Mumbai: ICICI Bank Ltd reported higher interest income driven by loan demand from individuals for buying homes and cars, and corporations for projects, but the 30.51% growth in its net profit to Rs 1,437 crore for the December quarter (as compared with the year ago), came largely from a 53.6% fall in provisions to Rs 465 crore from Rs 1,002 crore last year.
This is the bank’s highest quarterly profits ever. ICICI Bank’s net profit in the December quarter last year was Rs 1,101 crore.
The earnings beat a Bloomberg estimate, which had forecast a net profit of Rs 1,360 crore for the period.
“Provisions have dropped because of tight controls on credit quality as we have limited our exposure to unsecured loans, which contributed to the rise in non-performing assets (NPAs),” chief executive officer and managing director Chanda Kochhar said on a conference call.
The bank’s NPAs as a percentage of loans declined to 1.16%, from 2.19% last year.
As banks are required to set aside money or provide for these, lower NPAs lead to lower provisioning.
ICICI Bank’s net interest income, or income from interest on loans, increased 12.32% to Rs 2,311.7 crore, from Rs 2,058.1 crore last year.
The private sector lender’s loan book increased to Rs 2.06 trillion, up 15.3% from Rs 1.79 trillion last year.
Kochhar expects the bank’s loan book to grow 18% in 2010-11 and deposits by 15%. The industry has seen a 24.4% credit growth and a 16% deposit growth year-on-year till 31 December.
Analysts said ICICI Bank has moved on from its consolidation phase to a growth phase.
Ajay Parmar, head (institutional research) at Emkay Shares and Stock Brokers Ltd, a Mumbai-based brokerage, said investor expectations from the bank will now go up.
“People had minimum expectation from this bank as it shed its aggression in the last two years and became more conservative. Now, I expect it to be more aggressive,” he said.
Parmar has an accumulate rating on ICICI Bank, which factors in a return of not more than 20%. He said he is likely to re-rate the stock to buy, factoring in more than a 20% return.
On Monday, ICICI Bank shares rose 1.69% to close at Rs 1,083.90 apiece on the Bombay Stock Exchange, while the exchange’s benchmark index, the Sensex, rose 0.76%.
The bank also managed to improve the proportion of its cheap current and savings accounts (Casa) deposits as a percentage of its overall deposits, from 39.6% to 44.2%.
Net interest margin (NIM), or the difference between interest charged on loans and that paid on deposits, however, remained constant at 2.6 percentage points, Kochhar said.
A rise in Casa helps banks bring down the cost of funds and increase the margin, which in turn adds to profitability.
Dinesh Shukla, research analyst at Sharekhan Commodities Pvt. Ltd, said the bank will be able to keep NIM at above 2.5% if it’s able to maintain Casa above 40%. “Casa has increased to 44% from 39% last year and it has steadily increased from 30.4% in April-June 2009. A fourth of the bank’s book comes from overseas, where margins are just above 1%, so it all depends on how they do domestically at 3% margins,” he said.
Shukla expects the bank to move more forcefully into secured retail loans such as home loans and auto loans, which give a higher margin, and where ICICI Bank was once the largest lender in the country.
ICICI Bank has been rebuilding its retail portfolio in the last couple of years after suffering heavy losses in unsecured loans such as personal loans and credit cards.
The bank’s outstanding home loan portfolio is Rs 52,000 crore, Kochhar said.
“We do not expect any moderation in credit growth. With a high provision coverage ratio of 71.8%, provisions should drop going forward,” she said. Under regulatory norms, a bank needs to provide for 70% of its assets, irrespective of their quality.
ICICI Bank earned Rs 1,625 crore fee income during the quarter.