Corp loans to trouble ICICI Bank in future: Nirmal Bang

Hemindra Hazari of Nirmal Bang Institutional Equities says ICICI Bank’s Q4 numbers were robust, but is worried that the bank's corporate loan book will pressure margins in the future. “It is widely known that the Indian corporate sector today is under considerable pain, their cash flows are getting squeezed and yet we find that large banks’ earnings are quite robust, so that is an area of which I would be slightly concerned of,” he said in an interview to CNBC-TV18.

He believes all large banks with a substantial corporate loan book will face pressure going forward. Below is an edited transcript of his interview with Mitali Mukherjee. Also watch the accompanying video. Q: What have you made of the ICICI Bank numbers, they look quite strong on most parameters? A: Yes, they do look strong on most parameters. I am quite heartened to note that the net interest margin (NIM) has crossed 3% because that was always an issue with ICICI Bank. But the strange thing I am noticing with some of the large banks which have reported numbers is that they are surpassing analysts’ expectations on earnings. These are banks which have a large corporate exposure. It is widely known that the Indian corporate sector today is under considerable pain, their cash flows are getting squeezed and yet we find that large banks’ earnings are quite robust. So that is an area of which I would be slightly concerned of. Q: ICICI Bank in specific though has had asset quality issues more than many of its large peers. Given what you have seen in terms of a trajectory these last few quarters, would you say much of that problem seems to be behind the bank? A: Our call for any large bank would be linked to our call on the economy and our call on the economy is that you are going to see a more prolonged economic slowdown. The kind of ramp up that has been widely discussed in the press of the CDR, you should expect to see a very large CDR restructuring. So I believe going forward, any large bank which banks with corporate India should face problems on its corporate book and we are not seeing that so far in the numbers. Q: Are you doing a relook though on what you have seen with ICICI’s numbers in terms of your own earnings and price targets for the bank because it has been working with a bit of a discount to its peers? A: It has been working with the discount because today what is happening is there is considerable pain in the corporate sector. There are lots of large projects, especially in the power sector, which have not yet come in into the CDR cell. So the market and analysts are rightly concerned about these projects and we do not see any light at the end of the tunnel for such projects. Banks which have to lend to them are going to face problems on these exposures.