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ICICI Bank Q1 profit falls 25% to Rs2,232.35 crore

Gross non-performing assets (NPAs) rose 3.71% to Rs27,193.58 crore at the end of the June quarter from Rs26,221.25 crore in the March quarter

ICICI Bank’s gross bad loans as a percentage of total loans were 5.87% in the June quarter, compared with 5.82% in the previous three months. Photo: Bloomberg
ICICI Bank’s gross bad loans as a percentage of total loans were 5.87% in the June quarter, compared with 5.82% in the previous three months. Photo: Bloomberg

Mumbai: ICICI Bank Ltd, India’s biggest private-sector bank, on Friday reported a 25% year-on-year drop in profits in the April-June quarter, owing to higher provisioning against bad loans.

The bank’s net profit for the fiscal first quarter dropped to Rs.2,232.35 crore, from Rs.2,976.16 crore reported a year ago.

A Bloomberg poll of 20 analysts expected the bank to post a net profit of Rs.2,207.70 crore.

The bank reported its results after stock markets had closed for the week. On Friday, the ICICI Bank stock ended at Rs.262.85 on BSE Ltd, down 3.4% from its previous close.

At 7.38pm, the bank’s ADR was trading down 5.56% at $7.565 a share, while the benchmark index, Dow Jones Industrial Average, was trading down 0.4% at 18,382.83 points.

Gross non-performing assets (NPAs) rose 3.71% to Rs.27,193.58 crore at the end of the June quarter from Rs.26,221.25 crore in the March quarter. Gross NPAs as a share of total advances were at 5.87%, compared with 5.82% reported at the end of the fourth quarter of the last fiscal year.

Net NPAs as a share of advances stood at 3.35%, compared with 2.98% a quarter ago.

Provisions rose 163% from a year ago to Rs.2,514.52 crore. They were 24.4% lower than the Rs.3,326.21 crore set aside in the January-March quarter. ICICI Bank’s provision coverage ratio fell to 57% at the end of the June quarter, compared with 61% at the end of the March quarter, and much below the 69% at the end of the June quarter last year.

In the January-March quarter, the bank had also created a contingency reserve of Rs.3,600 crore. The bank has utilized Rs.865.44 crore of this reserve in the June-ended quarter.

Private and public sector banks have been reporting poor asset quality numbers during the first quarter as bad loans continue to pile up in bank books. Axis Bank reported total slippages of Rs.3,698 crore during the April-June period and a net profit of Rs.1,555.53 crore, down 21.4% from a year ago. Punjab National Bank reported slippages of Rs.9,230 crore during the quarter and a net profit of Rs.306 crore, which was down 57% year-on-year.

Net interest income (NII), or the difference between interest earned on loans and that spent on deposits, rose marginally by 0.85% from last year to Rs.5,158.52 crore. Domestic advances grew 17% year-on-year to Rs.4,49,427 crore. The net interest margin fell to 3.16% from 3.37% at the end of the March quarter.

“As companies get downgraded to non-performing assets, we stop accruing income from them. This impacts the net interest income and the net interest margin,” said Chanda Kochhar, managing director and chief executive officer of ICICI Bank, in a call with journalists after the earnings.

The bank expects strain on margins and its net interest income to continue for some time.

Kochhar added that the bank will continue to focus on improving the credit quality of its portfolio. This will include a proactive monitoring of accounts, improving the credit mix, reducing concentration of the portfolio on stressed sectors and looking for ways to resolve NPAs.

At the end of the March quarter, the bank had created a watch list of loans worth Rs.44,065 crore. These were sub-investment grade loans which were at risk of slipping into the non-performing loans category. In the June quarter, Rs.4,559 crore of these loans turned bad. The net reduction in exposure to loans in this category was Rs.365 crore, while Rs.419 crore of loans were upgraded.

The total slippages during the quarter, including slippages from restructured assets, was at Rs.8,249 crore.

The bank has set up a credit monitoring group, which will closely monitor its loan book on a daily basis and develop predictive models to better deal with future losses, Kochhar said.

It has also formed a team to better its technology and digital offerings. These teams were formed after suggestions from McKinsey and Co.

“While the bank has not given any specific credit cost guidance, we feel it will remain high. We believe the problem of asset quality is going to continue to impact profitability for a few more quarters and slippages other than the watch list can be a negative surprise going ahead,” said Siddharth Purohit, senior banking analyst, Angel Broking.

“While the bank will continue to fight NPA issues, it also intends to expand the loan book selectively. From this point of view, we believe the stock could remain range-bound now; any corrections should be considered for accumulation,” Purohit added.

ICICI Bank’s retail portfolio rose 22% year-on-year and constituted 46% of the bank’s total loans. Corporate loans showed a growth of 11.2% from a year ago.

Total deposits rose 15% year-on-year to Rs.4,24,086 crore at the end of the June quarter.

The bank’s total current account savings account (Casa) deposits increased 18% from a year ago to Rs.191,348 crore as on 30 June. The bank’s Casa ratio was 45.1% in June against 45.8% at the end of March and 44.1% a year ago.

Other income rose to Rs.3,429.26 crore in the first quarter, compared with Rs.2,989.89 crore a year ago, a rise of 14.7%.

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