ICICI Bank on Tuesday reported a 108-basis-point (bps) sequential rise in bad loans in Q3 FY17. In an interaction with reporters, MD and CEO Chanda Kochhar said the bank’s watchlist, being called its drill-down list, stands at Rs 27,536 crore crore, and it will continue to reduce portfolios on account of reduction in concentration risk. Excerpts…
What were the reasons for the fall in profit in the quarter?
If you are comparing the profits with Q3 of last year (FY16) and Q2 of this year (FY17), both the quarters had substantial gains from sale of stake in life insurance companies. As I said, Q3 last year included a gain of Rs 1,243 crore on account of sale of life insurance, and Q2 this year included a gain of more than Rs 5,600 core. So if you take that out, then there is an increase in profit. So if you look at our fee income, that has actually grown from Rs 2,262 crore in the same quarter last year to Rs 2,495 crore in this quarter.
Net interest income (NII) is Rs 5,363 crore in this quarter and has grown from the previous quarter. We had always said that recognition of NPAs brings down NII. But on a sequential basis, there is an increase.
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Where did the slippages originate?
Of additions which are in the corporate and SME portfolio, 75% is either from the drill-down list, existing NPAs where the non-fund based facilities would have devolved or from the restructured book. The sectors of the drill down list are ones that we have always spoken of. The rest are not concentrated on any specific industry as such and are quite widespread.
As you see that the addition to NPA is Rs 7,000 crore compared to Rs 8,000 crore in the previous quarter. But we will have to watch the situation as it evolves, how various industries perform, how the resolution procedures move.
So I think it is very difficult to make forward looking statements on this. So, Rs 6,600-crore loan have slipped from the corporate loan book and the rest came from retail. Overall corporate loan growth was 4% and slippages from the restructured book was Rs 250 crore.
What is the status of the drill-down list?
The drill-down list as we call it, is the list of accounts below the investment grade from the five sectors. The opening balance as on April 1 was Rs 44,065 crore. During the nine months, there has been reduction by way of resolutions to the extent of Rs 4,600 crore whereas there has been a net rating upgrade to investment grade to the extent of Rs 308 crore. And Rs 12,057 crore has been classified as NPA, so the closing balance is Rs 27,536 crore.
As far as provisions are concerned, actually they are dependent on how the aging provisions come and if you specifically look at the previous quarters, then we had made additional floating provisions to the extent of Rs 3,500 crore.
What is your outlook on net interest margin (NIM)?
Even after taking into account the non-recognition of certain income, we still saw an improvement in the domestic margin so it really depends on what the CASA composition remains going forward and how much of the deposits remain which impacts cost of funding positively. And it really depend how the interest rates will be going forward and is therefore difficult to say.
How has credit growth been in the quarter?
The retail credit, even for the system, has continued to grow at about 15% and for us we are growing above the industry level at a little over 18%. The second area of growth is that even on the corporate side, actually the assets that we want to go for – assets excluding stressed ones, then on the rest we are growing at 15%. So, I think these are the two areas of growth for us. We will of course simultaneously continue to reduce portfolio on account of reduction in concentration risk. The two focus areas for us are retail and the corporates in the A category.
Are you seeing demand for corporate credit?
One is that there is refinance and the second is that working capital requirements on account of price increases and capacity utilisation requirements have also gone up.