BackTreasury income boosts Q3 results of ICICI Bank
Treasury income boosts Q3 results of ICICI Bank
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How did the bank pull off this feat? The loan book continued to shrink, contracting 4.3%, or by Rs9,464 crore, between end-September and end-December. Deposits shrank even more, falling by 6.4%, or Rs14,337 crore, over the quarter and the proportion of low-cost current and savings accounts (Casa) deposits went down. Growth in net interest income, or income earned as interest on loans minus that paid for deposits, was flat year on year and fee income fell substantially. The net interest margin—the difference between the rate it charged for loans and paid for deposits—went up a wee bit to 2.3 percentage points from 2.2 percentage points in the September quarter. In fact, the only reason the bank was able to show higher growth in operating income was because of its treasury income, which was three-and-a-half times the level for the December 2007 quarter. Treasury income accounted for at least a third of operating profit.
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Before these results, ICICI Bank had always included a line showing its “core operating profit", or operating profit excluding treasury profits. This time, that line is missing, probably because “core operating profit" is lower by 9.2% compared with the December 2007 quarter.
A squeeze on expenses also helped cushion the bank’s profit. Operating expenses fell 18.5% year-on-year, with employee costs falling 11.8%.
The other concern about ICICI Bank was that its heady pace of growth during the boom years would extract a heavy toll by way of increased bad loans. Thankfully, the level of gross non-performing assets (NPAs) has come down during the quarter and the gross NPA ratio is 1.95%. But net NPAs have increased a tad. The bank’s balance sheet shows that the only asset which grew during the December quarter was investment. All other assets, including advances and cash and bank balances, shrank. On the liabilities side, borrowings have risen, although overseas borrowing has come down.
The management has made no bones about the need for the bank to pause and catch its breath after its earlier growth spurt, and December was certainly an exceptionally bad quarter. At its current price, assuming a value of Rs175 per share for the bank’s insurance and other businesses, the stock is pricing the bank at a mere 42% of its book value of Rs449.5. That doesn’t price in the possibility of better results in future.
Write to us at marktomarket@livemint.com
Graphics by Paras Jain / Mint
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