ICICI Bank : In reverse gear

As expected, the pace of growth at ICICI Bank is clearly moderating. The bank managed to just about grow its net profit –up 4 per cent y-o-y to Rs 1,270 crore-- in the December 2008 quarter, though it was driven more by strong treasury income---35 per cent of operating profits –and lower operating expenses, down 17 per cent y-o-y, rather than the core business of lending. The loan book actually contracted last quarter, falling 4 per cent sequentially, with the bank consciously going easy on relatively higher-yielding retail loans, which now account for 54 per cent of the total loan book compared with about 63 per cent a year back.

To its credit though, even in an extremely tight money market, which pushed up the cost of funds by about 43 basis points sequentially, the bank’s net interest margin (nim) was stable at 2.4 per cent compared with the September quarter. That helped it maintain the net interest income, which rose just 1.6 per cent. However, income from fees fell sharply by 25 per cent y-o-y indicating that a fairly large chunk is probably derived from unstable revenue streams such as loan syndication.

Not surprisingly, the share of cheaper current and savings (CASA) deposits fell 250 basis points sequentially from 30 per cent at the end of the September 2008 quarter and it could take a while before the ratio improves. It could also be some time before the balance sheet gets cleaned up. The retail portfolio appears to have seen a fair amount of toxic assets, a problem that the bank is now addressing; it wrote off Rs 1,600 worth of non-performing loans (npls) last quarter and has provided 9 per cent more sequentially.

Despite that net npls at 1.95 per cent were higher sequentially by 12 basis points though gross npls fell 6 per cent. In a weakening economy, it’s possible that npls from SMEs could rise. ICICI’s overseas subsidiaries reported reasonably good numbers but the loss at the AMC was shocking.