Mumbai: ICICI Bank Ltd provided for an additional ₹ 929 crore against loans restructured prior to 2008 to comply with Reserve Bank of India (RBI) guidelines in the quarter ended March 2015, said executive director N.S. Kannan.
However, instead of providing that amount from its profit and loss (P&L) account, the bank debited the amount from its reserves, which prevented a hit to the bank’s profits during the quarter. This was done with the prior permission of the RBI, Kannan said in a post-results conference call with analysts on Monday after the bank announced its results. The transcript of the call are available on the bank’s website.
“The bank has been providing fully for any interest income which is funded through a Funded Interest Term Loan (FITL) for cases restructured subsequent to the issuance of RBI’s 2008 guideline on restructuring. However, RBI has now required similar treatment of outstanding FITL pertaining to cases restructured prior to these guidelines. The bank has, with the approval of the RBI, debited its reserves by ₹ 9.29 billion to fully provide such outstanding FITLs in the quarter ended March 31, 2015, as against over three quarters permitted by RBI," Kannan said in his opening remarks on Monday.
Results announced on Monday showed that ICICI’s fourth-quarter stand-alone net profit rose 10% to ₹ 2,922 crore despite an increase in bad-loan provisions, mainly to cover restructured loans that turned sour.
Provisions almost doubled to ₹ 1,344 crore from ₹ 714 crore a year ago and increased from ₹ 980 crore in the quarter ended 31 December as bad loans rose. Net non-performing assets (NPAs) rose to 1.61% of net advances from 0.97% a year ago.
Data analysed by Mint show that the bank added ₹ 4,589 crore to gross NPAs in the year, taking total NPAs to ₹ 15,095 crore, compared with ₹ 10,506 crore in the year ended March 2014. In a conference call with journalists, Kochhar had said that ₹ 2,246 crore of the ₹ 3,260 crore of NPAs added in the March quarter were restructured assets that turned bad.
The vice-president of research (banking) at Angel Broking Ltd, Vaibhav Agrawal, who was on the conference call, said ICICI Bank has been saved from a large negative impact on its profit because it accounted for the extra provisions from its reserves.
“The bank’s total reserves currently are close to ₹ 80,000 crore; so this ₹ 929 crore impact is not huge. But if they had taken this impact on its P&L, the profits would have dropped sharply which could have created a panic," Agrawal said, adding that ideally, the provision should have been accounted for from the profit and loss account but since the provision was related to cases restructured prior to 2008, special permission was granted by RBI.