ICICI Bank: Is the worst over?

ICICI Bank's stock rose almost 5% on Monday despite its first quarterly loss in the April-June period as investors drew comfort from the lender's efforts to clean up its bad loans.

The leading private sector lender on Friday reported a net loss of Rs 120 crore in the first quarter, mainly due to a jump in provisioning for bad loans and mark-to-market treasury losses, but analysts believe the worst could be over for the bank.

Ajay Bagga of OPC Asset Solutions said that the plateauing NPA accretion was another positive. “NPA accretion seems to have flattened out… In the next two quarters we are likely to see NPAs coming down quite vigorously,” he said.

Gross NPA ratio was at 8.81% at the end of June 2018, slightly lower than 8.84% in the previous quarter.  Net NPA ratio too improved to 4.19% from 4.77% last quarter. The bank said gross additions to NPA at Rs 4,036 crore were the lowest in the last 11 quarters.

Bagga went on to say that the bank’s increased focus on retail banking and the robust performance of the home finance subsidiary signalled a welcome recalibration at the bank. ICICI Bank said retail loans grew 20% as compared to the same period last year and constituted 58% of the total loan portfolio at the end of June 2018, much higher than the 47% at the end of March 2016.

Reports from brokerage houses too seemed to focus on the positives. A report from Elara Capital said “enhanced focus on retail assets with un-parallel low-cost deposit franchise would result in stable margins.”

Edelweiss in a report said “the bank has been cautiously de-risking its balance sheet, which coupled with robust retail segment and upfront credit cost will drive greater than 15% return on equity by FY20.”

This was the first quarterly results announcement by ICICI Bank after CEO Chanda Kochhar went on a long leave of absence and the board set up an independent probe into the whistleblower’s allegations of nepotism against her.

Kochhar has been under a cloud over conflict of interest allegations over loans extended to Venugopal Dhoot's Videocon and Dhoot's investment and stake transfer to NuPower, a company floated by Chanda Kochhar's husband, Deepak Kochhar.

Analysts said the decision of the board to set up the probe and try and distance the bank from Kochhar was a good move, adding that further clarity on a change in the top level management of the bank will act as a positive trigger for the stock.

Currently, Sandeep Bakhshi, who was MD and CEO of ICICI Prudential Life Insurance since 2010, is the chief operating officer (COO) of the bank and is reporting directly to the board.