ICICI Bank Limited (ICICIBANK) Q3 FY23 Earnings Concall Transcript

ICICI Bank Limited (NSE: ICICIBANK) Q3 FY23 Earnings Concall dated Jan. 21, 2023

Corporate Participants:

Sandeep Bakhshi — Managing Director and Chief Executive Officer

Anindya Banerjee — Group Chief Financial Officer

Analysts:

Mahrukh Adajania — Nuvama Wealth — Analyst

Jignesh Shial — InCred Capital — Analyst

Manish Shukla — Axis Capital — Analyst

Adarsh Parasrampuria — CLSA Limited — Analyst

Saurabh Kumar — JPMorgan — Analyst

Abhishek Murarka — HSBC — Analyst

M.B. Mahesh — Kotak Securities — Analyst

Presentation:

Operator

Ladies and gentlemen, good day, and welcome to ICICI Bank Limited Q3 FY ’23 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. Sandeep Bakhshi, Managing Director and CEO of ICICI Bank. Thank you, and over to you, Mr. Bakhshi.

Sandeep Bakhshi — Managing Director and Chief Executive Officer

Thank you. Good evening to all of you, and welcome to the ICICI Bank earnings call to discuss the results for Q3 of FY 2023. Joining us today on this call are Anup, Sandeep Batra, Rakesh, Anindya and Abhinek.

Amid the global uncertainty, India’s GDP growth has been resilient. The pickup in economic activity is reflected in the expanding purchasing managers’ indices, GST collections and other high-frequency indicators. Financial stability has been maintained and inflation though elevated has moderated from its peak. We will continue to monitor these developments closely. At ICICI Bank, we aim to grow the core operating profit in a risk-calibrated manner through a 360-degree customer-centric approach and by focusing on ecosystems and micro markets. We continue to operate within our strategic framework and strengthen our franchise, enhance our delivery and servicing capabilities and expand our technology and digital offerings.

Coming to the quarterly performance against this framework. First, growth into core operating profit in a risk-calibrated manner through the focused pursuit of target market segments. The core operating profit increased by 31.6% year-on-year to INR132.35 billion in this quarter. The profit after tax grew by 34.2% year-on-year to INR83.12 billion in this quarter.

Second, further enhancing our strong deposit franchise. Total period-end deposits grew by 10.3% year-on-year and 2.9% sequentially at December 31, 2022. Period-end term deposits grew by 14.2% year-on-year and 5.3% sequentially at December 31, 2022. During the quarter, the average CASA grew by 10.4% year-on-year and 2% sequentially. The liquidity coverage ratio for the quarter was about 123%.

Third, growing our loan portfolio in a granular manner with a focus on risk and reward. The retail loan portfolio grew by 23.4% year-on-year and 4.5% sequentially at December 31, 2022. Including non-fund-based outstanding, the retail portfolio was 44.9% of the total portfolio. The business banking portfolio grew by 37.9% year-on-year and 5.2% sequentially. The SME portfolio grew by 25% year-on-year and 8.3% sequentially. The growth in SME and business banking portfolios was driven by leveraging our branch network and digital offerings, such as InstaBIZ and Merchant Stack.

The domestic corporate portfolio grew by 18.2% year-on-year and 4.7% sequentially at December 31, 2022, driven by growth across well-rated financial and nonfinancial corporates. Rural portfolio grew by 12.5% year-on-year and 3.8% sequentially. The domestic loan portfolio grew by 21.4% year-on-year and 4.2% sequentially. The overall loan portfolio grew by 19.7% year-on-year and 3.8% sequentially at December 31, 2022.

Fourth, leveraging digital across our business. We continue to enhance our digital offerings and platforms to onboard new customers in a seamless manner and provide them end-to-end digital journeys and personalized solutions. These platforms also enable us to do cross-sell and upsell. We have shared some details on our technology and digital offerings in Slides 17 to 28 of the investor presentation.

Fifth, protecting the balance sheet from potential risks. The net NPA portfolio declined to 0.55% at December 31, 2022, from 0.61% at September 30, 2022, and 0.85% at December 31, 2021. During the quarter, there were net additions of INR11.19 billion to gross NPAs, excluding write-offs and sales. The provisioning coverage ratio on NPAs was 82% at December 31, 2022. The total provisions during the quarter were INR22.57 billion or 17.1% of core operating profit and 0.93% of average advances. This includes contingency provision of INR15 billion made on a prudent basis. The Bank holds contingency provisions of INR115 billion or about 1.2% of total loans as of December 31, 2022.

