Home >Markets >Mark To Market >ICICI Bank emerges stronger than before, but moratorium is still a worry

ICICI Bank’s first-quarter performance showed all the signs of the effect of the pandemic. The lender’s net profit missed the Street’s estimates, its fee income growth came under pressure and its loan book shrank on a sequential basis.

Besides, the management’s commentary was as cautious as it could be.

But perhaps what may bother investors most is that compared with peers, ICICI Bank’s moratorium level is still relatively high at 17.5%.

To be sure, the loan book under moratorium now is far lower than the 30% reported as of April.

Even so, the lender’s peers such as HDFC Bank and Axis Bank have reported moratorium levels in single digits.

ICICI Bank shares were the biggest losers among Nifty 50 stocks on Monday, falling as much as 6%.

The key question now is whether these moratorium levels spell a sharp jump in delinquencies once the period concludes in August.

The bank admits there are significant uncertainties ahead, but has refrained from giving further clarity.

As a relief, its gross bad loan ratios declined to an eight-quarter low of 5.5% for the June quarter.

While these ratios may worsen for sure, what this shows is that the lender is starting with less stress.

Also, the bank is beefing up its provisions in a big way.

This is a key metric that analysts have pointed out as a comfort factor for investors.

The lender set aside 7,593 crore provisions during the quarter, of which 5,550 crore was specific towards covid-19 risks. In the March quarter, the bank had set aside 2,725 crore towards pandemic-related risks. Clearly, the bank expects significant impact on asset quality ahead and has used its profits to build a big buffer.

Analysts at Jefferies India Pvt Ltd point out that a big moratorium number vis-a-vis peers may not mean a surge in bad loans. “We believe ICICI’s higher moratoriums reflect higher levels in corporate loans (BB-below book is 2-3% of loans) and housing loans (22%) where more borrowers are seeking moratorium to preserve cash," a note from the brokerage said.

In a call with analysts, the ICICI Bank management has said that 97% of its unsecured loan customers have gotten salary credits.

The lender believes that the moratorium levels reflect the preference to conserve cash by customers rather than stress.

While this is an argument given by most banks, the level of provisioning shows banks are not leaving anything to chance.

Since banks themselves are being cautious, it isn’t surprising investors are shying away as well.

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