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Mumbai: ICICI Bank Ltd, India’s largest private sector lender by assets, on Thursday posted its highest ever quarterly profit as it earned more interest income on loans to both companies and consumers in the three months ended 31 December.

The bank beat analyst estimates with a 30% rise in net profit to 2,250 crore from 1,730 crore in the year-ago period. A Bloomberg survey of analysts had forecast a net profit of 2,080 crore.

Maintaining asset quality has been key to ICICI Bank’s success, said Suresh Ganapathy, head of the financial research team at Macquarie Capital Securities (India) Pvt. Ltd.

The lender’s net non-performing loans, which peaked at 2.43% of net advances in December 2009, dropped to 0.76% of net advances at the end of the last quarter. The ratio was down from 0.83% in December 2011.

“Their numbers are good all around, be it margins or asset quality. The key was maintaining asset quality and all credit to the management because it was a conscious decision to keep a close watch on bad loans," Ganapathy said.

ICICI Bank stock dropped 1.93% to close at 1,190.85 on BSE as investors rushed to book profits. The exchange’s benchmark Sensex fell 0.55% to 19,894.98 points and the banking index, Bankex, lost 0.42% to 14,580.26 points.

Managing director and chief executive Chanda Kochhar said the bank had achieved its targeted 15% return on equity (RoE) ahead of time. “In 2009, when our RoE was less than 8%, we had expected it to cross 15% in the fourth quarter of fiscal 2013. We are happy that it has happened a quarter earlier," she said.

Net interest income, or the difference between interest earned and interest paid, rose 29% to 3,499 crore in the fiscal third quarter from 2,712 crore a year earlier. Loan growth at 16% was in line with the industry average.

ICICI Bank’s domestic corporate loan book grew 20%, higher than the overall 16% loan growth, on demand for working capital loans, disbursement of existing project loans and refinancing of loans at lower rate of interest.

Retail loans grew by 17%, led by secured loans such as home and auto loans. While home loans grew 19%, auto loans’ growth was higher at 25%.

Consolidated net profit rose 22% in the quarter, from 2,174 crore to 2,645 crore.

Kochhar said the bank was on target to achieve 20% loan growth for fiscal year 2013. The bank has ample liquidity in its overseas operations, which will now be used to lend to borrowers.

“Our margins are improving internationally as we make use of the liquidity. Our profits are stable, asset quality is stable and we have the capacity to grow faster than industry," she said.

Net interest margin, or the difference between the interest rate charged on loans and that paid for deposits, improved 37 basis points to 3.07% from the year-ago period, and up from 3% in the September quarter. A basis point is one-hundredth of a percentage point.

ICICI Bank started rebuilding its book in 2012 after shrinking assets in the aftermath of the global financial crisis that shook the world in 2008-09.

Macquarie Capital’s Ganapathy does not foresee any risk to the bank other than a large rise in restructured loans. ICICI Bank added 300 crore of net restructured loans in the December quarter. Total restructured loans, at 4,169 crore, were slightly higher than the 4,158 crore in September.

Kochhar does not expect a big rise in restructured loans. “Total restructuring will be lower than last year even if the pipeline is considered," she said.

ICICI Bank’s provisions for bad loans increased to 369 crore from 341 crore, though lower than the 508 crore that the bank had set aside in the September quarter, largely to cover bad loans made to media company Deccan Chronicle Holdings Ltd. It had lent 500 crore to the Hyderabad-based publisher.

Rikesh Parikh, vice-president (markets strategy and equities) at Motilal Oswal Financial Services Ltd, said that although ICICI Bank has managed asset quality well during the last 18 months, fiscal 2013-14 will be critical “to see the fate of (a) few large exposures".

“The bank is confident of tiding over this without any dent on its profitability. Recovery in Indian economy and corporate capex will be viewed positive for ICICI Bank. With a market share of 4.2% in the domestic loans and largest branch network in the private financials, above industry growth and favourable margins will drive earnings," Parikh said.

But another analyst with a local brokerage firm said expanding the loan book from the current level will be difficult for the bank. “Growth will be a challenge because the bank has excess capital, but for RoE to grow, the bank’s loan book has to grow at above 20%; otherwise their valuations will be suppressed," the analyst said on condition on anonymity as he is not authorized to speak to the media.

ICICI Bank has 19.53% capital adequacy against the Reserve Bank of India-mandated 9% requirement. Capital adequacy is a measure of a bank’s financial strength, expressed as a ratio of capital to risk-weighed assets.

Kochhar said the bank is well capitalized and has no plans to raise more money, ruling out equity dilution in the near future.

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