ADVERTISEMENT

ICICI Bank Bad Loan Ratio Holds At A Decade High

ICICI Bank’s provisions and bad loans rise. Treasury income boosts profit performance. 

A man walks by an ICICI Bank Ltd. branch in Mumbai, India (Photographer: Kuni Takahashi/Bloomberg)
A man walks by an ICICI Bank Ltd. branch in Mumbai, India (Photographer: Kuni Takahashi/Bloomberg)

ICICI Bank Ltd. on Monday reported its highest proportion of bad loans in atleast a decade, even as the lender turned in strong profits helped by one-time gains from the initial public offering of its life insurance unit.

Net profit at the bank rose to Rs 3,102 crore from Rs 3,030 crore in the same quarter last year, according to the company’s financial results posted on exchanges. The profit beat consensus estimates of analysts tracked by Bloomberg by 17.4 percent as the bank also booked strong gains from its treasury portfolio.

ICICI Bank Bad Loan Ratio Holds At A Decade High

Asset Quality Worsens

ICICI Bank’s asset quality indicators worsened during the quarter.

Gross non performing assets (NPAs) as a percentage of total assets rose to 6.82 percent at the end of the second quarter compared to 5.87 percent in the previous quarter. The net NPAs rose to 3.57 percent from 3.35 percent.

In absolute terms, gross NPAs rose 18.6 percent to Rs 32,178.6 crore during the quarter. Fresh slippages during the quarter were at Rs 8000 crore in the second quarter compared to Rs 8249 crore in the first quarter.

In addition to this, loans worth Rs 32,492 crore remained on the bank’s watch list for possible slippage into the bad loan category. At the start of the financial year, loans worth Rs 44,000 crore had been identified as those potentially at risk.

Provisions during the quarter rose sharply to Rs 7082 crore in the second quarter, compared to Rs 2514 crore in the first quarter and Rs 942 crore in the year-ago quarter. The bank has a provision coverage ratio of 59 percent.

Bad Loan Outlook Remains Hazy

Chanda Kochhar, chief executive officer of ICICI Bank, declined to give any guidance on the percentage of loans included in the watchlist that are likely to slip into the bad loan category.

The bank is currently focussed on bringing down its exposure to five stressed sectors - Power, cement, mining, iron and steel and rigs. The exposure to these sectors has been reduced to 13.3 percent of the loan book from 16.2 percent in March 2012, said Kochhar. This is part of the lender’s attempt to reduce concentration risk across sectors and groups, she added.

At current levels, the gross NPA ratio of the bank is the highest in a decade. When asked whether the bank’s bad loan ratios would rise further, Kochhar said that depends on the movement of bad loans and the growth in the bank’s loan book.

The focus has been towards resolution and we are seeing some good progress. In some cases, our efforts have fructified and some they are close to being fructified. We will attempt to resolve many of these cases in the most productive way.
Chanda Kocchar
ICICI Bank Bad Loan Ratio Holds At A Decade High

Pivot To Retail Lending

Given the stress in the bank’s corporate loan portfolio and weak demand for long term corporate credit, ICICI Bank continues to increase its focus on the retail segment.

The bank’s total loan book grew 11 percent driven by a 21 percent growth in the retail portfolio. Retail loans now account for 47.9 percent of the bank’s loan book compared to 44 percent last year.

“While the overall growth in the corporate book has been 8 percent, we continue to lend to high quality corporates,” said Kochhar while adding that refinancing deals are giving the bank an opportunity to rebalance its corporate loan book.

The bank’s net interest margin remained largely unchanged at 3.13 percent compared to 3.16 percent in the previous quarter. Net interest income remained unchanged at Rs 5,253 crore, falling just short of the consensus estimate of Rs 5,282 crore.

Current and savings account deposits rose 18 percent to Rs 205,256 crore on a year-on-year basis while saving account deposits grew 22 percent. The CASA ratio stood at 45.7 percent compared to 45.1 percent on a quarter-on-quarter basis.

It’s a mixed set of numbers. The profitability beat is due to one-off gains from ICICI Prudential stake sale. There has been a steep deterioration on the asset quality front. However, ICICI Bank has a very strong operating matrix and a granular loan book i.e. 50% on retail and MSE - that should do well in the retail lending cycle. Secondly average CASA is above 41%. So both the asset and liability franchise stand particularly strong. Asset quality pressures are expected to persist going forward but could be offset by strong levers like the strong CET-1 ratio of 13% plus and strong operating matrix. But overall slippages, the GNPA and watchlist numbers are still at elevated levels.
Shweta Daptardar, Analyst, K R Choksey