ICICI Bank Ltd Q3 FY2023 Concall Summary

Key Takeaways

• Core PPOP surged 31.6% YoY on NII growth of 34.6% and NIM expansion to 4.65%, but management expects NIMs to peak within a quarter or so as deposit repricing catches up.
• Provisioning policy tightened proactively: the bank accelerated provisioning norms for corporate, SME and business banking NPAs, adding ₹1,196 cr in provisions this quarter, while also building a ₹1,500 cr contingency buffer against an uncertain macro environment.
• Deposit growth lagged loan growth by roughly half, but management is emphatic that funding will not constrain loan growth, citing LCR of 123%-124% and the ability to use borrowings alongside deposits.
• Fee growth was muted at 3% YoY as the bank deliberately rationalized exit penalties on personal, auto and business banking loans to prioritize borrower relationships over upfront fee capture.
• What to watch next quarter: whether NIMs actually peak as guided, the pace at which cost of deposits rises, and whether the deliberate fee sacrifice translates into sustained relationship-led loan growth.

Profitability & Margin Dynamics

• NII and NIM surge: NII grew 34.6% YoY and domestic NIM reached 4.79%, driven by loan yields repricing faster than deposits in a rising rate cycle. The sequential NIM jump from 4.31% to 4.65% reflects this lag effect.
• The peak is near: Management expects NIMs to stabilize and peak within a quarter or so as deposit rates, which began rising more sharply from September, reprice with a lag. Cost of deposits already moved from 3.55% to 3.65% sequentially and is expected to rise at a sharper pace going forward.
• Cost-to-income settled around 40%: The ratio dropped to 38% this quarter on lower opex growth, but management expects it to stay in the 40% range and does not manage to that metric directly, preferring to focus on absolute PPOP growth.
• Opex as a controllable lever: Management views opex as a lever it can pull but will tolerate opex growth running ahead of revenue for a couple of quarters if the investments are sustainable, signaling no near-term cost-cutting to protect margins.

Batra: "In a rising rate environment, NIMs of the banks typically tend to rise as interest rates of loans linked to the external benchmark re-price faster. But, as the deposit rates also are getting re-priced, we do expect that somewhere the NIMs will stabilize… and then depending on how both the deposit and the interest rates, I mean they will probably peak within a quarter or so."

Provisioning & Asset Quality

• Provisioning norms tightened: The bank accelerated provisioning norms for corporate, SME and business banking NPAs, both in the period to reach 100% coverage and in earlier buckets, where it previously followed only RBI minimums. This added ₹1,196 cr in provisions this quarter. Retail and rural loans already followed more conservative norms.
• Contingency buffer built: An additional ₹1,500 cr contingency provision was taken this quarter, assessed based on trends in the global and Indian environment. Management calls it a prudent buffer within the strategic framework and will reassess quarterly with no specific target number.
• Gross slippages contained: Gross NPA additions of ₹5,700 cr were largely offset by recoveries and upgrades of ₹4,000 cr, yielding net additions of only ₹1,119 cr. Corporate slippages of about ₹800 cr came from the restructured portfolio, while retail slippages reflect ongoing churn in a large granular book where net levels remain low.
• KCC seasonality: Gross NPA additions included about ₹672 cr from the Kisan Credit Card portfolio, where higher additions are typical in Q1 and Q3 of a fiscal year due to the NPL recognition cycle.
• Resolution book shrinking: Total fund-based outstanding to standard borrowers under resolution declined to ₹4,987 cr (0.5% of loans) from ₹6,713 cr sequentially, driven by slippages into NPA and repayments. The BB and below rated portfolio similarly declined to ₹5,581 cr from ₹7,638 cr.
• ECL not a near-term concern: On the RBI's expected credit loss discussion paper, management's preliminary assessment is that ECL will not impact current provision levels or PCR under Indian GAAP, though final guidelines are awaited.

Batra: "This is for uncertain macro environment. As a prudent banker, we have made these provisions. That is about it."

