Earnings call: ICICI Bank reports robust Q3 growth, strong digital focus

ICICI Bank Limited (ICICIBANK) has reported a substantial year-on-year growth for its third quarter of fiscal year '24, with significant increases in core operating profit, total deposits, and loan portfolios. The bank's profit before tax, excluding treasury, saw a rise of 23.4% to INR 135.51 billion, while the profit after tax grew by 23.6% to INR 102.72 billion. The bank's focus on digital offerings, a strong balance sheet, and prudent risk management have contributed to its healthy performance in the quarter.

Key Takeaways

• Profit before tax (excluding treasury) up by 23.4% year-on-year to INR 135.51 billion.
• Core operating profit grew by 10.3%, and profit after tax increased by 23.6% year-on-year.
• Total deposits and term deposits rose by 18.7% and 31.2% respectively.
• Domestic loan portfolio expanded by 18.8%, with growth seen across retail, business banking, SME, and rural sectors.
• Digital offerings enhanced, with a strong focus on customer-centric growth and risk management.
• Consolidated profit after tax for the group increased by 25.7% year-on-year.
• Net NPA ratio stood at 0.44%, with contingency provisions of INR 131 billion.

Company Outlook

• The bank aims to deliver consistent and predictable returns to shareholders.
• Focus remains on customer-centric growth, digital enhancement, and risk management.
• Credit costs may gradually normalize upwards, but no forward-looking guidance provided.

Bearish Highlights

• Operating expenses increased by 22.3% due to employee, retail, and technology expenses.
• The overall loan book declined, with competitive intensity in unsecured products and mortgage rates.
• The bank is experiencing a decline in the AA-rated portfolio, primarily due to the reduction in the NBFC portfolio and NPL upgrades.

Bullish Highlights

• Strong growth in digital platforms and customer adoption.
• Net interest income and noninterest income grew by 13.4% and 19.8% respectively.
• Significant growth in retail, business banking, SME, and rural loan portfolios.

Misses

• The bank did not provide specific figures for the cost of deposits or the change in mortgage portfolio yield.
• No specific target for branch expansion in FY '25 was discussed.

Q&A Highlights

• The bank's advances yield was impacted by the addition of NPLs in the KCC portfolio.
• No credit concerns with NBFC exposure, but finely priced exposures led to prepayments.
• The bank is disciplined in pricing and focuses on the customer's total relationship value.
• The unsecured loan mix is being monitored, with credit parameters refined and growth expected to moderate.
• The cost of deposits increased in the current quarter but is expected to be less in the next quarter.
• The average CASA ratio is moderating, but the bank is doing relatively well on the current account side.
• Government spending creates float for the bank, but the government is improving its financial management efficiency.

In conclusion, ICICI Bank continues to show a strong performance in Q3 FY '24, with a focus on digital offerings and prudent risk management strategies. The bank's robust growth in core operating profit and loan portfolios, coupled with its strong capital adequacy ratios, positions it well for future stability and growth.

InvestingPro Insights

ICICI Bank Limited (ICICIBANK) has demonstrated strong financial performance in the last quarter, as highlighted in the article. To provide additional context, let's delve into some key metrics and insights from InvestingPro that could further inform investors about the bank's standing and future prospects.

InvestingPro Data:

• The bank boasts a significant Market Cap of 84.33B USD, reflecting its prominence in the banking sector.

• With a P/E Ratio of 16.45 and an adjusted P/E Ratio for the last twelve months as of Q3 2024 at 16.51, the bank is trading at a low price-to-earnings ratio relative to its near-term earnings growth.

• The Revenue Growth for the last twelve months as of Q3 2024 stood at a robust 21.54%, indicating a strong upward trajectory in the bank's earnings.

InvestingPro Tips:

• Analysts have revised their earnings upwards for the upcoming period, suggesting that the bank's financial health may continue to improve.

• ICICI Bank has raised its dividend for 3 consecutive years, potentially making it an attractive option for income-focused investors.

For investors looking to delve deeper, InvestingPro offers additional tips on ICICI Bank, including insights on sales predictions, gross profit margins, and the bank's performance within the industry. Subscribing to InvestingPro now comes with a special New Year sale, featuring a discount of up to 50%. To enhance the value of your investment research, use coupon code "SFY24" to receive an additional 10% off a 2-year InvestingPro+ subscription, or "SFY241" to get an additional 10% off a 1-year subscription. With these tools at your disposal, you can make more informed decisions backed by real-time data and expert analysis.

