Money & Banking

ICICI Bank: Relief on loan quality front

Radhika Merwin | Updated on January 24, 2018

Stressed assets, which remain the highest, need watching





ICICI Bank’s marginal improvement in asset-quality in the June quarter is a key positive for the bank; it had been witnessing higher additions to bad loans and increasing slippages from restructured assets in the past few quarters.

Breaks the bad-loan trend

The bank’s gross non-performing assets (GNPAs) fell to 3.68 per cent of total loans, from 3.78 per cent in the previous quarter.

The stock went up 5 per cent, post announcement of its results on Friday.

In fiscal 2015, the only weak link in the bank’s performance vis-à-vis its peers, was the increasing pressure on asset quality. While both HDFC Bank and Axis Bank were able to keep their bad loans under check, ICICI Bank’s deteriorating asset quality led to weak stock performance. But this time around, ICICI Bank’s performance has been favourable on several counts compared to its peers. One, after four quarters of notable sequential increase in bad loans, the bank’s GNPAs remained almost flat compared to the March quarter. Aside from bad loans, ICICI Bank also has a larger restructured book vis-à-vis its peers. The concern in recent quarters had been the increase in slippages from the restructured book to bad loans. But in the June quarter, slippages from the restructured book have moderated. From about ₹2,200 crore during the March quarter, slippages have fallen to ₹292 crore in the June quarter.

Two, ICICI Bank’s operational performance, much like its peers, has been on a strong footing. While the bank’s 17 per cent growth in overall loans (domestic) has been slower than its peers (22-23 per cent), it is still about 8 percentage points higher than the industry.

Stable NIM

Also, ICICI Bank witnessed strong traction in high-margin retail loans, up 25 per cent in the June quarter, at par with the 25-26 per cent of Axis Bank and HDFC Bank.

Three, ICICI Bank was also able to keep its net interest margin (NIM) stable at 3.5 per cent. The bank continues to sport a healthy return on assets of 1.9 per cent. In the last five years, the bank has significantly improved its low-cost current account, savings account (CASA) ratio. The CASA ratio continues to remain healthy at 44 per cent as of June 2015.

While all these are positives, ICICI Bank’s asset quality needs watching. Among the three large private banks, HDFC Bank carries the lowest delinquency rate with bad loans at around 1 per cent of loans and restructured assets at just 0.1 per cent of loans. Axis Bank, owing to its higher exposure to sectors, such as power and infrastructure, has a higher GNPA of 1.38 per cent of loans and restructured at 2.8 per cent of loans. ICICI Bank also has a higher exposure to troubled sectors but its stressed assets (bad loans + restructured) is the highest among the three.

Pace of addition to bad loans and slippages from restructured assets will weigh on the stock performance in the coming quarters.

Published on July 31, 2015

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