ICICI Bank Q4 net profit halves to Rs 10.2 bn, bad loan provisions surge

ICICI Bank on Monday posted a net profit of Rs 10.2 billion for the quarter ended March 2018, against Rs 20.2 billion a year ago, due to a sharp rise in provision for bad loans. The bank’s profit was boosted by a one-time income arising from the sale of shares in its capital market arm, ICICI Securities, to the tune of Rs 33.20 billion. 

Additionally, three loan accounts in the gems and jewellery sector with fund-based outstanding of Rs 7.95 billion were classified as fraud and non-performing, and during the fourth quarter, the bank made a provision of Rs 2.89 billion through its profit and loss account, and Rs 5.05 billion by debiting reserves and surplus as permitted by the Reserve Bank of India (RBI), ICICI Bank said in a statement. Adjusted for these, the bank would have ended up in a loss at the net level.

Despite the lacklustre show, the bank’s American Depository Receipts (ADRs) listed in the US were up over 5 per cent at the time of going to press. The positive reaction is due to slippages, incremental loans turning bad, being lower than analyst estimates. Additionally, the drill-down list, the amount of loans that could potentially turn bad, fell sharply to Rs 47.28 billion.

The March-quarter profit is the lowest for the bank in the last eight quarters, and a tad lower than Rs 10.6 billion estimated by analysts polled by Bloomberg. 

This is the first quarter after allegations of conflict of interest were reported between ICICI Bank Managing Director and Chief Executive Officer Chanda Kochhar and the Videocon group, in a loan given to the latter. Kochhar and the bank have denied all allegations.

The bank's asset quality deteriorated sharply as gross non-performing assets (NPAs), as a percentage of gross advances, stood at 9.9 per cent during the January-March quarter, against 8.55 per cent in the previous quarter.

In the year-ago period, the gross NPA ratio was at 8.74 per cent. 

Slippages grew four-fold to Rs 157.37 billion, the highest ever for the bank, during the quarter, compared to Rs 43.8 billion in the previous quarter. 

“The fourth quarter saw elevated levels of gross NPA additions, out of which Rs 99.68 billion of loans were those relating to RBI schemes and classified as standard as on December 2017, which had been discontinued,” Kochhar said. Following a new rule in February, all schemes, including SDR and S4A, stand withdrawn. Excluding these, fresh slippages stood at Rs 57.7 billion, higher than Rs 43.8 billion in the previous quarter, according to analysts. The bank does not see any further slippages due to changes in rules going ahead, as the entire chunk from restructured assets was recognised during the quarter. 

The bank targets its net NPA ratio to come down to 1.5 per cent by March 2020, from 4.8 per cent at the end of March 2018. It will also improve provision coverage ratio to over 70 per cent by 2019-20, from just above 60 per cent as of March 2018, to fortify the balance sheet. 

Provisions and contingencies rose to Rs 66.25 billion during the March quarter, against Rs 20.24 billion a year ago. Provisioning levels include cumulative technical and prudential write-offs.

Net interest income, or the interest earned minus interest expended, stood at Rs 60.22 billion during the March quarter, from Rs 59.62 billion in the year-ago period, only a 1 per cent increase.

Net interest margin (NIM), the difference between the yield on advances and the cost of funds, an indicator of profitability, rose to 3.24 per cent, against 3.14 per cent in the previous quarter. Other income, comprising fees and other non-interest income, stood at Rs 56.78 billion during the fourth quarter, against Rs 30.17 billion a year ago.

“Our strategy for the upcoming years would be based on three keys aspects —preserve, change and grow,” said Kochhar.

The bank plans to de-risk its balance sheet by increasing the share of its retail portfolio in the overall loan book to over 60 per cent by 2019-20, from 56.6 per cent in 2017-18, and lowering the overseas share to below 10 per cent. The overseas loan book stood at 12.6 per cent in March. Its share has been consistently shrinking from 25.3 per cent five years ago.  

With the increasing share of retail loans, the bank plans to increase its synergy with subsidiaries, especially insurance, asset management and capital market. “We are adopting a new approach for corporate lending with limits that would be based on customers’ ratings and past records,” Kochhar said. The group’s limits were already lower than regulatory limits, she added.

