Home >market >mark-to-market >Q2 results done, what ICICI Bank investors should focus on

Barring its net profit and operating profit growth, private sector lender ICICI Bank Ltd’s September quarter (Q2) results surprised on other key parameters. For instance, the bank’s provisions were lower than anticipated, slippages—i.e. fresh addition of bad loans—hit a 12-quarter low and overall loan growth was steady. Also, the sequential moderation in gross and net non-performing assets (NPAs) provides some respite. Apart from worries on the asset quality front, a key concern for investors in the ICICI Bank Ltd stock lately has been transition at the management level. That overhang is now largely out of the way.

That said, the ongoing crisis in infrastructure lending major IL&FS Group and its fallout on the overall liquidity conditions of the non-banking and financial companies (NBFC) cannot be overlooked by investors in banking stocks.

In a post earnings investor conference call, the ICICI Bank management said that its exposure to the “infrastructure group" is through a special purpose vehicle and is non-fund based in nature. The bank has classified the same in the small and medium enterprise and in corporate non-performing assets, it said.

The management further added that its total exposure to NBFCs is 36,730 crore and constitutes around 5.4% of outstanding loans.

On the bright side, some analysts expect the bank’s loan growth to benefit from the business slowdown in the NBFC sector.

Although the bank’s net interest margins (NIMs) improved to 3.33% from 3.19% in the previous quarter, the management said, to a certain extent, margins were aided by excess liquidity that was deployed during the quarter.

Investors need to watch the trend in NIMs also because the bank’s management expects funding costs to go up and cautions that NIMs may come under pressure. Further, overseas margins could be volatile as recoveries from non-performing loans happen in the overseas book, the management said.

Meanwhile, ICICI Bank’s Q2 results are expected to be received well by the Street, providing some fillip to the ICICI Bank’s share price today.

But investors shouldn’t get carried away by the near-term movement in the stock’s price. That is simply because this improvement seen on the slippages and asset quality front has to sustain for investors to be convinced that the bank’s NPA recognition cycle has bottomed out.

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