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ICICI Bank (NYSE:IBN)

Q1 2014 Earnings Call

July 31, 2013 7:30 am ET

Executives

N. S. Kannan - Chief Financial Officer, Executive Director, Member of Share Transfer & Shareholders/Investors Grievance Committee, Member of Committee of Executive Directors, Chairman of ICICI Securities Primary Dealership Limited, Chairman of ICICI Prudential Asset Management Company Limited, Chairman of ICICI Eurasia Limited Liability Company, Chairman of ICICI Prudential Life Insurance Company Limited, Chairman of ICICI Bank UK Plc and Chairman of ICICI Lombard General Insurance Company Limited

Rakesh Jha - Deputy Chief Financial Officer and Senior General Manager

Analysts

Mahrukh Adajania - Standard Chartered PLC, Research Division

Vishal Goyal - UBS Investment Bank, Research Division

Nilesh Parikh - Edelweiss Securities Ltd., Research Division

Kashyap Jhaveri - Emkay Global Financial Services Ltd., Research Division

Amit Premchandani

Abhishek Kothari - Violet Arch Securities Pvt. Ltd., Research Division

Nitin Kumar - Quant Broking Private Limited, Research Division

Surendra Chetty

Adarsh Parasrampuria - Prabhudas Lilladher Pvt Ltd., Research Division

Manish J. Karwa - Deutsche Bank AG, Research Division

M. B. Mahesh - Kotak Securities Ltd., Research Division

Nilanjan Karfa - Jefferies LLC, Research Division

Prashant Kumar

Sampath S. K. Kumar - IIFL Research

Operator

Ladies and gentlemen, good day and welcome to the Q1 FY '14 Earnings Conference Call of ICICI Bank. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. N.S. Kannan, Executive Director and CFO of ICICI Bank. Thank you and over to you, sir.

N. S. Kannan

Yes, thank you. Good evening, and welcome to the conference call on the financial results of ICICI Bank for the quarter ended June 30, 2013, which is the first quarter of the current fiscal year 2014.

As always, my remarks this evening would revolve around 4 key themes. First, on the macroeconomic and monetary environment, followed by our performance during the quarter, including the performance on our 5Cs strategy. Then, we move on to our consolidated results, and finally, the outlook for the full fiscal year 2014.

Let me start with the first part on the macroeconomic and monetary environment during the first quarter.

On the global front, growth forecasts by the IMF have been revised downwards across countries. While the economic conditions in the U.S. have been showing signs of recovery, indications from the U.S. Fed of possible withdrawal of quantitative easing have affected market sentiments. This resulted in volatility in capital flows, exchange rates, bond yields and equity market returns across several emerging economies including India.

In the domestic economy, the government has taken several steps to revive investment activity, which augur well for an improvement in the long-term growth prospects of the country. These include approval for mechanism of coal supply to power producers, increase in gas prices, clearance of several projects by the Cabinet Committee of Investment and increase in the FDI limits in some key sectors. However, current economic activity continues to remain subdued.

The growth in the Index of Industrial Production, IIP, remained weak, recording a growth of just 0.1% during April, May of 2013. Exports declined by 1.4%, while imports grew by 6% during the first quarter, resulting in a higher trade deficit of USD 51 billion in the first quarter compared to USD 45 billion in the previous quarter.

Headline wholesale price-based inflation continued to remain below 5% at 4.9% in June 2013. There was consistent moderation in manufactured products inflation, which eased from 4.1% in March 2013 to 2.8% in June 2013. However, consumer price inflation remained at over 9% during Q1 of 2014.

Given the volatility in global markets and domestic concerns, during Q1 of fiscal 2014, the rupee depreciated by 9.4% from INR 54.3 per U.S. dollar at the end of March 2013 to INR 59.4 per U.S. dollar at end June 2013. The depreciation was sharp in June 2013 when it breached the INR 60 per U.S. dollar mark.

FII flows were volatile with net outflows of over $6 billion in June 2013 alone compared to inflows of a similar amount during April, May of 2013.

Considering the above trends, the Reserve Bank of India put on hold its reduction and policy rates after the 25 basis point reduction in repo rate announced in May of 2013. On July 15, 2013, with a view to stabilizing the exchange rate, the RBI increased their Marginal Standing Facility rate to 10.25% and fixed the borrowing limit for banks under the Liquidity Adjustment Facility, or LAF, at INR 750 billion. The immediate impact of these measures on the market was a sharp increase in interest rates, particularly the short-term rates. Subsequently, on July 23, 2013, the Reserve Bank of India set the overall limit for LAF access by each individual bank at 0.5% of the bank's net demand and time liabilities effective July 24. In addition, effective July 27, the minimum daily cash reserve ratio balance required to be maintained by banks was increased to 99% of the stipulated fortnightly requirement from 70% earlier.

In its monetary policy statement on July 30, RBI kept the policy rates unchanged, and has mentioned that the liquidity tightening measures would be rolled back in a calibrated manner once stability in the foreign exchange market is restored.

Since July 15, that is the initiation of the first set of various measures by RBI, there has been over 200 basis points increase in the short-term rates, 100 basis point increase in the Gsec yields and 1% depreciation in the exchange rate.

Credit offtake during the first quarter remained moderate. Non-food credit based scheduled commercial banks recorded at 13.9% increased year-on-year at June 28, 2013, compared to a growth of 16.1% at June 29 of 2012. Deposit growth continued to remain muted with the total deposits recording a growth of 13.8% year-on-year at June 28, 2013, compared to a growth of 13.5% at June 29, 2012. Demand deposits grew by 10.9% year-on-year while time deposits grew by 14.1% at June 28 of 2013.

With this background, I now move to part 2 on the performance of the bank during the quarter. Let me begin with the progress on our 5Cs strategy.

But first, with respect to credit growth, total advances of the bank increased by 12.3% on a year-on-year basis from INR 2.68 trillion at June 30, 2012, to INR 3.01 trillion at June 30, 2013. The growth in the domestic loan portfolio was higher at 14.1% on a year-on-year basis at June 30, 2013. The growth in advances was balanced across various loan segments.

As I mentioned on the earlier results call, from March 31, 2013, we have revised the presentation of the domestic loan portfolio mix to better reflect the nature of the underlying loans. The disclosure of loan portfolio at June 30, 2013, is on a similar basis. For your convenience, we have included in the presentation data for June 30 of 2012 on the revised basis so that the figures are comparable. My subsequent discussions on our credit growth for the year is based on this new classification.

I'm happy to report that the bank continues to see strong traction in its retail lending business. Mortgage and auto loans disbursements increased year-on-year by 36% and 17%, respectively, and the outstanding mortgage in auto loan portfolios grew by 20% and 21% on a year-on-year basis, respectively at June 30, 2013.

Commercial business loans declined by 18.6% on a year-on-year basis at June 30, 2013, reflecting both a slowdown in this segment, as well as continued rundown of the bought-out portfolios in the segment.

Coming to the unsecured credit card and personal loan portfolios, there was an increase of about 37% on a year-on-year basis. While the growth rate is high due to the low base, the outstanding unsecured credit card and personal loan portfolio at INR 48.69 billion at June 30, 2013, was only about 1.6% of the overall loan book. Based on the above trends in individual products, we saw a year-on-year growth of 26.6% in the organic retail portfolio excluding buyouts at June 30, 2013.

On a total retail portfolio basis, including the impact of rundown of the earlier buyout portfolios, the growth was 12.6% on a year-on-year basis at June 30, 2013. With the rebasing of the buyout portfolio over the course of the year, we expect to see a strong growth in the total retail loan portfolio, including buyouts, on a full year basis.