Full transcript - Icici Bank (NYSE:IBN) Q3 2024:

Operator: Ladies and gentlemen, good day, and welcome to ICICI Bank Limited Q3 FY '24 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Sandeep Bakhshi, Managing Director and CEO of ICICI Bank. Thank you, and over to you, sir.

Sandeep Bakhshi: Thank you. Good evening to all of you, and welcome to the ICICI Bank earnings call to discuss the results for Q3 of financial year '24. Joining us today on this call are Sandeep Batra, Rakesh, Ajay, Anindya and Abhinek. The Indian economy continues to remain resilient with upward revision in the GDP growth estimate for financial year '24 by RBI, reflecting the consistent actions and initiatives of the policymakers. As the liquidity and interest rate environment evolves, we would continue to monitor the developments closely. At ICICI Bank, our strategic focus continues to be on growing our core operating profit, less provisions, i.e., profit before tax, excluding treasury through the 360-degree customer-centric approach and by serving opportunities across ecosystems and micro markets. We continue to operate within our strategic framework to strengthen our franchise and expand our technology and digital offerings, maintaining high standards of governance, deepening coverage and enhancing delivery capabilities are our focus areas for risk-calibrated profitable growth. The profit before tax, excluding treasury, grew by 23.4% year-on-year to INR 135.51 billion in this quarter. The core operating profit increased by 10.3% year-on-year to INR 146.01 billion in this quarter. The profit after tax grew by 23.6% year-on-year to INR 102.72 billion in this quarter. Total deposits grew by 18.7% year-on-year and 2.9% sequentially at December 31, 2023. Term deposits increased by 31.2% year-on-year and 4.9% sequentially at December 31, 2023. During the quarter, the average current and savings account deposits grew by 5.3% year-on-year and 0.2% sequentially. The bank's average liquidity coverage ratio for the quarter was about 121%. The domestic loan portfolio grew by 18.8% year-on-year and 3.8% sequentially at December 31, 2023. The retail loan portfolio grew by 21.4% year-on-year and 4.5% sequentially. Including non-fund-based outstanding, the retail portfolio was 46.4% of the total portfolio. The business banking portfolio grew by 31.9% year-on-year and 6.5% sequentially. The SME portfolio grew by 27.5% year-on-year and 6.7% sequentially. The rural portfolio grew by 18.2% year-on-year and 4.6% sequentially. The domestic corporate portfolio grew by 13.3% year-on-year and 2.9% sequentially, driven by growth across well-rated financial and nonfinancial corporates. The overall loan portfolio, including the international branches portfolio, grew by 18.5% year-on-year and 3.9% sequentially at December 31, 2023. We continue to enhance our digital offerings and platforms to onboard new customers in a seamless manner, provide them end-to-end journeys and solutions and enable more effective data-driven cross-sell and upsell. We have shared some details on the technology and digital offerings in Slides 15 to 26 of the investor presentation. The net NPA ratio was 0.44% at December 31, 2023, compared to 0.43% at September 30, 2023, and 0.55% at December 31, 2022. During the quarter, there were net additions of INR 3.63 billion to gross NPAs, excluding write-offs and sales. The total provisions during the quarter were INR 10.5 billion or 7.2% of core operating profit and 0.36% of average advances. The provisioning coverage ratio on NPAs was 80.7% at December 31, 2023. In addition, the bank continues to hold contingency provision of INR 131 billion or about 1.1% of total loans at December 31, 2023. The capital position of the bank continued to be strong with the CET1 ratio of 16.03%, Tier 1 ratio of 16.03% and total capital adequacy of 16.70% at December 31, 2023, including profits for the 9 months ended December 31, 2023. This includes the impact of recent regulatory guidelines on increasing the risk based on consumer loans and credit to NBFCs. Looking ahead, we see many opportunities to drive risk-calibrated profitable growth. We believe our focus on Customer 360, extensive franchise and collaboration within the organization backed by our digital offerings, process improvements and service delivery initiatives will enable us to deliver holistic solutions to customers in a seamless manner and grow market share across key segments. We continue to make investments in technology, people, distribution and building our brand. We remain focused on maintaining the strong balance sheet with prudent provisioning and healthy levels of capital. The principles of return of capital, fair to customer, fair to bank and one bank, one team, one ROE will continue to guide our operations. We remain focused on delivering consistent and predictable returns to our shareholders. I now hand the call over to Anindya.

