ICICI Bank Limited (ICICIBANK) Earnings Call Transcript

Ladies and gentlemen, good day, and welcome to ICICI Bank Limited Q1 FY '27 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Sandeep Bakhshi, Managing Director and Chief Executive Officer of ICICI Bank. Thank you, and over to you, sir.

Thank you. Good evening to all of you, and welcome to the ICICI Bank earnings call to discuss the results for Q1 of financial year '27. Joining us today on this call are Sandeep Batra, Rakesh, Ajay, Ananda and Abhinai. At ICICI Bank, our strategic focus continues to be on growing profit before tax, excluding treasury through the 360-degree customer-centric approach and by serving opportunities across ecosystems and micro markets. The profit before tax, excluding treasury grew by 20.9% year-on-year to INR 189.75 billion in this quarter. The core operating profit increased by 15.6% year-on-year to INR 202.35 billion in this quarter. The core operating profit, excluding dividend from subsidiaries increased by 18.3% year-on-year to INR 191.25 billion in this quarter. The profit after tax grew by 15.9% year-on-year to INR 148.05 billion in this quarter. Total deposits grew by 14% year-on-year and 2.2% sequentially at June 30, '26. Average deposits grew by 14% year-on-year and 6.1% sequentially and average current and savings account deposits grew by 12.1% year-on-year and 4.7% sequentially during this quarter. The bank's average liquidity coverage ratio, LCR for the quarter was about 124%. The overall loan portfolio, including the international branches, portfolio grew by 19.6% year-on-year and 5% sequentially at June 30, '26. The retail loan portfolio grew by 12% year-on-year and 2.7% sequentially. Including non-fund-based outstanding, the retail portfolio was 41.1% of the total portfolio. The rural portfolio, including gold loan grew by 35.4% year-on-year and 6.2% sequentially. The Business Banking portfolio grew by 28.2% year-on-year and 6.9% sequentially. The domestic corporate portfolio grew by 18.5% year-on-year and 6.9% sequentially. The domestic loan portfolio grew by 18.8% year-on-year and 4.6% sequentially at June 30, '26. The overseas portfolio was 3.1% of the overall loan book at June 30, '26. The net NPA ratio was 0.35% at June 30, '26 compared to 0.33% at March 31, '26 and 0.41% at June 30, '25. During the quarter, there were net additions of INR 27.07 billion to gross NPAs, excluding write-offs and sales. The total provisions during the quarter were INR 12.60 billion or 6.2% of the core operating profit and 0.32% of average advances. The provisioning coverage ratio on nonperforming loans was 74.7% at June 30, '26. In addition, the bank continues to hold contingency provision of INR 131 billion or about 0.8% of total advances at June 30, '26. The capital position of the bank continued to be strong with the CET1 ratio 16.19% and total capital adequacy ratio of 16.84% at June 30, '26. Looking ahead, we see many opportunities to drive risk-profitable growth and grow market share across key segments. We remain focused on maintaining a strong balance sheet, prudent provisioning and healthy levels of capital while delivering sustainable and predictable returns to our shareholders. And I now hand the call over to Anindya.

