfolio grew by 12.5% year-on-year and 3.8% sequentially. The domestic loan portfolio grew by 21.4% year-on-year and 4.2% sequentially. The overall loan portfolio grew by 19.7% year-on-year and 3.8% sequentially at December 31, 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 journey 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 slides 17 to 28 of the investor presentation. Fifth, protecting the balance sheet from potential risks.
The net NPA portfolio declined to 0.55% at December 31, 2022 from 0.61% at September 30, 2022 and 0.85% at December 31, 2021. During the quarter, there were net additions of INR 11.19 billion to gross NPAs, excluding write-offs and sales. The provisioning coverage ratio on NPAs was 82% at December 31, 2022. The total provisions during the quarter were INR 22.57 billion or 17.1% of our core operating profit and 0.93% of average advances.
This includes contingency provision of INR 15 billion made on a prudent basis. The bank holds contingency provision of INR 115 billion, or about 1.2% of total loans as of December 31, 2022. As we have mentioned during the previous earning call, we aim to be proactive in provisioning with the key objective of strengthening our balance sheet. During the quarter, we have changed our provisioning norms on non-performing assets to make them more conservative for corporate, SME, and business banking. This change resulted in higher provisions amounting to about INR 11.96 billion in Q3 2023. Sixth, maintaining a strong capital base.
The capital position of the bank continued to be strong with a CET1 ratio of 17.09%, Tier 1 ratio of 17.58%, and total capital adequacy ratio of 18.33% at December 31, 2022, including profits for 9 months, 2023. Looking ahead, we will continue to focus on growing the core operating profits in a risk-calibrated manner. We will work as one team by facilitating cross-functional collaboration to tap into 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 our brand. The principles are 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 Ananda.
Thank you, Sandeep. I will talk about balance sheet growth, credit quality, PNL details, growth in digital offerings, portfolio trends, and performance of subsidiaries. Coming to the growth across retail products, the mortgage portfolio grew by 19.1% year-on-year and 4% sequentially. Auto loans grew by 22% year-on-year and 5.9% sequentially. The commercial vehicles and equipment portfolio grew by 3.4% year-on-year and 1.1% sequentially. Growth in the personal loan and credit card portfolio was 44.8% year-on-year and 7.2% sequentially. This portfolio was INR 1,154.78 billion or 11.9% of the overall loan book at December 31, 2022.
The overseas loan portfolio in US dollar terms declined by 22.1% year-on-year and 8.7% sequentially at December 31, 2022. The decline in the overseas book primarily reflects maturities of the short-term India-linked trade book. The overseas loan portfolio was about 3.6% of the overall loan book at December 31, 2022. The non-India-linked corporate portfolio declined by 42.8% or about $285 million on a year-on-year basis. Of the overseas corporate portfolio, about 86% comprises Indian corporates. 8% is overseas corporates with Indian linkage. 3% comprises companies owned by NRIs or PIOs, and the balance 3% is non-India corporate. On the liability side, Sandeep covered the growth in deposits. During the quarter, we raised long-term infrastructure bonds as well as re-demand borrowings from domestic financial institutions.
Overseas borrowings declined, reflecting the reduction in assets. We also had bond maturities arising out of older capital instruments during the quarter. Credit quality. There were net additions of INR 11.19 billion to gross NPAs in the current quarter compared to INR 6.05 billion in the previous quarter. The net additions to gross NPAs was INR 9.75 billion in the retail, rural, and business banking portfolio and INR 1.44 billion in the corporate and SME portfolio. The gross NPA additions were INR 57.23 billion in the current quarter compared to INR 43.66 billion in the previous quarter.
The gross NPA additions from the retail, rural, and business banking portfolio was INR 41.59 billion, and from the corporate and SME portfolio was INR 15.64 billion. There was gross NPA additions of about INR 6.72 billion from the Kisan Credit Card portfolio in the current quarter. We typically see higher NPA additions from the Kisan Credit Card portfolio in the first and third quarter of a fiscal year. Corporate and SME gross NPA additions includes INR 8.05 billion on account of borrowers that were under resolution at September 30, 2022. The bank held about 35% provisions against these borrowers. Recoveries and upgrades from gross NPAs, excluding write-offs and sale, were INR 46.04 billion in the current quarter compared to INR 37.61 billion in the previous quarter.
