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Given the rising interest rate scenario, banks with higher current account and savings account (CASA) deposits will be in a better position to maintain margins. The lower rates of interest offered on these accounts help banks keep their cost of funds down.
ICICI Bank has continued to maintain a healthy CASA ratio, which increased by 130 basis points to 43.2 per cent during the June quarter. The bank has significantly altered its deposit mix from 2008-09 when its CASA ratio was a mere 29 per cent.
During the past three years, the bank expanded its network, which led to market share gains in savings deposits.
During the quarter-ended June, the bank achieved a net interest margin of 3.3 per cent on healthy deposit mix. This follows ICICI Bank achieving its first full-year NIM of 3 per cent in 2012-13.
However, there has been a moderation in loan growth at 12 per cent, over the previous year. The incremental growth came from the retail segment. The bank’s strategy to focus on retail lending continued to result in healthy growth in this segment. Mortgage and auto loans grew 20 per cent and 21 per cent, respectively, over the previous year.
Shedding the trend of lacklustre growth in fee income in the past few quarters, the bank notched up a 9 per cent growth this quarter, which is positive.
As was the case with most banks, the sharp rise in treasury income, led to higher-than-expected other income. The bank has, accordingly, raised its provisioning by 27 per cent over the previous year.
Loan quality
Given the macro environment and recent curbs on liquidity, asset quality will remain in focus. For ICICI Bank, the net non-performing assets stand at 0.69 per cent of loans, up only marginally over the previous quarter. However, restructured loans, which increased by 11 per cent sequentially, may need some monitoring.
ICICI Bank continues to maintain a healthy Tier-I capital adequacy of 11.7 per cent. With overseas subsidiaries having excess capital adequacy of above 30 per cent, any repatriation of capital back to the parent should lend the bank sufficient capital cushion to improve returns.
Given the current macro environment, ICICI Bank’s performance during the quarter remains healthy. Trading at 1.5 times, its one-year forward book value is all the more comforting.
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