N. S. Kannan - Executive Director and CFO: Good evening all of you. Welcome to the conference call on the financial results of ICICI Bank for the quarter ended March 31, 2013, which is the fourth quarter of the current financial year, that is, Q4 of 2013.
As always, as always, my remarks this evening would revolve around four key themes. First, we'll talk about the domestic macro-economic and monetary environment; that will be followed by, our performance during the quarter, including performance on our 5Cs strategy.
Then, we'll move on to our consolidated results; and finally, the outlook for the full financial year 2014.
Let me start with the first part on the macroeconomic and monetary environment during the fourth quarter.
Indicators of real economic activity continued to reflect moderation in growth. The growth in the index of industrial production that is IIP continued to remain volatile with 2.4% growth in January 2013 followed by a growth of 0.6% in February 2013.
Cumulative growth in IIP during April 2012 to February 2013 was 0.9% compared to 3.5% in April 2011 to February 2012 period. GDP growth for the nine months ended December 2012 was 5%, with moderation seen across all key sectors.
Export growth turned positive from January 2013 recording a growth of 4.1% in Q4 of 2013 compared to a decline of 3.6% in Q3 2013. Imports grew by 2% during Q4 compared to a growth of 7.1% in Q3, with the lower growth being driven by lower value of gold and oil imports, while non-oil imports continued to decline. The trade deficit stood at $191 billion during fiscal 2013 compared to $183 billion in fiscal 2012. The rupee appreciated marginally during the quarter from INR54.8 per U.S. dollar at end December 2012 to INR54.4 per U.S. dollar at the end of March 2013.
Inflation trends showed continued moderation during the fourth quarter, with wholesale price index based inflation declining from 7.3% in December 2012 to 6% in March 2013. This was primarily due to a consistent moderation in manufactured products inflation which eased from 5% in December 2012 to 4.1% in March 2013.
Core inflation moderated from 4.3% in December to 3.4% in March 2013, the lowest level since March of 2010. Fuel inflation remained high due to the increase in diesel prices while food inflation eased during the quarter. The average inflation for financial year 2013 was 7.3% compared to 8.9% in financial year 2012.
Systemic liquidity remained tight during the fourth quarter with average daily borrowing by banks under the liquidity adjustment facility LAF window increasing to about INR995 billion compared to INR937 billion during the previous quarter. This was partly due to lower government spending during the quarter.
The Reserve Bank of India provided liquidity support by way of Open Market Operations and government securities of about INR335.48 billion and a reduction in cash reserve ratio by 25 basis points to 4%. As a result of tightening liquidity, interest rates on market instruments like Commercial Papers and Certificate of deposits increased during the fourth quarter. The yield on the 10-year benchmark government securities remained stable at 8% at end of March 2013.
In Q4 of 2013, given the trends in inflation and growth, Reserve Bank of India reduced the repo rates by 50 basis points its 25 basis point reduction each in January and March 2013.
Global financial markets have improved following continued monetary policy support announced by the U.S., Japan and the EU and improvement in economic indicators for the U.S.
On the domestic side, easing inflation, rationalization of diesel prices, and government's focus on containing the fiscal deficit, coupled with global liquidity conditions, resulted in FII inflows remaining very strong in the fourth quarter. Net FII inflows were about $13.1 billion in Q4 of 2013, the highest quarterly inflow during the financial year 2013.
However, despite all this, equity markets turned volatile from February 2013. Global developments like the crisis in Cyprus, and domestic factors such as political uncertainties and subdued growth impacted markets. The benchmark Sensex decreased by 3.2% during Q4 to 18,836 at end-March 2013 from 19,427 at end-December 2012.
Credit offtake from scheduled commercial banks remained moderate during the fourth quarter on a year-on-year basis. Non-food credit recorded a 14% increase year-on-year at March 22, 2013 compared to a growth of 16.8% we saw the previous year. Deposit growth continued to remain moderate with total deposits recording a growth of 14.3% year-on-year at March 22, 2013 compared to a growth of 13.5% at the same time last year. Demand deposits grew by 5.9% year-on-year while time deposits grew by 15.2% at March 22, 2013.
With this overall background, I now move to Part 2 on the performance of the Bank during the quarter.
Let me begin with the progress on our 5C strategy. First, with respect to Credit growth, total advances of the Bank increased by 14.4% on a year-on-year basis from INR2.54 trillion at March 31, 2012 to INR2.9 trillion at March 31, 2013. The growth in the domestic loan portfolio was higher at 17.7% on a year-on-year basis at March 31, 2013. The growth in advances was balanced across various loan segments.
From March 31, 2013, we have revised the presentation of the domestic loan portfolio mix to better reflect the nature of the underlying loans. The key changes made are; the portfolio earlier presented as rural has been segregated into loans of retail, small and medium enterprises and corporate nature and the same have been added to the respective retail, SME and domestic corporate portfolios in the presentation.
Business banking loans, which form part of our Retail Banking Group’s business have now been reclassified from SME to retail and the builder finance portfolio, which was earlier reported as a part of home loan portfolio within retail has been reclassified into the domestic corporate portfolio. These changes we believe reflect the exact nature of the underlying business and these changes have been presented and the presentation have been made.
For your convenience, in the presentation we have included data for March 31, 2012 and December 31, 2012 on the revised basis. My subsequent discussion on our credit growth for the year is based on this new classification. I want to say that there is no material change in the growth trends of the loan portfolios due to this change.
Growth in the retail portfolio has been increasing steadily over the last few quarters. This trend has continued into the fourth quarter as well, with the organic retail portfolio, that is after excluding buyouts and the Interbank Participation Certificates, growing by 25.6% on a year-on-year basis at March 31, 2013. However, during Q4, the Bank had significantly lower portfolio buyouts in the retail portfolio, compared to the buyouts in Q4 of 2012, with higher investments in pass-through certificates instead. Accordingly, the overall retail loan growth, including such bought out portfolio, was lower at 11.4% on a year-on-year basis at March 31, 2013.
The growth in the retail portfolio was driven by growth in the secured retail lending categories with outstanding mortgages increasing by about 18% and auto loans increasing by about 25%. Growth in the organic commercial business loans, that is after excluding the impact of portfolio buyouts and IBPCs, was 16.7% on a year-on-year basis at March 31, 2013. Including the buyouts, the commercial business portfolio saw a decline of 16.1% on a year-on-year basis at March 31, 2013. The Bank's unsecured retail portfolio increased by 20.6% on a year-on-year basis to INR43.1 billion at March 31, 2013 however it is only about 1.5% of the overall loan book of the Bank.
The growth in the corporate and international portfolio together was 18.1% on a year-on-year basis, driven largely by a 29.9% growth in the domestic corporate portfolio. On a sequential basis the domestic corporate portfolio actually has reduced by about 4%.
Net advances of overseas branches increased by 5.7% on a year-on-year basis in rupee terms, primarily due to the movement in the exchange rate. In dollar terms, the net advances of the overseas branches remained stable on a sequential as well as on a year-on-year basis at March 31, 2013.
Moving now on to the second C on CASA deposits; mobilization of CASA deposits has continued to remain challenging for banks, as reflected in the systemic trends in demand deposit growth. Despite all this, the Bank has seen healthy momentum in its CASA deposits during the fourth quarter. During Q4 of 2013, the Bank saw an increase of about INR42 billion in its savings account deposits and an increase of INR12.5 billion in the current account deposits, this resulting in an improvement of the overall CASA ratio from 40.9% at December to 41.9% at March. The Bank also saw an increasing average CASA ratio from 37.4% during Q3 to 38.1% in Q4.
Now to the third C on Costs; for the fourth quarter, operating expenses, including DMA expenses were higher by 8.3% on a year-on-year basis. The Bank's cost-to-income ratio declined to 40.0% in Q4 compared to 41.6% in Q4 of 2012. For the full year, the operating expenses growth was 14.8%, the cost-to-income ratio was 40.5% as compared to 42.9% in the previous year.
