ICICI Surges as CEO Says for Third Year That Bad Debt Is Peaking

(Bloomberg) -- ICICI Bank Ltd., India’s second-largest private sector lender by assets, was Asia’s best-performing bank stock on Tuesday after its top official said bad-loan ratios will improve.

ICICI jumped 6.7 percent in Mumbai, the biggest gain since Oct. 25, and was the top stock on Bloomberg’s Asia Pacific Banks Index. Chief Executive Officer Chanda Kochhar, who has been assuring investors since 2015 that the bank has gained control over its bad-loan problem, guided that the net ratio will narrow to about a quarter of the current level over the next two years.

ICICI’s net income halved from the previous year to 10.2 billion rupees ($152 million) in the three months ended March 31, despite a 33.2 billion rupee gain from the sale of the bank’s stake in its ICICI Securities Ltd. unit, the Mumbai-based lender said in an exchange filing after the market had shut on Monday. Provisions more than doubled.

While the guidance on asset quality is comforting investors, it’s dependent on too many moving parts including timely resolution of stressed assets under India’s bankruptcy process, said Kranthi Bathini, director of Mumbai-based financial advisory company WealthMills Securities Pvt. “The rally may have limited legs as investors remain unhappy about the way in which the bank’s board addressed corporate governance issues.”

ICICI’s bad-loan ratio rose to 8.84 percent from 7.82 percent at the end of December, the highest among top private lenders in the country, and compared with 1.3 percent at larger rival HDFC Bank Ltd. The soured assets have weighed on the bank’s shares, which are the worst performers among private-sector peers since May 2009, when Kochhar took over as CEO.

India’s Central Bureau of Investigation has started a preliminary inquiry into allegations of impropriety over loans made to Videocon group, whose Chairman Venugopal Dhoot had links with Kochhar’s husband, according to officials from the agency.

ICICI Bank didn’t comment on the investigations in the earnings statement. Kochhar declined to comment on the allegations in a subsequent conference call with reporters.

Any investigation could undermine investor confidence in the bank and have potential implications for funding costs and liquidity in an extreme scenario, Fitch Ratings Ltd. said in a note on April 9. The ratings company also flagged reputational risks, saying the bank board’s reluctance to support an independent probe has created doubts over the strength of the lender’s corporate governance practices.

Shares of the lender pared this year’s losses to 1.5 percent. The broader S&P BSE India Bankex Index has risen 1.8 percent this year.

Other key earnings figures reported by ICICI:

  • Provisions for bad loans rose to 66.3 billion rupees in the quarter from 28.9 billion rupees a year earlier
  • Outstanding loans rose 10 percent to 5.1 trillion rupees as of March 31 from a year earlier
  • Net interest income gained 1 percent to 60.2 billion rupees from a year earlier.
  • Net interest margin widened by 10 basis points to 3.24 percent from the previous quarter

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