ICICI warns provisions may remain 'elevated' in FY18

ICICI Bank has warned that provisions may remain "elevated" in this fiscal due to uncertainties in resolving bad loans and a possible spike in the money to be set aside for standard assets in troubled sectors.
Executive director NS Kannan, however, said provisions, as a percentage of advances, will be lower in fiscal 2018 compared to fiscal 2017.
"Given the uncertainties around the operating and recovery environment for the corporate sector, and the ageing-based provisions on existing NPAs, provisions are expected to remain elevated in fiscal 2018," Kannan told analysts on a conference call late last evening.
In spite of the warnings on multiple counts, the market lapped up the ICICI stocks to a 52-year high of Rs 299.90 on the BSE, rallying over 11 per cent intra-day and closing the trade with a 9.24 per cent jump at Rs 297.95, against a gain of 0.77 per cent of the benchmark Sensex. The rally on the ICICI counter also pushed up the BSE Bankex to over 9 per cent gains.

Yesterday the bank reported a five-fold rise in net income at Rs 2,082.75 crore for the three months to March despite a record high bad loans and a provision of Rs 2,898.22 crore as the bank saw fresh slippages of over Rs 11,000 crore, including a Rs 5,378 crore to JP Cements.
Its gross non-performing assets ratio shot up to 7.89 per cent from 5.21 per cent in the year-ago period and 7.20 per cent in the December quarter.

The bank also needs to assess the impact of the Reserve Bank guidelines requiring banks to consider making higher provisions for standard assets at a rate higher than the regulatory minimum based on evaluation of risk and stress in various sectors, he said.

The bank also expects the margins to be under pressure but he said they will try to maintain it above the 3 per cent mark in this fiscal. The net interest marging for FY17 was 3.25 per cent.
Margins and core net interest income will be impacted by competition between banks for loans amid the lingering slowdown in credit growth, deposit rates, increasing shift of loans to the MCLR rates, reductions in the base rate and non- accrual of income on NPAs, Kannan warned.
He further said the bank will continue to focus on collecting interest from borrowers classified as NPAs or under the strategic debt restructuring scheme.

The bank expects overall credit growth to inch up to up to 16 per cent in fiscal 2018 from 14 per cent in fiscal 2017 driven by retail loans but corporate loan growth will continue to be lower at 5-7 per cent, he said.
Kannan said the bank will target a double-digit growth in fee income on the back of an expected jump in retail fees, but the overall fee income growth will depend on market conditions especially developments in the corporate sector.
The bank added 8,745 employees in the just-concluded year taking the total staff strength to 82,841 which led to a 16.3 per cent increase in operating expenses, he said.

For fiscal 2018, it wants to contain the operating expenses to a "significantly lower" level than 16 per cent.
"Going forward, the bank would focus on fully leveraging existing resources and infrastructure. Further, the bank would also look at implementing additional cost optimisation measures during the year, while growing its retail franchise," Kannan said.
ICICI's closest rival HDFC Bank has reduced its total headcount by over 10,000 in the second half of fiscal 2017, due to increasing automation.