Anindya Banerjee: Thank you, Sandeep. I will talk about loan growth, credit quality, P&L details, growth in digital offering, portfolio trends and performance of subsidiary. Starting with loan growth, Sandeep covered the loan growth across various segments. Coming to the growth across retail products, the mortgage portfolio grew by 15.9% year-on-year and 3.7% sequentially. Auto loans grew by 22.5% year-on-year and 4.5% sequentially. The commercial vehicles and equipment portfolio grew by 14.8% year-on-year and 3.3% sequentially. Personal loans grew by 37.3% year-on-year and 6.4% sequentially compared to 40.4% year-on-year and 10.2% sequentially at September 30, 2023. The bank worked on increasing pricing, further refining credit parameters and optimizing sourcing costs, resulting in lower disbursements of personal loans during the quarter as compared to the previous quarter. The credit card portfolio grew by 39.5% year-on-year and 11.5% sequentially. The personal loans and credit card portfolio were 9.4% and 4.1% of the overall loan book, respectively, at December 31, 2023. The overseas loan portfolio in U.S. dollar terms increased by 9.8% year-on-year at December 31, 2023. The overseas loan portfolio was about 3.4% of the overall loan book. The non-India linked corporate portfolio declined by 30.4% or about USD 116 million on a year-on-year basis. Of the overseas corporate portfolio, about 92% comprises Indian corporates, 4% to overseas corporates with Indian linkage, 2% comprises companies owned by NRIs or PIOs and the balance 2% is non-India corporate. Moving on to credit quality. There were net additions of $3.63 billion to gross NPAs in the current quarter compared to INR 1.16 billion in the previous quarter. The net additions to gross NPAs were INR 23.02 billion in the retail, rural and business banking portfolio, and there were net deletions of gross NPAs of INR 19.39 billion in the corporate and SME portfolio. The gross NPA additions were INR 57.14 billion in the current quarter compared to INR 46.87 billion in the previous quarter. Recoveries and upgrades from gross NPAs, excluding write-offs and sales, were INR 53.51 billion in the current quarter compared to INR 45.71 billion in the previous quarter. The gross NPA additions from the retail, rural and business banking portfolio were INR 54.82 billion in the current quarter compared to INR 43.64 billion in the previous quarter. There were gross NPA additions of about INR 6.17 billion from the Kisan credit card portfolio in the current quarter. We typically see higher NPA additions from the Kisan credit card portfolio in the first and third quarter of a fiscal year. Recoveries and upgrades from the retail, rural and business banking portfolio were INR 31.8 billion compared to INR 30.19 billion in the previous quarter. The gross NPA additions from the corporate and SME portfolio were INR 2.32 billion compared to INR 3.23 billion in the previous quarter. Recoveries and upgrades from the corporate and SME portfolio were INR 21.71 billion compared to INR 15.52 billion in the previous quarter. The gross NPAs written off during the quarter were INR 13.89 billion. There was sale of NPAs worth INR 0.36 billion in the current quarter compared to INR 1.79 billion in the previous quarter. The sale of NPAs includes INR 0.29 billion in cash and INR 0.07 billion of security receipts. As these NPAs were fully provided, we continue to hold provisions against the security receipt. The non-fund based outstanding to borrowers classified as nonperforming was INR 36.94 billion as of December 31, 2023, compared to INR 38.86 billion as of September 30, 2023. The bank holds provisions amounting to INR 20.61 billion against this non-fund based outstanding. The total fund-based outstanding towards standard borrowers under resolution as per various guidelines declined to INR 33.18 billion or about 0.3% of the total loan portfolio at December 31, 2023, from INR 35.36 billion at September 30, 2023. Of the total fund-based outstanding under resolution at December 31, 2023, INR 27.82 billion was from the retail, rural and business banking portfolio and INR 5.36 billion was from the corporate and SME portfolio. The bank holds provisions of INR 10.32 billion against these borrowers, which is higher than the requirement as per RBI guidelines. Moving on to the P&L details. Net interest income increased by 13.4% year-on-year to INR 186.78 billion. The net interest margin was 4.43% in this quarter compared to 4.53% in the previous quarter and 4.65% in Q3 of last year. The sequential movement in NIM reflects the lagged impact of increase in term deposit rates over the last