ICICI Bank: Transcript for Analyst Call held on January 21, 2023

ICICI Bank Limited

Earnings conference call - Quarter ended December 31, 2022 (Q3-2023)

January 21, 2023

Certain statements in this release relating to a future period of time (including inter alia concerning our future business plans or growth prospects) are forward-looking statements intended to qualify for the 'safe harbor' under applicable securities laws including the US Private Securities Litigation Reform Act of 1995. Such forward looking statements involve a number of risks and uncertainties that could cause actual results to differ materially from those in such forward-looking statements. These risks and uncertainties include, but are not limited to statutory and regulatory changes, international economic and business conditions, political or economic instability in the jurisdictions where we have operations, increase in nonperforming loans, unanticipated changes in interest rates, foreign exchange rates, equity prices or other rates or prices, our growth and expansion in business, the adequacy of our allowance for credit losses, the actual growth in demand for banking products and services, investment income, cash flow projections, our exposure to market risks, changes in India's sovereign rating and the impact of the Covid-19 pandemic which could result in fewer business opportunities, lower revenues and an increase in the levels of non-performing assets and provisions, depending inter alia upon the period of time for which the pandemic extends, the remedial measures adopted by governments and central banks and the time taken for economic activity to resume at normal levels after the pandemic, as well as other risks detailed in the reports filed by us with the United States Securities and Exchange Commission. Any forward-looking statements contained herein are based on assumptions that we believe to be reasonable as of the date of this release. ICICI Bank undertakes no obligation to update forward-looking statements to reflect events or circumstances after the date thereof. Additional risks that could affect our future operating results are more fully described in our filings with the United States Securities and Exchange Commission. These filings are available at www.sec.gov.

This release does not constitute an offer of securities.

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Moderator:

Ladies and gentlemen, good day and welcome to ICICI Bank Limited Q3 FY2023 Earnings Conference Call. As a reminder all participant lines will be in the listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing '*' then '0' on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Sandeep Bakhshi - Managing Director and CEO of ICICI Bank. Thank you and over to you, Mr. Bakhshi.

Mr. Bakhshi's opening remarks

Good evening to all of you and welcome to the ICICI Bank Earnings Call to discuss the results for Q3 of FY2023. Joining us today on this call are Anup, Sandeep Batra, Rakesh, Anindya and Abhinek.

Amid the global uncertainties, India's GDP growth has been resilient. The pickup in economic activity is reflected in the expanding purchasing managers' indices, GST collections and other high frequency indicators. Financial stability has been maintained and inflation, though elevated, has moderated from its peak. We will continue to monitor these developments closely

At ICICI Bank, we aim to grow the core operating profit in a risk-calibrated manner through a 360-degreecustomer-centric approach and by focusing on ecosystems and micro- markets. We continue to operate within our strategic framework and strengthen our franchise, enhance our delivery and servicing capabilities and expand our technology and digital offerings.

Coming to the quarterly performance against this framework:

First- Growth in the core operating profit in a risk-calibrated manner through the focused pursuit of target market segments

The core operating profit increased by 31.6% year-on-year to 132.35 billion Rupees in this quarter. The profit after tax grew by 34.2% year-on-year to 83.12 billion Rupees in this quarter.

Second- Further enhancing our strong deposit franchise

Total period-end deposits grew by 10.3% year-on-year and 2.9% sequentially at December 31, 2022. Period-end term deposits grew by 14.2% year-on-year and 5.3% sequentially at December 31, 2022. During the quarter, the average CASA grew by 10.4% year-on-year and 2% sequentially. The liquidity coverage ratio for the quarter was about 123%.

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Third- Growing our loan portfolio in a granular manner with a focus on risk and reward

The retail loan portfolio grew by 23.4% year-on-year and 4.5% sequentially at December 31, 2022. Including non-fund based outstanding, the retail portfolio was 44.9% of the total portfolio. The business-banking portfolio grew by 37.9% year-on-year and 5.2% sequentially. The SME portfolio grew by 25% year-on-year and 8.3% sequentially. The growth in SME and business banking portfolios was driven by leveraging our branch network and digital offerings such as InstaBIZ and Merchant Stack. The domestic corporate portfolio grew by 18.2% year-on-year and 4.7% sequentially at December 31, 2022 driven by growth across well-rated financial and non-financial corporates. The rural portfolio grew by 12.5% year-on-year and 3.8% sequentially. The domestic loan portfolio grew by 21.4% year-on-year and 4.2% sequentially. The overall loan portfolio grew by 19.7% year-on-year and 3.8% sequentially at December 31, 2022.

Fourth-Leveraging digital across our business

We continue to enhance our digital offerings and platforms to onboard new customers in a seamless manner and provide them end-to-end digital journeys and personalised solutions. These platforms also enable us to do cross sell and up sell. We have shared some details on our technology and digital offerings in slides 17 to 28 of the investor presentation.