There were recoveries and upgrades of INR 31.84 billion from the retail, rural, and business banking portfolio and INR 14.2 billion from the corporate and SME portfolio. The gross NPAs written off during the quarter were INR 11.62 billion. There was no sale of NPAs in the current quarter compared to INR 0.94 billion of NPAs sold on a cash basis in the previous quarter. Net NPAs declined by 23.1% year-on-year and 7.3% sequentially to INR 56.51 billion at December 31, 2022. The non-fund-based outstanding to borrowers classified as non-performing was INR 38.69 billion as of December 31, 2022, compared to INR 35.16 billion as of September 30, 2022.
The bank holds provisions amounting to INR 19.93 billion as of December 31, 2022, against this non-fund-based outstanding. The total fund-based outstanding towards standard borrowers under resolution as per various guidelines declines to INR 49.87 billion or about 0.5% of the total loan portfolio at December 31, 2022, from INR 67.13 billion as of September 30, 2022. Of the total fund-based outstanding under resolution at December 31, 2022, INR 41.90 billion was from the retail, rural and business banking portfolio, and INR 7.97 billion was from the corporate and SME portfolio. The bank holds provisions of INR 15.29 billion against these borrowers, which is higher than the requirement as per RBI guidelines. Moving on to the P&L details.
The net interest income increased by 34.6% year-on-year to INR 164.65 billion. The net interest margin was 4.65% in this quarter compared to 4.31% in the previous quarter and 3.96% in Q3 of last year. The net interest margin was 4.33% in 2023. There was no impact of interest income tax refund on net interest margin in the current quarter. The domestic NIM was at 4.79% this quarter compared to 4.45% in the previous quarter and 4.06% in Q3 last year. The cost of deposits was 3.65% in this quarter compared to 3.55% in the previous quarter.
Of the total domestic loans, interest rates on 45% are linked to the repo rate, 4% to other external benchmarks, and 21% to 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. We expect to see the impact of repricing of deposits in future quarters. Non-interest income, excluding treasury income, grew by 1.8% year-on-year to INR 49.87 billion in Q3 of 2023. Fee income increased by 3.7% year-on-year to INR 44.48 billion in this quarter.
Fees from retail, rural, business banking and SME customers grew by 7.3% year-on-year and constituted about 78% of the total fees in this quarter. Dividend income from subsidiaries and associates was INR 5.16 billion in this quarter compared to INR 6.03 billion in Q3 of last year. The dividend income in Q3 of last year includes interim dividend from ICICI Securities Primary Dealership. On costs, the bank's operating expenses increased by 16.1% year-on-year in this quarter. Employee expenses increased by 17.6% year-on-year. The bank had about 117,200 employees at December 31st, 2022. The employee count has increased by about 15,300 in the last 12 months.
Non-employee expenses increased by 15.4% year-on-year in this quarter, primarily due to technology and retail business-related expenses. Our branch count has increased by about 420 in the last 12 months, and we had 5,718 branches as of December 31, 2022. The technology expenses were about 9.3% of our operating expenses in nine of this year compared to about 8.6% in fiscal 2022. The core operating profit increased by 31.6% year-on-year to INR 132.35 billion in this quarter. Excluding dividend income from subsidiaries and associates, the core operating profit grew by 34.5% year-on-year.
There was a treasury gain of INR 0.36 billion in Q3 compared to a loss of INR 0.85 billion in Q2 and a gain of INR 0.88 billion in Q3 of the previous year. The total provisions during the quarter, including impact of change in provisioning norms, were INR 22.57 billion or 17.06% of the core operating profit and 0.93% of average advances. These also include contingency provisions of INR 15 billion made on a prudent basis. The provisioning coverage on NPAs was 82% as of December 31, 2022. In addition, we hold INR 15.29 billion of provisions on borrowers under resolution.
Further, the Bank holds contingency provision of INR 115 billion as of 31st. To see increasing adoption and usage of our digital platforms by our customers. There have been about 8.6 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 in Q3 of this year was 2.3 times the value of transactions in Q3 of last year. We have seen about 215,000 registrations from non-ICICI Bank account holders on InstaBIZ till December 31st, 2022. The value of financial transactions on InstaBIZ grew by about 29.2% year-on-year in the current quarter. We have created more than 20 industry specific stacks which provide bespoke and purpose-built digital solutions to corporate clients and their ecosystem.
