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(Interview Transcript)
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ICICI Bank’s Q3 FY08 net profit is up 35% at Rs 1,230 crore as against Rs 910.9 crore YoY. During the same period, the bank’s NII was up 32% at Rs 1960 crore as compared to Rs 1708.8 crore YoY. In Q3, total advances were up 25% at Rs 2.15 lakh crore. During the same quarter, its capital adequacy was 15.8%.
Chhanda Kochhar, Joint MD and CFO, ICICI Bank, said the bank plans to dilute up to 15% in ICICI Securities post- IPO and private placement. "We see a 2-3% dilution via private placement and 10% via ICICI Securities’ IPO. We plan to complete ICICI Securities’ IPO by April-June."
According to Kochhar, net interest margins stand at 2.3% in Q3 FY08 as against 2.2% YoY. "Net NPAs for Q3 stand at 1.47% as against 1.4% YoY. Advances grew at 25% in the period under review, while international advances grew at 100%. Deposits increased by 17%."
The bank has set no time frame for divestment of other arms, she added.
Excerpts from CNBC-TV18’s exclusive interview with Chhanda Kochhar:
Q: Can you reel off the highlights? Net interest income is a tad lower than what the Street expected. But you have beaten the Street’s expectations on the net profit front considerably? What is the margin picture, where did the growth come from?
A: We have had a profit after tax increase of 35%. We have had a profit of Rs 1, 230 crore for this quarter. This is on the back of a healthy increase in each and every item of our profit and loss.
Net interest income has grown a little above 30%. Fee income has grown almost close to 35%. We have also had healthy growth in treasury income and savings in operating expenses. All this put together has led to a healthy growth in profit after tax.
Q: What exactly is advances and deposit growth? When you say increases in fee and treasury income, what is the percentage growth in treasury income for instance?
A: Advances have grown by 25%. Within that, our international advances have actually grown by almost 100%. We are seeing a healthy growth on the corporate as well as the international side of the business.
Deposits have grown by 17%. Within that, the bank’s focus has really been to increase low cost and longer-term deposits, which are current and savings account. The increase in current and savings accounts has been 33%. That has really been one of the reasons for stable NIMs, as we have seen during this quarter. NIMs have gone up a little bit from 2.2% to 2.3% this time.
Q: Can you take us through the NPA picture as well? It was the cause of worry in the past two quarters?
A: Yes. Non-performing assets have been more or less stable. In fact, NPAs just moved from 1.41% as on September 30, 2007 to 1.47% as on December 31 last year. We have seen stable levels as far as NPAs are concerned. We have done some change in our retail portfolio mix and are seeing healthy growth on personal loans and credit cards, which contributes to high income on profit and topline basis. In a way, it has higher charge up in P&L as far as provisioning is concerned. That has lead to a slight increase in the net NPA percentage.
Q: What is the aggregate number in terms of gross NPAs and net NPAs?
A: The gross NPA number is about Rs 6,400 crore which increased from Rs 5,930 crore. The increase is very much in line with the business.
Q: And net NPAs?
A: Net NPAs, in percentage terms, has moved from 1.41% to 1.47%.
Q: What would the provisioning details be?
A: The provisioning number for this quarter was a little above Rs 500 crore. It is more or less in line with the growth in business. Fee income also grew by about 33%. For this quarter, our fee income is close to about Rs 1,800 crore. There is healthy growth among all streams of fee income. We have good fee income coming in from the retail, corporate, and investment banking side. SME fee income has grown substantially. We have seen a healthy growth in fee income across all business segments.
Q: Is there anything negative happening on the credit derivatives book because of the very unfortunate situation in global financial markets?
A: We do have a credit derivatives book to the extent of USD 1.7 billion. We had made a disclosure of this even in the last quarter. The book is only USD 1.7 billion. This quarter, we had a mark-to-market loss of about Rs 150 crore on that count. Out of that entire USD 1.7 billion book, more than 65% book is really India related credit. We are very confident on the credit risk, underlying this entire book, and have been monitoring it constantly. There has been no deterioration in the credit quality of this entire book. However, since the spreads globally have widened on all these papers, we have to take a mark-to-market loss and have taken that into account. Inspite of that, we have been able to show a profit of Rs 1,230 crore.
Q: Advances growth at 25% is lower than the 33% you reported in the second quarter QoQ. Would this be a source of worry? Do you think that in the fourth quarter, you would be able to come back to above 30 levels?
A: It is difficult to do such an accurate projection of between 25% and 33%. We are seeing a healthy growth in the country’s investment pipeline. We see the Indian corporate sector actually setting up projects worth about USD 700 billion over the next three years. These are in manufacturing as well as in infrastructure. We are not seeing any major slowdown in any of these investments and that makes me believe that our advances will continue to grow at a robust pace as we go forward.
Q: Can you give me the break-up of advances growth? What has been the growth in retail and international?
A: Retail advances have grown by 12% while international advances have grown by almost 100%.
Q: Coming to the other major announcement from your stable about the listing or possibly the private placement for ICICI Securities, can you share with us some details that the board has taken a decision on?
A: Yes. ICICI Securities is one of the major players in the securities market business. It has got retail and institutional broking business. It is a player in the equity capital markets and is setting up a huge retail distribution network. It is major player in the retail and the equity side of the business from the ICICI Group. We are seeing a lot of opportunities for this company going forward, both in the way the entire capital markets business is growing and therefore a huge possibility of growth for this company.
Taking that into account, we have taken a decision that we would make an IPO and possibly a pre-IPO private placement for this company. The thinking is that up to about 15%, we would dilute through pre-IPO and IPO route. We could probably do up to 2-3% of pre-IPO placement and follow it up with about 10% through an IPO.
Q: Can we expect that in the current financial year itself?
A: The process would start in the current financial year. I think 5-6 months is a better timeframe. We could expect to complete this before the end of the next quarter.
Q: One was given to understand by KV Kamath a couple of weeks ago that ICICI is probably also thinking of divestments in its home finance company, any thoughts on that?
A: What Kamath actually meant and what the management was conveying at that time was that we have a lot of subsidiaries and a lot of businesses as part of the ICICI Group, where we believe a lot of value has been created. The only intend that he declared was that over a period of time, one would look at unlocking some values from each of these businesses, but clearly no time frame has been set for any of the other businesses as yet. It is only today that we have set a specific time frame and taken a specific board of approval for just ICICI Securities.
Q: I understand that there will not be any specific timeframe. But if you can give us even a ballpark or a vague timeframe, would you say that within 12 months you would be looking at ICICI Home Finance getting divested in some form, privately or publicly and likewise the insurance subsidiaries?
A: It is too premature actually to talk of the timeframe. We have the housing business and the life and non-life insurance business. So, there is a lot of value created here. But it is too premature to talk of a timeframe as of now.
Q: Would there be any other decisions that the management may have taken with respect to the Home Finance subsidiary? Would you want to render it a more substantial body by either infusing capital or transferring loans from ICICI Bank?
A: We have already infused capital in the home finance company. This has been over a period. In fact, we did an infusion in the current year as well. So, we have infused capital in the home finance company. We are booking some amount of housing loans in the home finance company as well. So, you would definitely see a growth in business in the home finance company.
Q: What about ICICI Ventures, any thoughts on taking that to the capital market considering that Blackstone did reasonably well?
A: As of now, we haven’t envisaged anything on taking ICICI Venture Funds to the capital market. There are a lot of growth plans for ICICI Ventures. They would be coming out with lot more funds because we see a lot of opportunities there. But as of now, we haven’t decided anything about taking it public.
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