Mumbai: ICICI Bank Ltd, India’s largest private sector lender by assets, announced a 43% rise in consolidated profit in the September quarter, riding on demand for loans from companies and strong earnings growth at its life insurance subsidiary.

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Consolidated net profit increased to 1,992 crore, beating Bloomberg’s estimate of 1,424 crore. Earnings per share rose to 13 from 11 last year.

Demand drivers: Chanda Kochhar says the increase in loans from the corporate sector was driven by demand for loans sanctioned previously and also the working capital needs of companies

“There has been a healthy increase in loans from the corporate sector, driven by demand for loans sanctioned previously and also the working capital needs of companies. But there has been a moderation in demand from the retail side," said Chanda Kochhar, managing director and chief executive officer.

The loan book rose 20% to 2.33 trillion from 1.94 trillion last year. Demand for loans helped the bank earn a net interest income of 2,506 crore, 14% higher than last year.

ICICI Bank ended at 930.5 on the Bombay Stock Exchange, down 0.26% from the previous close while the 14-share banking index Bankex rose 0.72% to close at 11,372.49 points and the bourse’s benchmark equity index, the Sensex, dropped marginally. The bank announced its earnings during market hours.

The bank will have to mobilise deposits to continue lending, said A.S.V. Krishnan, an analyst at Ambit Capital Pvt. Ltd.

“ICICI’s credit to deposit ratio is at 98%, and from here the bank will need funds to deploy. This will be challenging in the current environment," he said.

The lender added 22,000 crore of deposits in the September quarter, a 9.86% rise over last year, while loan growth has been 20%.

Its deposit base, at 2.45 trillion, closely tracks the loan book at 2.33 trillion.

Unless the bank raises more deposits, it will have to settled for a 10% growth in the loan book, Krishnan said.

ICICI Prudential Life Insurance Co. Ltd made a net profit of 350 crore, 23 times last year’s 15 crore. The rise in profit was on account of the transfer of 254 crore so-called non-par funds to the insurance firm’s profit and loss account, in line with Insurance Regulatory and Development Authority norms.

In insurance parlance, non-par funds are like shareholder funds, which life insurance companies accumulate by selling non-participatory policies.

ICICI Bank’s mutual fund business made a net profit of 20 crore, up from 13 crore last year.

A 50% drop in provisions also contributed to the rise in the bank’s profit. Provisions declined to 319 crore in the July-September quarter from 641 crore, mainly because of a 30% drop in the bank’s non-performing assets (NPAs).

Net NPAs fell to 2,236 crore from 3,192 crore, and the percentage of net bad loans dropped to 0.80% from 1.37% year-on-year. Gross NPAs dropped marginally from 10,141 crore to 10,021 crore. However, because of the higher growth in advances, gross NPAs in percentage terms dropped from 5.03% to 4.14%.

Kochhar doesn’t expect provisions to fall further from here. “It will be unreasonable to see a further fall in provisions because the numbers we see now are at a very high efficiency," she said.

ICICI Bank has seen a 743 crore increase in restructured loans, mainly from the micro-finance sector. Total restructured loans at 2,500 crore as of 30 September were lower than 2,600 crore restructured last year.

The bank also managed to maintain its net interest margin (NIM) at 2.6%. The net interest margin is the difference between interest earned and interest paid and is considered to be a key measure of a bank’s profitability.

The bank will have to protect its margins following the deregulation of interest rates on savings bank accounts, said Chaitra Bhat, an analyst at LKP Securities Ltd.

“They have guided for an 18% credit growth, which is achievable given that they have delivered on the promised 20% credit growth so far," she said.

Kochhar did not say when the bank will meet to decide on lending and savings bank rates.

ICICI’s peers Yes Bank Ltd, Kotak Mahindra Bank Ltd and IndusInd Bank Ltd have raised their minimum lending base rate by 25 basis points (bps) each after the Reserve Bank of India (RBI) increased its main policy rate last week. A basis point is one-hundredth of a percentage point.

The Reserve Bank of India also deregulated savings rates, freeing banks to set their own. Banks were previously required to keep this at 4%.

Yes Bank, Kotak Mahindra and IndusInd Bank have announced an increase in this to 5.5-6%. Kochhar said her bank is still watching the situation.

“Savings bank is an interest rate-plus transaction product, and customers can always park their money in a fixed deposit for higher rates," she said.