Prepared remarks
Ladies and gentlemen, good day, and welcome to ICICI Bank Limited Q3 FY '24 Earnings Conference Call. 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, sir.
Thank you. Good evening to all of you, and welcome to the ICICI Bank earnings call to discuss the results for Q3 of financial year '24. Joining us today on this call are Sandeep Batra, Rakesh, Ajay, Anindya, and Abhinek. The Indian economy continues to remain resilient with upward revision in the GDP growth estimate for financial year '24 by RBI, reflecting the consistent actions and initiatives of the policymakers. As the liquidity and interest rate environment evolves, we would continue to monitor the developments closely. At ICICI Bank, our strategic focus continues to be on growing our core operating profit, less provisions, i.e., profit before tax, excluding treasury through the 360-degree customer-centric approach and by serving opportunities across ecosystems and micro-markets. We continue to operate within our strategic framework to strengthen our franchise and expand our technology and digital offerings, maintaining high standards of governance, deepening coverage, and enhancing delivery capabilities are our focus areas for risk-calibrated profitable growth.
The profit before tax, excluding treasury, grew by 23.4% year-on-year to INR 135.51 billion in this quarter. The core operating profit increased by 10.3% year-on-year to INR 146.01 billion in this quarter. The profit after tax grew by 23.6% year-on-year to INR 102.72 billion in this quarter. Total deposits grew by 18.7% year-on-year and 2.9% sequentially at December 31, 2023. Term deposits increased by 31.2% year-on-year and 4.9% sequentially at December 31, 2023. During the quarter, the average current and savings account deposits grew by 5.3% year-on-year and 0.2% sequentially. The bank's average liquidity coverage ratio for the quarter was about 121%. The domestic loan portfolio grew by 18.8% year-on-year and 3.8% sequentially at December 31, 2023. The retail loan portfolio grew by 21.4% year-on-year and 4.5% sequentially. Including non-fund-based outstanding, the retail portfolio was 46.4% of the total portfolio.
The business banking portfolio grew by 31.9% year-on-year and 6.5% sequentially. The SME portfolio grew by 27.5% year-on-year and 6.7% sequentially. The rural portfolio grew by 18.2% year-on-year and 4.6% sequentially. The domestic corporate portfolio grew by 13.3% year-on-year and 2.9% sequentially, driven by growth across well-rated financial and non-financial corporates. The overall loan portfolio, including the international branches portfolio, grew by 18.5% year-on-year and 3.9% sequentially at December 31, 2023. We continue to enhance our digital offerings and platforms to onboard new customers in a seamless manner, provide them end-to-end journeys and solutions, and enable more effective data-driven cross-sell and upsell. We have shared some details on the technology and digital offerings in Slides 15 to 26 of the investor presentation. The net NPA ratio was 0.44% at December 31, 2023, compared to 0.43% at September 30, 2023, and 0.55% at December 31, 2022.
During the quarter, there were net additions of INR 3.63 billion to gross NPAs, excluding write-offs and sales. The total provisions during the quarter were INR 10.5 billion or 7.2% of core operating profit and 0.36% of average advances. The provisioning coverage ratio on NPAs was 80.7% at December 31, 2023. In addition, the bank continues to hold contingency provision of INR 131 billion or about 1.1% of total loans at December 31, 2023. The capital position of the bank continued to be strong with the CET1 ratio of 16.03%, Tier 1 ratio of 16.03%, and total capital adequacy of 16.70% at December 31, 2023, including profits for the 9 months ended December 31, 2023. This includes the impact of recent regulatory guidelines on increasing the risk based on consumer loans and credit to NBFCs. Looking ahead, we see many opportunities to drive risk-calibrated profitable growth. We believe our focus on Customer 360, extensive franchise, and collaboration within the organization backed by our digital offerings, process improvements, and service delivery initiatives will enable us to deliver holistic solutions to customers in a seamless manner and grow market share across key segments.
We continue to make investments in technology, people, distribution, and building our brand. We remain focused on maintaining the strong balance sheet with prudent provisioning and healthy levels of capital. The principles of return of capital, fair to customer, fair to bank, and one bank, one team, one ROE will continue to guide our operations. We remain focused on delivering consistent and predictable returns to our shareholders. I now hand the call over to Anindya.
