Higher tax outgo, slippages in retail loans roil ICICI

Second-largest private sector lender ICICI Bank on Saturday reported a 6 per cent decline in the September quarter consolidated net profit to Rs 1,131.20 crore, weighed down by one-time deferred tax adjustments and higher delinquency in retail loans.

On a standalone basis, the bank posted a net profit of Rs 654.96 crore for July-September as against Rs 908.88 crore in the year-ago period due to a Rs 3,020.67 crore tax adjustment hit, as it shifted to the new tax regime.

From an asset quality perspective, which has weighed heavily on its performance in the past few years, the bank reported an improvement in the gross non-performing assets ratio at 6.37 as against 8.54 in the year-ago period, as the overall slippages declined to Rs 2,482 crore from Rs 3,100 crore.

However, retail loans constituted as much as Rs 1,323 crore of fresh slippages, and there was also an increase in the low-rated book that can cause more pains in the future, at Rs 16,000 crore, up from Rs 15,350 crore a year ago.

The bank has no material exposure to a mortgage major in distress right now, and there will not be any major impact because of its NBFC/HFC book in the future as well, its management said.

Executive director-designate Sandeep Batra attributed the rise in stressed retail loans to an increase in the proportion of the low-ticket loans in the book at 62 per cent and added that the performance is in line with its expectations which are set during the pricing.

To a question on whether the rise in low-grade loans is attributable to the overall slowdown, he said the bank is not immune to the overall economic environment which is not much to write home about.

Corporate loans grew at a slower 7 per cent during the quarter and the bank had to rely on the higher 22 per cent growth in retail loans to achieve 16.4 per cent growth in the domestic book which now stands at Rs 5.53 lakh crore.

The management, however, did not share its outlook on the loan growth and when it sees a revival in corporate loan demand, which according to many observers, can give a leg-up to the stalled growth engine.

Rather than the balance sheet size, the bank is focused on having a risk-calibrated strategy of growth for the last one year and will continue with the same, the management said.

The net interest margins expanded by a notch to 3.64 per cent during the quarter, and the bank is aiming to better it further.

The average share of the current and savings account deposits dipped to 42.2 per cent of the base, and the bank hinted at there being a greater reliance on fixed deposits as part of its liability strategy.

The expansion in NIMs and loan growth pushed up the core net interest income 25.5 per cent to Rs 8,057 crore, while non-interest income grew 20.8 per cent to Rs 3,854 crore.

Total provisions on a standalone basis came down to Rs 2,506.87 crore from Rs 3,994.29 crore thanks to the fall in GNPAs and the overall provision coverage ratio stood at 76.1.

Its telecom industry exposure stands at 1.8 per cent of the book with most of it to the top two players, and it will have to assess the impact of the Supreme Court order on the telcos, the management said.

On the taxation line, its September outgo doubled to Rs 691 crore and there was an additional Rs 3,020 crore impact through deferred tax adjustment, which collectively shaved-off a major chunk from the bottomline and prevented the bank from reporting a four times increase in profits. Including the profit, its overall capital adequacy stood at 16.04 per cent as against the regulatory mandate of over 11 per cent.

The bank also said while there is a slowdown in demand, there are supply-side constraints as well which it is trying to overcome through digital interventions, the management said, adding it is in liquidity surplus at present.

It may look at floating rate deposit products in the three-four month’s tenor, and also at other benchmarks on the lending side beyond the repo rate to price the loans, the management said.