Thank you, Sandeep. I will talk about loan growth, credit quality, P&L details and the performance of subsidiaries. Sandeep covered the loan growth across various segments. Coming to the growth across retail products. The mortgage portfolio grew by 14.6% year-on-year and 3.2% sequentially. Auto loans grew by 3.6% year-on-year and 1.2% sequentially. The commercial vehicles and equipment portfolio grew by 12.8% year-on-year and 2.2% sequentially. Personal loans grew by 12.9% year-on-year and 4% sequentially. The credit card portfolio declined by 1.9% year-on-year and 1.7% sequentially. Within the corporate portfolio, the total outstanding to NBFCs and HFCs was INR 920.52 billion, at June 30, 2026 compared to INR 859.04 billion at March 31, 2026. The total outstanding loans to NBFCs and HFCs were about 4.5% of our advances at June 30, 2026. The builder portfolio, including construction finance, lease rental discounting, term loans and working capital was INR 747.21 billion at June 30, 2026, compared to INR 714.21 billion at March 31, 2026. The buildup portfolio was 4.3% of our total loan portfolio. Our portfolio largely comprises well-established builders, and this is also reflected in the sequential increase in the portfolio about 0.7% of the builder portfolio at June 30, 2026, was either rated BB and below internally or was classified as nonperforming. The gross NPA additions were INR 55.52 billion in the current quarter compared to INR 62.45 billion in Q1 of last year. There were gross NPA additions of INR 7.06 billion from the Kisan credit card portfolio in the current quarter. We typically see higher NPA additions from the Kisan credit card portfolio in the first and third quarter of a fiscal year. Recoveries and upgrades from gross NPAs, excluding write-offs and sales were INR 28.45 billion in the current quarter compared to INR 32.11 billion in Q1 of last year. The net additions to gross NPAs were INR 27.07 billion in the current quarter compared to INR 30.34 billion in Q1 of last year. The gross NPA additions from the retail and rural portfolios were INR 43.31 billion in the current quarter compared to INR 51.93 billion in Q1 of last year. These include the KCC NPAs mentioned earlier. Recoveries and upgrades from the retail and rural portfolios were INR 22.10 billion in the current quarter compared to INR 25.25 billion in Q1 last year. The net additions to gross NPAs in the retail and rural portfolios were INR 21.21 billion in the current quarter compared to INR 26.68 billion in Q1 of last year. The gross NPA additions from the corporate and business banking portfolios were INR 12.21 billion in the current quarter compared to INR 10.52 billion in Q1 of last year. Recoveries and upgrades from the corporate and business banking portfolios were INR 6.35 billion in the current quarter compared to INR 6.86 billion in Q1 of last year. There were net additions to gross NPAs of INR 5.86 billion in the current quarter in the corporate and business banking portfolios compared to INR 3.66 billion in Q1 of last year. The gross NPAs written off during the quarter were INR 16.73 billion. Further, there were sale of NPAs of INR 2.39 billion for cash in the current quarter. The non-fund based outstanding to borrowers classified as nonperforming was INR 22.07 billion as of June 30, 2026, as compared to INR 21.74 billion as of March 31, 2026, and INR 32.98 billion as of June 30, 2025. The loans and nonfund-based outstanding to performing corporate borrowers rated BB and below was INR 34.85 billion at June 30, 2026, as compared to INR 35.19 billion at March 31, 2026, and INR 29.95 billion at June 30, 2025. This portfolio was about 0.2% of our advances at June 30, 2026. The total fund-based outstanding towards standard borrowers under resolution as per various guidelines, declined to INR 13.63 billion at June 30, 2026, from INR 14.96 billion at March 31, 2026, and INR 17.88 billion at June 30, 2025. At the end of June, the total provisions other than specific provisions on fund-based outstanding to borrowers classified as nonperforming were INR 229.63 billion or 1.4% of loans. This includes the contingency provisions of INR 131 billion as well as general provision on standard assets, provisions held for non-fund-based outstanding to borrowers classified as nonperforming fund and nonfund-based outstanding to standard borrowers under resolution and BB & Below portfolio. The bank also continues to hold additional standard asset provision of INR 12.83 billion made in Q3 of FY 2026 as directed by RBI in respect of the agricultural priority sector portfolio. Moving