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Sunday, October 27, 2013

ICICI Bank: Strong loan growth aids profitability

Yet another private sector bank has performed well in the September quarter, despite rising costs and deteriorating asset quality. ICICI Bank improved its net interest margin and posted strong loan growth, that was a tad better than some of its peers.

The bank’s strategy to focus on retail lending continues to pay off. Retail loan-book growth of 20 per cent helped the bank inch past HDFC Bank’s 17 per cent growth during the quarter. The loan quality has also been healthy.

Within the retail space, secured home and auto loans have grown 23 per cent and 27 per cent, respectively. However, it lagged peers in the SME (small and medium enterprises) segment.

While HDFC Bank and Axis Bank grew their SME loans by 20 and 29 per cent, respectively, ICICI Bank’s growth in this segment was flat.

In spite of volatile interest rates, the bank was able to maintain its net interest margin (NIM), as its dependence on wholesale funding is low. Over the last three years, the bank has been able to significantly ramp up its low cost CASA (current account savings account) ratio, from 29 per cent in 2008-09 to 43.3 per cent towards the end of the September quarter.

The healthy deposit mix saw the bank achieve its first ever full year NIM of 3 per cent in 2012-13, which improved further to 3.3 per cent in the September quarter. In fact, the bank managed to marginally raise its NIM, even as its peers faced some margin pressure due to the rise in cost of funds.

Most private sector banks have dealt well with the problem of rising bad loans. ICICI Bank has also maintained its slippages within guided levels. A small negative has been the lower provisioning coverage and the marginal rise in restructured loans.

While the RBI had allowed banks to apportion their mark-to-market losses on their bond portfolio over three quarters, most private sector banks have turned down the offer.

ICICI Bank joined its peers in booking the entire loss in the September quarter itself, and still delivered 20 per cent growth in net profit.

Source: thehindubusinessline


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