ICICI Bank Q4 preview: Profit may jump 3x YoY, loans under moratorium eyed

Analysts would track the management's commentary on Covid-19 related impact, traction in deposits post investment in YES Bank, movement of reported GNPAs, and moratorium utilised by customers

With weak earnings behind its back, analysts expect ICICI Bank to clock a near 300 per cent year-on-year (YoY) jump in net profit for the March quarter of FY20 (Q4FY20). They, however, would track the bank’s fund raising plans, business growth projections in the wake of Covid-19 outbreak, and update on its exposure to the now-bankrupt Singaporean Hin Leon Trading Pte when the bank announces its results on Saturday, May 9.

During the same board meeting, the bank will also consider fund raising by way of issuance of debt securities including non-convertible debentures or bonds in single or multiple tranches in any currency through public or private placement. In the past one month, the stock price of the Mumbai-headquartered lender has surged 19.16 per cent on the BSE, as against a 14.84 per cent gain in the benchmark S&P BSE Sensex.

Profit to jump on low base

Global brokerage Nomura pegs the bank’s net profit or profit after tax (PAT) at Rs 4,252 crore, up 339 per cent YoY from Rs 969.1 crore. However, this would be a mere 3 per cent sequential gain from a profit of Rs 4,146.5 crore clocked in Q3FY20.

“With lower exposure towards vulnerable granular segments, lower risk underwriting in the corporate segment in the past 3-4 years, and reasonable valuation providing better safety nets to ride the current cycle, we expect ICICI Bank to report healthy numbers this quarter,” analysts at the brokerage wrote in their earnings preview note.

On the downside, though, Motilal Oswal Financial Services (MOFSL) estimates a 176 per cent YoY rise in net profit at Rs 2,672.3 crore.

As for operating profit, analysts on average, estimate the number to fall between Rs 6,316 crore and Rs 7,618.8 crore.

“Higher non-interest income and controlled operating expenditure (opex) growth could drive over 19 per cent YoY operating profit growth,” wrote analysts at HDFC Securities in their earnings expectations note. They estimate the net interest income (NII) to come in at Rs 8,870 crore, up 16.4 per cent YoY, from Rs 7,620.1 crore clocked in Q4FY19. The same was Rs 8,545.3 crore in the December quarter of FY20, leading to a 4 per cent QoQ growth.

Net interest income (NII), analysts at Prabhudas Lilladher say, could grow at a slower pace as loan book expansion may remain under slight pressure, which could adversely impact margins. They see net interest margin (NIM) at 3.12 per cent, falling 65 basis points QoQ and 60 bps YoY.

Bank to build provisions

“Asset quality trends will remain stable with gross slippages of Rs 3,000 crore during the quarter under review but we expect some provision buffer to be built,” say analysts at Nomura.

That apart, the brokerage sees provisions for the quarter at Rs 2,024.1 crore, a 63 per cent yearly decline from Rs 5,451.4 crore set aside in Q4FY19. In Q3FY20, the same was Rs 2,083.2 crore. In percentage terms, the provision coverage ratio is seen at 76.69 per cent, up 60 bps QoQ. Prabhudas Lilladher, on the other hand, remains a little cautious and sees the provision buffer at Rs 2,196.7 crore, up 5 per cent QoQ.

As for asset quality, gross non-performing asset (GNPA) ratio is seen between 5.71 per cent and 6.3 per cent.

Loan book and credit cost

“ICICI Bank has been following rigorous underwriting in growing unsecured loans. On the wholesale front, proportion of ‘A- and above’ in incremental sanctions have been at 90 per cent. Further, it has one of the highest PCR while the ‘BB and below’ book has declined to 2.7 per cent, which along with lowest exposure to the SME segment would keep credit cost under control,” notes MOFSL in its result expectation report.

They see loan book at Rs 6.54 lakh crore, while deposits are seen at Rs 7.38 lakh crore. Credit costs, meanwhile, are seen at 1.34 per cent, up 3 bps sequentially, but down by 238 bps YoY.

What to track

The management’s commentary on Covid-19 related impact, traction in deposits post investment in YES Bank, movement of reported GNPAs, anticipated stress in ‘BB and below’ rated loans, and moratorium utilised by customers will be some of the key factors that analysts would track.

In early March, the private lender had invested Rs 1,000 crore in YES Bank as part of the latter’s restructuring scheme. Besides, within weeks of investment it had increased its holding by about 2 lakh shares as of March 31, 2020.