year on the cost of deposits. The impact of interest on income tax refund on net interest margin was 4 basis points in Q3 of this year compared to nil in the previous quarter and in Q3 of last year. The domestic NIM was at 4.52% this quarter compared to 4.61% in the previous quarter and 4.79% in Q3 of last year. The cost of deposits was 4.72% in this quarter compared to 4.53% in the previous quarter. Of the total domestic loans, interest rates on 49% are linked to the repo rate, 2% to other external benchmarks and 18% to MCLR and other older benchmarks. The balance 31% of loans have fixed interest rates. Noninterest income, excluding treasury, grew by 19.8% year-on-year to INR 59.75 billion in Q3 of 2024. Fee income increased by 19.4% year-on-year to INR 53.13 billion in this quarter. Fees from retail, rural, business banking and SME customers constituted about 79% of the total fees in this quarter. Dividend income from subsidiaries and associates were INR 6.5 billion in this quarter compared to INR 5.16 billion in Q3 of last year. So year-on-year increase in dividend income was primarily due to higher interim dividend from ICICI Securities, ICICI Prudential (LON:PRU) Asset Management and ICICI Securities Primary Dealership. On costs, the bank's operating expenses increased by 22.3% year-on-year in this quarter. Employee expenses increased by 30.5% year-on-year in this quarter, reflecting mainly the increase in the employee base from the second half of fiscal 2023 onwards. The bank had about 141,000 employees at December 31, 2023. The number of employees has increased by about 23,600 in the last 12 months and about 1,700 in the current quarter. Nonemployee expenses increased by 17.8% year-on-year in this quarter, primarily due to retail business related and technology expenses. Our branch count has increased by 123 in Q3 of 2024, and we had 6,371 branches as of December 31, 2023. The technology expenses were about 9% of our operating expenses in the 9 months ended December 31, 2023. The core operating profit increased by 10.3% year-on-year to INR 146.01 billion in this quarter. Excluding dividend income from subsidiaries and associates, the core operating profit grew by 9.7% year-on-year. The total provisions during the quarter were INR 10.5 billion or 7.2% of core operating profit and 0.36% of average advances compared to INR 5.83 billion in the previous quarter. The provisions during the quarter included the impact of INR 6.27 billion, pursuant to the recent RBI circular on investments in alternative investment fund. The provisioning coverage on NPAs was 80.7% as of December 31, 2023. In addition, we hold INR 10.32 billion of provisions on borrowers under resolution. Further, the bank continues to hold contingency provision of INR 131 billion as of December 31, 2023. At the end of December, the total provisions, other than specific provisions on fund-based outstanding to borrowers classified as nonperforming, were INR 230.25 billion or 2% of loans. The profit before tax, excluding treasury, grew by 23.4% year-on-year to INR 135.51 billion in Q3 of this year. There was a treasury gain of INR 1.23 billion in Q3 compared to INR 0.36 billion in Q3 of the previous year. The tax expense was INR 34.02 billion in this quarter compared to INR 27.02 billion in the corresponding quarter last year. The profit after tax grew by 23.6% year-on-year to INR 102.72 billion in this quarter. Growth in digital offerings, leveraging digital and technology across businesses is a key element of our strategy of growing the risk-calibrated core operating profit. We continue to see increasing adoption and usage of our digital platform by our customers. There have been more than 10 million activations of iMobile Pay by non-ICICI bank account holders at end December 2023. Our Merchant STACK offers an array of banking and value-added services to retailers, online businesses and large e-commerce firms, such as the digital current account opening, interest overdraft facilities based on point-of-sale transactions, connected banking services and digital store management, among others. We have created more than 20 industry-specific stacks, which provide bespoke and purpose-based digital solutions to corporate clients and their ecosystem. Our Trade Online and Trade Emerge platforms allow customers to perform most of their trade finance and foreign exchange transactions digitally. Our digital solutions integrate the import transaction life cycle with solutions providing frictionless experience to the clients and simplify customer journey. About 72% of trade transactions were done digitally in Q3 of 2024. The volume of transactions