As we have mentioned during the previous earning calls, we aim to be proactive in provisioning with a key objective of strengthening our balance sheet. During the quarter, we have changed our provisioning norms on nonperforming assets to make them more conservative for corporate, SME and business banking. This change resulted in higher provisions amounting to about INR11.96 billion in Q3 2023.

Sixth, maintaining a strong capital base. The capital position of the Bank continued to be strong with a CET1 ratio of 17.09%, Tier 1 ratio of 17.58% and total capital adequacy ratio of 18.33% at December 31, 2022, including profits for 9 months 2023.

Looking ahead, we will continue to focus on growing the core operating profit in a risk-calibrated manner. We will work as one team by facilitating cross-functional collaboration to tap into key customer and market segments, enabling 360-degree coverage and increase in wallet share. We will continue to make investments in technology, people, distribution and building a brand.

The principles of fair to customers, fair to bank and one bank, one team, one ROE will guide our operations. We focus on building a culture where every employee in the Bank serves customers with humility and upholds the values of the brand ICICI. We aim to be the trusted financial services provider of choice for our customers and deliver sustainable returns to our shareholders. I now hand the call over to Anindya.

Anindya Banerjee — Group Chief Financial Officer

Thank you, Sandeep. I will talk about balance sheet growth, credit quality, P&L details, growth in digital offerings, portfolio trends and performance of subsidiaries.

On balance sheet growth, Sandeep covered the loan growth across various segments. Coming to the growth across retail products, the mortgage portfolio grew by 19.1% year-on-year and 4% sequentially. Auto loans grew by 22% year-on-year and 5.9% sequentially. The commercial vehicles and equipment portfolio grew by 3.4% year-on-year and 1.1% sequentially. Growth in the personal loan and credit card portfolio was 44.8% year-on-year and 7.2% sequentially. This portfolio was INR1154.78 billion or 11.9% of the overall loan book at December 31, 2022.

The overseas loan portfolio in U.S. dollar terms declined by 22.1% year-on-year and 8.7% sequentially at December 31, 2022. The decline in the overseas book primarily reflects maturities of the short-term India-linked trade book. The overseas loan portfolio was about 3.6% of the overall loan book at December 31, 2022. The non-India linked corporate portfolio declined by 42.8% or about $285 million on a year-on-year basis. Of the overseas corporate portfolio, about 86% comprises Indian corporates, 8% is overseas corporates with Indian linkage, 3% comprised companies owned by NRIs or PIOs and the balance 3% is non-India corporates.

On the liabilities side, Sandeep covered the growth in deposits. During the quarter, we raised long-term infrastructure bonds as well as refinance borrowings from domestic financial institutions. Overseas borrowings declined, reflecting the reduction in assets. We also had bond maturities arising out of older capital instruments during the quarter.

Credit quality, there were net additions of INR11.19 billion to gross NPAs in the current quarter compared to INR6.05 billion in the previous quarter. The net additions to gross NPAs were INR9.75 billion in the retail rural and business banking portfolios and INR1.44 billion in the corporate and SME portfolio. The gross NPA additions were INR57.23 billion in the current quarter compared to INR43.66 billion in the previous quarter. The gross NPA additions from the retail, rural and business banking portfolio were INR41.59 billion, and from the corporate and SME portfolio were INR15.64 billion.

There were gross NPA additions of about INR6.72 billion from the Kisan Credit Card portfolio in the current quarter. We typically see higher NPA additions from the Kisan Credit Card portfolio in the first and third quarter of the fiscal year. Corporate and SME gross NPA additions include INR8.05 billion on account of borrowers that were under resolution at September 30, 2022. The Bank held about 35% provisions against these borrowers.

Recoveries and upgrades from gross NPAs, excluding write-offs and sales, were INR46.04 billion in the current quarter compared to INR37.61 billion in the previous quarter. There were recoveries and upgrades of INR31.84 billion from the retail, rural and business banking portfolio and INR14.2 billion from the corporate and SME portfolio.

The gross NPAs written off during the quarter were INR11.62 billion. There was no sale of NPAs in the current quarter compared to INR0.94 billion of NPAs sold on a cash basis in the previous quarter. Net NPAs declined by 23.1% year-on-year and 7.3% sequentially to INR56.51 billion at December 31, 2022. The non-fund based outstanding to borrowers classified as nonperforming was INR38.69 billion as of December 31,2022, compared to INR35.16 billion as of September 30, 2022. The Bank holds provisions amounting to INR19.93 billion as of December 31, 2022, against these non-fund based outstanding.

