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ICICI guides for 15% RoE on likely fall in provisions, credit growth

Operating profit before provisions and tax increased 26% to Rs 6,077 crore.

ET Bureau|
May 07, 2019, 07.49 AM IST
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We are near the end of the NPA cycle and expect the addition in NPAs to decrease going forward. Our credit costs are expected to normalise going forward.
MUMBAI: ICICI Bank has vowed to boost its return on equity (RoE) five times in the next one year as it guided for lower provisions and continued credit growth, especially from the retail loans in the fiscal year ending March 2020.

The bank reported a 5 per cent drop in net profit to Rs 969 crore in the quarter ended March 2019 from Rs 1,020 crore a year earlier as unlike last year, it did not get a Rs 3,320 crore windfall from the sale of stake in its brokerage unit ICICI Securities Ltd. The profit was lower than the Rs 2,292 crore expected by a Bloomberg poll of analysts.

However, operating profit before provisions and tax increased 26 per cent to Rs 6,077 crore from Rs 4,829 crore a year earlier. ICICI said that the strong growth in operating income was driven by robust deposits, healthy growth in the loan portfolio and expansion in net interest margin (NIM).

Total advances increased 15 per cent, led by a 22 per cent growth in retail loans, while total deposits increased by 16 per cent led thanks to a 12 per cent increase in lowcost current and savings account deposits (CASA). The ratio of lowcost CASA deposits to total deposits was 49.6 per cent at the end of March.

NIM, or the difference between the yield a bank earns on advances and that it pays on deposits, improved to 3.72 per cent in March 2019 from 3.24 per cent a year earlier helped by a positive impact of interest earned from income tax refund. Adjusting for the refund, the NIM was 3.52 per cent.

“We are near the end of the NPA cycle and expect the addition in NPAs to decrease going forward. Our credit costs are expected to normalise going forward. We are committed to a RoE of 15 per cent by June 2020 riding on strong loan growth and robust deposit franchise,” said Sandeep Batra, president, corporate centre, ICICI Bank. In a separate release, the bank said Batra has been elevated as executive director subject to regulatory approvals.

The bank’s credit costs or the amount of provisions it makes as a per centage of its total NPAs for the year were 3.50 per cent but Batra said he expects it to “normalise.” The bank had reported credit costs of 1 per cent to 1.2 per cent before the current cycle of uptick in NPAs got underway.

Total additions to NPAs during the quarter were Rs 3,547 crore, which included an account linked to the sugar sector that was classified as NPA because of regulatory interpretation communicated to banks relating to change in management. Out of the fresh slippages, Rs 850 crore were from the bank’s accounts rated BB and below, while Rs 1,900 crore were rated BB and below. The total fund and non-fund outstanding borrowers rated BB and below were Rs 17,525 crore.

Batra said that the bank is watching its exposure in sectors like real estate and Kisan credit cards along with its loan portfolio of BB and below.

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