Thank you, Sandeep. I will talk about loan growth, credit quality, P&L details, growth in digital offering, portfolio trends, and performance of subsidiaries. Starting with loan growth, Sandeep covered the loan growth across various segments. Coming to the growth across retail products, the mortgage portfolio grew by 15.9% year-on-year and 3.7% sequentially. Auto loans grew by 22.5% year-on-year and 4.5% sequentially. The commercial vehicles and equipment portfolio grew by 14.8% year-on-year and 3.3% sequentially. Personal loans grew by 37.3% year-on-year and 6.4% sequentially compared to 40.4% year-on-year and 10.2% sequentially at September 30, 2023. The bank worked on increasing pricing, further refining credit parameters, and optimizing sourcing costs, resulting in lower disbursements of personal loans during the quarter as compared to the previous quarter. The credit card portfolio grew by 39.5% year-on-year and 11.5% sequentially.
The personal loans and credit card portfolio were 9.4% and 4.1% of the overall loan book, respectively, at December 31, 2023. The overseas loan portfolio in U.S. dollar terms increased by 9.8% year-on-year at December 31, 2023. The overseas loan portfolio was about 3.4% of the overall loan book. The non-India linked corporate portfolio declined by 30.4% or about USD 116 million on a year-on-year basis. Of the overseas corporate portfolio, about 92% comprises Indian corporates, 4% to overseas corporates with Indian linkage, 2% comprises companies owned by NRIs or PIOs, and the balance 2% is non-India corporate. Moving on to credit quality. There were net additions of $3.63 billion to gross NPAs in the current quarter compared to INR 1.16 billion in the previous quarter. The net additions to gross NPAs were INR 23.02 billion in the retail, rural, and business banking portfolio, and there were net deletions of gross NPAs of INR 19.39 billion in the corporate and SME portfolio.
The gross NPA additions were INR 57.14 billion in the current quarter compared to INR 46.87 billion in the previous quarter. Recoveries and upgrades from gross NPAs, excluding write-offs and sales, were INR 53.51 billion in the current quarter compared to INR 45.71 billion in the previous quarter. The gross NPA additions from the retail, rural, and business banking portfolio were INR 54.82 billion in the current quarter compared to INR 43.64 billion in the previous quarter. There were gross NPA additions of about INR 6.17 billion 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. Recoveries and upgrades from the retail, rural and business banking portfolio were INR 31.8 billion compared to INR 30.19 billion in the previous quarter. The gross NPA additions from the corporate and SME portfolio were INR 2.32 billion compared to INR 3.23 billion in the previous quarter.
Recoveries and upgrades from the corporate and SME portfolio were INR 21.71 billion compared to INR 15.52 billion in the previous quarter. The gross NPAs written off during the quarter were INR 13.89 billion. There was sale of NPAs worth INR 0.36 billion in the current quarter compared to INR 1.79 billion in the previous quarter. The sale of NPAs includes INR 0.29 billion in cash and INR 0.07 billion of security receipts. As these NPAs were fully provided, we continue to hold provisions against the security receipt. The non-fund based outstanding to borrowers classified as non-performing was INR 36.94 billion as of December 31, 2023, compared to INR 38.86 billion as of September 30, 2023. The bank holds provisions amounting to INR 20.61 billion against this non-fund based outstanding. The total fund-based outstanding towards standard borrowers under resolution as per various guidelines declined to INR 33.18 billion or about 0.3% of the total loan portfolio at December 31, 2023, from INR 35.36 billion at September 30, 2023.
Of the total fund-based outstanding under resolution at December 31, 2023, INR 27.82 billion was from the retail, rural, and business banking portfolio and INR 5.36 billion was from the corporate and SME portfolio. The bank holds provisions of INR 10.32 billion against these borrowers, which is higher than the requirement as per RBI guidelines. Moving on to the P&L details. Net interest income increased by 13.4% year-on-year to INR 186.78 billion. The net interest margin was 4.43% in this quarter compared to 4.53% in the previous quarter and 4.65% in Q3 of last year. The sequential movement in NIM reflects the lagged impact of increase in term deposit rates over the last year on the cost of deposits. The impact of interest on income tax refund on net interest margin was 4 basis points in Q3 of this year compared to nil in the previous quarter and in Q3 of last year. The domestic NIM was at 4.52% this quarter compared to 4.61% in the previous quarter and 4.79% in Q3 of last year.
