ICICI Profit Growth Slows to Six-Year Low as Bad Loans Surge

  • Mumbai-based lender's soured-debt ratio widens to 4.72 percent
  • ICICI raises provisions to comply with regulator's guidelines

Customers stand outside an ICICI Bank branch in the Gandhi Road area of Ahmadabad.

Photographer: Dhiraj Singh/Bloomberg

ICICI Bank Ltd., India’s largest private sector lender by assets, reported the slowest quarterly profit growth in six years as bad loans surged.

Net income climbed 4.5 percent to 30.2 billion rupees ($443 million), or 5.17 rupees a share, in the three months ended Dec. 31, from 28.9 billion rupees, or 4.94 rupees a share a year earlier, the Mumbai-based lender said in an exchange filing on Thursday. That fell short of the 30.6 billion-rupee mean of 30 analyst estimates compiled by Bloomberg.

Chief Executive Officer Chanda Kochhar is striving to boost profits as India’s lenders grapple with rising bad loan provisions amid the highest stressed-debt ratio in at least 14 years. A March 2017 deadline set by the nation’s central bank to bolster lenders’ balance sheets by increasing provisions for stressed assets and recovering bad debt also weighed on ICICI’s profit growth.

“Asset quality remains the major concern for ICICI’s earnings in coming quarters,” Karthikeyan P, a Chennai-based analyst at Cholamandalam Securities Ltd., said in a telephone interview. “They may have to increase the provisions on various accounts and focus on cleaning up the book which will constrain profit growth.”

Provisions Triple

ICICI shares fell 1.7 percent to 233.20 rupees in Mumbai on Thursday, extending this year’s loss to 11 percent. The S&P BSE India Bankex Index, which tracks 10 lenders, fell 10 percent this year. Earnings were announced after trading hours.

Provisions in the quarter through December almost tripled to 28.4 billion rupees from a year ago. Bad loans as a part of the total rose to 4.72 percent from 3.77 percent in the previous quarter. In comparison, HDFC Bank Ltd., India’s most valuable lender by market capitalization, had a gross bad-loan ratio of 0.97 percent.

In December, Reserve Bank of India Governor Raghuram Rajan set lenders a March 2017 deadline to clean up their balance sheets. The proportion of Indian banks’ stressed assets, which include restructured and soured loans, to total advances surged to a 14-year high of 11.3 percent as of Sept. 30, data compiled by the RBI show.

Similar Trend

“ICICI is complying with RBI’s articulated objective of early and conservative recognition of stressed assets,” Kochhar told reporters in a conference call after earnings announcement. “The rise in provisions was on account of this and similar trends can be expected in the March quarter also.”

ICICI’s total outstanding loans increased 16 percent to 4.3 trillion rupees as of Dec. 31 from a year earlier, exchange filings show. Loans in India grew 11.3 percent in the 12 months through Jan. 8, less than the five-year average of 15 percent, fortnightly central bank data show, as lenders seek to shield profits amid surging delinquencies.

Net interest income, or revenue from lending minus payments on deposits, rose 13 percent to 54.5 billion rupees. ICICI’s capital-adequacy ratio stood at 15.8 percent, the filings show, compared with a requirement of at least 9 percent under Basel III rules.

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