Let me move on to the fourth C on Credit quality; during Q4 of 2013, the Bank saw gross additions of INR7.79 billion to its overall gross NPAs. Recoveries in Q4 was INR4.44 billion, resulting in net additions to gross NPAs of about INR3.35 billion. The Bank has also written-off INR4.91 billion of NPAs during Q4. The provisioning coverage ratio was 76.8% at March 31, 2013 compared to 77.7% at December 31, 2012 and 80.4% at March 31, 2012. This decline in the provisioning coverage ratio compared to March 2012 and December 2012 was mainly on account of write-off of unsecured retail loans, and incrementally there is no change in the Bank's approach to provisioning. The net NPA ratio was 64 basis points at March 31, 2013, the same level as at December 31, 2012 and marginally higher than the March 31, 2012 net NPA ratio of 62 basis points.
Coming to restructured loans; in January 2013, RBI issued guidelines requiring banks to report restructured loans at a borrower level that is including all facilities, including those not restructured to a borrower where any of the facilities have been restructured. The Bank has implemented this guideline effective fiscal 2013. Accordingly, the net restructured loans at the beginning of the year as per this revised guidelines were INR45.54 billion, compared to INR42.56 billion reported on the earlier basis. At December 31, 2012 there were INR45.62 billion compared to INR41.69 billion reported on the earlier basis. Additions to the restructured portfolio were INR7.88 billion in Q4. As a result, the net restructured loans increased to INR53.15 billion at March 31, 2013. On a full year basis, the total standard loans restructured for the Bank were about INR17 billion half the additions of about INR34 billion that we had seen in the previous year.
Provisions for Q4 were at INR4.6 billion as compared to INR4.69 billion in Q4 of 2012 and INR3.69 billion in Q3 of 2013. The provisions in Q4 were higher on a sequential basis on account of higher provisions on loans restructured during the quarter. Credit costs as a percentage of average advances were at 65 basis points on an annualized basis for Q4 of 2013. For the full year financial year 2013, provisions were INR18.03 billion and credit costs as a percentage of average advances were 66 basis points.
Now to the fifth C on Customer centricity; the Bank continues to focus on enhancing its customer service capability and leveraging on its increased branch network to cater to the customer base.
During the year, the Bank added 348 branches and 1,475 ATMs to its network. With this, the Bank has a branch network of 3,100 branches and 10,481 ATMs at March 31, 2013. The Bank also continues to strengthen its technology channels for increasing customer convenience. The Bank’s Facebook initiative continues to be appreciated by the customers, with the fan base for the ICICI Bank Facebook page reaching over 2 million fans currently.
Having talked about the progress on 5Cs, let me move on to the key financial performance highlights for the quarter. Net interest income increased 22.5% year-on-year from INR31.05 billion in Q4 of 2012 to INR38.03 billion in Q4 of 2013. For the full year, the net interest income growth was 29.2% from INR107.34 billion to INR138.66 billion. The full year net interest margin was 3.11%, an improvement of over 35 basis points compared to financial year 2012.
The net interest margin for the fourth quarter was higher at 3.33% compared to 3.01% in Q4 of 2012 and 3.07% in Q3 of 2013. The NIM on domestic business was about 3.7% in Q4 of 2013 and the net interest margin on international business was about 1.3%. The improving trend in the margins is the result of our conscious focus on NIM over the last few years, including loan pricing, investment yields, funding mix, funding and costs and reduction of drag from some factors like securitization losses.
However, I would like to say that the fourth quarter NIM has come ahead of our expectations. A substantial part of the Bank-specific structural areas of net interest margin have been addressed and going forward the NIM progression would be more closely linked to operating environment. We believe that given the evolving interest rate, liquidity, credit and deposit growth environment and the competitive scenario, our focus would be on achieving a year-on-year net interest margin improvement of about 10 basis points in the coming year compared to the full year net interest margin for financial year 2013.
Total non-interest income was INR22.08 billion in Q4 compared to INR22.28 billion in Q4 of 2012. During Q4-2013, treasury recorded a profit of INR0.93 billion compared to a profit of INR1.58 billion in Q4 of 2012 and a profit of INR2.51 billion in Q3 of 2013. The profit in Q4 of 2013 was lower on account of mark-to-market losses on the equity portfolio following volatility in the equity markets during the quarter.
Other income was INR3.40 billion in Q4 of 2013, compared to INR3.42 billion in Q4 of 2012 and INR1.93 billion in Q3 of 2013. During Q4 of 2013, the Bank received dividend of INR1.09 billion from ICICI Bank UK, similar to the quantum we received in Q4 of 2012.
Fee income increased by 2.7% from INR17.28 billion in Q4 of 2012 to INR17.75 billion in Q4 of 2013. Overall fee income growth continued to remain impacted by lower corporate banking fee income due to the slowdown in new projects and financial closures. During Q4 of 2013, the Bank saw healthy growth in its retail banking fees.
For the full year financial year 2013, total non-interest income was INR83.46 billion comprising treasury income of INR4.95 billion, other income of INR9.50 billion, and fee income of INR69.01 billion.
I have already spoken about the trends in the operating expenses and provisions while speaking about our 5Cs strategy.
Consequent to the financial parameters I described earlier, the Bank’s standalone profit after tax increased by 21.1% from INR19.02 billion in Q4 of 2012 to INR23.04 billion in Q4 of 2013. For the full year, the standalone profit after tax increased by 28.8% from INR64.65 billion in financial year 2012 to INR83.25 billion in financial year 2013.
I'll now move on to the consolidated results. On a full year basis, the profit after tax for the Life Insurance company was INR14.96 billion in financial year 2013 compared to INR13.84 billion in financial year 2012. The profit after tax in Q4 of 2013 was INR3.54 billion as compared to INR3.28 billion in Q4 of 2012. The profit after tax was lower on a sequential basis on account of higher new business strain, given the higher new business premium in Q4 of 2013. The Q4 2013 level of net profits reflects an annualized return of about 30% on the Bank’s invested capital.
Following a phase of transition to the new regulatory regime, ICICI Life Insurance has started witnessing healthy year-on-year increase in volumes. The new business annualized premium equivalent for ICICI Life increased by 18.6% from INR10.77 billion in Q4 of 2012 to INR12.77 billion in Q4 of 2013.
The new business margin for Q4 of 2013 was 15.0%. The retail weighted received premium for ICICI Life increased by 16.3% during April 2012 to February 2013 compared to a 2.2% year-on-year growth for the private sector and 1.8% growth for the industry. As a result, during April 2012 to February 2013, ICICI Life maintained its market leadership in the private sector, with an industry market share of 7.2% on the basis of retail weighted received premium.
On a full year basis, ICICI General Insurance has seen a significant improvement in profitability with profit after tax of INR3.06 billion in financial year 2013 compared to a loss of INR4.16 billion in financial year 2012. ICICI General Insurance recorded a profit after tax of INR0.27 billion in Q4 of 2013 as compared to a loss of INR6.13 billion in the corresponding quarter Q4 2012.
As I had mentioned on the earlier results call, the company has recognized the residual impact of actuarial valuation of the third party motor pool liability in Q4 of 2013. During the quarter, the Bank has infused about INR0.74 billion of capital in the general insurance subsidiary, in view of the impact of the third party motor pool losses recognized by the company over the last two years.
The company maintains its leadership position in the private sector with an overall market share of 9.8% during April 2012 to February 2013.
Let me now move on to the performance of our overseas banking subsidiaries. As per IFRS financials, ICICI Bank Canada’s profit after tax for Q4 of 2013 was C$11.2 million as compared to C$10.2 million for Q4 of 2012. For the full year financial year 2013, the profit after tax for ICICI Bank Canada was C$43.6 million compared to C$34.4 million in financial year 2012.
Total assets for ICICI Bank Canada were C$5.4 billion at March 31, 2013 compared to C$5.36 billion at December 31, 2012. With effect from January 1, 2013, ICICI Bank Canada implemented Basel III capital adequacy framework, in line with regulatory requirements. Accordingly, the capital adequacy ratio for ICICI Bank Canada at March 31, 2013 was 33.2% as per the Basel III framework, compared to the reported Basel II capital adequacy ratio of 34.5% at December 31, 2012.
