ICICI Bank Ltd’s shares fell about 20% in the three months ended September, the worst in a couple of years. Investors’ concerns mainly centre around asset quality. The bank went through tough times when it had to restrain lending and prune bad loans.
But now, it seems to have answered some of these questions. Gross non-performing assets as a proportion of advances fell to 4.14% at the end of the September quarter. That’s about 22 basis points down from June and 90 basis points down from a year ago. One basis point is one-hundredth of a percentage point. Provisions for bad loans in the second quarter fell by half from a year ago; restructured assets were at Rs 2,501 crore— about 1% of the balance sheet.
The ICICI Bank building in Mumbai. Photo: Bloomberg
In a presentation on its website, ICICI Bank also talks about reducing portfolio risks of its overseas units by cutting credit derivative exposure. Retail loans are mostly secured now. Although its exposure to the power sector is about 7%, the management emphasized that half of it was to already-running projects, while it is monitoring the rest closely.
•Similar trends (PDF)
•ICICI Bank‘s Q2 growth chart (PDF)
This has come at a time when the bank is slowly starting to expand again. It grew loans 6% from the end of June quarter, beating the sector’s growth. It expects loan growth to be some 20% this fiscal.
Although retail loan growth has slowed, the bank managed to make a profit before tax of Rs 104 crore in this segment compared with a Rs 80 crore loss the previous quarter.
That said, things have cooled off a bit operationally. Operating profit growth from a year ago is not all that hot at 6.4%. The decline in provision boosted net profit 22% to Rs 1,503 crore. Net interest margins shrunk 10 basis points from the June quarter to 2.6%, but it was largely expected, given the rising interest rates.
The ICICI Bank stock is trading at 1.8 times estimated book value for fiscal 2012, at a discount to similar-sized peers. That might give it some breathing room yet.