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Business News/ Market / Mark-to-market/  ICICI Bank’s profit focus works again in June quarter
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ICICI Bank’s profit focus works again in June quarter

Margin-led profit growth might be more difficult to squeeze out in the coming days

ICICI Bank’s profitability in the past few quarters has been predicated on a growth in margins which in turn have been boosted by a focus on the retail segment. The story was no different in the three months ended June. Photo: MintPremium
ICICI Bank’s profitability in the past few quarters has been predicated on a growth in margins which in turn have been boosted by a focus on the retail segment. The story was no different in the three months ended June. Photo: Mint

ICICI Bank Ltd’s profitability in the past few quarters has been predicated on a growth in margins which in turn have been boosted by a focus on the retail segment. The story was no different in the three months ended June, as the bank focused on profitability rather than loan book growth.

Net interest margin (NIM) for the bank grew to 3.4% in the June quarter, the best in the past at least 16 quarters. Low cost current and savings account (or Casa) ratio at 43% was little changed from a quarter ago. The bank’s emphasis on retail lending, which typically has higher yields, would have helped. Retail lending growth has steadily accelerated over the past four quarters. Loans to finance houses and cars grew 26% from a year ago in the June quarter compared with 23% in the three months ended March. This segment will grow at not less than 20% the rest of this fiscal, the management said in a conference call.

Since a significant portion of retail loans are secured, ICICI Bank’s asset quality has been stable over the past year; gross non-performing loans as a portion of the loan book hovers around 3%. Loans restructured during the quarter also fell significantly to 1,394 crore in June compared with 2,156 crore in March. The management further said that it had sold only one stressed loan during the quarter.

That said, margin-led profit growth might be more difficult to squeeze out in the coming days. The bank’s management has said NIMs will be in the range of 3.3-3.4% this fiscal year. Thus, growth in profits will have to be driven by a spurt in the loan book. Retail should continue to do well, but corporate loans could take another couple of quarters to accelerate.

Secondly, asset quality also has to improve from here on. Overall stressed assets (gross non-performing assets, or NPAs, plus recast loans) still amount close to 6% of the loan book, making investors wary of re-rating stock. That explains why it is still trading at 2.13 times its expected book value for the present fiscal, at a steep discount to the likes of HDFC Bank Ltd and Kotak Mahindra Bank Ltd.

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Published: 31 Jul 2014, 06:36 PM IST
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