ICICI Bank Limited
Q2 2014 Earnings Call Transcript

Published: 25 Oct 2013

[Operator:]

Ladies and gentlemen, good day, and welcome to the ICICI Bank's Q2 FY '14 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. N. S. Kannan, executive Director of ICICI bank. Thank you, and over to you, sir.

[N. S. Kannan:]

Thank you. Good evening to all of you. Welcome to the conference call on the financial results of ICICI Bank for the quarter ended September 30, 2013, which is the second quarter of the current fiscal year 2014. As always, my remarks this evening would revolve around 4 key themes

[Operator:]

[Operator Instructions] Our first question is from Mahrukh Adajania of Standard Chartered.

[Mahrukh Adajania:]

Just wanted to clarify a few things. Firstly, you said that the restructuring pipeline was INR 20 billion, is that correct?

[N. S. Kannan:]

Yes, our share of the restructuring cases report to CDR mechanism is currently INR 20 billion, yes.

[Mahrukh Adajania:]

And [indiscernible] for the second quarter, is it INR 10 billion or INR 11 billion?

[N. S. Kannan:]

The NPA additions was INR 11.45 billion. INR 11.45 billion of NPA addition gross.

[Mahrukh Adajania:]

Okay, got it. And so as you explained, lower employee expenses are largely due to retirement benefits. Or is there something else as well?

[N. S. Kannan:]

Largely it is because of the retirement benefits. Of course the yields have resulted in the treasure loss. But correspondingly, they have given us the benefit on valuation of retirement liabilities. But as I said, we are very confident on a full year basis to keep the cost-to-income ratio below 40%.

[Mahrukh Adajania:]

And that would -- I mean, what would drive that? Because this time the employee expenses look very, very low because of -- you're saying strength in operating income would help.

[N. S. Kannan:]

Yes, strength in operating income. Plus, generally, Mahrukh, the pressure on cost is not there so much. If you really look at the addition rates or the employee cost increase expectations, or if you look at any of the other operating expenses including the intel organizers [ph] and so on, generally the cost pressures are not much. And plus, of course, we always believe that we have something more to cut. So given this, we are quite confident of keeping it below 40%.

[Mahrukh Adajania:]

Okay. And just one last question in terms of your fee income, there's a very strong revival. So is there any lumpiness, any huge ForEx income which may not repeat next quarter or any such thing? Any lumpiness in any segment at all?

[N. S. Kannan:]

No lumpiness at all in any of the segments. And we do believe that our strategy of granularizing it has really helped. And when I look at the growth across segments, I've seen it -- seen the growth across all segments, whether it is transaction-based, Commercial Banking or ForEx or retail assets or on the corporate side. Generally, the fee income growth has been robust across all segments. So I don't expect any sort of blip because of any bulky income not coming through the quarter. That is not the case.

[Operator:]

Your next question is from Vishal Goyal of UBS Securities.

[Vishal Goyal:]

My actually question is some color, if you can give, on the fresh [ph] and bill formation in terms of whether retail, wholesale and within in wholesale industry, you said so? [ph]

[N. S. Kannan:]

The retail, absolutely no concerns. And we continue to see very robust asset quality on the retail side. We are not expecting anything. On the corporate side, yes, given the operating environment that continues to be stressed. And we do see development of NPLs on the SME side also. So those are the type of thing. There is no certainly [ph] sectoral distribution or anything. And typically, wherever [ph] there are sales growth issues or there are gearing issues and working capital cycle getting extended inordinately. Those are the kind of cases where we are seeing slippages. I think it really depends on the company's finance structure and the sales growth rather than that being specific to any particular industry segment. So as I mentioned, and similar to the number we have seen in the first quarter -- sorry, first half, that is what we expect to see going forward as well.

[Vishal Goyal:]

And can you say the same for even restructuring or is that a little bit different for restructuring?

[N. S. Kannan:]

Restructuring, as I mentioned, the current pipeline of CDR cases, our share is INR 20 billion. And as I said, given the environment, the CDR pipeline is expected to increase as well. And we would also see some restructuring outside CDR, resulting in a higher amount of restructuring in the second half.

[Vishal Goyal:]

And all this is coming from [indiscernible] or something new...

[N. S. Kannan:]

Vishal, we are not seeing any development of NPL. This is, as I said earlier, all restructuring. As I said earlier, this is largely the mid-corporate kind of portfolios where we are seeing the restructuring developing. And that is also not a specific industry, as I mentioned. It will be company-specific issues, and we are very careful about restructuring what is capable of being revived as their restructuring happens. And we are quite comfortable with the kind of experience we have seen of our past restructuring as well.

