A collective contingency reserve of ₹3,600 crore to counter the slowdown faced by its clients in the commodities businesses saw ICICI Bank’s net profit slump 76 per cent to ₹702 crore during the quarter ended March 2016.
According to Bloomberg , this is the biggest drop in quarterly profit for ICICI in at least 15 years. The bank has created the reserve over and above the provisions made for bad loans, and restructured loans worth ₹3,326 crore during the fourth quarter, owing to a sharp downturn in the commodity cycle. This slump has had an adverse effect on its borrowers from sectors such as iron and steel, mining, power, rigs and cement.
A recovery in these sectors may take some time due to weak operating environment. “The weak global economic environment, the downturn in the commodity cycle and the gradual nature of the domestic economic recovery has impacted borrowers. It may take some more time for the resolutions to be worked out,” said Chanda Kochhar, Managing Director and CEO, ICICI Bank. A net tax refund of ₹521 crore (tax payable minus deferred tax adjustment) helped prop up the bank’s profit.
Net interest income for the quarter grew at 6 per cent year-on-year to ₹5,404 crore. The bank’s board has recommended a dividend of ₹5 per equity share of a face value ₹2. On BSE, ICICI Bank shares closed at ₹236.60 apiece, down 1.48 per cent over the previous close.