ICICI Bank Q4FY18 result preview: Will higher provisions dent profitability?

ICICI Bank likely to announce results for Q4FY18 today. Bank's net profit fell 32% in the quarter ended December 2017 due to lower income from treasury even as provisions from non-performing assets

ICICI Bank is likely to announce its results for the March 2018 quarter (Q4FY18) results today. In the previous quarter, the bank’s net profit fell 32% in the quarter ended December 2017 due to lower income from treasury even as provisions for non-performing assets (NPAs) remained elevated.

Investors will keep a tab on the provisions the bank makes for non-performing loans (NPLs). This assumes significance as another private sector banking major, Axis Bank, reported a net loss of Rs 21.8 billion for the quarter ended March 2018 (Q4FY18), as non-performing assets (NPAs) soared and provisions for bad loans surged three times over the corresponding quarter last year

That apart, the numbers will be released against the backdrop of Central Bureau of Investigation (CBI) registering a preliminary enquiry (PE) against ICICI Bank Managing Director (MD) and Chief Executive Officer (CEO) Chanda Kochhar's husband Deepak Kochhar, officials of the Videocon group and others to determine whether any wrongdoing was involved in the sanctioning of Rs 32.5 billion (Rs 3,250 crore) loan to the Videocon Group by the ICICI Bank as part of a consortium of banks in 2012.

On a year-to-date basis, the stock has slipped around 9% and has underperformed the Nifty Bank index that gained around 1% during this period, ACE Equity data shows. By comparison, the Nifty50 index is also up 1% YTD. 

Here’s what leading brokerages expect from the company in the March 2018 quarter.

Edelweiss Securities

Loan off take will likely be improving (albeit still softer). Asset quality is likely to be under pressure (expect some pressure to emanate from power sector). The key thing to watch out for will be impact of RBI directive which may see significant re-classification from stress pool (including watchlist) to GNPLs and consequent higher credit cost. On the other hand, gain from stake sale in securities business is likely to cushion profitability.

Kotak Institutional Equities

We expect muted earnings led by higher provisions for bad loans (based on the new RBI circular). 3% year-on-year (y-o-y) decline is seen in the bank’s NII with 12% y-o-y loan growth, reflecting the pressure on NIMs (down 10 bps y-o-y) due to high slippages.

Expect high slippages at over Rs 100 billion (versus Rs 44 billion in the previous) to factor the new RBI circular and a meaningful reduction in watchlist as well.

Adjusted profit after tax (PAT) is seen at Rs 955 million, down 95.3% y-o-y basis. Net interest income at Rs 57,986 million, down 2.7% y-o-y.

Prabhudas Lilladher

We estimate a high slippage of Rs 100 billion vs Rs43‐45 billion which bank has been reporting in last three quarters which will lead to high deterioration in asset quality. Most slippages will be from existing stressed asset book. Loan growth should be slightly slower but retail will continue to be robust.

Centrum Research

ICICI Bank is expected to report 12.8% y-o-y growth in loans led by healthy growth in domestic loans. Within the same, we expect healthy traction in the retail and SME segments. However, we foresee NII to decline y-o-y following elevated slippages and thus higher interest reversals. NIM at 2.9% is expected to decline 25bps q-o-q. Reported net profit for the quarter at Rs 11.6 billion is also expected to decline 43% y-o-y. The quarter saw ICICI Bank sell its stake in ICICI Securities, therefore, non-interest income is likely to come in higher and contribute to healthy operating profit growth.