[Vishal Goyal:]

Okay. And can I get a number for savings bank account opened in the quarter? New savings bank account.

[Rakesh Jha:]

We don't actually separately give on a quarterly basis the new accounts opened.

[Vishal Goyal:]

Okay. And on this retiral benefit, this thing can remain volatile, correct? Like with the monies -- I mean, any sense on what is the number, like the swing factor purely because of retiral benefit?

[Rakesh Jha:]

It is a function of the ease, because depending on what is the residual payment period, that is a discount rate which is used for computing the present obligation. So it will indeed be a volatile number. And normally in a quarter, the interest rate movement is not as sharp as it was in this quarter. So that it really never comes out as separate item for us to highlight. But given that this quarter the movement was pretty high, that's why the number is also on the higher side.

[N. S. Kannan:]

Yes, some volatility in that line item will be there. But that is why I also talked about if our top number, in terms of the operating expenses growth, and that is something which we can go by. And as I said earlier again, just to reiterate, we are very confident of keeping the cost-to-income ratio below 40%. That is something we are working towards.

[Vishal Goyal:]

Yes, but basically I think what it means is that it is a valuation of the liabilities which led to such a sharp decline, correct? So you won't expect similar experiences, for example, if it remains at, let's say, 8.5.

[Rakesh Jha:]

So it's a quarterly [indiscernible]. So if the yield remains at the same level as it was in September 30, then there should not be any incremental impact because of the yield movement. Separately, because of an actual evaluation, there would always be some impact which is there in the nominal run rate which is there. This is only because of the yield [ph] movement the impact which came in.

[Vishal Goyal:]

Then you go back to the normal run rate salary cost, correct? Like your figure remains here [indiscernible] particular quarter number.

[N. S. Kannan:]

Yes. That's why if you look at the H1 [indiscernible] somewhat sorted out.

[Operator:]

[Operator Instructions] We'll take our next question from Jignesh Shial of IDBI capital.

[Jignesh Shial:]

Just wanted to check, have we sold any portfolios to [indiscernible] during this quarter?

[Rakesh Jha:]

We have sold some of our NPLs to [indiscernible], which is basically, if you look at the number that we gave in the presentation. There has been about INR 500 million of increase in the SRs [ph]. That is what reflects in the sale that we would have done in terms of the quarter.

[N. S. Kannan:]

The delta securities has been around INR 500 million.

[Jignesh Shial:]

That is the amount. I mean, that would be the recoveries, I mean, what you have received, right? Or that could be an amount that you sold.

[N. S. Kannan:]

That will be subscription [ph] to security received.

[Jignesh Shial:]

And any portfolio that we bought out this time or nothing has been bought?

[Rakesh Jha:]

In terms of portfolio that we buy, from a priority sector lending perspective, we do buy on a quarterly basis. But stop-gap purchases are in the form of PTCs that shows up in the investment portfolio. A much smaller amount is there on the loan portfolio side. So if you look at the overall buyout portfolio within the retail segment, between June and September, that would still have declined somewhat.

[Jignesh Shial:]

Secondly, what would be the quantum of wholesale deposit right now? I mean, any ad hoc [ph] numbers or something?

[Rakesh Jha:]

It will be just under 30% of the total deposits.

[Jignesh Shial:]

3-0, right?

[Rakesh Jha:]

Yes, That's right.

[Jignesh Shial:]

And just reconfirming, our additions during the quarter have been INR 11.45 billion, right?

[Rakesh Jha:]

Of NPL.

[Jignesh Shial:]

NPLs, yes. And the write-offs have been INR 5.58 billion.

[Rakesh Jha:]

That's correct.

[Operator:]

Our next question is from Manish Karwa of Deutsche Bank.

[Manish J. Karwa:]

I just wanted to take the outlook on margins, especially on the overseas margins. Do you think this trend can sustain for some time?

[N. S. Kannan:]

Yes. See, 1.8% is just about the highest level we have achieved. So I would say that the issued budget falls about on 1.7%, 1.8%, around that range. Increasing it from hereon looks to be difficult, but we are working towards sustaining it around this level. So that is the way we would like to operate there.

[Manish J. Karwa:]

And what's the reason for this 1.8%? Is it you're getting better spreads on your lending side on the international front?