The total fund-based outstanding towards standard borrowers under resolution as per various guidelines declined to INR49.87 billion or about 0.5% of the total loan portfolio at December 31, 2022, from INR67.13 billion as of September 30, 2022. Of the total fund-based outstanding under resolution at December 31, 2022, INR41.90 billion was from the retail, rural and business banking portfolio and INR7.97 billion was from the corporate and SME portfolio. The Bank holds provisions of INR15.29 billion against these borrowers, which is higher than the requirement as per RBI guidelines.

Moving on to the P&L details. The net interest income increased by 34.6% year-on-year to INR164.65 billion. The net interest margin was 4.65% in this quarter compared to 4.31% in the previous quarter and 3.96% in Q3 of last year. The net interest margin was 4.33% in 9M 2023. There was no impact of interest on income tax refund on net interest margin in the current quarter.

The domestic NIM was at 4.79% this quarter compared to 4.45% in the previous quarter and 4.06% in Q3 last year. The cost of deposits was 3.65% in the quarter compared to 3.55% in the previous quarter. Of the total domestic loans, interest rates on 45% are linked to the repo rate, 4% to other external benchmarks and 21% to MCLR and other older benchmarks. The balance 30% of loans have fixed interest rate. The sequential increase in NIM reflects the impact of increase in interest rates on loan yields, while repricing of deposits occur with a lag, we expect to see the impact of repricing of deposits in future quarters.

Noninterest income, excluding treasury income, grew by 1.8% year-on-year to INR49.87 billion in Q3 of 2023. Fee income increased by 3.7% year-on-year to INR44.48 billion in this quarter. Fees from retail, rural, business banking and SME customers grew by 7.3% year-on-year and constituted about 78% of the total fees in this quarter. Dividend income from subsidiaries and associates were INR5.16 billion in this quarter compared to INR6.03 billion in Q3 of last year. The dividend income in Q3 of last year included interim dividend from ICICI Securities primary dealership.

On costs, the Bank’s operating expenses increased by 16.1% year-on-year in this quarter. Employee expenses increased by 17.6% year-on-year. The Bank had about 117,200 employees at December 31, 2022. The employee count has increased by about 15,300 in the last 12 months. Non-employee expenses increased by 15.4% year-on-year in this quarter, primarily due to technology and retail business-related expenses.

Our branch count has increased by about 420 in the last 12 months, and we had 5,718 branches as of December 31, 2022. The technology expenses were about 9.3% of our operating expenses in 9M of this year compared to about 8.6% in fiscal 2022.

The core operating profit increased by 31.6% year-on-year to INR132.35 billion in this quarter. Excluding dividend income from subsidiaries and associates, the core operating profit grew by 34.5% year-on-year. There was a treasury gain of INR0.36 billion in Q3 compared to a loss of INR0.85 billion in Q2 and a gain of INR [ 0.8 ] billion in Q3 of the previous year. The total provisions during the quarter including impact of change in provisioning norms were INR22.57 billion or 17.06% of the core operating profit and 0.93% of average advances. These also include contingency provisions of INR15 billion laid on a prudent basis.

The provisioning coverage on NPAs was 82% as of December 31, 2022. In addition, we hold INR15.29 billion of provisions on borrowers under resolution. Further, the Bank holds contingency provision of INR115 billion as of [Technical Issue]. We see increasing adoption and usage of our digital platforms by our customers. There habr been about 8.6 million activations of iMobile Pay by non-ICICI bank account holders as of end December, the value of transactions by non-ICICI bank account holders in Q3 of this year was 2.3x the value of transactions in Q3 of last year.

We have seen about 215,000 registrations from non-ICICI bank account holders on InstaBIZ till December 31, 2022. The value of financial transactions in InstaBIZ grew by about 29.2% year-on-year in the current quarter. We have created more than 20 industry-specific stacks, which provide bespoke and purpose-based digital solutions to corporate clients and their ecosystems. Our Trade Online and Trade Emerge platforms allow customers to perform most of their trade finance and foreign exchange transactions digitally. About 71.2% of trade transactions were done digitally in Q3 of this year. The value of transactions through these platforms increased by 59.3% year-on-year in Q3 of this year.