on to the P&L details. Net interest income increased by 12.7% year-on-year and 6.1% sequentially to INR 243.84 billion in this quarter. The net interest margin was 4.36% in this quarter compared to 4.32% in the previous quarter and 4.34% in Q1 of last year. The cost of deposits was 4.41% in this quarter compared to 4.43% in the previous quarter and 4.85% in Q1 of last year. The benefit of interest on income tax refund was 8 basis points in the current quarter compared to 5 basis points in the previous quarter and 7 basis points in Q1 of last year. Excluding the benefit of interest on tax refund, the net interest margin would have been 4.28% in this quarter, 4.27% in the previous quarter and 4.27% in Q1 of last year. Of the total domestic loans, interest rates on about 57% of the loans are linked to the repo rate and other external benchmarks, 13% to MCLR and other older benchmarks and the remaining 30% of loans have fixed interest rates. Noninterest income, excluding treasury grew by 16% year-on-year to INR 84.25 billion in Q1 of FY 2027. Fee income increased by 23.5% year-on-year to INR 72.86 billion in this quarter off a low base of Q1 of last year. Fees from retail rural and business banking customers constituted about 72% of the total fees in this quarter. Dividend income from subsidiaries was INR 11.1 billion in this quarter compared to INR 13.36 billion in Q1 of last year. On costs, the bank's operating expenses increased by 10.4% year-on-year in this quarter compared to 11.5% year-on-year in FY 2026. Employee expenses increased by 5.5% year-on-year in this quarter, reflecting mainly the impact of annual increments and promotions that take place during the first quarter of every fiscal year. Nonemployee expenses increased by 13.8% year-on-year in this quarter. Our branch count has increased by 97 in the first quarter. We had 7,608 branches as of June 30, 2026. The technology expenses were about 11.4% of our operating expenses this quarter. The total provisions during the quarter were INR 12.6 billion or 6.2% of core operating profit and 0.32% of average advances compared to the provisions of INR 18.15 billion in Q1 of last year. The profit before tax, excluding treasury grew by 20.9% year-on-year to INR 189.75 billion in Q1 of this year. There was a treasury gain of INR 1.51 billion in this quarter as compared to a loss of INR 1.06 billion in the previous quarter and a gain of INR 12.41 billion in Q1 of last year. The tax expense was INR 43.21 billion in this quarter compared to INR 41.63 billion in the corresponding quarter last year. The bank has written back tax provision of INR 4.46 billion, pursuant to favorable tax orders. The profit after tax grew by 15.9% year-on-year to INR 148.05 billion in this quarter. The consolidated profit after tax grew by 13.9% year-on-year to INR 154.4 billion in this quarter. The details of the financial performance of key subsidiaries are covered in Slides 33 to 35 and 54 to 59 in the investor presentation. The annualized premium equivalent of ICICI Life increased to INR 21.36 billion in Q1 2027 from INR 18.64 billion in Q1 2026. The value of new business increased to INR 5.71 billion in Q1 2027 from INR 4.57 billion in Q1 2026. The value of new business margin was 26.7% in Q1 2027 compared to 24.7% in FY 2026. The profit after tax of ICICI Life increased to INR 3.86 billion in Q1 2027 from INR 3.02 billion in Q1 2026. Gross direct premium income of ICICI General increased to INR 83.18 billion in Q1 2027 from INR 77.35 billion in Q1 2026. The combined ratio stood at 107.2%, in Q1 2027 compared to 102.9% in Q1 2026. The profit after tax was INR 4.03 billion in Q1 2027 compared to INR 7.47 billion in 2026. The results for the quarter include the impact of an increase in reserve pursuant to a recent judicial pronouncement. The profit after tax of ICICI AMC as per INDAS increased to INR 9.65 billion in this quarter from INR 7.84 billion in Q1 of last year. The profit after tax of ICICI Securities as per Ind AS on a consolidated basis, was INR 4.19 billion in this quarter compared to INR 3.91 billion in Q1 of last year. ICICI Bank Canada had a profit after tax of CAD 5.3 million in this quarter compared to CAD 7.8 million in Q1 of last year. ICICI Bank U.K. had a profit after tax of USD 7.2 million in this quarter compared to USD 5.9 million in Q1 of last year. As per Ind AS, ICICI Home Finance had a profit after tax of INR 2 billion in the current quarter compared to INR 2.14 billion in Q1 of last year. With this, we conclude our opening remarks, and we will now be happy to take your questions.

