Macquarie sees 60% upside in ICICI Bank, retains outperform

At this point, ICICI Bank does not see any risks to its guidance of 90-95 basis points of credit costs for FY16E, says the brokerage, adding fund based exposure (June 2015) to the steel sector is 3.6 percent of total – large part of which is to top 5 private sector producers – and continues to be standard. Exposures to smaller steel producers have either turned into non-performing loans or been restructured.

Management commented that special mention accounts position has improved at the margin since March 2015 (which was at around 7 percent of loans), says Macquarie.

The country's largest private sector lender continued to gain share in housing mortgages (25 percent growth as against market growth of 15-17 percent Y-o-Y). Loans against property constitute around 15-20 percent of ICICI Bank’s mortgage portfolio.

Overall the bank expects 18-20 percent domestic loan growth for FY16E. Incremental corporate loan growth is through exposures to highly rated PSUs and through some refinancing opportunities.

The brokerage says management is focusing concentration risks in the corporate book with a greater emphasis on vintage of the company and relationship with the bank than before.

ICICI Bank’s cost-income ratio is at a decadal low (36.8 percent in FY15) and management remains confident of sustaining these levels. Macquarie says focus remains extracting efficiencies as many processes have been automated at branches, incremental hiring is primarily in front-office roles and digital push has also helped operating costs.

At 14:34 hours IST, the scrip of ICICI Bank was quoting at Rs 268.50, up Rs 3.25, or 1.23 percent on the BSE.Posted by Sunil Shankar Matkar