Moving on to some portfolio information. We have provided details on our retail business banking and SME portfolio in Slides 35 to 45 of the investor presentation. The loan [Technical Issue] non-fund based outstanding to performing corporate and SME borrowers rated BB and below was INR55.81 billion at December 31, 2022, compared to INR76.38 billion at September 30, 2022, and INR118.42 billion as of December 31, 2021. The sequential decline was primarily due to slippage of borrowers that were under resolution into NPA and a few repayments during the quarter. The amount of INR55.81 billion at December 31, 2022, includes INR8.79 billion of outstanding to borrowers under resolution.

The maximum single borrower outstanding in the BB and below portfolio was less than INR5 billion at December 31, 2022. At December 31, 2022, we held provisions of INR4.48 billion on the BB and below portfolio compared to INR8.12 billion at September 30. This includes provisions held against borrowers under resolution included in the portfolio.

The total outstanding to NBFCs and HFCs were INR765.4 billion at December 31, 2022, compared to INR735.73 billion at September 30, 2022. The total outstanding loans to NBFCs and HFCs were about 7% of our advances at December 31. The sequential increase in the outstanding to NBFCs and HFCs was mainly due to disbursements to entities having longer vintage and entities owned by well-established corporate groups.

The builder portfolio, including construction finance, lease rental discounting, term loans and working capital was INR360.11 billion at December 31, 2022, compared to INR319.63 billion at September 30, 2022. The builder portfolio is over 3.4% of our total loan portfolio. Our portfolio is largely to well-established builders. And this is also reflected in the sequential increase in the portfolio. 5.6% of our builder portfolio at December 31, 2022, was either rated BB and below internally or was classified as nonperforming compared to 6.8% at September 30, 2022.

Subsidiaries and key associates, the details of the financial performance of subsidiaries and key associates are covered in Slides 49 to 51 and 70 to 75 in the investor presentation. The value of new business margin of ICICI Life increased from 28% in fiscal 2022 to 32% in 9M of this year. The value of new business increased by 23.2% year-on-year to INR17.1 billion in 9 months of this year. The annualized premium equivalent grew by 4.2% year-on-year to INR53.41 billion in the same period. And the profit after tax of ICICI Life was INR5.76 billion in 9M of 2023 compared to INR5.69 billion in 9M of 2022 and INR2.21 billion in Q3 this year compared to INR3.11 billion in Q3 last year.

The gross direct premium income of ICICI General increased by 16.9% year-on-year to INR54.93 billion in Q3 of this year. The combined ratio was 104.4% in Q3 of this year compared to 104.5% in Q3 of last year. The profit after tax grew by 11% year-on-year to INR3.53 billion in the current quarter.

The profit after tax of ICICI AMC was INR4.2 billion in this quarter compared to INR3.34 billion in Q3 of last year. The profit after tax of ICICI Securities as per IndAS on a consolidated basis was INR2.81 billion in this quarter compared to INR3.8 billion in Q3 of last year. ICICI Bank Canada had a profit after tax of CAD11.5 million in this quarter compared to CAD11.5 million in Q3 last year and CAD12.5 million in Q2 this year. ICICI Bank U.K. had a profit of $3.1 million this quarter compared to $3 million in Q3 of last year and $1.5 million in Q2 this year. As per IndAS, ICICI Home Finance had a profit after tax of INR1.05 billion in the current quarter compared to INR0.48 billion in Q3 of last year and INR0.6 billion in Q2 this year.

With this, we conclude the opening remarks, and we will now be happy to take your questions.

Questions and Answers:

Operator

We will now begin the question-and-answer session. [Operator Instructions] First question is from the line of Mahrukh Adajania from Nuvama Wealth. Please go ahead.

Mahrukh Adajania — Nuvama Wealth — Analyst

Yeah, hi. So I have a couple of questions. Firstly that would you say that the sequential growth, because you lend to so many segments, the sequential growth has peaked at around, say, 4% Q-o-Q. Would that be a fair assumption? Because there will always be some moving parts. The sector growth is also on a very high base.

Anindya Banerjee — Group Chief Financial Officer

No, I think it really can’t be expressed in that way. There are, as we said, moving parts in different quarters. So for example, in this year, the festive season was kind of split between Q2 and Q3, it started a bit early. So some of the consumption-related growth would have happened partly in Q2 instead of happening fully in Q3. The way we look at it, I think, in terms of, if you look at the granular portfolio, which is retail, business banking, et cetera, the disbursements, volumes are pretty much holding up and the loan growth will be really an outcome of that. So that’s the way we would look at it.

