At a time when private banks are grappling with higher non-performing assets (NPAs, also known as bad loans) and related provisions, the country’s leading private sector lender, ICICI Bank, has managed to reduce the burden of bad loans and is now back on the investment radar of analysts.

For the quarter ended March 2019, the bank‘s net NPA ratio decreased from 2.58% at December 31, 2018 to 2.06%—the lowest in the past 13 quarters. On an annual basis, gross NPA additions were ₹11,039 crore for the year ended March 2019, compared to ₹28,730 crore at the end of March 2018. Its net NPAs decreased 50% over to ₹13,577 crore at March 31, 2019.

In terms of standalone profitability, the bank’s net profit declined 5% for the quarter ended March 2019 at ₹ 969 crore, from ₹1,020 a year ago. On a sequential basis, profit fell over 39% from ₹1,604.9 crore in the previous quarter. On an annual basis, ICICI Bank profit at ₹3,363.3 crore for FY19 was down over 50% from ₹6,777.4 crore in FY18.

On a consolidated basis, the bank earned a profit of ₹1,170.4 crore in the quarter ended March 2019, up 2.5% from ₹1,141.9 crore in the year-ago quarter, but down 37.6% from ₹1,874.3 crore in the quarter ended December 2018. The consolidated profit of ₹4,254.2 crore in FY19 was down 44.8% from ₹7,712.2 crore in FY18.

ICICI Bank’s domestic loans grew 17% in FY19, driven by the retail segment. Retail loans grew 22% and constituted 60% of the loan portfolio at the end of FY19. The bank’s total deposits grew 16% in FY19. At the end of FY19, ICICI Bank’s current and savings account (CASA) deposits grew by an annual 12%, with a CASA ratio of 49.6%.

And, analysts are taking due note of the gradual improvement in the bank’s balance sheet. Mumbai-based Edelweiss Securities, in a report co-authored by Kunal Shah, Prakhar Agarwal, and Anisha Khandelwal, has put a 'buy' rating on ICICI Bank, with a target price of ₹493 a share, from an earlier target of ₹452.

The analysts noted that “ICICI Bank’s performance was characterised by the sustained core operating momentum and strengthening of balance sheet. We believe, the bank is well geared for the next cycle with improved traction in quality assets, robust CASA franchise, efficiency gains, and improved NIM.”

Mumbai-based Deepak Kumar, an analyst with Narnolia Financial Advisors, also has a 'buy' rating on the bank and has pegged a price target of ₹515 a share, with a potential upside of 28% over the current market price (CMP) of ₹401. “Assets quality is performing well, as slippages have been under control,” notes Kumar. “On the operating profit level, ICICI Bank is expected to perform well, led by margin improvement and acceleration in advances growth,” Kumar notes further.

Rakesh Kumar and Chintan Shah, analysts with Mumbai-based Elara Securities, expect a 7% upside on ICICI Bank stock with a price target of ₹431—a revision from an earlier target of ₹389 a share. Kumar and Shah noted that “ICICI Bank to date has improved its retail asset and liability franchise significantly and with likely stabilisation in the overseas loan book.”

The duo expects strong loan growth of nearly 18% in FY20, with margin expansion, primarily driven by asset-side of the balance sheet. However, the two are a bit conservative with their expectations. “Higher balance sheet growth could lead to a reduction in CASA composition, and industry data also underscores this,” they note.

The ICICI Bank board also recommended a dividend of ₹1 per equity share of face value of ₹2, subject to requisite approval of shareholders. The board also gave its nod to fundraising plans of ₹25,000 crore through debt securities and equity infusion of $3 billion from offshore markets.

The bank board also approved the appointment of Sandeep Batra as executive director on its board. Batra, an ICICI group veteran, has been associated with the group for the past 18 years and currently designated as president– corporate centre, where he oversees the risk, internal audit, financial crime prevention, among key responsibilities.

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