ICICI's Profit Plunges Most in 15 Years as Provisions Surge

  • Sets aside 36 billion rupees as buffer for future defaults
  • Difficult to gauge future defaults due to `volatility': CEO

ICICI Bank Ltd., India’s second-largest lender by assets, reported the biggest drop in quarterly profit in at least 15 years after setting aside reserves on top of bad-loan provisions to cushion future defaults.

Net income fell 76 percent to 7 billion rupees ($105 million), or 1.2 rupees a share, for the three months ended March 31, from 29.2 billion rupees, or 4.99 rupees, a year earlier, the Mumbai-based lender said in an exchange filing. That missed the 30.7 billion-rupee average of 25 analyst estimates compiled by Bloomberg.

Chief Executive Officer Chanda Kochhar is seeking to bolster ICICI’s balance sheet with additional reserves for future defaults at a time when the Reserve Bank of India, the nation’s financial regulator, is pressing lenders to ensure they have sufficient provisions against stressed assets. It is difficult to provide a guidance on defaults in coming quarters due to “volatility in the operating environment,” Kochhar said in a conference call after the results.

“Asset quality pain for ICICI will continue in coming quarters too,” said Hatim Broachwala, an analyst at Nirmal Bang Institutional Equities Ltd. in Mumbai. “The bank might start using up the contingency buffer for defaults from the next quarter itself.”

ICICI shares fell 1.3 percent to 236.95 rupees in Mumbai, extending this year’s losses to 9.3 percent. In comparison, the S&P BSE India Bankex Index, which tracks 10 lenders, fell 1.1 percent this year.

The bank set aside 36 billion rupees as buffer for possible defaults in addition to the 33 billion rupees in provision for soured loans for the quarter, the filing showed. The contingency buffer is for defaults by companies in five sectors including cement, power, mining and iron and steel, Kochhar said.

ICICI’s gross bad-loan ratio widened to 5.82 percent from 4.72 percent in the previous quarter. By comparison, HDFC Bank Ltd., India’s most-valuable lender by market capitalization, had a ratio of 0.94 percent.

In December, RBI Governor Raghuram Rajan set lenders a March 2017 deadline to clean up their balance sheets. The central bank completed the so-called asset quality review --its audit of loan books of the nation’s all 50 banks -- on March 31, to ensure they recognized and provided for loans with high default risk.

About 60 percent of ICICI’s total 70 billion rupees of debt that soured in the quarter resulted from RBI’s audit, Kochhar said.

Net interest income, or revenue from lending minus payments on deposits, rose 6 percent to 54 billion rupees. ICICI’s overall capital-adequacy ratio stood at 16.74 percent, the filings show, compared with a requirement of at least 9 percent under the so-called Basel III rules.

Before it's here, it's on the Bloomberg Terminal.
LEARN MORE