ICICI Bank Q1 preview: Loan growth, lower provisions to aid PAT growth

ICICI Bank is scheduled to announce its April-June quarter earnings for financial year 2019-20 (Q1FY20) on Saturday, July 27. Analysts expect the private lender to report net profit of over Rs 1,000 crore. Asset quality, especially in the power sector, and trends in loan restructuring would be keenly watched.

Analysts at Sharekhan expect the bank to report a profit after tax (PAT) of Rs 1,377 crore as against a loss of Rs 120 crore in the June quarter of the previous fiscal (Q1FY19).  The bank reported a profit of Rs 42.1 crore in the quarter ended March, 2019 (Q4FY19).

“Moderation in credit costs, stable fee income and an improved treasury performance could aid ICICI Bank’s profitability,” say analysts at Motilal Oswal Financial Services (MOFS), who peg the bank’s net profit at Rs 2,123.5 crore.

At the bourses, the bank’s stock has outperformed the benchmark index thus far in calendar year 2019 (CY19), and gained 13 per cent YTD as against a 5 per cent and 7.5 per cent rise in the S&P BSE Sensex and the BSE Bankex, respectively. 

NET INTEREST INCOME

For the recently concluded quarter, the net interest income (NII) is expected to inch up 26 per cent year-on-year (YoY) to Rs 7,689.1 crore. Accordingly, net interest margin (NIM) is pegged at around 3.62 per cent, up 43 basis points (bps) YoY, from 3.19 per cent in Q1FY19. ICICI Bank had reported a NII of Rs 6,101.9 crore in Q1FY19 and Rs 7,620.1 crore in Q4FY19.

“Loan growth will be better than industry, led by domestic and retail growth, while NIMs could likely be lower QoQ on one of IT refund impact. Core NIMs, however, should be steady,” analysts at Prabhudas Lilladher wrote in an earnings preview note. They peg the bank’s credit book at Rs 59.13-lakh crore, up 14.5 per cent from the corresponding quarter of the previous fiscal.

SLIPPAGES AND PROVISIONS

Reduced stressed assets and better provision coverage ratio (PCR) is likely to push the gross and net non-performing ratios to lower levels. Prabhudas Lilladher expects the bank to create provisions of Rs 4,656.8 crore, down 22 per cent YoY, from Rs 5,808.4 crore reported in the June quarter of the last financial year.

Slippages are expected to stabilise and be largely from existing stress pool. That said, movement of ‘BB’ and below-rated loans and commentary on power assets would be watched by analysts. Outlook on asset quality and trend on further relapse from restructured loans, would also be on their radar.

“Gross slippages are expected to moderate to 2.5 per cent due to a reduction in corporate slippages. Net stress loans (including BB and below rated accounts) as on Q4FY19 stood at 5.9 per cent of loans and are expected to decline further as incremental stress addition moderates,” said analysts at Motilal Oswal.

Overall, analysts expect the GNPA ratio to drop up to 6.61 per cent, down from 8.8 per cent reported in June quarter of FY19. The NNPA ratio is pegged at 2.3 per cent, down 1.9 percentage points from 4.2 per cent in Q1FY19. The ratio, however, is higher sequentially from 2.1 per cent in Q4FY19.  The GNPA is pegged at Rs 45,640 crore.