ICICI Bank's Q3 net jumps 34% YoY on robust net interest income growth

Bank adopts more conservative norms on NPA provisioning due to macro risks

Private sector lender ICICI Bank on Saturday reported a 34.2 per cent year-on-year (YoY) increase in its standalone net profit in the October-December quarter (Q3) of FY23 to Rs 8,311.85 crore boosted by firm growth in net interest income.

On a sequential basis, the private bank’s net profit rose 10 per cent from Rs 7,557.84 crore in the July-September quarter.

ICICI Bank’s core operating profit, which is the profit before provisions and tax excluding the treasury income, grew 31.6 per cent year-on-year to Rs 13,235 crore in October-December.

In October-December, ICICI Bank’s net interest income – the difference between interest earned and interest expended – surged 34.6 per cent on-year to Rs 16,464.98 crore. The bank’s net interest margin (NIM) was at 4.65 per cent in the third quarter of the current financial year, sharply up from 3.96 per cent a year ago and higher than 4.31 per cent in July-September.

With banks having raised deposit rates sharply over the last couple of months, however, ICICI Bank’s management expects the net interest margin to stabilise going ahead.

“In a rising rate environment, the NIM of the banks typically tends to rise as loans (linked) to the external benchmark reprice faster. But as the deposit rates also are getting repriced, we do expect that somewhere the NIMs will stabilise,” Sandeep Batra, executive director, ICICI Bank said in a post-earnings call. He said that interest rates would likely peak within a quarter or so.

The Reserve Bank of India (RBI) raised the repo rate by a total of 225 basis points in 2022. A considerable portion of banks’ loans is linked to external benchmarks, including policy rates. Over the past few months, banks have faced pressure to increase deposit rates and mobilise funds in the face of booming credit growth.

As on December 31, ICICI Bank’s total advances were at Rs 9.74 trillion, up 19.7 per cent on-year. Total deposits, on the other hand, grew 10.3 per cent on-year to Rs 11.22 trillion as on December 31.

Within the deposits, the average Current Account and Savings Account (CASA) deposits, which represent low-cost funds, rose 10.4 per cent on-year in October-December. Term deposits were at Rs 6.13 trillion as on December 31, up 14.2 per cent on-year.

“We have been having a pretty comfortable LCR (Liquidity Coverage Ratio). Even now it is about 123 per cent, so to that extent we have been able to utilise our existing liquidity and that is the reason why we grew our deposits by about Rs 32,000 crore during the quarter,” Batra said.

“From our perspective, we are pretty confident that whatever loan growth that we are attempting, or aspiring to do for our customers will not be constrained by deposits or liabilities for that matter,” he said.

On the credit front, the bank’s retail loan portfolio grew 23.4 per cent on-year, accounting for 54.3 per cent of total loans as on December 31. The corporate portfolio clocked in 18.2 per cent year-on-year growth, while the rural portfolio grew 12.5 per cent on-year.

ICICI Bank reported an improvement in asset quality in the previous quarter, with both gross and net non-performing asset ratios declining. As on December 31, the gross NPA ratio was at 3.07 per cent versus 3.19 per cent a quarter ago and 4.13 per cent a year ago. The net NPA ratio was at 0.55 per cent as on December 31, versus 0.61 per cent a quarter ago and 0.85 per cent a year ago.

Even as the asset quality improved, ICICI Bank reported an increase in provisions – excluding provisions for tax – of 12.5 per cent year-on-year to Rs 2,257 crore. As on December 31, the bank held contingency provisions worth Rs 11,500 crore.

The bank said that it has changed its norms on provisioning on NPAs and adopted a more conservative approach. Consequently, provisions in the third quarter include contingency provisions of Rs 1,500 crore, the bank said.

“As I did mention, this is being made on a prudent basis. We have made an additional contingency provision of about Rs 1,500 crores. When we are looking at the overall macro environment, both globally and in India, and the impact of inflation and interest rates and geopolitical risks across our portfolio, we feel that it is better to have a contingency buffer,” Batra said. The new provisioning approach strengthens the bank’s balance sheet and is part of its strategic framework, Batra said.

As on December 31, the bank’s Basel III capital adequacy ratio was at 16.26 per cent versus 17.91 per cent a year ago. The provisioning coverage ratio on non-performing assets was 82 per cent as on December 31.