ICICI Bank is a highly conservative lender under its new leadership. The lender's management has, time and again, made that strategy clear especially when it comes to quality of book. Some part of that caution is the learning from its own troubled past.
In the first quarter of FY22, the bank has posted an impressive growth in net profits, significantly because of lower provisions. Provisions fell sharply to Rs 2,852 crore in the April-June quarter, compared with Rs 7,594 crore in Q1FY21.
Also, the bank's net interest margin (NIM) came at a 26-quarter high at 3.89% against 3.84% QoQ. Net interest income (NII) for the quarter grew 17.8% YoY at Rs 10,935.7 crore which was above the CNBC-TV18 poll of Rs 10,614.4 crore.
While the loans growth (20%) and the net interest margin (NIM--spread between interest earned and interest spent) are impressive, asset quality trends need a closer look. Within that, retail NPAs warrant even closer attention.
Both Gross NPAs and net NPAs have gone up sequentially-- a trend largely in line with that reported by other bigger banks.
The bank's Q1FY22 gross NPA stood at 5.2% against 5% QoQ while net NPA came at 1.2% against 1.1% QoQ. Gross NPA stood at Rs 43,148.3 crore against Rs 41,373.2 crore QoQ. Net NPA remained at Rs 9,305.8 crore against Rs 91,80 crore QoQ.
During the post result call with the media, ICICI Bank management said it will exercise increased caution on retail book asset quality going ahead. The reason isn't hard to understand. COVID has begun to impact the repayment ability of retail borrowers, even in portfolios like gold loans.
Similarly, Kisan Credit card NPAs too seem to be inching up.
Of the Rs 7,231 crore GNPAs reported in the quarter, Rs 6,773 crore came from retail. If one looks at the Rs 3,891 crore restructured book in Q1 under RBI's scheme, Rs 925 crore were personal loans.
As mentioned above, even the gold loans, traditionally a safer bet for the bank, is showing signs of pain. The bank has acknowledged the stress and has clarified that going ahead it will adopt a more conservative approach to some of the retail stressed loans.
ICICI Bank has increased provisions on retail loans.
Recently, the bank's closer rival HDFC Bank too had reported increasing stress signs which the lender ascribed to COVID second wave. The same trend was visible in Bajaj Finance numbers as well.
A similar caution is seen in ICICI Bank's comments very clearly. In the absence of regulatory dispensations like the ones the RBI announced last year (moratorium etc), the impact on asset quality is likely to be sharper in FY22, the bank said in the notes.
On a review of the asset quality position, the bank has written back Rs 1,050 crore provisions in Q1.
As on June 30, the bank held COVID-19 related provisions of Rs 6,425 crore. The total capital adequacy ratio was 19.27% and the tier-1 capital adequacy ratio was 18.24% on a standalone basis on June 30, 2021 (including profits for Q1-2022).
To sum up, the key theme from ICICI Bank's results is the focus and higher caution on retail side of the businesses. If the COVID situation prolongs, the aggressive retail bet could prove to be a bigger worry for the bank.