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Following its strong performance in the fourth quarter, the stock of ICICI Bank rallied more than 5 per cent intraday today. Benign slippages, strong growth in retail loans and a sharp spike in earnings (spiked more than two-fold year-on-year due to higher provisioning in the March 2020 quarter), all helped boost investor sentiment around the stock.
The bank’s gross non-performing assets declined from 5.53 per cent in FY20 to 4.96 per cent at the end of FY21. ICICI Bank achieved this by reducing its exposure to overseas corporate loans (share brought down to 10 per cent of overall portfolio from 14.2 per cent at the end of FY20) and by steadily growing its retail assets (low concentration risk). About 55 per cent of the bank’s loan portfolio now comprises retail loans. Given the bank’s aggressive pricing, retail loans grew by a healthy 19.9 per cent (yoy) for the three months ended March 2021, which led to a 17.7 per cent (yoy) growth in the overall loan book (domestic).
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ICICI Bank Q4 profit surges 260% to ₹4,402 crore
Net interest income rises 17% to ₹10,431 croreWith this de-risking of the portfolio, the bank was able to contain its slippage run-rate (slippages as a per cent of loan portfolio) to less than 1 per cent (per quarter) over the last two years. Besides, its current provisions cover about 77.7 per cent of bad loans, which provides further comfort.
Some mitigation for margin pressure
The bank saw healthy growth on the deposits front. While overall deposits increased by 21 per cent yoy, low-cost CASA deposits grew by 24 per cent yoy. CASA deposits now constitute 46.3 per cent of overall deposits in FY21, compared to 45.1 per cent at the end of FY20.
Its aggressive pricing in the loan portfolio led to a 96 basis points (bps) yoy drop in the yield on advances, though up 17 bps sequentially. The drop in yields was a notch higher on other interest earning assets. During the March quarter, the bank saw a 98 bps yoy drop in its cost of deposits, which helped contain the contraction in its net interest margins (NIMs) to just 3 basis points yoy. The net interest margin of the bank was at 3.84 per cent in the March 2021 quarter.
While the effect of its aggressive lending may be limited on NIMs, for now, any further spike in slippages may affect earnings going ahead. That said, the bank’s exposure (overall) to loans rated BBB and below are limited to 26.8 per cent, according to the bank’s internal ratings.
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