Our Trade Online and Trade Emerge platforms allow customers to perform most of their trade finance and foreign exchange transactions digitally. About 71.2% of trade transactions were done digitally in Q3 of this year. The value of transactions through these platforms increased by 59.3% year-on-year in Q3 of this year. Moving on to some portfolio information. We have provided details on our retail business banking and SME portfolio in slide 35-45 of the investor presentation. The loan non-fund-based outstanding to performing corporate and SME borrowers rated BB and below was INR 55.81 billion at December 31, 2022, compared to INR 76.38 billion at September 30, 2022, and INR 118.40 billion as of December 31, 2021.
The sequential decline was primarily due to slippage of borrowers that were under resolution into NPA and a few repayments during the quarter. The amount of INR 55.81 billion at December 31st, 2022, includes INR 8.79 billion of outstanding to borrowers under resolution. The maximum single borrower outstanding in the BB and below portfolio was less than INR 5 billion at December 31st, 2022. At December 31st, 2022, we had provisions of INR 4.48 billion on the BB and below portfolio, compared to INR 8.12 billion at September 30th. This includes provisions held against borrowers under resolution included in the portfolio.
The total outstanding to NBFCs and HFCs was INR 765.4 billion at December 31, 2022, compared to INR 735.73 billion at September 30, 2022. The total outstanding loans to NBFCs and HFCs were about 7% of our advances at December 31. 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 360.11 billion at December 31, 2022, compared to INR 319.63 billion at September 30, 2022. The builder portfolio is over 3.4% of our total loan portfolio.
Our portfolio is largely to well-established builders, and this is also reflected in the sequential increase in the portfolio. 5.6% of our builder portfolio at December 31, 2022, was either rated BB and below internally or was classified as non-performing, compared to 6.8% at September 30, 2022. Subsidiaries and key associates. The details of the financial performance of subsidiaries and key associates are covered in slides 49-51 and 70-75 in the investor presentation. The value of new business margin of ICICI Life increased from 28% in fiscal 2022 to 32% in nine months of this year. The value of new business increased by 23.2% year-on-year to INR 17.1 billion in nine months of this year.
The annualized premium equivalent grew by four point two percent year on year to fifty-three point four by, four one billion rupees in the same period. Uh, the profit after tax of ICICI Life was five point seven six billion rupees in nine M of twenty twenty-three, compared to five point six nine billion rupees in nine M of twenty twenty-two, and two point two one billion rupees in Q3 this year compared to three point one one billion rupees in Q3 last year. The growth direct premium income of ICICI General increased by sixteen point nine percent year on year to fifty-four point nine three billion rupees in Q3 of this year. The combined ratio was a hundred and four point four percent in Q3 of this year compared to a hundred and four point five percent in Q3 of last year.
The profit after tax grew by 11% year-on-year to INR 3.53 billion in the current quarter. The profit after tax of ICICI AMC was INR 4.2 billion in this quarter compared to INR 3.34 billion in Q3 of last year. The profit after tax of ICICI Securities, as per Ind AS on a consolidated basis, was INR 2.81 billion in this quarter compared to INR 3.8 billion in Q3 of last year. ICICI Bank Canada had a profit after tax of CAD 11.5 million in this quarter, compared to CAD 11.5 million in Q3 last year and CAD 12.5 million in Q2 this year.
ICICI Bank UK had a profit of $3.1 million this quarter, compared to $3 million in Q3 of last year and $1.5 million in Q2 this year. as per India, ICICI Home Finance had a profit after tax of INR 1.05 billion in the current quarter, compared to INR 0.48 billion in Q3 of last year and INR 0.6 billion in Q2 this year. With this, we conclude the opening remarks. We will 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 touch-tone 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. First question is from the line of Mahrukh Adajania from Nomura. Please go ahead.
Yeah, hi. I have a couple of questions. Firstly, that would you say that because you lend to so many segments, the sequential growth has peaked at around, say, 4% QOQ. Would that be a fair assumption? There'll always be some moving parts. The sector growth is also on a very high base.
