ICICI Bank's Q1FY20 NII came at Rs7,737cr as against Rs6,102cr, which is up by 27% yoy. The bank has reported a net profit of Rs1,908cr in Q1FY20, which is in line with consensus estimates, as against loss of Rs120cr yoy. Its GNPA for Q1FY20 came at 6.49% against 6.7% qoq, which has decreased by 21bps. NNPA for the quarter came at 1.77% against 2.06% qoq, which has declined by 29bps.
Domestic loan growth picked up to 18% yoy (17% yoy in 4QFY19), driven by retail loans (+22% yoy), while overseas loans continued to decline (-7% yoy). Within retail, unsecured loans registered high growth. Domestic corporate loans picked up to 7% yoy (6% YoY in 4QFY19).
Retail loans grew by 22% yoy; including non-fund outstanding, retail was 48.5% of the total portfolio at June 30, 2019.
Margins expanded 42bps yoy due to a 65bps yoy increase in yield on advances, driven by the re-pricing benefit on MCLR-linked loans, while cost of funds increased only 24bps yoy. Margin expansion and healthy loan growth led to strong growth in NII.
Core operating profit grew by 21% yoy to Rs6,110cr in Q1FY20.
Net NPA decreased by 51% from Rs24,170cr in June 30, 2018 to Rs11,857cr at June 30, 2019.
Total capital adequacy ratio of 16.19% and Tier-1 capital adequacy ratio of 14.60% on standalone basis at June 30, 2019.
The net interest margin was 3.61% in Q1FY20 compared to 3.19% in Q1FY19 and 3.72% in Q4FY19. The impact of interest on income tax refund and interest collection from NPLs on net interest margin was about 17 basis points in Q1FY20 compared to about 25 basis points in Q1FY19.
Non-interest income, excluding treasury income, was Rs3,247cr in Q1FY20 compared to Rs3,085cr in Q1FY19.
Provisions were Rs3,496cr in Q1FY20 compared to Rs5,971cr in Q1FY19.
Corporate + SME slippage ratio declined to 2.3% in 1QFY20 (4.9% in 4QFY19); however, retail slippages increased to 2.0% in 1QFY20 (1.1% in 4QFY19) driven by the Kisaan Credit Card book with slippages of Rs450cr. Total stressed assets stood at ~Rs64,400cr (10.9% of loans). PCR was further strengthened on a sequential basis.
Key takeaways from the earnings call
Management re-iterated its objective of a consolidated RoE of 15% by June 2020.
ICICI Bank will not target any loan growth number and would focus on operating profitability and risk.
The CASA ratio would continue to decline secularly. The bank will target retail term deposits in the present scenario.
Current slippages levels could continue. Management clarified that it had not guided for slippages coming off in FY20 over FY19.
Credit cost guidance was re-iterated at 1.2-1.3% in FY20, and likely to normalise to ~1% of loans (~20% of PPoP) thereafter.
The bank will focus on highly-rated corporates. Correspondingly, ~88.5% of incremental corporate sanctions during the quarter were rated “A- and above”.
ICICI Bank has reorganised its SME segment as follows: i) retail segment (Rs750cr). The business banking segment mainly comprises small ticket unsecured loans and has a high growth potential, given the bank’s historically limited presence.
Growth in unsecured retail loans would continue to be strong, as the bank has a relatively smaller base and penetration into this segment is low. The bank is not seeing any signs of stress in this portfolio and credit quality should likely remain stable as the bank has been pro-actively weeding out weaker credit profiles. Focus in the segment would mainly remain on salaried customers and on cross-selling to its existing customer base.
Of the rural loan portfolio that comprises 8.4% of loans (Rs50,000cr), gold loans comprise 2% while Kisaan Credit Cards comprise 3%.
The overseas loan book, which stood at ~Rs59,600cr (10.1% of loans) as of 1QFY20, is likely to reduce as a proportion of loans going forward, due to faster growth in domestic loans.
Of the total recoveries and upgrades of Rs930cr in the quarter, ~Rs510cr was from the retail segment (55%). Recoveries and upgrades would have been higher, but for a delay in resolution in a steel account under the IBC process.
ICICI Bank’s exposure of Rs420bn to NBFCs and HFCs (Rs26,500cr + Rs15,500cr) decreased 3% qoq from Rs43,200cr. While exposure to the NBFC sector declined 9.8% qoq, exposure to the HFC sector increased 12.0% qoq, driven by lending to well-rated NBFCs and those backed by well-established corporate groups. The real estate builder portfolio of the bank stood at Rs20,200cr (up 3.1% qoq), where the focus remains on top-tier developers.
Management re-iterated that slippages in the retail segment would be higher in 3QFY20 and also in 1QFY21/3QFY21, on account of the Kisaan Credit Card portfolio. Slippages from this portfolio stood at Rs450cr in the quarter versus Rs340cr in 1QFY19.
Delinquency levels in the retail loan portfolio for ICICI Bank are below industry averages as per credit bureau data.
ICICI Bank further strengthened PCR to 74.1% (excluding prudential write-offs) due to increased provisioning on certain accounts moving into the D3 bucket, which requires 100% provisioning. Going forward, the bank would be comfortable with a PCR of >70%.
The bank sold one NPL for cash worth Rs177cr in 1QFY20.
ICICI Bank Ltd ended at Rs. 415.50, up by 6.45 points or 1.58% from its previous closing of Rs. 409.05 on the BSE.
The scrip opened at Rs. 409.30 and touched a high and low of Rs. 419.40 and Rs. 408.70 respectively. A total of 1,82,91,669 (NSE+BSE) shares were traded on the counter. The stock traded above its 50 DMA.
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