business particularly distributing insurance and stuff like that. That number now stands at 1500 internet kiosks.

Transcription

1 Moderator: Good morning ladies and gentlemen, thank you for standing by. Welcome to the Q3 results conference call of ICICI bank. At this moment, all participants are in a listen-only mode. Later, we will conduct a question-andanswer session. At that time, if you have a question, please press *1.I would now like to turn the conference over to ICICI bank management representative. Please go ahead. Kalpana: This is Kalpana Morparia from ICICI bank. I have with me my full team, led by Mr. Venkatakrishnan and Rakesh Jha.What I am going to do is, I hope you would have received the copy of the press release as also the analyst presentation that we had posted to you. I will just give a few key highlights of our results. In the third quarter the net interest income was up by 43%. Fee income was up 83%. The overall profit before tax was up 28%, which is despite a dip of 48% in treasury income during the third quarter and with the higher tax rate that we have despite a 28% increase in profit before tax, we have had a 18% increase in profit after tax at Rs.5.2 billion. In terms of the balance sheet there is an overall growth in advances of 32%. The growth in retail loans has been about 63%. Some of the key ratios like return on assets is at 1.43, return on net worth is at 17, that s primarily because of the new capital that we raised in April. Net interest margins have expanded December 31, 2003 to December 31, 2004 by about 50 basis points. The fee to income ratio at 36%, we believe it s probably one of the best if not the best in the industry. Net non-performing assets are down to 2.3%. Net NPL ratio in retail assets is about 60 basis points. The net restructured assets stand at about 6800 crores or Rs.68 billion. Total capital adequacy, this has been calculated after applying RBI s new norms on with weightage for home loans and noncollateralized retail consumer credit is at 13.5%. With this I just thought I would mention a little bit on the operation side and the channel growth. In terms of operations, credit cards we got into the business five years ago, we currently have more than three million credit card customers. We believe that is the highest in the industry, even on a stock basis. In terms of channels in the last quarter, rather in the third quarter added 35 new branches in India. We continue to support people setting up internet kiosks and use that as a medium for doing rural

2 business particularly distributing insurance and stuff like that. That number now stands at 1500 internet kiosks. On the international operation side, as you know, we initiated the international operation just under two years ago in addition to the eight locations where we are currently present, the board has approved subject to RBI s approval, the setting up of representative offices in four new locations which is Kenya, Indonesia, Thailand and Malaysia. These will be representative offices once we get regulatory approvals, primarily focused on the bank getting trade finance flows between India and counter parties in these countries. We believe an on the ground local presence, very thin presence actually in a purely representative capacity, really enables us to garner more correspondent banking relationships and it also enables us in those countries where there is a strong non-resident Indian presence to try and see how we can assist in remittances and other products for the non-resident Indian community. With this we would be very happy to take questions. Sorry, before I really invite questions I d just like to make one other point, call it like a statutory warning if you will. As you know we have filed a draft offer document with the SEC for the sponsored ADR. We also sought the approval of the shareholders which we expect to receive by January end, and subject thereafter to compliance with whatever formalities with the SEC, we would hope to launch the sponsored ADR program. So I would urge you to really base all your questions on clarifications on the data that has already been provided to you in the form of the press note as also the presentation materials that we had posted out and not to ask me any forward looking questions nor ask additional data information. Thank you. Moderator: Thank you Madam. Ladies and gentlemen we will now begin the question and answer session. If you have a question, please press *1 on your push-button phone and await your turn to ask the question, when guided by the facilitator. If your question has been answered before your turn and you wish to withdraw your request, you may do so by pressing the # key. Our first question comes from Ms. Mahrukh, from UBS. Please go ahead Madam. Mahrukh: Hi everyone. Just had a few questions, one is that the restructured loans of Rs.68 billion which means