No, I think it really can't be expressed that way. There are, as you said, moving parts in different quarters. For example, in this year, you know, the festive season was kind of split between Q2 and Q3. It started a bit early, so some of the consumption-related growth would have happened partly in Q2 instead of happening fully in Q3. The way we look at it, I think in terms of if you look at the granular portfolio, which is, you know, retail business banking, et cetera, the disbursement volumes are pretty much, you know, holding up and, you know, the loan growth will be really an outcome of that. You know, that's the way we would look at it.
Got it. If loan growth accelerates in the fourth quarter, would there be enough deposits? I know that you've done borrowings as well, but the deposit growth on an overall basis is 3%, so on a sequential basis. Would it be, I mean, would there be enough deposits to fund higher growth? How is the system shaping up?
I think a lot of focus goes on this, year-on-year deposit growth versus credit growth gap, which kind of, misses the fact that the first two quarters of the calendar year were quarters when banks had and then ran down, you know, significant excess liquidity. You know, liquidity in the system itself has come down from, you know, INR 8 trillion to under INR 1 trillion. It has to be seen in that context. I think, the way we've analyzed it is if we look at the net increase in the balance sheet, say, in the, in the third quarter, you know, borrowings represents only about 10% or 11% of that, of the fund, of the, you know, that accretion, and the balance is really coming through deposits and equity or the profit generation.
We don't see deposits or funding as a constraint at all. During the quarter, we've grown, you know, our total deposit base by over INR 300 billion. We have, as we had mentioned last time, as the retail deposit rates have started moving up, we've seen a pretty healthy accretion, you know, healthy increase in the accretion to retail deposits, and that momentum is continuing. We are quite comfortable on the funding side.
Got it. Got it.
Even for Q3, you know, we had an ACR of 123%, average for the quarter.
Perfect. My next question is on contingent provisions. A few banks, or at least two private banks have been telling us that they have some sort of a deadline from auditors or some sort of feedback from auditors that it has to be utilized within a certain period, and therefore, some of them are bringing down contingency provisions. How does that work with you in terms of auditors, timeline? Because you're just building on the buffer.
I'm not aware of such a requirement. As the way we look at the contingency provisions is that we certainly see the various developments that are taking place both globally and in India that could impact, you know, various parts of the portfolio. We do an analysis of the portfolio where, you know, there is no NPL development currently, but, you know, the risk marker could be a little higher than the average. That's how we kind of build up on the contingency provision. And, you know, that's something that we would keep revisiting, you know, every quarter, as we said earlier.
Okay, perfect. Thanks a lot. All the best.
Thank you. Next question is from the line of Jignesh from InCred Capital. Please go ahead.
Yeah. Hi, sir, and thanks for the opportunity. I just have quick two questions itself. One, as I see it in the presentation, this, the rise in cost of deposit sequentially had been somewhere around 10 bits, if I see it correct. How do you see that planning forward, I mean, going forward, how do that particular trend looks to be? Second, your cost to income had seen a significant improvement of around 38% right now, 38.2%. What kind of trajectory are you seeing it up on this segment also, if you can highlight? Thank you.
Yeah. On the first question, I think, you know, what has happened in this cycle is that the wholesale deposit rates moved up first, you know, pretty sharply, starting from May. We have not been large takers in the wholesale deposit market. The retail deposit rates started moving much more gradually and much, much later. The larger rise in retail deposit rates has come only actually from September onwards. If you look at, for example, the peak retail term deposit rate that we are offering today is about 115 basis points compared to what it was a quarter ago. That is why, you know, the repricing of retail deposits is happening with a lag. These are more granular in any case, so they do get repriced, you know, over a period of time.
As I mentioned in the opening remarks, we would expect to see the cost of deposits, go up at a sharper pace, you know, going forward.
Okay. Okay. Understood. On the cost center-
On the second part, I think, you know, we don't really manage to that ratio. We are looking at, you know, the overall PPOP and PPOP growth, and we continue to invest in technology branches and people. As it happened this quarter, the OpEx growth was a little lower on a year-on-year basis than the trend that we've seen over the last couple of quarters. 40% has come down to, you know, cost to income has come down to 38%. You know, it's going to be in that range, I would say around 40%. I don't think we are looking at, you know, any major movement there.