The growth in the corporate and international portfolio was 14.1% on a year-on-year basis. Growth in the domestic corporate portfolio has moderated from about 30% year-on-year at March 31, 2013, to 20% year-on-year at June 30, 2013, in line with the expectations. Net advances of the overseas branches increased by 7.6% on a year-on-year basis in rupee terms, primarily due to the movement on -- in the exchange rate. In dollar terms, the net advances of the overseas branches remained stable on a sequential and year-on-year basis at June 30, 2013.

Moving on to the second C, on CASA deposits. Reflecting our strong retail franchise, the bank saw an additional INR 32.02 billion in its savings deposits during the first quarter. The bank was able to maintain the current account deposits at a stable level at June 30, 2013, as compared to March 31, 2013. As a result, the CASA ratio for the bank improved from 41.9% in March to 43.2% at June 30, 2013. The average CASA ratio improved from 38.1% in the previous quarter to 39% in the first quarter.

On the third C, on Cost, for the first quarter, operating expenses including DMA expenses were higher by 17.3% on a year-on-year basis. The bank's cost-to-income ratio declined to 39.4% in the first quarter of fiscal 2014 compared to 41.8% in the first quarter of fiscal 2013.

Let me move on to the fourth C, on credit quality. The bank's asset quality trends continue to be broadly in line with expectations. During the first quarter, the bank saw gross additional INR 11 billion to its overall gross NPAs, primarily driven by slippages in the SME and the midsized corporate loan portfolio. Recoveries in the first quarter were INR 3.1 billion resulting in a net addition to gross NPA of INR 8 billion. The bank also wrote off INR 3.96 billion of NPAs during Q1. The net NPA ratio was marginally higher at 69 basis points at June 30, 2013, compared to 64 basis points at March 31, 2013.

During the quarter, the bank restructured INR 8.32 billion of loans similar to the levels seen in the previous quarter. After taking into account deletions and the required specific provisioning, the net restructured loans for the bank increased to INR 59.15 billion at June 30, 2013, compared to INR 53.15 billion at March 31, 2013. The bank has a pipeline of about INR 10 billion to INR 11 billion of loans referred to CDR mechanism. In addition, the bank may also undertake some bilateral restructurings.

Provision for Q1 of 2014 were at INR 5.93 billion as compared to INR 4.66 billion in Q1 of 2013 and INR 4.61 billion in the previous quarter. In Q1 2014, the bank has made specific provisions of about INR 2 billion at rates higher than the minimum percentages prescribed by RBI guidelines against certain NPAs in the corporate and SME portfolios. The provisions also reflect the impact of higher general provisioning requirements on restructured loans, as per RBI guidelines. As a result, credit costs, as a percentage of average advances, was at 82 basis points on an annualized basis for Q1 of 2014. The provisioning coverage ratio on nonperforming loans continues to remain healthy at 75.4% at June 30, 2013.

Now to the fifth C on customer centricity. The bank continues to focus on enhancing its customer service capability and leveraging on its increased branch network to cater to the customer base. During the quarter, we added 250 branches and 421 ATMs to the network. With this, we have a branch network of 3,350 branches and 10,902 ATMs at June 30, 2013. The bank also continues to strengthen its technology channels for increasing customer convenience. During the quarter, the bank launched Money2India mobile app to help nonresident Indians track their money transfers to India. Money2India.com currently has over 1 million registered users and is a popular online money transfer tracking service offered to nonresident Indians by the bank for over a decade.

The bank's Facebook initiative continues to be appreciated by customers with about 2.3 million fans. ICICI Bank continues to have the largest fan base on Facebook among the Indian banks.

Having talked about the progress on 5Cs, let me move on to the key financial performance highlights for the quarter.

Net interest income increased by 19.6% year-on-year from INR 31.93 billion in Q1 of 2013 to INR 38.2 billion in Q1 of 2014. The bank saw a year-on-year improvement of 26 basis points in the net interest margin from 3.01% in Q1 2013 to 3.27% in Q1 2014. The domestic net interest margin was 3.63% in Q1 2014 as compared to 3.51% for the full fiscal year 2013. In line with our expectations, we've seen an improvement in the international business margins from 1.34% for the full fiscal 2013 to 1.6% in Q1 of 2014.

Total non-interest income increased by 32.1% from INR 18.8 [ph] billion in Q1 2013 to INR 24.84 billion in Q1 2014. During the quarter, treasury recorded a profit of INR 4.03 billion compared to a loss of INR 0.21 billion in the corresponding quarter last year. The profit -- the treasury made in the previous quarter was INR 0.93 billion. The profit in Q1 2014 in the treasury business was primarily on account of realized gains in the fixed income portfolio. Going forward, the treasury performance would depend on market developments, including impact of these policy measures we've talked about earlier.

Other income was INR 2.89 billion in Q1 2014 compared to INR 2.54 billion in Q1 2013, primarily driven by the dividends on the subsidiary companies. We have seen an improvement in fee income growth from about 3% for the full year financial year 2013 to 8.9% on a year-on-year basis in Q1 2014. This improvement in fee income growth was primarily driven by growth in the retail banking fees.

I've already spoken about trends in operating expenses and provisions while speaking about the 5Cs strategy. The bank's standalone profit after tax increased by 25.3% from INR 18.15 billion in Q1 2013 to INR 22.74 billion in Q1 2014. This translates into an annualized return on average assets of 1.75% for Q1 2014 compared to 1.51% for Q1 2013.

The bank's capital adequacy at June 30, 2013, as per Reserve Bank of India guidelines on Basel III norms, continued to remain strong at overall capital adequacy ratio of 17.04% and Tier 1 capital ratio of 11.72%, giving us the ability to grow our business further. In line with the applicable guidelines, the Basel III capital ratios reported by the bank for the quarter ended June 30, 2013, do not include the profits for the quarter. On a comparable basis, the total capital adequacy ratio as per Basel III norms would have been 18.35% and Tier 1 capital adequacy would have been 12.48%. Including the profits for the first quarter, the capital adequacy ratio for the bank as per Basel III norms would have been 17.39% and the Tier 1 ratio would have been 12.07%. On a consolidated basis, the Basel III Tier 1 ratio would be higher by about 25 basis points and the overall capital adequacy ratio would be higher by about 90 basis points since on a consolidated basis, only the equity investment and insurance subsidiaries is deducted from the capital.

I will now move on to the consolidated numbers. The profit after tax for the life insurance company in Q1 2014 was INR 3.64 billion as compared to INR 3.49 billion in Q1 2013. The Q4 2013 level of net profits reflects an annualized return of about 30% on the bank's invested capital in the subsidiaries. The new business annualized premium equivalent, APE, for ICICI Life was INR 5.41 billion in Q1 2014 compared to INR 5.7 billion in Q1 2013. The new business margin for the quarter was 15%. The retail weighted received premium for ICICI Life decreased by 9.4% during April-June 2013 compared to a 28% year-on-year decrease for the industry. During April to June 2013, ICICI Life maintained its market leadership in the private sector with an industry market share of 6.6% on the basis of retail weighted received premiums. The profit after tax for the general insurance company in Q1 2014 was INR 2.03 billion as compared to INR 0.83 billion in Q1 2013. The company maintained its leadership position in the private sector with overall market share of 9.4% during April to June 2013.

