ICICI Bank has announced its second quarter numbers of FY08. It has posted net profit of Rs 1002.60 crore for the quarter ended September 2008 as against Rs 755 crore in the same quarter of last year.

Net interest income increased to Rs 1,786 crore from Rs 1,577 crore.

Vishaka Mulye, CFO of ICICI Bank said that the recent change in the P-Notes guidelines, particularly what impact that would have on liquidity, is eagerly awaited. Everybody wants to know the stance and the direction from the Reserve Bank of India in this credit policy.

Excerpts from CNBC-TV18's exclusive interview with Vishaka Mulye:

Q: The net profit has come in at a handsome 30% higher?

A: It is 34%.

Q: The net interest income at Rs 1,786 crore is pretty similar to what you have reported in the first quarter that’s Rs 1,714 crore. Flatness at the NII level, but very good growth at the net profit level, what would the reasons be?

A: The reasons are that there is a very smart growth in the fee-based income and you have to compare it with the last year the same quarter. If you look at that, then the NII has actually increased by 34%. The fees have gone up by 25%. Again the other line items, if you look at the core operating profit for us before the treasury income has actually gone up by 50%. That is the reason why our total profits have gone up by almost 33%.

Q: The net interest margins are flat at 2.25%, I thought they were at 2.2% last quarter as well?

A: If you compare it with the last year’s second quarter then, yes. Actually the enlargement that you can see is only 10 basis point from 2.13% to 2.23%. But it will be more appropriate to compare the net interest margin with the last quarter that is the first quarter of this year.

If you compare it with the first quarter of this year then the increase is almost 30 basis point from 1.95% to 2.25%.

Q: The NPLs have risen from 1.35% to 1.4%. So the total aggregate numbers would actually have risen, you have created fresh NPLs?

A: If you look at the gross numbers, ofcourse it has gone up by around Rs 600 crore. There is a net increase of around Rs 250 crore. But one has to look at that in context. In the first quarter, we added something like Rs 1,200 crore of NPAs. As I had said last time also that that is a result of a conscious strategy that we have followed on our advances side. But the non-collateralised portfolio for the bank is now almost 15% of our total retail portfolio as against sub-10% in the past.

Again, the increase in the net NPL ratio is also the function of not a very high growth in the advances, quarter on quarter that’s Q1 to Q2. The advances have only gone up by something like Rs 9,000 crore. So it is almost flat. Therefore, the NPL ratio has increased from 1.35% to 1.4%.

Q: Is there any change in the strategy of going into this kind of high risk-high return non-collateralized loans? We were given to understand that you were probably getting out of some kind of this sub prime loans?

A: What you are talking about is a particular product, ofcourse one keeps evaluating one’s strategy all the time in view of what is happening in the market. We are evaluating it and we would probably look at it once again and come back.

Q: Is it likely that going forward you can see an improvement in margins? You all have reduced your deposit cost, you have reduced the rate on deposits. Do you think the second half is going to report better margins?

A: We are a part of the system. Margin, as you know is definitely a function of cost of deposit. Therefore, one will have to see, what happens on the cost of deposit in the system, particularly on the interest rates. The recent change in the P-Notes guidelines, particularly what impact that would have on the liquidity and therefore everybody is very eagerly waiting for the stance and the direction from the Reserve Bank of India in this credit policy.

So it is very difficult to make a prediction today. I would only say that it would be in line with what would happen in the market. As we had said in the past we have always tried whether it is reduction in our cost, we have always passed it on to the customer and the otherwise is also true.

Q: You said that QoQ that is from Q1 to Q2, the advances grew by only Rs 9,000 crore. What would that be in percentage terms, is that in single digits?

A: That is not in single digits because you will have to take it on an annualised basis. It will be more like 12-13%. But you will have to realise that what happens in the first and the second quarter is that you actually see a dip in the agricultural advances. So it is mainly a function of that. But as we go forward and as we approach March, one would see an increase in that particular number which is the argi advances. That is what the normal trend is.

Q: Do you think the banking industry will be able to repeat the kind of performance it did, the industry itself has posted just about 22% in terms of bank loan growth going by the last RBI figures? What will you hazard a guess in terms of ICICI’s advances growth for the current year?

A: I would say that we would be in line with what is happening in the market.

Q: Margins as well?

A: The margins also would be in line, as we are a part of the system and a major player in the system, we cannot do different than what is happening in the market place. Therefore, as I said the margin is a function of cost of deposits and our yields.

Q: What was the non-interest income breakup? How did you do in terms of treasury income and were there any extra-ordinaries in terms of cashing out of any equity investments?

A: Treasury income for us is around Rs 175 crore this quarter. I wouldn’t say anything extraordinary that I need to highlight at this quarter. Only thing is that we have been unlocking few of our investments and we continue to unlock those investments. So the impact of that has come in this quarter, as it was there in the past.

Q: How was operating expenses? You did about Rs 1,000 crore last year as operating expenses? How was it this quarter?

A: Again, operating expenses in comparison with the last quarter of last year is not the right comparison. One has to look at in the first quarter of this year and if you look at, the increase is not much.