Understood. Just one quick thing. This contingency provision, which is INR 115 billion right now as of December, is there any target that you want to maintain such a balance, or it can be, you know, varying every quarter? I mean, any specific number in your mind, or how does it work? That's it. Thank you.
No, we don't have any specific number in our mind. It's something that we keep assessing on a quarterly basis.
Sure. Thanks a lot for this, sir. All the best.
Thank you. Next question is from the line of Manish Shukla from Axis Capital. Please go ahead.
Yeah, good evening, and thank you for the opportunity. First question is loan-to-deposit ratio. If I were to adjust the historically high level of international loans on, probably on domestic book, you will be close to peak LDR that you've been. Going back to the earlier question, while I'll appreciate the borrowing part, till what level are you in the LDR and beyond which, deposit growth could start becoming a concern for loan growth?
Yeah, you are right. You know, if you leave aside the overseas balance sheet, the loan-to-deposit ratio is at, you know, 82%-85%, and which is at the higher end of the historical range. We don't see, as I explained earlier, deposit growth really as a constraint. I think if you look at the accretion to deposits on a quarter-on-quarter basis, it has been going up quite smartly as we have, you know, you know, moved the rates in line with the system broadly. We were slower, in the initial part of the year because we were, you know, so had significant excess liquidity, to start with.
You know, while, there is a natural level at which the loan-to-deposit ratio will settle, again, you know, we don't sort of over worry about it because as we've mentioned in the past, you know, a 3-month wholesale deposit makes that ratio lower, whereas, a 2-year refinance borrowing makes it higher. We would look at, you know, the overall quality of funding. You know, the all forms of wholesale funding are essentially, you know, the marginal source of funding. The core funding remains the retail deposits. We are seeing pretty healthy momentum there.
Sure. Moving on to loan growth, if we look at it, the personal and credit card book today is more than 21% and growing much faster than the overall loans. Fair to assume as long as the credit costs remain low, you would still be okay if the share continues to rise?
Yeah. We are quite comfortable with this portfolio. And, you know, we have seen it through the COVID period as well, the borrower behavior, and, we have, you know, no concerns as such on this portfolio. If at all on the personal loan side, I think the concern is a little bit on the pricing, where the market has become quite competitive. From a credit perspective, we are very comfortable on both portfolios.
Sure. Those were my questions. Thank you.
Thank you. A request to all the participants, please restrict to 2 questions per participant. If time permit, please come back in the question queue for a follow-up question. The next question is from the line of Adarsh from CLSA India. Please go ahead.
Hi, and then, I just wanted to check on the fee growth. Is this 3% fee growth a fairly widespread representation of growth or because of third parties' lower insurance, different elements would have a different growth trajectory? How does one see from a medium-term perspective?
There are actually quite a few factors here, Adarsh. One, is that we don't particularly focus on it as a line item because we are focused on the overall sort of PPOP, risk-calibrated PPOP contract as our guiding metric. There is if you look at the fee numbers for this quarter, again, there is some impact of the festival seasonality. There is, as you rightly pointed out, a degrowth, you know, year-on-year in the third-party distribution, led fees which one would have to adjust for.
In addition to that, I think if you look at a couple of other areas, for example, the loan processing fees where there is, A, a competitive element and, B, we also are more focused on making sure that we have, you know, the appropriate loan yield rather than, you know, maximizing, you know, upfront fees. This, in certain cases, in certain products from our overall perspective of, you know, customer fairness, we have also rationalized or reduced substantially the exit penalties, like the prepayment, pre-premiums and foreclosure charges on certain categories of loans.
For example, you know, a personal loan or an auto loan, which is at least somewhat seasoned, you know, or business banking where the, you know, borrower has been with us for a couple of years and for whatever reason wishes to exit, we would charge a lower or no penalty, you know, is the way we would look at it because it's the borrower relationship which is important. In all of these, you know, I guess if we adjust for all of these, the fee growth, you know, would be, you know, a few percentage points higher than what is the reported number. Having said that, of course, there are areas where we can do better.