3 that there has been no improvement quarter-on- quarter. Is that true? I mean, there as a second quarter numbers, they are the second quarter level. Kalpana: It s 20 crores lower. Mahrukh: Okay thanks, and where is the MTM loss accounted for, in the non-interest income, right, in the treasury gains. Kalpana: It s in the provision line. Rakesh: The loss that we have taken of 183 crores on the portfolio as of the date of transfer, actually on the total portfolio there was a net gain of about crores. But we have to take only the negatives, that is why that number is at 183 crores. Mahrukh: In terms of capital gains, any break up between debt and equity? Rakesh: In terms of private equity basically that EICICI portfolio is 75% of the total. Mahrukh: Okay, thanks. Moderator: Thank you Ms. Mahrukh. We have our next participant Mr. Rajiv Verma from DSP ML. Please go ahead Mr. Verma. Verma: Good morning, Kalpana and Rakesh. Before I ask you on your Balance Sheet, we have seen growth in the retail portfolio which is obviously coming through. Just trying to understand the corporate side, you are not seeing a pick up or is that a function of your sell down because there is not really any susceptible increase in the corporate loan portfolio as just for the retail increases. Kalpana: We sold down roughly about 6000 crores of the corporate loans. Verma: Right so other if you can answer another question, How are you seeing the kind of.. Kalpana: Rajiv, I gave you the nine month number, the number is 3000 not 6000.

4 Verma: Okay, are you seeing a trend that is, going forward, not a forward looking statement but in the last nine months we have seen a trend which is showing a pick up in the corporate lending rate. Kalpana: There is definitely a strong corporate investment pipeline on a system-wise basis. Our belief is roughly half of that will be funded by internal accruals and equity capital whereas the other half we will really look at debt funding. So far as we are concerned we are seeing a pipeline of potential syndications coming through, they are as various stage. Verma: Okay, thanks. Moderator: Thank you Mr. Verma. We have our next participant, Mr. Sandip Dixit from Deutche Bank. Please go ahead Mr. Dixit. Dixit: The presentation this time seems to have dropped a couple of slides of information. I was wondering if I can ask you for that or would that be under restricted, I mean, stuff like interest on deposit, interest on borrowings, used to have the break up of interest expense earlier. It s probably not there in this presentation. Rakesh: We could add it back and put it on later. Kalpana: We will put it up on the site. Dixit: Okay, similarly on margins, what was margin in the third quarter? Rakesh: It s about 2.4%. Dixit: Which is same as last year quarter-on-quarter? Rakesh: It is same as second quarter. Dixit: Okay, the last question I have is on clarification on this NPLs number as usual. The provisions and writeoffs number that you have given presumably contains writeoffs in that figure is that correct? Rakesh: Yes. Dixit: What s the number?

5 Rakesh: Write-offs is at about 21.5 billion. Dixit: So it s come down from 2600 crores last quarter. Rakesh: Yeah. Dixit: Okay, now this one thing I don t seem to understand, out of the total provisions of 108 crores, 183 crores is mark-to-market. So the balance is of net credit of 75 crores, where is this coming from? Kalpana: From release of provisions, from write-backs. Dixit: Okay, NPL write-backs. Kalpana: NPL write-backs and if you remember we also had a higher provision that we were carrying on the EICICI book. Dixit: Okay, that does, thanks. Moderator: Thank you Mr. Dixit. Our next question comes from Mr. Aditya Narayan from Citi group. Please proceed Mr. Narayan. Narayan: Hi, the bulk of my questions are being answered. Just one clarification on the tax front, there seems to be a write-back also of about 50 odd crores, which is then offset by deferred tax. Anything to this or this just follows in line with the provisioning write-back? Rakesh: This is in line with the as and when we make the write-offs, find that the current tax you would be going down, because if you look at the effective tax rate we are at about 20%. Between the deferred and the current it is a function of how much of actual write-offs we claimed during that period in the tax accounts. Narayan: And they are likely to, going forward, move in the same trend where you will get some write-backs and you will get the deferred tax back charge. Rakesh: Yeah, but the effective tax rates would be at current levels for this year. Narayan: Okay, thanks.

