Mumbai: ICICI Bank Ltd, the country’s largest private sector lender, reported a 19.1% decline in December quarter net profit as asset quality worsened to a 13-year low and growth in core interest income slowed down.
Net profit stood at Rs2,441.82 crore, as against Rs3,018.13 crore a year earlier, marginally lower than estimates. According to a Bloomberg poll of 20 analysts, the bank was expected to post a net profit of Rs2,466.7 crore for the quarter.
The “earnings are in line with expectations”, said Siddharth Purohit, senior research analyst with brokerage firm Angel Broking Ltd. “Earnings will remain muted for next couple of quarters.”
ICICI Bank shares fell 0.7% to Rs268.95 on Tuesday, paring this year’s gains to 5.4%. Earnings were announced after the markets closed. The S&P BSE Bankex Index has gained 7.5% this year.
The lender’s gross bad loans ballooned to Rs37,716. 73 crore at the end of December, rising 17.21% from the quarter ago. As a percentage of total loans, gross bad loans stood at 7.9% at the end of December, up from 6.82% at the end of the previous quarter. Bad loans net of provisions were 4.35% of advances.
During the three months ended December, Rs 7057 crore worth of fresh loans turned bad, lower than the previous two quarters. About 40% of these were from a so-called watchlist the bank released in March.
ICICI Bank’s managing director and chief executive officer Chanda Kochchar said the watch list, which includes sub-investment grade loans given to troubled sectors, declined to Rs.27,536 crore at the end of December from Rs 44,065 crore nine months earlier. Around Rs 12,057 crore worth of loans from the watch list went bad and Rs 4165 crore worth of loans were resolved during the last nine months.
“Rise in bad loans had a dampening effect on net interest income in the quarter,” Hatim Broachwala, an analyst at Nirmal Bang Institutional Equities told Bloomberg. “The bank’s ability to prevent any further deterioration in asset quality in the slowing economy is going to be the key to profit growth in coming quarters.”
Net interest income (NII), or the core income a bank earns by giving loans, fell by 1.64% to Rs5,363.35 crore as loan growth slowed owing to the effects of demonetisation and the rise in bad loans.
At the end of December, ICICI Bank’s advances rose 5.21% to Rs4.57 trillion.
To be sure, ICICI Bank is not the only bank bearing the brunt of rising bad loans and slowing advances. Earlier in January, HDFC Bank Ltd reported its weakest quarterly profit growth in at least 20 years. Rival Axis Bank Ltd said net profit for the December quarter fell 73.4% while its gross bad loans ratio jumped by 1 percentage point over the last three months.
“It is very difficult to give any guidance on resolution of stressed assets as there are too many moving parts involved,” Kochhar said on a conference call with reporters. “Our endeavour is to resolve as much as we can in this year itself.”
ICICI Bank’s non-interest income fell 6.61% from a year ago to Rs 3938. 31 crore. However, this was largely because the bank booked a one-time income of Rs 1243 crore on sale of shareholding in ICICI Prudential Life Insurance Co Ltd in the December 2015 quarter.
Provisions and contingencies too dropped by 61.7% to Rs2,712.70 //crore//. On a year-on-year basis, they fell 4.62%.
The bank witnessed an accretion of Rs.26,705 crore to current account-saving account (CASA) in the third quarter due to the impact of demonetisation. The bank’s CASA ratio stood at 49.9% at the end of December, up from 45.2% a year ago. Overall deposits rose 14.23% to Rs4.65 trillion.
Bloomberg contributed to this story.