ICICI Bank Profit Rises on Fewer Unsecured Loans, Higher Domestic Lending

ICICI Bank Ltd., India’s second- largest lender, said fourth-quarter profit rose 35 percent as it reduced unsecured loans and increased domestic, low-risk lending.

Net income in the quarter ended March 31 rose to 10.06 billion rupees ($226 million), or 9 rupees a share, from 7.44 billion rupees a year earlier, or 6.7 rupees, according to the bank. HDFC Bank, India’s third-largest lender, also gained from increased lending. It reported a 33 percent rise in earnings to 8.36 million rupees today.

“ICICI’s deposit mix has improved dramatically in the quarter and that is bound to reflect in better numbers going forward,” said Vaibhav Agrawal, vice president of research at Angel Broking. Agrawal expects credit growth of over 20 percent this year for Indian banks including ICICI and HDFC Bank.

ICICI Chief Executive Officer Chanda Kochhar, who took the helm about a year ago, aims to win new customers by extending the branch network after six consecutive quarters of shrinking loans, including the latest, and five quarters of depleting deposits.

She is betting that growth in car and home loans, and credit demand for spending on roads, ports and utilities will accelerate as economic expansion picks up in India.

Quality Deposits

The bank posted a “strong increase” in its current account, savings account ratio, Kochhar said in a conference call in Mumbai. The so-called CASA ratio indicates the quality of a bank’s deposits.

“Our deposit base has grown substantially, leading to a gradual improvement in net interest margins,” she said.

The lender’s earnings were in line with the 10 billion rupee average of 21 estimates compiled by Bloomberg.

Unsecured loans were 5 percent of the loan book in the quarter from 7.5 percent last year, Kochhar said. She has sought to curb defaults by reducing unsecured lending through products such as credit cards and personal loans following the global economic slowdown.

Employee cost rose 27.4 percent because employees got bonuses this year, Kochhar said. Last year there were no bonuses.

ICICI shares rose 3.6 percent to 977.70 rupees in Mumbai trading yesterday. The stock advanced 8.6 percent in the quarter, compared with a 0.4 percent increase in India’s benchmark Sensitive Index. HDFC Bank gained 0.9 percent to 1,951.80 rupees. ICICI and HDFC proposed to pay a dividend of 12 rupees a share.

Fee Income

Fee income at ICICI, from services such as selling insurance policies and investment advisory, increased 13 percent to 15.21 billion rupees, while operating expenses fell 6 percent to 15.04 billion rupees. HDFC bank reported a 7.1 percent gain in fee income.

ICICI’s net interest income, or revenue from borrowers after deducting interest paid to depositors, fell 4.9 percent to 20.4 billion rupees. Income from trading in bonds and treasuries fell to 1.96 billion rupees this quarter, from 2.14 billion rupees in the corresponding period last year.

India’s bank loans, excluding food credit, rose 9.1 percent in the most recent quarter to about 31.9 trillion rupees as of March 26, according to central bank data.

ICICI and HDFC Bank’s earnings were reported on a standalone basis.

To contact the reporter on this story: Ruth David in Mumbai at rdavid9@bloomberg.net

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