ICICI Bank’s Quarterly Profit Drops as Loan Provisions Surge

  • Bad loan provisions jump 160 percent to 25 billion rupees
  • Indian banks covering more deliquencies on central bank push

ICICI Bank Ltd., India’s largest private sector lender by assets, posted a 25 percent drop in first-quarter profit as provisions for bad debt rose.

Net income fell to 22.3 billion rupees ($333 million), or 3.83 rupees a share, in the three months ended June 30, from 29.8 billion rupees, or 5.09 rupees, a year earlier, the Mumbai-based lender said in an exchange filing Friday. That matched the 22.1 billion-rupee mean of 20 analyst estimates compiled by Bloomberg.

Chief Executive Officer Chanda Kochhar is striving to boost ICICI’s profits at a time when surging bad loans in the country is forcing lenders to set aside more funds to cover delinquencies. In April, the bank reserved 36 billion rupees for possible defaults by companies in sectors including cement, power and mining, an amount that came on top of the 33 billion rupees it put aside to cover soured loans in the March quarter.

“We expect the asset quality issues to remain at least for another two quarters before any improvement can be seen,” said Rethish Varma, head of research at Bengaluru-based Aditya Trading Solutions Ltd.

Shares of ICICI fell 3.4 percent to 262.90 rupees in Mumbai trading on Friday, the most since June 24, paring this year’s gain to 0.6 percent. The S&P BSE India Bankex Index, which tracks 10 lenders, has climbed 12 percent this year.

Rajan Push

Provisions that the Mumbai-based bank made for soured debt jumped to 25 billion rupees in the first quarter from 9.6 billion a year earlier, ICICI said.

In December, Reserve Bank of India Governor Raghuram Rajan set lenders a March 2017 deadline to rid their balance sheets of bad debt. The proportion of Indian banks’ stressed assets, which include restructured and soured loans, to total advances surged to a 16-year high of 11.5 percent as of March 31, RBI data show.

ICICI’s gross bad loans as a percentage of total loans widened to 5.87 percent from 5.82 percent in the previous quarter. In comparison, HDFC Bank Ltd., India’s biggest lender by market value, had a ratio of 1.04 percent for the same quarter.

Here are other key earnings figures reported by ICICI:

  • Total outstanding loans rose 12 percent to 4.5 trillion rupees
  • Net interest income rose rose 0.9 percent to 51 billion rupees
  • Capital-adequacy ratio remained little changed at 16.2 percent from 16.4 percent; compared with requirement of at least 9 percent required by March 2019 under Basel III rules

Indian banks have mostly restrained lending to bring delinquencies under control. Loans grew 9.79 percent nationally in the 12 months through July 8, less than the five-year average of 13.8 percent, fortnightly central bank data show.

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