Mahrukh Adajania — Nuvama Wealth — Analyst

Got it. And so if loan growth accelerates in the fourth quarter, would there be enough deposits? I know that you’ve done borrowings as well, but the deposit growth on an overall basis is 3%. So on a sequential basis. I mean, would there be enough deposits to fund higher growth, how is the system shaping up?

Anindya Banerjee — Group Chief Financial Officer

Yes. I think a lot of focus goes on this year-on-year deposit growth versus credit growth gap, which kind of misses the fact that the first 2 quarters of the calendar year were quarters when banks had and then ran down significant excess liquidity. Liquidity in the system itself has come down from INR8 trillion to under INR1 trillion. So it has to be seen in that context. I think the way we’ve annualized it is if we look at the net increase in the balance sheet, say, in the third quarter, borrowings represents only about 10% or 11% of the seasonal [ VAT ] accretion. And the balance is really coming through deposits and equity or the profit generation. So we don’t see deposits or funding as a constraint at all. And during the quarter, we have grown our total deposit base by over INR300 billion. And as we had mentioned last time, as the retail deposit rates have started moving up, we’ve seen a pretty healthy increase in the accretion to retail deposits, and that momentum is continuing. So we are quite comfortable on the funding side. And for Q3, we had an LCR of 123% average for the quarter.

Mahrukh Adajania — Nuvama Wealth — Analyst

Okay. And my next question is on contingent provisions. So a few banks or at least 2 private banks have been telling us that they have some sort of a deadline from auditors or some sort of feedback from auditors that it has to be utilized within a certain period, and therefore, some of them are cutting down contingency provisions. So how does that work with you in terms of auditors time line because you’re just building on the buffer.

Anindya Banerjee — Group Chief Financial Officer

I’m not aware of such requirement. The way we look at the contingency provisions is that we certainly see the various developments that are taking place both globally and in India that could impact various parts of the portfolio, and then we do an analysis of the portfolio where there is no NPL development currently, but the risk marker could be a little higher than the average. And then that’s how we kind of build up on the contingency provision. And that’s something that we would keep revisiting every quarter, as we’ve said earlier.

Mahrukh Adajania — Nuvama Wealth — Analyst

Okay, perfect. Thanks a lot and all the best.

Operator

Thank you. Next question is from the line of Jignesh from InCred Capital. Please go ahead.

Jignesh Shial — InCred Capital — Analyst

Yeah, hi sir. Thanks for the opportunity. I just had 2 questions itself. One, as I see it in the presentation, the rise in cost of deposits sequentially has been somewhere around 10 bps, if I see it correct. So how do you see that panning forward? And going forward, how that particular trend looks to be?

And second, your cost to income has seen a significant improvement of roughly around 38% right now, 38.2%. So what kind of trajectory are you seeing up on this segment also, if you can highlight.

Anindya Banerjee — Group Chief Financial Officer

Yes. So on the first question, I think what has happened in this cycle is that the wholesale deposit rates moved up first pretty sharply started from May, and we have not been large takers in the wholesale deposit market. The retail deposit rates started moving much more gradually and much, much later. So the larger rise in retail deposit rates has come only actually from September onwards. So if you look at, for example, the peak retail term deposit rate that we are offering today is about 115 basis points compared to what it was a quarter ago. So that is why the repricing of retail deposits is happening with a lag, where these are more granular in any case, so they do get repriced over a period of time. But as I had mentioned in the opening remarks, we would expect to see the cost of deposits go up at a sharper pace going forward.

Jignesh Shial — InCred Capital — Analyst

Okay. Okay. Understood. And on the cost to income —

Anindya Banerjee — Group Chief Financial Officer

On the second part, I think we don’t really manage to that ratio. We are looking at the overall PPOP and PPOP growth and we continue to invest in technology, branches and people. So as it happened this quarter, the OpEx growth was a little lower on a year-on-year basis than the trend that we’ve seen over the last couple of quarters. And so cost to income has come down to 38%. But it’s going to be in that range, I would say, around 40%. I don’t think we are looking at any major moves in there.

Jignesh Shial — InCred Capital — Analyst

Understood. And just one quick on this contingency provision, which is INR115 billion right now as on December. Is there any target that this you want to introduce as a balance or it can vary every quarter. I mean any specific number in your mind? Or how does it work?

Anindya Banerjee — Group Chief Financial Officer

No, we don’t have any specific number in our mind. It’s something that we keep assessing on a quarterly basis.

Jignesh Shial — InCred Capital — Analyst

Thanks a lot for this. All the best.

