ICICI Bank’s disclosure that loans worth Rs 44,000 crore or 4.8 per cent of its total assets are in the stressed sector triggered a sharp selloff in its shares on Monday. ICICI Bank’s warning on bad loans comes days after Axis Bank put corporate loans worth about Rs 22,600 crore under a “watch list”. Together, the warnings from the two big banks have put to rest hopes that the country’s bad loan problem likely bottomed out in the March quarter.
Here are 10 things to know about ICICI Bank’s Q4:
1) ICICI Bank shares fell nearly 5 per cent today as analysts downgraded the lender’s earnings estimates on the back of weak performance in the March quarter.
2) ICICI Bank had reported a 76 per cent drop in its March quarter profit on account of higher provisioning for bad loans. India’s biggest private lender’s net profit fell to Rs 702 crore in Q4 as it made a provision of Rs 3,330 crore for bad loans in Q4 and set aside another Rs 3,600 crore as one-off contingency provision.
3) ICICI Bank’s gross bad loans jumped to 5.82 per cent of total loans in Q4 as compared with 4.72 per cent in Q3. The spurt in bad loans during the last two quarters was on account of an asset-quality review ordered by Reserve Bank of India as part of a clean-up exercise of domestic banks’ loan books.
4) ICICI Bank said it has a total exposure of Rs 44,000 crore in below investment grade sectors – power (Rs 12,000 crore), mining (Rs 9,000 crore), iron & steel (Rs 7,780 crore), cement (Rs 6,600 crore), rigs (Rs 2,500 crore) and promoter entities (Rs 6,200 crore). The management expects more loans in these sectors to turn bad.
5) ICICI Bank has not indicated the probability of default on such loans, unlike Axis Bank, which expects 60 per cent of Rs 22,600 crore loans under its “watch list” to turn bad in two years.
6) ICICI Bank’s growth is being fueled by retail segment and the trend will continue in FY17. The management expects 18 per cent loan growth for FY17, with retail growth at 25 per cent and corporate loans growth at 5-7 per cent.
7) ICICI Bank’s net interest margin (a key parameter of profitability) declined by 20 basis points to 3.37 per cent in Q4 because of the sharp rise in bad loans. The management expects NIM to further compress by 20 basis points as the lender shifts its loan portfolio mix towards secured retail and better rated corporates.
8) ICICI Bank said its top brass will not take a performance bonus for fiscal year 2015-16, but the announcement failed to excite analysts.
“ICICI Top Brass forego bonuses. Actually there should be claw back for last 3 yrs when they showed artificially high profits,” tweeted fund manager Sandip Sabharwal.
9) Despite weak numbers and forecast of rising bad loans, some brokerages retained their positive outlook on ICICI Bank. Kotak Institutional Equities retained its “buy” call (target Rs 320) on the stock, citing the shift towards low-risk business, strong liability franchise and attractive valuations. Nirmal Bang Securities also retained its “buy” rating on the stock (target Rs 280).
10) However, Emkay Global downgraded ICICI Bank to “hold” with a target of Rs 257. Religare maintained its “sell” rating (target Rs 200) on the stock citing margin pressure and elevated provisions.
ICICI Bank shares closed 4.30 per cent lower at Rs 226.75, underperforming the broader Nifty, which closed down 0.56 per cent at 7,806.