The four horsemen of ICICI Bank’s troubles

As ICICI Bank is insuring for future pain by hiking provisions, investors, too, would do well to buy some protection


The expected bad news on net profit and core income came true with the lender’s profit nearly flat at Rs3,102 crore for the September quarter over a year ago and net interest income flat as well at Rs5,253 crore. Photo: Hemant Mishra/Mint
The expected bad news on net profit and core income came true with the lender’s profit nearly flat at Rs3,102 crore for the September quarter over a year ago and net interest income flat as well at Rs5,253 crore. Photo: Hemant Mishra/Mint

The 6% run-up in ICICI Bank Ltd’s stock since the June quarter results announcement now seems like an overkill. India’s largest private-sector lender put up a poor show on asset quality for yet another quarter.

The expected bad news on net profit and core income came true with the lender’s profit nearly flat at Rs3,102 crore for the September quarter over a year ago and net interest income flat as well at Rs5,253 crore. But the pain on asset quality looks long drawn. The first horseman of trouble for the lender is the pace at which loans are turning bad. Fresh slippages of Rs8,029 crore for the quarter matched the figure of the previous three-month period. Of this, Rs4,555 crore came from the bank’s declared watch list, or what it calls list of accounts internally rated below investment grade. This watch list stands at Rs32,490 crore as of 30 September, about Rs9,114 crore having gone bad between April and September.

The second is the fact that not less than 30% of the slippages are from outside that of the watch list. Although the lender added about Rs16,000 crore to bad loans between April and September, just a little over 50% came from the watch list and Rs2,552 crore came from the restructured portfolio. The watch list still stands at a significant number, too, and the lender has refrained from giving an indication of how much of this could slip in the coming quarters.

The third horseman is the bank’s exposure to the troubled sectors that make the watch list. The lender has reiterated that it is bringing down this exposure to five of them, including iron and steel, power and mining, and growing the portfolio outside these sectors. The bank’s exposure to these five sectors stood at 11.9% as of 30 September, down from 13.3% a year ago. The bank is betting big on a “significant reduction” in exposure through upgrades over the next six-to-nine months because of the sale of assets that leveraged groups such as Essar have announced.

The fourth horseman is the low rate of upgrades and recoveries. In the September quarter, upgrades and recoveries stood at Rs800 crore and have been similar in the previous quarters as well. In fact, ICICI Bank made upgrades and recoveries of just Rs2,184 crore in the entire FY16. To sum up, as ICICI Bank is insuring for future pain by hiking provisions, investors, too, would do well to buy some protection.

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