The cost of deposits was 4.72% in this quarter compared to 4.53% in the previous quarter. Of the total domestic loans, interest rates on 49% are linked to the repo rate, 2% to other external benchmarks, and 18% to MCLR and other older benchmarks. The balance 31% of loans have fixed interest rates. Non-interest income, excluding treasury, grew by 19.8% year-on-year to INR 59.75 billion in Q3 of 2024. Fee income increased by 19.4% year-on-year to INR 53.13 billion in this quarter. Fees from retail, rural, business banking, and SME customers constituted about 79% of the total fees in this quarter. Dividend income from subsidiaries and associates was INR 6.5 billion in this quarter compared to INR 5.16 billion in Q3 of last year. So year-on-year increase in dividend income was primarily due to higher interim dividend from ICICI Securities, ICICI Prudential Asset Management, and ICICI Securities Primary Dealership.
On costs, the bank's operating expenses increased by 22.3% year-on-year in this quarter. Employee expenses increased by 30.5% year-on-year in this quarter, reflecting mainly the increase in the employee base from the second half of fiscal 2023 onwards. The bank had about 141,000 employees at December 31, 2023. The number of employees has increased by about 23,600 in the last 12 months and about 1,700 in the current quarter. Non-employee expenses increased by 17.8% year-on-year in this quarter, primarily due to retail business-related and technology expenses. Our branch count has increased by 123 in Q3 of 2024, and we had 6,371 branches as of December 31, 2023. The technology expenses were about 9% of our operating expenses in the 9 months ended December 31, 2023. The core operating profit increased by 10.3% year-on-year to INR 146.01 billion in this quarter. Excluding dividend income from subsidiaries and associates, the core operating profit grew by 9.7% year-on-year.
The total provisions during the quarter were INR 10.5 billion or 7.2% of core operating profit and 0.36% of average advances compared to INR 5.83 billion in the previous quarter. The provisions during the quarter included the impact of INR 6.27 billion, pursuant to the recent RBI circular on investments in alternative investment funds. The provisioning coverage on NPAs was 80.7% as of December 31, 2023. In addition, we hold INR 10.32 billion of provisions on borrowers under resolution. Further, the bank continues to hold contingency provision of INR 131 billion as of December 31, 2023. At the end of December, the total provisions, other than specific provisions on fund-based outstanding to borrowers classified as non-performing, were INR 230.25 billion or 2% of loans. The profit before tax, excluding treasury, grew by 23.4% year-on-year to INR 135.51 billion in Q3 of this year. There was a treasury gain of INR 1.23 billion in Q3 compared to INR 0.36 billion in Q3 of the previous year.
The tax expense was INR 34.02 billion in this quarter compared to INR 27.02 billion in the corresponding quarter last year. The profit after tax grew by 23.6% year-on-year to INR 102.72 billion in this quarter. Growth in digital offerings, leveraging digital and technology across businesses is a key element of our strategy of growing the risk-calibrated core operating profit. We continue to see increasing adoption and usage of our digital platform by our customers. There have been more than 10 million activations of iMobile Pay by non-ICICI Bank account holders at the end of December 2023. Our Merchant STACK offers an array of banking and value-added services to retailers, online businesses, and large e-commerce firms, such as the digital current account opening, interest overdraft facilities based on point-of-sale transactions, connected banking services, and digital store management, among others.
We have created more than 20 industry-specific stacks, which provide bespoke and purpose-based digital solutions to corporate clients and their ecosystem. Our Trade Online and Trade Emerge platforms allow customers to perform most of their trade finance and foreign exchange transactions digitally. Our digital solutions integrate the import transaction life cycle with solutions providing a frictionless experience to the clients and simplify customer journey. About 72% of trade transactions were done digitally in Q3 of 2024. The volume of transactions through the Trade Online platform in Q3 of 2024 grew by 26.2% year-on-year. We have further simplified cross-border remittance journeys with new enhancements. SmartIRM is a multiparty cross-border inward remittance solution with virtual account architecture, enhanced security features, and remittance reconciliation with payer identification. SmartORM enables pre-vetting of outward remittance transactions to ensure error-free submission before booking foreign exchange deals. iLens, the retail lending platform, currently enabled for mortgages is being upgraded on an ongoing basis with new features, such as integration with account aggregator, opening of instant paperless savings bank accounts for newly onboarded mortgage customers, and instant property valuation reports for select developers to provide enhanced customer experience and serve the customers' 360-degree needs digitally.