ICICI Bank U.K.'s total assets were $3.59 billion at March 31, 2013 compared to $3.98 billion at December 31, 2012. The profit after tax for ICICI Bank U.K. for Q4 of 2013 was $0.3 million compared to $10.5 million in Q4 of 2012. Net profits for ICICI Bank U.K. declined as; during the quarter the Company increased its provisioning for the existing impaired loans. For the full year financial year 2013, ICICI Bank's U.K.'s profit after-tax was $14.4 million compared to $25.4 million in financial year 2012. The capital adequacy ratio, even after the $100 million of capital repatriation during the quarter, was healthy at 30.8% at March 31, 2013.
Let me now talk about the overall consolidated profits. The consolidated profits for Q4 of 2013 increased by 37.7% to INR24.92 billion compared to INR18.1 billion in Q4 of 2012. The consolidated profits for Q4 2012 included the impact of additional third-party motor pool losses of INR6.85 billion recognized by the general insurance subsidiary, while the consolidated profits for the current quarter Q4 of 2013 include a significantly similar loss on account of the actuarial valuation of the pool, as I had mentioned earlier. On a full year basis, consolidated profits increased by 25.7% from INR76.43 billion in financial year 2012 to INR96.04 billion in financial year 2013. The full year consolidated ROE for financial year 2013 was 14.7% compared to 13% in financial year 2012.
In the third quarter, the Bank had achieved its target of a 15% consolidated ROE and we have sustained the consolidated ROE, excluding the general insurance motor pool impact, at this level in the fourth quarter as well.
I would now like to talk about our outlook for financial year 2014. As I had mentioned earlier, there has been a moderation in economic growth. At the same time, several challenges on the regulatory front are underway.
Our outlook for fiscal 2014 is in this overall context. With respect to loan growth, we would target domestic loan growth to be at about 20%, assuming systemic loan growth of 17% to 18%. We would target about 25% growth in the retail portfolio, driven primarily by secured products. Domestic corporate loan growth is expected to moderate from the levels seen in financial year 2013 and will be primarily driven by demand for working capital finance and balance sheet funding, and offtake from the existing project approvals. The international book in our overseas branches is expected to grow at about 10%.
Given the current growth trends and demand deposits in the system, our target would be to continue to maintain the average CASA ratio at the current levels for financial year 2014 as well.
As we mentioned earlier we would target an improvement of about 10 basis points in the overall net interest margins on a full year basis.
With respect to fees, during financial year 2013, we have seen improvement in certain fee segments such as transaction banking and retail banking fees. However, fee income was impacted by a decline in corporate lending linked fees due to the slowdown in new projects and financial closures. The proportion of corporate lending linked fees and the overall fee income basis now reduced substantially lower level and with continued growth momentum in the other fee streams we are targeting an improvement in fee income growth to double digits in financial year 2014. For financial year 2014 our endeavor would be to maintain the cost income ratio within 40%. For financial year 2014, we would work to contain the overall provisions to average advances to about 75 basis points, based on the current RBI guidelines and our current assessment of asset quality trends.
So, with these opening remarks, we will go ahead with the question and answer. My team and I will be happy to take your questions. Thank you.
Operator: Mahrukh Adajania, Standard Chartered.
Mahrukh Adajania - Standard Chartered: I just had a couple of questions on PSL first. So what was the amount of buyout included in loans in 4Q ‘13 and what was the amount in 4Q ‘12? Then how are you placed on your overall PSL?
Rakesh Jha - Director: In terms of the overall PSL, we would have achieved about 90% of the requirements, and as Kannan mentioned, the level of buyout in the loan portfolio this year have been lower than last year. So, of course, this year we would have done some bit more in the investment portfolio as which should have come in the form of PTC. But in the loan portfolio the amount is clearly lower than what we had last year.
Mahrukh Adajania - Standard Chartered: But would you have some amounts for this year and last year for the loan portfolio?
Rakesh Jha - Director: In terms of the….?
Mahrukh Adajania - Standard Chartered: The buyouts?
Rakesh Jha - Director: It was about INR 17,000 crore last year, and it’s about INR 80 billion this year.
Operator: Vishal Goyal, UBS.
Vishal Goyal - UBS Securities: Just needed your sense on especially on the restructuring pipeline, not only what you have let's say on hand, but also what do you see coming in the next one year, any sense on that would be helpful?
N. S. Kannan - Executive Director and CFO: See what we have currently is about INR 6 billion to INR 7 billion of restructuring to be done, but Vishal given the current economic environment, while I do believe that there will be more restructuring it will be difficult to predict at this point in time. I just wanted to assure you that the efforts will be on to continuously monitor the portfolio very closely; to ensure that, we’d limit the asset quality issues. If you just see my opening remarks, the confidence we have in containing our credit losses to 75 basis points of the overall advances average advances, clearly deflects our grip of the portfolio we have. But it will be very difficult at this stage to predict what is going to be for the full year. But as you have seen the trend in the last two years, year before last financial year 2012, the incremental resetting was about INR 34 billion, which has reduced to half that level in financial year 2013. So the efforts are on in that direction, but I can tell you that the current pipeline is about INR 6 billion to INR 7 billion, but we will maintain the credit cost as a percentage of average loans to 75 basis points in fiscal 2014.
Vishal Goyal - UBS Securities: That's including any NPV loss whatever you might have to incur, correct, that 75 bps?
N. S. Kannan - Executive Director and CFO: That is correct, and also based on the revised provisioning requirement of Reserve Bank of India with regard to restructured loans.
Vishal Goyal - UBS Securities: Restructured loans, okay. One more question on fee income, can we get some breakup of fee income as you would mention about retail, transaction banking, corporate, such as broad breakup, your overall fee?
Rakesh Jha - Director: In terms of the breakup, it broadly continues to be the retail and SME form now over 50% of the total fee income. If you look at FY ’13 as a whole about 50% is coming from the retail and the SME segment. Within that further breakup of retail assets and liabilities, its again – assets will be about 15% to 16%; liabilities will be about 25%, and then rest will be coming from the SME and the other segment. On the corporate side actually the lending linked fees has come down a lot. So that now accounts for about 30% of the corporate fees and most of the fees is now coming from the transaction banking and the FX in derivative fee income.
Operator: Manish Ostwal, KR Choksey.
Manish Ostwal - KR Choksey: Congratulations on a good set of numbers. My question is could you provide provision breakup for this quarter?
Rakesh Jha - Director: Provision is, as Kannan mentioned, largely for the NPAs and the restructured loans. Provision of standard assets was not material this quarter. So, it’s mainly on the NPAs and the restructured loans.
Manish Ostwal - KR Choksey: Is there any write-back in standard provisions during the quarter?
Rakesh Jha - Director: There was some small write-back would have been there because some of the dual rate loans on the mortgage side, which carry a higher provision of 2%, on that portfolio, there were some reductions. So there were some small write-back which was there on the standard assets.
Manish Ostwal - KR Choksey: Secondly, in the interest income, there is one item other interest, the amount is INR 440 crores compared to INR 194 crores in quarter three. So, any one-off in the INR 440 crores interest on IT refund, something like that?
Rakesh Jha - Director: Interest on IT refund is something that actually comes in every year. If you look at that other interest income line, which was there, which was about as you mentioned INR 4 billion in the quarter, that same number was about INR 1.9 billion in the December quarter and last year same quarter was about INR 3 billion. For the year, the amount is about close to INR 12 billion in both this year and the last year. So, yes, it does include interest on income tax refund as well and that has been there for each of the years. Again, as Kannan mentioned earlier that from a margin perspective we should look at the full year margin which was about 3.11% and take that as a base as we get into the next year and look at expanding that margin by about 10 basis points.
Manish Ostwal - KR Choksey: Lastly on overall loan composition, especially in retail side, we said retail book will grow healthier than the CRA as compared to corporate books, but within the segment, which are the segment you target to grow this book? Could you give some sense on that?
N. S. Kannan - Executive Director and CFO: See, as I mentioned the overall retail book we are seeking to grow at 25%, whereas the overall domestic loan book will grow at about 20%. So the retail proportion in our overall loan book will continue to increase into the next year is how we are targeting the numbers. Within retail, mortgages and vehicle loans continue to dominate the retail portfolio. Our growth in the commercial business, which comprises commercial vehicles and commercial equipment, it will continue to be calibrated and to the extent of that benefiting the priority sector there we will be quite active. The rest of the portfolio there we would calibrate it depending on the economic environment. To answer your question, the primary growth within retail is one of the mortgages on the vehicle loan.