[Operator Instructions] We will take a first question of Mahrukh Adajania from Tara Capital.

Congratulations. I had a question on your loan growth outlook, given that you've already achieved such good loan growth in a seasonally weak quarter. Do you find this sustaining as in would you be able to do, say, a high teen loan growth through the year? Is there enough visible demand across your segments? So that's my first question. And then on FCNR, if you have a target in mind and how much you've already mobilized and what is the cost effectiveness of FCNRB relative to your domestic term deposits? And also just 1 more question. The foreign loans, they've grown quite aggressively this quarter. So any comments on that?

Yes. So on the first one, I think it's partly really reflective of what has happened in the system where loan growth has picked up over the last 2, 3 quarters as the various policy measures, both on the fiscal side and the monetary side have taken effect. And I think not just loan growth but a range of other high-frequency indicators are showing positive momentum. So we are sort of participating in that. And we will keep looking at opportunities as they come. And I think the momentum continues to be pretty good as far as we can see it. On the second question on FCNR, we don't really have any target or some that we put out. I think -- we think it's a good scheme, and we will look to mobilize as much as we can, but it is very early days yet. This is something that will really play out over the next maybe 8 weeks, 10 weeks or so. So nothing that can be said on that just now. from a cost-effectiveness perspective, 6% and then if you look at kind of the all-in cost after hedging the coupon, et cetera, it will be somewhere maybe 630, 640 , which is, of course, lower than the wholesale lending rates and it will therefore, be competitive compared to the wholesale lending rates. And of course, there will be an incremental loan growth opportunity also as these plans start getting deployed. Lastly, on the international branches growth, I guess, again, over the -- even if we look at the previous quarter, we had a decent momentum. So we did see some amount -- we have been seeing both increase in the trade-related book as well as some borrowing by the overseas operations of Indian companies, well-rated companies. and we have been participating in that. And as we go forward, of course, there will be some amount of loans against pin deposits that will also keep adding to the loan book overseas.

Next question is from the line of Kunal Shah from Citigroup.

So firstly, just a clarification on the NIM. The overall yields have held on steady despite the reversals on agri -- so was there any offsetting recoveries also during the quarter, which has helped that in terms of sustaining the yields.

That's something that keeps happening on an ongoing basis. I think overall, the NIM reflects, I think, the healthy funding franchise our disciplined approach consistently on both deposit and loan pricing and as well as our management of the government securities book. So I think that is what really causes the yield that is what really held the NIM up. And as for other factors, there is always some amount of collections or less or more in each quarter. There was, of course, this interest on income tax refund, which we have as always specifically called out even adjusting for that, the NIM is stable both on a year-on-year and on a quarter-on-quarter basis.

Sir, question was more on yield because the growth is also coming in from the corporate and all Okay. So to that extent, is are still sustained. So that was the question. And secondly, on the agri. So now maybe larger part of the regularization we have been working all through and would have been interacting with the regulator as well -- so -- and how is the approach? And when do we see the recoveries coming through or maybe the reversal of the provision? Is it expected to come through in the second quarter? Or maybe it might take some time and we should see it more towards the end of the fiscal year.

I wouldn't really be able to comment on the timing. But yes, of course, we have been working on the required remediation of the portfolio. And we just want to make sure that whatever we have done is correct and signed off and validated. -- before we discount a write-back of the provision. So I think we are in the process, and we will hopefully work it out over the next few months, but I don't want to give a time line.

Okay. So that process is already on in terms of the validation and getting the sign of.

Yes, very much so. It's a granular portfolio. And as I said, we want to make sure that we are getting it right and then we want to get it appropriately validated. The work that the field teams have done, and that process is on.

Next question is from the [indiscernible].

I had 5 questions. First 1 is on fee income. It has accelerated significantly from 8% Y-o-Y last year. to 23% Y-o-Y this quarter. If you could just throw some color on what is driving this? And should 1 expect it to remain closer to the overall balance sheet growth here onwards?

So as I briefly mentioned in our opening remarks, there is some sort of a base effect. Last year, the fee income growth in Q1 was, in fact, sequentially lower over the preceding quarter. Sorry, the absolute fee income in Q1 was actually sequentially lower over the preceding quarter. So there is some amount of base effect as well. And I think other than that, it really reflects the underlying business momentum. We've seen growth pick up across all business segments, retail and corporate, while Business banking has sustained. So we would continue to focus on the fee income line item as we go forward.

