Mumbai: Private sector lender ICICI Bank Ltd reported lower profits for the December quarter on the back of a drop in treasury income even as its revenue was down on lower loan activity and a shrinking deposit book.
Positive stance: Managing director and CEO Chanda Kochhar has hinted that ICICI Bank will take a more conservative growth path. Abhijit Bhatlekar / Mint
The bank announced the drop in profits on a day when engineering firm Larsen and Toubro Ltd reported results that disappointed investors, the first jolts in an earnings season that has till now been dominated by positive news.
ICICI Bank ended the third quarter (Q3) of this fiscal with profits of Rs1,101.6 crore, down 13.44% over the same quarter last year, but broadly in line with Street expectations. Private sector banks HDFC Bank Ltd and Axis Bank Ltd reported 30%-plus increases in net profits last week.
An analyst with a domestic brokerage expressed concern about the continuing shrinkage in ICICI Bank’s loan book, down 15.64%.
ICICI Bank managing director and chief executive officer Chanda Kochhar hinted that loan growth will look up in the coming quarters. “We have already seen a pickup in home and car loans. The big kicker to credit will be when the project finance disbursements are availed,” she said.
Kochhar also hinted at a more conservative growth path when she added that the bank is no longer adding to its unsecured loan business, which includes personal loans and credit cards.
Most banks cut back on lending during the downturn, though competitors such as HDFC Bank reported a smart 21% recovery in loan volumes in Q3 of this fiscal compared with a year ago.
The fall in loan volumes pulled down ICICI Bank’s total income, down 25% to Rs7,762.71 crore. Operating profits were down 16.96% to Rs2,369 crore.
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Even as loans fell, the bank’s bank’s fee income rose 6% on an increased focus on trade finance and activities such as cash management services to companies.
Other income, traditionally an important component of net profit for ICICI Bank, dropped 33.46% to Rs1,673.14 crore. Besides fees, lease and other income grew to Rs277 crore. This includes a one-time profit of Rs203 crore from the transfer of merchant acquiring operations to a new entity 81% owned by First Data Corp.
Treasury operations ran up a loss of Rs26 crore, compared with a profit of Rs976 crore in Q3 of fiscal 2009.
Centrum Broking Pvt. Ltd, in a review of ICICI Bank’s results, said that the bank’s troubles were signs of “a strategy gone awry”.
“One offs and low effective taxes saved the embarrassment for ICICI Bank. (But for) the profit on transfer of merchant acquiring operations of Rs203 crore and an unsustainably low tax rate (of 20%), the bottom line would have declined by 30% year-on-year,” the brokerage review said.
“Continued loan book contraction highlights the misery of a strategy gone awry. Though, some salvage by way of higher current and savings accounts is visible (nearly 40%), we believe in the current avatar, ICICI Bank is unlikely to pose major challenges in quick time,” said Centrum. Current and savings accounts deliver low-cost deposit money to banks.
“The weak book quality continues to weigh down earnings. Credit charges remain high at 2.2% of average loans,” added the review. Other analysts were more optimistic.
“The asset quality trend is a positive, as in absolute numbers the non-performing loans is showing a declining trend. The bank has made adequate provisioning... The shrinkage of the (loan) book is partly to do with the external environment and partly to do with their strategy. We will see the bank come back on the growth track in the first quarter of financial year 2011,” said Vaibhav Agrawal, banking analyst at Angel Broking Ltd.
“We have restructured loans to the tune of Rs600 crore in the third quarter of 2009 and the outstanding amount of restructured loans stands at Rs5,300 crore,” said Kochhar. “There will be some more restructuring required in the coming quarter.”
“The provisions and loan losses have peaked,” assured Kochhar.