I think, for example, FX or transaction banking, these are some of the areas where we believe we have, you know, excellent platforms and we need to leverage those to grow our share and our revenue. You know, that's the overall kind of way in which we would look at it. It should, hopefully, you know, improve from the current levels over a period of time. There are, you know, many things we are doing within that to make sure that, rather than get fixated on this number, we really manage it in a way that, contributes to the sustainable growth of the franchise.
Got it. My second last question is, for 2024, 2025, if you think about margins peaking out at some point, next year would be a relatively tough year from a core operating profits scenario. One, one can ignore it and say that, "Let's look at two, three-year cadence." The second is, do you have levers on the OpEx side because the last two, 2 to 3 years OpEx since COVID has been, you know, there's been a lot of investments. So just wanted to understand if that lever can be of use when margins kind of normalize.
Of course, this year we are seeing, the benefit of, you know, repo rate hike while, the interest rate, interest costs are moving up only with some lag and that is leading to a higher operating profit growth than would have featured in anyone's projections or estimates. Some of that will get, you know, adjusted next year. We will see, as we go along. It, it depends on, you know, how we, look at incremental lending and funding and, you know, the levers that we have to try and optimize the balance sheet and of course, all other elements of the, of the PPOP. You know, we'll, take that as it comes.
Is OpEx, the investments done in the last few years at a point where that could be a lever or, you know, continued investments would continue, so OpEx unlikely to be an ROA lever?
I think it's a question of choice. You know, it is a very controllable lever, a large part of it. As we have said in the past, if for a couple of quarters, you know, operating growth is running ahead of revenue growth because we are continuing to invest in a sustainable way, we will not worry about it too much.
Great. Thank you and all the best.
Thank you. Next question is from the line of Saurabh from J.P Morgan. Please go ahead. Saurabh, may I request you to unmute your line and go ahead with the question, please.
Yeah, sir. Sir, two questions. One is, what is it the quarter-end ACR? The second is, can you explain the provisioning tightening you have done in your corporate and SME business? Thank you.
Sorry, I didn't get the second part.
The policy tightening that you have done on the corporate and SME side.
Yeah. We have not reported a quarter in the HCR. The reporting is, you know, on a quarterly average basis. I would say it would be broadly at similar levels. You know, the, what the trajectory that, you know, liquidity follows is that it's pretty, typically pretty strong at month end. During the month, you know, deposit withdrawals happens, say on the savings side. During a particular quarter, you know, there are advance tax outflows and so on, when the system goes tight on liquidity, and then it builds up again. That's why we look at the average. The quarter end would not be materially different from the reported number of 123% average for the quarter. On the provisioning policy.
Saurabh, as you know, the RBI norms prescribe a minimum provisioning policy. On the retail and rural loans, we already follow a more conservative provisioning norm, where we provide for NPAs on a more accelerated basis. For the corporate SME and business banking portfolios, thus far, we were applying the RBI norm. We thought that it would be prudent to, you know, do some acceleration there as well, both in terms of the period over which we need over which we reach 100% coverage and also, you know, in the earlier buckets. That is, that is the tightening that we have done.
Okay. Maybe, sir, can I ask one more? Just on your card spend market share, how are you thinking about it? That'll be the last one. Thank you.
No, we are focused on growing, you know, the profitable market share, the high quality market share. I think we have seen a decline in our, you know, commercial card market share over the last couple of quarters in terms of spend. We are quite happy with the way our retail card spends are shaping up. You know, not targeting a particular level of market share overall, but just looking at, you know, higher quality spend growth, and that is broadly moving in line with what we would want it to.
Got it. Thank you.
Thank you. Next question is from the line of Abhishek from HSBC. Please go ahead.
Hello. Yeah, good evening, and thanks for taking the question. The first question is actually if you could share some commentary on the loan growth outlook for FY 2024. Do you think it will moderate from here, or you can still look to deliver similar kind of growth? Also, what will be the role of CapEx next year? Do you think there's a real possibility of CapEx improving or, you know, it's just, I mean, may not pick up from there?
We will have to wait and see, Abhishek, because clearly, on the corporate side, you know, the loan growth this year, partly has come from because of the sharp tightening of liquidity and some shift from, you know, bond markets and so on. We have seen, you know, higher borrowings or higher appetite for borrowings from some of the segments like NBFCs, which explain a reasonable portion of the corporate loan growth. As I said, our feeling is that retail loan volumes are quite steady, so that part of the growth should sustain. On the corporate side, I think we will have to wait and see.
