How did ICICI Bank Ltd weather a difficult quarter? By shrinking its balance sheet. The bank’s balance sheet size went down from Rs3,94,156 crore on 30 June to Rs3,84,970 crore on 30 September. Deposits fell by Rs11,059 crore during the quarter, while outstanding advances were lower by Rs2,161 crore. But this is not the first quarter the bank has been shrinking — in the June quarter, its deposits fell by Rs9,970 crore, while outstanding advances had fallen by Rs1,470 crore. The contraction increased during the September quarter and the sharp fall in deposits led to the bank having a very high credit-deposit ratio of 99% at the end of September.

In spite of the shrinkage, ICICI was able to grow net profit by 1.1%, compared with the year-ago period, which was well above expectations. Core operating profit, or operating profit after adjusting for treasury income, was up 42%. While that growth was much higher in the June quarter, the silver lining was an increase in the proportion of current and savings accounts (Casa), which rose from 27.5% of deposits at the end of June to 30% by the end of September. That ties in with the bank management’s assertion that it is now less dependent on wholesale deposits.

Net interest income rose by 20% year-on-year (y-o-y) in the September quarter, compared with 41% in the June quarter. Fee income rose 26% y-o-y in the September quarter, but that too increased at a lower rate than in the June quarter. Yet, ICICI Bank’s profit after tax in the September quarter was higher by 39% compared with the June quarter.

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How was this feat achieved? One method was to curb expenses — operating expenses in the September quarter were lower than in the previous quarter. More importantly, though, treasury losses were far less than in the June quarter.

Net non-performing assets (NPAs), or bad loans, rose a tad during the quarter, moving up to 1.8% from 1.74% at June-end. But in a clear indication that asset quality continues to deteriorate, gross NPAs as a percentage of gross advances increased to 4.18%, compared with 3.72% at the end of June 2008. This ratio was 3.3% at March-end. In absolute terms, gross NPAs rose by Rs990 crore during the September quarter, compared with a rise of Rs931 crore in the June quarter.

On a consolidated basis, earnings per share, at Rs5.84 for the September quarter, was 28% lower than in the same period last year. But the bad news is clearly in the price — the bank’s book value per share at September-end works out to Rs437 and the stock is currently trading at a substantial discount to its book value.

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