ICICI Bank posts first-ever quarterly loss of Rs 1.2 billion on bad loans

Higher provisions take toll on bottom line; bank's net interest income rose 9% on YoY basis to Rs 61.02 bn in the current quarter

Private sector lender ICICI Bank reported its first-ever loss amounting to Rs 1.2 billion for the June 2018 quarter (Q1) on Friday as provisions for bad loans doubled. The bank had made a net profit of Rs 20.49 billion in the same period last year. 

The loss would have been higher if it weren’t for the Rs 11.1 billion profit on the sale of its 2 per cent stake in the life insurance arm, ICICI Prudential Life Insurance.

This was the first quarter after the bank’s MD and CEO, Chanda Kochhar, went on leave due to allegations of conflict of interest in a loan given to the Videocon group. ICICI group veteran Sandeep Bakhshi was appointed as whole-time director and chief operating officer (COO) for five years. He reports directly to the board in Kochhar’s absence.

On a standalone basis, the bank's net interest income (NII), or the interest earned minus interest expended, rose 9.2 per cent on a year-on-year (YoY) basis to Rs 61.02 billion in the current quarter, said the bank in a filing with the stock exchanges. 

This was due to 11.3 per cent growth in net advances driven by a 20 per cent rise in retail advances. 

Moreover, the share of retail advances in the entire loan book increased to 57.5 per cent as of June 2018 from 51.8 per cent in March 2017.

The net interest margin (NIM), at 3.19 per cent, was down 5 basis points (bps) sequentially and 8 bps YoY. 

The NIM was aided by interest reversal on one of the NPA accounts, and the management expects NIMs to remain under pressure in the coming quarters.

Though gross non-performing assets (NPAs, or bad loans) as a percentage of total advances rose 82 basis points YoY in the first quarter to 8.81 per cent, it was three basis points lower sequentially.

The bank doubled its provisions over the previous year’s quarter from Rs 26.08 billion in June 2017 to Rs 59.71 billion in June 2018 as it made additional provisions of Rs 7.06 billion for bankruptcy accounts.

The bank had outstanding loans of Rs 40.59 billion in the National Company Law Tribunal’s (NCLT’s) first list and Rs 92.92 billion in the second list.

The bank said it had seen gross additions to NPA at Rs 40.36 billion, which were the lowest in the last 11 quarters.

Recoveries and upgrades from non-performing loans were Rs 20.36 billion for the quarter.

It also provided Rs 2.19 billion for mark-to-market losses on domestic fixed-income securities.

The bank, like others, did not avail of the option to spread these losses across four quarters. “We believe we are at the tail-end of the NPA cycle” said Bakhshi.

However, some further pain is not ruled out as the bank’s exposure to below investment grade (BB rated and below) accounts and small and medium enterprises stood at Rs 246.29 billion (4.8 per cent of advances in Q1), which are likely to turn bad. Also, the management expects additional NPA from agricultural portfolio in the coming quarters due to more loan waivers.

Total deposits during the quarter increased 12 per cent to Rs 5.47 trillion.

“Credit cost (provisions as percentage of advances) is likely to remain elevated during FY19 given the exposure to BB and below rated accounts, if resolution process gets delayed. This would keep the bank's profitability under pressure,” said Asutosh Kumar Mishra, analyst at Reliance Securities.

The results came after Indian markets closed for trading. However, the ICICI Bank ADR was trading 3.8 per cent higher on the New York Stock Exchange. On the BSE, the stock closed at Rs 293.30, up 2.62 per cent over the previous close.