ICICI Bank Q3 preview: Essar Steel recovery may trim provisions, aid profit

As per estimates by Motilal Oswal Financial Services, the bank is poised to write-back provisions worth Rs 2,100 crore (Essar Steel), & Rs 400 crore (Rs 200 crore each from Ruchi Soya & Bhushan Power)

For private lender ICICI Bank, one-time gain from Essar Steel resolution would be the biggest factor driving the bank’s December quarter earnings for FY20 (Q3FY20). On the back of an estimated recovery worth over Rs 2,000 crore, the bank is likely to see provision write-off, stable slippages, and improved credit cost.

At the bourses, the bank has outperformed the indices during the quarter under review. Between October and December, 2019, the stock of the lender surged 24.3 per cent, as against a 6.68 per cent rise in the benchmark S&P BSE Sensex. The S&P BSE Bankex index, meanwhile, gained 11.5 per cent. ICICI Bank is slated to report its Q3FY20 numbers on Saturday, January 25, 2020.

Analysts at Motilal Oswal Financial Services (MOFS) estimate the bank’s net stressed assets to settle below 3 per cent. As per their estimates, the bank is poised to write-back provisions worth Rs 2,100 crore (Essar Steel), and Rs 400 crore (Rs 200 crore each from Ruchi Soya and Bhushan Power).

According to brokerage firm Prabhudas Lilladher, total provisions could decline by 66 per cent year-on-year (YoY) to Rs 1,456.9 crore in Q3FY20, down from Rs 4,244.2 crore reported in Q3FY19. Provisions stood at Rs 2,506.9 crore during the September quarter of FY20 (Q2FY20). 

PROFIT AND NET INTEREST INCOME 

“Benefit from few key resolutions (Essar Steel, Rattan India, Prayagraj etc) could be partially off-set by recognition/provision towards a few known stressed groups, further rating downgrades and Reserve Bank of India’s (RBI’s) divergence report,” cautioned analysts at Edelweiss Securities. 

They peg the lender’s net profit at Rs 4,039.3 crore, up 152 per cent YoY, as against a net profit of Rs 1,604.9 crore reported in the previous year quarter. Sequentially, the profit could jump 517 per cent from Rs 655 crore logged in Q2FY20. Profit before tax (PBT) is estimated at Rs 5,385.7 crore. 

As for net interest income (NII), analysts, on an average, see a rise of up to 29 per cent YoY to Rs 8,865 crore. The same was Rs 6,875.3 crore in Q3FY19 and Rs 8,057.4 crore in Q2FY20. The net interest margin (NIM) is pegged at 3.7 per cent. 

LOAN GROWTH AND ASSET QUALITY

“Stress accretion for ICICI Bank is likely to be relatively low as it has minimal exposure to the most-talked about stressed groups (except for recognition of Karvy Stockbroking). Slippages would be relatively steady and will largely flow from the existing stress pool,” said analysts at Edelweiss Securities.

They, however, added that investors should watch out for further additions to BBB and below list, which could see rise for the quarter under review.

Prabhudas Lilladher projects the slippages around Rs 2,200 crore, while those at Phillip Capital expect the same to be around Rs 3,500 crore. Analysts at Reliance Securities warn of slippages emanating from agri-loans and NBFC, including DHFL. 

As for bad loans, MOFS pegs the gross NPA at Rs 43,310 crore, down from Rs 51,590 crore reported in Q3FY19, and Rs 45,640 crore in Q2FY20. NNPA, meanwhile, are pegged at Rs 10,390 crore. 

In terms of ratio, the GNPA is estimated in the range of 6 – 6.4 per, while the NNPA ratio is seen at 1.3 -1.6 per cent.

For the December quarter, the loan book of the Mumbai-headquartered bank could see a growth of 13 per cent YoY at nearly Rs 6.34 lakh crore. Sequentially, the credit book may expand 3.5 per cent. 

According to analysts’ estimates, resolution of Essar Steel would provide one-time gains should help contain credit cost at 1.2–1.3 per cent for FY20 as guided earlier.