ICICI Bank(IBN) - 2022 Q4 - Annual Report

Risk Factors Risks Relating to India and Other Economic and Market Risks The bank's performance is exposed to Indian economic volatility, global market instability, and sovereign credit rating changes - India's GDP grew by 8.7% in fiscal 2022, recovering from a 6.6% decline in fiscal 2021; however, the bank's performance remains vulnerable to economic slowdowns, which could increase credit risk and non-performing assets[57] - Global economic instability, including tightening monetary policy in the U.S and the Russia-Ukraine conflict, could lead to increased risk aversion, capital outflows, and market volatility, adversely affecting the bank's business[66] - The bank's credit ratings are linked to India's sovereign rating; any future downgrade could negatively impact the bank's access to capital and liquidity[71] - As a systemically important bank in India, the company is exposed to systemic risks within the evolving Indian financial system[78] Risks Arising from a Highly Regulated Sector The bank faces significant risks from intense regulatory scrutiny, directed lending norms, and evolving capital requirements - The bank is subject to intense regulatory scrutiny, which increases the risk of adverse actions, fines, or operational changes if found non-compliant with evolving laws and regulations[91][93] - The bank must adhere to RBI's directed lending norms, requiring 40% of adjusted net bank credit to be allocated to priority sectors, which can impact profitability[102][103][105] - The bank is subject to Basel III capital adequacy requirements; as of March 31, 2022, the consolidated total risk-based capital ratio was 18.9%, well above the minimum requirement[112][113] - The transition from LIBOR to alternative reference rates like SOFR is ongoing and introduces uncertainty regarding funding costs and financial performance[143][144][509] Risks Relating to Our Business Business risks include potential loan portfolio deterioration, high concentration in retail finance, and intense competition - The COVID-19 pandemic continues to pose a risk by potentially increasing non-performing loans; the bank held a total contingency provision of ₹74.5 billion at March 31, 2022[148][150] - The loan portfolio has a high concentration in retail finance, which constituted 53.2% of gross advances at March 31, 2022[158][161] - The bank is vulnerable to interest rate risk, as 47.7% of the domestic loan portfolio was linked to external benchmarks at fiscal year-end 2022, exposing net interest margin to volatility[172][175] - The bank faces intense competition from public and private sector banks, NBFCs, and new fintech entrants, which could impact market share and profitability[199][200] - The bank is involved in various litigations and has contingent tax liabilities of ₹84.8 billion as of March 31, 2022[221][225] Risks Relating to Technology Heavy reliance on technology exposes the bank to risks from cyber-attacks, system failures, and increased competition - The growing demand for digital banking services has increased reliance on technology, exposing the bank to risks of service disruption that could impact business and reputation[235] - The bank faces significant security risks, including cyber-attacks like hacking, phishing, and ransomware, which could lead to data breaches and financial loss[236][237] - Despite a robust governance framework, the rapidly evolving nature of cyber threats means the bank may not be able to prevent all security breaches, with the work-from-home environment increasing vulnerability[239] - System failures or downtime could significantly affect operations and customer service, leading to financial losses and enhanced regulatory scrutiny[245] Risks Relating to Insurance Subsidiary and Affiliate The bank's insurance businesses face risks from capital requirements, market volatility, and uncertain actuarial assumptions - The bank owns 51.4% of ICICI Prudential Life and 48.1% of ICICI Lombard; these entities may require additional capital, potentially impacting the bank's financial performance[246][248] - The future growth and profitability of the insurance businesses are uncertain and depend on factors like regulatory changes and market conditions[250][252][253] - Life insurance reserves are based on actuarial assumptions that may differ from actual experience, and events like pandemics can lead to higher-than-expected claims[254][256] - General insurance loss reserves are based on estimates that could prove inadequate, especially in the event of unpredictable catastrophic events[258][261] Risks Relating to ADSs and Equity Shares Investors in the bank's ADSs and equity shares face risks from limited voting rights, potential dilution, and market volatility - ADS holders have