through the Trade Online platform in Q3 of 2024 grew by 26.2% year-on-year. We have further simplified cross-border remittance journeys with new enhancements. SmartIRM is a multiparty cross-border inward remittance solution with virtual account architecture, enhanced security features and remittances reconciliation with payer identification. SmartORM enables pre-vetting of outward remittance transactions to ensure error-free submission before booking foreign exchange deals. iLens, the retail lending platform, currently enabled for mortgages is being upgraded on an ongoing basis with new features, such as integration with account aggregator, opening of instant paperless savings bank accounts for newly onboarded mortgage customers and instant property valuation reports for select developers to provide enhanced customer experience and serve the customers 360-degree needs digitally. Moving on, we have provided details on our retail business banking and SME portfolio in Slide 32 to 43 of the investor presentation. The loan and non-fund based outstanding to performing corporate and SME borrowers rated BB and below was INR 58.53 billion at December 31, 2023, compared to INR 47.89 billion at September 30, 2023, and INR 55.81 billion at December 31, 2022. This portfolio is about 0.5% of our advances at December 31, 2023. Other than two accounts, the maximum single borrower outstanding in the BB and below portfolio was less than INR 5 billion at December 31, 2023. At December 31, 2023, we held provisions of INR 9.25 billion on the BB and below portfolio compared to INR 8.17 billion at September 30, 2023. This includes provisions held against borrowers under resolution included in this portfolio. The total outstanding to NBFCs and HFCs was INR 784.84 billion at December 31, 2023, compared to INR 837.49 billion at September 30, 2023. The total outstanding loans to NBFCs and HFCs were about 6.8% of our advances at December 31, 2023. The builder portfolio, including construction finance, lease rental discounting, term loans and working capital was INR 456.85 billion at December 31, 2023, compared to INR 430.58 billion at September 30, 2023. The builder portfolio is about 4% of our total loan portfolio. Our portfolio largely comprises well-established builders, and this is also reflected in the sequential increase in the portfolio. About 3% of the builder portfolio at December 31, 2023, was either rated BB and below internally or was classified as nonperforming compared to 3.5% at September 30, 2023. Moving on to the consolidated results. The consolidated profit after tax grew by 25.7% year-on-year to INR 110.53 billion in this quarter. The details of the financial performance of subsidiaries and key associates are covered in Slides 46 to 49 in the investor presentation. The annualized premium equivalent of ICICI Life was INR 54.3 billion in 9 months ended December 31, 2023, compared to INR 53.41 billion in 9 months of last year. The value of new business margin was 26.7% in 9 months ended December 31, 2023, compared to 32% in 9 months of last year and 32% in fiscal 2023. The value of new business was INR 14.51 billion in the 9 months ended December 31, 2023, compared to INR 17.1 billion in the 9 months of last year. The profit after tax of ICICI Life was INR 6.79 billion in 9 months ended December 31, 2023, compared to INR 5.76 billion in 9 months of last year and INR 2.27 billion in Q3 of 2024 compared to INR 2.21 billion in Q3 of 2023. The gross direct premium income of ICICI General was INR 62.3 billion in this quarter compared to INR 54.93 billion in the same quarter last year. The combined ratio stood at 103.6% in Q3 of 2024 compared to 104.4% in Q3 of 2023. Excluding the impact of cat losses, the combined ratio was 102.3% in this quarter. The profit after tax was INR 4.31 billion in this quarter compared to INR 3.53 billion in Q3 last year. The profit after tax for ICICI AMC as per Ind AS was INR 5.46 billion in this quarter compared to INR 4.20 billion in Q3 of last year. The profit after tax of ICICI Securities as per Ind AS on a consolidated basis was INR 4.66 billion in this quarter compared to INR 2.81 billion in Q3 of last year. ICICI Bank Canada had a profit after tax of CAD 15.9 million in this quarter compared to CAD 11.5 million in Q3 last year. ICICI Bank U.K. had a profit after tax of USD 6.7 million this quarter compared to USD 3.1 million in Q3 of last year. As per Ind AS, ICICI Home Finance had a profit after tax of INR 1.86 billion in the current quarter compared to INR 1.05 billion in Q3 of last year. With this, we conclude our opening remarks, and we'll be happy to take your questions.

