ICICI net plunges 87% to over 11-year low as NPA provision soars

 Top private sector lender ICICI Bank today reported its worst numbers in over a decade with consolidated net profit plunging 87 percent in the March quarter at Rs 406.71 crore due to a spike in provisioning for bad loans.

ICICI net plunges 87% to over 11-year low as NPA provision soars

Mumbai: ICICI Bank today reported its worst numbers in over a decade with consolidated net profit plunging 87 percent in the March quarter at Rs 406.71 crore due to a spike in provisioning for bad loans.

Higher provisioning is in view of the Reserve Bank's asset quality review (AQR) as well as expectations of further bad loan issues at the country's largest private sector lender.

The Chanda Kochhar-led bank had posted a post-tax net of Rs 3,084 crore on a consolidated basis in the January-March quarter of last fiscal, and Rs 3,122 crore in the preceding quarter, when it started recognising the effects of bad loans following the AQR.

On a standalone basis, the bank's net profit tanked 76 percent to Rs 701.89 crore from Rs 2,922 crore a year ago.

Profit for the reporting quarter eroded on setting aside of Rs 3,600 crore towards "collective contingency and related reserves", above the RBI-mandated provisions in view of the stress it expects from the iron & steel, mining, rigs, power and cement sectors in the future, the bank said.

As of the December quarter, ICICI Bank, which is one of the two systemically important lenders (the other being SBI), did not have a counter-cyclical buffer unlike its private sector peers.

"The weak global economic environment, downturn in the commodity cycle and the gradual nature of the domestic economic recovery has adversely impacted borrowers. It may take some more time for the resolutions to be worked out," Kochhar, managing director and chief executive, told reporters in a concall.

She did not specify the contribution of the five stressful sectors to the loanbook and said it will be some time before they recover.

The bank saw loans worth Rs 7,000 crore slipping into NPAs during the March quarter, taking the gross NPA ratio to 5.82 percent, from 3.78 percent a year-ago and from 4.72 percent at the end of the preceding quarter.

This led to a near three-fold spike in provisioning as per the norms to Rs 3,326.21 crore from Rs 1,344.73 crore in the year-ago period and Rs 2,844.05 crore.

The bank said as much as 60 percent of the Rs 7,000 crore fresh slippages came in from the AQR, while Rs 2,700 crore came in from restructured assets slipping into NPAs. It continues to carry Rs 8,573 crore of restructured loans.

Its smaller rival Axis Bank had also done a provisioning of Rs 300 crore proactively and placed Rs 22,000 crore of corporate loans under a watchlist fearing some stress, and reported a marginal 1 percent dip in net income first time in 44 quarters.

The first set of numbers from the larger private sector numbers underscore the fact that the bad loan issues are not just limited to state-run banks, which has reported massive drop in profits due to AQR in the December quarter, when the private players were better off.

This was warned by American borkerage Morgan Stanley yesterday in a note saying the NPA pains to linger throughout 2016-17 fiscal and that the AQR is not a "panacea" for the system. 

ICICI Bank scrip was trading at Rs 234, down 2.5 percent on BSE as against a 0.52 percent correction in the benchmark Sensex.

Global brokerage Jefferies said it expects more troubles for the bank for the next five quarters more and has placed Rs 40,000 crore worth of loans in slippages watchlist.

The report, however, was quick to add it continues to believe that there is adequate capital cushion along with strong growth to tide over the provisioning requirements.

Domestic brokerage Emkay Global described the plunge in net income as "one-off" as the asset quality deterioration was in line with expectation.

The report said the street was expecting a net profit of Rs 3,770 crore, and attributed the fall to higher contingent provisions of Rs 3,600 crore and had it not been for the earnings would have been largely in-line with estimate. But it note that it was expecting a provision of just Rs 3,600 crore against the actual of Rs 6,920 crore.

Kochhar said the bank refinanced Rs 679 crore under the 5/25 scheme, while Rs 679 crore were taken over under the strategic debt restructuring and Rs 700 crore of loans were sold to asset reconstruction companies.

After the setbacks, Kochhar said the bank has decided to grow the corporate book by only 5-7 per cent in 2016-17 and concentrate on retail (25 per cent growth targeted) to achieve a domestic credit growth of 18 percent, as against 16.4 percent in 2015-16.

She said the bank will go for better rated corporates and expects the demand to arise from the railways, roads and defence sectors, which are witnessing an uptick in activity due to government policies.

During the January-March quarter, net interest income grew 6 percent to Rs 5,404 crore, while non-interest income jumped 46 per cent to Rs 5,109 crore, supported majorly by stake sales in the life and general insurance arms through which it raised Rs 2,131 crore.

Kochhar said the board has approved further stake sale in the life insurance arm - ICICI Prudential Life - through a public offering, but declined to give a number on the amount it is planning to raise through the process or a timeline for it. She clarified the bank will not go below the majority holding in the life arm.

The bank's total capital adequacy ratio stood at 16.64 per cent with core tier-I at 13.09 percent.

Kochhar also sought to clear any doubts over the quality of the retail book, which now constitutes 46 percent of the overall book.

She said the bank concentrates only on secured assets like mortgage loans and auto loans, while the unsecured loans like credit cards and personal loans account for only 3.5 percent of the overall loanbook.

Net interest margin came down to 3.37 percent from 3.57 percent a year-ago even though the contribution of low-cost current and saving account deposits moved up to 45.8 percent of the base.