Chanda Kochhar, Joint MD & CFO, ICICI Bank Ltd says that the bank has seen 36% growth in Deposits and 25% in retail fee income.

She adds that they have opened 350 branches and have licenses to open another 125.

She further adds that their FY08 NIM is at 2.2% and Q4 NIM is at 2.4%. The bank has a provision of USD100 million for MTM losses on exposure to credit derivatives, she adds.

Excerpts from CNBC-TV18's exclusive interview with Chanda Kochhar:

Q: While 34% is a very good profit growth, if you looked at the entire balance sheet growth or rather only the advances growth or only deposit growth, there has been a significant sign of slowing. Last year i.e. FY07 you grew by 35% on advances. This year it is 19%. Likewise on deposits last year was a 40% growth and there this time if I understood you right, it was 36% and a definite sign of slowing?

A: Not really a definite sign of slowing, actually our growth is on the ICICI Bank international subsidiaries and in the housing finance companies, so whenever you compare our numbers, you should really compare that in totality. If you look at our consolidated numbers and gross it up for sell downs, our advances have really grown by 26%. That is still a little higher than the industry growth.

Q: Coming to your NPAs. There is a significant growth if you looked at the gross numbers or the net numbers. From Rs 4,126 crore to Rs 7,579 crore - that’s an 83% jump if you took the gross NPAs. Likewise in the net NPAs its nearly 60% from Rs 1,990 crore to Rs 3,490 crore, is this something that you would see significantly going down in the coming months or if there is a credit tightening, this could be continued problem area?

A: I don’t see it as a problem area. I will explain the reason for this increase. The increase is really because of the change in the composition of our loan portfolio and therefore even when you look at percentages, they tend to give a little different picture but the uncollateralized portion of our total retail business which was around 11-12% last year has gone up to 18% this year.

So one increase is on account of that and the second is that the balance sheet as you said which grew by 34% last year, grew by about 26% this year. So the denominator growth rate changes and therefore the percentages look different.

So the number looks different on account of these two reasons but we are not seeing not any significant deterioration in credit quality in of our portfolios and if you just compare it to again the NPA number of 31 December, 31 December NPA was 1.47 and as on 31 March its 1.49.

Q: I have a figure of 1.55 in the table provided by you?

A: Our NPA number is 1.49.

Q: Coming to provisioning it has gone up only marginally from 876 crore to 947 crore provisions other than tax and contingencies that is and contingencies. You are providing USD 100 million only in the fourth quarter for your CDS exposure your Collateralized Debt Obligation (CDO) and Credit Linked Note (CLN) exposure what would be the full year. For 9 months you had reported 88 million should we take the full year as 188 or would it be a different figure?

A: For nine months we had reported USD 70 million to be precise so in between there were January numbers so there could be a confusion, so you should take the total years number as USD 170 million that is Rs 680 crore. Again I must reiterate that these are only Mark To Market (MTM) loses, there is no deterioration in the underline credit quality.

However the credit spreads have widened globally, we need to mark this portfolio through the market and that amount is Rs 680 crore for the year. But as I said that it moves with the market and there has been tightening of credit spreads from March 31 till now and there is already a saving of Rs 64 crore on this MTM in the last 23 days.

Q: Is that Rs 680 crore is included in the provisions and contingencies of Rs 947 crore or it’s a separate figure?

A: It will be partly there, partly it also gets adjusted in the capital gains. But the entire profit of Rs 4,158 crore is after taking into account the entire number.

Q: It’s a bit puzzling and I’m not raising any alarm over it but you have had this extra Rs 680 crore of provisioning to do and there has been a significant 83% increase in that loans as well, in NPAs. So why is the provisioning figure only so marginally higher?

A: I think you would bee seeing some net capital gains and that is where the confusion could be. Separately I could explain the numbers to you and this gets adjusted from the capital gains.

Q: You have been saying that because you don’t want to speak about your clients exposure, you will not be revealing and guessing what will be there MTMs exposures. Could you give us a ball park figure because it has been an area of concern not with respect to ICICI bank, it is not your problem it is on the books of corporates. But for the general corporate sector there has been fear syndrome, if you can give us an idea of what is the exposure of your clients?

A: Let me put the whole thing in perspective I think Indian corporates have taken Forex derivatives. They have taken this derivative exposure partly to hedge their External Commercial Borrowings (ECB) partly they have done rupee-dollar trades, partly they have done cross currency trades.

If you see something on ECBs it is an integral part of the loan, if the currencies moves up and down, I don’t think it is important for anybody to get worried about it because it’s an integral part of the loan that the corporates have taken. Again as far as cross currency is concerned corporates have done deal which mature over three years, five years, so to get worried about an MTM loss that a corporate would undertake on a likely loss that could happen three years later, presuming that the currency rates will continue to remain at where they are, I think it is just magnifying the whole problem.

So I think it is important for us and I’m not just saying the ICICI clients or any other clients, it’s important for us to focus on what is likely to be the size of the problem, maybe 3-4 months if at all, and not get confused about all kind of derivatives over all periods of time.

In that context the other thing that I would maintain as far as we believe that since these are numbers pertaining to the clients it is not right for us to disclose that amount because it really pertains either a profits or a loss for the clients.       