[N. S. Kannan:]

That's correct. Plus also, some liquidity we had -- we continue the deployment of the excess liquidity is happening over the period. And there is no real yield pressures, or any competitive pressures on the asset yield. So we will be able to get that thing, and then costs have also been down on the -- so it's a combination of all the 3 factors.

[Manish J. Karwa:]

Okay. And on your U.K. subsidiary, your total assets have actually gone up pretty sharply on a sequential basis. Is it a one-off thing as a quarter-end number? Or is it reasonably good business that you're writing there?

[Rakesh Jha:]

Right now, you would not have seen an increase in the loan book, which was there as much, so that the balance sheet in terms of the deposit base has increased. And so going forward, we do expect some amount of loan growth to be there. So it's more of a quarterly kind of a thing which is there -- so somewhat more liquidity which is there currently would get deployed in [indiscernible] opportunities in the second half of the year.

[Manish J. Karwa:]

Okay. And lastly on your PD business. The loss is largely because of the way interest rates have moved. And over year, also, all the losses have been taken to the P&L, right? There is no deferment of any loss.

[Rakesh Jha:]

Yes, on PD business there was no option...

[N. S. Kannan:]

On PD business, there was no option available to them. This option was given only to the banks.

[Manish J. Karwa:]

Okay. So over year, everything has been accounted for as of 30th September?

[N. S. Kannan:]

That's correct. That's correct.

[Operator:]

Our next question is from Sachin Shah of Emkay.

[Sachin Shah:]

My question was more on the broader side on the corporate loan book. When we see the corporate world today, we are broadly seeing 2 sides of it. One is where a lot of corporates are extremely well leveraged, and on the other side, we see most -- quite a few corporates almost 0 debt balance sheet. So obviously, your exposure is to companies having extremely well leveraged. So does that really worry you with the overall environment right now? And going ahead, do you see the environment is getting much more tougher for them and on more on the slippages slide for the NPLs?

[N. S. Kannan:]

Yes. First of all, it will be incorrect to say that our exposure is only to corporates having over-leverage. That's absolutely untrue. We do have the other broader corporate banks, and then we will have exposure, too, across the corporate sector of the Indian economy. Second, this issue of corporate leverage has been talked about for about 18 months now, and we continue to monitor the portfolio. And in our case, it has indeed got reflected in the incremental additions to these structured loans. And our experience of -- in mostly stages [ph] from the structural NPLs has been quite satisfactory. Yes, the environment is tough. And obviously, corporates with a higher leverage, it will have an impact. But we do believe that given our ability to select our projects and corporates at the first instance in terms of giving loans and subsequent monitoring should hold us in good stand across the cycle. So the numbers I'm saying in terms of the provisions or the restructuring or NPL slippages pretty much reflect the work we have done around this. And should the economy revive, things can only get much better from here.

[Sachin Shah:]

Right. But just in case if economy remains where it is for, say, another few quarters, do you see that, because you're all [ph] legacy book, do you see this getting more worse? Or we are now kind of bottoming out as far as the intense pressure is concerned on that kind of scenario?

[N. S. Kannan:]

Yes. In this kind of environment, it is indeed very difficult to predict too much into the future. But if you look at the kind of numbers I talked about for the second quarter, we're clearly saying that our operating performance has been far better than what we expected at the beginning of the year. The extended variable to increase outlook on the NIM expansion from 10 basis points to 20 basis points. The cost-to-income ratio, we are now saying that we will reduce it below 40%. And we are also saying that in terms of fee income growth, which we thought will be a growth of just about double-digit growth, we are saying that it's going to be 14% to 15% growth. And of course, we have talked about the provisions. And this is really not the core operating performance. A better core operating performance than what was thought at the beginning of the year will come to help us in terms of managing whatever little increase can be there in the provision. So we are quite cognizant of it and we are quite comfortable of all the year as a whole outlook. This is what happens when I learn [ph] to wait and see, and I'm sure that we will have enough calibration and management intervention to manage the situation.

[Operator:]

The next question is from Suruchi Jain of MorningStar.

[Suruchi Jain:]

My first question is about the insurance business. You mentioned that the profits were lower on account of lower renewal. Could you give us some sense of what's the breakup of renewal plans versus its new plans? And also, could you also comment on the fact that your premiums have actually risen, but the profits have fallen?

