ICICI Bank, India’s largest private sector one, reported a good set of numbers on Thursday, amid marginal disappointments. Not surprisingly, its stock was up one percentage point, as against a near similar decline in the broader markets. Its results were also broadly in line with its nearest private peer, HDFC Bank in terms of loan book, asset quality and net interest margins (NIMs). Axis Bank, however, disappointed on the NIM front.
While the loan growth is expected to remain good at 20-25 per cent in 2011-12 for the three banks, so should their asset quality. However, analysts believe there could be some pressure on the margins in the interim. Most analysts are bullish on the three banks in the order of HDFC Bank, ICICI Bank and Axis Bank.
BETTER ASSET QUALITY, LOAN GROWTH
While the operational performance of ICICI was good for the March quarter, its standalone net profit (up 44 per cent at Rs 1,452 crore) was slightly lower than expected and influenced by a few one-time items. While a one-time gain of Rs 203 crore from the sale of merchant acquiring business to Firstdata aided profit growth, these were more than offset by treasury losses of Rs 196 crore in the March quarter—ICICI Bank had reported a gain of Rs 196 crore in the March quarter. Also, the fall in lease and other income of 74 per cent to Rs 46 crore kept profits under check.
In core business, healthy credit growth helped the three banks report good growth in advances to customers as well as net interest income (NII). While ICICI’s NII grew 23 per cent over the last year, its advances’ growth of 19 per cent to Rs 2,16,366 crore was the highest in the last seven quarters. Though it comes on a low-base and is lower than HDFC Bank’s 27 per cent and Axis Bank’s 37 per cent, the overall trend is positive. For ICICI, it reflects that the bank has been successful in getting back on the growth path after two years of decline.
Strong business growth boosted fee-income growth— up 18 per cent to Rs 1,791 crore for ICICI Bank, up 23 per cent to Rs 1,001 crore for HDFC Bank and up 58 per cent at Rs 1,231 crore for the quarter.
Even as these banks grew, they managed to improve their asset quality. While HDFC Bank’s net NPAs stood at a mere 0.2 per cent of total assets (the lowest among the three banks), Axis Bank’s reduced 10 basis points to 0.3 per cent and ICICI Bank’s fell by half to 0.9 per cent.
At the net level, ICICI Bank’s provisions fell 61 per cent y-o-y to Rs 384 crore, thanks to focus on improving asset quality. Positively, all the three banks now have a provision coverage ratio (ranging 74-82 per cent) that is in excess of RBI’s prescribed 70 per cent.
The trend, however, was mixed if their net interest margins (NIMs) are considered. HDFC Bank’s NIMs were stable at 4.2 per cent (the highest among the three banks), thanks to its strong Casa (current account and savings account) franchise, and should remain so, Axis Bank reported a sharp fall of 65 basis points to 3.4 per cent due to increased cost of borrowings. Analysts believe Axis margins should inch up, led by lower share of term deposits and impact of rise in lending rates.
For ICICI, NIMs expansion was driven by a rise in share of Casa ratio to 45.1 per cent (up 340 basis points y-o-y and 90 basis points sequentially). Analysts say there is still headroom to improve the CASA ratio to 50 per cent plus levels akin to some of its peers.
OUTLOOK
While ICICI’s international business grew a decent 10 per cent for the quarter, growth in some of the domestic subsidiaries was muted. General insurance business registered loss of Rs 331 crore, the Venture Fund business reported an 85 per cent fall in the profit before tax to Rs 2 crore and Life Insurance business profit contracted by 26 per cent to Rs 316 crore—restricting consolidated profit growth to 17 per cent to Rs 1,568 crore in the March quarter.
| IN GOOD SHAPE | ||||||
| In Rs crore | March 2011 quarter | 2011-12 estimates | ||||
| ICICI Bank | HDFC Bank | Axis Bank | ICICI Bank | HDFC Bank | Axis Bank | |
| NII | 2,510 | 2,840 | 1,701 | 10,654 | 12,633 | 8,012 |
| % chg y-o-y | 23.3 | 20.8 | 16.5 | 18.2 | 20.0 | 22.1 |
| Total Income | 4,151 | 4,095 | 3,151 | 18,778 | 17,545 | 13,940 |
| % chg y-o-y | 5.7 | 24.0 | 31.7 | 19.9 | 18.0 | 24.5 |
| Net profit | 1,452 | 1,115 | 1,020 | 6,196 | 4,616 | 4,397 |
| % chg y-o-y | 44.3 | 33.2 | 33.4 | 20.3 | 18.0 | 29.8 |
| Net NPA (%) | 0.9 | 0.2 | 0.3 | 0.9 | 0.2 | 0.2 |
| Chg in bps y-o-y | -93 | -10 | -10 | - | -2 | -10 |
| NIM (%) | 2.7 | 4.2 | 3.4 | 2.7 | 4.0 | 3.0 |
| Chg in bps q-o-q | 10 | -- | -37 | 20 | -- | -10 |
| All figures are standalone; Total income includes NII, treasury income and fee-income among others; Change for the quarter is over March 2010 quarter, for FY12 it is over FY11 Source: Companies, Research reports | ||||||
Positively, ICICI Bank has successfully implemented its strategy of growing Casa share, is driving cost efficiencies, improving credit quality and capital conservation. The management expects its loan growth to be strong at 20 per cent and NIMs to sustain at current levels in 2011-12. Further, reduction in provisioning coupled with strong asset quality, are other key positives, which put together should drive profits in 2011-12. For HDFC Bank, healthy loan growth of 25 per cent and stable NIMs should help sustain healthy growth in the current financial year. For Axis Bank though, analysts say while margins may slip a bit, asset quality will remain good like others and fee-income growth will be stronger which will drive profits in 2011-12.