Operator: Amit Premchandani, UTI Mutual Fund.
Amit Premchandani - UTI Mutual Fund: On the Agri front, you have clubbed most of the rural advances to either retail and/or corporate. Is there no crop loan which you give?
Rakesh Jha - Director: That will be a part of the retail portfolio. So we have basically taken the classification based on the customer to whom the loans have been made. So, that has been classified into either retail, SME or corporate.
Amit Premchandani - UTI Mutual Fund: In terms of reclassification retail NPLs, will they get reclassified because of the reclassification on the retail book, because the historical retail NPL trend…?
Rakesh Jha - Director: There would be some impact, of course, because if we are changing the overall portfolio, but there is nothing really material. As you know in our case, almost all the NPAs were indeed coming from the unsecured retail piece, and some of it was from the vehicle financing, which largely continue to be in the retail portfolio to the extent that some of the rural portfolio has been classified into the retail segment now. That will get added to the NPLs in the revised retail segment.
N. S. Kannan - Executive Director and CFO: I just to reemphasize that we have been the discussion about classification of builder financing et cetera in the past. So we thought it’s a good time to just reclassify so that it accurately reflects the underlying business. So that is the reason we did it and this is the time we could do it because whichever way you cut the numbers, it was not making too much of a material difference. So that is the reason why we did it, so that going forward we can track based on the underlying nature of the business.
Amit Premchandani - UTI Mutual Fund: If I reduce the retail NPLs from the overall NPL, the gross NPL in non-retail comes at around 3%, around INR 54 billion as compared to around INR 36 billion last year. A 3% gross NPL for a non-retail for a private bank is like one of the highest. So which are the segments that have contributed to that and why is it that some of the other private banks have much lower overall NPLs even in non-retail?
Rakesh Jha - Director: On the non-retail if you look at the portfolio, we indeed have said in the past that we have seen some entail additions coming in on the SME side. Some of the I guess the mid-sized corporates that is more of restructuring which has happened, but I don’t think that our numbers would be anything substantially different compared to other banks which are also there in the corporate and SME lending business.
N. S. Kannan - Executive Director and CFO: We are not seeing any specific trends on the SME portfolio itself. It continues to be 5%. There we have seen development of NPLs in every quarter, but apart from that we have not seen any trends which was out of line with the systemic trends.
Amit Premchandani - UTI Mutual Fund: I'm just saying that because the increase in gross NPL on the non-retail front has been INR 18 billion on a gross basis for the year. So is there any particular segment, sectors which you want to highlight on that? Is it only SME because the SME portfolio is almost 5% only?
Rakesh Jha - Director: SME and one particular asset indeed got added in the September quarter, which we had talked about, for example, that was discussed. That itself will account for nearly one-third of its increase and rest of it would have come from the SME and you know couple of mid-size corporates that you got into NPLs. So I don’t think the numbers are out of range from what we have talked about in the past.
Operator: Manish Karwa, Deutsche Bank.
Manish Karwa - Deutsche Bank: The reclassification that we have done, have we done it on behest of RBI or we ourselves decided to do this?
N. S. Kannan - Executive Director and CFO: We ourselves decided to do it. It has got nothing to do with RBI. We did in the context of the truly underlying business nature of this portfolio, and based on some of the conversations all of us have in the past in terms of classification of builder loan, et cetera, and generally in line with the other banks. So those are the reasons. Nothing to do with RBI or anything, this is – in any case financials are not changing at all.
Rakesh Jha - Director: It’s only a matter of presenting in the financials in terms of how the businesses are organized that continues to be the same.
Manish Karwa - Deutsche Bank: Even on the restructuring front, now do we -- RBI says for the public sector or RBI generally says that loans which are two years old should be classified or restructured loans which are performing for two years can be taken out of restructuring reporting, but we are doing it for one year. We are still doing it for one year or we have changed that as well?
Rakesh Jha - Director: We are not doing it as per the RBI guidelines itself. If you look at the past, it so happens that wherever the one year period would have got over and we would have upgraded. All those cases that we did also got over. So there is not much of an impact which is there either ways on that.
N. S. Kannan - Executive Director and CFO: In any case, like we have articulated in the past, the slippages for us out of restructured loans into NPL has been very minimal. So by the passage of time whether it is one or two years, bulk of the portfolio for us gets upgraded. So, it’s not too much of a concern for us.
Manish Karwa - Deutsche Bank: What would be your domestic NIMs and international NIMs for fourth quarter?
Rakesh Jha - Director: 3.7 on the….
N. S. Kannan - Executive Director and CFO: 3.7% would be the domestic NIM for the fourth quarter and international NIM would be about 1.3% for the quarter. We still continue to (liquidate) a lot of liquidity in the international portfolio and then we talked about a 10 basis point expansion in the overall NIM, we are expecting the international division to increase their net interest margins into the financial year 2014.
Manish Karwa - Deutsche Bank: Lastly on your life insurance subsidiary, after a long time expense ratio has actually increased. Something to read out here due to product changes or why have expenses gone up and actually your AUMs have actually gone up and growth has also been reasonably okay.
Rakesh Jha - Director: There is some increase which has happened from 18% to 19%, so part of it would be linked through the change in the profile of the products that we are doing. So the mix has indeed changed over the last two or three years, and that would be the primary reason.
Manish Karwa - Deutsche Bank: The reduction in margin that we have seen this year, should we assume now that the margins settle at these levels or there can be further downside to that?
N. S. Kannan - Executive Director and CFO: We have to see because as you know the guidelines on the traditional products have also come, which will take effect from this financial year. So as those come through we will have to see how the margin evolves. As of now, we have asked them to maintain around the current level, which is 15%.
Operator: Prakhar Agarwal, Edelweiss Securities.
Nilesh - Edelweiss Securities: This is (Nilesh) here. Just wanted to understand more on the margins, basically we've seen a good sequential pickup in margins on the domestic side and you've kind of articulated that this will kind of come off – basically next year you're looking at about 10 bps improvement so on a y-o-y basis you're looking at about 3.21%. Now does that mean that from here on probably there could be some quarters where actually the margins will start trending down or we kind of buildup on this margins here for the quarter?
Rakesh Jha - Director: So, as Kannan mentioned, we are looking at about 10 basis points increase. You should not take it as a precise number of 3.21 for the coming financial years. There will be a lot of variables in how the margin develops. I think for the next year, as I said, 3.1% is the base that we should take. Every quarter there is some impact, which comes in, for example, in earlier periods, we used to have a much higher funding costs in the March quarter, which used to come in and was impacting the margin in the first quarter, and then as someone earlier mentioned there is interest on income tax refund, which comes in a particular period that other interest income which is there. So, overall 3.1% is the base and on that I think is where we would start seeing some improvement in the margin, partly it will come on the overseas business. We have talked about the fact that we think that the margin there should be in the region of 1.4% to 1.5%. We continue to have excess liquidity in the overseas branches currently, thereby depressing the margins which are currently at about 1.3%. So, on an annual basis, I guess is where we should look at how the margins would trend. On a quarter-on-quarter basis, it will depend on things move during the year. At some stage I am sure banks will reduce their base rate that may have an immediate impact on margins for the bank while it will recover later. So quarter-on-quarter it is difficult to give specific guidance on how the margins has been.
Nilesh - Edelweiss Securities: Sure, Rakesh. Just for this quarter specifically, the increase of over 20 bps on the domestic side, was it more led on the yield on advances or it was like cost containment?
N. S. Kannan - Executive Director and CFO: Largely on the cost side. Our deposit costs have been coming down and given the tenure of these deposits when they were contracted compared to that rate, current rates are softer. Secondly that as you have seen the average CASA ratio has actually inched up. So those were a few reasons, but predominantly the reasons have been on the funding side.
Nilesh - Edelweiss Securities: The reason I mentioned this because was this -- as you mentioned earlier that this came as a surprise to you, so was there any other factor besides this in terms of -- ?