Operator: [Operator Instructions] The first question is from the line of Mahrukh Adajania from Nuvama.

Mahrukh Adajania: I just wanted to know about operating expenses. They've not grown much this quarter. So going ahead, do we expect this kind of growth, any comments on the OpEx bit? That's my first question. And then I have 2 more.

Anindya Banerjee: Yes. So as far as the operating expenses are concerned, I think if we look at the nonemployee expenses, those are really growing in line with the business. And this quarter, of course, the advertising and sales promotion expenses on a year-over-year basis, the growth was on the higher side because of the festive season-related spend. While last year, the festive season was split over Q2 and Q3. So those are really going in line with the business. On the employee side, I think, is where we have seen in recent over the last, I would say, couple of years, last maybe 6 quarters, a pretty high growth because of the increase in the team size of the bank. But as you would have seen in this quarter, the net increase has slowed down, I mean, compared to about 10,000 -- I think 10,000 to 11,000 in the first half. We were at about 1,700 in Q3. So we would, I think, not be probably looking at adding the kind of headcount at the same pace. So that will play through into the operating expenses as we go ahead.

Mahrukh Adajania: Okay. So the headcount additions now will be moderate only. This is not just a one-off?

Anindya Banerjee: We will not be at the pace that we have seen over the last -- over the previous 4 to 5 quarters, yes.

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

Anindya Banerjee: So the way we look at the balance sheet and the funding structure, Mahrukh, is that we look at, I would say, 3 ratios. Certainly, the CD ratio and the LDR -- the LCR which is a measure of current liquidity, and the NSFR or the net stable funding ratio. So the LCR and the NSFR are a little more granular in the sense that they do take into account the nature of assets and liabilities in terms of product, counterparty and tenure. So we look at all 3. If we look at the LCR and the NSFR, we are at well above the regulatory minimum. We are at about 120%. On the credit to deposit ratio, I think a couple of things. One, typically a bank with a higher level of capital would tend to have also a higher CD ratio mathematically. When we look at our CD ratio, we also look at the overseas operations and the domestic balance sheet separately because they are managed separately. And in the overseas operations, we have relatively limited deposit-taking capability. Of course, now the impact is much lower than it used to be, say, 7, 8 years ago because that portfolio has come down to less than 5% of our overall portfolio, but it does have a percentage point or two impact. As far as the bulk of the balance sheet, which is the domestic balance sheet, of course, deposits are our primary source of funding along with capital. In addition to that, we always try to optimize between the wholesale deposit taking and the more stable wholesale sources like refinance and bonds. So in general, if you look at it over a longer period of time and the domestic balance sheet, our CD ratio has kind of hovered around the mid-80s other than periods of very high liquidity and very low loan growth like the pandemic. So that is kind of the way in which we manage it, looking at all these 3 ratios on an ongoing basis.

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

Anindya Banerjee: So on the deposit side, I think the retail deposit rates have remained stable for a fair period of time now, at least the peak rates. Although, I think at various points of time, banks have moved up and down in certain other buckets. Of course, in Q3, I think given the overall liquidity environment, we did see some amount of hardening of the wholesale deposit rates, which is reflected in the CD rates and also the rates being quoted for high-value kind of deposits. And I think if you look at even currently, systemic liquidity is running at a negative. So I guess, that scenario will stay for some time until maybe monetary policy starts to turn a little more accommodative. So that's on the deposit rate side. From a margin perspective, I guess, we had said in the past that we expect the full year margin this year to be at a similar level than last year, and that implies some further margin compression in Q4, but it should be much lower than what we have seen. I mean, Q3 was already much lower than Q2 and it should be lower than what we have seen in Q3.

Operator: [Operator Instructions] Next question is from the line of Abhishek Murarka from HSBC.

Abhishek Murarka: So two questions, one on asset quality. So if I see your slippages in retail rural business banking, that has gone up, even if I knock off the Kisan credit card slippages. So can you explain where that has come from? And similarly, on the recoveries and upgrades in corporate and SME, is there any kind of one-off? Or what's happened there? That also improved actually so.

