Mumbai: The merger with Bank of Rajasthan Ltd helped ICICI Bank Ltd grow its loan book on an annualized basis for the first time in two years, even as India’s second largest lender reported that its net profit for the second quarter of the current fiscal year rose 19% to Rs 1,236 crore, on the back of higher fee income and lower provisions for bad loans.
Most of the loan growth came from corporate lending rather than lending to retail customers. ICICI Bank also met an internal target to increase the proportion of low-cost deposits in its books.
The reported profit beat analyst expectations. Thirty-two analysts polled by Bloomberg had estimated net profit for the September quarter at Rs 1,152 crore.
“The bulk of the loan growth came from the acquisition,” said Brian Hunsaker, an analyst at Keefe, Bruyette and Woods Asia Ltd in Hong Kong. “For now, investors are happy with these numbers. At some point the bank needs to start producing organic growth: they haven’t done that yet.”
ICICI Bank absorbed Bank of Rajasthan in August.
Chanda Kochhar, managing director and chief executive officer, described the results as “healthy”, driven by an increase in low-cost current and savings account (Casa) deposits and a better net interest margin (NIM).
“I would say improved NIM, lower provisions and increased fee income have all contributed to the profit this quarter,” Kochhar said.
NIM is the difference between interest charged on loans and that paid on deposits. ICICI Bank’s NIM rose to 2.6 percentage points, from 2.5 percentage points in the same quarter last year.
While quarterly income from interest rose just 8.3% to Rs 2,204 crore, fee income— from selling insurance, mutual funds and remittance products —increased 14.6%, to Rs 1,590 crore from Rs 1,387 crore.
However, the biggest boost to ICICI Bank’s earnings came from a 40% drop in provisions, to Rs 641 crore from Rs 1,071 in the same quarter last year.
Net bad loans fell to Rs 3,145 crore during the quarter, from Rs 4,499 crore last year. However, on an aggregate basis bad loans rose to Rs 10,141 crore from Rs 9,200 crore.
Loans increased by 1.75% over a year ago, lower than the industry average. Kochhar said she is not worried by low credit growth as she expects lending to pick up in the second half of fiscal 2011. “We are expecting robust growth in the second half, both from companies and retail (customers), which will help us to grow at 18-20% for the year,” she said.
Loans were mostly given to companies and growth was flat on the retail side. “Corporate side saw a 30% growth, but on the retail side the growth was only from home loans,” Kochhar said.
Vaibhav Agarwal, vice-president (research) at Angel Broking Ltd, said the bank has delivered more than it promised.
“They had targeted Casa at 36-37% (of total deposits), but they are already at 44%. They have also doubled branches, not counting Bank of Rajasthan (branches), and so when they say that they will grow by 15-17%, I expect them to achieve that,” he said.
ICICI Bank’s shares rose 6.54%, to end at Rs 1,161.65 apiece on Friday on the Bombay Stock Exchange while the benchmark Sensex index rose 0.46% to close at 20,032.34 points.
ICICI Bank has the largest network of branches among its private sector peers after the Bank of Rajasthan acquisition. However, Kochhar said it will continue to add branches as it tries to attract more low-cost deposits.
“Going forward, I can say that advances, deposits as well as margins will have an upward bias,” she said.
Among subsidiaries, profits at ICICI Prudential Asset Management Co. Ltd fell 67% to just Rs 15 crore from Rs 45 crore in the same quarter last year.
Kochhar said the fall was because “of a general decline in assets under management for mutual funds”.
Ruth David of Bloomberg contributed to this story.