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| ICICI Bank : No turnaround yet | |
| Shobhana Subramanian / Mumbai November 3, 2009, 0:08 IST | |
Business is dull, as the bank deals with delinquencies and focuses on low-cost deposits.
 ICICI Bank’s earnings grew just 2.6 per cent in the September 2009 quarter, with a 14 per cent year-on-year contraction in loans, driven by a sharp drop in retail loans. Despite a fall in the net interest income of 5 per cent year-on-year, the net interest margin was steady at 2.5 per cent, while the operating profit was up 6 per cent year-on-year and 18 per cent sequentially, thanks to lower operating costs.
It’s a fact that the bank has been forced into a consolidation phase following a period of aggressive lending, during which it piled up a large quantum of delinquencies. It’s now in the process of undoing the damage.
Asset quality remains uneven, though there is some improvement with non-performing loans (post-write-offs and sell downs of around Rs 1,300 crore) at Rs 1,100 crore in the September quarter compared with Rs 1,400 crore in the June quarter.
About 70 per cent of the gross NPLs (non-performing loans) relate to retail assets and a fairly high share of the retail net NPLs relate to unsecured products. While the amount of loans restructured, at just under Rs 5,000 crore, is now at 2.5 per cent of the loans, it’s possible more may need to be restructured and analysts estimate these could rise to 3-3.5 per cent of the loan book. Also, the provisioning coverage ratio, at 51 per cent, is modest and this could increase with the central bank tightening the norms.
Nevertheless, the bank has adequate capital to be able to grow the loan book. Also, it plans to expand the branch network by adding about 400 branches in the next year or so.
That should fetch it more fee income, as also more savings accounts. The bank has been shedding high-cost deposits to bring down the cost of liabilities; the strategy is paying off, with the share of cheaper current and savings accounts (Casa) higher at 37 per cent in the September quarter, up from 33 per cent in the June quarter.
Since the results have surprised qualitatively in terms of higher Casa and steady margins, the ICICI stock may see some movement. However, it’s a tad soon to call a turnaround. There are problem areas such as the international assets, which account for a fourth of the loan book and are not so profitable. Also, ICICI needs to demonstrate that it can lend large sums profitably, without creating NPLs.
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