Heightened asset quality concern is a key reason under-performance of its stock, both versus the Sensex and peers such as HDFC Bank and Axis Bank, in the past year.
The better-than-expected quarter results suggest these concerns would have eased slightly. The numbers also point to that. Compared to the March quarter when non-performing assets (NPAs) increased by Rs 3,260 crore, the fresh addition in June quarter was Rs 1,672 crore. The fresh slippages from restructured book to NPAs was also a paltry Rs 292 crore. As a result, the headline gross as well as net NPA ratios, too, improved sequentially to 3.7 per cent and 1.6 per cent, respectively. Provisioning also fell 29 per cent to Rs 956 crore over the March quarter. All this points to easing of asset quality stress.
More importantly, the management believes credit costs will improve to 90-95 basis points in FY16 versus 1.1 per cent in FY15. Provisions or credit costs numbers will assume higher significance going forward given the closure of restructuring window for banks. Chanda Kochhar, managing director and CEO of ICICI Bank, believes additions to stressed loans will be lower than FY15 and indicated the worst is behind for the bank on the asset-quality front. While Axis Bank witnessed a spike in provisions sequentially, its management remains confident of lower addition to stressed assets in FY16. All three large private banks reported healthy performance in the quarter.
While the ICICI Bank scrip trades at 2.3 times FY16 estimated book versus historical average of 1.7 times one-year forward book, most analysts are bullish and believe it is well placed to benefit from an economic revival. While exposure to infrastructure (12 per cent of loans), steel and power (another 12 per cent) needs to be watched, a positive commentary on asset quality provides some comfort.