Over the last couple of years, ICICI Bank has taken time off to sort some of its issues. It is back on the growth track. The bank has managed to beat market expectations by a long shot on almost all key parameters. Net profit is up 31 per cent to Rs 1,900 crore, compared to market estimates of Rs 1,700 crore. The market was building in a 19 per cent growth but net profit has jumped substantially due to a 30 basis points (bps) rise in net interest margin (NIM) to three per cent. Over the last few years, ICICI Bank’s NIM has lagged other private banks, but in this quarter the bank has shown substantial improvement, which has shored up its bottom line, too. That costs have remained stable has also helped.
After a hiatus, the bank is back to focusing on the retail segment — only securitised loans like auto and home. On the corporate side, ICICI Bank is only looking at meeting working capital needs of companies and funding projects will all the requisite clearances. Compared to the previous year’s corresponding quarter, the loan portfolio has grown 17 per cent, while sequentially it has expanded three per cent. While in FY12 the bank has grown in line with industry, this year it is expecting to grow at 20 per cent. According to Emkay Global, “A large part of the sequential loan growth would be retail in nature (it has added 200 branches in Q4). Both HDFC Bank and YES Bank have reported material improvement in their retail book during Q4 FY12.” Non-interest income also jumped 35 per cent but fee income has remained flat. This is a cause of concern, as the bank has grown its network.
While profitability has jumped substantially on higher yields and higher trading income (Rs 160 crore), deposit growth has been muted at 13 per cent, down two per cent from the corresponding year previous quarter. This has also helped the bank improve its margins as the cost of funds has remained stable but advances have grown faster. The Casa (current account and savings account) ratio continues to remain healthy at 43 per cent. The bank’s bad assets have also shown substantial improvement over several quarters.
Sustainability of the NIM at current levels will determine the quality of profits. Also, if the bank has to continue to grow advances, it will need to improve deposit mobilisation. This may lead to some cannibalisation of the Casa segment, which will mean the cost of funds will increase. While growth of 20 per cent does seem possible, the key levers will be margins and cost of funds.