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| ICICI Bank: Consolidation time | |
| Shobhana Subramanian & Varun Sharma / Mumbai January 02, 2009, 0:11 IST | |
The bank’s loan growth could be moderate in 2009-10 too as it attempts to bring down the cost of funds and grapples with bad loans.
 ICICI Bank has said it is slowing down the pace of lending in 2008-09; the bank’s loan book may grow by just about 10 per cent this year compared with a growth of 30 per cent in 2007-08. The growth in advances at the end of September 2008 was just 7 per cent. In any case, as analysts point out, the bank’s credit-deposit ratio, at the end of September 2008, was far higher than the sector average of 75 per cent.
It’s the quantum of retail loans that’s likely to be much smaller—customers are uncomfortable borrowing at high interest rates and the bank, in turn, are wary of lending because of the pile up in non-performing loans. In fact the bank’s retail book fell 7 per cent at the end of September 2008. That’s why the 50 basis points cut in interest rates for home loans, announced on Wednesday, doesn’t really mean much.
Going slow on loans makes sense for ICICI Bank because asset quality will continue to deteriorate—especially in the retail, realty and SME segments. Already, the bank’s net non performing loans (npls), at 1.83 per cent doesn’t compare well with peers. RBI’s recent guidelines, which allow real estate loans to be ‘restructured ‘once and other loans to be ‘restructured’ a second time, may help banks to provide less, but if the quality of assets is really poor, it will show up in the books at a later date.
ICICI is unlikely to be able to increase the proportion of cheaper current and savings accounts (CASA)-- 30 per cent at the end of September 2008—significantly in the near term because some money has moved to public sector banks after the recent liquidity crisis. As such, 2009-10 could see a continuation of the consolidation process started this year; the bank would like to clean up its balance sheet, especially the overseas portfolio before it steps up the pace of growth. Net profits this year could stay flat at around the Rs 4,157 crore posted in 2007-08; on a lower base and some revival in the economy, the numbers might be slightly better in 2009-10.
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