A roadside vendor arranges fruits at a stall as pedestrians walk past a ICICI Bank Ltd. branch in Mumbai. (Photographer: Dhiraj Singh/Bloomberg)

Q1 Results: ICICI Bank Reports Its First Net Loss Since 2001

ICICI Bank Ltd. reported a surprising net loss for the quarter ended June 2018 as the lender chose to set aside more money to cover for bad loans. This is the first quarterly loss reported by the private sector bank since at least 2001, according to Bloomberg.

The bank reported a net loss of Rs 119.55 crore in the April-June quarter compared with a profit of Rs 2,049 crore in the same quarter last year, according to its filing with the stock exchanges. Analysts polled by Bloomberg had forecast a net profit of Rs 1,306 crore. The net loss would have been higher if the bank didn't have a gain of Rs 1,110 crore from its stake sale in ICICI Prudential Life Insurance.

Net interest income, or the core income from operations, stood at Rs 6,102 crore compared to Rs 5,590 crore in the year-ago quarter. Analysts had forecast a net interest income of Rs 6,078 crore for the lender.

Asset Quality Pain

Weak asset quality continued to pressure the lender.

The gross non-performing advances as a percentage of total advances stood at 9.65 percent at the end of the June quarter. This ratio stood at 9.9 percent in the previous quarter. The net non-performing advances ratio declined to 4.67 percent compared with 5.43 percent in the previous quarter.

Q1 Results: ICICI Bank Reports Its First Net Loss Since 2001

In absolute terms, gross non-performing customer assets (net of write-offs) slipped marginally by 1 percent to Rs 53,465 crore. The bank recovered Rs 2,036 crore through bad loan resolutions during the quarter. Slippages moderated as expected to Rs 4,036 crore compared to Rs 15,737 crore in the previous quarter.

Provisions stood at Rs 5,971 crore compared to Rs 6,625.7 crore in the previous quarter. The bank said that it had chosen to increase the provision coverage ratio to strengthen its balance sheet.

The provision coverage ratio rose by 560 basis points on a quarter-on-quarter basis and stood at 66.1 percent at the end of the June quarter.

While the gross additions to NPA at Rs 4,036 crore were the lowest in the last 11 quarters, additional provisions on existing NPAs as per Reserve Bank of India guidelines (ageing-based provisions and provisions for cases directed by RBI to be referred to the National Company Law Tribunal) resulted in total provisions of Rs 5,971 crore and a net loss of Rs 120 crore in Q1 FY19.
ICICI Bank Press Release

Operational Performance

The bank reported a 9 percent increase in its net interest income for the quarter, backed by steady growth in advances.

Domestic advances rose 15 percent, while retail loans rose 20 percent. The retail lending book is now 58 percent of the bank’s loan portfolio—a significant shift from its focus on corporate lending a the start of the decade.

Total deposits increased 12 percent but the proportion of low cost deposits fell marginally. The bank’s current account and savings account (CASA) ratio was at 50.5 percent at end of the June quarter compared to 51.7 percent in the previous quarter.

Net interest margin for the quarter stood at 3.19 percent in the June quarter compared to 3.23 percent at the end of the March quarter.

The bank, like others, took a hit on its treasury portfolio and choose not to spread out the impact over four quarters as permitted by the RBI.

Mark-to-market losses on the AFS (available for sale) and HFT (held for maturity) portfolio aggregated Rs 219 crore in Q1 FY19. While RBI had allowed the banks to spread provisioning for such mark-to-market losses over up to four quarters, the bank provided for such losses in Q1 FY19 itself.
ICICI Bank Press Release
Q1 Results: ICICI Bank Reports Its First Net Loss Since 2001

Regulatory Troubles

The bank recently appointed Sandeep Bakshi as its chief operating officer and asked him to report directly to the board while CEO Chanda Kochhar remains on leave. Kochhar proceeded on leave due to allegations of impropriety. At least two separate probes are underway into the allegations against her.

Earlier this week, Bloomberg News reported that the U.S. Securities and Exchange Commission is also looking into the matter. On a conference call with analysts, Bakshi said that the bank has voluntarily complied with all requests from the U.S. regulator.

Kochhar first came under the scanner over soured loans to the Videocon Group, whose promoter Venugopal Dhoot had business dealings with her husband. Later, a second whistleblower complaint emerged which questioned the bank’s practices in dealing with bad loan accounts. The complaint was disclosed by the bank to stock exchanges.

The findings of the report in this case had no material impact on the financials for the year ended March 2018, Bakshi told analysts.

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