On January 30, private sector lender, ICICI Bank said December quarter would have been probably the worst in terms of COVID-impact on its loan book and things should improve from this point. The bank has aggressively provided for potential losses and will look for growth from quality borrowers, the bank's top executives of the bank said in a conference call post the announcement of results.
What is the asset quality situation of the ICICI Bank at the end of December?
The actual bad loan levels of the bank have gone up in the December quarter. Proforma Gross non-performing asset ratio (GNPAs) (without factoring in the Supreme Court dispensation impact) rose to 5.42 per cent of total loans at the end of December quarter as against the reported 4.38 per cent. Similarly, the proforma net NPAs stood at 1.26 per cent as against the reported 0.63 per cent.
This means, if one includes the impact of loans that would have gone bad but for the Supreme Court order (which barred banks from tagging any account that was standard as on August 31 as NPA), the actual stress on the books have gone up. In other words, stress remains on the books and the actual trend will emerge only after a few quarters.
That apart, the bank has restructured loans worth Rs 2,546 crore in the December quarter of which around Rs 1,700 crore worth loans were corporate loans. During the conference call, the bank said these loans are from a mix of accounts.
What lies ahead?
During the conference call, the bank’s Executive Director, Sandeep Batra, didn’t disclose what portion of its loan book is under SMA-2 (special mention accounts-2) or loans where repayments are overdue 61-90 days. But the ED said the provisions made are more than adequate to address any likely shocks.
During 03-2021, the Bank made contingency provision amounting to Rs 3,012.16 crore for borrower accounts not classified as nonperforming pursuant to the interim order of the Supreme Court.
The Bank utilised Rs 1,800 crore of COVID-19 related provisions made in the earlier periods. Accordingly, at December 31, 2020, the Bank held aggregate COVID-19 related provision of Rs 9,984.46 crore, including contingency provision amounting to Rs 3,509.46 crore.
Investors need to be watchful of the asset quality trend ahead since it is too early to say that economy is past the worst point of pandemic. The guidance is based on optimistic assumptions while real trend will emerge based on actual economic recovery on the ground.
As at the end of December, ICICI Bank’s fund-based and non-fund based outstanding to borrowers rated BB and below was Rs 18,061 crore compared to Rs 16,167 crore as of September 30, 2020. This segment needs to be watched closely for its performance.
The RBI has estimated the overall system GNPAs to grow to 13.5 per cent by September, 2021 from around 7.5 per cent in September last year in a base case scenario and to around 15 per cent in a worst case scenario. The Economic Survey 2021 warned that yet another round of asset quality review is required to assess the actual extent of NPAs in the system. All these signal that banking sector has a lot more pain left.
ICICI Bank’s conservative approach on wholesale loan growth may help it avert a bigger shock on NPA front. Retail loans comprised 65.6 per cent of the total loan portfolio at December 31, 2020. Including non-fund outstanding, retail was 54.1 per cent of the total portfolio at December 31, 2020, the bank said. As mentioned above, regardless of the guidance given on asset quality, much will depend on how economic recovery picks up the pace going ahead.Banks reflect the health of the economy.