Tuesday, January 19

ICICI Bank Q1 takeaways: Huge Covid provisions, lower credit growth & more

NEW DELHI: In spite of a Rs 3,000 odd crore one-off treasury gain, ICICI Bank’s June quarter earnings missed Dalal Street estimates by a wide margin, as the bank chose to utilise the funds raised from stake sales in ICICI Prudential and ICICI Lombard to create higher-than-expected Covid 19-related provisions.The bank said the provisions were made on prudent bases and would boost the balance sheet amid Covid-19 related uncertainty.

Here are key takeaways from June quarter results:
Focus on boosting the balance sheet: The private lender said the impact of Covid-19 pandemic is highly uncertain and will depend on the virus spread, the effectiveness of steps taken by the government and RBI to mitigate its economic impact. “The bank’s capital and liquidity position remains strong and would continue to be the focus area during this period,” the bank said.

For the June quarter, the bank made an additional Covid-19 related provision of Rs 5,550 crore. Adding March quarter, the Covid-19 related provisions totalled Rs 8,275 crore. One must note that the provisions were over and above regular bad loan budgeting done for the quarter.

Treasury income boosts Q1 net: A 36 per cent surge in the bank’s profit was the result of a spike in treasury income which rose more than 21 times to Rs 3,763 crore in the June quarter from Rs 179 crore in the year-ago period. The bank sold a 4 per cent stake in ICICI Lombard General Insurance and 1.5 per cent shareholding in ICICI Prudential Life Insurance, aggregating Rs 3,036 crore. This aided the June quarter profit, which came in at Rs 2,559 crore.

Fee income falls on weak customer activity: Lower business volumes and customer activity during the lockdown-hit quarter weighed heavy on the lender’s fee income that tanked 30.76 per cent to Rs 2,104 crore in the June quarter from Rs 3,039 crore in the year-ago period. Retail fees, the bank said, accounted for 70 per cent of total fees.

Growth in credit declines sequentially: ICICI Bank said its domestic advances rose 10 per cent for the quarter compared with 13 per cent in the March quarter.

Retail loan portfolio grew 11 per cent and accounted for 54.4 per cent of the total portfolio as of June 30, the private lender said. In the March quarter, retail advances stood at 16 per cent.

Growth in the domestic corporate portfolio was 8 per cent year-on-year. Total advances increased 7 per cent YoY to Rs 6,31,215 crore from Rs 5,92,415 crore in the comparable period last year.

“Loan growth was impacted by lower credit demand while fee income declined due to lower borrowing and investment activity by customers and lower consumer spends. The slowdown in the economy is expected to result in higher additions to non-performing loans, increase in provisions, lower loan growth and fee income,” the bank said.

Deposits grew 21 per cent YoY to Rs 8,01,622 crore, up 18 per cent YoY in the March quarter.

Recoveries at Rs 757 crore: Overall, recoveries and upgrades, excluding write-offs from non-performing loans stood at Rs 757 crore. Gross additions to NPAs stood at Rs 1,160 crore. Overall, gross non-performing assets (NPAs) for the quarter came in at 5.46 per cent, which was lower than 5.53 per cent reported for the March quarter and 6.69 per cent in the year-ago quarter.

The provision coverage on non-performing loans, excluding cumulative technical write-offs, rose to 78.6 per cent from 75.7 per cent sequentially.

Analyst take
Lalitabh Srivastava, AVP research at Sharekhan said, operationally the number were better-than-expected. “While the provisioning was higher, becasue of the asset sales the bank did the prudent thing to make additional provision. Asset quality-wise performance was good. Morarotium update suggests investors availing moratorium fell to 17.5 per cent in June quarter from 30 per cent in March quarter. On face of it, it looks a decent number,” he said, ahead of the bank’s Concall.

Rajiv Mehta of YES Securities shared a similar view. ICICI Bank’s operating performance was much better than expectations, he said, adding that the core pre-provisioning operating profit was 15 per cent higher than his estimates,thanks to a better NII growth and a resilient fee performance.

“The bank prudently utilised large gains on partial stake sale in insurance subsidiaries. The portfolio under moratorium as of June 30 at 17.5 per cent was much lower than around 30 per cent as of April end. Capital levels remain healthy and the planned equity raise would further bolster it. Expect a strong positive stock reaction on Monday,” Mehta said.

Source: ET Markets

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