Q: In your provisioning, have you included any of the client’s that have taken legal recourse or sued you for selling certain FX derivatives, I mean some banks have chosen to say that they have provided for whatever - Rs 70 crore, Axis Bank in particular, on the two-clients that have taken them to court. Does your provisioning include any of those?

A: Yes, a small number of clients have filed legal cases. The matter is subjudice, but yes we have made adequate provisions against that in our provisioning number.

Q: Going forward, you can give qualitative statements, what is the credit growth looking like? Obviously one has seen that from FY07 to FY08 there has been a slowing, yes it is also base-effect but there has been a slowing, how does FY09 look to you especially in the light of revealed statements by your officials that you’ll are probably considering this a skip year in terms of growth?

A: Let me break this up and the whole scenario and how it would pan out for us in two segments. The retail credit growth and the corporate credit growth. Our estimate is that the retail credit will almost remain at the same levels as last years, so the growth rates could be anywhere around 10% and not more than that for the industry as a whole. 

I expect that would be the same for us also in that part of the business but as far as the corporate credit is concerned, on the one hand we have seen a very strong investment pipeline of about USD 700 billion and inspite of whatever has happened to the interest rates so far, we have so far not seen any withdrawal of that investment pipeline.

The outbound M&A deals of the Indian corporates continue to go strong. We are not seeing any strain on the profitability of the Indian corporates so far. The only thing I can say is, given all this, we are still very optimistic on the credit of the corporate sector would grow at may be upwards of 25%.

This is arising on the belief that so far there is no impact on profitability; so far there is not withdrawal of investment pipelines. If that situation continues, our growth rates will be similar to what we had last year. It is not going to be a skip year for growth at all. I expect the growth rates to be similar as last year, albeit the composition of that growth will be as I mentioned earlier - the retail part will grow a little slower, the corporate and the international part would grow much faster.

Q: What kind of belt tightening or cost cutting are you envisioning? What can your hiring be? Last year you’ll hired about 16,000 people - what can be the hiring rate in that will be reflected your view of the Indian corporate sector growth or the Indian economy growth?

A: On the Indian economy itself let me first say that for a few years in the past now actually the Indian economy is growing at an extraordinary growth rate of about 10%. We now expect that probably the growth rate could be more stable and robust at between 8-8.5%. So I think everybody’s cost structures have to get aligned for that stage for sure and I am not talking only about ICICI Bank, the economy will not be able to sustain its competitive advantage if we do not align all our cost structures from a 10% growth rate to say about 8-8.5% growth rate.

Having said if you talk specifically about ICICI Bank, first of all, I would say that and say it very clearly that there are no job cuts planned by us. Secondly, if you see even as we speak, we are well on our way to 3,500 additional people from the campuses and from the Manipal Academy, so again it shows that we are expecting growth for the year. How many more people will we recruit during the year? Again let me put the thing in perspective - earlier we did not find properly skilled trained people so readily available.

So we used to always recruit at the beginning of the year train them and then really use the people over the years. Now with all the human relations development efforts that we have taken over the years, we given all our training materials to NIIT, to Manipal Academy and various other training institutes - we believe that lag time for us to recruit these people and put them into productive use has reduced considerably. So we will continue to recruit, as we need just in time. We don’t have to build inventory and that’s really the whole perspective and as I said right now we are recruiting 3,500 additional people as we speak.

Q: If you have to give a number vis-à-vis 16,000 we heard a figure of may be less than 9,000 from one of your officials?

A: Yes, I think it would be around 9,000 again also for the fact that let us remember that recruitment is partly also to meet attrition and we do expect lower attrition this year. So in that context again the numbers automatically get adjusted.                                   

Q: While credit markets may be improving abroad and perhaps that will bring some stability to currencies, we are not going to see the currency volatility perhaps go away in a quarter or two. Would you say therefore that there is a possibility that your bad loans problems may increase from here on at least in the near-term, because of possible Fex derivative issues?

A: No, as I said the FX derivative is something that probably we are getting overly concerned about I’m not saying that the currency movements have not impacted or could not impact. But we are getting overly concerned about we have already seen the currency turned the Yen and the Swiss Frank vis-à-vis dollar has already turned from where it was, a couple of months ago or one and a half months ago.

So I think we should wait and watch how these currencies move. As I have earlier said that the contracts that the corporates have done are all not due today and now they also have a period over, which they become due, and in that context we have to watch of what the currency levels are over the next not just 3 months but these are the contracts over 3-5 years.

Q: The NPA issue over the last 5-6 quarters; your NPAs have started on a incrementally growing trajectory even in the terms of the percentage of NPAs to total NPAs. Do you think that in FY09 that trend will be reversed and you will start seeing falling NPAs as a percentage to total advances?

A: No, I don’t think we should expect that because as I said the NPA percentage is also a result of the ageing of the portfolio and the rate of growth of the underlined portfolio. In the earlier years if you track our growth over the past 4-5 years our portfolio has grown at 70-50-40-45%.

Our growth rate now on the larger base is very different, so that’s one of the reason of why the percentage if at all goes up. While I’m saying that we have not seen deterioration in credit quality, at the same time I don’t think we should expect that the ratio will come down substantially.