Moving on, we have provided details on our retail business banking and SME portfolio in Slide 32 to 43 of the investor presentation. The loan and non-fund based outstanding to performing corporate and SME borrowers rated BB and below was INR 58.53 billion at December 31, 2023, compared to INR 47.89 billion at September 30, 2023, and INR 55.81 billion at December 31, 2022. This portfolio is about 0.5% of our advances at December 31, 2023. Other than two accounts, the maximum single borrower outstanding in the BB and below portfolio was less than INR 5 billion at December 31, 2023. At December 31, 2023, we held provisions of INR 9.25 billion on the BB and below portfolio compared to INR 8.17 billion at September 30, 2023. This includes provisions held against borrowers under resolution included in this portfolio. The total outstanding to NBFCs and HFCs was INR 784.84 billion at December 31, 2023, compared to INR 837.49 billion at September 30, 2023.
The total outstanding loans to NBFCs and HFCs were about 6.8% of our advances at December 31, 2023. The builder portfolio, including construction finance, lease rental discounting, term loans, and working capital was INR 456.85 billion at December 31, 2023, compared to INR 430.58 billion at September 30, 2023. The builder portfolio is about 4% of our total loan portfolio. Our portfolio largely comprises well-established builders, and this is also reflected in the sequential increase in the portfolio. About 3% of the builder portfolio at December 31, 2023, was either rated BB and below internally or was classified as non-performing compared to 3.5% at September 30, 2023. Moving on to the consolidated results. The consolidated profit after tax grew by 25.7% year-on-year to INR 110.53 billion in this quarter. The details of the financial performance of subsidiaries and key associates are covered in Slides 46 to 49 in the investor presentation.
The annualized premium equivalent of ICICI Life was INR 54.3 billion in the 9 months ended December 31, 2023, compared to INR 53.41 billion in the 9 months of last year. The value of the new business margin was 26.7% in the 9 months ended December 31, 2023, compared to 32% in the 9 months of last year and 32% in fiscal 2023. The value of new business was INR 14.51 billion in the 9 months ended December 31, 2023, compared to INR 17.1 billion in the 9 months of last year. The profit after tax of ICICI Life was INR 6.79 billion in the 9 months ended December 31, 2023, compared to INR 5.76 billion in the 9 months of last year and INR 2.27 billion in Q3 of 2024 compared to INR 2.21 billion in Q3 of 2023. The gross direct premium income of ICICI General was INR 62.3 billion in this quarter compared to INR 54.93 billion in the same quarter last year. The combined ratio stood at 103.6% in Q3 of 2024 compared to 104.4% in Q3 of 2023.
Excluding the impact of cat losses, the combined ratio was 102.3% in this quarter. The profit after tax was INR 4.31 billion in this quarter compared to INR 3.53 billion in Q3 last year. The profit after tax for ICICI AMC as per Ind AS was INR 5.46 billion in this quarter compared to INR 4.20 billion in Q3 of last year. The profit after tax of ICICI Securities as per Ind AS on a consolidated basis was INR 4.66 billion in this quarter compared to INR 2.81 billion in Q3 of last year. ICICI Bank Canada had a profit after tax of CAD 15.9 million in this quarter compared to CAD 11.5 million in Q3 last year. ICICI Bank U.K. had a profit after tax of USD 6.7 million this quarter compared to USD 3.1 million in Q3 of last year. As per Ind AS, ICICI Home Finance had a profit after tax of INR 1.86 billion in the current quarter compared to INR 1.05 billion in Q3 of last year. With this, we conclude our opening remarks, and we'll be happy to take your questions.
Questions and answers
The first question is from Mahrukh Adajania from Nuvama.
I just wanted to know about operating expenses. They've not grown much this quarter. So going ahead, do we expect this kind of growth, any comments on the OpEx bit? That's my first question. And then I have 2 more.
Yes. So as far as the operating expenses are concerned, I think if we look at the non-employee expenses, those are really growing in line with the business. And this quarter, of course, the advertising and sales promotion expenses on a year-over-year basis, the growth was on the higher side because of the festive season-related spend. While last year, the festive season was split over Q2 and Q3. So those are really going in line with the business. On the employee side, I think, is where we have seen in recent over the last, I would say, couple of years, last maybe 6 quarters, a pretty high growth because of the increase in the team size of the bank. But as you would have seen in this quarter, the net increase has slowed down, I mean, compared to about 10,000 to 11,000 in the first half. We were at about 1,700 in Q3. So we would, I think, 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.