N. S. Kannan - Executive Director and CFO: We have been sort of pushing the net interest margin quite hard within the system. Last quarter, there were – our average CASA ratio had come down somewhat. So the emphasis was a lot on the daily average CASA during the fourth quarter, so that has gone up just about 38% now. So those are the reasons. Then as Rakesh mentioned, there are moving parts, so finally this number came at a slightly higher level than what we had anticipated. To answer your earlier question on going forward, the mix of international loans in the overall loan is also likely to come down, because the growth outlook we have on the international book is 10% whereas the domestic loan growth is expected to be at 20%. So that mix also would be positive. So at this stage we are quite confident of expanding the NIM by 10 basis points into the next year.
Nilesh - Edelweiss Securities: Some outlook in terms of the performance for subsidiary is going into next year. The reason I'm asking this is, basically, this year we've seen a strong performance on the standalone bank and the profit growth -- the subsidiaries, if you knock off the losses because of the third-party pool, had been kind of lower than what we've seen for the standalone banks. How does it play out for the next year, because the large part, we are kind of getting a substantial chunk of dividend from these subsidiaries too? So, just wanted to get your touch….
N. S. Kannan - Executive Director and CFO: Just on the standalone bank itself, the drivers would be further expansion of ROA through the net interest margin expansion, contain the cost below 40% cost income ration. Trying to push the fee income, netting to just about double-digit growth is what we have talked about, and on the credit costs containing to 75 basis points. With that we do believe that there is still some scope for improvement of ROE from the current levels. So that is how we will sort of drive the Bank site strategy. On the India subsidiaries – one set of subsidiaries, the international subsidiaries, there we would continue to discuss with the regulators on getting some sort of capital back further. So that will help the ROE expansion on the subsidiary side. But for domestic subsidiaries if you ask, the ICICI General Insurance is completely back on track now. Anyway they have consolidated their market leadership by about close to 10% market share. With all the drag of this motor pool getting over, soon we would be expecting them to earn profits consistently, so that they can start paying dividends. Already they are earning about 18% ROE on the invested capital there so that we believe can improve into the next year. That is the path we have for general insurance. Life Insurance, as you mentioned earlier, the growth is (indiscernible), but expecting the profit to grow at a huge rate will be difficult, because already they are earning 30% ROE on the invested capital there. There the approach would be that to make sure that they are at the top line growth actually. I mean that is going to be the focus. Rest of the subsidiaries you can look at ICICI Securities primary dealership, they have made better profits and they’re very much back on track. ICICI Securities largely depends on the market conditions. We will have to wait and see, but that would continue to be profitable better than financial year 2013 is what we hope. So like this we have specifically set targets and strategic path for each of the subsidiaries, but definitely the focus on subsidiaries continue and some of the Board members of the parent, the whole-time directors, we are nominees on the subsidiaries as well and we will push this strategy in the subsidiaries in the coming year.
Nilesh - Edelweiss Securities: Just to conclude this, basically then you would be saying that the share of dividend in the, if you're just probably looking at this as the standalone bank, but then on the ROE basis would continue to remain constant for the next year?
N. S. Kannan - Executive Director and CFO: Our (objective) will be to slightly increase it every year, because we have seen some increase which has happened over the last year and we would seek to increase it from the current level because if you see the last couple of years, ICICI General could not pay dividend. Of course, ICICI Life is paying a large dividend, and as I mentioned earlier, that dividend cannot grow at a much higher rate. So we are expecting continued dividend flows from U.K. and Canada. So I think the objective would be to increase the dividend stream, not just be satisfied with the current level.
Operator: Prashant Shah, Vantage Securities.
Prashant Shah - Vantage Securities: Most of my questions have been answered. Just wanted your view, you already achieved your ROE target which you had kept for two years later. So, could you quantify what your next target would be?
N. S. Kannan - Executive Director and CFO: ROA on a standalone basis, we are at 1.66.
Prashant Shah - Vantage Securities: So you had given a target of about 1.7 by FY ‘15. So you are almost close to that right now?
N. S. Kannan - Executive Director and CFO: What we think at this stage, based on how it has panned is to take into anything between 1.7 to 1.8 actually. But that is something we are quite confident of, and beyond that we do believe that we have still (support) to improve the risk weighted assets part of the equation. Then with some of the rationalization of capital from the subsidiaries, we do believe that the ROE can be expanded. So that is the kind of path we have. To answer your question is more like 1.7 to 1.8 is something which we look at this stage. And see how the interest rate (indiscernible) into the next year before targeting further amount.
Operator: Anand Vasudevan, Franklin Templeton.
Anand Vasudevan - Franklin Templeton: Can you give an update on the findings of the money laundering and KYC investigations, both in the Bank and in the Life Insurance subsidiary?
N. S. Kannan - Executive Director and CFO: As you know, Anand, we had appointed an internal enquiry committee to look into the allegations made by the news portal, and we also appointed Deloitte as an external consultant to carry out a detailed forensic analysis of the transactions in the branches appearing in the videos. The internal enquiry committee has submitted its final report and the external firm has also submitted its interim report. So based on this, our key findings so far have been that that no actual transactions have been found to have taken place (per se ) on to the specific instances shown by the news portal and based on the inquiry thus far, no other transactions of this type have also been found in the concerned branches. The Bank’s procedure, as you know, to implement KYC and anti-money laundering statute regulations have been found to be satisfactory. It may be noted that the issue relating to the adherence to KYC norms and not money laundering, that is the issue we are talking about and certain suggestions have been made for further strengthening some processes, based on this inquiry reports. That is being taken up for implementation and we do believe that it’s all transactional errors beyond showing any pattern to us. The effectiveness of this controls give us confidence that in case an attempt was actually made to put through an unexplained transaction, it would have either got rejected or detected and reported to the appropriate authorities. That kind of confidence we have today. However, having said all this, the conduct of some of the concerned employees as we have seen in the video is clearly in violation of the Bank’s code of conduct and we will take appropriate action in respect of the employees and as of now they continue to be in suspension pending a final action to be taken on them. As regard to RBI, we are not in a position to comment on investigation conducted by the regulators, because it will be up to the discretion of RBI to make public any of the findings in this context. So this is the broad sense we have. So, clearly we do not see it at all as any of anti-money laundering issue at all. If at all there are transactional errors, which is normal to be observed in a large bank like us, but having said that such incidences there is always some learning and we will tighten the processes going forward.
Anand Vasudevan - Franklin Templeton: Does that conclusion on the anti-money laundering piece, does that hold for the Life Insurance subsidiary as well?
N. S. Kannan - Executive Director and CFO: Absolutely. Very similar process we have adopted for Life Insurance company as well. There also we had Deloitte looking at the – as an external consultant looking at it. They also had an internal enquiry committee which has submitted the report. The conclusions have been broadly the same. Clearly, in their case, they find that employee behavior in terms of talking to be violative of the code of conduct and they will also take action accordingly.
Operator: Rakesh Kumar, Elara Capital.
Rakesh Kumar - Elara Capital: One question pertaining to the margin, like we are expecting close to (gain this) improvement in the margin. So is it like coming from the asset side or the like liability side on the domestic front, like, where do we see this improvement basically?
Rakesh Jha - Director: It would actually come from the overseas business, as we said we expect the margins to improve somewhat in the overseas business, just given the deployment of funds which are currently available with us. The overall mix would continue to again move towards domestic because we expect overseas loan growth to clearly be lower than what we are seeing on the domestic business side. So that should help in the overall margins. On the domestic side clearly from a lending perspective I think there will be pressures in the current financial year, given the kind of overall trade growth that we are seeing. So, in terms of funding I think there will be opportunities for the funding cost overall to go down, but again there could be some time mismatches between how the asset is move and cost of funds move. So that we have to see how that happens, but I think it will have to come from the funding side and the overseas business.
N. S. Kannan - Executive Director and CFO: As I say it will on overseas, domestic will be on the funding side.
Rakesh Kumar - Elara Capital: Secondly, like we are expecting some improvement on the ROE front also for the next year, is that right?
