ICICI Bank’s net profit surged more than three-fold in the March quarter FY21, aided by double digit growth in all significant parameters, advances, deposits, NII and core operating profit. Had it not been for muted growth in other income (3% YoY), net profit growth could have been even higher. Apart from the strong Q4 numbers, management commentary exuded confidence in handling the second Covid wave, aided by its strong balance sheet strength, stable asset quality and robust underwriting ability.

Quick Takes:

• Net profit for the quarter jumped 260% YoY to Rs 4,403 crore compared to Rs 1,221 crore a year ago

• In quarter ended March 2021, gross NPA (GNPA) and Net NPA ratio came in at 4.96% and 1.14% improving 46 and 12 basis points, respectively

• Provision coverage ratio (PCR) came in at 77.7% as more than half of its retail loan book constitutes mortgages along with low unsecured retail loans

•  Retail book increased 20% YoY while the corporate loan book increased 10% YoY

March Quarter FY21 delivers on growth

ICICI Bank’s net profit for the March 2021 quarter rose over 3.5 times YoY to Rs 4,403 crore (vs Rs 1,221 crore a year ago.) The net interest income (NII) rose 17% YoY to Rs 10,431 core. Sequentially, NII rose 5% in Q4 FY21. Net interest margin (NIM) at 3.84% fell three basis points YoY but on a sequential basis, it was up 17 basis points at the end of the quarter.

ICICI Bank’s core operating profit (profit before provision and taxes, excluding treasury income) rose 20% YoY to Rs 8,565 crore. Total advances grew 14% YoY to Rs 7,33.729 crore while deposits increased 21% YoY to Rs 9,32,522 crore as on March 31, 2021. Average CASA ratio (proportion of current and savings account deposits) at 42.5% was strong and cost of deposits came in at 3.8%. Cost to income ratio improved to 41.31% compared to 43.9%, a year ago, indicating high operational efficiency.

Significant Asset Quality Improvement 

ICICI Bank’s asset quality has improved significantly in the March 2021 quarter. This is evident from the rating mix of its loan book, which is currently dominated by corporates with A- and above credit rating at 73%. Five years ago this number was 56%. More significantly, accounts with a credit rating of BB and below have reduced to 1.5% (from 9% in 2017) of the total loan book as on March 31, 2021. 

As a result NPA ratios have also improved substantially. In Q4 FY17, GNPA and Net NPA ratio stood at 7.89% and 4.89%. Four years down the line, at the end of March 2021 quarter, GNPA and Net NPA ratios came in at 4.96% and 1.14%, respectively. These ratios have also improved sequentially compared to pro forma basis in December quarter FY21 by 46 and 12 basis points for GNPA and Net NPA ratio respectively.

The bank’s total Covid-19 related provisioning of Rs 7,475 crore as on March 31, 2021 includes only Rs 100 crore allocated in the March quarter FY21. Provision Coverage Ratio (PCR) at 77.7% is also at a comfortable level, as more than half of its retail loan book constitutes mortgages. Credit card and personal loans comprises 14% of the retail loan book as on March 31, 2021.

Retail portfolio fuels loan growth

While the corporate loan book is driving numbers for market leader HDFC Bank, ICICI Bank’s growth is fuelled by retail loans. Retail loans as a percentage of total advances was below 40% till 2014 and in 2018 it was more than half of the loan book. 

Now, under the cloud of the pandemic, retail mix in total advances has zoomed to 66% at the end of the March 2021 quarter. ICICI Bank’s retail book has been growing consistently in double-digits each quarter over the past one year. The retail pie increased 20% YoY and is made up of  mortgages, vehicle loans, business banking (services specifically tailored to meet requirements of businesses), rural loans, personal loans and credit cards. 

Though all retail components have grown in double-digits, mortgage loans (50% of total retail loans) have been the main driving force throughout the pandemic, rising consistently over the past one year. ICICI bank’s retail loan book has been growing above industry levels over the past few quarters. 

Sandeep Bakshi, MD and CEO at ICICI Bank, said that seamless credit delivery, enhancing of underwriting ability and a strong digital footprint has helped increase the non-mortgage share of retail business leading to market share gains. He added that decongestion on the mortgage side of business, under penetration in the segment, competitive pricing, and the digital tilt of ICICI Bank’s entire product spectrum helped in revving up strong numbers for the mortgage business. Strong retail growth has been driven by the right mix of faster credit delivery process, competitive intensity and digital process in the proportion of 60:20:20, Bakshi said. 

Investors and analysts alike are impressed by the strong digitization across its business. The bank’s digital banking ecosystem runs across segments, right from customer initiation stage to retention. This strong and seamless digital way of delivery will augment volumes, increase top-line, reduce costs and expand operating profit under the cloud  of the pandemic.

Corporate loan Book and Management Outlook

ICICI Bank’s corporate book is still carrying the baggage of the NPA mess from 2015. And the management is wary of rampant growth on this side of the bank’s business. With management change in 2018, the Bank has been following a three-pronged strategy--strong focus on retail loans franchise, strengthening its deposit base, and asset quality improvement. 

The main focus of the corporate book is on short-term lending as pricing is not appropriate for very long-term lending (10-15 years) in the present scenario. The bank on the other hand has started focussing not only on its corporate clients but their entire ecosystem providing a full suite of banking products to its employees, business partners, raising deposits, issuing credit cards, lending to dealers, vendors and SME business partners. 

ICICI Bank’s stock price ended up almost 4% on Monday as the street is reacting strongly to its Q4 numbers. Investors and analysts will watch whether the bank can maintain its strong growth trajectory, operating profit growth of about 15% over the past four quarters, stable asset quality and strong deposit base in the near future. Bakshi said the impact of the second wave of Covid19 infections is hard to quantify and the focus will be to raise low-cost deposits, lending to high-rated borrowers and earn a good amount of spread. If need be, ICICI Bank will calibrate its growth in the near term based on the operating environment and conditions resulting from the second wave of the Covid-19 pandemic.