ICICI Bank to tweak lending strategy, step up monitoring

Amidst a rise in bad loans and weak asset quality in the fourth quarter of FY15, ICICI Bank plans to tweak its lending strategy with tighter and higher committee-level monitoring.

NS Kannan, Executive Director, ICICI Bank, said, “If you look at the deterioration in asset quality, stress has been seen in the EPC (engineering, procurement and construction ) or construction space, where there are lots of receivables, things have got delayed which, in turn, has put pressure on those construction companies…. That is one sector, where one has to be a bit careful in terms of lending, going forward.”

On corporate loan quality, the bank is moving towards a better rating mix by focusing on lending to higher-rated corporates. ICICI Bank posted its lowest profit growth in 21 quarters in the January-March quarter. Its net profit grew 10 per cent to ₹2,922 crore in the reporting quarter, amidst sharp rise in provisions towards bad loans.

Slippages from restructured loans also increased.

The bank plans to look at the overall concentration risk in its restructured loans where there is some lumpiness in terms of one or two assets. “If they slip they create a bit of volatility in the provision. We would aim to minimise a similar situation going forward,” Kannan said at a conference call with investors.

“Incrementally, we are looking at tighter concentration thresholds so that anything above, say, a particular number gets highlighted and escalated to the higher level committees. These are the three ways in which we are trying to address the issue,” he added.

According to reports, the private bank plans to restart its special vertical to tackle worsening of such assets. Apparently, after being operational for five years, the vertical was closed down in 2005.

In addition, it will look at the “credit ratings carefully, and may stipulate, in some cases, an additional security because such companies are asset-light companies. We will not stop, but we would be a bit more selective in terms of our financing,” Kannan said.

Gross non-performing assets (NPA) rose 75 basis points year-on-year (up 38 bps sequentially) to 3.78 per cent and net NPA was up 64 bps y-o-y (up 34 bps q-o-q) to 1.61 per cent during the quarter, due to higher restructured assets.

Briefing reporters after announcement of the fourth quarter results, Chanda Kochhar, CEO and MD, ICICI Bank, had said, “I would believe that FY15 was probably in that sense the peak as far as the addition to NPA and restructured assets is concerned as well as credit cost…Much of the addition to bad loans was from assets that were already troubled and had been restructured and not due to new problem assets.”

All this impacted ICICI Bank’s share price which dipped by 8.06 per cent during the week, its biggest weekly drop since the 8.7 per cent fall in early February and the 9.5-per cent fall in mid-July 2013. On Thursday, it ended weaker by 1.7 per cent to ₹290.85 a share.

The bank will continue to be selective while lending to the corporate and SME sectors and expects to sustain domestic loan growth in the range of 18-20 per cent, driven by about 25 per cent growth in the retail segment. In the domestic corporate portfolio, it expects growth of 10-15 per cent.

COMMENT NOW