Anindya Banerjee: Yes. So I think as far as the retail side is concerned, nothing specific to call out. I think it's really spread across products. And if you look at the delta relative to the size of the portfolio, it is not a very high -- not particularly meaningful. So as we have been saying, we would expect the net additions -- both the gross and net additions on the retail side to gradually normalize upwards, both as the portfolio grows and seasons. And I'll -- on the corporate side, we did have 1 or 2 larger sort of upgrades this quarter. But in a way, the benefit in provisioning terms of that was kind of offset by the provisioning on the AIF investments. So taking it all together, if we look at kind of the credit costs, if we look at the provisioning for the quarter and eliminate maybe a very chunky corporate upgrade, eliminate the AIF provisioning and really try and look at an adjusted number, it would be still below kind of maybe 50 bps of loans and about 10 bps of the PPOP. So that is the context in which we would look at the NPL formation and recoveries from our planning and risk appetite perspective.

Abhishek Murarka: Yes. And sort of extending that, does it mean that even in the next few quarters, we should continue to see credit cost in that range because you have enough PCR anyway, and that can come down a little bit. So credit costs can remain low for, let's say, next 3 to 4 quarters. Is that a fair conclusion?

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

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

Anindya Banerjee: So we not -- we don't publish those -- that those numbers, Abhishek.

Operator: Next question is from the line of Rikin Shah from IIFL.

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

Anindya Banerjee: There could be some flow into 1Q as well, but I think most of it should be done in before. There could be some flow into 1Q as well.

Rikin Shah: And this quarter, it increased 20 bps Q-o-Q. So in terms of the quantum, should it be kind of slowing down from the current run rate?

Anindya Banerjee: I would guess so.

Operator: Next question is from the line of Kunal Shah from Citi Group.

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

Anindya Banerjee: So on the first question, I think part of the impact on the advances yield is because of the addition to the KCC NPL. So basically, what happens is that you kind of have to -- you derecognize a year's worth of interest income. So that does impact the yield on advances. In other parts, one, if you look at the share of the high-yielding portfolio, it is still not that high, and we have been -- and we have seen decent growth in mortgages and auto and so on, and also on the corporate side, so -- which continue to be pretty competitive. So I would say the yields have been broadly stable, and to some extent, any mix benefit that could have come has been offset by the nonaccrual on the KCC loans. On the -- sorry, the second question was on the NBFC exposure. I don't -- I mean, I guess, that we -- then we keep looking at the various exposures from a risk-reward basis. I mean, we did not have any credit concern on these exposures, but they were finely priced exposures, and we have, therefore, borrowers -- a couple of borrowers prepaid, and we were quite okay with that.

Kunal Shah: And how much rate pass was there in NBFC?

Anindya Banerjee: It would really depend on the client. I don't think there is any role of some in that sense. I would -- as you will see the book itself, I mean, even adjusting for this prepayment has not really grown much during the quarter. So there would not have been any very large lending that would have happened fresh.

Operator: Next question is from the line of Nitin Aggarwal from Motilal Oswal.

Nitin Aggarwal: Congrats on the results. So one question again around the yields and as to really, how do you look at the competitive intensity in unsecured products? And even in the mortgage, are you seeing that lenders cutting down on spreads because repo rates have been unchanged, but are the rates like seeing some moderation there? And -- so basically -- and going forward, how do you see the unsecured loan mix also moving for the bank? Because until now, it has been going very steady and some other private banks are indicating that they'll continue to drive that up. So what will be our approach on the unsecured loan mix? So these 2 questions.

Anindya Banerjee: I think as far as the competitive intensity in rates, that is kind of continuing. I mean, we'll have to see if things change in Q4, but certainly in Q3, across most of the products, mortgages and corporate lending, we continue to see a fair degree of competitive intensity. The way we look at it is to try and be disciplined in our pricing and to kind of look at the customer and see what are the -- what is the total relationship value that we can have with the client and their ecosystem and then take a call on the loan pricing. I mean, in general, I'm not particularly focused on loan growth. So in that sense, we are able to calibrate our pricing decision. I'm sorry, what was your second question?

Nitin Aggarwal: Yes. So just related to this, like has your aggregate mortgage portfolio yield come down over, say, second quarter?

Anindya Banerjee: No, it could not have. Because the incremental business takes time to feed through. You had another question after the yield competitiveness. I'm sorry, I missed it.