Funding & Deposit Strategy

• Deposit growth gap contextualized: Deposits grew about half the pace of advances YoY, but management argues the YoY comparison misses that banks ran down significant excess liquidity in the first two quarters of the calendar year. Borrowings represent only 10-11% of funding accretion, with the balance from deposits, equity and profit.
• Retail deposit momentum improving: As retail deposit rates began moving up from September, the bank has seen a healthy increase in retail deposit accretion and that momentum is continuing, giving management confidence that funding will not constrain loan growth.
• Wholesale deposit discipline: ICICI was not a large taker in the wholesale deposit market when those rates moved up sharply from May, limiting the cost impact from that faster-repricing segment.
• Cost of funds trajectory: The impact of rising deposit costs should start showing up to some extent in Q4 and more so in Q1, while the December repo hike will play out on yields over Q4. The peak cost of funds will hit over a period of time, with some ability to manage through asset-liability mix and the investment portfolio.

Banerjee: "I think a lot of focus goes on this year-on-year deposit growth versus credit growth gap, which kind of misses the fact that the first 2 quarters of the calendar year were quarters when banks had and then ran down significant excess liquidity."

Loan Growth & Segment Dynamics

• Broad-based growth: Domestic loan book grew 21% YoY, with retail at 23.4%, SME at 25%, business banking at 37.9%, and domestic corporate at 18.2%. Overseas loans declined 22.1% in USD terms, primarily from maturities of short-term India-linked trade book.
• No segment targets: Management explicitly declined to name any segment it will push harder, calling growth numbers a byproduct of focusing on quality customers within the risk framework. The strategy is risk-calibrated growth across all parts of the economy.
• Retail momentum sustainable: Retail loan volumes are steady and that part of growth should sustain, with mortgages up 19.1%, auto up 22%, and personal loans and credit cards up 44.8% YoY. On the corporate side, management will wait and see, guided by risk-reward and profitability analysis rather than a loan growth target.
• Capex not moving the needle yet: Government and public sector capex is happening, and private sector investment is visible in real estate and some infrastructure, but not at a level to meaningfully shift domestic loan growth. Most corporates remain well-funded and liquid, able to invest without bank recourse.
• No sharp deceleration seen: Loan growth has been sustainably in high teens; system loan growth may come off a little from mid-to-higher teens, but management sees many levers in the balance sheet and P&L to achieve stable profitability.

Batra: "It is not about the segments classified by as a rural or SME or corporate. It is about the quality of the customer and who fits within our risk framework that we really focus on. The growth numbers are a byproduct. It is not our strategy."

Fee Income & Customer Strategy

• Fee growth muted at 3% YoY: Multiple factors depressed fee income: festival seasonality, de-growth in third-party distribution-led fees, competitive pressure on loan processing fees, and a deliberate rationalization of exit penalties. Adjusted for the penalty rationalization, fee growth would be a few percentage points higher.
• Exit penalties slashed: The bank reduced or substantially eliminated prepayment premiums and foreclosure charges on personal loans, seasoned auto loans, and business banking loans where the borrower has been with the bank for a couple of years. The stated rationale is that the borrower relationship matters more than upfront fee capture.
• Fee growth won't match loan growth soon: Management was explicit that fee growth will not reach the level of loan growth in a hurry, setting expectations for a structural gap between the two. Areas flagged for improvement include FX and transaction banking.
• Card strategy focused on quality, not share: Retail card spends are shaping up well, but management is not targeting a particular market share level, preferring higher quality spend growth. Commercial card market share has declined over the last couple of quarters.

Banerjee: "In certain products from our overall perspective of customer fairness, we have also rationalized or reduced substantially the exit penalties like the prepayment premiums and foreclosure charges on certain categories of loans… because it is the borrower relationship which is important."

Digital & Strategic Initiatives

• iMobile Pay open architecture: Approximately 0.86 cr activations by non-ICICI Bank account holders as of end-December, with transaction value by non-account holders in Q3 at 2.3x the prior year quarter. InstaBIZ saw about 215,000 registrations from non-ICICI Bank account holders.
• Industry STACKs expanding: The bank has created more than 20 industry-specific STACKs providing bespoke digital solutions to corporate clients and their ecosystems, including a newly launched real estate STACK covering the construction-to-leasing lifecycle.
• Trade digitalization progressing: About 71.2% of trade transactions were done digitally in Q3, with transaction value through Trade Online and Trade Emerge platforms up 59.3% YoY. Export-focused digital solutions covering discovery, finance, FX and incentives were also launched.
• Technology spend rising: Technology expenses were about 9.3% of operating expenses in 9M FY23, up from about 8.6% in FY2022, reflecting continued investment in digital and technology capabilities.
• CBDC participation: ICICI is among the four banks supporting the CBDC pilot; management described it as a capability-building exercise with nothing significant to share yet.

Guidance & Commitments

Key Metrics