ICICI Bank sees sharp fall in retail NPA in FY13

The bank's retail NPAs dropped sharply to 60% of total bad loans in March 2013

Being selective in unsecured lending and tightening underwriting norms seem to have helped ICICI Bank, one of the largest private sector banks in the country, to improve its retail portfolio. The portfolio became more robust in 2012-13, with gross non-performing assets (NPAs) in the retail segment improving considerably. Retail NPAs dropped sharply to 60 per cent (of total NPAs) in March from 80 per cent in 2011-12, according to its annual report for 2012-13.

The retail NPAs stood at Rs 5,814 crore, down from Rs 7,673 crore in FY12.

The total of bad loans marginally rose to Rs 9,647 crore in 2012-13 from Rs 9,563 crore in 2011-12. ICICI Bank’s retail credit portfolio includes home loans, commercial business loans, automobile loans, and rural loans.

The balance sheets of commercial banks came under tremendous strain on economic slowdown stretching into a  second year (2012-13), high interest rates and inflation.

Karthik Srinivasan, senior vice-president and co-head (financial sector ratings) at Icra, said the quality of ICICI Bank’s retail asset portfolio had held up well. He added the bank had improved its underwriting standards, monitoring, and recoveries, helping to effectively deal with asset quality of the retail portfolio.

ICICI said NPAs in the retail portfolio were 0.72 per cent of net retail loans in March this year, compared with 1.22 per cent in March 2012. The decrease in the ratio was primarily on account of a sharp decline in accretion to retail NPAs.

“Financial year 2013 also saw a significant improvement in our retail lending growth. The organic retail loan book growth reached 25 per cent on a year-on-year basis as on March 31. This sets the base for continued momentum in this area,” said the bank. It added that it continues to use advanced analytics to build customer relationships and gain insights into services and product needs of customers. Analytics-based triggers helped in risk management and transaction monitoring, the bank noted. “These steps helped to achieve robust growth in our retail business during 2012-13.”

Between 2003 and 2006, the banking system as a whole saw significant expansion of retail credit. Retail loans accounted for a major part of overall systemic credit growth. ICICI Bank was an aggressive player that grew its retail portfolio.

The scene changed after the global financial crisis of 2008. With the uncertain and volatile economic environment, the bank gave priority to risk containment, liquidity management and capital conservation.

It moderated the pace of retail credit expansion, especially for unsecured loans in second half of FY08 due to high asset prices and the increase in interest rates, according to the annual report.

After the clean up act, ICICI Bank followed strategy to grow secured retail loan book, especially giving home loans. Of late, it has begun hawking unsecured loans in a measured way. It is giving personal loans and credit cards, both components of unsecured credit, only to existing customers.