Let me now move on to the performance of our overseas banking subsidiaries. As per IFRS financials, ICICI Bank Canada's profit after tax for Q1 2014 was CAD 14.4 million as compared to CAD 11.9 million for Q1 2013. Total assets for ICICI Bank Canada were CAD 5.23 billion at June 30, 2013, compared to CAD 5.37 billion at March 31, 2013. The capital adequacy ratio was healthy at 31% at June 30, 2013 compared to 33.2% at March 2013.

ICICI Bank U.K.'s total assets were USD 3.75 billion at June 30, 2013 compared to USD 3.59 billion at March 31, 2013. The profit after tax for ICICI Bank U.K. for Q1 was USD 5.4 million compared to USD 4.4 million in the corresponding quarter last year. The capital adequacy ratio was 26.6% at June 30, 2013, compared to 30.8% at March 31, 2013.

In line with the objective of rationalizing the capital invested in overseas banking subsidiaries, we received capital repatriation of USD 100 million from ICICI Bank U.K., including redemption of USD 50 million of preference capital in Q4 of 2013. During Q1 2014, ICICI Bank U.K. has also called back USD 50 million of tier 2 capital bonds. Further, ICICI Bank Canada has repatriated CAD 75 million of equity capital to the bank during Q1 2014. Going forward, we will continue to focus on rationalizing the capital invested in the overseas banking subsidiaries.

Let me now talk about the overall consolidated profits. The consolidated profits for Q1 2014 increased by 32.3% to INR 27.47 billion compared to INR 20.77 billion in Q1 of 2013. This level of profits reflects an annualized consolidated return on average equity of 15.6% for Q1 2014 compared to 13.3% for Q1 2013.

I would now like to talk about our outlook for fiscal 2014. As I had mentioned earlier, there has been continued moderation in economic growth, along with increased volatility in the financial markets. At the same time, several changes on the regulatory front are underway. Our outlook for fiscal 2014 is in this overall context.

With respect of the loan growth, we will continue to target domestic loan growth at 2 to 3 percentage points higher than the system growth, with higher growth in the reported retail portfolio of about 18% to 20%. The growth in our international book in our overseas branches will of course depend on the conditions in the global financial markets.

Given the current growth trends in demand deposits in the system, our target would continue to be to maintain the average CASA ratio at 38% to 39% for fiscal 2014. We continue to target an improvement of about 10 basis points in the overall net interest margin on a full year basis, as we had indicated earlier. Given by the growth in the retail fee segment, we continue to target an improvement in fee income growth to double-digit percentage in -- fiscal 2014. For financial year 2014, our endeavor would be to contain the cost-to-income ratio to about 40%.

While the asset quality trends continue to be challenging for the system as a whole and we would expect additions to NPLs and restructured assets to continue, for the full year fiscal 2014, we continue to target provisions of about 75 basis points of average loans, as we have indicated earlier.

So in conclusion, I would like to say the during the quarter, we made progress on our stated objectives, achieved healthy operating parameters in the context of a challenging operating environment, including significantly enhancing our deposit franchise. Our retail franchise has seen good growth with respect to both the liability and the asset franchises. We have also seen the first steps in rationalization of capital at our overseas banking subsidiaries. We continue to make progress in improving our profitability metrics, such as margins, fee income growth and operating expenses.

So with these opening comments, my team and I will be happy to take your questions. Thank you.

Question-and-Answer Session

Operator

[Operator Instructions] We have the first question from the line of Nikhil Rungta from Standard Chartered Securities.

Mahrukh Adajania - Standard Chartered PLC, Research Division

This is Mahrukh. Just wanted to check a few things. Firstly, in terms of retail NPLs, they have risen quarter-on-quarter because of the retail classification on the loan portfolio or --

N. S. Kannan

Yes, that's right Mahrukh, because when -- the numbers that we have given in our presentation for Q4 were excluding the overall loans, et cetera, that we had reclassified into retail. So the main difference is because of the change in plan.

Mahrukh Adajania - Standard Chartered PLC, Research Division

Now most of this would be a semi? I mean, most of the increase?

N. S. Kannan

No, it's just that both the underlying portfolio size now reported as retail is larger.

Mahrukh Adajania - Standard Chartered PLC, Research Division

Got it. And you said that most of the slippages were SME and midsized corporate, so there was nothing lumpy. And in terms of SME, is there any geography or geographic bias or any such thing? Because SME portfolios are behaving differently across banks, that's why I'm asking.

N. S. Kannan

Well, based on largely what we have seen as a company-specific issues, Mahrukh, there's no specific pattern. Typically, in cases where the gearing is a little high and there is an increase in receivables, those are the cases which have got impacted. And in any case, if you look at our loan book composition, the SME, as a percentage, has come down to 4.6% as of June. So yes, there has been pain in that segment in general. But within the [indiscernible] clear, there is no specific sector-wise trends, it is a company-specific.

Mahrukh Adajania - Standard Chartered PLC, Research Division

And why is there a sharp growth in personal loans in this quarter and credit cards? Of course the base is low, but is that the new focus or --

N. S. Kannan

No, it's just a base effect. As I mentioned earlier also on the call, that the percentage of growth will be there. But as a percentage of the overall loan book, it is still not a very significant amount. Though strategy-wise, we continue to target our liability customers to sell more cards and other unsecured products. And we -- compared to our peak market share, we are starting off a very small base, so the increase looks a high percentage increase.

Mahrukh Adajania - Standard Chartered PLC, Research Division

The buyout was 0 during the quarter?

N. S. Kannan

Some buyout would have been there in the -- been through the PTC route, but in the loan book, it was close to 0.

Mahrukh Adajania - Standard Chartered PLC, Research Division

Zero. And the buyout and the PTC were --

N. S. Kannan

[indiscernible]

Mahrukh Adajania - Standard Chartered PLC, Research Division

Okay, okay.

N. S. Kannan

This is the last -- this is from a priority sector requirement. And when the opportunity is available as and on we need to do, we will look at it.

Mahrukh Adajania - Standard Chartered PLC, Research Division

And the 18% to 20% loan growth will happen despite some amount of buyouts being dead in the fourth quarter last year, right?

N. S. Kannan

Yes, that's right. That's right.

Mahrukh Adajania - Standard Chartered PLC, Research Division

So it will be on the total portfolio, not just organic? The 20% retail growth is under total, not only on the organic growth?

N. S. Kannan

My sense is organic will be higher. But when we say 18% to 20%, it's just a reported number itself. We'll be able to show a growth of 18% to 20%.

Mahrukh Adajania - Standard Chartered PLC, Research Division

Okay, perfect. And in terms of restructuring pipeline or --

N. S. Kannan

Yes, I talked about the number in the call of about INR 10 billion to INR 11 billion of CDR restructuring. And in this operating environment, Mahrukh, it's very difficult to give a full year number. But we want to assure you that close monitoring of the portfolio will continue to be the topmost priority given the environment.

Mahrukh Adajania - Standard Chartered PLC, Research Division

The only concern is that like, say, Lanco, which is being talked about, it may not have been referred to the CDR yet, however, it's talked about and there will be many such other companies. If the balance sheet is growing, then can the SPVs be far behind?

N. S. Kannan

Yes, the number which I talked about sort of takes into account what is in the pipeline which we have already mentioned. But of course, we know. We will monitor and we will ensure that our top exposures are monitored even more closely so that we don't allow slippages.

Operator

[Operator Instructions] We have the next question from the line of Vishal Goyal from UBS Securities.

Vishal Goyal - UBS Investment Bank, Research Division

Kannan, question actually is on the credit quality. I think you are still maintaining 75 bps of credit cost guidance, while, I think in the last 3 months, I think, a lot has changed, both on currency side plus RBI stance. And I'm sure you must be seeing more pain [indiscernible] visible on the ground. So do you think there is a need to change this?

