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A signboard of the ICICI bank is pictured outside an automated teller machine (ATM) booth in New Delhi.  (Reuters )
A signboard of the ICICI bank is pictured outside an automated teller machine (ATM) booth in New Delhi. (Reuters )

ICICI Bank: Asset quality improves but trend in slippages, provisions key

  • Given the poor legacy, valuations are low. The stock is trading at a one-year forward price-to-book of 1.97 times
  • The bank’s provision coverage ratio increased to 70.6% as of 30 March, 2019 from 47.7% during same period last year

ICICI Bank Ltd’s shares have steadied around the 400 mark in recent months. Investors seem to be assuming major skeletons are already out of the bag. On the other hand, it’s still early days to expect any fireworks.

So, it shouldn’t be very surprising that the bank’s March quarter earnings were largely in line with expectations. The bank’s asset quality improved. Net non-performing assets fell from 2.58% in the December quarter to 2.06% in Q4.

Secondly, loan growth at 17% was at a multi-quarter high, thanks to growth in retail loans. Further, net interest margins (NIMs) improved to 3.72% from 3.4% in the previous quarter. In a post-earnings conference call, the bank’s management clarified that NIMs were aided by an income-tax refund of around 400 crore. Adjusted for it, NIMs would have been around 3.52%, which is still a positive, say analysts.

On the other hand, net profit at 969.06 core, down 5% year-on-year, was lower than Bloomberg analysts’ consensus estimates, as profit was impacted by higher expenses and lower treasury income. But a more important measure to track is the trend in slippages and provisions.

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Gross slippages in the March quarter stood at 3,547 crore. Of this, 850 crore was on the back of an account in the sugar sector and 1,900 crore from double-BB and below-rated accounts, said the management. Further, the bank’s provision coverage ratio increased to 70.6% as of 31 March 2019, from 47.7% during same period last year.

The ICICI Bank management is hopeful that the situation on the slippages and provisions front would improve further. “The run-rate for slippages for FY19 itself has come down substantially to 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 asset quality cycle," it said.

So far this year, the ICICI Bank stock has risen 12%, slightly higher than the 9% gain in the Nifty Bank index. From its 52-week low of 256.50 in July last year, the stock has risen about 57%. But given the poor legacy, valuations are understandably low. The stock is trading at a one-year forward price-to-book of 1.97 times. This is lower than competitors HDFC Bank Ltd and Axis Bank Ltd, which are trading at 3.28 times and 2.52 times, respectively.

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