Bangalore: ICICI Bank Ltd., India’s largest private bank, said on Thursday its quarterly profit fell 13.4% on falling treasury yields, even as demand for house and car loans picked up.
The decline in net profit to Rs11 billion ($237 million) for the December quarter, from Rs12.7 billion ($273 million) a year earlier, was less than expected.
Total income fell 25%, to Rs77.6 billion ($1.7 billion), from Rs103.5 billion . Income from its holdings of treasuries — government bonds and bills — fell to zero from Rs9.8 billion ($210 million) a year earlier.
India’s tightly regulated banks were largely unscathed by the global financial crisis, but as liquidity dried up in global markets, domestic lending froze as well. After more than a year of government stimulus and stronger than expected economic growth, demand for consumer credit is growing and bad loans are falling.
“Because GDP growth is coming back you’re seeing an increase in overall consumer and business confidence,” said Vaibhav Agrawal, vice-president of research at Mumbai’s Angel Broking. “Interest rates have come down 300 to 400 basis points, so overall affordability (of credit) has increased substantially. This was an inevitable kind of thing. It will continue to play out over the next year or so.”
Still, ICICI’s total loan book fell during the December quarter, to Rs1.8 trillion ($38.5 billion) from Rs1.9 trillion ($41 billion) the prior quarter. The bank trimmed unsecured retail loans and domestic demand for home and auto loans failed to offset weakness in large-scale project lending and loans overseas.
Chief executive Chanda Kochhar told reporters she expected overall credit growth to be flat for the fiscal year, despite double digit rises in home and auto loans.
“Home loan registrations are going up month on month. Car sales are going up month on month. These activities are seeing a huge increase,” she said.
She said lending for large scale projects won’t likely pick up until next quarter.
“A lot of financial approvals have taken place but a lot of projects have not taken disbursements,” she said.
The bank also said provisioning for bad loans would continue to decline.
Cost cutting helped drive a 6% sequential rise in net profit, even as the bank continued to expand its branch network. Operating expenses fell to Rs13.4 billion ($288 million), 3% less than the prior quarter and 20% less than the same period last year.
The bank continued to improve the quality of its deposit base during the quarter, boosting the ratio of low-cost checking and savings accounts deposits to a comfortable 39.6%, from 27.4% a year ago.
Investors in India prefer banks to have about a third of their deposits in checking and savings accounts, as opposed to fixed deposit accounts, on which the bank must pay much higher interest.