N. S. Kannan

Not at this point, Vishal. We looked at the numbers in a granular fashion. As I mentioned, we have already taken provisions in excess of RBI requirements of about INR 2 billion in the first quarter. Because of that, the number has gone up to 82 basis points on an annualized basis. So considering all this, we are quite happy to be expecting about 75 basis points for the year as a whole.

Vishal Goyal - UBS Investment Bank, Research Division

So basically, on the provisions, maybe I come back to [indiscernible] , but provisions had like INR 5.9 billion. Can you just give us some breakup of that? You said INR 2 billion specific on that.

N. S. Kannan

Two billion -- what I said was the 2 billion specific provision is -- the excess provisions over and above what is required by RBI guidelines. That's what I meant, Vishal. Apart from that, the INR 5.9 billion would also include a normal run rate provisions on a specific basis as per RBI guidelines. It will also include for the restructured assets. If you remember, RBI has increased the provisioning requirements. That is also included in the provisioning, apart from the general provisions.

Vishal Goyal - UBS Investment Bank, Research Division

Okay, okay. And also can you just give us some color on the AFS book now with the duration, if possible?

Rakesh Jha

If you look at our SLR portfolio, typically, we have about around 25% of that portfolio in AFS and about 75% in HTM. So that is -- and the duration on the AFS portfolio would typically be less than 1 year that we would carrying. In addition to that, we will, of course, have some other fixed-income investments like corporate bonds and other things, which would be in the AFS portfolio.

Vishal Goyal - UBS Investment Bank, Research Division

Okay, okay. So corporate bonds would be how much? Were there some RIDF including in that disclosure? I think you gave RIDF and related at 1 98?

N. S. Kannan

That is only that PSL shortfall numbers, which is an investment in RIDF at the lower yield bonds. Those are not corporate bonds. Those are entirely SIDBI or NHB or NABARD, whichever are the issuing entities.

N. S. Kannan

Of course, the good news there is that with the bank rate going up, the incremental investments will fetch a much higher return of 7.25% as against 4% to 5% which we get now.

Vishal Goyal - UBS Investment Bank, Research Division

Okay. That is for incremental stuff.

N. S. Kannan

Of course.

Vishal Goyal - UBS Investment Bank, Research Division

But the corporate bond book would be how much, Rakesh?

Rakesh Jha

Corporate bond book will be typically about INR 150 billion.

N. S. Kannan

Which has come down during the quarter.

Rakesh Jha

Yes, it could come during the quarter.

Vishal Goyal - UBS Investment Bank, Research Division

Or it would have come down already in the...

N. S. Kannan

Yes, yes, yes. Because I talked about fixed income gains, which we have been able to sell in the first quarter.

Operator

We have the next question from the line of Nilesh Parikh from Edelweiss.

Nilesh Parikh - Edelweiss Securities Ltd., Research Division

On the specific provisions in excess of RBI norms that we made of about INR 2 billion. So this is the first time we've made excess on specific assets, or we've kind of made something earlier also?

N. S. Kannan

As a policy for example are against retail loans, we indeed make additional provisioning over and above RBI guidelines. On the rest of the portfolio, on corporate and SME, we typically make provisions in line with the RBI guidelines on the substandard doubtful based on the security that we have on the loan and the aging of the loan. So the provision that we have made in excess this quarter would typically not have been made in the past in this manner.

Nilesh Parikh - Edelweiss Securities Ltd., Research Division

Okay. And it's specific to...

N. S. Kannan

These are specific to specific NPLs. So these are, in no way, any general provision that we have made in excess. These are specific against identified NPLs, and these are netted out in the net NPL number that you look at.

Nilesh Parikh - Edelweiss Securities Ltd., Research Division

Sure. Just on the fee income trends, if you can just talk, specifically in terms of how is the retail buying moving? And so we have seen some inch up on the overall level, but it's still not kind of moving closer to the double digits guidance that you were giving. So just wanted to get some color in terms of the direction of where are moving here.

N. S. Kannan

Yes, I agree with you. But we are quite satisfied with having moved it at least from 3% to 9% for a start. Because last year as a whole, the movement was only 3%, to which we were also disappointed. So 9%, yes, of course, we would have liked it to be higher, but it's a good start the year. And we are quite confident that we should be able to get a double-digit percentage growth. Just to give color on related segments, we would have increased the retail side of the fee in -- that will be in teens. And on the corporate side, still, especially project-related, it's a flattish kind of fee income development, is what we are seeing. On the other areas such as ForEx and commercial banking, there has been some growth. So those are the segments where we will continue. In areas such as ForEx, we do believe that we have gained some market share over the last year. So those would be the areas we will be focusing on.

Nilesh Parikh - Edelweiss Securities Ltd., Research Division

Okay. Just one quick question on the write-offs of about INR 4 billion, largely from the retail book?

N. S. Kannan

Yes.

Operator

We have the next question from the line of Kashyap Jhaveri from Emkay Global.

Kashyap Jhaveri - Emkay Global Financial Services Ltd., Research Division

Actually, I have a question from the annual report. When we -- where we have reported this priority sector lending, we have given number for agri weaker section and home loans separately in the notes to accounts. The residual number will be largely micro, small and medium enterprises?

Rakesh Jha

Yes, it will be like...

Kashyap Jhaveri - Emkay Global Financial Services Ltd., Research Division

About 9.9%, about 10% is agri, about 2.5% will be weaker sections, about 8.5% will be home loans. So residual 14% will be what, MSME?

Rakesh Jha

It will largely be MSME, but it will include part of commercial vehicle, which qualifies for other priority and those kind of categories, which typically will then come under MSME. Or it could include some of the earlier categories we're still allowed like loans to NBSEs for on-lending in the past were allowed, so they were stopped incrementally. So they were still in the book to some extent. These are the largest categories in all the large category.

Kashyap Jhaveri - Emkay Global Financial Services Ltd., Research Division

Why I'm asking this question is that if we look at FY '12 report versus FY '13, this segment has grown at something about 24%, which is about 600 to 700 basis points above our average growth rates. So there's -- and tell us what you spoke about in the SME segment of were this largely from this category or they were separate SME categories?

Rakesh Jha

No, no. That is not from this category.

Kashyap Jhaveri - Emkay Global Financial Services Ltd., Research Division

That is not from this category. Okay, okay. Sure. The second question is in borrowings from the RBI in the new report, which is at about 4% of NDTL. Now, is this a year-end phenomenon, or is this something which is on a regular basis?

N. S. Kannan

So some part of it, definitely is a year-end phenomenon as well. But if you look at it on a more regular basis, what I would like to say is that if you look at the structural improvement in the funding profile, now compared to 3, 4 years back, now we have released on [ph] the funding size grew 70% plus retail deposits. Whereas in 2008, the situation would have been probably the other way around. So that has really helped us. And there'll be, in terms of even this number of -- in the repo borrowings we talked about, it's not very high in the overall funding side. So it is more like the opportunity being available in the market. But structurally, we don't need to continue to do that.

Kashyap Jhaveri - Emkay Global Financial Services Ltd., Research Division

So compared to what RBI is contemplating, would we be far away from where they have sort of contemplated?

N. S. Kannan

In terms of?

Kashyap Jhaveri - Emkay Global Financial Services Ltd., Research Division

NDTL as a percentage of NDTL.

Rakesh Jha

Of course, the system was borrowing much higher than the 0.5% of NDTL. That is true for all banks, including for us, that we would have been borrowing at a much higher level than that 0.5 percentage. Some are borrowing more than double of that. We would definitely...

