ICICI Shares Drop as Defaults Climb Amid Economic Slowdown

ICICI Bank Ltd., India’s second-largest lender by assets, fell by the most in almost three weeks in Mumbai stock trading as rising defaults overshadowed an increase in fourth-quarter profit to a record.

Net income rose 15 percent to 26.5 billion rupees ($435 million), or 22.97 rupees a share, for the three months ended March 31, from 23 billion rupees, or 19.98 rupees, a year earlier, the Mumbai-based lender said in an exchange filing today. That compared with the 25.4 billion-rupee median of 37 analyst estimates compiled by Bloomberg.

The share drop underscores the challenges that Chief Executive Officer Chanda Kochhar faces in boosting credit growth while curtailing soured debt in an economy where the pace of growth is near a decade-low. The slowdown, combined with the highest borrowing costs among major Asian economies, is eroding borrowers’ ability to repay loans.

“Bad loans and provisions are dragging down the profits,” said Vishal Narnolia, a Mumbai-based analyst at SMC Global Securities Ltd. “Investors are concerned how long the bank’s asset quality can hold up in this slowing economy.”

Shares of ICICI fell 2.2 percent to 1,270.50 rupees in Mumbai today, paring this year’s gains to 16 percent. The stock rose this week to the highest in more than five years amid optimism federal elections will result in a government that spurs economic growth.

An opinion poll this month found that a coalition led by Narendra Modi’s main opposition Bharatiya Janata Party may win a majority in the elections when votes are counted on May 16. Modi, 63, is promoting his image as a magnet for investment and a record of stronger-than-average growth in the state of Gujarat, where he’s been chief minister since 2001.

Bad Loans

ICICI’s net soured-debt ratio widened to 0.97 percent from 0.77 percent a year earlier, according to the exchange filing.

Its capital adequacy ratio, in accordance with the so-called Basel III guidelines for risk buffers at global banks, stood at 17.7 percent as of March 31, the filings showed. HDFC Bank Ltd., India’s biggest bank by market capitalization, had a capital ratio of 16.1 percent.

Total outstanding loans at ICICI Bank rose 17 percent to 3.4 trillion rupees as of the end of March, led by a 23 percent increase in retail loans.

The bank’s net interest income, or revenue from lending minus payments on deposits, rose 15 percent to 43.6 billion rupees, an e-mailed statement showed.

Loans to Individuals

The bank is focusing on loans to individuals as demand for credit from companies remains low, said Hatim Broachwala, a Mumbai-based banking analyst at Karvy Stock Broking Ltd. Retail debt accounted for 36.7 percent of the bank’s total loans as of Dec. 31, an analyst presentation on the lender’s website showed.

ICICI is taking measures to mobilize more low-cost deposits from individuals to keep funding costs down and net interest margins stable, Kochhar said on a conference call after the earnings were reported. Low-cost savings and current-account deposits accounted for 42.9 percent of the lender’s total deposits as of March 31, according to today’s e-mailed statement.

India’s gross domestic product expanded 4.5 percent in the year ended March 2013, the least since fiscal 2003, and is estimated by the government to have grown 4.9 percent in the 12 months that followed.

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