Ladies and gentlemen, good day, and welcome to ICICI Bank's Q2 FY '25 Earnings Conference Call. On the call, we have with us Mr. Sandeep Bakhshi, Managing Director and CEO, ICICI Bank; and Mr. Anindya Banerjee, Group Chief Financial Officer, ICICI Bank. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Sandeep Bakhshi. Thank you, and over to you, sir.

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 2025. Joining us today on this call are Sandeep Batra, Rakesh, Ajay, Anindya and Abhinek. The Indian economy remains resilient based on its long-term growth drivers and the actions and initiatives of the policymakers. The global and domestic inflation, liquidity and rate environment continue to evolve, and we would continue to monitor the same. At ICICI Bank, our strategic focus continues to be on growing 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. Maintaining high standards of governance, deepening coverage and enhancing delivery capabilities are focus areas for our risk-calibrated profitable growth. The profit before tax, excluding treasury, grew by 7.9% year-on-year and 5.2% quarter-on-quarter to INR 148.10 billion in this quarter. The core operating profit increased by 12.1% year-on-year and 4.1% quarter-on-quarter to INR 160.43 billion in this quarter. Excluding dividend income from the subsidiaries and associates, the core operating profit increased by 13.4% year-on-year and 6.8% quarter-on-quarter to INR 155.02 billion in this quarter. The profit after tax grew by 14.5% year-on-year and 6.2% quarter-on-quarter to INR 117.46 billion in this quarter. Total deposits grew by 15.7% year-on-year and 5% sequentially at September 30, 2024. Term deposits increased by 15.9% year-on-year and 5.5% sequentially at September 30, 2024. During the quarter, average deposits grew by 15.6% year-on-year and 3.6% sequentially and average current and savings account deposits grew by 10.4% year-on-year and 1.8% sequentially. The bank's average liquidity coverage ratio for the quarter was about 120%. The domestic loan portfolio grew by 15.7% year-on-year and 4.6% sequentially at September 30,…

Thank you, Sandeep. I will talk about loan growth, credit quality, P&L details, growth in digital offerings, portfolio trends and performance of subsidiaries. As Sandeep mentioned, we have revised the presentation of loans to reflect a consolidated view of the business banking portfolio. This comprises all borrowers with a turnover of up to INR 7.5 billion, which was earlier reflected in the reported SME and business banking portfolio as well as rural business credit forming part of the rural portfolio, dealer funding forming part of the retail portfolio and lending to mid-corporate forming part of the corporate portfolio. Over the past few years, the bank has seen healthy loan growth in this category and has adopted an integrated approach to coverage, credit and delivery to these customers. Aligning with the same, we would be reporting the retail, rural, business banking and corporate portfolios on this revised basis. The comparable data for previous periods have been provided on Slide 67 of the investor presentation. Coming to the growth across retail products, the mortgage portfolio grew by 13.2% year-on-year and 3.2% sequentially. Auto loans grew by 9.6% year-on-year and 0.8% sequentially. The commercial vehicles and equipment portfolio grew by 9.1% year-on-year and was flat sequentially. Personal loans grew by 17.3% year-on-year and 3.5% sequentially. The credit card portfolio grew by 27.9% year-on-year and 3.4% sequentially. The personal loan and credit card portfolio were 9.6% and 4.3% of the overall loan book, respectively, at September 30, 2024. The overseas loan portfolio, in U.S. dollar terms, declined by 6.9% year-on-year at September 30, 2024. The overseas loan portfolio was about 2.6% of the overall loan book at September 30, 2024. Of the overseas corporate portfolio, about 92% comprises Indian corporates. Moving on to credit quality. The gross NPA additions were INR 50.73 billion in…

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

Congratulations on a very good set of numbers. My question is just related to general asset quality. So your slippages have done very well this quarter. And you've been growing your unsecured loans though at a lower pace, but quite healthily, right? So your growth in mortgage and unsecured loans on a Q-o-Q basis is similar. And despite that, there is no sign of stress on your books while every other lender is seeing some stress or the other on unsecured loans, either in credit cards or other unsecured loans. So how do you look -- think about your book going ahead? Will that divergent trend from the sector continue? And what is it that you think you're doing right relative to others?

