ICICI Bank Ltd’s focus on profitability metrics has stood it well in recent quarters and the quarter ended December was no exception. Net profit grew 30% from a year ago to Rs.2,250 crore, trumping Street forecasts again. While the core operating performance was good, profits were helped along by treasury gains and lower provisioning for bad loans.
The only point of concern seems to be the relatively low loan growth. Advances grew 16% from a year ago, the slowest in eight quarters. Even when compared with the September quarter, ICICI Bank’s loan book grew only 4.2% compared with the industry’s 7.5% growth. Still, the focus on strong profit growth not only meant that return on equity crossed 15%, but that the bank also grew its net interest margins. In the December quarter, the net interest margin grew by 37 basis points from a year ago to 3.07%; it is also 7 basis points ahead of the September quarter number.
Thus, the bank was able to grow its net interest income by 29% from a year ago. Non-interest income grew by 17%, but that was more a function of treasury profits (as opposed to a loss in the year-ago period) while fee income grew a tepid 4%.
The emphasis on cost control—cost to income ratio has been declining steadily over the past couple of quarters—has resulted in a strong 32% growth in operating profit.
Another positive in the results is the strong performance on the asset quality front. Gross non-performing assets as a proportion of total loans stood at 3.31%, down from 3.54% at the end of September. That meant the bank had to provide less for bad loans, another factor that contributed to the net profit increase.
Secondly, the bank didn’t add many restructured assets. Net recast loans stood at Rs.4,169 crore, not much changed over the Rs.4,158 crore at the end of September.
In a conference call, the bank’s management said that was owing to a large number of recoveries and writebacks, especially in the retail portfolio. It also said that future additions to the recast loan book “won’t create (an) alarm for us”.
The outlook for the bank is relatively optimistic. Though loan growth was a tad slow, retail loans are picking up; they grew at 17% over a year ago in the December quarter, compared with 14% in September and 10% in June.
Secondly, a strong capital adequacy ratio and ICICI Bank’s attempts to bring back capital from some of its international subsidiaries means the bank could expand its return on equity (as it won’t have to dilute its capital base).
If the economy recovers and the recent rate cut by the Reserve Bank helps increase loan growth, it will provide the bank an added boost.