ICICI Bank to limit corporate, global loans growth at 10%

After a steady increase in bad loans, India’s largest private sector lender ICICI Bank has decided to tighten its corporate lending growth and apply breaks on growing its corporate books.

According to a presentation made to investors in March, the bank has decided to limit the growth in corporate loans (including international) to about 10 per cent year-on-year (y-o-y). This comes at a time when after several quarters of single-digit growth in corporate book, the bank had finally begun to see an uptick in corporate loans. Among private-sector lenders, ICICI Bank has the largest corporate loan book, which at the end of the quarter ended December 2015 was at 28.8 per cent out of the Rs 4,34,800-crore loan book.

At the end of the December 2015 quarter, growth in domestic corporate portfolio had inched up to 14.9 per cent on a y-o-y basis compared to 7.5 per cent as on September 30, 2015. On the other hand, in the same period, the net advances of the overseas branches had increased 2.6 per cent on a y-o-y basis. At the end of the December quarter, the management had said they would grow the corporate book. However, that expectation seems to have been revised considerably.

“On the retail side, we are hopeful of a 25 per cent growth on a y-o-y basis. The corporate book has just started growing. We had said earlier that we would soon like to grow in the teens; the expectation continues,” said N S Kannan, executive director, ICICI Bank, in a conference call with analysts.

This comes at a time when bad loans in its subsidiaries also remain at an elevated level. As of the December quarter, the gross non-performing asset (NPA) ratio for its Canadian subsidiary —ICICI Bank Canada — was 3.7 per cent, while that for the UK subsidiary —ICICI Bank UK Plc — was 5.5 per cent.

According to analysts, the trigger for this was possibly the asset quality review undertaken by the Reserve Bank of India (RBI) by banks in the October-December 2015 quarter. This was done at RBI’s behest, to ensure banks were being pro-active to correctly classify their loan portfolios, with the aim of making full provisions to clean up, with a 2017 deadline. As a result, the lenders have seen a spike in bad loans.

In the presentation, the bank had also stated that going ahead, it would apply “selective approach to incremental business” in its corporate book. With this, the lender will put a limit on single borrower/group exposures for lower-rated companies, which would be significantly lower than what has been prescribed by RBI. According to the central bank, exposure to a single borrower or a group should not exceed 25 per cent of its tier-1 and tier-2 capital.

ICICI Bank has also decided to increase the proportion of higher-rated exposures in portfolio and put limits on project finance exposure. It will also be forming a separate credit administration team that will help in recovery of bad loans.

This comes at a time when the asset quality pressure in the bank has intensified after RBI has directed banks to reclassify certain assets by the December or March quarter. As a result, in the December quarter, gross NPA soared 33.3 per cent to Rs 21,149 crore, compared with Rs 15,858 crore in the September 2015 quarter. 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 2015.

On a sequential basis, even the net NPA increased to 2.28 per cent from 1.65 per cent in the December 2015 quarter.

The management has guided that NPA levels will remain elevated in the March 2016 quarter.