ICICI BANK OVERWEIGHT

ICICI Bank reported 8.3% incremental asset stress in third quarter of fiscal 2016, largely driven by a lumpy steel account. Although the P&L (profit and loss) impact was absorbed via profits from the Pru Life stake sale, the sticker shock of a 95bp jump in the GNPL (gross non-perfor ming loans) could be significant. Beyond the immediate term, however, the slippage is within the incremental 5% stress we discussed in January, and we think it is in the price. We continue to see value (1x FY17 PBV, ex-subs) even if the near-term outlook is volatile due to risk of lumpy NPL (non performing loan) slippage.

NPLs: The accelerated slippage was largely from one steel account, somewhat driven by the RBI's objective of early recognition-management guided similar slippage in Q4FY16e (estimates). Credit costs spiked to 269bp as the loans slipped straight to the doubtful category. There was additional 213bp stress from SDRs (debt to equity ratio) and restructuring (not reckoning overlaps).

Accelerating growth: Loan growth accelerated to 16% y-o-y, driven largely by retail at 25%. However, the wholesale segment also accelerated to 15%, a common theme across the large private sector banks. Margins remained largely stable, although Q4 and F17e could see some impact from the large NPL recognition. Fees remain weak at 7% y-o-y.

Earnings revision: The P&L impact of the incremental NPL provision is not large. While we have pushed up our credit costs to 186bp for F16e, this is offset by the profit from the insurance sales of R33 bn. The upfronting of the NPL recognition should be offset by lower provisions in FY17/FY18e —we are not capturing that until we assess the impact of early recognition on LGDs. Q3FY16 Conference call highlights Asset quality

Out of the total slippages of R65.4 bn, ~ R43.5 bn was on account of a change in asset reclassification as per RBI in only one account in the steel sector. The normalised slippages excluding this

Balance sheet