ICICI Bank Ltd posted a 50% decline in net profit for fiscal year 2018-19 at 3,363.30 crore because of higher expenses and provisions. Operating profit however grew 17% to 22,072 crore, suggesting an improvement in core operational performance at the private sector lender.

On a quarterly basis, net profit in the fiscal fourth quarter fell 5% year-on-year to 969 crore, widely trailing estimates of 2,292.1 crore in a Bloomberg poll of 23 analysts.

The bank’s provision coverage ratio, which is a measure of the funds set aside to cover bad loans, increased to 70.6% at the end of the March quarter from 47.7% in the same period last year.

The bank therefore saw improved asset quality on account of higher provisions. Net non-performing assets (NPAs) as a percentage of total assets fell to 2.06% as on 31 March from 4.77% in the previous year.

Gross NPAs as a percentage of total assets excluding provisions improved to 6.7% from 8.84% a year earlier and 7.75% in the third quarter.

Fresh additions to bad loans stood at 3,547 crore, which includes 850 crore of exposure to an account in the sugar sector. The bank wrote off nearly 7,300 crore of bad loans in the quarter, taking the total amount of write-offs to 11,000 crore.

The management expects the situation on provisions and slippages to improve in FY20.

“The run-rate for slippages for FY19 itself has come down substantially from 11,000 crore of additions compared to 29,000 crore in FY18. Since slippages have reduced, loan-loss provisions should also reduce going ahead. We are at the end of the asset quality cycle," said Sandeep Batra, executive director, ICICI Bank.

On the operational side, the bank improved its margins to 3.72% at the end of March 2019 from 3.24% in the same period last year. Higher margins were on account of a one-time income tax refund of 414 crore in the fourth quarter.

The total loan book grew 14.5% with retail loans growing at 21.7% and corporate loans at 5.7%.

The management of ICICI Bank expects to achieve a return on equity (RoE) of 15% by June 2020, improving from the current RoE of 3.2%.

Another reason for the sharp fall in net profit was higher expenses which stood at 14,680 crore at the end of March 2019 compared to 12,428.99 crore during the same period last year.

The management expects credit costs to normalize from the current level of 3.5%.

“In 4QFY19, ICICI Bank witnessed further improvement in balance sheet outcomes (loan growth and asset quality), adjusted for a special situation account in the sugar sector. While the NPA ratios are beginning to trend lower, suggesting that the impairment cycle is at its tail-end, loan loss provisioning continues to be elevated, largely on account of ageing provisions," said A.S.V. Krishnan, analyst at SBICap Securities.

ICICI Bank lost 0.11% to close at 401.40 per share on Monday on the BSE, while the benchmark index, Sensex, lost 0.93% to close at 38,600.34 points. The Banking Index, Bankex, lost 0.98% to close at 33,117.33 points.

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