Mahrukh, first of all, I think we have also seen an increase in the delinquencies and NPL formation in unsecured loans over the last, I would say, 3 to 4 quarters, both in credit cards and in personal loans. But during this period and even prior to that, we had been taking various steps to sort of improve the way we were underwriting and sourcing this portfolio in terms of customer segments and various other -- pricing and various other filters. And therefore, as you would see on the personal loan side, the growth on a year-on-year basis has actually come off pretty significantly. Last year in the September quarter, the year-on-year growth was 40%, and this year, it is down to 17% or so. So the -- but in this portfolio, over a period of time, the slippages have gone up. I would say that in the current quarter, we have not seen them go up further on a sequential basis, but we will continue to watch. On the credit card side, I think it's a little different from personal loans because that's a very core product from a -- when you look at a bank customer relationship and sort of a high-touch products, so that's definitely a business we would want to continue to grow. But there also, over a period of time, we have taken various steps in terms of the sourcing pattern. And while we have seen again there also the delinquencies and credit costs go up, it continues to be a very profitable business and a growth business. Overall, the unsecured piece, these 2 products put together, are about 14% of the loan book. So some increase in delinquency or credit costs in these segments has contributed to the path towards some kind of normalization of credit costs. But even after that, if you look at it, we are still in the 40, 50 basis point range on an overall basis. So that's how we would manage going forward.

Okay. Perfect. And just my second question is on funding costs. I mean I know the deposit mix is also kind of changing, but would funding costs have bottomed out now? I mean peaked out now? Just some outlook on margins in terms of costs.

So if you look at the retail deposit rates, I think we have gone up in the current calendar year by about 15 bps or so. I think about 10 bps in Q4 and 5 bps in earlier this year, and that will feed into the increase in the cost of deposits by a basis point, 2 basis point over a period of time. But yes, I think the big increase in deposit rates had already by and large happened between the second half of fiscal 2023 and the second half of fiscal '24. So we would not expect retail deposit rates to go up too much from here. On the wholesale side, I think the rates continue to be somewhat higher than what we would have otherwise expected. But as we had mentioned perhaps last time, the kind of decline in wholesale rates that we usually see during the first quarter did not really happen and rates have continued to be a little bit on the higher side if you look at one year plus kind of deposits. But I guess with the liquidity situation having improved and the credit growth also coming off a little bit, that should hopefully -- our hopes will ease going forward, but we'll have to wait and see. Overall, we may see, I guess, marginal increases in the cost of term deposits. I think this quarter, it went up by about -- the overall cost of deposits went up by 4 basis points, which is a little bit of increase in the cost of term deposits and a little bit of reduction in the average CASA ratio. And maybe to that extent, some small increases we could still see.

[Operator Instructions] The next question is from the line of Rikin Shah from IIFL Securities.

Two questions. First one is on margin and more specifically on yield on advances. So the yield on advances have been softening since a couple of quarters. Probably this quarter would be a function of mix change. But if you could allude to what's driving slight pressure on the yields on advances and an outlook on that in the near term? And the second question is on the treasury gains. If you could just provide some color as to why the treasury gains have been higher for the second quarter as well. 1Q, you did mention a few reasons. If you could just provide more color on that for this quarter as well.

Yes. So on the first one, I think as I mentioned, there are certain portfolios where we account on -- the interest income on 30/360 basis. So in quarters which have a higher number of days, the yield on advances just mathematically is reported a little lower. It evens out over the course of the year. Other than that, nothing specific on the yield on advances. I think in terms of market lending, we continue to see a fair amount of competitive intensity, and we are trying to be as disciplined within that context as we can be. On the -- overall, I would say on the margins from -- we would expect it to be broadly stable in H2 relative to H1 is what -- the way we would look at it until a rate cut cycle starts. On the treasury, actually, if you -- as you know, from 1st of April, the revised investment guidelines came into force, whereby a lot of the positions are mark-to-market now other than the HTM portfolio. And most of -- other than the SLR book and subsidiaries and things like that, most of the portfolio is held either in AFS or fair value through P&L. And the mark-to-market on the fair value through P&L portfolio reflects in the P&L for the quarter. So this quarter, if I look at kind of the INR 6-odd billion, I would say a larger part did come from the treasury operations, the trading operations that we do across both fixed income, equities and so on. And -- but some component was there, which reflected sort of the incremental mark-to-market positive over and above what the position was on June 30 on the fair value through P&L portfolio.

Next question is from the line of Piran Engineer from CLSA India.

Yes. So just talking about OpEx, you all have done a good job in controlling OpEx. Can you just give us some glimpse of where this is coming from? Where are we getting these benefits from? What should we expect in the coming, say, FY '25-'26?