no direct voting rights and face potential delays and legal restrictions in exercising them[266] - Holdings may be diluted by additional equity issuances, such as the ₹150.00 billion (US$ 2.0 billion) raised in August 2020[267] - The Indian securities markets are smaller and more volatile than those in developed economies, creating potential for significant price fluctuations[275] - Investors are exposed to exchange rate risk, as the underlying equity shares are quoted in Indian Rupees and dividends are converted to U.S dollars[278] - Capital gains from the sale of underlying equity shares may be subject to Indian capital gains tax[279] Major Shareholders Shareholding Structure As of June 2022, foreign investors held a majority stake of 53.5%, with no single shareholder having differential voting rights Shareholding Structure as of June 30, 2022 | Shareholder Category | Percentage of Total Equity Shares | Number of Equity Shares Held | | :--- | :--- | :--- | | Government Controlled Shareholders | 7.6% | 529,580,548 | | Life Insurance Corporation of India | 6.7% | 464,712,216 | | Other Indian Investors | 38.9% | 2,706,195,782 | | SBI Mutual Fund | 5.2% | 365,564,781 | | Individual domestic investors | 7.1% | 492,250,060 | | Foreign investors | 53.5% | 3,720,578,566 | | Deutsche Bank Trust Company Americas (ADS) | 16.7% | 1,160,577,107 | | Government of Singapore | 3.0% | 210,484,508 | | Total | 100.0% | 6,956,354,896 | - Foreign investor holding decreased to 53.5% at June 30, 2022, from 59.5% a year prior, while Indian investor holding increased to 46.5%[288] - The bank operates autonomously from the Indian government, and voting rights for any single shareholder are capped at 26.0% by the RBI[287][288] Related Party Transactions Transactions with Related Parties The bank engaged in numerous transactions with related parties, including associates and key management personnel, in the ordinary course of business - Related parties include associates like ICICI Lombard and key management personnel along with their close family members[292][294] Key Related Party Transactions in Fiscal 2022 (in million) | Transaction Type | Amount (₹) | Key Related Party | | :--- | :--- | :--- | | Insurance Premiums Paid | 3,200 | ICICI Lombard General Insurance | | Brokerage, Fees & Other Expenses Paid | 8,500 | I-Process Services (India) Private Limited | | Brokerage, Fees & Other Expenses Paid | 3,800 | ICICI Merchant Services Private Limited | | Fees, Commission & Other Income Received | 1,100 | ICICI Lombard General Insurance | | Investments in Securities | 1,000 | India Infradebt Limited | | Reimbursement of Expenses | 2,200 | ICICI Foundation for Inclusive Growth | Related Party Balances at Fiscal Year-End 2022 (in million) | Item | Associates/Other Entities (₹) | Key Management Personnel (₹) | | :--- | :--- | :--- | | Deposits from related parties | 3,425 | 125 | | Investments in related parties | 24,774 | N/A | | Loans and advances to related parties | 128 | 139 | Business Overview ICICI Bank is a diversified financial services group in India with consolidated assets of ₹17,526.4 billion in fiscal 2022 Key Financials at Fiscal Year-End 2022 | Metric | Amount (₹ in billion) | | :--- | :--- | | Consolidated Total Assets | 17,526.4 | | Consolidated Capital and Reserves | 1,820.5 | | Consolidated Net Profit (after minority interest) | 251.1 | - The bank's primary business is commercial banking, delivered through an extensive network of 5,418 branches and 13,626 ATMs in India[331] - The international strategy is centered on the Non-Resident Indian (NRI) ecosystem, multinational corporations, and India-linked trade[332] - The group offers a comprehensive suite of financial products through specialized subsidiaries in life insurance, general insurance, and asset management[334][335][336] Strategy The bank's strategy focuses on risk-calibrated growth of core operating profit through a customer-centric, technology-led approach - The core strategic focus is on growing core operating profit in a risk-calibrated manner while maintaining a strong balance sheet[340][341] - Key strategic pillars include: - 360-degree customer-centric approach: Leveraging ICICI STACK to offer solutions based on customer life-stage and business needs - Focus on ecosystems: Serving the complete financial needs of corporates, merchants, and their entire networks - Micro-market approach: Using data analytics to identify locally relevant opportunities and allocate resources efficiently - Leveraging technology: Using digital platforms like iMobile Pay and InstaBIZ for customer acquisition and service delivery[343][344][345][351] - The bank aims to foster partnerships with technology companies and fintech startups to co-develop products and enhance customer experience[347] - Guiding