Okay. So the headcount additions now will be moderate only. This is not just a one-off?
We will not be at the pace that we have seen over the last 4 to 5 quarters, yes.
Got it. And just in terms of LDR, there's a lot of discussion around it already. You are okay, but do you have any part on LDR? I mean, would you like to retain LDR at current levels or bring it down? Any views on that?
We assess the balance sheet and funding structure using three key ratios: the credit to deposit ratio, the liquidity coverage ratio, and the net stable funding ratio. The liquidity coverage ratio and the net stable funding ratio provide more detailed insights by considering the types of assets and liabilities based on product type, counterparty, and duration. We monitor all three ratios closely. Currently, our liquidity coverage ratio and net stable funding ratio are significantly above the regulatory minimum, sitting at approximately 120%. Regarding the credit to deposit ratio, higher capital levels generally correlate with higher ratios. We analyze our credit to deposit ratio for both our international and domestic operations separately, as they are managed independently. Our overseas operations have limited deposit-taking capacity, and this has a smaller impact now compared to seven or eight years ago when that portfolio represented over 5% of our overall portfolio.
For our domestic balance sheet, which comprises the bulk of our operations, deposits primarily fund our activities along with capital. We also strike a balance between attracting wholesale deposits and utilizing more stable sources such as refinancing and bonds. Over a longer time frame, our domestic credit to deposit ratio has remained around the mid-80s, except during periods of high liquidity and low loan growth, like during the pandemic. This is how we manage our ratios on an ongoing basis.
Got it. Assuming that rates will remain stable, would you say that your margins have now bottomed out at this level, or is deposit competition too strong to make that determination if there are no changes in policy rates?
So on the deposit side, I think the retail deposit rates have remained stable for a fair period of time now, at least the peak rates. Although, I think at various points of time, banks have moved up and down in certain other buckets. Of course, in Q3, I think given the overall liquidity environment, we did see some amount of hardening of the wholesale deposit rates, which is reflected in the CD rates and also the rates being quoted for high-value kind of deposits. And I think if you look at even currently, systemic liquidity is running at a negative. So I guess that scenario will stay for some time until maybe monetary policy starts to turn a little more accommodative. So that's on the deposit rate side. From a margin perspective, I guess, we had said in the past that we expect the full-year margin this year to be at a similar level to last year, and that implies some further margin compression in Q4, but it should be much lower than what we have seen. I mean, Q3 was already much lower than Q2 and it should be lower than what we have seen in Q3.
Next question is from Abhishek Murarka from HSBC.
So two questions, one on asset quality. So if I see your slippages in retail rural business banking, that has gone up, even if I knock off the Kisan credit card slippages. So can you explain where that has come from? And similarly, on the recoveries and upgrades in corporate and SME, is there any kind of one-off? Or what's happened there? That also improved actually so.
Yes. Regarding the retail sector, there isn't anything significant to highlight. It seems to be fairly distributed across various products. When considering the size of the portfolio, the delta is not particularly large or significant. As we've mentioned, we anticipate that both gross and net additions in retail will gradually normalize upward as the portfolio expands and matures. On the corporate side, we experienced one or two larger upgrades this quarter. However, the benefits in provisioning from those upgrades were largely mitigated by the provisioning related to AIF investments. Overall, when assessing credit costs and quarter provisioning by excluding any substantial corporate upgrades and AIF provisioning, the adjusted figure would still be below approximately 50 basis points of loans and about 10 basis points of pre-provision operating profit. This is the framework through which we evaluate non-performing loan formation and recoveries based on our planning and risk tolerance.
Yes. And sort of extending that, does it mean that even in the next few quarters, we should continue to see credit costs in that range because you have enough PCR anyway, and that can come down a little bit. So credit costs can remain low for, let's say, next 3 to 4 quarters. Is that a fair conclusion?
We don't really give forward-looking guidance, but I would say that, yes, I mean, I don't see anything imminently that would cause it to spike up. There will be some gradual normalization upwards.
Got it. And my second question is just on cost of deposits. If you can share maybe your incremental cost of TDs or incremental cost of deposits, anything that you may have handy, that would be helpful?
