The key question that investors were asking about the December quarter results of ICICI Bank Ltd was whether the bank had finally turned the corner, after the harrowing time it had during the crisis.
The bottom line shows the bank still hasn’t returned to growth: Net profit declined by 13.4% year-on-year (y-o-y) to Rs1,101.06 crore, in spite of an extraordinary profit of Rs203 crore.
Although it was well known that the large treasury profit from the year-ago period wouldn’t be repeated, the market was slightly disappointed, with the stock falling 2.7% compared with a fall of 2.4% in the Bombay Stock Exchange Bankex on Thursday.
Advances at the bank continued to shrink and outstanding loans at end-December were 6% lower than at the end of September. Deposits, however, appear to have stabilized, with the fall in outstanding deposits being marginal during the quarter. The proportion of low-cost current and savings accounts improved from 36.9% of total deposits at end-September quarter to 39.6%. With lower advances, the marginal 3.4% y-o-y rise in net interest income was entirely due to higher margins.
Graphic: Yogesh Kumar / Mint
Net interest margin improved from 2.4% in the December 2008 quarter to 2.5% in the second quarter to 2.6% in the third quarter (Q3). The rise in fee income too was tepid, at a mere 5.5% y-o-y.
Core operating profit, that is, profit after taking out treasury gains/losses and other extraordinary income, was Rs2,166 crore in the December 2009 quarter, compared with Rs1,795 crore in the year-ago period and Rs2,138 crore in the September 2009 quarter. But this improvement was entirely due to lower expenses. Core income (net interest income plus non-interest income less treasury profits and extraordinary gains) was almost the same in the December 2009 quarter as in the December 2008 quarter, while it was lower than that in the September quarter. Provisions too were lower, buoying the bottomline.
But there’s a limit to which expenses can be curtailed and real growth will require higher revenue.
Gross non-performing assets as a percentage of loans continued to rise, moving up to 4.84% in the December quarter, compared with 4.69% in the September quarter. And that’s after restructured loans increased during the quarter.
ICICI Bank stock has beaten the Bankex on hopes that the bank will be able to start on a fresh round of growth after cleaning up past excesses. The Q3 results show that the process will take some more time.
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