ICICI Bank Ltd Q3 FY2024 Concall Summary

Key Takeaways

• NIM compressed as guided, full-year promise held: Domestic NIM fell to 4.43% from 4.53% QoQ, driven by the lagged pass-through of term deposit repricing. Management reiterated that FY24 NIM will be broadly flat vs FY23, implying only a small further dip in Q4.
• Asset quality is normalising, not deteriorating: Gross NPA additions rose to ₹5,482 crore in retail and rural, but ₹617 crore was seasonal KCC slippage and the rest reflects a portfolio that is growing and seasoning. Corporate and SME net deletions were ₹1,939 crore.
• Unsecured lending is being deliberately slowed: The bank refined credit parameters, cut sourcing in higher-delinquency cohorts, rationalised sourcing payouts and raised PL pricing 20–25 bps. Personal loan sequential growth moderated to 6.4% from 10.2%, and management expects further moderation.
• A ₹627 crore AIF provision hit the P&L but is called an accounting entry: The RBI circular on AIF investments drove a one-time provision that management says has no economic impact and has been fully taken. Total provisions were ₹1,050 crore.
• What to watch next quarter: Whether the guided Q4 NIM compression is as small as promised, the pace of retail slippage normalisation, and how much further personal loan growth decelerates.

Margin Trajectory & Deposit Costs

• The NIM walk: Domestic NIM fell 9 bps QoQ to 4.52% and 27 bps YoY from 4.79%. The entire sequential decline reflects the lagged impact of term deposit rate increases flowing through the cost of deposits.
• Cost of deposits still rising: Cost of deposits moved from 4.53% to 4.72% sequentially. Wholesale deposit rates hardened in Q3 as system liquidity turned negative, visible in CD rates and high-value deposit pricing. Retail deposit rates have been stable at what management calls peak levels.
• The repricing tail: Most of the TD repricing should be done in Q4, with some residual flow into Q1. Management expects the pace of cost-of-deposit increase to slow from the current run rate.
• Full-year NIM commitment intact: The bank maintains that FY24 NIM will be broadly at the same level as FY23. That implies some further compression in Q4, but "much lower than what we have seen." Q3 compression was already smaller than Q2's.
• Yield on advances was stable despite the KCC non-accrual drag, because decent growth in mortgages, auto and competitive corporate pricing kept yields broadly flat. Any mix benefit from higher-yielding portfolios was offset by the KCC interest reversal.

Banerjee: "We have said in the past that we expect the full year margin of this year to be at a similar level as of last year, and that implies some further margin compression in Q4, but it should be much lower than what we have seen."

Asset Quality: Normalisation, Not Alarm

• Retail and rural drove the NPA addition: Gross NPA additions in retail, rural and business banking rose to ₹5,482 crore from ₹4,364 crore QoQ, with net additions of ₹2,302 crore. Management attributes this to portfolio growth and seasoning, not a specific product stress.
• KCC seasonality is structural: About ₹617 crore of the addition came from the Kisan Credit Card portfolio, where higher NPAs are typical in Q1 and Q3 every year. The associated interest reversal also weighed on yields.
• Corporate and SME book kept improving: Gross additions were only ₹232 crore vs ₹323 crore QoQ, while recoveries and upgrades hit ₹2,171 crore vs ₹1,552 crore. Net deletions were ₹1,939 crore. One or two large corporate upgrades this quarter provided a provisioning benefit that was offset by the AIF provision.
• Credit cost outlook is gradual, not spiky: Management sees nothing imminently causing credit cost to spike and expects a gradual normalisation upwards. Adjusted credit cost, excluding the chunky corporate upgrade and AIF provisioning, remained below 50 bps of loans and about 10% of PPOP.
• Builder portfolio improved: Exposure rose to ₹45,685 crore from ₹43,058 crore, but the BB and below plus NPA portion improved from 3.5% to 3.1%. The portfolio is largely well-established builders.

Banerjee: "I think it's really spread across products, and if you look at the delta relative to the size of the portfolio, it is not particularly meaningful."