N. S. Kannan - Executive Director and CFO: That's right.
Rakesh Kumar - Elara Capital: So like we have given the guidance that you are in 10 bps in margin and then like around 10 bps increase in the credit cost from 66 bps to around 75 bps, so on the risk adjusted basis like there isn't, like it will be flat basically.
N. S. Kannan - Executive Director and CFO: ROE?
Rakesh Kumar - Elara Capital: Yeah, on the risk adjusted margin like for the credit cost there will not be any improvement, so the improvement is basically coming from either operating expenses side or maybe from the fee income side.
N. S. Kannan - Executive Director and CFO: In fact both, because fee income as we have seen we saw a 2.9% growth in the current financial year, which we expect – now that as Rakesh mentioned we have a much lower base for the project type fee income – as project type lending related fee income on the denominator. We are expecting the fee income to increase to some double digit kind of growth into financial in 2014. Cost income ratio that we said we are going to bring it down below 40% that is the target today. Based on two key variables, plus the margin expansion, yes the provisions will be flat. We do believe that we can take the ROA up in fact – next time the ROA into the next year between 1.7 to 1.8, so that is the target.
Rakesh Kumar - Elara Capital: On the employee expenses for this full year compared to previous year we have seen decline, like it has been very constant throughout the four quarters, so like what are the number of employees we had and what we have added on the gross basis, net basis, so just to understand that.
Rakesh Jha - Director: so, we have added about 4,000 employees during the year. We started with just slightly above 58,000 in March 2012 and currently we are at slightly above 62,000 in terms of total employee. So we saw an increase of over 4,000 in the number of employees.
Rakesh Kumar - Elara Capital: What could be the rate of inflation maybe for this year, FY '13?
Rakesh Jha - Director: For FY '13 the increase in salaries would have been about 8% to 10%.
Rakesh Kumar - Elara Capital: 8% to 10%. And we are expecting similar kind of trend for the next year or with inflation.
Rakesh Jha - Director: Yes it will be similar.
Operator: Jatinder Agarwal, CIMB.
Jatinder Agarwal - CIMB: Good evening for two questions on data point and then one on your thought process. First, Can we get a quarterly movement of gross NPLs?
Rakesh Jha - Director: Added INR7.79 billion of NPLs and deletions including the upgrades were INR 4.44 billion and write-off was INR 4.91 billion. So we moved from INR 98.03 billion to INR 96.47 billion.
Jatinder Agarwal - CIMB: Secondly, within the term deposits can we get the mix of wholesale and retail?
Rakesh Jha - Director: Of the overall deposits, the retail is about close to 69% to 70% of the total domestic deposit. That is the disclosure that we make.
Jatinder Agarwal - CIMB: 69% to 70% of the domestic…
Rakesh Jha - Director: Total deposit from the retail business segment.
Jatinder Agarwal - CIMB: So that would include your savings, current and then retail top, right.
N. S. Kannan - Executive Director and CFO: Yes, within the term deposits, retail would be about 55% or so.
Jatinder Agarwal - CIMB: One is about this, two weeks ago or three weeks ago, we saw this news of INR 7 lakh crores of projects which are stalled, where the Finance Minister was given the list and incremental action is being taken. Can you give a broad sense as to how much of these projects are on the ground in terms of banks actually having exposures and just for your bank, what is your sense as to what could be the size of these projects.
N. S. Kannan - Executive Director and CFO: Right. One thing we have done in the tallying of such INR 7 lakh crore number to our portfolio as such as we have said in the past, our infra portfolio is less than 15% of our exposure which is split broadly evenly between power and other sectors. In the other sectors the project exposure is actually less look for extension -- in telecom etcetera we have no project exposure and broadly on the non-power part there are no issues as well. On the power part out of the 6.9% or so of our exposure that it to power currently. About half continues to be projects under implementation and there that is a finite set of projects that we are monitoring quite closely with respect to their commissioning days and what is going to be the fuel source and what are the sensitivities to various fuel sources and operating -- and the level of operations that this is that's required for them to service debt. So that's the way in which we continue to look at the portfolio.
N. S. Kannan - Executive Director and CFO: And overall infra exposure as a percentage of our total exposure has been slightly coming down, in fact, it's about 12.5% as opposed to 13 point something we've had earlier. So, it's a question of – the concern is around non-announcement of new large projects not so much around the monitoring of the existing projects which we'll continue to monitor. So, that is a concern for future credit growth and the investment-related growth of the country itself. So that seems to be a bigger issue than, as we had said earlier we continue to believe that we have selected projects in the much better manner and over a period of time those projects should behave quite well. So that confidence we continue to have.
Jatinder Agarwal - CIMB: Just lastly not so relevant probably for you book. Could you give some sense of what is happening on the commercial vehicle and the construction equipment book of business?
N. S. Kannan - Executive Director and CFO: In terms of the incremental demand clearly there is a slowdown which is there in that segment and we have seen that reflected in our book itself. But form a credit perspective we are not seeing any trends in terms of increase in delinquencies, on the overall portfolio, but as you rightly said, we really have not in the last maybe three or four years grown that book very aggressively. So, we would not really be the first people to see that kind of a stress on the portfolio, but yes, from an incremental demand perspective, clearly there's a slowdown and there would be some delays in payments and all that, which would be happening on the portfolio.
Jatinder Agarwal - CIMB: Would we have increased LTVs in that segment lateral disbursements we did during the year?
Rakesh Jha - Director: Not really.
Jatinder Agarwal - CIMB: Not really. That is good enough. Thank you.
Operator: (Nitesh Gandhi, Bank of America.)
Nitesh Gandhi - Bank of America: I just have a couple of questions. One is you gave for the quarter, can I have the breakup of NPLs additions and recoveries of write offs for the full year?
Rakesh Jha - Director: Additions are about INR37 billion, deletions are about INR19.7 billion, and write offs are about INR16 billion.
Nitesh Gandhi - Bank of America: Rakesh one more thing. Can you give some idea about your over eases ALM for fiscal '14 in terms of the asset and the liabilities side, how it's playing out?
Rakesh Jha - Director: So, in terms of repayments which are there in FY '14, the amounts are clearly lesser than what was there in FY '13 and that's the reason that we were looking at about 10% growth in the balance sheet. So, in terms of repayments, about $1.8 billion is what we are expecting on the bond issues and the borrowings that we have as total repayments and we're expecting similar kind of collection to happen from our loan portfolio as well. So, that portfolio on the ALM side is well matched, so depending on the market, we would look at doing incremental fund raising to grow the portfolio.
Nitesh Gandhi - Bank of America: Again finally, what's your branch expansion strategy. I mean, your 3,100 odd and probably the other player is very close. So, is there any thought process behind that or probably you will just dwell into executing your last two years of branch expansion getting them to optimal level?
N. S. Kannan - Executive Director and CFO: We will continue to expand branches and I think we will expand by 10% to 15% the network next year and probably the year after as well. And this is of course coming through a mix of urban metro branches and a large proportion is actually coming in the rural semi-urban areas, so that level of expansion at least will continue.
Nitesh Gandhi - Bank of America: So out of the 3,100 how many would be like in the semi-urban and rural, and specifically rural small micro branches?
N. S. Kannan - Executive Director and CFO: Our of 2,100 about 14% of the branches are in rural centers, as per the RBI definition, and about 52% are in semi-urban centers. So about 45%, 46% is in semi-urban and rural centers.
Nitesh Gandhi - Bank of America: Just a clarification on this. Incrementally you'll see to make 25% in rural alone, right? Every four branches, one branch has to be rural, if I am not wrong?
N. S. Kannan - Executive Director and CFO: Yes.
Operator: Amit Ganatra, Religare Asset Management.
Amit Ganatra - Religare Asset Management: Could you please repeat the incremental restructuring that you have done during the quarter?
N. S. Kannan - Executive Director and CFO: Yeah. Incremental restructuring, INR7.80 billion.
Amit Ganatra - Religare Asset Management: INR780 crores.
N. S. Kannan - Executive Director and CFO: Yeah, INR780 crores
Operator: Saikiran Pulavarthi, Espirito Santo.