[N. S. Kannan:]

So I think what we said was -- so first of all, if you look at it on a year-on-year basis, the profit is INR 387 crores versus INR 395 crores. So it's essentially flat. A difference of INR 7 crores on a INR 400 crore approaching number is not material in that sense. And secondly, the point that we made was that if you look at the way the industry has evolved post the changes in ULIP guidelines in September 2010, following that, there was a fairly extended period of very low growth, which -- or actually big [ph] growth, which obviously means that the book which can come up for renewals now is lower. So the lower level of renewal premiums today reflects the lower new business done in 2010-'11, 2011-'12 and on. And obviously, at the same time, we continue to maintain some cost base to run the new business. So these economics will kind of adjust over time as the new business streams pick up. To your second question on the premiums going up, but the profits coming down. That, in a way does happen to some extent in the insurance business, because costs are expensed upfront. So whenever you have sort of a robust growth in new business premiums, you do see what is called a new business stream as well. So those are really the factors impacting profit. But I think for the -- if you look at it for the quarter on a year-on-year basis, the profits are essentially flat for the first half as well, and we expect that kind of profitability to be maintained.

[Suruchi Jain:]

And just a quick follow-up on that before I ask my second question. Was the lower renewal the same for, like, all participants, industry participants? And do you see -- what do you see as a 5-year growth horizon for your insurance business?

[N. S. Kannan:]

So, I would say, to varying degrees, the lower renewals is seen as across the industry. Some companies may be doing a little better, some may be doing a little worse. Part of it is also to do with the recency of the book in the sense that, as you know, the policy that's surrender-able after a certain period of certain minimum period. So as more of your book becomes eligible for surrender, the possibility of renewals being lower is higher. To your second question on the 5-year growth horizon. So I mean, given the under-penetration of insurance in India, whether you look at it in terms of premiums per capita, or some are short per capita, et cetera, or the number of people who have taken out insurance and the adequacy of that insurance, we believe that a sustainable growth rate for this business should be around 15%.

[Suruchi Jain:]

Okay. Moving to my next question. It's just a follow up from what Mahrukh asked earlier. What is really driving down your cost? I understand you have the largest branch network amongst the private sector banks in the country. But at an operational level, apart from the onetime changes in pension or liabilities, what are you doing to bring down your cost? Because the way I look at it, the costs are pretty high compared to a lot of other banks.

[N. S. Kannan:]

I'm not sure how one would say that the costs are high compared to other banks. I think on both on a cost-to-income basis and on a cost-to-asset basis, we would be among the most, if not the most efficient, among Indian banks. And we have been operating at between, I would say, 38% and 42%, 43% cost-to-income on a sustained basis for the last several quarters. So as Kannan mentioned, while we are not really seeing any cost pressure in terms of wage costs -- the fixed wage costs rising or anything of that sort, we are -- we continue to control and optimize and tighten all other forms of cost, be it travel or any of the other line items. And at the same time, we continue also to invest in our franchise in terms of branches and so on and so forth, because we create the room for that by sort of optimizing the recurring costs. So to answer -- to give a short answer, I think we have been operating at, as I said, late -- high 30s to low 40s kind of cost-to-income ratio for a sustained period of time, and that is what we expect to sustain. Also, when you look at that ratio, one, of course, is the numerator. The other thing that is helping that ratio is the fact that the denominator is also -- whether -- when we look at the improvement in margins and the improvement in the levels of the income growth, the denominator also kind of helps that ratio.

[Operator:]

[Operator Instructions] Our next question is from Umang Shah of CIMB.

[Jatinder Agarwal:]

So this is Jatinder. Just one question. On your cost of funds, can we have a broad sense how they have behaved year-on-year? And if you could break that into domestic and overseas or sequentially also, actually better?

[N. S. Kannan:]

Sequentially, my sense [ph] of cost to -- cost of deposits have come down.

[Rakesh Jha:]

6.13.

[N. S. Kannan:]

6.13% was the cost of deposit as of -- for the quarter.

[Jatinder Agarwal:]

And the previous quarter?

[Rakesh Jha:]

If you look at overall cost of funds for the total, that is 6.13% for the quarter. And the previous quarter was about 6.3%, meaning that Q1 was 6.3%.

[Jatinder Agarwal:]

Okay. And can we get some broad sense as to how is it behaving differently between domestic and overseas?

[Rakesh Jha:]

Actually, the trend -- the numbers are different, but the trend line is pretty much similar. So domestic also would have come down by about 13 basis points during the quarter, and overseas have come down by about 15 basis points or so, in terms of the cost of funds. The level, of course, is different. So the domestic cost will be closer to 6.8%, overseas will be closer to about 3.1%.

