Although the bank didn’t grow too much in the last quarter, the quality of results has improved.
The Street wasn’t expecting much from ICICI Bank and so the 35 per cent fall in net profit to Rs 744 crore in the March 2009 quarter didn’t come as a big disappointment. On the other hand, the quality of earnings came as a pleasant surprise — the bank’s net interest margin (NIM) rose 20 basis points sequentially to 2.6 per cent. That’s because the bank has been borrowing less in the wholesale market and saving on interest costs.
Moreover, the proportion of cheaper current and savings accounts (CASA) went up by 130 basis points sequentially to 28.7 per cent and after many quarters, deposits too grew sequentially. What was most reassuring about the numbers was that fresh delinquencies appear to have stabilised because the accretion to non performing loans (NPLs) at Rs 1,250 crore, was more or less at the same level as in the December quarter.
Gross NPLs may have moved up to 4.32 per cent from 4.14 due to slippages in the retail book and there could well be a further deterioration in asset quality — more assets may be restructured, especially corporate loans — but the increase to NPLs is likely to smaller going ahead and therefore, not debilitating. If one considers the restructured assets including the applications that are pending, the gross npls would be higher while the coverage ratio which is now 52 per cent would drop sharply.
Nevertheless, the bank is choosing to preserve capital rather than grow the loan book which fell 3 per cent y-o-y during the March quarter. That’s probably the best approach in the current difficult environment. With the loan book barely growing sequentially, fees income remained flat. Looking ahead, it could take a while before the momentum picks up – loan growth should remain subdued this year though it could become more profitable with the share of CASA expected to increase to 33 per cent by the end of the current year.Earnings, however, may grow at just about 10 per cent.