We will just look at, you know, our own analysis of risk reward and profitability and, you know, how to, you know, optimize our PPOP. That will be our guiding factor without targeting a particular level of loan growth. I, at least on the retail SME business banking side, I don't see a challenge in, you know, the loan volumes.
Okay.
On the CapEx, you know, clearly a fair amount of CapEx is happening, which is being, you know, undertaken and funded by the government and the public sector. There is, you know, investment happening from the private sector in real estate. There is some amount of investment happening from the private sector in infrastructure and industries as well. So far it has not been of a level which would, you know, move the needle on domestic loan growth.
We'll have to see how it shapes up, you know, in the while it's good from a credit perspective, the issue from a loan demand perspective is that most corporates are extremely well-funded and liquid and are therefore able to, you know, undertake some amount of investment without having recourse to banks. What is coming to banks is more granular in nature.
Right. Right. Assuming that this loan growth, let's say it moderates a little bit next year, and you also, for it sort of coincides with NIMs, you know, normalizing as well, what can you do on the, you know, rest of the lines like fee or cost to protect PPOP growth?
As I said, you know, we will see it as it comes. Once again, we are, I have not seen any sharp deceleration in loan growth. As I said, we, you know, have been growing the balance sheet at our loan growth has been quite sustainably, you know, in the high teens. Of course, when the system don't work itself, it reached the 2 higher teens. It went about 30%, so it may come off a little, but that's okay. We would look at, you know, ways to, you know, achieve a stable level of profitability.
Current year's operating profit growth is of course, you know, much higher than what a normal level would be because of the sharp rise in interest rates. I think there are many levers available in the balance sheet and the P&L which can be optimized.
Absolutely. Just one very quick question on fees. I understand that you've changed a lot of, you know, rates on fees. From the current point onwards, should they track loan growth and loan mix or do you still see more fees getting rationalized and therefore you could still continue to see some pressure on fee to assets or fee to loans?
I don't think that it will reach the level of loan growth in a hurry.
Okay. Basically more rationalization could come.
It's not a question of just of rationalization. I think, there are many parts to the fee income, you know. There is a part linked to, you know, cards and payments. There is the loan processing fee. There is FX. Then there is, you know, the liability related fees. And, you know, third party distribution. These would be the broad categories. Each of them has a different dynamic and a different sort of influencing factor at various points in time, and we have different strategies for each line item. It's difficult to say to just link it to loan growth in that sense.
Got it. Got it. Thanks. Thanks so much, and all the best. Thank you.
Thank you. The last question is from the line of M.B. Mahesh from Kotak Securities. Please go ahead.
Hey. Hi. Just two questions. One, if we just kind of call out, are you still seeing recoveries coming in from previously written off accounts? If that is moving still favorably in your provisioning line?
Yes, we have seen some recoveries coming in from the older NPAs that were, you know, well provided and maybe partly written off. That has contributed to the, you know, the lower provisions. Actually, if you look at for this quarter, excluding the impact of the change in norms and the contingency provision, we have a net write back of about INR 4.4 billion. That's, we have seen one or two large corporate recoveries.
Okay. The question on this, if we just kind of, if you keep interest rates where they are today, when does cost of funds starts hitting as you go forward? If yes, how much, how should we model over the next few quarters on this number?
It is difficult for me to say how you should model it, but my guess is that, you know, it should start showing up to some extent in Q4 and more so in Q1.
How much of headroom you have available on the yield side if interest rates are where they are today?
We would have, for Q4, you know, there's actually the December hike will play out over Q4 for us.
Okay. you're saying that the peak cost of funds starts hitting you from one Q of next year?
Yeah. It will happen over a period of time. You know, of course, the balance sheet, you know, doesn't remain static in that sense. We also have some ability to manage, you know, asset and liability, the investment portfolio and so on.
Okay, thanks. Thanks for this.
Thank you.
Thank you very much. I now hand the conference over to the management for closing comments.
Thank you all for spending time on a Saturday evening. My colleagues and I are available, you know, for any further questions. Thank you.
Thank you very much. On behalf of ICICI Bank Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you