Fifth - Protecting the balance sheet from potential risks

The net NPA ratio declined to 0.55% at December 31, 2022 from 0.61% at September 30, 2022 and 0.85% at December 31, 2021. During the quarter, there were net additions of

11.19 billion Rupees to gross NPAs, excluding write-offs and sale. The provisioning coverage ratio on NPAs was 82% at December 31, 2022. The total provisions during the quarter were 22.57 billion Rupees or 17.1% of core operating profit and 0.93% of average advances. This includes contingency provision of 15 billion Rupees made on a prudent basis. The Bank holds contingency provisions of 115 billion Rupees or about 1.2% of total loans as of December 31, 2022.

As we have mentioned during the previous earnings calls, we aim to be proactive in provisioning with a key objective of strengthening our balance sheet. During the quarter, we have changed our provisioning norms on non-performing assets to make them more conservative for corporate, SME and business banking. This change resulted in higher provisions amounting to about 11.96 billion Rupees in Q3-2023.

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Sixth- Maintaining a strong capital base

The capital position of the Bank continued to be strong with a CET-1 ratio of 17.09%, Tier 1 ratio of 17.58% and total capital adequacy ratio of 18.33% at December 31, 2022, including profits for 9 months 2023.

Looking ahead, we will continue to focus on growing the core operating profit in a risk- calibrated manner. We will work as one team by facilitating cross-functional collaboration to tap into key customer and market segments, enabling 360-degree coverage and increase in wallet share. We will continue to make investments in technology, people, distribution and building our brand. The principles of "Fair to Customer, Fair to Bank" and "One Bank, One Team, One RoE" will guide our operations. We focus on building a culture where every employee in the Bank serves customers with humility and upholds the values of the brand ICICI. We aim to be the trusted financial services provider of choice for our customers and deliver sustainable returns to our shareholders.

I now hand the call over to Anindya.

Anindya's opening remarks

Thank you, Sandeep. I will talk about balance sheet growth, credit quality, P&L details, growth in digital offerings, portfolio trends and performance of subsidiaries.

A. Balance Sheet growth

Sandeep covered the loan growth across various segments. Coming to the growth across retail products, the mortgage portfolio grew by 19.1% year-on-year and 4% sequentially. Auto loans grew by 22% year-on-year and 5.9% sequentially. The commercial vehicles and equipment portfolio grew by 3.4% year-on-year and 1.1% sequentially. Growth in the personal loan and credit card portfolio was 44.8% year-on-year and 7.2% sequentially. This portfolio was 1,154.78 billion Rupees or 11.9% of the overall loan book at December 31, 2022.

The overseas loan portfolio, in US dollar terms, declined by 22.1% year-on-year and 8.7% sequentially at December 31, 2022. The decline in the overseas book primarily reflects maturities of the short-termIndia-linked trade book. The overseas loan portfolio was about 3.6% of the overall loan book at December 31, 2022. The non-India linked corporate portfolio declined by 42.8% or about 285 million US dollars on a year-on-year basis. Of the overseas corporate portfolio, about 86% comprises Indian corporates, 8% is overseas corporates with Indian linkage, 3% comprises companies owned by NRIs or PIOs and balance 3% is non-India corporates.

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On the liabilities side, Sandeep covered the growth in deposits. During the quarter, we raised long-term infrastructure bonds as well as refinance borrowings from domestic financial institutions. Overseas borrowings declined reflecting the reduction in assets. We also had bond maturities arising out of older capital instruments during the quarter.

B. Credit quality

There were net additions of 11.19 billion Rupees to gross NPAs in the current quarter compared to 6.05 billion Rupees in the previous quarter. The net additions to gross NPAs were 9.75 billion Rupees in the retail, rural and business banking portfolios and 1.44 billion Rupees in the corporate and SME portfolio.

The gross NPA additions were 57.23 billion Rupees in the current quarter compared to

43.66 billion Rupees in the previous quarter. The gross NPA additions from the retail, rural and business banking portfolio were 41.59 billion Rupees and from the corporate and SME portfolio were 15.64 billion Rupees. There were gross NPA additions of about 6.72 billion Rupees from the Kisan Credit Card portfolio in the current quarter. We typically see higher NPA additions from the Kisan Credit Card portfolio in the first and third quarter of a fiscal year. Corporate and SME gross NPA additions includes 8.05 billion Rupees on account of borrowers that were under resolution at September 30, 2022. The Bank held about 35% provisions against these borrowers.

Recoveries and upgrades from gross NPAs, excluding write-offs and sale, were 46.04 billion Rupees in the current quarter compared to 37.61 billion Rupees in the previous quarter. There were recoveries and upgrades of 31.84 billion Rupees from the retail, rural and business banking portfolio and 14.20 billion Rupees from the corporate and SME portfolio. The gross NPAs written-off during the quarter were 11.62 billion Rupees. There was no sale of NPAs in the current quarter compared to 0.94 billion Rupees of NPAs sold on a cash basis in the previous quarter.

Net NPAs declined by 23.1% year-on-year and 7.3% sequentially to 56.51 billion Rupees at December 31, 2022.

The non-fund based outstanding to borrowers classified as non-performing was 38.69 billion Rupees as of December 31, 2022 compared to 35.16 billion Rupees as of September 30, 2022. The Bank holds provisions amounting to 19.93 billion Rupees as of December 31, 2022 against this non-fund based outstanding.

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