N. S. Kannan

But then they sort of adjust to the prevailing regulatory and the monitory environment because that opportunity was available at that time, so it was there.

Kashyap Jhaveri - Emkay Global Financial Services Ltd., Research Division

Sure. And just last question, in the last quarterly call, you had guided to a CDR pipeline of about INR 7 billion odd in Q1.

The residual number, which is 8.23 minus 7, will be largely bilateral? Or they were also CDRs?

N. S. Kannan

No, what I have said is the pipeline is pretty much what has happened in the first quarter.

Rakesh Jha

And in case of our pipeline is that a point in time where cases do get added over the quarter as well.

Kashyap Jhaveri - Emkay Global Financial Services Ltd., Research Division

So the 8.23 is likely CDR-led only. This is all CDR-led. There is no bilateral in this...

Rakesh Jha

There will be bilateral...

N. S. Kannan

There will be some bilateral, yes.

Operator

We have the next question from the line of Amit Premchandani from UTI Mutual Fund.

Amit Premchandani

Sir, a question on Basel II and III and there's gap for 100 basis point in capital adequacy. Can you just explain what is the difference -- what is it getting bonded for?

N. S. Kannan

Yes, the -- in the Tier 1 capital adequacy, when you really look at it, the gap would be about 75, 80 basis points. So there are 2 primary reasons for this difference as we have talked about in the -- talked about earlier also. One is on account of some of the securitization transaction we have done in the past. The risk weight and the capital requirement on that is much more punitive under Basel III. So that accounted for about 40 basis points of difference between Basel II and Basel III Tier 1 ratios. The second aspect is our investment in the subsidiaries. As you know, under Basel II, we take 50% of that investment out from Tier 1 and 50% from Tier 2. Under Basel III, eventually, we have to take the entire 100% out of Tier 1, but there is a facing arrangement. And to start with the Basel III, the RBI's guideline is that we have to take out 60% for this period from Tier 1, so that has context for difference. These are the 2 primary reasons why that 75 basis point difference has happened. So this is pretty much as we had anticipated.

Amit Premchandani

And the risk-weighted asset is...

N. S. Kannan

The expectation [ph] is a wind-down portfolio since we have not done incrementally. So that divergence will go away as we go along.

Amit Premchandani

And so the risk-weighted asset number that you have given, is it based on Basel II or II?

Rakesh Jha

Based on Basel III.

N. S. Kannan

Basel III.

Amit Premchandani

Okay. And sir, on the retail NPLs that has been reclassified, can you give us a number for last year same quarter and last quarter, the reclassified number?

Rakesh Jha

Yes. The March number of gross is about INR 58 billion, which is now INR 54 billion...

N. S. Kannan

Yes, INR 58 billion going to INR 54 billion.

Amit Premchandani

And June?

Rakesh Jha

June, I don't readily have right now.

Amit Premchandani

Okay, sir. And just one last question. RBI had come out with a draft kind of a guideline on overseas unhedged exposure of the borrowers and its impact on banks, and you have to take a hit in case the EBITDA -- depending on the EBITDA level of borrower. Since you have funded lot of acquisitions overseas of Indian borrowers, so how are we placed in case that are actually implemented?

N. S. Kannan

Overseas funding that we have done to entities, that actually is where entities would have used it in dollars itself, so that will not really have this impact. It will be more to fund ECBs that have been given by Indian banks to corporates in India and other such loans. And it doesn't really link itself to dollar loans. Even if you've made rupee loans, what RBI seems to be saying is that you have to look at the corporate and if their unhedged exposure will have an impact on the EBITDA above a certain level, then you have to maintain a higher GDP and a higher risk weight. So whether you have a dollar exposure to the company or a rupee will not really matter. The only thing is that the way the guidelines have come, it is quite difficult, if not near impossible, for banks to be able to work out those numbers, unless as the guidelines suggest that auditors of these companies would kind of work out the exact unhedged position. And based on that, the impact on the EBITDA then can be worked out. So I think all banks would have given some comments to RBI on this and we have to see how this kind of works out.

Amit Premchandani

So in effect, what you are saying is that a company X buys a mine in Australia and borrows for funding that mine, that will not be considered as unhedged exposure?

Rakesh Jha

No. So instead of -- for each company, it will be looked at as to what are their assets and liabilities and whether they have cover or not. So maybe it is possible that a company borrows in U.S. dollars and lend it over the currency that is possible. But typically, this will be where you have lend in ECB, where you are using the dollars for some other purpose as arbitrage against rupee or something like that is where you will end up having these open positions, so it will be more linked to that.

N. S. Kannan

Yes. In our own case as well as in other banks' case, irrespective of whether you have a rupee exposure, other foreign currency loan exposure to a corporate, if the corporate has got some economic or actual financial exposure to dollars, we'll have to really look at the net position and then make a decision. So I think this is still sort of early days that will evolve and there's been discussion with IBA also. So I think it will take some time before further clarity emerges.

Amit Premchandani

And sir, your view on the monitoring policy and the decision of some of the banks to actually hike deposit rates and one or 2 banks actually increasing the lending rates. So are we also thinking on that lines or we are looking on rate more right now?

N. S. Kannan

We will wait and watch now. We are very closely monitoring the situation. And as I mentioned earlier, we are quite confident that all necessary steps will be taken. But finally, we should be able to expand the NIMs for the year as a whole by 10 basis points over last year. We are pretty much focused on that. And though the situation is evolving, every morning, every afternoon, we keep looking at the money markets and then taking a decision. But as I mentioned earlier, what has really helped us, which is showing in the Q1 numbers, is also that the kind of deposit franchise we've been able to push and kind of retail deposit we have been able to get. That is really helping us in this situation of not having the need to quickly resort to any drastic measures.

Operator

[Operator Instructions] We have the next question from the line of Abhishek Kothari from Violet Arch Securities.

Abhishek Kothari - Violet Arch Securities Pvt. Ltd., Research Division

Sir, how confident are you of the deposit growth have been matching up with the credit growth given the current environment?

N. S. Kannan

Given the systemic credit growth environment, we are quite confident that there should not be any structural liquidity mismatches arising out of the difference in growth rate and credit and deposit. Further, as we go along, I think with the inflation sort of going away and probably lesser diversion to physical assets such as gold and real estate, I think it will be good for the deposit growth. In any case, as you know, the relative basis of credit and deposit in the system are quite different. On the credit we are talking about, let's say about INR 40 trillion to INR 50 trillion of credit as against INR 70 trillion of deposit base. So a couple of percentage point difference can always be handled without any problem. And system, as you know, is also access on SLR. So we don't see that it will create any problem whatsoever for the overall structural liquidity of the banking system.

Abhishek Kothari - Violet Arch Securities Pvt. Ltd., Research Division

Okay. And so just 2 data points. What's the total cumulative NPL from restructured book? And if possible, can you give a sectoral breakup of your gross NPL?

N. S. Kannan

Sectoral NPL, actually, we give it in the annual report on an annual basis. We are not putting it out on a quarterly basis. But the numbers we talked about, the retail numbers are given separately mainly, the rest of it is mainly coming from the SME and corporate side. And the second question on the restructuring, if you look at all the...

Abhishek Kothari - Violet Arch Securities Pvt. Ltd., Research Division

No, the NPL from restructured book...

N. S. Kannan

Yes, so on...

Abhishek Kothari - Violet Arch Securities Pvt. Ltd., Research Division

Cumulative.