So I think we have been talking maybe for the last 4 quarters that the kind of OpEx growth rate of 20-plus percent that we had been running in the 4 to 6 quarters or maybe a couple of years prior to that, would moderate because now the cost base itself is fairly large and we have opportunities to optimize within that. So that is basically what has driven the reduction in the cost growth. I think if I remember right, for the fourth quarter, the adjusted cost growth was about 13% or so. For the first half this year, while the Q2 number is indeed -- year-on-year growth is very low at 6.6%, for the first half this year, it's about 8.5% or so. And we will -- it could be slightly higher in the second half, given all the festive season-related spends and other technology spends, et cetera, that we have planned out. But broadly around this level, give or take a couple of percentage points is where we should see it in the near term.

Got it. Okay. And your branch openings have also slowed down this year compared to the run rate that we are running at earlier. So any particular reason? And is this also reason why OpEx growth has been trending a bit lower?

No, I don't think that, that's a very big driver that maybe there's some contribution of that. So on branches, as we have said in the past, we are not really fixated on a particular number or that we have to open so many in such a period of time. It's a very bottom-up organic process based on the teams which are managing different markets, what is the branch addition that they need to do. And it's always looked at within the overall current and potential PPOP kind of framework. So based on that, we have not consciously held back on opening any branches nor as we pushed any branch opening. It's just an organic process which happened. I would guess this number will be materially higher in H2, but it's not like we have any particular number that we want to achieve.

Got it. And just lastly, if I can squeeze in your credit card delinquencies. Any difference between the co-branded ones and the regular ones?

We don't really give out this data.

Next question is from the line of Saurabh from JPMorgan.

Sir, just 2 questions. One is on your CASA growth, especially on your savings account growth. You've done much better than all other banks. So could you just throw some light as to why you are seeing a much better traction on CASA than others, especially on savings account? And the second is essentially on your slippages. How would -- how much would be coming from linked accounts? And will it be fair that the -- in your cards and personal loan portfolio, the delinquency -- I mean, the NPL increase will be higher in cards or the write-off will be higher in cards versus PL, the stress you're seeing. And it will be mostly in the outside to the bank channel. So these are 2 ones.

So on the CASA side, I think the way we approach it is that we basically focus on what we call money in bank. So we don't really push the distribution for that we -- on this much CA, this much SA or this much term. We -- basically, what we are trying to achieve is that we should be having good customers, and we should be the primary banker having a good share of that customer's wallet. And customer ranges across retail and business banking and corporate. And so -- and there -- then it's really up to the customer in what form they choose to keep the money. So I think that is the way we kind of -- sorry, I think I dropped off.

No sir, you are connected.

Yes. So I think this money in bank concept and focusing the team's attention on the total wallet of the customer rather than driving any particular type of deposit at any point of time has helped as well as the focus on, I would say, quality customer acquisition. On the NPL part, finally, it doesn't really matter whether it is linked or unlinked. RBI guidelines require NPLs to be identified and reported on what we call the common borrower basis at a borrower level and not a particular loan account level. So that is what we do and that's being consistent practice for a fair amount of time now. On the -- we've not really given the comparative delinquencies between personal loans and cards or between different components of either portfolio. I think, as I mentioned earlier, it is fair to say that -- and as was expected, over the last 1, 1.5 years, delinquencies in these portfolios and even in overall NPL formation in retail has gone up. And we have -- we keep taking corrective actions in terms of sourcing. So hopefully, it is stabilizing and we will see how we go on from here. But nothing really to call out between one or the other. Of course, the personal loan and credit card products are different. Again, as we mentioned earlier, the credit card is a much more core part of the bank customer relationship and a much more high-touch product, and it has its own operational challenges as well as kind of opportunities to differentiate. So that's the way we would look at both these businesses.

Next question is from the line of Kunal Shah from Citigroup.

Yes. Congratulations for the great set of numbers. So sorry, if you can just highlight in terms of within the retail, how would be the proportion between the secured and unsecured in terms of the incremental formation? And any change in last couple of quarters vis-à-vis the last year?

No, we have not really given any breakup of that kind. I mean at a broad level, as I said earlier, we have been saying for I think 8 quarters that the retail NPL formation at a gross level and at a net level will move up, will normalize upwards. So within that, there has been an increase, of course, in the credit card and personal side. But finally, one has to look at it in the context of the overall portfolio and the overall numbers at a credit cost of 40 to 50 bps of advances, how much more breakups will...

Yes. So when we look at the overall credit cost till maybe below 40-odd basis points, not yet the normalized one, we would have seen some kind of a catch-up on the unsecured side as well. But are we comfortable that maybe 40 to 50 would be the broad range for credit cost and it's maybe beyond 50 doesn't seem like any incremental data points would suggest or maybe the delinquency bucket suggest that it should cross 50 basis points of credit cost?