principles of "One Bank, One RoE" and "Fair to Customer, Fair to Bank" are central to maximizing value for customers and shareholders[352] Overview of Products and Services The bank provides a comprehensive suite of products across retail, corporate, and rural banking, treasury, and insurance Gross Retail Finance Portfolio Breakdown (at March 31, 2022) | Loan Category | Amount (₹ in billions) | % Share | | :--- | :--- | :--- | | Home loans | 3,323.8 | 65.9% | | Automobile loans | 406.5 | 8.1% | | Commercial business loans | 266.0 | 5.3% | | Personal loans | 632.8 | 12.5% | | Credit card receivables | 254.7 | 5.1% | | Total Retail Finance Portfolio | 5,040.4 | 100.0% | - The rural banking portfolio grew by 7.6% to ₹795.1 billion in fiscal 2022, focusing on ecosystems like farmers and micro-entrepreneurs[375][378] - The international franchise is repositioning to focus on the Non-Resident Indian (NRI) community and India-linked trade[190][403] - The bank's life insurance subsidiary had a market share of 7.2% on retail weighted new business premium, while the general insurance affiliate had a market share of 8.1%[434][436] Risk Management The bank employs a comprehensive risk management framework overseen by the Board to manage credit, market, liquidity, and operational risks - The Board of Directors has ultimate oversight of all risks, facilitated by specialized committees like the Risk Committee and Audit Committee[442] - Credit risk is managed through a structured approval process, internal credit rating systems, and portfolio-level monitoring[446][448][451] - Market risk is controlled via Board-approved policies and limits on interest rate risk, equity risk, and exchange rate risk[497][503][514][515] - Liquidity risk is managed to ensure all financial commitments can be met, with the standalone liquidity coverage ratio (LCR) at 131.16% in March 2022[522][418] - Operational risk is managed through internal controls, fraud prevention measures, and a robust cybersecurity framework[544][546][554] Technology Technology is central to the bank's strategy, enabling digital experiences, operational efficiency, and scalable growth - The bank is transforming from "Bank to Bank²", focusing on an enterprise architecture built on digital platforms, data analytics, and cloud computing[672] - Digital platforms are key to customer acquisition; the iMobile Pay app had 6.3 million activations from non-ICICI Bank account holders by March 31, 2022[648][660] - Digital lending is a major focus, with 34% of mortgage sanctions and 44% of personal loan disbursements being fully digital in fiscal 2022[650][658] - The bank is a leader in digital payments, with a 35% market share in electronic toll collections via FASTag in fiscal 2022[654][656] - The bank maintains a primary data center and a disaster recovery data center with business continuity plans tested periodically to ensure service resilience[676] Legal and Regulatory Proceedings The bank is involved in various legal proceedings and manages significant contingent tax liabilities and regulatory penalties - In March 2018, the RBI imposed a monetary penalty of ₹589 million on the bank for non-compliance with its directions[702] - In December 2021, the RBI imposed a penalty of ₹3.0 million for non-compliance with directions on charges for non-maintenance of minimum balance[702] - The bank's asset management subsidiary settled a matter with SEBI by paying ₹1.1 billion in compensation and interest[705] - At fiscal year-end 2022, the bank had a contingent tax liability of ₹84.8 billion, mainly from disputed tax demands[707][713] - The bank held a provision of ₹687 million for 622 litigation cases where an unfavorable outcome was deemed probable[715][716] Selected Statistical Information Average Balance Sheet and Key Ratios In fiscal 2022, the bank's net interest margin improved to 3.95% as the decline in cost of funds outpaced the fall in asset yields Average Balance Sheet Summary (₹ in millions) | Year ended March 31, | 2021 | 2022 | | :--- | :--- | :--- | | Average interest-earning assets | 12,425,765 | 13,743,590 | | Average interest-bearing liabilities | 10,260,957 | 11,234,035 | | Interest earned | 892,046 | 954,605 | | Interest expended | 426,588 | 411,666 | Key Yields and Margins | Year ended March 31, | 2021 | 2022 | | :--- | :--- | :--- | | Yield on average interest-earning assets | 7.18% | 6.95% | | Cost of average interest-bearing liabilities | 4.16% | 3.66% | | Spread | 3.02% | 3.28% | | Net interest margin | 3.75% | 3.95% | Loan Portfolio Analysis The bank's loan portfolio grew 14.9% in fiscal 2022, with significant improvement in asset quality and provision coverage Gross Advances by Sector (at March 31) | Sector | 2021 (₹ in billions) | 2022 (₹ in billions) | % Share 2022 | | :--- | :--- | :--- | :--- | | Retail finance | 4,316.1 | 5,040.3 | 53.2% | | Rural finance | 739.0 | 795.1 | 8.4% | | Services—finance | 574.4 | 716.3 | 7.6% | | Power | 213.7 | 202.3 | 2.1% | | Total Gross Advances | 8,246.6 | 9,475.1 | 100.0% | Asset Quality Ratios (at March 31) | Ratio | 2021 | 2022 | | :--- | :--- | :--- | | Gross non-performing loans as a % of gross loans | 5.18% | 3.65% | | Net non-performing loans as a % of net loans | 1.25% | 0.83% | | Provision on NPLs as a % of gross NPLs | 76.73% | 77.89% | | Gross restructured loans as a % of gross loans | 0.47% | 0.98% | - Net loan write-offs as a percentage of average total loans decreased from 1.37% in fiscal 2021 to 1.09% in fiscal 2022[828] Operating and Financial Review and Prospects Executive Summary Consolidated net profit grew 32.5% to ₹251.1 billion in fiscal 2022, driven by strong NII growth and lower provisions Fiscal 2022 Performance Highlights | Metric | Fiscal 2021 (₹ in billion) | Fiscal 2022 (₹ in billion) | % Change | | :--- | :--- | :--- | :--- | | Net Interest Income | 465.0 | 542.4 | 16.6% | | Provisions and Contingencies | 163.8 | 89.8 | (45.2)% | | Profit After Tax | 183.8 | 251.1 | 32.5% | | Total Advances (Net) | 7,918.0 | 9,203.1 | 16.2% | | Total Deposits | 9,599.4 | 10,913.7 | 13.7% | - The decrease in other income was primarily due to the non-consolidation of ICICI Lombard and lower treasury gains[864] - Asset quality improved significantly, with the net non-performing loan ratio declining from 1.3% to 0.8% year-over-year[866][868] - The bank maintained a strong capital adequacy position, with the consolidated total risk-based capital ratio at 18.87% as of March 31, 2022[871][1071] Segment Revenues and Assets Retail and Wholesale Banking segments reported strong profit growth in fiscal 2022, while Treasury and Life Insurance profits declined Segment Profit Before Tax (Fiscal 2022 vs. 2021) | Segment | FY 2021 (₹ in billion) | FY 2022 (₹ in billion) | % Change | | :--- | :--- | :--- | :--- | | Retail Banking | 77.4 | 114.0 | 47.3% | | Wholesale Banking | 58.2 | 90.5 | 55.5% | | Treasury | 106.2 | 96.7 | (8.9)% | | Life Insurance | 10.8 | 7.9 | (26.9)% | | General Insurance | 19.5 | N/A | N/A | - Retail Banking advances grew by 18.6% to ₹4,704.6 billion, and deposits grew by 15.3% to ₹7,616.3 billion in fiscal 2022[1131] - Wholesale Banking advances increased by 22.9% to ₹3,929.0 billion, while deposits grew by 13.6% to ₹3,022.2 billion[1138] - The General Insurance segment was discontinued as ICICI Lombard ceased to be a subsidiary and was accounted for as an equity associate[1129] Reconciliation of Net Profit between Indian GAAP and U.S. GAAP U.S. GAAP net income was ₹511.8 billion, significantly higher than Indian GAAP profit due to a one-time deconsolidation gain - A major reconciling item in fiscal 2022 was a gain of ₹255.0 billion on the deconsolidation of ICICI Lombard, recognized under U.S. GAAP but not Indian GAAP[1191] - Loan loss provisioning was lower under U.S. GAAP by ₹22.9 billion compared to Indian GAAP in fiscal 2022 due to methodological differences[1192] - The life insurance affiliate reported a net loss of ₹1.8 billion under U.S. GAAP versus a net profit of ₹7.5 billion under Indian GAAP, due to different accounting for unrealized losses[1202][1203] - Deferred tax expenses were ₹21.7 billion higher under U.S. GAAP in fiscal 2022, contributing to the difference[1204] Management Directors and Executive Officers The bank's Board consists of 11 members, including a majority of 8 independent directors, and is led by Chairman G.C. Chaturvedi - The Board comprises 11 directors: 3 executive and 8 independent, exceeding regulatory requirements for specialized knowledge[1292][1293] - Key leadership includes Mr. Girish Chandra Chaturvedi as Non-Executive Chairman and Mr. Sandeep Bakhshi as Managing Director & CEO[1297][1298] - The appointment and tenure of directors are governed by the Companies Act and RBI guidelines, including term and age limits[1294][1295] Corporate Governance The bank's governance framework is built on a majority-independent Board and specialized committees overseeing critical functions - The governance framework emphasizes a majority-independent Board and committees, most of which are chaired by independent directors[1331] - The Audit Committee comprises three independent directors, all qualifying as financial experts, and oversees financial reporting and internal controls[1336][1337] - The Board Governance, Remuneration & Nomination Committee consists of three independent directors and is responsible for director appointments and remuneration policies[1338][1340] - The Risk Committee reviews all risk management policies and oversees the Enterprise Risk Management framework and capital