ICICI Bank: Weaker Q4 profits, tepid management commentary unnerves Street

After the disappointing March quarter (Q4) results, ICICI Bank’s stock plunged 5.2 per cent on Monday. The fall owed to the Street’s discomfort over 30 per cent of the bank’s loans by value being under moratorium and tepid management commentary.

Unlike its peers, ICICI Bank has been more watchful of the emerging situation. HDFC Bank and Axis Bank have said they would aim to maintain market leading/decent growth.

Analysts are also worried that the bank’s turnaround story may now pause because of the Covid-19-led business disruption.

ICICI Bank provided Rs 2,725 crore for the likely asset quality pressure due to the Covid-19 pandemic, which took the provisioning cost to Rs 5,967 crore, up 9.5 per cent year-on-year (YoY) and 186 per cent sequentially. It ate into net profit, which at Rs 1,221 crore grew 26 per cent YoY (down 71 per cent sequentially) and fell short of the estimates of Rs 2,500-3,000 crore.

 

 

Gross non-performing assets (NPA) and the net NPA ratio shrunk to 5.53 per cent and 1.41 per cent from 5.95 per cent and 1.49 per cent, respectively, in Q3. Save for two large overseas accounts recognised as NPAs, slippages may not have risen to Rs 5,306 crore in Q4, up 21 per cent sequentially. Yet, it may be too soon to call this an aberration.

The share of its below investment grade book (BB and lower) dipped 4 per cent sequentially to Rs 16,668 crore. Analysts at Motilal Oswal Financial Services warn in the current environment, the share of these loans may increase. The credit cost could remain elevated at 2.2 per cent in FY21. Also, there has been an uptick in the share of riskier loans, such as SME, personal and credit card, which need monitoring.

Given its cautious guidance, the bank may not get comfort from loan growth to keep its asset quality under check. “The focus now is preserving capital and enhancing deposits,” said Sandeep Batra, president, ICICI Bank, in a call, adding that “it’s not a question of tightening the belt as demand itself has come off.” If retail loans (63 per cent of the book) don’t sustain the past run rate of 15–18 per cent, growth and profitability will plunge. Retail loans grew 13 per cent YoY in Q4.

Consequently, Credit Suisse has cut its FY21 earnings estimate by 16 per cent.

ICICI Bank stock has corrected 40 per cent in three months. But investors should wait for a turnaround in credit demand.