ICICI Bank Ltd Q2 FY2022 Concall Summary

Key Takeaways

• Strong recovery, cautious tone: Loan growth and asset quality improved materially, with overdues returning to pre-second-wave levels, yet management declined to quantify near-term growth targets, emphasizing risk-calibrated profit over volume.
• Asset quality surprise to the upside: Gross NPA additions were concentrated in pre-existing stress pools, while retail recoveries and upgrades surged, driving negligible net NPL additions and a 11 bps QoQ NIM improvement.
• Investment spend is front-loaded: Operating expenses jumped 28% YoY, driven by technology, retail sourcing, and brand building; management explicitly prioritizes this franchise investment over near-term cost ratios, expecting results in 12–18 months.
• Provisioning buffer remains untouched: The bank holds ₹14,951 cr in total provisions plus ₹6,425 cr in Covid-19 provisions, none of which was utilized or written back this quarter, with management in no hurry to unwind.
• What to watch next quarter: The pace of corporate capex revival beyond PSUs, the trajectory of unsecured retail growth as pandemic effects fade, and whether the elevated expense run rate begins to generate the promised revenue leverage.

Asset Quality & Credit Cycle

• Retail slippages contained: Gross retail additions ran at an annualized 4–4.5%, but net additions were much lower because a large portion of gross additions were recovered or upgraded within the same quarter. Q2 recoveries and upgrades were significantly higher than usual.
• Overdues normalized: Overdues across the retail and business banking portfolio have returned to March 2021 levels, after spiking during the second wave in June 2021. Management expects the slippage rate to reach a normal level "pretty soon."
• Corporate stress pre-identified: Gross NPA additions from corporate and SME were almost entirely from borrowers already rated BB and below as of June 30, 2021, plus devolvement of non-fund based outstanding. No new pockets of surprise emerged.
• Commercial vehicles remain a drag: Stress in the CV segment existed prior to Covid-19 and has persisted over the last 18 months. Outside of CV, additions and deletions across retail, rural, business banking, and SME have been reasonably stable.
• Gold loan recoveries materialized: The prior quarter saw higher NPA additions in loans against gold jewelry due to collection challenges; this quarter saw a fair amount of recoveries from that same portfolio.
• Restructuring pipeline small: Some increase expected in Q3 from cases still under implementation as of September 30, but management guided it will be "definitely less than ₹1,000 crore." Provisions on the restructured book stand at 20%, including a 15% voluntary buffer above the RBI's 10% requirement.

Jha: "No, there is no change in provisioning policy that we have done during this quarter."

Margin & NIM Dynamics

• NIM improved 11 bps QoQ: The sequential increase was driven primarily by a decline in the cost of funds and lower interest reversals on NPAs. Net NPL additions being negligible helped avoid interest reversals, while NPA deletions allowed collection of previously unbooked interest.
• Cost of deposits fell 12 bps: Strong CASA growth drove the decline. Surplus liquidity still sits on the balance sheet; as it gets deployed, some additional margin benefit is expected over time.
• Competitive intensity is a moving part: Management acknowledged that pricing pressure across lending segments is a variable, and stated it will not be a price leader in any product or segment. The focus is on pricing loans appropriately to earn the required return.
• Rate cycle tailwind ahead: Management expects interest rates to inch up as the RBI normalizes liquidity, with repo rate moves and funding cost changes coming into play towards the end of the year or in the first half of next year.
• Endeavour to protect margins: Management's stated goal is to defend NIM at the H1-2022 level of about 3.94%, though it cautioned that margin outcomes depend on many factors, some outside the bank's control.

Jha: "Overall of course the interest rates will inch up as RBI kind of normalizes the liquidity in the system. So how the repo rate moves and how the funding cost moves, all of those will be variables which will come into play maybe towards the end of the year or in the first half of next year."

Loan Growth & Business Momentum

• Retail disbursements near pre-Covid peaks: Mortgage disbursements were close to Q4 FY2021 levels, supported by increased demand and seamless digital onboarding via pre-approved offers. Personal loan and auto loan disbursements also approached Q4 FY2021 levels.
• Credit card spends crossed March 2021 levels: Spends across most categories other than travel surpassed pre-second-wave levels in September, and the festive season is expected to provide further impetus.
• Business banking and SME gaining traction: Steady uptick in credit enquiries, with digital offerings like InstaBIZ, Merchant Stack, and Trade Online driving growth potential. Management sees significant potential for growth across these portfolios.
• Domestic corporate growth selective: Growth was driven by disbursements to higher-rated corporates and PSUs for working capital and capex requirements. Private corporate capex is visible only in certain segments and "not really in a big way," with spending focused on balancing existing capacities.
• PSU and government capex traction: Management sees good traction on the PSU and government side, positioning the bank to capture that pipeline.
• Management declined to quantify growth: When asked whether 6–7% sequential loan growth was possible, management stated it would not comment on specific sequential growth numbers, and would grow based on opportunities to increase operating profit.