adequacy[1351][1353] - Management has assessed its internal control over financial reporting as effective as of year-end fiscal 2022, based on the COSO framework[1376] Compensation and Benefits Total compensation for directors and officers was ₹311 million in fiscal 2022, with an Employee Stock Option Scheme used for retention - Total compensation for directors and executive officers in fiscal 2022 was ₹311 million, with an aggregate employee bonus of ₹16.8 billion[1385][1386] - The Employee Stock Option Scheme (ESOS) is a key retention tool; as of March 31, 2022, 237.2 million options were outstanding[1387][1393] - Non-executive directors receive sitting fees of ₹100,000 per meeting and a fixed annual remuneration of ₹2.0 million[1379][1380] - The bank provides loans to employees and executive directors at subsidized rates, with ₹137.6 million outstanding to executive directors at fiscal year-end 2022[1398] Supervision and Regulation Regulatory Framework The bank operates under a comprehensive framework governed by the RBI, with strict rules on capital, liquidity, and lending - The bank is regulated by the RBI and must adhere to the Banking Regulation Act, 1949, under a risk-based supervision framework[1411][1413] - Under Basel III, the bank was required to maintain a minimum total capital ratio of 11.70% at fiscal year-end 2022, including all buffers[1422][1423] - The bank must maintain a Cash Reserve Ratio (CRR) of 4.5% and a Statutory Liquidity Ratio (SLR) of 18.0% of its net demand and time liabilities[1623][1628] - Directed lending norms mandate that 40% of adjusted net bank credit be allocated to priority sectors like agriculture and micro-enterprises[1497][1498] - The RBI has a Prompt Corrective Action (PCA) framework to supervise banks with weak financial metrics, imposing restrictions if thresholds are breached[1658] Exchange Controls and Foreign Ownership Exchange Controls and Restrictions Foreign investment is regulated by FEMA, with a 74% cap on foreign ownership in private banks and RBI control over capital transactions - Foreign ownership in Indian private sector banks is capped at 74%, with investments above 49% requiring prior government approval[1760] - Any acquisition of 5% or more of a private bank's shareholding or voting rights by any entity requires prior approval from the RBI[1762] - The sale of equity shares underlying ADSs by a non-resident to a resident in India generally requires RBI approval, and repatriation of proceeds may be delayed[1749][1750] - The total holding by each Foreign Portfolio Investor (FPI) or an investor group must be less than 10% of the total paid-up equity capital[1763] Dividends Dividend Policy and History The bank has a consistent dividend history, subject to RBI regulations, and has proposed a dividend of ₹5.00 per share for fiscal 2022 - For fiscal 2022, the Board of Directors has proposed a dividend of ₹5.00 per equity share, subject to shareholder approval[1783] Dividend History (per equity share) | Fiscal Year Paid | Dividend per Share (₹) | | :--- | :--- | | 2018 | 2.50 | | 2019 | 1.50 | | 2020 | 1.00 | | 2021 | Nil | | 2022 | 2.00 | - No dividend was paid for fiscal 2020 due to an RBI directive for banks to conserve capital amid the COVID-19 pandemic[1780] - Dividend payouts are regulated by the RBI and are contingent on meeting prudential requirements, including capital adequacy and asset quality thresholds[1779][1647] Taxation Indian Tax Consequences for Non-Resident Investors Non-resident investors face Indian taxes on dividend income and capital gains from the sale of underlying equity shares - Dividend income received by non-resident investors is taxable at 10% in India, with tax withheld at source[1789] - The transfer of ADSs between non-resident investors outside India does not trigger Indian capital gains tax[1792] - For the sale of equity shares on a recognized Indian stock exchange: - Long-term capital gains (>12 months) are taxed at 10% on gains above ₹0.1 million - Short-term capital gains (≤12 months) are taxed at 15%[1793] United States Federal Income Tax Consequences for U.S. Holders U.S. Holders face U.S. federal income tax on dividends and capital gains, with potential credit for Indian taxes withheld - Distributions are treated as foreign-source dividend income and may qualify for favorable tax rates for non-corporate U.S. Holders[1817] - Indian income taxes withheld from dividends are generally creditable against a U.S. Holder's U.S. federal income tax liability, subject to limitations[1821] - Gains from the sale of ADSs or equity shares are generally considered U.S.-source capital gains[1822] - The bank believes it was not a Passive Foreign Investment Company (PFIC) for fiscal 2021, but a future change in status could lead to adverse tax consequences[1825][1826]