Mumbai: ICICI Bank Ltd, the country’s second largest bank on Saturday reported a 21% growth in net profit to Rs878.22 crore in the quarter ended 30 June 2009 on the back of strong treasury gains of Rs714 crore. This is higher than analyst expectations.
The bank’s total income fell 2.19% to Rs9223.32 crore at the end of 30 June 2009 as against Rs9429.98 crore in the corresponding period last year. Net interest income of the bank in the first quarter of June 2009 decreased to Rs1,985 crore as compared to Rs2,090 crore in the corresponding quarter of 2008, which is on account of a 11.61% dip in the banks advances book. The net interest margin of the bank stood at 2.4%. The deposit base of the bank has also shrunk by 10.33% to Rs2,10,236.01 crore.
Chanda Kochhar, managing director and chief executive officer of ICICI Bank said, “In the coming quarters we will see growth in our home loan and corporate banking business. We will go slow on the unsecured book.” “The unsecured loans book as a percentage of assets have dipped from 9% to 7% in June 2009. By the end of the financial year it would be scaled down further to 5%,” added Kochhar.
“The bank will continue to focus on growing its current and savings accounts and with expected rise in loan demand in the second quarter fee income should look up,” she said.
During the quarter, the bank’s savings account deposits increased by Rs3,423 crore. The current and savings account ratio improved to 30.4% at the end of 30 June 2009, as compared to 27.6% a year ago.
The bank has been going slow on its retail assets growth on the back of tough economic environment and rising bad assets. The bank’s retail banking operations has posted a loss of Rs437.33 crore for the June quarter against a profit of Rs128.70 crore in the corresponding period last year. Income from wholesale banking has also dipped to Rs576.65 crore at the end of June quarter as compared to Rs1,190.63 crore a year earlier.
“Treasury operations have posted a profit this quarter which has helped increase the bank’s profitability. Treasury gains are not permanent. The challenges will continue to grow the bank’s assets book and substitute short term treasury gains with sustained fee income from loan growth and manage the asset quality,” said an analyst with a Mumbai brokerage on the condition of anonymity as he is not the official spokesperson of the bank. “The positive for the bank is that they have been able to contain expenses,” he added.
Fee income which has been a large driver for the bank’s profitability in the past few years have been stable for the quarter ended June 2009 at Rs1,319 crore. The bank attributed the lower level of fee income to reduced investment and mergers and acquisition activity in the corporate sector and lower level of fees from distribution of retail financial products, reflecting the continued impact of the adverse global economic conditions on the operating environment.
The bank has reduced its operating expenses to Rs1546.02 crore as against Rs1913.91 crore. The bank has been working towards reducing cost in that process it has been rejigging its business model as a result, driving more of its consumer business through its branch network rather than through the external selling agents it works with. The branch network of the bank stood at 1,471 at 24 July 2009. It is in the process of implementing the 580 branch licenses received from Reserve Bank of India, which would expand the branch network to about 2,000 branches. The bank reduced its expenses on external or direct marketing agents to Rs27 crore for the quarter ended 30 June 2009 down 88% from Rs228 crore in the corresponding quarter last year. This largely means the bank unlike the past is sourcing majority of the loans through its branches and not through outsourced agents. The bank in the past has expressed that as the bank widens this network, it hopes to make around 60% of its loan disbursals from its branches in the near future, up from 20-25% in previous years. The employee cost has also come down to Rs466.52 crore in the quarter ended June 2009 as against Rs523.22 crore in the corresponding quarter last fiscal.
Provisions and contingencies have risen by 67.02% to Rs1323.65 crore for the quarter ended June 2009 as against Rs792.49 crore in the corresponding quarter last year. “Provisions have gone up largely on account of restructuring of large corporate accounts. We expect the restructuring burden to come down in the coming quarters,” added Kochhar. The bank has restructured assets worth Rs1500 crore in the June quarter. The non-performing loans as a percentage of advances stood at 2.33% as against 1.80%. The bank’s capital adequacy ratio stood at 17.4%.