[Jatinder Agarwal:]

And can we have some more granular mix of the account deposits? What is leading to it other than the CASA, at least on the domestic side?

[N. S. Kannan:]

Just the pickup of term deposits.

[Rakesh Jha:]

So you want in terms of the cost, between Q1 and Q2, the average -- daily average CASA balance has gone up. That has also helped in terms of the overall deposit cost coming down.

[Jatinder Agarwal:]

Okay. And can we have the term deposit mix in terms of how much is retail and how much is corporate and what do you really define as wholesale?

[Rakesh Jha:]

About 60% of the term deposits will be retail and 40% would be wholesale.

[Operator:]

Our next question is from Ashwani Agarwalla of BOB Pioneer Mutual Fund.

[Ashwani Agarwalla:]

Just some -- a broader question. The last 3 years, if you see, you have lent around about INR 1.1 trillion to the corporate sector. And out of that, only about 40% constitutes the infra construction, metals and mining. Can you tell me how much would be terminal and how much would be working capital loan?

[N. S. Kannan:]

Sorry, in terms of what we have lent incrementally over last 3 years?

[Ashwani Agarwalla:]

Yes.

[N. S. Kannan:]

We would not readily have that immediately available with us.

[Ashwani Agarwalla:]

Okay. And how of projects would be coming on, I'm assuming, next 2 years?

[N. S. Kannan:]

If you look at the next 2 years, I think, substantially, all of the projects -- if you look at the power side and so on, would get -- our main project, and the implementation exposure is in power. Within most of those, over them -- I think all of that over the next 2 years would get them -- would start obviously.

[Ashwani Agarwalla:]

Okay. And do you see any problems coming those sectors? Because power, construction, those are the main areas which can create problems in the next 2 years.

[Rakesh Jha:]

If you look at construction, I think the problem is already evident. And I think you have seen right from last year, the construction. And by construction, I mean the EPC type of companies getting into CDR, because their top line is challenged and they also have liquidity issues, because payments to them, particularly from the public sector entities, are delayed. And you have seen more than one construction company going into restructuring. And when we see that going forward as well, and that is kind of factored into some of the outlook that Kannan spoke of. As far as power is concerned, of our total power exposure, which is about a little over 6% of our total exposure, half is in any case to operating companies, and the balance, half is to projects and implementation. Within that, we do not have, under the -- in the projects and implementation, we don't have any of the gas-base plants or the UMPPs. So we have mainly thermal exposure. And I think that given the current sort of regulatory framework around restructuring, we don't see too much of a challenge in that sector. In any case, these are all 10- to 12-year loans funding 25-year assets. So there would be sufficient tail in the cash flow to take care of any repayment elongations. So we don't -- as we've always said, see ourselves taking any significant economic loss on these projects.

[Jatinder Agarwal:]

Okay. What about metal sector? Because even in metal, we see a substantial exposure. And iron, steel and metals together stand about INR 20,000 crore plus.

[Rakesh Jha:]

Yes, so we have see lack [ph] crore loan books. So in that sense, it is 6%, 7% of the loan book to give one kind of sense of perspective. And I think in metals, if you look at iron and steel, our exposure is mainly to the larger players. And we have not seen any sort of NPL or restructuring issues in those exposures, and we don't anticipate any either.

[Jatinder Agarwal:]

Okay. Coming back to power, of the INR 10,000 crore exposure, which is to the thermal category, which is nonoperating, how many of them would be having backward linkages?

[Rakesh Jha:]

So I think at the time of financing, about 40% to 50% of the exposure would have been financed based on captive minds, and the balance would have largely been based on linkages. Given the way the whole sector has evolved since these loans were approved, which was probably more like 2010, that mix may change a little bit. But based on our sensitivities or what is the breakeven PLF, et cetera, we don't see that as a big issue.

[Operator:]

Our next question is from Rakesh Kumar of Elara Capital.

[Rakesh Kumar:]

Just coming back to this employee expenses thing. Like, if supposing, like, from March '13 to March '14 there is no change in the air [ph], so what would have been the, like, our internal estimate on the increase in the employee expenses?

[Rakesh Jha:]

So there are many variables which are [ph] also there. So as Kannan mentioned, I think if you take the first half numbers in aggregate as the base and kind of ignore that Q2 was clearly somewhat lower than the trend line because of this impact, then that would give you appropriate sense of going forward, the numbers.