Operator

Thank you. Next question is from the line of Manish Shukla from Axis Capital. Please go ahead.

Manish Shukla — Axis Capital — Analyst

Yeah, good evening and thank you for the opportunity. So first question loan-to-deposit ratio. If I were to adjust the historically high level of international loans probably on domestic book, you will be close to peak LDR that you have been. So going back to the earlier question, while I will appreciate the borrowing part, till what level are you [Technical Issue] in the LDR and beyond which deposit growth could start becoming a concern for loan growth?

Anindya Banerjee — Group Chief Financial Officer

Yes, you are right. If you leave aside the overseas balance sheet, the loan-to-deposit ratio is at 82%, 85% and which is at the higher end of the historical range. But we don’t see, as I explained earlier, deposit growth really as a constraint. I think if you look at the accretion to deposits on a quarter-on-quarter basis, it has been going up quite smartly as we have moved the rates in line with the system broadly. We were slower in the initial part of the year because we had significant excess liquidity to start with. But while there is a natural level at which the loan-to-deposit ratio will settle again, we don’t sort of over-worry about it because as we’ve mentioned in the past, a 3-month wholesale deposit makes that ratio lower, whereas a 2-year refinance borrowing makes it higher. So we would look at the overall quality of funding. But all forms of wholesale funding are essentially the marginal source of funding. The core funding remains the retail deposits, and we are seeing pretty healthy momentum there.

Manish Shukla — Axis Capital — Analyst

Sure. Moving on to loan growth. If you look at it, the personal and credit card book today is more than 21% and growing much faster than the overall loans. Fair to assume as long as the credit costs remain low, you would still be okay if the share continues to rise?

Anindya Banerjee — Group Chief Financial Officer

Yeah, we are quite comfortable with this portfolio, and we have seen it through the COVID period as well, the borrower behavior, and we have no concerns as such on this portfolio. if at all on the personal loan side, I think that concern is a little bit on the pricing where the market has become quite competitive. But from a credit perspective, we are very comfortable on both portfolios.

Manish Shukla — Axis Capital — Analyst

Sure. Those were my questions. Thank you.

Operator

Thank you. [Operator Instructions] The next question is from the line of Adarsh from CLSA India. Please go ahead.

Adarsh Parasrampuria — CLSA Limited — Analyst

Hi. And then I just wanted to check on the fee growth. Is this 3% growth a fairly widespread representation of growth or because of third-party slower insurance, different elements would have a different growth trajectory? And how does one see from a medium-term perspective?

Anindya Banerjee — Group Chief Financial Officer

So there are actually quite a few factors here, the one is that we don’t particularly focus on it as a line item because we are focused on the overall sort of PPOP risk-calibrated PPOP contract as our guiding metric. If you look at the fee number for this quarter, again, there is some impact of the festival seasonality. There is, as you rightly pointed out, a de-growth wherein we’re in the third-party distribution led fees, which one would have to adjust for. In addition to that, I think if you look at a couple of other areas, for example, the loan processing fee where there is, A, a competitive element, and B, we also are more focused on making sure that we have the appropriate loan yield rather than maximizing upfront fees. In certain cases, in certain products from our overall perspective of customer fairness, we have also rationalized reduced substantially the grid penalties like the prepayment premiums and foreclosure charges on certain categories of loans, for example, as you know, a personal loan or an auto loan, which is at least somewhat seasoned or business banking where the borrower has been with us for a couple of years. And for whatever reason wishes to exit, we would charge lower or no penalty is the way we would look at it because it is the borrower relationship which is important. So in all of these, I guess, if we adjust for all of these, we see growth would be a few percentage points higher than what is the reported number. Having said that, of course, there are areas where we can do better. I think, for example, FX or transaction banking, these are some of the areas where we believe we have excellent platforms and we need to leverage those to grow our share and our revenue. But that’s the overall kind of range which we would get it. So it should hopefully improve from the current level over a period of time. But there are many things we are doing within that to make sure that rather than fixated on this number, we really manage it in a way that contributes to the sustainable growth of the franchise.

Adarsh Parasrampuria — CLSA Limited — Analyst

Got it, Anindya. And my second last question is for ’24 and ’25, if you think about margins peaking about at some point, Next year would be a relatively tough year from a core operating profits scenario. One can ignore it and say that let’s look at 2-, 3-year caveat. The second is, do you have levers on the opex side because the last two to three years, opex coverage has been, there’s been a lot of investment. So just wanted to understand if that lever can be of use when margins kind of normalize?

