by Suhani Adilabadkar
The second largest Indian private sector bank, ICICI Bank had beat street estimates in its June quarter, reporting strong and stable results. Though its life and general insurance subsidiary stake sale aided its robust bottom-line, rising 36% YoY, Q1FY21 numbers were healthy overall in parameters ranging from robust NII (net interest income) to a strong balance sheet and stable asset quality.
With Covid19, the stock has fallen 34% from its 52-week high of 550 levels that it struck in February 2020. Promoted in 1994 by ICICI Ltd, and later through a reverse merger with the parent entity in 2002, integrating its wholesale and retail functions, ICICI Bank in its current avatar, is a leading private sector bank with a network of 5,324 branches and 15,661 ATMs across India. The Bank’s consolidated total assets stood at Rs.14.4 trillion as on 30th June, 2020.
- NII was robust, reporting 20% YoY growth, at Rs. 9,280 crore while NIM was also stable at 3.69% in Q1 FY21.
- Deposit growth stood at 21% YoY with current and savings deposits growing 19% and 12% YoY respectively.
- The bank made Covid-19 related provisions of Rs. 2,725 crore in Q4 of 2020 against standard assets which has been augmented by an additional Rs. 5,550 crore in Q1 FY21.
- Provision coverage ratio stood at 78.6% while cost to income ratio was 37.5% in Q1 FY21.
- Moving away from the aggressive loan growth drive of previous years, the banking sector is now more focussed on collections and deposit mobilization, garnering higher retail and term deposits.
- Gross and net NPA ratios, two years ago (Q1 FY19), reported at 8.81% and 4.19% in June quarter FY19 have declined to 5.46% and 1.23% respectively in Q1 FY21.
June Quarter FY21 (Standalone)
Despite nationwide lockdown and high Covid provisioning, ICICI Bank reported stable June quarterly results. NII was robust reporting 20% YoY growth, at Rs. 9280 crore in Q1 FY21 against Rs. 7737 crore the same period last year. NIM was also stable at 3.69% in June FY21 compared to Rs. 3.61% the corresponding June quarter FY20.
With the bank monetizing 1.5% and 4% stake in ICICI Life and ICICI Lombard respectively amounting to Rs. 3,063 crore, PAT jumped 36% YoY reporting at Rs. 2,599 crore in June quarter FY21 against Rs. 1,908 crore same period previous year. Provisions doubled YoY from Rs. 3,496 crore in June quarter FY20 to Rs. 7,594 crore in Q1 FY21. Gross non-performing assets (GNPA) as a percentage of gross advances stood at 5.46% while net NPAs as a percentage of net advances was reported at 1.23% in June quarter FY21. Provision coverage ratio stood at 78.6% while cost to income ratio was 37.5% in Q1 FY21.
Banking Sector in Safety Mode
With subdued economic activity and Central and State governments fronting low tax collections and high expenditure due to Covid-19, the banking sector is bound to bear the brunt. Thus, it’s a caution driven stance for the Indian banking sector with many biggies falling from their 52-week highs.
As the pandemic has impacted businesses, individuals and their financial stability, banks have tightened their risk models and underwriting norms, leading to lower disbursals. Moving away from the aggressive loan growth drive of previous years, the banking sector is more focussed on collections and deposit mobilization, garnering higher retail and term deposits. Cost efficiency is the new mantra by curtailing discretionary expenditure on travel, marketing, sales & promotion and advertisements, as well as pay freezes for mid-top-level management.
Banks have also strengthened their balance sheets by raising funds, but deployment through loan disbursals is in a slow lane due to moratorium hindrances and rigorous risk metrics.
ICICI Bank: Emerging as a Safe Long-Term Bet
ICICI Bank has come a long way, amidst the NPA deluge since 2018. The numbers speak for themselves: gross and net NPA ratios, two years ago (Q1 FY19), reported at 8.81% and 4.19% in June quarter FY19 have declined to 5.46% and 1.23% respectively in Q1 FY21.
The analyst community is betting hard on ICICI Bank on the back of its improving performance over the past 3-4 years. And though the moratorium impact will be clear from Q3 FY21, asset quality has improved sequentially as GNPA and Net NPA ratios have declined 7 and 18 bps respectively in June FY21. In addition to this, PCR ratio has improved tremendously, from a low of 50%, 2-3 years ago to the current 78.6% in Q1 FY21.
It’s not just improving asset quality that is sending encouraging signals - the bank has performed well on a number of important parameters making it a top pick for a safe long-term investment amidst Covid headwinds.
Starting with robust NII growth, 20% YoY and 4% sequentially, NIM has also increased 8 bps YoY and on both these counts ICICI bank has fared better than its closest competitor, HDFC Bank reporting NII growth of 18% and NIMs constant at 4.3% for Q1 FY21. Deposit growth has also been robust reporting 21% YoY growth with current and savings deposits growing 19% and 12% YoY respectively. For loan book, growth has been modest at 7% and in this respect, Mr Rakesh Jha, CFO, ICICI Bank said, “The disbursements across various retail products which had virtually entirely stopped in the months of April and May, have picked up in June. The disbursements across home and auto loans decreased by about 65% and personal loans and commercial business decreased by about 85% in Q1 of 2021 compared to Q4 of 2020.
The incremental sourcing during Q1 of 2021 was primarily to existing customers of the Bank. The bank made Covid-19 related provisions of Rs. 2,725 crore in Q4 of 2020 against standard assets which has been augmented by additional Rs. 5,550 crore in Q1 FY21. Thus, though provisions have doubled in June quarter FY21, provisions, other than those related to Covid-19 has declined 41.5%.
Last but not least, from about 30% of total loans being under moratorium by April end, the loans to customers where moratorium was effected for June repayments have declined to about 17.5% of total loans at 30th June, 2020. And now coming to the recent Rs. 15,000 crore capital raise, ICICI Bank is looking to strengthen its balance sheet, improving its competitive positioning and bracing itself against any further aggregation of Covid impact. The banking industry as a whole is waiting for a favourable ruling by Supreme Court in the loan interest waiver case, where the next hearing is on 13th October.