Saikiran Pulavarthi - Espirito Santo: I just had one data question. Can you just repeat what is the interest on IT refund for this current quarter as well as for the full-year please?
N. S. Kannan - Executive Director and CFO: We have not specifically given those numbers.
Saikiran Pulavarthi - Espirito Santo: Is there any reason why we have seen substantial spike up in the other interest income?
N. S. Kannan - Executive Director and CFO: As Rakesh said, it is a combination of income such as IT refund as well as interest on IT refund as well as some other line items like swap, which vary, but if you look at the year as a whole, we are even getting about INR12 million and that is that's what has been there in the line item. Again, to go back to the margin discussion, we said 3.11% is the annual net interest margin for the FY '13, which we think will go up to 10 basis points – go up by 10 basis points, but after taking into account, all of such interest related revenue exchange. So, I think that gives a broadest sense of where we are on that.
Saikiran Pulavarthi - Espirito Santo: One more follow-up question on the earlier infrastructure and then public sector, you mentioned that you were closely monitoring the projects under construction especially on the power side? Do you foresee a scenario for restructuring with the potential COD postponements for the next financial year?
N. S. Kannan - Executive Director and CFO: I think we have always been communicating that while based on our sensitivities as to fuel supply and our understanding of where each of the projects are. We believe that all of these projects would be able to service (their debt), but these are long gestation projects and you'll note there could be many factors that come up during the construction period or after. So, it could be -- would be possible that few of the projects meaning to get restructure at some point in time, but in case the operating level of the project in the initial years because of fuel or whatever is such that it's not adequate that there is a cash flow gap in the initial years, but again given that you'll know these are 10 to 12 year loans funding assets for much longer kind of productive life. We don't expect to take really an economic loss on these exposures.
Saikiran Pulavarthi - Espirito Santo: Sir, one question on the retail asset pricing, did the competition increase in almost all of your products especially on the retail side, how do you see the pricing scenario as of now?
N. S. Kannan - Executive Director and CFO: So, it has been always a competitive market and I would say it has become more competitive from a price perspective over the last six to nine months with where we one of the large banks have been quite competitive. Our view is if you look at intentionally the competition is in two products, which is mortgages and autos. In auto is that for that not just last year, but for the last quite a few years, our strategy has been to do quite a reasonable level of volumes to fulfill the customer needs for that product and basically we're not really targeting any huge market share et cetera in the auto loan business given the profitability dynamics of the business. In mortgages, we continue to match broadly match pricing in the market and because we see that as a fourth long-term product which is the high engagement relationship product and also product with opportunities for cross sell and you basically end up acquiring a good quality customer. So, in that product, we remain competitive and we continue to grow our volumes. But if you look at the mortgage and related businesses as – if you look at just probably the incremental profitability of INR 30 lakh mortgage loan it doesn't look so great but if you look at the business in totality in terms of that mortgage, the higher value mortgages, some loans against property, the builder financing they do for residential properties which ultimately translate into retail lending. The overall profitability is still quite okay and part of the portfolio of course also gives you private sector. So, that remains a very focused product for us. Auto we continue with our strategy of doing a reasonable volumes and again in all these products if you look at it our we are very gradually increasing market share from maybe single-digit to just about getting into double digit or a little more, and double digit this year and we have been gradually increasing our volumes month-on-month through by of course we have to be more or less parity priced, but more by expanding distribution, expanding more the throughput of our channels rather than doing any price war kind of situation to get back profits.
Saikiran Pulavarthi - Espirito Santo: One last question on the accounting policy side, how will the account recovery from written off assets? Is it reported in other income or is it netted off against the provision clients? Thank you.
Rakesh Jha - Director: It is taken in the provision line item by us.
Saikiran Pulavarthi - Espirito Santo: Thanks. That's it from us.
Operator: (Adarsh B, BL India).
Adarsh B - BL India: Yeah, hi Kannan and Rakesh. Just one question on again this the corporate fee side, you all said 30 is balance sheet and 70% is the other line. Just wanted to understand in FY '13 what could have been the growth on the non-balance sheet kind of fee income on the corporate side that shouldn't have got impacted a lot. So, just wanted to sense of how that's grown?
N. S. Kannan - Executive Director and CFO: That we have grown for the year about 15% around that level, but there is some impact there as well, because if you look at the non-fund base businesses has not been growing that well for banks, LC, bank guarantees with overall economy slowing down. So, there is some impact on the non-fund business as well. For example, if you look at our outstandings in the non-fund business reflected in the risk weighted assets, you would find that there is not much of a growth in cutting data nice expect that will be the case for many of the bank.
Adarsh B - BL India: So, the non-fund base is a part of the 70%.
N. S. Kannan - Executive Director and CFO: Yeah.
Adarsh B - BL India: And say in spite of that is book would have done about 15% growth or ex that?
N. S. Kannan - Executive Director and CFO: With that.
Adarsh B - BL India: With that it would have grown 15%?
N. S. Kannan - Executive Director and CFO: That's right.
Rakesh Jha - Director: In India, the commercial banking and there is no F linked fees.
Adarsh B - BL India: Because if I just do 50% and retail SMEs would have been sign 70% of the other 50% would have grown 15% just the contraction in the other 15%, which is a 30% of the corporate book looks relatively very large number like it looks like 30%, 40%, 50% contraction, so I just thank to, does this 50% in the rest 70%, looks very large to me?
Rakesh Jha - Director: It could be a 30% less contraction definitely.
Adarsh B - BL India: And this number playing some FY '11 level could have been even more right 50%, 60% types?
N. S. Kannan - Executive Director and CFO: Of decline compared to FY '11?
Adarsh B - BL India: Yeah, I mean FY '11, not '12 because you would have seen two years declines now.
N. S. Kannan - Executive Director and CFO: 50%.
Operator: Nilanjan Karfa, Jefferies.
Nilanjan Karfa - Jefferies: Quickly on this you talked about we changed our composition or the presentation of the loan book, and you talked about ex sell-down buyout and across line items, could you just repeat that part, the growth in each of those subcomponents?
N. S. Kannan - Executive Director and CFO: So, if we look at the mortgage growth was 18% on a year-on-year basis, auto loans was 25%, the commercial business loans, which is commercial vehicles and construction equipment was 16.7% on a year-on-year basis. Excluding the impact of the lower level of buyouts and IBPCs as of this year-end. If you include the impact of buyouts and IBPCs, then that piece of the portfolio actually declined by 16% on a year-on-year basis.
Nilanjan Karfa - Jefferies: (The CBC)?
N. S. Kannan - Executive Director and CFO: Yes. And the unsecured retail portfolio grew by 20%.
Nilanjan Karfa - Jefferies: So, when you give out the guidance for let's say retail of 25%, is that like organic totally or it includes some buyout portfolios?
N. S. Kannan - Executive Director and CFO: Would be based primarily on our organic kind of business.
Nilanjan Karfa - Jefferies: And on the international side, the 10% growth is on a pure dollar basis, right, not on rupee basis?
N. S. Kannan - Executive Director and CFO: Rupee we can't really predict, so Not on rupee basis.
N. S. Kannan - Executive Director and CFO: Rupee we can't really predict.
Nilanjan Karfa - Jefferies: Right.
N. S. Kannan - Executive Director and CFO: Plans are made assuming that the rupee will…
Nilanjan Karfa - Jefferies: On the fee side again we just heard this explanation again, retail and SME for FY '13 contributed 50%, right.
N. S. Kannan - Executive Director and CFO: That’s right.
Nilanjan Karfa - Jefferies: And corporate was 30%?
N. S. Kannan - Executive Director and CFO: Corporate was pretty much the balance 50. Within that 50 about 70% would be from the commercial banking and FX side and about 30% would be from the…
Nilanjan Karfa - Jefferies: Could I have what was the breakup in FY '12 and how do you see that in FY '14 for example?
N. S. Kannan - Executive Director and CFO: FY '12 the wholesale piece was somewhat higher than this year in terms of the overall contribution we have seen the retail SME piece go up a couple of percentage points compared to FY '12. In FY '14 it's very difficult to give a segment wise estimate of the growth we see as Kannan mentioned overall fee income you are looking at double-digit kind of growth. So we would definitely expect some improvement in the wholesale fee income in terms of the fact that. The lending link fees has already come down a lot. So from this base it should not decline much from current level.
