ICICI Bank Ltd Q3 FY2022 Concall Summary

Key Takeaways

• Strong operating momentum, mild NIM dip: Core operating profit grew 19% YoY, fee income rose 19.2% YoY, and deposit growth stayed robust, while NIM slipped 4 bps sequentially to 3.96% on yield pressure.
• Credit quality continues to improve: Gross NPA additions fell sequentially to ₹4,018 cr, provisions stayed prudent with no Covid writeback, and the resolution portfolio is just 1.2% of loans, over 95% secured.
• Digital and analytics are scaling fast: 33% of mortgage sanctions and 43% of personal loan disbursements were end-to-end digital in 9M, and pre-delinquency analytics are sharpening collections.
• Yield pressure is the new reality: Management flagged that deposit costs have bottomed out while lending spreads face further pressure, with the mortgage-to-10-year G-sec spread at a historic low.
• What to watch next quarter: Whether the third wave’s January slowdown reverses quickly, the trajectory of NIMs as surplus liquidity unwinds, and any update on the ICICI General stake reduction timeline.

Operating Performance

• Loan growth was broad-based: Retail grew on cross-sell and analytics, business banking and SME on digital offerings like InstaBIZ and Merchant Stack, and domestic corporate on disbursements to well-rated names within the risk framework.
• Deposit franchise strengthened further: Average current account deposits grew 33.7% YoY and savings account deposits 24.7% YoY, keeping the cost of deposits among the lowest in the system. IPO and capital market flows boosted current account balances this quarter.
• Fee income was strong and broad-based: Growth of 19.2% YoY spanned retail assets, credit cards, payments, wholesale banking and SME, with retail, business banking and SME fees constituting about 76% of total fees. Cards were an important contributor but not the only driver.
• Fee income has pressure points: Lending-linked fees are growing slower, especially on the corporate side where the bank focuses on ‘A and above’ rated lending that carries much lower lending-related fees. Third-party distribution fees are also growing at a somewhat slower pace than overall fees.
• Operating expenses rose on festive and tech spend: The 22.4% YoY increase partly reflects a slightly lower base in Q3 last year. The sequential Q2-to-Q3 rise was driven by higher advertisement, promotion and festive-season expenses, plus an increase in technology expenses and the cost of purchasing priority sector lending certificates.
• Technology spend is rising but will stay measured: Technology spend is about 8% of operating expenses, or roughly 3% of net revenue on an annualised basis for 9M, and has been growing faster than overall expenses. Management expects some further increase in the proportion of opex but not a jump to 9% or 10%, noting that Indian banks’ cost base and infrastructure setup are not comparable to international banks.

Rakesh Jha: "I think that's a completely different cost base which is there, completely different infrastructure setup which is there. So, those numbers may not be comparable for the Indian banks."

Margins & Yield Management

• NIM declined sequentially on yield pressure: The 4 bps drop to 3.96% was mainly due to a decline in yield on advances, partly offset by a decline in the cost of deposits and higher interest on income tax refunds.
• Lending spreads are under structural pressure: Surplus liquidity in the system and system loan growth running at 8%-9% are compressing lending spreads. Deposit costs have bottomed out, while on the lending side further pressure could still materialise. Surplus liquidity deployment will be a positive offset.
• The mortgage-to-G-sec spread is at a historic low: Management noted the delta between mortgage pricing and the 10-year G-sec at 6.50% is exceptionally tight, with mortgages at 6.70%. The bank will stay competitive on mortgage pricing but will not be a price leader.
• NIM protection is the stated objective: Management aims to protect NIMs at the nine-month level where they currently stand, while managing through a near-term scenario of pressure on lending yields and spreads.

Anup Bagchi: "I don't remember in the last many years, where the delta between the mortgage pricing and 10-year was so low."

Credit Quality & Provisions

• Gross NPA additions declined meaningfully: Additions fell to ₹4,018 cr from ₹5,578 cr in Q2, with net deletions from gross NPAs of ₹191 cr excluding write-offs and sale. Higher additions from the kisan credit card portfolio of about ₹614 cr were seasonal, typically seen in the first and third quarters.
• The resolution portfolio is small and well-secured: Total fund-based outstanding under resolution was ₹9,684 cr, about 1.2% of the total loan portfolio. Over 95% of retail and business banking resolution loans are secured, and provisions of ₹2,436 cr are held against these borrowers, higher than the RBI requirement.
• Provisions stayed prudent with no Covid writeback: Total provisions of ₹2,007 cr included ₹465 cr of higher provision against security receipts and ₹447 cr of higher provision on loans under resolution on a prudent basis. No writeback of Covid-19 provisions was taken during the quarter.
• Pre-delinquency analytics are sharpening collections: The bank uses data analytics to identify which customers are most likely to bounce and which profiles have higher recovery chances, improving collection efficiency. Annualised credit cost was 1% for the quarter, and the through-cycle credit cost target remains 25% of core operating profit.
• Near-term credit cost could undershoot long-term estimates: Many deletions from NPLs are still coming through, reflecting NPLs added last year and in Q1 this year. That trend will slow at some stage, but in the near term credit cost could end up below long-term estimates. Management will stay with its long-term estimates for now.