6 Moderator: Thank you Mr. Narayan. We have our next participant, Ms. Pallavi Deshpande from Principal Mutual Fund. Please proceed Ms. Deshpande. Deshpande: Good morning, just wanted to know what is the number for the transfer to ARCIL? Kalpana: Roughly about 250 Crores. Deshpande: Right, thank you. Moderator: Thank you Ms. Deshpande. We have Ms. Tabassum Inamdar from Kotak Securities. Tabassum: Hi Kalpana, good morning. Just one clarification on this ARCIL, 250 crores is the net amount which has been transferred and would that be reduced from your net NPL number? Rakesh: Yeah, it is the net amount that will be transferred. Tabassum: And that could be reduced from the net NPL number in this quarter which is reflecting the net NPL post this 250 crores, right? Rakesh: Yeah. Tabassum: Okay, the question is on retail. You mentioned 3000 crores corporate book has been sold, what about retails? Rakesh: Tabassum: 9000 in this quarter? Rakesh: Nine months, both are nine months numbers. Tabassum: Okay, so 9000 crores in nine months and corporate was 3000 crores. Rakesh: Yeah. Tabassum: And the profit number, which is included in the interest income would be what, 15-20% of net income or..? Rakesh: For the nine month, yes.

7 Tabassum: How much 15 or 20? Rakesh: It s about slightly below 20%. Tabassum: Okay, just one more question, you all never seem to have stabilized at 2.4%, now incrementally next year would that mean that, what kind of NIMs would you, I mean, it is a forward looking question but clearly I think what one of the concern which I would have is that the NIMs doesn t seem to be improving from here on. Just wondering what would happen to operating profit growth from? Kalpana: Tabassum, we can t make any forward looking statement, but I just want to state the factual position for you. In November, of this third quarter, we had announced an increase in rates on home loans and some of the other retail loans. That increase comes into effect from first of January. Tabassum: Okay, thanks. Moderator: Thank you Ms. Inamdar. We have our next participant Mr. Sampath from ABN Amro. Please go ahead Sir. Sampat: Hi, I had few questions. One is that the ARCIL transfer that you have made actually, have you also seen any resolution something that has come back to you already? Kalpana: The way we have seen the resolution ARCIL gives us the NAV precisely, that is one. We haven t got any of the units redeemed but we understand from ARCIL that in some of the cases or rather they believe, that in a bulk of the cases that have been transferred, they have worked out its solution package which now just needs to get executed. And in some of the properties which they have auctioned actually, they got very good response. Sampat: Okay, and the other thing is securitization side, this quarter how much would be the retail loans securitization? Kalpana: In Q3? Sampat: Yeah. Rakesh: 25 billion.

8 Sampat: And what will be the general provisions that we are carrying as of today on your corporate book? Rakesh: We have not given out that number. Sampat: All right, thank you very much. Moderator: Thank you Mr. Sampat. Our next question comes from Mr. Jatinder Agarwal from Refco. Please go ahead Mr. Agarwal. Jatinder: Good morning, just one question on capital adequacy ratio is that 8.6 in Tier-1correct everywhere post the new regulations. What is the impact due to the new regulations? And when do you look at such a law being reversed, if so? Rakesh: The increase with it was 90 basis points on the total capital adequacy of the bank. Jatinder: Do you have the break-up of Tear-1, Tear-2 whatsoever? Rakesh: 60 bases points in Tier-1 and 30 in the Tier-2. Jatinder: soon? Do you look at such a thing reversing anytime Kapana: Reserve Bank of India has said it was temporary in nature. Jatinder: Okay, thanks. Moderator: Thank you Mr. Agarwal. We have Ms. Mahrukh Adajania from UBS. Please go ahead Madam. Mahrukh: Sorry, my question has been answered it was on securitization, thanks. Moderator: Thank you. We have Mr. Sandip Dixit from Deutche Bank. Mr. Dixit please proceed Sir. Sandip: Hi, just one clarification, your cost-income ratio doesn t seem to be coming under control, it is given if you adjust for treasury, the numbers I am looking at it looks like 50% ex-treasury which is still higher quarter-on-

