After the global financial crisis of 2008 when its profitability took big hits, ICICI Bank Ltd has abandoned the cowboy style of giving loans first and asking questions later.
Although its retail loan book is still a bit shaky—with losses of Rs84.14 crore in the quarter ended June, compared with Rs217.33 crore in the year-ago period—the bank has consciously restrained its loan book, pruned expenses and bad loans, and has returned to making robust profits in the past few quarters.
The June quarter results show the new management under Chanda Kochhar still swears by the stability mantra. Thus, the bank grew advances just 2% from the end of the March quarter, almost half that of the system’s. But it has cut down on bad loans.
Gross non-performing assets shrunk to 4.36% of the loan book, down 11 basis points (bps) from the March quarter. One basis point is one-hundredth of a percentage point.
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The bank indicated that it has cut its high-risk credit card and personal loans to 2.1% of its loan book, down from the 3% in the previous quarter.
That also meant that the bank had to set aside a smaller amount for bad loans, and lower provisions have led to most of the growth in net profit.
Things are better for the bank operationally.
Unlike in the March quarter, when year-on-year growth in operating profit was negative, operating profit grew 2.1% in the three months ended June, compared with a year ago.
Thus, net profit grew 30% over a year ago, which is a decent number considering the macro environment.
Net interest margins shrunk 10 bps from the March quarter to 2.7%, but that was largely expected given the rising interest rates. Another negative was the lower proportion of low-cost current and savings account deposits (Casa)—the Casa ratio fell from 45.1% at end-March to 41.9%, although it’s also true that demand deposits have declined throughout the banking system. The rising rates—with more in the offing—also mean that loan book growth will be more difficult. Already, the management has cut its target to 18% growth for the fiscal year, down 2% from what they had announced while presenting the March quarter results.
With the current profit numbers and its turnaround story already discounted, further upside to the stock will depend on how they ride the slowdown and maintain margins.
Graphic by Ahmed Raza Khan/Mint
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