Net income climbed to 22.7 billion rupees ($372 million), or 19.61 rupees a share, in the three months ended June 30, from 18.2 billion rupees, or 15.71 rupees, a year earlier, the Mumbai-based lender said in an exchange filing today. That matched the 22.2 billion-rupee median of 40 analyst estimates compiled by Bloomberg.
Shares of ICICI fell 3.1 percent today as investors’ concern that widening currency swings will hurt India’s economy overshadowed the profit gain. Chief Executive Officer Chanda Kochhar’s 20 percent target for credit growth this year may also be hampered by the Reserve Bank of India’s decision to increase borrowing costs and an economic slowdown.
“Treasury gains and a check on bad loans were the drivers for June quarter profit,” Vishal Narnolia, a Mumbai-based banking analyst at SMC Global Securities Ltd. (GLBS), said by telephone. “Investors are waiting for clarity on how the lender will navigate the rising cost of funds and cash crunch after the Reserve Bank’s recent tightening measures.”
India’s economy expanded 5 percent in three months to June 30, according to the median of 14 analyst estimates compiled by Bloomberg. The South Asian nation’s gross domestic product may grow 5.7 percent in the year through March 2014, based on a survey of forecasts from other organizations, the RBI said in a report on July 29.
Higher Borrowing Costs
The Reserve Bank, which cut the benchmark repurchase rate three times this year, started tightening policy to halt a slide in the rupee, which plunged to a record low of 61.2125 a dollar on July 8.
The RBI boosted the bank rate and the marginal standing facility, two benchmarks for its provision of funds to lenders, to 10.25 percent from 8.25 percent on July 15, and last week capped its funding support and increased banks’ daily cash reserve requirements.
“A tight monetary stance could heighten risks in the system,” Santosh Singh, an analyst at Espirito Santo Securities Ltd., said in a July 29 note. “If interest rates were to rise and financial-sector companies were to pass on the costs, we may see a non-performing loan spurt.”
Shares of ICICI fell 3.1 percent to 896.95 rupees as of 1:34 p.m. in Mumbai trading. The stock has slumped 21 percent this year, keeping pace with the Bankex Index’s drop.
The lender posted treasury income of 4 billion rupees for the three months to June 30, compared with a loss of 210 million rupees a year earlier, ICICI said.
The net interest margin, a measure of lending profitability, widened to 3.27 percent from 3.01 percent a year earlier. Net interest income, or revenue from lending minus payments on deposits, rose 20 percent to 38.2 billion rupees.
The bank’s gross bad-loan ratio shrank to 3.23 percent from 3.54 percent a year earlier, according to the statement.
Bad loans at Indian lenders swelled to 3.7 percent of total loans as of Dec. 31, the highest in at least five years, before narrowing to 3.4 percent at the end of March, data compiled by the central bank show. The ratio may increase to 3.8 percent by September, the RBI said in a report last month.
Total outstanding loans at ICICI increased by 12 percent to 3 trillion rupees at the end of June. Loan growth at Indian lenders slowed to 13.7 percent in June, the lowest since 2009, before accelerating to 14.2 percent in July, data compiled by the RBI shows.
The bank’s ability to charge more for international lending in line with rising U.S. treasury rates will help sustain profit growth, Hatim Broachwala, a Mumbai-based banking analyst at Karvy Stock Broking Ltd., said by telephone before the earnings were announced. Lending by overseas branches comprise more than one-fourth of ICICI’s total advances.
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