9 quarter. What stage do we see the cost-income ratio stabilizing? Kalpana: In the retail business you cannot have a complete match with the revenue and the operating costs. As I mentioned to you that 35 new branches are what we set up in the 3 rd quarter. We are rolling out new locations on the retail assets side as well. First one cannot say that for every Re.1 of cost that you have got you have already got Rs.2 of revenue and therefore you will see a perfect match every time. On quarter-on-quarter you will see this variation but we cannot make a forward-looking statement. If you look at the overall cost to income ratio in the quarters that you have seen that hovers around 40% number. It may have been 41 point something, it may have been 42 point something but it has really not even crossed the midpoint in the low fourties. Sandip: Can you say that how do you get the 40%, if you look at the revenues versus, what are we adjusting here in terms of costs or revenue? Rakesh: In terms of costs that is excluding the DMA expenses, that is the direct function of the business growth, that is not really a big issue. Sandip: Then either way if it doesn t go out of the cost it has to go out of the revenue because it expects to lead a lower yield earning on your assets. Rakesh: As you are aware, we are taking DMA expenses on an upfront basis in the P&L, so it just distorts the picture. Kalpana: Supposing if I paid a DMA commission for having sourced a scooter loan for me the revenue on that is going flow through next three years whereas I will be required under the Reserve Bank rules to take the knock immediately in that particular day that I booked the loan. Sandip: Can I just ask, again excuse me if this is forward looking question. At what stage do you think your geographical reach is adequate? Kalpana: As you know, this is a growing business, in so far as branches are concerned even with the addition of 35 branches we are at about 505 branches. Largely now any growth will really be consistent with the potential of any

10 new geographies and Sandip I would also urge you to really focus on the cost to asset ratio because income in the context of ICICI where your net interest income is not fully reflected of the interest income that we are really getting on the new business book because we have a legacy that we are carrying. I thought a more appropriate measure would be really to look at the cost to asset ratio. Sandip: Correct, thank you. Moderator: Thank you Mr. Dixit. We have our next participant Mr. Punit Srivastav from Enam Securities. Please proceed Sir. Punit: Hi, just if you can give a brief break-up of the fee based income, basically where the largest portion of this income has come apart from the material and wholesale break-up that you would have. Kalpana: The proportion remains exactly the same as earlier, 53% retail, 7% international and 40% corporate. Punit: Also can you give a break-up on the treasury side especially on the Forex income side? Rakesh: We have not given those numbers Punit, it is in line with the earlier quarters. Punit: Okay, thanks. Moderator: Thank you Mr. Srivatsav. We have our next participant Mr. Sachin Sheth from JP Morgan. Please go ahead with your question Mr. Sheth. Sachin: Hi, everybody, congratulations. I have just one small question on what is the kind of number of customers you have now outstanding and how do you see the trends in past at least in the last quarter? Kalpana: 12 million. Sachin: That would compare again with around 6 million last year? Kalpana: That would compare with about 7 last year. Sachin: Okay, thank you.

11 Kalpana: Yeah, March I believe the number was 6½ million. Sachin: Okay, thanks. Moderator: Thank you Mr. Sheth. We have our next participant Mr. Sampat from ABN Amro. Please go ahead Sir. Sampat: Just have one more question on this classification of securities. You don t seem to have much of mark-tomarket loss, I don t understand what is the motivation for classifying at this point of time? Kalpana: This is a one-time exercise, which was allowed by Reserve Bank of India. We don t believe that this is some thing, which is going to be allowed on a continued basis. My understanding is that this transfer was allowed only in this financial year. Now while interest rates are benign now, we see no reason why that situation should change. But we live in a volatile time, so if the regulator was giving you a one-time option of insulating the mandatory portfolio against any future knock, we thought it was more prudent to take that opportunity. Sampat: Okay, thank you. Kalpana: Sachin, Rakesh wants to clarify on the number of customers. Rakesh: It was 6½ million in March 2003 and March 2004 it was about 10 million and December is now about 12 million. Moderator: Thank you Mr. Sampat. We have Ms. Tabassum Inamdar from Kotak Securites. Ms. Inamdar please go ahead. Tabassum: Hi, just one more clarification, in your consolidated numbers how much would be the profit of ICICI securities, the break-up? Rakesh: 18 crores. Tabassum: 18 crores in this quarter itself, right? Rakesh: In these 9 months. Tabassum: number? And last year how much was that, comparable