Anindya Banerjee — Group Chief Financial Officer

So of course, this year, we are seeing the benefit of repo rate hike, while the interest costs are moving up only with some lag, and that is leading to a higher operating profit growth than would have featured in anyone’s projections or estimates and some of that will get adjusted next year. But we will see as we go along, it depends on how we look at incremental lending and funding and the levers that we have to try and optimize the balance sheet. And of course, all other elements of the PPOP. So we’ll take that as it comes.

Adarsh Parasrampuria — CLSA Limited — Analyst

And is opex, the investments done in the last few years at a point where that could be a lever or continued investments would continue. So opex unlikely to be an ROE lever.

Anindya Banerjee — Group Chief Financial Officer

So I think it’s a question of choice. It is a very controllable lever, a large part of it. But as we have said in the past, for a couple of quarters, opex growth is running ahead of revenue growth because we are continuing to invest in a sustainable way and we will not worry about it too much.

Adarsh Parasrampuria — CLSA Limited — Analyst

That’s it. Thank you and all the best.

Operator

Thank you. Next question is from the line of Saurabh from JP Morgan. Please go ahead. Saurabh, may I request you to unmute your line and go ahead with the question please.

Saurabh Kumar — JPMorgan — Analyst

Yeah sir. Sir, two questions. One is through this quarter end [ CR ]. And the second is, can you explain this provisioning tightening you have done in your corporate and SME business?

Anindya Banerjee — Group Chief Financial Officer

.Sorry, I didn’t get the second part.

Saurabh Kumar — JPMorgan — Analyst

The policy tightening you have done on the corporate and SME side.

Anindya Banerjee — Group Chief Financial Officer

Yes. So we have not reported the quarter end CR, the reporting is on a quarterly average basis, but I would say it would be broadly at similar levels. What the trajectory that liquidity follows is that it’s typically pretty strong at month end than during the month, deposits withdrawal happen, say, on the savings side, in particular quarters, there are advance tax outflows and so on when the system goes tight on liquidity and then it builds up again. So that’s why we look at the average, but the quarter end would not be materially different from the reported number of 123% average for the quarter.

On the the provisioning policy. So Saurabh, as you know, the RBI norms prescribe a minimum provisioning policy. And on the retail and rural loans, we already follow a more conservative provisioning norm where we provide for NPAs on a more accelerated basis. For the corporate, SME and business banking portfolio, thus far, we were applying the RBI norm, and we thought that it would be prudent to do some acceleration there as well, both in terms of the period over which we reach 100% coverage and also in the earlier buckets. So that is the tightening that we have done.

Saurabh Kumar — JPMorgan — Analyst

Okay. Maybe — sir, can I ask one more? Just on your card spend market share, how you’re thinking about it? That will be last one. Thank you.

Anindya Banerjee — Group Chief Financial Officer

No, we are focused on growing the profitable market share, the high-quality market share. I think we have seen a decline in our commercial card market share over the last couple of quarters in terms of spend. But we are quite happy with the way our retail card spends are shaping up, not targeting a particular level of market share overall, but just looking at higher quality spend growth and that is probably moving in line with what we would wanted to.

Saurabh Kumar — JPMorgan — Analyst

Thank you.

Operator

Thank you. Next question is from the line of Abhishek from HSBC. Please go ahead.

Abhishek Murarka — HSBC — Analyst

Good evening and thanks for taking the question. So the first question is actually if you could share some commentary on the loan growth outlook for FY ’24. Do you think it will moderate from there or you can still look to deliver similar kind of growth? And also, what would be the role of capex next year? Do you think there’s a real possibility of capex improving? Or it’s just, I mean, may not pick up from here?

Anindya Banerjee — Group Chief Financial Officer

We will have to wait and see, Abhishek, because clearly, on the corporate side, the loan growth this year, partly has come from because of the sharp pricing of liquidity and some shift from bond markets and so on. and we have seen higher borrowings or higher appetite for borrowings from some of the segments like NBFC, which explain a reasonable portion of the corporate loan growth. As I said, our cumulative retail loan volumes are quite steady. So that’s part of the growth should sustain. On the corporate side, I think we will have to wait and see. We will just look at our own analysis of risk reward and profitability and how to optimize our PPOP, that will be our guiding factor without targeting a particular level of loan growth. But on the retail SME business banking side, I don’t see a challenge in the loan volumes.