It's very difficult to say with that kind of precision. We have consistently been saying that there will be a gradual normalization, but it is anyway much below historical levels and we will see it as it comes. I don't think there is anything today which is alarming us in terms of causing us to believe that it will go up very substantially. But could it inch up over a period of time? It could.

Yes, yes. Okay. And just last data point, LCR, you mentioned 120?

Yes.

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

Congratulations on very strong performance yet again. One question I have is on the rating distribution. I felt like -- see, the rating distribution of corporate portfolio has seen an improvement this quarter, so unlike the trend that was there in the previous quarters. So do you maintain any thresholds here? And do you also benchmark yourself to peer on the mix of credit rating?

So as we have explained, we have given the -- because we have carved out the SME portion into business banking, this is the -- now the corporate portfolio basically comprising corporates above INR 7.5 billion in turnover, and that is the rating cut we have given. So I think earlier there used to be some confusion because we were including SME and other players were not and so on and so forth. So this hopefully is a more comparable cut. And the numbers for the previous period are also there in the same slide. It's been a pretty stable trend. I guess we do have certain internal limits in terms of caps on origination of loans in the lower-rating buckets, but those are sort of internal to us.

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

Firstly, just data, what is the recovery from written-off accounts in the quarter or the first half of the year?

We don't give that number separately. It's already adjusted in the provision's line item.

Okay. Sure. Anindya, what is driving the higher write-off in this quarter? It doesn't seem to have come with any significant P&L impact, but -- so is this largely fully provided loans and technical?

Yes, yes. So these are largely -- these are all 100% provided loans. And the way we do write-offs is that on the retail -- broadly retail portfolios, we have a days past due based write-off policy. Whereas on the corporate and SME portfolio, it's more on a case-by-case basis. And these were some relatively old fully provided NPLs that we wrote-off this quarter, a technical write-off. Of course, even in some of these, we would continue to pursue cash recovery efforts that will come and it will come, but these are fully provided corporate NPLs of past year.

Okay. Perfect. And just one last question, if I can. The NIM impact because of this longer quarter, any number you can highlight would be great. Congratulations on a great quarter.

Thank you. See, the total impact on yield or NIM is 7 basis points or so. So it will be something within that, not...

Next question is from the line of Abhishek Murarka from HSBC.

Congratulations for a great quarter. So 2 questions. One is on business, one is on fees. On business, I would request for some commentary around business banking, especially with regard to demand trends and yields. Is the growth coming at lower yields and how do you see the sustainability of this growth? And on credit card and PL, you've taken a lot of tightening measures earlier, but now your sequential run rate, is this like a BAU or you expect more impact of the tightening measures taken earlier to still show up in the sequential run rate? So those are the 2 questions on business. One quick question on fees. So if I look at fee to assets, now that your loan mix is changing and your PLCC, PF, vehicle finance, all those are coming down in proportion, do you expect your 1.2% fee to -- core fee to assets also coming down? So some understanding around that. Those are my 2 questions.

So on the first one, on the business banking side, Abhishek, we were -- maybe till 8 or 9 years back, we were not very large players in this segment. And I think over this period of time, we have invested a lot into building this business. I would say, in terms of the credit underwriting models and capability, equipping many more virtually our entire branch network to deal with this set of customers. And thirdly, I think our digital offerings have also helped and this period has also coincided with greater digital adoption in this segment borne out of various government initiatives or just the evolution of the market. So that has been the basis on which we have grown this segment. And this is one segment where we really focus a lot on the Customer 360. So because in many cases, we would be having a significant share of the wallet, not only across credit, but also across transaction banking, deposits, FX and so on. So that -- so we look at really the portfolio, the profitability on an overall basis. In terms of pure lending, it is competitive because I think the other -- particularly a couple of the other large private sector peers have, in fact, a longer sort of presence and history in this segment. So I wouldn't characterize it as a high-yield business by any stretch, but it is a profitable business because we are really looking at what all we are doing with the customer. On the...

If I may, now it's been quite a few years that we've grown this business quite fast, gained quite a bit of market share. So even today to be able to maintain a 10% sort of sequential run rate, that's in itself a fairly difficult task. So do you think it's still -- because your market share is still low or this is going to slow down and this kind of sequential growth may not continue anymore?

