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Mumbai: ICICI Bank Ltd, India’s third largest lender by assets, on Wednesday reported an almost threefold increase in March quarter net profit, helped by lower provisions despite a surge in bad loans, and announced a bonus issue of one share for every 10 held by investors.
Net profit rose to Rs2,024.6 crore in the three months from Rs701.9 crore in the year-ago period. The profit fell short of the Rs2,142.60 crore forecast based on estimates of 22 analysts polled by Bloomberg, .
ICICI Bank’s bad loans jumped to Rs42,551 crore at the end of the March quarter, a 11.73% increase from three months earlier. As a percentage of total customer assets, gross non-performing assets (NPAs) stood at 7.89% at the end of March compared with 7.2% in the previous quarter and 5.21% a year ago. Customer assets include loans and credit substitutes such as bank guarantees. Gross non-performing loans made up 8.74% of total loans, compared with 7.9% in December.
During January to March, Rs11,289 crore of fresh loans turned bad, compared with an average Rs7,000 crore in the previous two quarters. The jump was primarily due to one cement account of Rs5,378 crore, ICICI Bank said in an investor presentation.
This relates to the bank’s exposure to Jaiprakash Associates Ltd’s cement assets which are being purchased by UltraTech Cement Ltd. Two weeks ago, Yes Bank Ltd and IndusInd Bank Ltd also reported a sharp rise in their quarterly loan provisioning because of their exposure to the same account.
In the investor presentation, ICICI added that it “expects part of the loan to be upgraded on conclusion”.
“Credit cost will remain at elevated level which will drag down the profitability, though slippages will slow down going forward. We continue to maintain a hold rating on the stock,” said Ashutosh Mishra, banking analyst at Reliance Securities Ltd.
Apart from the rise in slippages, ICICI Bank also wrote off Rs5,386 crore of bad loans in the March quarter. This was significantly higher than the Rs470 crore average write-offs in the previous two quarters. The bank did not sell any bad loans to asset reconstruction companies in the quarter.
Still, the bank’s bad loan recoveries rose to Rs1,413 crore in the March quarter, compared with Rs625 crore in the three months ended December.
ICICI Bank has guided for lower accretions to NPAs in the current financial year.
“Going forward, we believe that NPA addition will be significantly lower, some resolutions to get completed during the year and some upgrades from NPAs,” said Chanda Kochhar, chief executive officer of ICICI Bank. Its so-called watch list—which includes sub-investment grade loans to troubled sectors—fell to Rs19,039 crore at the end of March from Rs44,065 crore a year ago.
Despite the high addition to NPAs, ICICI Bank’s provisions in the March quarter totaled only Rs2,898 crore, compared with Rs3,326 crore a year ago. That’s also because in the March 2016 quarter, the bank had set aside an additional Rs3,600 crore of floating and contingency provisions which it used up in the just-ended financial year.
Net interest income, or the core income a bank earns by giving loans, rose 10.32% to Rs5,962 crore in the March quarter. At the end of March, ICICI’s domestic advances rose 14%. Its total advances rose 7% to Rs4.6 trillion.
The bank’s management has guided for domestic credit growth of 15-16% in the current fiscal year, with the retail loan book growing faster at 18-19%.
ICICI Bank’s shares fell 1.16% to close at Rs272.75 on Wednesday on the BSE, while the benchmark Sensex index lost 0.09% to close at 29,894.80 points. The bank announced its results after the close of trading.