Don’t worry, be happy, says ICICI Bank but there’s just one problem

ICICI Bank has surprised the Street positively with its third-quarter results. Not only is net profit up a healthy 20 percent, its deposit and credit growth has also been quite good. Credit grew by a handsome 19 percent and Chanda Kochhar, CEO and managing director of the bank, assured that loan growth would be maintained at 18 percent for the financial year ending March 2012. She also predicted domestic credit growth for the next year at 18 to 20 percent. She said it was too early to talk about how the bank’s international portfolio of loans would perform next year. The bank’s total loan book currently stands at Rs 2,46,200 crore. Total deposits were up 19.67 percent, driven by additions in current and savings account (Casa) deposits. Casa ratio — the proportion of Casa deposits to total deposits — climbed to 43.6 percent from 42.1 percent last quarter. The bank also reported a slight improvement in net interest margin — the difference between interest received and interest paid — to 2.7 percent from 2.64 percent a year ago. Asset quality also improved significantly, with net non-performing assets coming down from 1.1 percent to 0.7 percent over the same period. Even more reassuring, provisions for possible slippages (part of loanbook that has potential to turn into bad loan) are also down. It seems the only worry for the bank lies with its restructured assets. Net restructured loans at the end of the quarter totalled Rs 3,070 crore, an increase of Rs 800 crore over the previous quarter. Kochhar said there would be more restructuring of corporate debt in coming quarters. Nevertheless, the bank’s asset quality is expected to remain under control. Quelling concerns about where credit growth had come from, Kochhar explained the growth main came from working capital requirements for companies and loans that had been sanctioned in the past but had been disbursed only recently. She added that project, however, were now taking longer to start and loan sanctions for new projects had also slowed down. In such a scenario, an interest rate cut or more liquidity into the system cannot be the real fix. The investment situation definitely has to improve for the bank to maintain its current form. For now, the Street is celebrating the bank’s upbeat performance: the stock ended 5.87 percent at Rs 902.