So I don't want to talk about sequential growth numbers. But fundamentally, I don't think that our market share is saturated at all. I think we have a long way to go in terms of entities, we can tap and cover and reach. And there are lots of very large potential customer base out there, both in terms of people and their existing banking plus this is also a segment which is growing. I mean the people are setting up new manufacturing units. They are setting up new service businesses. So there is enough and more to be done. I don't see any challenge to the market opportunity for us in this segment at all. What was your second question? It's about fee?

On cards and PL?

So fees -- so as I said, cards, I think, continues to grow at a reasonably robust pace. PL, we -- probably, I don't think the disbursal volumes may not -- I don't have a sense -- may not come down too much. But I think they are already down a fair amount from where we were 3, 4 quarters ago and repayments also kick in. So on a portfolio growth perspective, as we mentioned that it has come down from 40% to 17%, and you will see it trend down further over the next couple of quarters, definitely. On the fees question, we don't really manage to that metric. What we look at is kind of the overall PPOP and the credit cost. So it's not that we have a particular fee-to-income number in mind. I think on fees also, there is more that we can do in terms of growth or in terms of increasing the fee income in areas like transaction banking and FX, in cards that also and a couple of other places as well. So again, on fees, the growth opportunity is there. I don't worry too much about PL coming down and that depleting.

So these activities you're doing on the fee side to improve the fee growth, is it sort of showing up or it's like a long duration project and your fee to assets or fee to income will not be impacted in the next few quarters because of that?

So we don't really look at fee to income, fee to assets at all. I mean we have an overall PPOP kind of aspiration and fee is one element of that. It is probably an element where we have scope for some lift.

Next question is from the line of Rahul from Goldman Sachs.

Just 2 questions. One is your Slide #31 talks about the mix of 2 customers in PL and CC, 60 being existing to bank, 40 would imply being new to bank customers. So just wanted to understand maybe qualitatively how the behavior in each of these buckets are you seeing on the delinquency side? And this is stemming from the fact that we've seen a reasonably higher degree of delinquency in the customer that may not necessarily be existing to bank or those who are open market customers for different entities. So just wanted to get some color as to how you're seeing the behavior in these 2 portfolios?

I think as we said earlier, overall in these portfolios, credit costs have normalized upward. Delinquencies have gone up. We have taken measures. Hopefully, including in the case of PL bringing down the growth. Hopefully, we are -- we will see stability and some improvement down the line. Nothing more than that to call out. These are -- this is, put together, 14% of the loan book and whatever is happening within this book is getting absorbed within the 40 to 50 basis points of credit cost.

So the behavior would be similar, so let's say, argumentatively if existing to bank is having X percent of delinquency, would new-to-bank would also be at X percent or they would be 1.2x, 1.5x?

No, it can vary. I mean an existing to bank customer, which has been not so great quality account sourced in the past, they exhibit worse outcome than, say, a quality account that is sourced today, say, in cards because, as I mentioned, it is a high-touch product. So it could vary and really from a -- of course, we keep doing internal analysis on various cuts. I think most important is the sort of credit profile of the customer and that can vary across these segments.

And in terms of growth of this portfolio, the growth is now going to be more driven by, I would imagine, existing the bank customers or you would continue to hunt for customer outside of this banking relationships also?

No, I think, see, for example, on -- if you look at, say, credit cards, we have a large untapped base within our own customer base of quality customers who are not -- who don't have our card or even if they have our card are not using it as much as we would like them to. But at the same time, it's also a very good product to acquire a customer with. So for example, if we are banking a large corporate or banking some MNC or something, I would be very happy to offer a credit card to their employees above a certain -- at a certain level or who pass the credit filter. So I think it's really about what is the quality of the customer that you're issuing to rather than getting caught up in existing versus because that may give some false sense of comfort actually.

All right. I was asking just generally because of the environment. Fair enough. The second quick question was on the outlook on margins. So it's been trending lower. You talked about cost of deposits being closer to bottoming and whatever repricing had to happen has happened, but there could be some mixing element as well. So what's the outlook on the margins that you envisage? I see you've got a fair bit of comfort on the loan to deposit side as well. So would you pull that lever to manage the margins or you think it is kind of okay where it is right now?

No, I already said that we would expect margins to be broadly stable in the next -- in the near term. And then when the rate cut cycle starts, of course, the lead lag will play out on the reverse side with loans repricing faster than deposits. The general expectation is of a relatively shallow cycle. So we will have to manage through that as and when it happens.

Ladies and gentlemen, we will take that as the last question. I now hand the conference back over to the bank. Please go ahead.

Thank you for taking time on a Saturday afternoon, and wish you all a very, very happy Diwali from ICICI Bank in advance. Thank you.

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