Mulye: "On the private corporate side, a certain segment yes, but not really in a big way. People are spending money on the capital expenditure more to balance the capacities and so on and so forth. But we see a good traction on the PSU and the government side."

Investment Spend & Operating Leverage

• Operating expenses up 28% YoY: The jump reflects the low base of Q2 last year, when expenses declined 5% YoY. Non-employee expenses rose 32.3% YoY, driven by technology costs, retail business sourcing costs, increased purchase of priority sector lending certificates, and higher sales and advertising promotion costs. Administrative and infrastructure costs grew only in single digits.
• Employee expenses up 21.2% YoY: Includes an approximately ₹125 cr impact from fair valuation of ESOPs granted post April 1, 2021, as per new RBI guidelines.
• Management frames this as productive spend: The bank views these as "productive good costs" to improve core operating profit, and is willing to sacrifice near-term cost ratios for long-term franchise building. Results are expected in 12–18 months.
• Near-term run rate to stay elevated: Management expects the ~20% expense growth run rate to continue in the near term, with a "slightly more normalized number" from next year, but still high growth on the expense side.
• Longer-term revenue leverage expected: Management believes it should be able to grow revenues faster than expenses over the longer term, but does not focus on the cost-to-income ratio per se; the entire focus is on growing risk-calibrated core operating profit.

Jha: "Some of these expenses are needed for building franchise, maybe they will show results in the next 12-18 months kind of timeframe. But overall we are committed to growing the risk calibrated core operating profit."

Digital & Ecosystem Build-Out

• iMobile Pay expanding utility: Launched a facility enabling savings account holders to manage credit card dues of any bank through iMobile Pay, plus contactless payment for Android users to make card payments on POS terminals by tapping phones.
• Merchant and MSME stack deepening: Launched Super Merchant Current Account with digital account opening and instant overdraft based on POS transactions. Partnered with Amazon India to offer instant overdraft to sellers, including non-ICICI Bank customers. Launched instant overdraft for MSMEs registered on GEM Sahay via API integration with the OCEN network.
• ICICI STACK scaled to 19 industry verticals: The bank has created 19 industry-specific STACKs providing bespoke digital solutions to corporate clients and their ecosystems, supporting current account growth.
• BNPL presence being built: The bank wants to be present across the full spectrum of affordability products, including credit cards, EMI on debit and credit cards, and BNPL, depending on what customers and merchants want. The merchant ecosystem has become fully digital over the last three years, with UPI's zero MDR enabling EMI-based credit products.

Bagchi: "The good thing that has happened in the last three years is that the whole merchant ecosystem has become very digital, right from onboarding. UPI is virtually zero MDR. So, you can have EMI based credit product based on that as well."

Capital, Provisions & Balance Sheet

• Provisioning cushion substantial: Total provisions stand at ₹14,951 cr (2.0% of loans), plus Covid-19 provisions of ₹6,425 cr. Management is confident this will completely cushion the balance sheet from potential pandemic-related credit losses. No Covid-19 provision was utilized or written back in Q2.
• Covid-19 provisions to stay for now: The portfolio has performed better than anticipated when provisions were created. Management is not in a hurry to unwind, will assess quarter by quarter, possibly at year-end, and may maintain some other contingency provision once the pandemic is over.
• Credit cost normalization expected: Management expects credit costs to return to approximately 120–125 bps, or about 25% of core operating profit, once the pandemic is behind the bank.
• Capital repatriation from UK subsidiary: ICICI Bank UK repatriated USD 200 million of surplus capital to the parent bank during the quarter, as its loan book declined and its capital ratio was approximately 25%. This reduces the deduction from capital for investment in subsidiaries and reduces the investment on the balance sheet.
• LCR above desired level: The LCR is currently approximately 130%, which management described as "clearly higher than where we would ideally want to be."
• BB and below portfolio granular: The maximum single borrower outstanding is less than ₹600 cr, except for three accounts in the construction, power, and telecom sectors. The builder portfolio is granular, with larger exposures to well-established builders, and approximately 13% rated BB and below or classified as non-performing.

Jha: "We are not going to be in a hurry to unwind all of those provisions. We will assess it quarter by quarter, maybe at the year-end and we'll take a call as to how we should do that. It's something which gives strengths to the balance sheet so we don't overthink around that."

Guidance & Commitments

Key Metrics