[Rakesh Kumar:]

I'm seeing the previous-year numbers, like, we had an employee increase of around 8%, 2.3% and 8% in '12 and '13, and employee cost increased by hours around 25% and 11%. So just coming from that, how much -- how employees you are adding, and what is the increase in the cost for the employee expenses we are going to have? So that number was not falling in line.

[Rakesh Jha:]

So broadly, for example, we would have an annual increase in salaries that we have every April that will typically be in the region of about 8% to 10%. And then in terms of the increase in employees, you can assume that would be a further 10% or 12% that would happen for the years. Of course, that will happen through the years, so that the impact on the salaries will not be at the full impact. But through the year, there will be increase of -- in the number of employees as well. That is what would give you an estimate of the number. And then further, we have the impact of the retirers [ph] where it's going to be a function of interest rate. And then the other available expenses which are there.

[Rakesh Kumar:]

Just one last question. Looking at the change in the total capital adequacy for the Basel II and Basel III on the sequential versus for Q2, the change in Basel II number is relatively larger. So anything we can understand from it? Any insight we can get from here?

[Rakesh Jha:]

So which number, if you can tell me which number you're referring to?

[Rakesh Kumar:]

Like the CAR for the Basel II. On the Basel II, it is 17.63%. Like which is come down from 18.35%. And if you compare the same number on the Basel III, so that has not fallen so much. So I'm just trying to understand that, what is the reason is for the larger fall under the Basel II?

[N. S. Kannan:]

It's the same, actually.

[Rakesh Jha:]

So if you look at under Basel II, the CAR has come down from by about 18.97% to 18.33%, which is about 60 basis points. And Basel III is 17.63% to 17.15%, which is a little bit lower. So I don't think it's a very significant difference.

[Rakesh Kumar:]

No, from June to September number, if you look at for Basel III, their drop is around 50 bps. But if you look at Basel II number, the decrease is much larger. It is around 70, 80 bps. So the decrease in the Basel II number is slightly higher than the Basel III number for the CAR.

[N. S. Kannan:]

Basel II is about...

[Rakesh Kumar:]

So anything, any change or like, any...

[Rakesh Jha:]

Because I think the difference is about maybe 10 or 15 basis points, through to that. That kind of a difference will maybe kind of come in, because the methodology of computation is really different between the 2. So that kind of difference will indeed come in on a quarter-on-quarter basis.

[Operator:]

Our next question is from Sapna Naik of Bajaj Finserv.

[Sapna Naik:]

Can you quantify the amount of variable property regards on the employee? The employee expenses, were those the benefit you have received this quarter due to the change in it?

[N. S. Kannan:]

No, we have talked about the employee expenses being lower on a year-on-year basis. I know it's the reason -- the main primary reason for that is the fact that the retiral benefits have to be valued on a quarterly basis, and the valuation moves. And therefore, the provisioning requirement moves down or up based upon whether interest rates go up or down.

[Sapna Naik:]

Yes. So I just want to know what was the benefit you have received.

[N. S. Kannan:]

[indiscernible] because it is based on a actuarial report where all the variables come in. So in fact it would be very difficult to even just point out because of the interest rate what is the movement. Because it's actually based on various inputs.

[Rakesh Jha:]

And Kannan explained, if one wants to look at how this will trend, one should look at the first half number for employee expenses to kind of smoothen out this impact. And if one were to look at a cost-to-income type of metric, then one could also adjust the denominator for the fact that you had a sort of onetime treasury loss this time, which will again get reversed if the years is reversed and the OpEx is higher.

[Sapna Naik:]

So I want to clarify one thing, that you have shifted to INR 200 crores, INR 300 crores from SLR to SLR portfolio, on which you have recorded a loss of INR 10 crores. So if that portfolio was not shifted, the treasury income would have been lower by how much you said?

[N. S. Kannan:]

INR 70 crores.

[Sapna Naik:]

INR 70 crores, okay.

[N. S. Kannan:]

And that's -- a bulk of that would have got recouped in the current quarter.

[Operator:]

Our next version is from Nitin Kumar of Quant Capital.

[Nitin Kumar:]

Sir, how was the margin trajectory in the domestic business between the retail and the corporate verticals? And I mean, did one segment do much better over the other?

[Rakesh Jha:]

No, not really.

[Nitin Kumar:]

Okay. So you were able to pass on the cost equally, like, there are...

[Rakesh Jha:]

Because on the increase in base rate, which is applicable both on the corporate side and on the retail side, it is mainly on the mortgage book where you see the impact.

