BackICICI Bank sees rise in profits and bad loan provisions
Net interest income increases 17% to Rs5,079 crore from Rs4,357 crore in the year earlier
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Mumbai: ICICI Bank Ltd, India’s largest private sector bank by assets, on Monday said fourth-quarter stand-alone net profit rose 10%, beating analyst estimates, as higher demand for individual loans and fee income countered an increase in bad-loan provisions, mainly to cover restructured loans that turned sour.
Net profit rose to ₹ 2,922 crore in the three months ended 31 March, or ₹ 4.99 per share, from ₹ 2,652 crore, or ₹ 4.57 per share, in the year-earlier period. That compares with the ₹ 2,882 crore estimate of 27 analysts surveyed by Bloomberg.
Net interest income or the difference between interest earned on loans and interest paid on deposits, increased 17% to ₹ 5,079 crore from ₹ 4,357 crore a year earlier.
The bank’s net interest margin, a measure of how profitable its loans are, improved to 3.57% in the quarter from 3.35% a year earlier. Income earned from fees and commissions and treasury operations rose 17% to ₹ 3,496 crore.
That offset a hefty increase in provisions, which almost doubled to ₹ 1,344 crore from ₹ 714 crore a year ago and rose from ₹ 980 crore in the quarter ended 31 December.
Net non-performing assets (NPAs) rose to 1.61% of net advances from 0.97% a year ago. Gross NPAs, which exclude provisions, rose to 3.78% of gross advances from 3.03% a year earlier.
“These are not really new problem assets, but loans which are restructured. These are also not sector-specific but a few companies in which we had large exposures," managing director and chief executive officer Chanda Kochhar said.
Indian banks have been restructuring stressed corporate loans as projects stalled by slower economic growth, delays in securing government approvals, sluggish consumer demand and high borrowing costs made it difficult for many borrowers to repay debt.
For ICICI Bank, the financial year ended March has been the worst since at least 2006. Data analysed by Mint shows that the bank added ₹ 4,589 crore to gross NPAs in the year, taking total NPAs to ₹ 15,095 crore, compared with ₹ 10,506 crore in the year ended March 2014.
In a conference call with journalists, Kochhar said that ₹ 2,246 crore of the ₹ 3,260 crore of NPAs added in the March quarter were restructured assets that turned bad.
“We think that we have seen the peak in terms of restructured accounts and credit costs will be better in the coming year," Kochhar said.
Although the bank has forecast lower NPAs in the current financial year, negative surprises cannot be ruled out, cautioned Saday Sinha, an analyst at Kotak Securities Ltd, who tracks the bank.
“We have to take their guidance with a pinch of salt because they are a large bank and could invariably see large accounts restructured, which could slip into NPAs. But ultimately, how the economy does from here will also play a big part," Sinha said.
Kochhar said that around 25% of the loans restructured by the bank had become NPAs, in line with the banking system average. She defended the restructuring of loans, saying that about 75% of loans that are recast go on to become performing assets.
Restructuring involves giving companies more time to repay a loan or lowering interest rates to help them tide over tough times.
“Overall restructuring of assets is useful if the economy picks up. The issue is how fast will the economy turn and has it kept pace with the assumptions made at the time of restructuring. If the assumptions are not met, then it results in restructured loans turning into NPAs," Kochhar said.
Overall net loans restructured by the bank stood at ₹ 11,017 crore as of March-end, down from ₹ 12,052 crore at December-end but higher than the ₹ 10,558 crore a year ago.
Demand for loans from individuals to buy homes and cars continued to outpace demand from companies, though Kochhar said corporate demand was picking up, especially for working capital loans.
Retails loans grew 25%, far higher than the 10% growth seen in loans to companies. ICICI Bank’s total loan book increased 14% from a year ago to ₹ 3.87 trillion from ₹ 3.39 trillion.
Kochhar said the bank will continue to grow two to four percentage points faster than the banking system, with likely loan growth of 18-20% in the fiscal year to next 31 March.
ICICI Bank shares lost 1.85% to close at ₹ 302.40 on Monday on the BSE, while the benchmark Sensex fell 0.95% to close at 27,176.99 points and the banking index, Bankex, lost 1.33%.
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