ICICI Bank net falls 25%, asset quality worries continue

ICICI Bank, India’s largest private sector lender, reported a 25 per cent fall in its net profit at Rs 2,232 crore in the June quarter, compared with Rs 2,976 crore in the same period a year ago.

The profit was almost in line with Bloomberg estimates of Rs 2,207 crore. Net interest income, the difference between interest earned and interest expended, remained flat at Rs 5,159 crore, compared with Rs 5,115 crore. Other income, mainly led by retail fees and treasury income, increased 15 per cent to Rs 3,429 crore.

Asset quality pressure continues to persist and gross non-performing assets (NPA) as a percentage of total advances jumped to 5.87 per cent in the quarter under review from 3.68 per cent a year ago. In absolute terms, gross NPAs rose to Rs 27,194 crore, compared with Rs 15,138 crore in the first quarter of the previous financial year.

In the quarter-ended June, net NPAs increased to 3.35 per cent from 1.58 per cent. Total provisions also increased as bad loans piled up to Rs 2,515 crore in the quarter-ended June, compared with Rs 956 crore in the year-ago period.

The management believes that the pain will continue for some more time even as the recovery work continues. “There is continued uncertainty in the market, the commodity prices are low and the recovery process remains slow. We have formed a credit-monitoring group under McKinsey to enhance monitoring group to spot early warning signals and improve the recovery process,” said Chanda Kochhar, managing director and chief executive officer of ICICI Bank.

The credit monitoring group will work with the wholesale banking and the small and medium enterprise customer base to use data and analytics to improve the recovery process and stem the rise in bad loans.

In the last quarter, the bank had said it had a total exposure of Rs 44,000 crore to iron & steel, power, mining, rigs, and cement sectors and it expected slippages from these five sectors. In the June quarter, there were slippages of Rs 8,249 crore out of which 76 per cent were from these five sectors. The size of this watch-list after recoveries, upgrades and slippages now stands at Rs 38,723 crore. About 55 per cent of the slippages came from watch-list, another 16 per cent from the restructured book and balance from other slippages, the management said in a post-result call with analysts. Out of the other slippages, Rs 600 crore was from the bank’s retail loans and this run-rate was similar in the last couple of quarters.

Analysts believe the bank can witness similar slippages as seen in Q1, in the on-going quarter as well given the high watch-list. According to the management, the net loans to companies whose facilities have been restructured were Rs 7,241 crore during the quarter and the lender sold Rs 2,230 crore worth of stressed assets to asset reconstruction companies. Recoveries during the quarter were Rs 800 crore.

Net interest margin, a key indicator of profitability, declined to 3.16 per cent, compared with 3.37 per cent in the quarter-ended March. The management has not given any guidance on margins but said pressure on margins is likely to continue. The bank remains well capitalised with a capital adequacy ratio of 16.45 per cent. Going ahead, the bank expects to continue unlocking value in its subsidiaries.