[N. S. Kannan:]

And overall average cost of funds did not increase.

[Nitin Kumar:]

Okay, okay. And secondly, like the overseas borrowings have shown good growth this quarter. So to what extent have you [indiscernible] with RBI? And is there any more to come?

[Rakesh Jha:]

Overseas borrowing growth in dollar terms is not there. It was simply because of the exchange rate.

[Nitin Kumar:]

Okay. So given the award, the relaxation RBI has given, are you looking to raise more over there?

[Rakesh Jha:]

We will look at -- we are looking at raising, both in terms of the FCNR (B) deposits, as well as on the Tier 1 limit, which is there. So I guess some of those numbers will reflect more in the December quarter.

[Nitin Kumar:]

Okay. And lastly, sir, the growth in the personal loans have been quite choppy this quarter. So like, what is the outlook there?

[N. S. Kannan:]

No, it -- that's because of the base effect, because we have not been very heavy on that segment. The outlook continues to be that, yes, the growth percentages may be high, but our overall business, it will be around 2% of the loan book. So I don't think that we will exit that by much. But the percentage growth can be high because of the very low base. And we are practically shut out [ph] of that segment in the past. And we have increasingly started doing such loans for our own customers.

[Operator:]

Our next question is from Saikiran Pulavarthi of Espiritu Santo.

[Saikiran Pulavarthi:]

Just a quick bookkeeping question, what is the dividend income this quarter and then corresponding quarter last year?

[N. S. Kannan:]

Total noninterest income was INR 258 crores and INR 288 crores in Q1. I mean, that's INR 252 crores in Q2 and INR 288 crores in Q1 and INR 161 crores in Q2 of last year. And dividends would be the primary contributor to that.

[Operator:]

Our next question is from Nilanjan Karfa of Jefferies.

[Nilanjan Karfa:]

Quickly, I know we have -- understandably the environment is challenged [ph], say, focused on FY '14. Would you have an early guess or some kind of guidance for FY '15?

[Rakesh Jha:]

Too early really, Nilanjan, to talk about that. So I would rather confine it to this year and then take it as it comes. From our perspective, as I said earlier, the franchise is going strong and operating metrics are doing well. The thing that -- as and when these situations arise, they should be in a better position to take advantage of the situation. The general sense we get talking to people, and our own belief is that things may be bottoming out and things should be better in FY '15. But one has to calibrate it, depending on what happens in the general economic scenario. We'll have to wait for that.

[Nilanjan Karfa:]

Okay. But if I get it right, you upped your credit cost guidance to 90 to 100 this year from 75 to 80, is that right?

[N. S. Kannan:]

Yes. We said that we would not expect it to exceed that number, that is what we mentioned, because we are seeing a little bit of a upward movement. Because if you remember, at the beginning of the year, we said 75 basis points. The number we have achieved for the first half is more like 82 basis points. And there's continued addition to NPLs restructured will warrant additional provisions. And as you know, the certain [ph] provision requirements have been increased by RBI. Given [ph] all that, generally that directionally it has been -- there is an upward pressure on that number. That's why we said that we will have a goal of not exceeding 90 to 100 basis points. But again, the good news is that on all -- almost all of the other metrics, we're predicting something which is better than what we predicted at the beginning of the year. So that should provide a decent amount of cushion against this. So we just wanted to make sure that we are -- we recognize the reality and plan accordingly. That is why I made that statement.

[Nilanjan Karfa:]

Sure, sure. And maybe a last question. On the international book, what is the rough, the ALM structure like? If you can specify on the interest rate basis that has given us this kind of [indiscernible] improvement.

[N. S. Kannan:]

Interest rate basis, actually, the book is -- we maintained on the assets and liabilities both on a floating rate basis into LIBOR. So even if we raise fixed-rate bonds or asset borrowings, which are longer than 1 year maturity, they would swap that into LIBOR-linked funding. So interest rate mismatch is really not much.

[Nilanjan Karfa:]

Okay. Now because -- clearly now, if you look at the U.S. treasury between 6 months to 1 year, the movement has been pretty negligible. The movement has essentially come in the 2 to 3 years maturities. And hence, this question. How -- I understand you mentioned earlier that you had excess liquidity, but was it just the excess liquidity which got deployed or...