12 Rakesh: 130 crores. Tabassum: Just one more clarification on this MTM, what were the yields when you transferred? Rakesh: We have not disclosed that figure. Tabassum: And how much would have been transferred in terms of overall portfolio? Kalpana: 21,000 crores. Tabassum: Okay, thanks. Moderator: Thank you Ms. Inamdar. Our next question comes from Ms. Sohini from ASK Raymonds James. Please go ahead with your question. Sohini: I just wanted to know that how much of your total portfolio is under HTM category now? And what would be the duration on the HTM as well as AFS category? Rakesh: We continue with our earlier strategy in terms of maintaining a low duration, the total duration of the Government security portfolio is that 2 years and now predominantly nearly the entire portfolio would be between the HTM category, only a small amount would be in the AFS category. Sohini: Okay, thank you. Moderator: Thank you Ms. Sohini. We have our next participant Mr. Ashutosh Narkar from India Infoline. Please go ahead Mr. Narkar. Ashutosh: Hi, most of my questions have been answered. I have one more question. What is the amount of SME loans in your corporate books? Rakesh: About 2,000 crores. Ashutosh: Yeah, thanks a lot. Moderator: Thank you Mr. Narkar. We have Ms. Mahrukh Adajania from UBS. Please proceed with your question Ms. Mahrukh.

13 Mahrukh: Hi, I have a question on the deposit mix in terms of current and savings. The current account is there any one-off or it s just in the normal course? Rakesh: Current account at any point of time there are always one-offs. Mahrukh: But is there any large chunk or it s? Rakesh: Any point of time there are large, in current account they are always corporate current accounts which are there. Mahrukh: No, as in that 24%, I know forward looking statements are not allowed but are you comfortable with this mix going ahead? Rakesh: In fact whatever the average current and savings accounts that we have over the last 9 months we are comfortable with that number. Mahrukh: Okay, thanks. Moderator: Thank you Madam. Our next question comes from Ms. Pallavi Deshpande from Principal Mutual Fund. Ms. Deshpande please go ahead. Pallavi: Continuing with the deposit mix could I have the figure of savings deposits, unlinked the savings deposits? Rakesh: The total savings deposit is 107 billion, current account is about 91 billion. Pallavi: You have this product, which is that linked product so excluding that what would this be? Rakesh: Excluding the link product. Pallavi: Okay, thank you. Moderator: Thank you Ms. Deshpande. We have our next participant Mr. Punit Srivastav from Enam Securities. Please go ahead Mr. Srivatsav. Punit: Actually this was regarding again on the other income side. Is it possible for you to give the net

14 treasury income because this time it has been changed a bit in terms of the format? Can you just give us the net treasury income whether it is a positive figure or negative figure because others include I believe everything? Rakesh: Actually you may have not got the presentation. Punit: I got the presentation but may be I have not checked it properly. Rakesh: Look at the slide 3 in the presentation it gives the treasury income, about 2 billion for Q3 and 4.15 billion for 9 months. Kalpana: Even in the summary P&L on the press release also it is very clearly broken out. Punit: Okay, in Q3 this is 1.99, you are saying 75% of this is equity? Rakesh: Yeah. Punit: Okay, thanks. Moderator: Thank you Mr. Srivatsav. Ladies and gentleman for any further questions please press *1. Participants who wish to ask questions may please press *1 now. Kalpana: If there are not other questions, let me thank all of you and the transcript of this will be available. Thank you. Moderator: Thank you Madam. Ladies and gentleman this concludes your conference for today. We thank you for your participation and for using TATA Indicom conferencing services. You may please disconnect your lines now. Thank you and have a nice day.