So we do not publish those numbers, Abhishek.
Next question is from the line of Rikin Shah from IIFL.
I have a question regarding the cost of deposits. Can you provide some insight on the repricing of the current book of TD? Would you say that by the fourth quarter, most of it will have already been reflected in the profit and loss statement, or is it likely to continue into the first quarter?
There could be some flow into 1Q as well, but I think most of it should be done by then. There could be some flow into 1Q as well.
And this quarter, it increased 20 bps Q-o-Q. So in terms of the quantum, should it be kind of slowing down from the current run rate?
I would guess so.
Next question is from the line of Kunal Shah from Citi Group.
Sir, the question is on yield. When we look at it, in fact, the rise in some of the high-yielding portfolio, sequential growth has been strong, and we would have increased the rates even, say, post the tweaking of the risk weights by RBI, but still, overall build on advances are down. So just want to understand on that bit. And this entire NBFC rundown, which has been there, is it like we tried to pass it on in terms of the rates and then there were repayments or we have been conservative post the risk weight stance from RBI?
On the first question, part of the impact on the advances yield is due to the increase in KCC non-performing loans. Essentially, this means we have to remove a year's worth of interest income, which affects the yield on advances. Additionally, the share of the high-yielding portfolio remains relatively low, but we have seen solid growth in areas like mortgages and auto loans, as well as in corporate lending, which remains competitive. Overall, yields have been stable, although any potential benefits from mix changes have been negated by the nonaccrual of KCC loans. Regarding the second question, we continually assess our various exposures based on their risk-reward profiles. We have not encountered any credit issues with these exposures, but they were priced very precisely, leading a few borrowers to pre-pay, which we were comfortable with.
And how much rate pass was there in NBFC?
It really depends on the client. I don't think there is any significant role in that sense. As you will see in the book itself, even after adjusting for this prepayment, it has not really grown much during the quarter. Therefore, there wouldn’t have been any substantial new lending that took place.
Next question is from the line of Nitin Aggarwal from Motilal Oswal.
Congratulations on the results. I have a question about the yields and the level of competition in unsecured products. In the mortgage sector, are you noticing lenders reducing spreads despite repo rates remaining stable, or are the rates experiencing some moderation? Additionally, how do you anticipate the mix of unsecured loans evolving for the bank? It has been quite steady so far, but some other private banks suggest they will continue to increase their presence in this area. What will our strategy be regarding the unsecured loan mix? These are my two questions.
The competitive pressure on rates is ongoing. We'll have to wait and see if anything changes in the fourth quarter, but during the third quarter, we've observed a significant level of competition in most areas, including mortgages and corporate lending. Our approach is to maintain discipline in our pricing while considering the overall relationship value we can establish with our clients and their ecosystems before making decisions on loan pricing. Generally, I'm not overly concerned with loan growth, which allows us to adjust our pricing strategy accordingly. What was your second question?
Yes. So just related to this, like has your aggregate mortgage portfolio yield come down over, say, second quarter?
No, it could not have. Because the incremental business takes time to feed through. You had another question after the yield competitiveness. I'm sorry, I missed it.
That was like on the unsecured loan mix, how do you see that trending further?
On the unsecured loan mix, I think as far as personal loans is concerned, as we have mentioned, we have taken some steps in terms of refining the credit parameters. Basically, 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 rationalized, for example, sourcing payouts as well as we moved our pricing on personal loans by maybe 20, 25 basis points. So I would expect that growth in that portfolio may continue to moderate a little bit even from the current level. But from an overall P&L impact, I would think that it should not have much of a P&L impact because in any product or business, it's not just about the yield and the margin. Hopefully, if we are managing the sourcing cost well, and that will contribute to profitability, and hopefully, if we are reducing in the right cohorts, that will contribute to credit costs being better as well.
Right. And around credit costs, any comments around that?
No, I think I spoke earlier in relation to your question. I mean, I do agree that there is some noise in that line item this quarter because of the AIF and the large corporate recovery, but if one kind of tries to even that out, as I said, we would be at about maybe 50 bps of loans and 10% of the PPOP. So it is quite well contained and sort of within our risk appetite.
Next question is from the line of M.B. Mahesh from Kotak Securities.
Anindya, just 2 questions. One is on Slide 34. There has been a drop in the AA kind of rated portfolio, and then increase in the BBB part of the portfolio. If you could explain that.