On the CapEx, clearly a fair amount of CapEx is happening, which has been undertaken and funded by the government and the public sector. There is investment happening from the private sector in real estate. And there is some amount of investment happening from the private sector in infrastructure and industries as well. But so far, it has not been of a level which would move the needle on domestic loan growth. We’ll have to see how it shapes up. While it’s good from a credit perspective, the issue from a loan demand perspective is that most corporates are extremely well funded and liquid and are, therefore, able to undertake some amount of investment without having recourse to banks. So what is coming to banks is more granular in nature.

Abhishek Murarka — HSBC — Analyst

Right, right. And assuming that this loan growth, let’s say, moderates a little bit next year. And you also, started to coincide with NIM normalizing as well. What can you do on the rest of the lines, like fee or cost to protect PPOP growth?

Anindya Banerjee — Group Chief Financial Officer

As I said, we will see it as it comes. Once again, I’m not seeing any sharp deceleration in loan growth. As I said, we have been growing the balance sheet that our loan growth has been quite sustainably in the high teens. Of course, when the system loan growth itself, it reached to higher teens, it went about 30%. So it may come off a little, but that’s okay. And we would look at ways to achieve a stable level of profitability. Current year’s operating profit growth is, of course, much higher than what a normal level would be because of a sharp rise in interest rates. But I think there are many levers available in the balance sheet and the P&L, which can be optimized.

Abhishek Murarka — HSBC — Analyst

Absolutely. Just a very quick question on fees. I understand that you’ve changed a lot of rates on fees. But from the current point onwards, should it track loan growth and loan mix? Or do you still see more fees getting rationalized and therefore, you could still continue to see some pressure on fee to assets or fee to loans?

Anindya Banerjee — Group Chief Financial Officer

No, I don’t think that it will reach the level of loan growth in a hurry.

Abhishek Murarka — HSBC — Analyst

Okay. So basically, more rationalization could come?

Anindya Banerjee — Group Chief Financial Officer

No, it’s not a question of just of rationalization. I think there are many parts to the fee income. There is a part linked to cards and payments. There is a loan processing fee, there is FX, then there is the liability-related fees and third-party distribution. These would be the broad categories. Each of them has a different dynamic and a distinct sort of influencing factors at various points in time, and we have different strategies for each line item. So it’s difficult to just link it to loan growth in that sense.

Abhishek Murarka — HSBC — Analyst

Got it. Thanks so much and all the best. Thank you.

Operator

Thank you. The last question is from the line of M.B. Mahesh from Kotak Securities. Please go ahead.

M.B. Mahesh — Kotak Securities — Analyst

Hey hi. Just two questions. One, if you just kind of call out, are you still seeing recoveries coming in from previously written-off accounts? And if that is moving still favorably in your provisioning lines?

Anindya Banerjee — Group Chief Financial Officer

Yes, we have seen some recoveries coming in from the older NPLs that were then provided or maybe partly written off, and that has contributed to the lower provisions or actually, if you look at for this quarter, excluding the impact of the change in norms and the contingency provision, we have a net write-back of about INR4.4 billion. So we have seen 1 or 2 large corporate recoveries.

M.B. Mahesh — Kotak Securities — Analyst

Okay. question on this just kind of, if you keep interest rates where they are today, when does cost of funds start hitting as you go forward? And if yes, how should we model over the next few quarters on this number?

Anindya Banerjee — Group Chief Financial Officer

It is difficult for me to say how you should model it. But my guess is that it should start showing up to some extent in Q4 and more so in Q1.

M.B. Mahesh — Kotak Securities — Analyst

And how much of hedging you have available on the [ moving ] side, if interest rates are —

Anindya Banerjee — Group Chief Financial Officer

We would have for Q4, there is actually the December hike will play out over Q4 for us.

M.B. Mahesh — Kotak Securities — Analyst

Okay. And you’re saying that the peak cost of funds starts hitting you from 1Q of next year?

Anindya Banerjee — Group Chief Financial Officer

Yeah, it will happen over a period of time. And of course, the balance sheet doesn’t remain static in that sense. We also have some ability to manage assets and liabilities, investment portfolio and so on.

M.B. Mahesh — Kotak Securities — Analyst

Okay. Thanks.

Operator

Thank you very much. I now hand the conference over to the management for closing comments.

Anindya Banerjee — Group Chief Financial Officer

Thank you all for sparing time on a Saturday evening, and my colleagues and I are available for any further questions. Thank you.

Operator

[Operator Closing Remarks]