The second question on margins. You managed it extremely well in the cycle. And now with loan growth accelerating meaningfully for you, would you continue to maintain your guidance on range-bound margins even going ahead?

So there are a lot of moving parts to it because it really depends, to some extent, on systemic liquidity and interest rates where, for example, in the month of May, we had seen a lot of hardening of wholesale rates. That has come off substantially. So as based on current conditions and assuming no real policy rate movements, I would say it should be range bound. We'll also have to, as we go along, factor in sort of the impact of the FCNR deposit mobilization and the related leverage where there could be some impact on margins, but that is something that will happen over a period of time. In any case, the program itself has significant advantages. So that's something we'll see. But other things -- other things being equal, I would still say a range.

That exactly was my third question. So could you talk a bit more about potential NIM and profitability profile for FCNR raised via self-leverage and versus via tie-ups with the foreign banks? Is it materially different? -- in terms of the implications on margins and profitability?

I think we have just about started that whole process. So we will have to we'll have to wait and see. It will be a combination of unleveraged deposits, deposits that -- where we are providing leverage. And for that, there may be some fundraising requirement at our end as well -- and there will be, of course, other banks providing leverage for deposits into us. So as I said, the best guess we have now. So there could be some impact on the NIM, particularly because as I mentioned in response to Mahrukh's question, the balance sheet of the international branches will expand materially as this -- if we indeed are able to mobilize significant amount. So that will happen. So we will see it as it comes. But of course, -- from an earnings perspective, it is quite positive.

All right. The fourth 1 is on recoveries. Was there any one-off recovery in this quarter from any accounts?

So I think most -- you would all be aware that in 1 particular case, there was an NCLT judgment, which -- where the company was taken over -- so that recovery did come through this quarter. This is an asset that had been previously sold to RCL. And that is there, and then there are some other things in the regular course -- but from a credit cost perspective, the reported of 32 basis points I guess, as we always say, in the more normalized level, adjusting for chunky recoveries would be around 50 bps, and that is where it stays.

Got it. And the last question is on ECL. If you could just talk about the impact on transition from next year, both on a onetime basis on net worth and also on the recurring credit cost, please?

So on the net worth, we will not really have any impact in our assessment based on whatever pro forma estimates we've done based on the existing position of the balance sheet of the portfolio is that whatever impact is there will be well absorbed by our provisioning buffers. Of course, all this depends on what is the situation of the portfolio at that point in time. On an ongoing basis, the fact that we will be providing for stage 2 will -- obviously, that is a provision that is currently not made by any bank. So that will result in higher provisions, which will be partially offset by lower provisions on the Stage 3, where currently, we follow this percentage-based approach, and there it will be much more on a predicted loss kind of approach.

Pro forma estimate that you may want to call out, like is it 5, 10 bps or.

No, very difficult to make that estimate because we then actually have to run it based on the new ECL guidelines. So I think we are all -- so I think we have some assessment of the transition impact. The ongoing impact is something that will come, but it will be a uniform impact across the sector, adjusted for portfolio composition.

Congrats on a very strong quarter. Thank you very much.

Next question is from the line of Chintan from Autonomous Research.

We have seen some very strong loan growth, particularly business banking. I'm just wondering, is this the right time to accelerate given we're going through the energy shock and lines upon us. We are posting a little bit on the kind of macro toss from last year. But I'm just wondering how you think about the growth opportunity and the evolving environment over the next kind of year or 2.

So we are, of course, monitoring this portfolio very closely, and we are factoring in some of these West Asia, et cetera, into our customer selection and onboard. But I think fundamentally, we feel quite comfortable with the portfolio and with growing it. There is -- you would see the NPL performance is also pretty good and stable. And we will keep adjusting it as we go along, but it is a granular portfolio, reasonably secured portfolio, and we are quite comfortable growing it.