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ICICI Bank laces outlook with caution even as balance sheet heals

ICICI Bank Ltd gets top marks on this as the lender not only reported improvement in asset quality, but also gave a clear outlook. (Bloomberg)Premium
ICICI Bank Ltd gets top marks on this as the lender not only reported improvement in asset quality, but also gave a clear outlook. (Bloomberg)

  • The lender has guided that credit costs may not worsen from here on and the pace of slippage would be contained
  • The private sector lender has guided that credit costs may not worsen from here on and the pace of slippage would be contained

The strength of a stock is determined by how clear investors are on the outlook of the company to which it belongs.

ICICI Bank Ltd gets top marks on this as the lender not only reported improvement in asset quality, but also gave a clear outlook.

The private sector lender swung to profit in the June quarter because it didn’t need to make big provisions as the toxic level of its loan book reduced and core income improved.

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The stock gained more than 3% on Monday as a reward from investors to an all-round improvement in asset quality metrics in the June quarter. The lender also beefed up its provision coverage ratio.

That means, ICICI Bank is safe even if stress increases or recoveries from bankruptcy proceedings disappoint.

The private sector lender has guided that credit costs may not worsen from here on and the pace of slippage would be contained. Slippages for the June quarter were down over 30% from the year-ago period.

Brokerage firm Jefferies India Pvt. Ltd noted that the lender does not have significant exposure to troubled Dewan Housing Finance Corp. Ltd and the Essel Group.

ICICI Bank is firmly on the mend, but that doesn’t mean it is willing to chase growth.

As far as the outlook goes, the lender doesn’t sound dire, but there is enough caution laid out by the management.

Considering that the commentary from a handful of private sector firms has been tepid, it is obvious that lenders to them are on guard now.

Ergo, ICICI Bank’s message that it would serve only good borrowers and not run after loan growth came across as prudent to investors.

The management in a call on Saturday said that it won’t bind itself to a loan growth target but would rather price risk appropriately. Executives at its peer Kotak Mahindra Bank Ltd too had cited a similar intention a week back.

What this means is that a sharp pickup in growth cannot be expected from ICICI Bank. Loan growth in the June quarter was 18%, while that of the banking industry was 12%.

With the 3% gain on Monday, the ICICI Bank stock trades at a modest multiple of more than two times its estimated book value for FY21. That is cheaper than the over 3.3 times of HDFC Bank Ltd and more than 5 times for Kotak Mahindra Bank.

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