ICICI Bank: In consolidation mode

ICICI Bank’s rather subdued numbers for the June 2009 quarter suggest that it could take a while to get back on track. Core profits (net interest income plus fees minus costs minus loan provisions) of the bank were down 65 per cent year-on-year and about 40 per cent sequentially.

If the bank managed to post net profits of Rs 878 crore, it was thanks to capital gains of Rs 700 crore and lower costs; since interest rates are likely to move up, such gains may be hard to come by in the near future.

With the bank making attempts to reduce exposure to the riskier retail segment, the loan book contracted 9 per cent sequentially. Also, the net interest margin (NIM) slipped 20 basis points sequentially to 2.4 per cent, even though the share of cheaper current and savings accounts (CASA) increased, possibly because the quantum of high-yield retail loans is smaller and also because loans to priority sector tend to command lower yields.

The bank was earning an NIM of around 3 per cent on the domestic book, thanks to a high share of high-yielding assets. But it is unlikely to expand meaningfully this year with the loan book likely to see marginal growth.

While there was a reduction in restructured loans during the quarter — the bank restructured around Rs 1,400 crore worth of loans — and a large quantum of loans was also upgraded, analysts point out that the impaired loan ratio for the bank remains somewhere around 8.5-9 per cent.

That is not low and suggests that the cost of credit will remain high. New gross non performing loans (NPL) during the quarter were about Rs 1,300 crore and analysts estimate that about 5-6 per cent of the loan book was impaired at a gross level during the quarter on an annualised basis.

Also, while the bank provided a fairly large amount of money for bad loans, coverage wasn’t quite up to the mark. Unless, loan growth picks up later in the year, the asset book may be higher by just about 3-4 per cent for the year and profits, therefore, unexciting.