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For ICICI Bank , much like its peer Axis Bank quarterly slippages and pace of addition to stressed book has been in focus over the past several quarters. Comfortingly, ICICI Bank has delivered healthy core performance and steady decline in bad loan book over the past few quarters. In the latest September quarter, the bank saw a healthy 16 per cent growth in domestic loans, driven by 22 per cent growth in retail loans, leading to a strong 25.5 per cent growth in its core net interest income. Since September quarter of last year, the bank’s bad loan book has been shrinking, while provision cover has gone up substantially. As of September 2019 quarter, ICICI Bank’s bad loans stood at ₹45,639 crore or 6.37 per cent of loans (as against 8.54 per cent a year ago).
Read more:ICICI Bank Q2 net profit down 28% to ₹ 655 cr on tax impact
So, is the worst over for ICICI Bank?
While healthy core performance and falling slippages lend comfort, there are other trends that could weigh on earnings in the coming quarters, warranting a watch. One, ICICI Bank’s BB and below rated corporate and SME book is still large at ₹16,074 crore as of September 2019 quarter. In fact, there has been a 5 per cent sequential increase in this stressed book in the September quarter. Two, recoveries are still low while write-offs remain elevated. Three, growth in retail loans in recent quarters has been led by unsecured segments such as personal loans and credit cards. The risk in this portfolio will need a watch. As such retail NPAs have gone up notably over the past year.
Hence unless there is a strong uptick in recoveries and significant reduction in the stressed book, the stock may not get re-rated significantly. Sustainability of strong core performance, moderation in slippages and high provision cover will be critical in the coming quarters.
Asset quality check
In the latest September quarter, gross non-performing assets (GNPA) stood at ₹45,639 crore down from ₹45,763 crore in the June quarter and ₹54,489 crore in the same quarter last year. Slippages too have fallen in the September quarter to ₹2,482 crore from ₹2,779 crore in the June quarter---with the pace accretion to bad loans moderating in both corporate and retail segments.
However, recoveries remained modest at ₹1,263 crore while write-offs were notable at ₹1,328 crore. Importantly, the BB and below rated book for ICICI Bank is still large, and further slippages from this book in the coming quarters can weigh on the bank’s performance.
The bank’s exposure to certain stressed sectors may also weigh on the asset quality. ICICI Bank’s exposure to the power sector stood at ₹33,406 crore as of September 2019 quarter, of which a little over ₹11,000 crore are classified as NPA or form part of BB and below rated book. Given the persisting challenges in the power sector, the bank’s exposure to this segment would need monitoring. ICICI Bank’s exposure to the telecom sector stood at 1.8 per cent of total exposure or ₹20,000 crore as of September 2019, which may also need to be monitored in light of the recent Supreme Court’s verdict on adjusted gross revenue, is expected to hurt telecom operators and their debt repayment ability.
Retail loan focus
On the core performance front, the bank’s net interest income (NII) has grown by a strong 25.5 per cent YoY in the September quarter. The strong growth in retail loans has helped offset the slack in corporate loans. ICICI Bank has significantly increased its focus on retail loans. From 46 per cent in FY16, retail constituted 62 per cent of loans in the September quarter.
But the growth in retail loans in recent quarters has been led by unsecured segments such as personal loans and credit cards. In the latest September quarter too, the two segments grew by a robust 50.6 per cent and 40 per cent respectively. While there have been no alarming trends in the retail NPAs, the risk in the portfolio will need a watch. Gross retail NPAs have gone up to ₹7,539 crore in the September quarter from ₹5,463 crore in the same quarter last year.
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