ICICI Bank: Just an optical improvement BAD LOAN STORY

Helped by closure of JP Associates deal, NPAs look lower than Q4 levels

ICICI Bank’s standalone June quarter (Q1) results, announced after market hours, weren’t any encouraging, except that the bank was rescued to a thankful extent by the closure of JP Associates’ cement plant sale deal with UltraTech on June 29.

An eight per cent year-onyear (y-o-y) growth in net interest income at ~5,590 crore wasn’t enough to cushion the bad loan provisioning. Net profit fell eight per cent y-o-y to ~2,049 crore. The year-ago period included exchange rate gains of ~206 crore, a practice discontinued after a Reserve Bank directive in April 2017. Q1 of last year included quarterly dividend of ~204 crore from ICICI Prudential Life Insurance Company. Adjusted for these, profits would have grown marginally. Domestic net interest margin (a profitability indicator) of 3.62 per cent was more than 3.45 per cent a year ago.

The balance sheet growth was mixed, with total deposits expanding 14.7 per cent to ~4,86,254 crore; the share of low-cost CASA (current account-savings account) deposits was at 49 per cent.

However, on the assets side, analysts said growth could have been better, given peers such as Axis Bank and HDFC Bank grew 12 per cent and 24 per cent, respectively. For ICICI Bank, domestic loans grew 11 per cent, led by a 19 per cent growth in the relatively more profitable retail asset. However, total advances grew only three per cent y-o-y as overseas loans continue to remain a drag.

But, a larger concern is the asset quality. A few parameters such as a sequential reduction in accretion of net non-performing assets (NPA) at ~25,306 crore in Q1 versus ~25,451 crore in the March quarter (Q4), and a reduction in accounts that have turned bad or slippages at ~4,976 crore versus ~11,289 crore in Q4 offered some hope. However, the question is whether this improvement would have been possible without a support from the closure of the JP Associates deal? The transaction helped recoveries touch ~2,775 crore in Q1 — one of the best in recent times.

Asutosh Kumar Mishra of Reliance Securities, therefore, feels that the improvement in Q1 may be just a one-off.

Deeper reading of the numbers suggests that the bank’s watch list (accounts requiring monitoring) rose to ~20,358 crore in Q1, from ~19,039 crore in Q4. The Supreme Court’s verdict impacting the power sector has caused the addition, Chanda Kochhar, managing director and chief executive officer of ICICI Bank, explained.

Analysts, however, hint that this could be related to the bank’s exposure to Adani Power and Tata Power’s ultra mega power projects.

A provision coverage ratio of 41 per cent also offers little comfort when peers such as Axis Bank maintain it at over 60 per cent. A further provisioning of total ~650 crore is ahead in the next three quarters towards loans referred to Insolvency and Bankruptcy Code proceedings to meet the RBI’s norms.

Kochhar yet again assured that NPA additions should be lower in FY18. Given that the bank has regained the lost investor faith after Q4 results, walking the talk is extremely critical going ahead. Any blip may not be easily forgiven.