Bad debt concerns haunt private bank stocks, ICICI Bank down 7%

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NEW DELHI: Shares of select private sector lenders took a beating, falling as much as 7 per cent, in Friday’s session after ICICI Bank’s December quarter results revived concerns over asset quality of banks. Shares of ICICI Bank declined 7.28 per cent to hit a low of Rs 216 on BSE within the first hour of trade.

The largest private lender on Thursday reported a 4 per cent growth in December quarter net profit at Rs 3,018 crore compared with Rs 2,889 crore posted for the year-ago period. This was lower than the average profit projection of Rs 3,050 crore made in a Bloomberg poll of 30 analysts.

The bank kept Rs 2,844 crore as provisions, which was three times higher than Rs 942 crore it had kept aside in the year-ago quarter. Gross non-performing assets (GNAs) rose to 4.72 per cent of total loans, the highest in five years and up from 3.40 per cent in the December quarter of 2014.

Asset quality has been the focus area for banks (especially corporate lenders) over the past few months after the RBI directive to clean banks’ balance sheets, Edelweiss Securities said in a note.

“Q3FY16 is critical to shape up the future and the outcome suggests things are unlikely to stabilise in near-to-medium term. Slippages spiked to about Rs 6,540 crore (6.4 per cent versus a 2.2 per cent run rate in last six quarters) and guidance of similar asset quality performance has only worsened matters. The pain is expected to flow from the restructured book and predominantly the power segment,” the brokerage said, adding that it has reduced its target multiple, leading to a SOTP-based target price of Rs 286 (from Rs 405 earlier).

The increase in the NPA ratios for ICICI Bank is due to a decline and continuing weakness in the global steel cycle; and also due to the RBI directive for early and conservative recognition of stressed assets and provisioning there of by March 31, 2016, said Vaibhav Agrawal of Angel Broking.

“At the prevailing stock price, the bank’s core banking business (after adjusting Rs 67 per share towards value of subsidiaries) is trading at 1.2 times FY2017E ABV. We recommend an accumulate rating on the stock,” Agrawal said.

At 9.45 am, shares of Yes Bank and Axis Bank were trading down 2.14 per cent and 2.01 per cent, respectively.

Axis Bank recently reported a 0.30 basis points quarter-on-quarter rise in to gross NPAs at 1.68 per cent for the December quarter.

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