News Analysis

ICICI Bank’s core performance healthy, but provisioning remains high

Radhika Merwin BL Research Bureau | Updated on May 06, 2019 Published on May 06, 2019

While bad loans declined, corporate and SME slippages inched up in the March quarter

For ICICI Bank, much like its peer Axis Bank, the substantial reduction in bad loans in absolute terms and not reporting divergences pertaining to FY18, are likely to offer the much-needed respite to investors. Healthy core performance on the back of strong loan growth has also held the bank’s performance in good stead in the latest March quarter. But despite a strong 26 per cent growth in core operating profit, a still-elevated provisioning and weak treasury/other income (March quarter of last year included gain on stake-sale in ICICI Securities), led to a 5 per cent year-on-year (y-o-y) decline in net profit in the latest March quarter.

While asset quality pressure has significantly eased over the past year for the bank, a still large BB and below-rated corporate and SME book, high write-offs in the March quarter, and sequential rise in corporate and SME slippages may need watching in the coming quarters.

In the latest March quarter, outstanding gross NPAs stood at ₹46,292 crore, down 10 per cent from the December quarter level. As a result, the gross NPA ratio fell to 6.7 per cent in the March quarter (from 7.75 per cent in the December quarter). While the notable fall in GNPAs is a positive, there are a few points to note on the asset quality front.

One, after moderating in the past three quarters, slippages or additions to bad loans, have slightly inched up in the latest March quarter. The bank had reported slippages of ₹15,737 crore in the March 2018 quarter. In the June quarter, slippages were at ₹4,000 crore, which declined to ₹3,117 crore in the September quarter, and to ₹2,091 crore in the December quarter. In the latest March quarter, slippages however, moved up slightly to ₹3,547 crore.

Two, ₹2,724 crore of slippages pertain to the corporate and SME segment, of which, ₹1,877 crore is from the BB and below-rated book. This book is still large. As of March 2019, the BB and below-rated book stood at ₹17,525 crore. Further slippages from this book in the coming quarters can weigh on the bank’s performance.

Three, the reduction in GNPAs has been led by write-offs rather than recoveries. The bank reported write-offs to the tune of ₹7,324 crore in the March quarter alone (for the full FY18 fiscal write-offs were at ₹8,622 crore).

Lastly, despite the reduction in bad loans, provisioning remained elevated, owing to ageing of bad loans. A large bad loan book could continue to keep provisioning requirements high.

Pick-up in core performance

On the core performance front, the steady improvement in recent quarters has been heartening. After several quarters of single-digit growth, net interest income has risen notably since the September quarter. In the latest March quarter, net interest income grew by 26.5 per cent. Even excluding the ₹414-crore of Income Tax refund, net interest income grew by a healthy 20 per cent.

The bank’s credit growth has seen a steady rise over the past three to four quarters. Domestic credit growth stood at 17 per cent, led by 22 per cent growth in retail. This growth has been led by personal loans, credit cards, and business banking.

Published on May 06, 2019
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