ICICI Bank Ltd Q2 FY2024 Concall Summary

Key Takeaways

• Profit surge despite NIM compression: Core operating profit less provisions grew 35.7% YoY to ₹13,731 crore, while NIM compressed 25 bps sequentially to 4.53% as deposit repricing bit.
• Asset quality is a non-event this quarter: Net additions to gross NPAs were just ₹116 crore, down from ~₹1,800 crore in Q1, helped by the seasonal absence of Kisan Credit Card slippages and strong corporate recoveries.
• Deposit mix shift is the core margin story: Term deposits grew 31.8% YoY while average savings deposits grew only 4.5% YoY, pushing the cost of deposits up 22 bps sequentially and driving the NIM decline.
• Unsecured lending is under the microscope, but management is comfortable: The ₹1 lakh crore personal loan book is 85% salaried, and the bank has no meaningful presence in the sub-₹50,000 ticket segment where industry risk is building.
• What to watch next quarter: Whether the sequential NIM moderation actually slows as guided, any sign of stress migrating up the unsecured ticket-size ladder, and the pace of branch expansion relative to the 350 added in H1.

Margin Trajectory & Deposit Dynamics

• NIM compression drivers: The 25 bps sequential decline to 4.53% came from the lagged repricing of term deposits raised over the prior year, plus small technical hits from the absence of interest on income tax refunds (2-3 bps), ICRR (1-2 bps), and a day-count effect. Lending yields fell only 5 bps, largely a computational artefact of Q2 having one more day than Q1.
• Deposit mix shift is structural, not cyclical: The spread between savings account rates and term deposit rates has widened enough to push customers toward retail term deposits. Management focuses on the total liability franchise (CA + SA + term deposits), not just the CASA ratio, and retail deposit rates have been stable for the last couple of quarters.
• Lending yields are under competitive pressure: The benefit of repo rate increases on external benchmark-linked loans has fully played out, and policy rates are on pause. Management noted significant pricing competition across all segments, from corporate through SME to retail, and would like to increase rates on every loan category but cannot.
• Full-year NIM guidance: Management expects margins to moderate further from the Q2 level, though the extent of moderation could be somewhat lower, and full-year NIM should be at a similar level to FY23.

Anindya Banerjee: "We would continue to expect to see some increase in the cost of deposits on the book, and therefore some moderation in margins over the next quarter or so as well, as we have articulated in the past, but on a full year basis, we continue to expect that the margins would be at a similar level as they were in FY23."

Asset Quality: Clean Quarter, Seasonal Help

• Net NPA additions collapsed to ₹116 crore: Gross additions of ₹4,687 crore were lower than Q1's ₹5,300 crore, and recoveries and upgrades of ₹4,571 crore nearly offset them. Corporate and SME were net deletors (₹1,229 crore of net deletions), while retail, rural and business banking contributed ₹1,345 crore of net additions.
• Kisan Credit Card seasonality flattered the print: Rural NPL classification is linked to cropping-cycle due dates, so formation typically occurs in Q1 and Q3. Q2 saw very little rural NPL formation, and Q1 had seen elevated additions. This pattern will repeat.
• Unsecured portfolio quality is stable, for now: The ₹1 lakh crore personal loan book and ₹43,000 crore credit card book show delinquency levels that are not disturbing management. The bank has been progressively migrating toward the upper end of the customer spectrum and restricts origination for customers with multiple live unsecured loans.
• The low-ticket risk is elsewhere: Management explicitly called out the sub-₹50,000 segment as where industry risk is building, citing constrained affordability and repayment capacity, and stated the bank has no meaningful presence there.
• BB and below pool grew on a technicality: The increase in BB and below outstanding (₹4,789 crore vs ₹4,276 crore) came from the upgrade of one borrower from non-performing status, not from fresh deterioration. Provisions on this portfolio more than doubled to ₹817 crore.
• Contingent provisions untouched: The ₹13,100 crore contingent provision buffer was carried forward with no drawdown this quarter.

Sandeep Batra: "The risk buildup is happening in segments in low-ticket size, which is ₹50,000 and below, where affordability and the repayment capacity might be constrained. As far as the Bank is concerned, we do not have any meaningful presence in this segment."

Loan Growth: Broad-Based, Not Unsecured-Dependent

• Growth is coming from everywhere: Retail grew 21.4% YoY, business banking 30.3% YoY, SME 29.4% YoY, rural 17.3% YoY, and domestic corporate 15.3% YoY. Home loans grew 16.2% YoY.
• Secured lending is the backbone: Mortgages, auto, commercial vehicles, SME and business banking are all growing well. Management emphasised the bank is not reliant on personal loans for growth and can prune unsecured exposure by a percentage point or two if credit conditions turn unfavourable.
• Corporate lending stance is opportunistic, not fixated: Corporate India is cash-rich and using internal accruals for brownfield investments, so bank borrowing may not pick up until the capex cycle accelerates significantly. Management will fund any financially viable project when it arises, without targeting a specific corporate vs retail mix.
• NBFC/HFC exposure is shrinking: Total outstanding to NBFCs and HFCs declined to ₹83,749 crore from ₹87,418 crore sequentially, representing about 8% of advances.

Sandeep Batra: "We are not fixated about whether lending is happening within the corporate or SME or retail. Wherever there is growth, we are happy to fund it."

Unsecured Lending: The Debate

• Portfolio composition is defensively positioned: 85% of the unsecured portfolio is salaried employees with stable income. The bank has been focusing progressively more on the upper end of the customer spectrum over recent quarters.
• Early-warning signals are fast: Because the bank writes off unsecured loans within 120 days of overdue, any risk buildup shows up quickly in the numbers. So far, delinquency levels are within defined risk thresholds and CIBIL distribution is stable.
• Pricing has compressed meaningfully: Personal loan rates have come off over the last few years driven by favourable credit experience and the entry of new players. The portfolio remains profitable, but the pricing environment is competitive.
• Management declined to share key underwriting metrics: Analysts asked for average ticket size, approval rates, and whether internal credit filters have been diluted. Management declined to answer each, saying only that filters have not been diluted and that the bank is comfortable with its underwriting.
• The systemic risk question is unanswered: Management acknowledged that a significant increase in personal loan delinquencies would have implications for other parts of the portfolio, but did not elaborate on what early indicators would trigger a portfolio recalibration.

Anindya Banerjee: "If we start seeing significant increase in delinquencies on personal loans that would have implications for other parts of the portfolio as well, potentially."

Franchise Building: Branches, People, Technology

• Branch expansion is accelerating: 174 branches added in Q2, 350 in H1, and 634 over the last 12 months, taking the total network to 6,248 branches. Expansion is based on an internal assessment of opportunity in each micro-market, not on what competitors are doing.
• Headcount is growing in lockstep: ~4,000 employees added in Q2 and ~29,000 over the last 12 months, taking the total to ~139,000. Employee expenses rose 29.0% YoY.
• Technology spend is ~9.2% of operating expenses in H1 FY24, funding digital platforms, industry-specific STACKs, and an industry-first blockchain trade finance transaction for real-time electronic Bill of Lading.
• Digital adoption metrics are strong: iMobile Pay crossed 1 crore activations by non-ICICI account holders, UPI merchant acquiring value rose 69.5% YoY, ~30% FASTag market share, and 71% of trade transactions are now done digitally.
• The Merchant STACK is a new growth vector: Launched this quarter, it offers digital current account opening, instant overdraft based on POS transactions, connected banking, and digital store management to retailers, online businesses and large e-commerce firms.

Guidance & Commitments

Key Metrics