ICICI Bank’s 13 per cent year-on-year growth in net profit in the December quarter was aided by a robust 22 per cent rise in its net interest income. The bank also grew its high-yielding retail loan book by 22 per cent — mid-way between HDFC Bank’s 14 per cent and Axis Bank’s 33 per cent.

But the market seemed unimpressed and marked down the ICICI Bank stock 2 per cent. What seems to have got the market’s goat was the growing pace of the bank’s restructured loans and its higher proportion of bad loans.

Restructured or recast loans are lifelines extended to defaulting borrowers. This is done by measures such as lowering interest rates or providing a moratorium on interest payments. Restructuring helps loans slipping into the non performing loans category.

At about 2 per cent of their loan book, Axis Bank and ICICI Bank have the highest proportion of restructured loans among the new private banks. In contrast, HDFC Bank’s restructured book is just 0.2 per cent of its loans.

Also, ICICI Bank has been stepping up on its loans recasts. In the December quarter, the bank restructured about ₹2,000 crore of its loans — more than the ₹2,000 crore restructured in the entire first half of 2013-14. This is set to further increase to ₹3,000 crore in the current quarter.

So, from 1.5 per cent last year, ICICI Bank’s restructured book currently accounts for 2.5 per cent of its loans — higher than the 2.2 per cent of Axis Bank.

Bigger than peers ICICI Bank’s troubles with its current bad loans are also bigger than that of its peers. Its gross non-performing assets at 3 per cent of loans are much higher than HDFC Bank’s 1 per cent and Axis Bank’s 1.25 per cent. Given the difficult macro environment, asset quality needs close watching.

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