ICICI Bank: Asset quality pain persists

Analysts raise questions on lack of adequate disclosure on stressed assets

The biggest ever decline in quarterly standalone net profit saw the stock of ICICI Bank fall over 3.6 per cent intra-day, and despite positive commentary from its management, it closed a per cent lower on Friday. Net profit at Rs 702 crore plummeted 76 per cent year-on-year (y-o-y) as well, as sequentially. But, the point to focus is the provisioning component.

Routine provisioning for bad loans and contingencies at Rs 3,326 crore in Q4’FY16 doubled y-o-y from Rs 1,345 crore in the year-ago quarter. If that wasn’t enough, the Rs 3,600 crore of exceptional items or contingent provisioning came as a blow. According to Chanda Kochhar, managing director and CEO of ICICI Bank, the contingent provisioning is towards loans in iron & steel, mining, power, rigs and cement sectors.

Gross non-performing assets (NPA) ratio, thus, jumped from 3.78 per cent in Q4’FY15 to 5.82 per cent in Q4’FY16. Kochhar asserted that with NPA recognition undertaken in Q4’FY16, loans falling under the Reserve Bank of India’s asset quality revenue have been cleaned-up. But, the Street is unsure of the pain ahead.

  According to Suresh Ganapathy of Macquarie, the management needs to come out with more disclosure on its future course of action. “The stress for ICICI Bank may remain elevated seen against the watch list of Axis Bank. Provisioning may remain elevated in FY17." With the management also guiding for the same in FY17 in the analysts’ call, asset quality pains appear far from over.

Also, net profit was largely helped by Rs 2,199 crore of deferred taxation adjustment, whose details have not yet been revealed. Siddarth Purohit of Angel Broking feels that lack of adequate disclosure on deferred tax credit and asset quality will be a major concern.

Analysts say that although there were some positives from the Q4’FY16 results, they have been brushed aside by the asset quality concerns, explaining why ICICI Bank’s stock closed lower, despite good operational performance.

For instance, net interest income or the difference between interest earned and interest expended, at Rs 5,404 crore (up six per cent year-on-year) was in-line with Street expectation. Total revenues at Rs 18,590 crore were above Bloomberg estimates (Rs 10,062 crore), even after excluding other income.

Other income surged to Rs 5,109 crore from Rs 3,496 crore in year ago quarter, as it got a boost of Rs 2,131 crore from stake sale in insurance business. Among the few montiorables, however, is net interest margin (NIM) which declined by 20 basis points to 3.37 per cent in March’16 quarter, and  could see further decline of 20 bps in FY17.

Nevertheless, analysts say net profit adjusted for one-offs was largely in line with their estimates.