Unsecured Lending: A Deliberate Slowdown

• The RBI nudge was acted on: After the RBI's comments on unsecured credit, the bank assessed its portfolio, refined credit parameters and optimised sourcing costs. Disbursements fell during the quarter vs the previous quarter.
• Personal loan growth moderated: Sequential growth dropped to 6.4% from 10.2% in Q2. Management expects growth to moderate further from current levels.
• The playbook is surgical, not blanket: The bank identified origination markers of higher-delinquency cohorts and cut origination in those segments. It also rationalised sourcing payouts and moved PL pricing up 20–25 bps. The P&L impact should be limited because lower sourcing cost and reduced exposure to bad cohorts should improve profitability and credit costs.
• No comment on vintage-level trends: When asked whether recent origination vintages show different delinquency patterns, management declined to comment, saying only that the markers they look at are customer characteristics, not time of origination.
• The philosophy is pricing discipline over volume: Management stated it is "not particularly focused on loan growth" and is therefore able to calibrate pricing decisions without being hostage to volume targets.

Banerjee: "In any portfolio you have certain cohorts which contribute more to the delinquencies and you try to figure out what are the origination markers of those cohorts and then cut origination in those particular segments, which is what we've done and we've also rationalised, for example, sourcing payouts as well as we've moved our pricing on personal loans by maybe 20, 25 basis points."

Provisions: The AIF Accounting Entry

• Total provisions were ₹1,050 crore, of which ₹627 crore was the provision on AIF investments per the recent RBI circular. The bank has "pretty much provided the entire amount" of its AIF investments.
• Management calls it economically meaningless: The provision is described as "more an accounting entry" with no economic impact expected. Recoveries and write-backs occurred during the quarter, but their benefit was substantially offset by the AIF provision.
• No hurry to exit AIFs: The bank will consider liquidating AIF investments "if there are opportunities at various points of time" but is "not at all" hurried. Decisions will be based on economic benefits for shareholders, not accounting benefits.
• Provisioning coverage on NPAs stood at 80.7%.

Batra: "From an economic point of view, this is more an accounting entry we have to provide. And we have pretty much provided the entire amount of our investments in AIF. Economically, it doesn't really matter too much."

Balance Sheet & Capital

• Deposit and loan growth were balanced: Management sees no challenge in funding the current level of loan growth. Deposit growth kept pace, with retail term deposits growing 31.2% YoY.
• CASA ratio moderated, as it did across the system: Period-end CASA rose 3.8% YoY and 0.1% sequentially. Average CASA rose 5.3% YoY. The bank is doing relatively better on the current account side due to payment products and platforms generating float; the SA side is more a function of interest rates and consumption. No clear view on when CASA bottoms out.
• CD ratio at 86% is not a concern: Management argues CD ratio must be viewed alongside LCR (~120%, well above the regulatory minimum) and NSFR. On the domestic balance sheet, the CD ratio has hovered around the mid-80s except during periods of very high liquidity and very low loan growth like the pandemic.
• Capital adequacy dipped on regulatory change, not stress: The marginal dip from 16.7% to 16.03% (including profits) largely reflects RBI's changed risk-weight norms on certain asset segments. About 70 bps of the drop was the risk-weight change; the rest was normal quarter-end movement.
• Government deposits are not a CASA tailwind: The government is becoming progressively more efficient in managing its finances, so the bank does not rely on idle government money sitting in CASA form. The focus is on providing digital solutions for cash flow management.

Banerjee: "The government is also becoming progressively more efficient in terms of the way in which it manages its finances. So, I don't think one can rely too much on idle government money lying with you in CASA form."

Operating Expenses & Headcount

• Employee expenses rose 30.5% YoY, driven by headcount additions from the second half of FY23 onwards. However, net headcount addition slowed sharply to ~1,700 in Q3 vs 10,000–11,000 in the first half.
• The hiring pace will moderate: Management stated it would not be adding headcount at the same pace as the previous four to five quarters, which will flow through into operating expenses going forward.
• Non-employee expenses rose 17.8% YoY, primarily on retail business-related and technology spends. Advertising and sales promotion expenses grew on the higher side YoY because festive season spends were concentrated in Q3 this year vs split over Q2 and Q3 last year.
• Branch expansion has no fixed target: The bank follows a bottom-up approach and is not holding back on branch openings, but has no particular target for FY2025.

Banerjee: "We would not be probably looking at adding the kind of headcount at the same pace. So, that will play through into the operating expenses as we go ahead."

Guidance & Commitments

Key Metrics