N. S. Kannan

Yes, if you look at all the restructurings that we have done over the last, say 5 years or so, cumulative slippage is less than 10%. It will be about 8% or so.

Abhishek Kothari - Violet Arch Securities Pvt. Ltd., Research Division

No quantifiable number, something?

Rakesh Jha

8%.

N. S. Kannan

It's about 8%, it's what the slippage is.

Operator

We have the next question from the line of Nitin Kumar from Quant Capital.

Nitin Kumar - Quant Broking Private Limited, Research Division

I have 2 questions. Firstly, we have seen 2 rounds of capital repatriation so far. So like what is the outlook there going forward, like how much capital do we expect to bring back this year?

N. S. Kannan

No, the expectation, I would really like to ensure that the level of capital is such that we get through the reasonable ROEs in both those businesses. The dialogue for repatriation of capital or rationalizing capital invested continues with the regulator. This will be a multi-meeting, multi-level discussions and time frame is very difficult to sort of predict. But we will -- we have said, as I said earlier, is that we will continue to focus on rationalizing the capital invested in the overseas banking subsidiaries, especially U.K. and Canada. So that will really continue. The focus is there, but timing is very difficult to predict because regulatory approvals are involved in this.

Nitin Kumar - Quant Broking Private Limited, Research Division

Okay. And secondly, like this quarter, our off-balance sheet risk-weighted assets have grown very sharply. So anything in particular which has driven this growth?

N. S. Kannan

Off-balance sheet risk-weighted assets, my sense would be because of derivatives and other exposures, which is because of the currency movement that would have happened, so...

Rakesh Jha

And the securitization, which earlier Kannan mentioned, that is now -- it is risk weighted.

N. S. Kannan

Basel III risk weight on securitization is the second reason.

Rakesh Jha

Earlier, it was a direction from Tier 1 and Tier 2 capital, of the trade announcements that we have given. Now it is risk-weighted and included in RWA and there's no deduction from Tier 1 and Tier 2. So that's why the RWA goes up to that extent, and Tier 1 and Tier 2 would go up to the extent of the earlier deduction, which was there.

N. S. Kannan

And as I said earlier, this is the portfolio which is -- I mean, this will come down as we go along.

Operator

We have the next question from the line of Surendra Chetty from UBS.

Surendra Chetty

My question is regarding news that ICICI Bank is in the process of closing 2 branches in the U.K. Is this a part of capital repatriation plans? Any motivation from this?

N. S. Kannan

No, that has nothing to do with the capital repatriation plan. The -- those 2 branches accounted for less than 2% of the deposits of ICICI U.K. So we thought from an overall productivity perspective, cost management perspective, we thought that there is no reason to continue with those branches. So we mapped those customers into other branches, where there are more footfalls and more customers. So that is what we have done. So it has got nothing to do with the capital repatriation plan and the intention is currently to continue with the subsidiary, and we do believe that there will be India-linked opportunities as we move forward. So this has got nothing to do with the capital repatriation.

Surendra Chetty

Okay. And my next question is, I missed the guidance on the credit growth. Can you please elaborate on that?

N. S. Kannan

Okay. Credit growth, what we said is that we target to grow the credit 2% to 3% over the systemic credit growth. So that sort of continues on the domestic book. International side, what I said was that depending on the overseas funding markets, we'll have to calibrate the growth as we go along. But domestic, we are quite confident of doing 2% to 3% over the systemic growth. And one of the areas where it's coming along quite nicely is the retail assets growth, as you have seen in the first quarter. So on that basis, we are quite comfortable to target 2% to 3% over the systemic domestic growth.

Operator

We have the next question from the line of Adarsh from Prabhudas Lilladher.

Adarsh Parasrampuria - Prabhudas Lilladher Pvt Ltd., Research Division

The one was the question on international margins. Now I just wanted to understand, you have seen a decent improvement, but how sustainable was it?

N. S. Kannan

Yes, sustainability is not a problem because given our incremental lending rates there, we are able to protect and enhance the margins. But you're right in the sense that about 1.5%, 1.6% would be the sort of steady-state level. Beyond that, on a sustained basis, increasing it is going to be difficult. So I mean, that is what -- even prior to the global financial crisis, we would have achieved those kind of sustainable margins. So that is what we are seeking. But given the fact that for a year, as a whole, in financial year 2013, it was less than that steady-state level. That much of pick up is something which will contribute to the overall NIM for the current financial year. But 1.6%, 1.7%, we do believe, is a good number to look at, so we would seek to sustain that at about 1.6% level.

Adarsh Parasrampuria - Prabhudas Lilladher Pvt Ltd., Research Division

The reason I'm asking is there is some, I guess, increase in hedging costs per se and a lot of this would be India-linked guys. So would you generally trade off a little bit of margins to some of your customers? That was -- the question was more from that side that you've seen a decent increase in hedging costs now?

N. S. Kannan

Yes. Not required at all because our approach to international book has been more like sustaining a margin of 1.5%, 1.6% and see whether -- how we'll see the funding side opportunities to sort of look at growth as a derivative, not target a particular level of growth. That is how we have pushed that business. While we are very confident on the -- I mean, while we are targeting a growth of 2% of 3% kind of growth on the domestic book, international book always is based on the availability of funding. So there is no specific growth target as a percentage in the international book. So if -- even if you look at past periods, we have seen the book to be steady on a -- in the dollar terms. So whatever growth you are seeing is because of the rupee depreciation. So our approach would be that -- look at the funding market. Is there's an opportunity to, let's say, do a lending at a margin of 1.5%, 1.6%, then only we will raise the funds. Otherwise, there is no need to raise the fund. There is no specific growth target I can assure you on the international book.

Adarsh Parasrampuria - Prabhudas Lilladher Pvt Ltd., Research Division

I understand. Secondly, on general insurance profitability, seems to have improved quite dramatically. Just wanted to understand, are these run rates sustainable, there are some one-offs there?

N. S. Kannan

Yes. See, there are 2 primary reasons why the profits gone up. One is that as we have mentioned earlier, the drag in the motor pool, which they had to take during the last year, in the first quarter, that has gone away. Plus, of course, the growth in the business has been there and there have been investment income also in that business given the market conditions. So we do believe that about 20% ROE in -- on steady-state business is something the business can deliver.

Adarsh Parasrampuria - Prabhudas Lilladher Pvt Ltd., Research Division

I understand. Just one more on outlook, and I think you touched on this a little bit, but if you can elaborate. I think we've tightened a little bit more on the liquidity side and it's not easy. So for some of the infra conglomerate exposures, what kind of comfort level do you have now in lots of large infra conglomerates and the asset sales have not happened at the base expected, so...

N. S. Kannan

Yes. That's a question of monitoring the assets on a continuous basis. And in some cases, we have reduced the exposure over the last year or so. So that kind of approach of talking to the promoters, pushing them to do asset sales or carefully monitoring our exposures, ensuring that the payment comes on time, that kind of monitoring will continue. Yes, I know, but clearly, the situation demands that kind of a closer monitoring. But apart from that, as I said earlier, we are quite confident of looking at credit costs for the year at 75 basis points of the average loans. So that is a basis on which we are quite confident to be expecting now.

Operator

We have the next question from the line of Manish Karwa from Deutsche Bank.

Manish J. Karwa - Deutsche Bank AG, Research Division

On your term deposits, I know sequentially term deposits have declined slightly, the wholesale deposits which have come down?

N. S. Kannan

Indeed. Indeed, it is a wholesale deposits because there is -- both retail term deposits and savings deposits has grown quite well. Current account, as I said, was flat. So the wholesale term deposits have sequentially declined because we didn't require to raise money at those rates.

