ICICI Bank’s shares hit a new 52-week high of ₹1,163.45 apiece on Monday, rising by more than 4%, after its March quarter (Q4FY24) did not bring any negative surprises. India's second-largest private lender’s results met analysts’ expectations, reporting an increase in its loan book and net profit.
ICICI Bank managed to keep a tight lid on operating expenses (opex), which dipped 3% sequentially, and grew by just nearly 9% year-on-year (or 13% year-on-year if there was no one-time expense of ₹335 crore in the last year’s Q4). For perspective, ICICI Bank’s opex growth for the nine-month ended December stood at 23% year-on-year.
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The improvement in Q4FY24 stemmed primarily from strategic workforce management, as the bank added fewernumber of employees during the quarter. The cost-cutting measurestargeted non-employee expenses as well, which fell 4% sequentially, partly due to seasonal factors, as festive quarters typically see higher spending on advertising and sales promotions. Encouragingly, ICICI Bank is confident that the overall moderation in opex growth is here to stay, buoying investor sentiment.
Thetrim in costshelped propel a 4% sequential jump in net profit to ₹10,708 crore. The lender’s deposits surged as much as 6% sequentially and almost 20% year-on-year.This was better than advances (loans) growth of 2.7% sequentially and 16.2% year-on-year.
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TheCASA (current account savings account) segment emerged as akeydriver of deposit growth, providing the bank with a cost-effective source of funds.Whereas,on the lending side, domestic loans displayed momentum. ICICI Bank'sstronghold, retail loans, rose by 19.4% year-on-year. Corporate loans rose at a slower pace of 10%.
A bright spot came from the net interest margin (NIM), which was better-than-expected at 4.4%, down 3 basis points (bps) sequentially and 50 bps year-on-year. NIM is net interest income of a bank expressed as a percentage of the average interest-earning assets. One basis pointis 0.01%. The decline in NIM can be attributed to 9 bps sequential rise in cost of funds (up 76 bps year-on-year).
“The results for the quarter addressed the near-term concerns on NIM progression, which was flat quarter-on-quarter,” said analysts from Kotak Institutional Equities in a report on 28 April. “Operating profit growth has started to slow down led by NIM compression but the progress is well above expectations,” they added.
ICICI Bank cautioned that NIM might stay weak for a while due to potential increases in deposit costs (the bank had raised deposit rates in February). Moreover, they anticipate this trend to persist for a few quarters before any potential rate cuts could come into play.
The upshot, however, is that the bank remains bullish on its future loan growth trajectory. Itprojects astronguptick in loan disbursements throughout FY25. This optimismis bolsteredby the bank's ability to maintain its asset quality while expanding the business.
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Thebank's net NPA ratio, a crucial parameter reflecting the ability to manage bad loans, saw a sequential dip of 2 bps in Q4FY24. Thisimprovement,with the ratio settling at a healthy 0.42%, further strengthens the outlook for the bank.
Analysts at Nuvama Institutional Equities said, “With an early-mover advantage in leveraging technology for growth and risk management, we view ICICI Bank as less vulnerable to regulatory lapses than peers, not to mention the moderation in opex much ahead of peers.” ICICI Bank’s opex has moderated ahead of peers due to early investments in technology, said the brokerage.
ICICI’s shares are up about 14%, suggesting investors are factoring in the brighter picture adequately. Going ahead, NIM compression remains a monitorable, while keeping a close eye on the bank’s loan growth.