Nilanjan Karfa - Jefferies: Because if I recall, just after asking the question, recall you used to say corporate was used to be corporate to retail used to be 80-20 of thing right.
N. S. Kannan - Executive Director and CFO: That’s was never the case. Retail was more like 40% to 50%.
Nilanjan Karfa - Jefferies: So even after retail growing at 25% and do you still expect the retail to hold let's say around 50% odd off the fee income.
N. S. Kannan - Executive Director and CFO: It could be 50% to 60%, but on the corporate side, while the lending side fee income has come down as you said earlier we have really got the engine on transaction banking really growing. So, the endeavor would be to keep the ratios broadly in the current level and then grow the overall fee income by 10% next year.
Nilanjan Karfa - Jefferies: Just actually (Deloitte), you say that the transitional part of corporate banking has improved, but the corporates are really not doing that great. So, how is this component going up?
N. S. Kannan - Executive Director and CFO: In the last few years we have made a concerted effort to expand our commercial banking business. We set up a separate vertical kind of to do it and reorganized the way our branches functioned and to handle the corporate trade finance and related businesses. (Now the focus will) turn over to other technology and service all the three components. We also have had and continue to have a very large markets FX business, so those – our market shares are quite healthy now in both those businesses.
Nilanjan Karfa - Jefferies: You disclosed your off-balance sheet item including your FX and structured products. So, that is down on y-o-y basis if I'm not mistaken, right.
N. S. Kannan - Executive Director and CFO: That could have been some of those have been – and could have been because deal compression and things like that, but otherwise we have seen healthy growth in the transaction banking business.
Nilanjan Karfa - Jefferies: One question, as mentioned somewhere on the UPS side you made a substantial amount of provision, could you explain what type of?
N. S. Kannan - Executive Director and CFO: No, that is normal step of provision from the collective basis for the portfolio, so that is why the profits sort of came down. It's like otherwise for the whole year the U.K. business made profits.
Nilanjan Karfa - Jefferies: Was there anything specific that happened in Q4 which made you step up the provisions?
Rakesh Jha - Director: More specifically…
N. S. Kannan - Executive Director and CFO: It just happened. On the existing assets on the basis of step up provisions, it just happened. So there's nothing – no specific big asset or anything, it just happens.
Rakesh Jha - Director: As you know the profits in U.K. subsidiary anywhere is I think at a low level because of the low ROE there, so it's about $4 million to $5 million per quarter kind of a number. So when you are talking about some provision made, that is also that magnitude. It's not any large amount.
Operator: Anish Tawakley, Barclays.
Anish Tawakley - Barclays Capital: My questions are predominantly on the loan mix. So, the domestic corporate books has grown 30% year-on-year, which is higher than your expectations at the start of the year I guess. You were indicating about 20% growth there. So, one, what has turned out differently there? Second, on the – this I guess, I mean, I'm just working on the reclassification. This includes about INR10,000 crores it looks like or INR9,000 crores of builder loans. Could you talk about the growth in that segment also in particular? Thirdly, in the mortgage piece, how much is LAPP and how is that growing?
Rakesh Jha - Director: The builder loans have grown. As you mentioned, it was around INR90 billion in March 12, which was included in the retail portfolio; that has grown by about 20% during the year and now about INR110 billion is included in the corporate portfolio for March 2013. Overall domestic corporate, as you know, we were actually running at higher level till December, also, we were running close to this kind of a number of around 30%. One thing which we had talked about in the earlier quarters also was that last year in March 2012, we had done some IBPCs where we had sold down a part of our corporate portfolio about, INR45 billion to INR50 billion rupees, given that the funding cost was quite high. So, for the short period of time, we had used IBPC to sell down a part of that portfolio, so that itself makes a difference of about 4% to 5% in the growth. So, taking that into consideration the growth has been in line with what we were expecting for the year. Of course, again as Kannan mentioned that we're going into FY 2014, we would expect the growth on this corporate book to clearly be lower than what we have seen for FY '13.
Anish Tawakley - Barclays Capital: So, Rakesh I guess the question is, you have still a fair chunk I guess of undisbursed sanctions, and leaving aside the IBPC, how much does that like, if you don't do any IBPCs what would that just sort of bring on to the book?
Rakesh Jha - Director: Sorry.
Anish Tawakley - Barclays Capital: I mean the undisbursed project finance sanction, what does that imply, like, I guess, those will get disbursed over time.
Rakesh Jha - Director: So, they are no longer large numbers actually, if you look at – on the book, because as – again, we mentioned earlier, if you look at the last 18 or 24 months, you're really not seeing much of fresh activity happening. So, we will still have some disbursement coming off these sanctions but they are no longer very significant in the context of the overall growth portfolio.
Anish Tawakley - Barclays Capital: I guess, the question is Rakesh, I mean, you have now, one of the lowest funding costs in the business, right, so – and you obviously have surplus capital, so who buys loans from you, from a cheaper funding cost perspective really?
N. S. Kannan - Executive Director and CFO: This was March 2012.
Anish Tawakley - Barclays Capital: I understand, but even then you were – you had a very good consta ratio.
N. S. Kannan - Executive Director and CFO: If you look at incrementally, at that point of time, the wholesale deposit rates would have been close to 10%. So it does make just a pure, it's a…
Anish Tawakley - Barclays Capital: From your perspective it makes sense, but I guess the wholesale funding rates are the same for others also, so who buys it?
N. S. Kannan - Executive Director and CFO: If someone would want to have a balance sheet size, which is bigger at the period end would be keen to buy that portfolio.
Anish Tawakley - Barclays Capital: Could you just answer the question on lap, how much is lap?
N. S. Kannan - Executive Director and CFO: Just to reconfirm, IBPC was in March 2012 and not this year. Lap would be around 15% to 20% of the mortgages of the home loan portfolio.
Anish Tawakley - Barclays Capital: Is that growing faster or slower than the portfolio overall?
N. S. Kannan - Executive Director and CFO: Broadly around similar kind of trend.
Operator: Parag Jariwala, Macquarie Securities.
Parag Jariwala - Macquarie Securities: Just one small data point, your restructuring during the quarter was around INR8 billion, does it include any larger or chunky account, if you can give just the industry name in proportion?
N. S. Kannan - Executive Director and CFO: Actually mostly what has happened through the CDR, it is companies which are -- these will be handful of accounts.
Parag Jariwala - Macquarie Securities: So there is no concentration here?
N. S. Kannan - Executive Director and CFO: Number of sales is less than INR8 billion, so even if you assume that there are four, five accounts, it's been individual accounts, average size of INR2 billion or whatever.
Parag Jariwala - Macquarie Securities: Last quarter there is some classification, because last quarter when your restructuring number were reported 41.7 and that has been slightly upgraded I think. Is there any change in some norms have you followed something like that?
N. S. Kannan - Executive Director and CFO: As I mentioned earlier the RBI has come out with the revised norms for reporting restructure. What they have said is that even when – if a borrower, the same borrower we have four, five facilities and only one facility out of that got restructured you have to report the entire borrower exposure as restructure. Earlier we were doing that this one of the five loans was only restructured only one loan we were – that loan outstanding we would have reported as the restructured asset, so that has changed into the entire borrower level outstanding to be reported now. So, that is the only change both in the opening balance and the closing balance.
Parag Jariwala - Macquarie Securities: So, that is for the last quarter but I have to see for the earlier quarter can I roughly assume that similar proportion could be the number for borrower-wise as well?
N. S. Kannan - Executive Director and CFO: We have given the restated numbers for March, December and March which incorporates the impact of this guideline. So, if you look at the March and December numbers you will see they are roughly about INR3 billion higher, which is due to this guidelines.
Operator: Participants that was the last question. I would now like to hand the floor back to Mr. N. S. Kannan for closing comments. Over to you, sir.
N. S. Kannan - Executive Director and CFO: Thank you once again for your time and patients and we do hope that we have answered all your questions to your satisfaction. My team and I are available in case you have any further questions we can take them offline. Thank you. Bye-bye.