Certainly. There are two main reasons for this change. First, the reduction in our NBFC portfolio, which primarily consists of well-rated assets, mostly rated A and above. Consequently, we observed a decrease in the outstanding amount within the higher-rated category. The second reason is that we received a significant number of upgrades in our non-performing loans, with many now rated in the BBB category following the upgrades. Therefore, one aspect reflects a positive shift in terms of capital and profitability, while the other signifies a positive change from a credit standpoint. As a result of these two factors, the mix appears somewhat different.
Okay. Second question, is there an interest to us and impact on account of the KCC in quarter 4 which is meaningful?
So we've not really given a number. I mean, that's part of sort of margin happens every first and third quarter. So we've not called out that number separately.
I didn't really follow your line of thought. Regarding the unsecured loans, are you indicating that conditions have started to decline? Or are you saying that they are largely remaining unchanged?
No, I think it is remaining more or less the same. I mean, we have been looking at that portfolio very closely. As I said, in any portfolio, at any point of time, there's always a bottom cohort which one could sort of do without. And given the overall commentary on unsecured and the increase in capital charge and so on, we have tried to sort of trim that part of the portfolio.
Next question is from the line of Chintan Joshi from Autonomous.
Sir, can I just follow up on that unsecured point you made? So you mentioned that some cohorts you're seeing different delinquency trends on unsecured. If you were to do cohorts by time of origination, is the recent kind of origination seeing different delinquency trends? Sir, not breaking cohort by quality, but by time, are you seeing any difference?
We focus on understanding the characteristics of our customers and analyzing delinquency based on those traits to identify which types of loan borrowers are contributing more to delinquency. This analysis is not specifically tied to time.
And if you do look at time, is it similar trends so far, say, a loan given at the end of COVID and versus kind of in the last 6 months?
I don't think we have really commented on that.
The other question I had was regarding the cost of deposits, which increased 19 basis points quarter-on-quarter. You mentioned some upcoming pressure on net interest margin, but I’m not sure if you meant that if I consider the exit run rate and keep net interest margins flat for fiscal year 2024 compared to 2023, it would be around 4.2%. However, I don't think that's your implication. Could you provide more detail on how much further repricing we can expect on the deposit side?
We've not given really how much more repricing on the deposit side. I think what we said is that there will be some more increase in the cost of deposits in Q4 and possibly a little bit into Q1 as well. It should be less than what we have seen and the NIM impact should also be less than what we have seen in this quarter.
Okay. And then final quick one. Any indication on branch expansion number for FY '25?
No, not really. I think this quarter, we added about 123 branches. So as we have said in the past, we follow a pretty bottom-up approach. I mean, it's the people closest to the market who kind of recommend branch openings and then we do some assessment and open it. So we are not holding back on any branch openings, but we don't have a particular branch opening target either.
Next question is from the line of Param Subramanian from Nomura.
So on the average CASA ratio, so if you look at it quarter-on-quarter, we are not seeing any let up in the pace at which this is moderating. So any indication on where you see this, say, bottom out or starting to pick up? Or do we have to wait for a much looser liquidity environment like you were alluding to earlier?
So Param, I think this is something you're seeing to varying degrees across the system across all banks. I think in our context, we are probably doing relatively better on the current account side. I think our payment products and payment platforms are contributing to that to higher float balances. On the SA side, I think it's much more a function of interest rates and consumption. So I guess, I don't have an answer at the moment. I think, we will have to wait for a couple of quarters and eventually see how things pan out next year as liquidity sort of normalizes in the system.
Got it. Anindya, just one more question around this. But how are we geared towards, say, government spend coming back? How much is that, if you can give some direction number as a percentage of our deposit, say, so when that comes back, how does that help you in terms of CASA as well as overall deposits?
No, our focus regarding the government is on providing solutions that help them manage their cash flow and offer digital solutions for management information systems and reconciliation. The flow of money through our system does generate float, which is part of our base. However, it's important to note that the government is becoming increasingly efficient in managing its finances. Therefore, I don't think we can depend too heavily on idle government funds sitting in current accounts.
Ladies and gentlemen, we will take that as the last question. I now hand the conference over to the management for closing comments.
Thank you very much for taking the time on a Saturday evening, as always, and happy to speak on any other clarification. Thank you.
Thank you very much. On behalf of ICICI Bank Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.