UPDATE: ICICI Bank Q2 net up 30% at Rs 1,956 cr

Higher interest income, stable margin drive earnings growth

ICICI Bank, the largest private sector lender in the country, breezed past street estimates with better-than-expected earnings as standalone net profit for the quarter ended September 30, 2012 climbed 30% from a year earlier to Rs 1,956 crore.

Higher interest income, stable net interest margin, dividend income from subsidiaries, and better cost management aided the bank's earnings during the quarter. Analysts were expecting the bank to report around 22% growth in profit after tax.

Net interest income, or the difference between interest income and interest expense, grew by 35% year-on-year to Rs 3,371 crore during the quarter. ICICI Bank maintained its net interest margin at 3% for the third consecutive quarter and improved it by 39 basis points from a year ago.

Cost-to-income ratio reduced to 40.9% at the end of September, 2012 from 44.4% a year earlier.

"We have positive growth in profit on the back of healthy growth in balance sheet and improvement in items of profit and loss account. We will look to improve our margin slightly in coming quarters. The target is to keep the margin at least at 3%," Chanda Kochhar, managing director and chief executive of the bank, said in her post-earnings comments.

On a consolidated basis, ICICI Bank's net profit was at Rs 2,390 crore in July-September quarter, up 20% from a year earlier. It was driven by higher profitability of life insurance, general insurance and asset management subsidiaries.

Asset quality

The bank was able to keep its asset quality steady despite Rs 1,220 crore of fresh slippages during the quarter. The slippages were higher than the previous quarters as the bank classified Rs 500 crore loans to Deccan Chronicle Holdings as non-performing asset (NPA) during July-September period.

"We have classified Rs 500 crore loans to a media company as NPA and have provided 85% of that amount. Hence, provisions have increased. But our asset quality has remained steady and we maintain our guidance on provision requirement at 0.75% of the loan assets," Kochhar said.

Loan write-offs during the quarter were estimated at around Rs 500 crore. The net NPA ratio was at 0.66% at the end of September, 2012 compared to 0.61% a quarter ago and 0.80% a year earlier. Provision coverage ratio was at 78.7%.

Kochhar clarified that the bank has no outstanding loans to troubled Kingfisher Airlines and its exposure to Lanco was limited to the infrastructure company's Australian venture.

"In the current scenario, all projects and large exposures have to be monitored. A few accounts may slip into NPA or may need restructuring but we do not expect any large negative surprises on our asset quality," she said.

The bank's net restructured asset portfolio was at Rs 4,158 crore at the end of the quarter. It has a pipeline of another Rs 500 crore loans, which may be restructured in coming quarters.

Business growth

ICICI Bank's advances increased by 18% year-on-year to Rs 275,076 crore driven by growth in both retail and corporate loans. While retail advances were up 14%, corporate and international loan portfolio registered 21% growth.

The bank expects its loan book to grow at 20% in the current financial year. The lender sees its retail loans expanding at 15-18% while domestic corporate loans are expected to grow at over 20%.

Retail loans currently has 34% share in the bank's total advances.

The bank's deposits grew by nearly 15% to Rs 281,438 crore. The share of low-cost current account savings account (CASA) deposits was at 40.7%. The average CASA ratio was at 37.5% during the quarter.

ICICI Bank closed the quarter with a capital adequacy ratio of 18.28%.