ICICI Bank’s top management is optimistic about its full-year performance outlook, but said that provisions for bad loans may remain high in the current fiscal as it would have to earmark more funds for meeting the RBI norms.
In its post-earnings call with analysts and investors on July 27, the lender’s newly-appointed Chief Operating Officer Sandeep Bakhshi is understood to have expressed confidence of a recovery from the second quarter onwards, and also cleared doubts on the investigations with the US markets regulator, the Securities and Exchange Commission.
“Investors and analysts were told that the bank is working with the SEC on all issues and hopes for a closure soon,” two persons familiar with the development said, adding that Bakhshi had stressed that the bank’s operations were not being impacted by the investigations.
ICICI Bank, the country’s third-largest bank by assets, posted its first-ever net loss of ₹119.55 crore for the quarter ended June 30, 2018, due to higher provisioning by nearly 129 per cent at ₹5,971.29 crore in the April to June quarter of 2018-19.
While most analysts were surprised by the results, which were lower than estimates, they remain cautious about the lender’s prospects.
“While ICICI Bank has proactively recognised stress, the large residual pool of BB (and lower) assets (nearly 9 per cent of loans) is worrisome…The management believes provisioning will remain high through 2018-19 as PCR will be beefed up further (currently at 66.1 per cent),” said HDFC Securities in a research report on July 29.
Gautam Chhugani, Director and Senior Analyst, Indian Financials, at Sanford C Bernstein, who was among the first to raise concerns about the lender’s financial performance earlier this year, told BusinessLine in an e-mail response: “It is always a good policy to raise loss coverage and take the losses upfront. In that sense, the first quarter loss was a positive in my view. We will see reducing slippage levels albeit bit volatile and credit costs again driven by resolution events, but nonetheless in the right direction. Though, I am not very positive on margins improving in the short term.”
Inter-creditor agreement
With gross non-performing assets rising to 9.65 per cent as a percentage of gross advances at the end of the first quarter, the bank, on Tuesday, also entered into the inter-creditor agreement for resolution of stressed assets. Bakhshi had also underlined that slippages would come down going forward and that the NPA recognition cycle was almost over.
Similarly, in a research report on Monday, Centrum Broking also said that it expects the lender’s provisions to remain elevated in the near term (2018-19), but “draws comfort” in the pace of resolution and near 69 per cent coverage ratio (combined) against Lists 1 and 2 of IBC accounts.
“Capital position remains healthy; subsidiaries remain profitable. Valuations continue to remain undemanding,” it said.
In its investor presentation after the first quarter results, the bank had highlighted its improving asset quality and healthy advances with an 11.3 per cent year-on-year growth, led by the retail segment.
The management is also understood to have said that it aims to maintain CASA above 45 per cent on a daily average basis and total retail deposits over 70 per cent.
The bank’s scrip fell 1.07 per cent to end at ₹ 303.95 apiece on the BSE.