Manish J. Karwa - Deutsche Bank AG, Research Division

And also total term deposits, how much would be retail?

N. S. Kannan

Total term deposits retail will be about 60%. On total deposits, retail will be 70%.

Manish J. Karwa - Deutsche Bank AG, Research Division

Okay. And this number -- of the term deposits, this number has consistently been going up for us, is that right? So 1 year back, how much would that number be? Any rough number, if you have?

N. S. Kannan

Around 50% possibly. Yes, 50%.

Manish J. Karwa - Deutsche Bank AG, Research Division

Okay. And as part of your liabilities, your borrowings have gone up, is that largely because of the rupee depreciation, overseas borrowing in rupee terms have gone up?

N. S. Kannan

Yes, that would be a good -- over total borrowings, if you look at, yes, that would be one of the reasons.

Manish J. Karwa - Deutsche Bank AG, Research Division

Okay. And if I'm not wrong, you had raised the MTN issue sometime early during this calendar year. And you were sitting on reasonably good liquidity in the international book, which was supposed to get deployed this year, so -- and despite that, you are saying that the overseas growth outlook is pretty, you're not trying to grow that loan book fast?

N. S. Kannan

Yes, some of the money has been deployed and that is one of the reasons why, sequentially, the net interest margin in the international book has expanded from about 1.3% to 1.6% in the current quarter. So that is one of the reasons of deploying that excess liquidity. What I meant to say was that the margin of 1.5%, 1.6% is non-compromisable. We have told the international teams that, that much of margin has to be achieved. So depending on them, based on that constraint, depending on the fund requirements, we will raise funds. So it's not to say that I will grow that book by 20%, let's go and find the business on both sides is not the way we want our [indiscernible] business. That's what I was clarifying.

Manish J. Karwa - Deutsche Bank AG, Research Division

Okay. Just a question on subsidiaries. Your PD have seen a good profit this quarter. Obviously, the environment was pretty good for a PD business, but will this thing get reversed significantly as we move forward?

N. S. Kannan

Well, it really depends on what happens on 30th of September in terms of rates. But BD -- PD will be -- any market-linked business in the fixed income will be subject to volatility given the RBI measures. The focus would be on the staying nimble. I mean, they have an ability to stay much more nimble compared to a large balance sheet like a typical bank's balance sheet, so -- and in the past also, they have been very nimble traders and they have an ability to play both sides of the market. So I do believe that, yes, their focus would be on limiting the losses and see how they can protect as much as possible. But yes, of course, I do agree that the current volatility will directly impact that business.

Manish J. Karwa - Deutsche Bank AG, Research Division

Okay. And lastly, continuation of an earlier question on general insurance. This INR 200 crores profit, do you think that can be sustainable if it's -- it's coming from only -- if it's only business-related income, then shouldn't it be sustainable as we move forward?

N. S. Kannan

No. My sense is that yes, the profit will be better than last year. The sustainable ROE, well, that should look at more like a 20%. Clearly, as [indiscernible] clarified, that there was a component of investment income in the first quarter like any other business. But the 2 things which have happened, I can tell you, is that the motor pool drain has gone away. And second, we do get confident that on a steady-state basis, this business can produce 20% ROE. On that basis, you should be computing the profitability of this business.

Rakesh Jha

So if you look at it last year on India here, Manish, if you look at it last year, the extra provision for the motor pool was about INR 100 crores. And after that, for the full year, the company made a profit of just over INR 300 crores. So it was pretty much running at a profit run rate of INR 400 crores and the business is growing at 20%. So that minimum kind of level, we feel that the company should get to and you know then, you know something beyond that. So we are, this year, definitely looking at a 20-plus percent ROE in that business.

N. S. Kannan

So unless there is some catastrophic loss or something which we can't foresee just now, we're not sure.

Operator

Where the next question from the line of M. B. Mahesh from Kotak Securities.

M. B. Mahesh - Kotak Securities Ltd., Research Division

My first question is, Mr. Kannan had kind of indicated that the international margins can be maintained at about 1.5% to 1.6%. Now is that the primary reason why you are still maintaining a guidance of 10 basis points international -- overall improvement in margins?

N. S. Kannan

That is one of the reasons, yes, that's correct because -- but for the exchange rate, if you really -- the exchange rate fluctuation, if you look at it, the proportion of that book as a percentage of total book would come down, plus -- so to that extent, the margin will be more contributed by the domestic margins. The second is that within that pie itself, the year as a whole, last year over this year, there will be an expansion of margins there.

M. B. Mahesh - Kotak Securities Ltd., Research Division

No, the reason why I'm asking is in the -- if we go with that calculation, just an average number itself gives about 10 basis points improvement, just by the kind of margins that you had last year. Does that mean that, given the kind of domestic margins that we have today, we will see some level of decline from here on, because you started last year with about 3.3% and exited at 3.7%, today, we are at 3.6%? Are we likely to see some level of compression in the domestic margins? If yes, I just wanted to understand, is it because it is driven by the mix more towards retail or you're seeing some level of pressure coming in on the corporate loan piece?

Rakesh Jha

As we have said, it's very difficult on a quarter-on-quarter basis to kind of give to a guesstimate on this. So what happens is that there are leads and lags of when you increase deposit rates, when you increase or reduce base rates, so those kind of things will happen. Overall, as Kannan mentioned, for the year, we were looking at a large part of the increase that you are talking about of 10 basis points to come from the expansion in the overseas business.

M. B. Mahesh - Kotak Securities Ltd., Research Division

I just wanted to reverse that saying that does it mean that the domestic business will see a decline?

Rakesh Jha

Meaning if you take, say for example, March quarter as a base because we will look at it on a full year basis, we are not able to predict quarter-on-quarter. If you indeed take March quarter as a base, I think yes, it's a fair thing to say that the margin will be lower than the March quarter base for the domestic business.

M. B. Mahesh - Kotak Securities Ltd., Research Division

So that's why I'm asking, would that be led by the pressure on the deposit side or from pricing or a loan mix perspective?

Rakesh Jha

That, as I said, is more a function of -- on a quarter-on-quarter basis, margins can be a bit higher or lower, depending on how the repricing happens, what is the increase in or decrease in base rate, what is the impact of the repricing around that front. So there's nothing specific to it. But yes, in the wholesale rates, while lower this time around, in the March quarter, compared to the previous year, so we had a bit of benefit in the March quarter. And right now, as we are looking at things, indeed, the expectation is that the cost of funding will go up for banks in the near term until RBI reverses or reduces these measures. And then like all banks, we'll also look at our deposit rates and lending rates and try and assess what is the increase, if any, that we need to do. And then the impact of that will again flow through the rest of the quarters, again with some lead and lag. But as I said, for the year, we are looking at a 10 basis point increase. Quarter-on-quarter, it is very difficult for us to give any specific estimate.

M. B. Mahesh - Kotak Securities Ltd., Research Division

So just as a follow-up to this, as a large part of the project funding comes up for -- as it completes, as it sees its COD, are you seeing a lot of pressure to cut rates very aggressively to -- either to keep the underlying loan book or as a part of the loan agreement to kind of reduce it in your portfolio?

Rakesh Jha

I would not say that was -- that is specific to just the projects. In general, if you look back, say 2 or 3 months back, given the decline in the overall systemic loan growth, indeed, banks were quite competitive on some of these corporate loans. Again, things have changed in the last couple of weeks and we have to see how things pan out. But indeed, there is refinancing, which is happening for...

