ICICI Bank net profit rises 4%

ICICI Bank, the country’s largest private sector lender, has reported net profit of only four per cent in the October-December quarter at Rs 3,018 crore on account of higher provisioning.

It is for the first time in the last 23 quarters that the lender has reported a net profit of only four per cent. Prior to this, the bank had been posting net profit of anywhere between 44-12 per cent.

Net profit for the December-ended quarter came under pressure as the provisioning increased due to a surge in bad loans. The increase in bad loans was mainly due to the Reserve Bank of India (RBI) directive which has directed banks to reclassify some troubled loan accounts as bad loans.

As a result, gross non-performing assets (NPA) soared 33.3 per cent to Rs 21,149 crore, compared with Rs 15,858 crore in the quarter ended September 2015. In the same period, gross bad loans as a percentage of total loans also increased to 4.72 per cent in the December quarter, compared with 3.77 per cent in the quarter ended September. On a sequential basis, even the net NPA increased to 2.28 per cent from 1.65 per cent in the quarter ended December.

“RBI has articulated the objective of early recognition of NPA and we have worked on that which has led to a pressure on asset quality. The global environment continues to be volatile and challenging, devaluation of yuan and decline in commodity prices has an impact on Indian corporate sector as well and as a result cash generation has been a challenge for companies, especially in steel sector,” said Chanda Kochhar, managing director and chief executive officer, ICICI Bank.

On a gross basis, the lender saw slippages worth Rs 6,543 crore in the quarter ended December, of which more than 60 per cent were because of the reclassification, according to the RBI norms. With the increase in bad loans, the provisions also jumped to Rs 2,844 crore in provisions, three times that of the July-September quarter’s provisions of Rs 942 crore.

The management said the regulator has asked banks to review certain accounts and their classification over the December- and March-ended quarters and as a result, the lender expects pressure on asset quality to remain in the fourth quarter of this financial year as well.

“We can see similar amount of slippages and provisions in the quarter ended March also. Apart from steel, even the power sector could see some stress,” Kochhar said.

At the end of the third quarter, the total exposure to the steel sector for the bank stood at 4.5 per cent and for the power sector it stood at 5.5 per cent for the total loan book.

In the quarter, the bank undertook strategic debt restructuring of loans worth Rs 1,600 crore and loan amount of less than Rs 500 crore was restructured under the 5/25 scheme in the quarter ended December. In the third quarter of this financial year, the lender did not make any sale to asset reconstruction companies.

Net interest income, the difference between interest earned and interest expended, increased by 13 per cent to Rs 5,453 crore, compared with Rs 4,812 crore in the third quarter of the last financial year. Other income also showed a robust improvement and jumped by 36 per cent to Rs 4,217 crore. The other income profit also included the sale of four per cent shareholding in ICICI Prudential Life Insurance Company to Premji Invest and its affiliates which led to a profit on sale of Rs 1,243 crore.

Net interest margin (NIM), a key indicator of a bank’s profitability, improved 3.53 per cent in the December-ended quarter, compared with 3.46 per cent in the same quarter a year ago. The improvement in NIM was on account of an uptick in the margin of international business. However, the management believes that going ahead NIM may come under further pressure due to the rise in bad loans which may result in non-recognition of income from certain accounts.

The bank remained well capitalised with a capital adequacy ratio of 15.77 per cent.