ICICI Bank net NPAs improve to its lowest in 8 qtrs, awaits RBI report on divergences

Beena Parmar

Moneycontrol News

Country’s largest private lender ICICI Bank witnessed improvement in asset quality during the second quarter of FY18 as it awaits the Reserve Bank of India’s report on divergences to be reported in the third quarter.

In Q1 of FY18, the bank’s net NPAs were the lowest in the last seven quarters at Rs 25,306 crore. The Q2 net NPAs stood even lower at Rs 24,130 crore.

Despite a 34 percent drop in net profit at Rs 2,058 crore from a year ago, the Mumbai-based bank saw its gross non-performing assets (NPAs) in the three month period July-September decreased even as it spiked from a year-ago period.

“We still await the final report from the RBI…the inspection process is going on and we will disclose them (the divergences, if any) in the third quarter…But on asset quality, we had said in the beginning of the year, expect the NPA additions to be lower than the previous year and we continue to stay with that,” said Chanda Kochhar, ICICI Bank’s CEO and MD, in a conference call post results.

Axis Bank and Yes Bank have declared divergences in classification of NPAs worth Rs 5,633 crore and Rs 6,355 crore, respectively.

A day after HDFC Bank posted its financial results, it declared that the RBI had asked it to declare one loan account as NPA. The amount is likely to be disclosed in the third quarter results.

ICICI Bank’s asset quality

Gross NPA and net NPA ratio jumped to 7.87 percent and 4.43 percent, respectively, as of September 2017, as against 6.12 percent and 3.21 percent, respectively, as of September 2016.

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However, this was an improvement over the last quarter when gross NPA and net NPA figures were 7.99 percent and 4.86 percent, respectively.

The bank’s drilled down or the watchlist of potential loans saw a reduction to Rs 19,590 crore as on September end, down by Rs 768 crore from Rs 20,358 crore as on June end 2017.

Insolvency exposure

On recovery of the loans under the insolvency process, Kochhar said that with strong expressions of interest seen (in the iron and steel sector), “the last quarter of this fiscal will start getting the sense on the value of recoveries”.

In the RBI’s second list of 28-30 loan accounts to be referred under the Insolvency and Bankruptcy Code (IBC) by December this year, ICICI Bank has exposure to 18 borrowers with loans worth Rs 11,860 crore, 98.7 percent of which have been declared as NPAs.

Towards a total exposure of Rs 7,240 crore in RBI’s first list of 12 accounts, the private lender made additional provisioning of Rs 651 crore in the second quarter.

“On the first list, time-wise progress is good with 11 of the 12 accounts being admitted at the NCLT and between January to march, we will see how it pans out. The resolutions are being discussed at various forums including JLF (joint lenders’ forum) and it is too early to say,” Kochhar said.

Financial performance

For Q2FY18, ICICI Bank’s net profit declined by 34 percent on the back of lower other interest income and lower provisions.

During the quarter under review, the bank made provisions (other than tax) and contingencies of Rs 4,502 crore, 36 percent lower than Rs 7,083 crore in the same quarter of the previous fiscal.

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Other income declined due to lower treasury income on account of ICICI Lombard stake sale during Q2FY18 resulting in a gain of Rs 2,012 crore (before tax and after IPO related expenses) in standalone results, and Rs 1,711 crore in consolidated results.

Comparatively, this number was higher a year ago due to stake sale in ICICI Prudential Life that had resulted in a gain of Rs 5,682.03 crore in standalone results, and Rs 5,129.9 crore on a consolidated basis.

Although, fee income rose by 9 percent to Rs 2,570 crore. The year-on-year growth in domestic advances was 13 percent driven by healthy retail loans.

Kochhar exuded confidence in loan growth going forward stating that the bank “expects domestic growth to be around 15 percent backed by retail growth of 18-20 percent. If you take out the NPAs, restructured and the drilled down list, the corporate book is growing by 14 percent”.

ICICI Bank’s net interest margin remained flat at 3.27 percent from the previous quarter and improved as compared to 3.13 percent in Q2 FY17.