Anup Bagchi: "Because at this point of time, if there is cash which is coming with the customers, depending on who reaches first, they get repaid. As the stress in the economy comes down, of course, everybody will get repaid. But when there is a stress in the economy and you are going for collection, it is important that if there is one call to be made, which is a customer, where you have the highest probability of collection, the call should go there."

Digital & Franchise Build-Out

• iMobile Pay is acquiring non-customer users at scale: Activations by non-ICICI Bank account holders reached 0.53 cr, and the value of transactions by those users grew 73% sequentially.
• Digital sanctions are material and growing: 33% of mortgage sanctions and 43% of personal loan disbursements by volume were end-to-end digital in the first nine months of the fiscal year. 95% of overdraft facilities for business banking current account customers were end-to-end digital.
• Credit card spends are surging on three drivers: Sharper portfolio management in normal retail, the Amazon partnership with quick activation rates and a steep S-curve, and improvement in commercial cards. Spends were 2.2x Q3-2021 levels. Customer propensity to take cards and do more business is increasing due to the brand and positivity around the bank.
• The Amazon Pay card base is meaningful: About 0.2 crore Amazon Pay cards have been issued, roughly 17% of total cards, and the propensity of Amazon card customers to spend is higher.
• TradeEmerge and ICICI STACK were launched: TradeEmerge offers banking and value-added services for cross-border trade to importers and exporters. ICICI STACK for corporates has created more than 20 industry-specific STACKs providing bespoke digital solutions.

Anup Bagchi: "I must say that customers are also tilting a bit towards us because of the brand and because of the positivity of the Bank at this point of time."

Portfolio & Segment Dynamics

• The overseas portfolio is being reshaped: The overseas loan portfolio declined 5.5% YoY, with the non-India linked corporate portfolio reduced by 57.8% YoY. The sequential increase was primarily due to an increase in the India-linked trade finance book.
• SME and business banking growth is structural: Growth is driven by market opportunity, sharp segment focus, greater branch leverage, streamlined processes for customer acquisition, onboarding and underwriting, strong technology and digital underpinning, and lending to existing current account customers who previously had no lending relationship.
• The ECLGS portfolio carries somewhat higher risk: The bank’s approach was to use the facility only with businesses where the model was not broken and where there was visibility on repayments. Delinquencies and overdues could be somewhat higher than the overall book, but nothing material slipped this quarter and management is not overly worried.
• Pre-owned car loans are a growing, managed mix: The proportion of pre-owned car loans is increasing and is an important component for car loan business profitability. The bank wants an optimal proportion given the higher risk.
• Credit card revolve rate is normalising: The revolve rate came down during the first and second Covid waves as customers pulled back, but is now coming up again. The third wave impact has not been very large, and festive season spends were very strong. Management expects the revolve rate to return to pre-Covid levels once the third wave passes.

Anup Bagchi: "From a consumer behaviour perspective, all I can say is that whenever there is a stress or fear the revolve rate actually comes down and not goes up, and customers don't sort of revolve that much, but as there is normalcy, as consumers get more confident the revolve rate actually goes up."

Capital, Subsidiaries & Regulatory Items

• ICICI General stake reduction has a hard deadline: The bank has an exemption to hold between 30% and 50% in ICICI General until September 2023, and must reduce its shareholding to 30% by that date through any available means. Management noted it could request an extension of that period.
• Subsidiary performance was mixed: ICICI Bank Canada’s PAT increased sequentially mainly due to a writeback of provisions. ICICI Home Finance’s PAT increased YoY mainly due to a decline in cost of funds and lower provisions. ICICI Life’s PAT declined in 9M, with a Q1 net loss of ₹186 cr primarily because of Covid-19 claims and IBNR provisions.
• Infra bonds raised ₹8,000 cr: The bonds carry no SLR or CRR requirement and provide a benefit on priority sector lending as the amount gets reduced from ANBC.
• Dividend income was boosted by subsidiaries: Dividend income of ₹603 cr included an interim dividend from ICICI General and higher interim dividends from ICICI Securities and ICICI AMC compared to Q3 last year.

Rakesh Jha: "We have got an exemption from the government through recommendation of RBI to hold between 30% and 50% till September of 2023. So, in the interim, we would need to reduce our shareholding to 30% in ICICI General."

Guidance & Commitments

Key Metrics