N. S. Kannan

Yes, there are a set of corporates who always come and bargain. Maybe my sense is that for some of those corporates, the ability to borrow in the short-term markets with these RBI measures, with the interest rates having shorter, my sense is that in the near term, that bargaining power from the corporate perspective also will come down.

M. B. Mahesh - Kotak Securities Ltd., Research Division

Sure. Just one last question. What is the underlying loan book in retail, excluding buyouts? You have a total portfolio, I'm just trying to see your INR 1.085 billion [ph]. What is the core portfolio?

Rakesh Jha

The buyouts are about INR 60 billion.

M. B. Mahesh - Kotak Securities Ltd., Research Division

INR 60 billion?

Rakesh Jha

Yes.

Operator

We'll take the next question from the line Nilanjan Karfa from Jefferies.

Nilanjan Karfa - Jefferies LLC, Research Division

Quickly, I just want to dwell on one of the companies which is right now getting a lot of media attention of about INR 75 billion odd, as the EPC business is talked about. Is this something that was on your radar when you talked about the 75 basis points even a quarter back or 2 quarters back?

N. S. Kannan

Which one?

Nilanjan Karfa - Jefferies LLC, Research Division

This is the Lanco I'm talking about.

N. S. Kannan

No, I don't want to comment on a specific case. But I can only say that when I mentioned earlier that INR 2 billion of pipeline which is there for CDR cases, I have definitely considered that exposure as well.

Nilanjan Karfa - Jefferies LLC, Research Division

Okay. Okay, continuing on that...

N. S. Kannan

But whenever we do sort of whether it is credit cost estimate or if it is, let's say, the restructuring additions or anything, when we do that, we always keep some cushion, because especially given the operating environment, there could always 1 or 2 unforeseen circumstances which can happen. So whenever I say 75 basis points, when I do at the beginning of the year, I always keep some cushion. Like last year also, in one media case we talked about, some of that [indiscernible]. So those kind of things will happen. But my sense is that whenever we target a number, we are quite aware of the environment and what can potentially go wrong in that environment.

Nilanjan Karfa - Jefferies LLC, Research Division

Right. The point I was trying to -- was it kind of a even a surprise for you, or is that -- is it something I'm actually interested in? Did it come as a surprise? Let's -- for us, it's a different case, but for you?

N. S. Kannan

No, to be specific, as I don't want to talk about, but there are several things -- the gross monitoring is always there. That much, we will do.

Nilanjan Karfa - Jefferies LLC, Research Division

Okay. And just to take it forward, if you look at that particular EPC business, they have just got 3 other outside projects, right? One of them is a Moser Baer power plant which is not taken up, one is a Mahagenco and probably one is an Iraq power plant that they have just disclosed. Would you think that INR 75 billion, whatever they have discussed or whatever there is in the media, I mean, [indiscernible] gives us a feeling that there is a problem on the SPV side, because of -- which it is trying to restructure. Is that how you think that case is going to work? Any color. If you don't want to discuss, that's okay.

Rakesh Jha

We would not want to discuss specific individual cases on the call.

Nilanjan Karfa - Jefferies LLC, Research Division

Sure, sure. Perfect. Second question on the international subsidiary. Is their a target Tier 1 you are targeting at each of these U.K. and Canadian subsidiaries?

N. S. Kannan

Our endeavor would be to focus on improvement of the ROE to a more respectable level. Tier 1, there is no target, but the current Tier 1 is far higher than what we would like to have. So in those domains, what happens is that it is a dialogue with the regulator. They don't say that you have -- there is nothing like, "Here, we have a 9% minimum." They don't have such a requirement. They just look at -- whenever it is that they get comfortable, then they allow us to repatriate capital. So there's no specific Tier 1 that is being targeted there.

Nilanjan Karfa - Jefferies LLC, Research Division

Okay. So what is your target ROE, for example, and if you are to put it the other way around, if you...

N. S. Kannan

U.K., for example, over a period of 3 years or so, double-digit ROE is what we want to get.

Nilanjan Karfa - Jefferies LLC, Research Division

Okay, okay. Canada, I think, is it sitting a Tier 1 of about 26%, 27%?

N. S. Kannan

That's correct.

Nilanjan Karfa - Jefferies LLC, Research Division

All right. Okay. So I think the ROEs -- will there be compressed -- will be compressed for quite some time out there?

N. S. Kannan

Yes, it is about what -- that is why it's a part repatriation growth, a part of business growth. It cannot be just by business growth, we can achieve those ROEs, not possible.

Operator

We have the next question from the line of Prashant Kumar from Crédit Suisse.

Prashant Kumar

Just an extension of a question asked earlier that on your retail portfolio, if you could just give some more color that adjusted for buyout, what was the sequential growth in absolute terms? And also like disbursement per month for say, home loan, auto loan and even credit card and personal, that would be helpful.

Rakesh Jha

So during the quarter, the buyout portfolio declined by INR 20 billion because of repayments on that, so that is the only adjustment which is required on the numbers that we have said.

Prashant Kumar

And so any color on disbursement on home loan, auto loan on a per month basis, just to get an idea of -- in absolute sense that -- what is the growth?

Rakesh Jha

I don't get -- what is the number that you want?

Prashant Kumar

See, sir, our disbursements on home loan, auto loan, per month kind of...

Rakesh Jha

No, we don't -- that we are giving the book as -- I know, at the end of the quarter. Those numbers are there in the presentation. We are not giving out monthly the disbursements in the business. So if you look at the home loan, the book was about INR 596 billion, car loans is about INR 110 billion.

Operator

Your next question is from the line of Sampath Kumar from IndiaInfoline.

Sampath S. K. Kumar - IIFL Research

In the past, you used to have variation in your margins because of priority sector obligations coming in the fourth quarter. But recently, we don't see that variation. Is there any specific reason?

N. S. Kannan

The one, of course, is that there is a base rate floor, which has come in. Indeed, is that the overall -- some of the lendings which used to qualify for priority sector used to be like lending to corporates, engaged in agriculture and all that. There, the pricing pressure used to be much more. Those anyway no longer qualify for PSN. So it now shows up frankly in a higher shortfall for many of the banks. So in that sense, that is the reason. The impact is still there, but it is a lesser impact which is -- for example, the buyouts that we do in the form of PTCs, those are still at a lower rate than what the rate will be on our overall assets.

Sampath S. K. Kumar - IIFL Research

And as far as your margin guidance goes various to guiding for a 10-basis-point increase on a year-on-year basis for the full year. Would you be confident given the current environment?

N. S. Kannan

Yes. As of now, we are quite confident, Sampath. Yes, of course, we'll have to keep on monitoring what happens to the rates. But some other pieces, like I mentioned earlier, will give a better yield on the asset side also. So we are quite confident of a 10-basis-point expansion.

Sampath S. K. Kumar - IIFL Research

Okay, just one last question. Do you think this healthier levels are sustainable in a domestic business? These are almost 80% now.

N. S. Kannan

Yes, I think it is sustainable because we have operated in that manner and that's quite okay. I don't see any issues there.

Operator

Participants, that was the last question. I would now like to hand the floor back to Mr. N. S. Kannan for comments. Over to you, sir.

N. S. Kannan

Yes. Thank you and thanks for -- this is a little longer call. Thank you for staying back in the call. And any further questions, my team and I, we will be there to answer your questions offline. Thanks very much once again. Bye.

Operator

Thank you, sir. Ladies and gentlemen, on behalf of ICICI Bank, that concludes this conference call. Thank you for joining us. You may now disconnect your lines. Thank you.

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