ICICI Bank announced its second quarter (July-September) results on October 31. The numbers largely look good, particularly in terms of asset quality trends. There is optimism, albeit a cautious one. The bank has guarded itself against potential COVID shocks. It feels the cushion is adequate but everything depends on how the pandemic pans out from this point.
At a conference call post the announcement of the results, the bank’s management said going by the feedback it gets from corporate and mid-corporate clients, things are slowly getting back to normality. The management is hopeful that the next financial year should be a good year.
Let’s look at some of the important aspects:
Where are the requests for restructuring coming from?
The management said restructuring requests have been coming from a mix of client segments including one large corporate, mid-corporations and retail. The amount involved is not significant so far, it said. “There is a mix of requests coming from across segments, which include large corporate, mid-corporates and retail,” said ICICI Bank President Sandeep Batra.
Remember, the Reserve Bank of India (RBI) has given a deadline of December-end for banks to accept requests for one-time restructuring under the one-time COVID resolution framework. Under this, banks can extend the moratorium for those borrowers whose repayment ability was affected due to the pandemic for up to two years and relax other repayment conditions to help the stressed borrower.
How are the collections doing?
The bank repeated throughout the conference that collection efficiency is almost back to Pre-COVID levels. This is good since prolonged lockdown had severely impacted the ability of lenders to make collections. ICICI Bank expects better days ahead as the economy is opening up. “We have adapted well,” said the management. The management is confident that the pandemic impact was largely about the COVID lockdown. With the economy opening up, the bank expects economic activities to return to normality and credit losses to be addressed by FY22.
But these are optimistic assumptions. We have to wait and watch.
How prepared is the bank for COVID losses?
Till now, it appears that the bank has made aggressive provisions to cushion the likely impact of COVID based on its assessment. On September 30, 2020, the bank held COVID-19 related provision of Rs 8,772 crore. “Provisions made in March and June quarters will completely cushion the balance sheet from any COVID stress,” the bank said.
How is asset quality?
ICICI Bank’s net NPAs, as on September 30, is at one percent. But if one takes into account the portion of loans that are not tagged NPAs following a Supreme Court (SC) order, the net NPA figure is 1.12 percent. This is still less compared with 1.23 percent in June. The bank has made Rs 497 crore provisions on loans impacted due to the SC order. Largely, the asset quality looks good at this point.
What is the exposure to low-rated companies?
The fund-based and non-fund based outstanding to borrowers rated BB and below (excluding nonperforming assets) decreased to Rs 16,167 crore as at September 30, 2020, from Rs17,110 crore as at June 30, 2020. These are low-rated companies or firms whose ratings were downgraded post-pandemic. Exposure to such companies is considered to be a tad risky compared with top-rated companies.
How was the corporate/retail loan growth in Q2?
The bank is cautious about the quality of the loan book. In the September quarter, ICICI Bank has grown its retail book 13 percent on a year-on-year (YoY) basis and 6 percent on a sequential basis. Growth in the performing domestic corporate portfolio was about 7 percent YoY. There is a clear focus visible on the retail side. Not surprising, because retail is considered to be safer in tough times as corporate defaults faster and the impact typically big on account of loan size.
How is the mix of advances as of now?
Retail loans comprised 65.8 percent of the total loan portfolio as at September 30, 2020. Including non-fund outstanding, retail was 53.6 percent of the total portfolio as at September 30, 2020.
Where does the bank want to grow its loan book?
In the conference call, the management of ICICI Bank didn’t give any clear credit growth targets. They only said the bank will look for “good quality borrowers in both retail and corporate portfolios.”
How’s the deposit growth in Q2?
Deposit growth looks good too. Total deposits increased by 20 percent YoY to Rs 8,32,936 crore as at September 30, 2020. Average current account deposits increased by 21 percent YoY in Q2-2021. Average savings account deposits increased by 15 percent year-on-year in Q2-2021. Total term deposits increased by 26 percent YoY to Rs 4,68,356 crore as at September 30, 2020.
What should one watch going ahead?Investors should keep an eye on the restructured loan figures at the end of the next quarter. Regardless of the bank’s optimism, the COVID-19 scenario is too unpredictable. The economy is slated to contract by 9.5 percent in this financial year. Also, the performance of the retail portfolio, where the focus seems to be now, amid job losses and subdued economic sentiments needs to be watched closely.