"Looking ahead, we believe weak operating profit performance and elevated credit cost will continue to affect the overall performance of the bank in the next few quarters. While the bank continues to deliver improved performance across its retail business franchise on assets, liabilities and retail fees front, the corporate segment continues to drag its overall performance on asset quality, business growth and NIM front," said Asutosh Kumar Mishra, senior research analyst, Reliance Securities.

The bank’s corporate loan book grew 5 per cent in 2017-18, while its retail loan book grew 21 per cent. 

The bank also expects the consolidated return on equity to reach 15 per cent by 2019-20, from 7.1 per cent by June 2018. Capital adequacy stood at 18.42 per cent as on March 31, 2018, against 17.39 a year ago. 

For 2017-18, consolidated profit after tax stood at Rs 77.12 billion, compared to Rs 101.88 billion in 2016-17.

The bank’s stock closed at Rs 289.4, up 2.3 per cent from the previous day’s close. The results came post market hours, so some action is likely in the counter on Tuesday.

In the year-ago period, the gross NPA ratio was at 8.74 per cent. 

Slippages grew four-fold to Rs 157.37 billion, the highest ever for the bank, during the quarter, compared to Rs 43.8 billion in the previous quarter. 

“The fourth quarter saw elevated levels of gross NPA additions, out of which Rs 99.68 billion of loans were those relating to RBI schemes and classified as standard as on December 2017, which had been discontinued,” Kochhar said. Following a new rule in February, all schemes, including SDR and S4A, stand withdrawn. Excluding these, fresh slippages stood at Rs 57.7 billion, higher than Rs 43.8 billion in the previous quarter, according to analysts. The bank does not see any further slippages due to changes in rules going ahead, as the entire chunk from restructured assets was recognised during the quarter. 

The bank targets its net NPA ratio to come down to 1.5 per cent by March 2020, from 4.8 per cent at the end of March 2018. It will also improve provision coverage ratio to over 70 per cent by 2019-20, from just above 60 per cent as of March 2018, to fortify the balance sheet. 

Provisions and contingencies rose to Rs 66.25 billion during the March quarter, against Rs 20.24 billion a year ago. Provisioning levels include cumulative technical and prudential write-offs.

Net interest income, or the interest earned minus interest expended, stood at Rs 60.22 billion during the March quarter, from Rs 59.62 billion in the year-ago period, only a 1 per cent increase. 

Net interest margin (NIM), the difference between the yield on advances and the cost of funds, an indicator of profitability, rose to 3.24 per cent, against 3.14 per cent in the previous quarter. Other income, comprising fees and other non-interest income, stood at Rs 56.78 billion during the fourth quarter, against Rs 30.17 billion a year ago. “Our strategy for the upcoming years would be based on three keys aspects —preserve, change and grow,” said Kochhar.

The bank plans to de-risk its balance sheet by increasing the share of its retail portfolio in the overall loan book to over 60 per cent by 2019-20, from 56.6 per cent in 2017-18, and lowering the overseas share to below 10 per cent. The overseas loan book stood at 12.6 per cent in March. Its share has been consistently shrinking from 25.3 per cent five years ago.   With the increasing share of retail loans, the bank plans to increase its synergy with subsidiaries, especially insurance, asset management and capital market. “We are adopting a new approach for corporate lending with limits that would be based on customers’ ratings and past records,” Kochhar said. The group’s limits were already lower than regulatory limits, she added. “Looking ahead, we believe weak operating profit performance and elevated credit cost will continue to affect the overall performance of the bank in the next few quarters. While the bank continues to deliver improved performance across its retail business franchise on assets, liabilities and retail fees front, the corporate segment continues to drag its overall performance on asset quality, business growth and NIM front," said Asutosh Kumar Mishra, senior research analyst, Reliance Securities. The bank’s corporate loan book grew 5 per cent in 2017-18, while its retail loan book grew 21 per cent. 

The bank also expects the consolidated return on equity to reach 15 per cent by 2019-20, from 7.1 per cent by June 2018. Capital adequacy stood at 18.42 per cent as on March 31, 2018, against 17.39 a year ago. 

For 2017-18, consolidated profit after tax stood at Rs 77.12 billion, compared to Rs 101.88 billion in 2016-17. The bank’s stock closed at Rs 289.4, up 2.3 per cent from the previous day’s close. The results came post market hours, so some action is likely in the counter on Tuesday.