Following two brutal years that wreaked havoc on its loan portfolio, ICICI Bank Ltd is finally turning the corner on asset quality. The largest private sector lender saw its fresh slippages fall for the second straight quarter and its bad loan ratios improve.

For the December quarter, the bank reported an accretion of Rs4,368 crore to its bad loan stock, the lowest addition in nine quarters. What is encouraging is that its stock of total stressed assets, which includes loans internally rated below investment grade and restructured loans under various schemes, has fallen by about 30%. Clearly, stress is reducing. But it would be hazardous to ignore the fact that a large chunk of corporate loans (about Rs10,000 crore) are tied to court proceedings because of being referred under the Insolvency and Bankruptcy Code (IBC). To be fair to the lender, ICICI Bank has made the required 50% provisioning to the first set of 12 accounts under IBC but it still has to make 14% more with regards to the second set of 18 accounts.

The management has guided that provisioning costs are unlikely to come down in the following quarters too as clarity on the IBC referred loans will emerge only after April.

But before we rejoice, the lender and the Reserve Bank of India (RBI) have looked differently on a set of loans to be labelled bad. This divergence highlighted by RBI in its inspection of the lender’s FY17 accounts is under 15% of its reported gross non-performing assets for the year. Therefore, by regulation, ICICI Bank is not obligated to disclose. This means that the divergence is below Rs6,000 crore. Given that it is no small figure, the lender would gain investor trust by disclosing the divergence figure rather than just following the letter of the law.

Meanwhile, ICICI Bank is back to doing what it did best before the bad loan blowout— lend to the retail customer. Its retail loans galloped at 22% while its corporate loan book grew just 4.2%. However, recall that in the December quarter of FY17, loan growth was anaemic due to demonetization. So growth percentages for the third quarter this time should be discounted.

Furthermore, a look at the core income growth begins to cause some concern. ICICI Bank’s net interest income growth continues to languish in single digits and its operating profit fell by over 8%. The current fiscal year hasn’t been good in terms of operating metrics. The fall in operating profit is due to the absence of any gain from its treasury and overseas operations. It is unlikely that these two factors would begin to contribute to operating profit any time soon.

The ICICI Bank stock has risen 17%, outperforming the benchmark Sensex in the last three months. Perhaps it is time to temper expectations in the light of operating performance.

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