Is the worst over for ICICI Bank on asset quality?
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With a 13% rise over the last three months, ICICI Bank Ltd’s stock has outperformed benchmark indices. The largest private sector lender’s June quarter results could make this spectacular gain look justified.
Fresh slippages, the bank’s main bugbear for the last six quarters, dropped to Rs4,975 crore from Rs11,289 crore in the March quarter. Its stock of net bad loans also decreased, a sign that the private lender has become more prudent in provisioning. The management’s reiteration of its earlier outlook that slippages in the current fiscal year will be significantly lower than last year is music to investors’ ears.
This prudence is visible as the bank shrank its corporate loan book by bringing down its exposure to stressed sectors. Its overseas loan book too shrank by a massive 25%. All this brought the total loan growth to a low 3%, but investors aren’t complaining.
Net interest income or the income it earns through its core lending operations grew by 8%, lower than the 11% growth in the previous quarter. The bank’s core strength, its retail franchise, netted it 19% growth in retail loans, massive given the lender’s size.
But the fact remains that nearly 9% of ICICI Bank’s loan book is still labelled as bad and does not generate any income. In fact, the bank will continue to bear the burden of provisions as they age. Further, its watchlist of tricky loans stands at Rs20,300 crore. The management has given no guidance on how they see this list evolving.
Moreover, ICICI Bank’s stable asset quality in the June quarter is largely contributed by one single account: Jaiprakash Associates Ltd. Recoveries shot up to Rs2,775 crore because of the repayment the lender got after UltraTech Cement Ltd’s purchase of Jaiprakash’s cement operations.
But the private lender still has an exposure of Rs6,889 crore to nine accounts out of the dozen that the Reserve Bank of India has asked banks to refer to the bankruptcy courts. Nevertheless, provisioning is adequate; it needs to set aside an additional Rs650 crore over the next three quarters towards these accounts.
For now, ICICI Bank seems to have put the worst of the bad loan mess behind it.