[N. S. Kannan:]

As we said -- so you know, it was bulk of it was excess liquidity, and we also saw about a 10 basis point reduction in the funding cost which was there. But the bulk of the improvement that's seen on the overseas margin in the last, I would say, 3 quarters, it is more of the excess liquidity which has come down. So if you go back last year, September, December quarter is where we were at the peak in terms of the liquidity that we are carrying. We had a large bond repayment in October 2012, because of which we are carrying a large amount of liquidity, and that was there through December. So this is more of a benefit in terms of the liquidity getting deployed. And we also get the benefit that in overall, the balance sheet has not really increased in dollar terms. So that gives you ability, to some extent, to optimize costs as well if you're not growing the balance sheet.

[Nilanjan Karfa:]

And -- but as the last question, sorry for this. Any guidance on your overseas? The ROEs of the overseas subsidies are obviously in low single digits. What is the target plan for those subsidiaries maybe this year, next year?

[N. S. Kannan:]

We have said that in the medium term. The first target is to kind of get into a double-digit ROE. But given the kind of excess capital, which is still there, especially in Canada, where the total capital adequacy continues to be 30% less and U.K. is still close to 20%. So it will take us 2 to 3 years to kind of -- to get that kind of a level. And we would also look at some more capital getting repatriated from Canada during this period. We're kind of not rushing into a ROE expansion model. And see -- and it'll take some time to get there.

[Operator:]

Our next question is from M. B. Mahesh of Kotak Securities.

[M. B. Mahesh:]

So my first question is on the cost of deposits again. You have indicated initially that the cost of deposits is down on a q-on-q basis. Now if -- in terms of experience it were to remain as where it is today, do you see cost of deposits increasing in your portfolio? And correspondingly, given the fact that you've seen a fairly large repricing already on the advances side, that should lead to a downward pressure on margins? One. Second one is, as your assets is increasingly shifting towards retail, is there a fair chance that, incrementally, you'll start seeing pressure because of the shift in loan book between retail and corporate in your underlying book?

[Rakesh Jha:]

So in terms of cost of deposit, because we have been doing fairly well on the CASA front, and in terms of the wholesale deposit, our reliance is not now that much lesser. So we are not really expecting to see the cost of fund increase substantially going into the third quarter. Of course, there'll be some impact which will come in because of the higher deposit cost which was there in the month of August. But things have kind of cooled down and the rates have come off quite a bit. And even from a planning perspective, when the rates were high, we kind of kept away from the market or tried to borrow on the shorter range, so which will not really impact the cost through the second half. So that gives us some comfort that, in overall, on the margin basis, we should be able to broadly remain at the level where we are in this quarter.

[M. B. Mahesh:]

And the impact of the shift in the loan portfolio. Is it a fair assumption to make that, today, the corporate margins are probably a lot higher than what the average domestic margin has made, by the way?

[Rakesh Jha:]

Not really, no. Because if you look at the mortgage yield are still from the past book, which is there, is relatively high. So overall, yes, the corporate book will have somewhat higher yield, but it will not be a substantial difference which will be there.

[M. B. Mahesh:]

Okay. Is it possible for you to also say what is the outstanding loans in the mortgage book? The mortgage, not the housing loan portfolio.

[Rakesh Jha:]

So it's -- no, we give actually the bill in loans separately. So for the portfolio that we give in to retail is indeed a...

[M. B. Mahesh:]

But there would be a difference between housing and mortgage. Like housing -- the new housing loans which you give and also the loans against mortgage.

[N. S. Kannan:]

So we use housing and mortgage interchangeably. What you're asking is what is that basically, that is included in the housing loan portfolio? That will be between 15% to 20% of the loan book.

[M. B. Mahesh:]

Okay. And my second question is there has been a drop in general insurance business in terms of profitability. Any specific reasons attributed to it?

[N. S. Kannan:]

[indiscernible] investment income sequentially has just come down. By the year-on-year, if you look at the profitability, the growth makes 55%.

[Operator:]

Our next question is from Kashyap Jhaveri of Emkay Global.

[Kashyap Jhaveri:]

Actually, all my questions have been answered. Just congratulations for that set of numbers.

[Operator:]

Ladies and gentlemen, due to time constraints, that was the last question. I would now like to hand the floor back to Mr. N. S. Kannan for closing comments.

[N. S. Kannan:]

Thank you. If there are those of you who want any clarifications, any questions to ask my team and I, we are there to take your questions. Thank you so much, and thank you for participating in the call. Bye-bye.

[Operator:]

Thank you very much. Ladies and gentlemen, on behalf of ICICI Bank, that concludes this conference. Thank you for joining us. And you may now disconnect your lines.