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

Anindya Banerjee: On the unsecured loan mix, I think as far as personal loans is concerned, as we have mentioned, we have taken some steps in terms of refining the credit parameters. Basically, in any portfolio, you have certain cohorts, which contribute more to the delinquencies and you try to figure out what are the origination markers of those cohorts and then cut origination in those particular segments, which is what we've done. And we've also rationalized, for example, sourcing payouts as well as we moved our pricing on personal loans by maybe 20, 25 basis points. So I would expect that growth in that portfolio may continue to moderate a little bit even from the current level. But from an overall P&L impact, I would think that it should not have much of a P&L impact because in any product or business, it's not just about the yield and the margin. Hopefully, if we are managing the sourcing cost well and that will contribute to profitability, and hopefully, if we are reducing in the right cohorts, that will contribute to credit costs being better as well.

Nitin Aggarwal: Right. And around credit costs, any comments around that?

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

Operator: Next question is from the line of M.B. Mahesh from Kotak Securities.

M.B. Mahesh: Anindya, just 2 questions. One is on Slide 34. There has been a drop in the AA kind of rated portfolio, and then increase in the BBB part of the portfolio. If you could explain that.

Anindya Banerjee: Yes. So actually, Mahesh, I think 2 things largely explain that. One is that the reduction in the NBFC portfolio, most of our NBFC portfolio is well rated, rated A and above. So as a result of the reduction in that portfolio, we would have seen some reduction in the outstanding in the higher-rated category. And the second factor was that we had one of the larger upgrades of NPLs that we had got upgraded -- got rated in the BBB family on upgrade. So it's one -- so one is a sort of, I would say, positive movement from a capital and profitability perspective. The other is a positive movement from a credit perspective. But yes, because of those 2, the mix does look slightly different.

M.B. Mahesh: Okay. Second question, is there an interest to us and impact on account of the [KCC in quarter 4], which is meaningful?

Anindya Banerjee: So we've not really given a number. I mean, that's part of sort of margin happens every first and third quarter. So we've not called out that number separately.

M.B. Mahesh: I think this -- I didn't get the line of thought. On the unsecured loans, are you saying that things have started to worsen? Or you say that it is at the margin remaining more or less the same?

Anindya Banerjee: No, I think it is remaining more or less the same. I mean, we have been looking at that portfolio very closely. As I said, in any portfolio, at any point of time, there's always a bottom cohort which one could sort of do without. And given the overall commentary on unsecured and the increase in capital charge and so on, we have tried to sort of trim that part of the portfolio.

Operator: Next question is from the line of Chintan Joshi from Autonomous.

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

Anindya Banerjee: I think the markers we look at are more or in terms of the characteristics of the customer and how -- try and find wherever if we are able to look at delinquency in terms of the characteristics of the customers and see what kind of loan borrowers are contributing more to delinquency. It's not to do with time as such.

Chintan Joshi: And if you do look at time, is it similar trends so far, say, a loan given at the end of COVID and versus kind of in the last 6 months?

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

Chintan Joshi: Okay. The other question I had was on cost of deposits, it increased 19 bps quarter-on-quarter. You are indicating some more NIM pressure, but I doubt you're referring -- like if I think about the exit run rate, if I keep NIMs flat on an FY '24 versus FY '23 basis, then it would be kind of 4.2%, but that -- I don't think that's what you're trying to imply. So if I break that down a little bit more, could you give some color on how much more repricing is left on the deposit side that we can factor in?

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

Chintan Joshi: Okay. And then final quick one. Any indication on branch expansion number for FY '25?

Anindya Banerjee: No, not really. I think this quarter, we added about 123 branches. So as we have said in the past, we follow a pretty bottom-up approach. I mean, it's the people closest to the market who kind of recommend branch openings and then we do some assessment and open it. So we are not holding back on any branch opening, but we don't have a particular branch opening target either.

Operator: Next question is from the line of Param Subramanian from Nomura.

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

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

Param Subramanian: Got it. Anindya, just one more question around this. But how are we geared towards, say, government spend coming back? How much is that, if you can give some direction number as a percentage of our deposit, say, so when that comes back, how does that help you in terms of CASA as well as overall deposits?

Anindya Banerjee: No, we don't take -- I mean, our focus as far as the government is concerned, is more from providing solutions, which enable them to manage their cash flow and provide MIS, reconciliation digital solutions. So yes, that -- the flow of that money through our system does create float. It is some part of our base. But one caveat is that the government is also becoming progressively more efficient in the way -- in terms of the way in which it manages its finances. So I don't think one can rely too much on idle government money lying with you in CASA form.

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

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

Operator: 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.

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