ICICI Bank results: No green shoots visible on asset quality front
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If the first three quarters of fiscal year 2017 (FY17) weren’t worrisome enough, the fourth quarter turned into a nightmare for ICICI Bank Ltd in terms of asset quality.
The largest private sector lender reported a massive rise in fresh slippages, mainly due to exposure to a cement company that is in the midst of a merger and acquisition transaction.
This was expected, especially after peer banks such as IndusInd Bank Ltd, Yes Bank Ltd and Axis Bank Ltd reported a disastrous rise in their gross bad loans and provisions owing to exposure to this particular cement company.
To be fair to ICICI Bank, the cement company was recognized as an asset that could slip in a drill-down list (or watchlist) that it had announced earlier. So the lender had anticipated this slippage to an extent.
Like its peers, ICICI Bank too expects this account to turn standard in the current quarter.
But leave aside this account that cost ICICI Bank Rs5,378 crore in slippages, the pace of decay has not abated. Slippages besides this account amounted to Rs5,911 crore, which is just about Rs1,000 crore lower than those in the December quarter.
However, what is most worrisome is the massive write-off that the lender reported in the quarter ended March. Write-offs totalled Rs5,386 crore, which is higher than that in the entire FY16.
But is the worst over for ICICI Bank?
The management remained vague on how asset quality will pan out in the coming quarters. For the whole year of 2017-18 though, it believes bad loan accretion will be significantly lower than what was in FY17.
The drill-down list stands at about Rs19,000 crore now and the outlook on likely slippages from this list is unclear. Further, ICICI Bank’s restructured book is about Rs4,265 crore.
And above all these impending risks is the lender’s provision coverage ratio, which has fallen sharply to 53.6% from 61%.
ICICI Bank is not only exposed to higher risks, its provisions are not enough as well.
The private sector lender reported a 189% jump in net profit, which was expected. The silver lining for the bank is the sustained growth in loans. Its loan book grew by 14% and fortified by an expanded net interest margin, the net interest income showed a growth of 10%. The private sector lender’s deposit franchise is far stronger than others.
“NPA (non-performing asset) additions will be significantly lower than previous year,” said Chanda Kochhar, chief executive officer of ICICI Bank .
But for investors to take a kinder look at the lender, it will take more than a pithy statement on asset quality.