Q3 FY21 numbers of ICICI Bank were strong with operational results coming in line with expectations. However, asset quality performance and loan growth were encouraging. Net interest income (NII) rose by 16% yoy and 5.8% qoq to Rs 9912 cr, matching expectations. PAT came in at Rs 4940 cr, up 19% yoy and 16% qoq, in line with estimates. Growth in domestic advances was healthy at 13% yoy and 7% qoq, with the retail loan portfolio (65.6% of total loans) rising by 15% yoy and 7% qoq.

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ICICI Bank Reported GNPA / NNPA declined by 91 bps / 40 bps qoq to 4.72% / 0.69%. Proforma GNPA / NNPA were also decent, rising just slightly by 6 bps / 14 bps as compared to Q2 FY21. Even compared to reported numbers, the GNPA / NNPA gap is 70 bps / 57 bps, which is manageable. The bank made contingency provisions of Rs. 3,012 crore for proforma NPAs, and utilised Rs. 1,800 crore of COVID-19 related provisions made in earlier periods.

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Accordingly, ICICI Bank held aggregate Covid-19 provisions of Rs 9984 cr, as compared to Rs. 8,772 crore in Q2 FY21.Proforma provisioning coverage also remained robust at 77.6% as on December31, 2020. Fund-based and non-fund based outstanding to borrowers rated ‘BB and below’ was at Rs. 18,061 crore, up by 11.7% qoq (increased by 10 bps and stood at 2.6% of Loans) which is manageable.

The bank’s capital position remains strong with a CET-1 ratio of 16.79% including profits for 9M FY21. NIMs improved in Q3 FY21 to 3.67% (was 3.57% in Q2 FY2021 and 3.77% in Q3 FY2020 indicating strength of liability book and business franchise. Looking ahead, we believe that optimism in the economy supported by indicators of resumption in economic activity and continued growth in digitisation along with the bank’s extensive franchise, high quality digital platforms and solutions, and its prudent risk management practices with strong capital ratios put us it in a good position to capture opportunities that will arise in the near and medium term. Sharekhan maintains their Buy rating on the stock with a revised SOTP-based price target of Rs 680.

ICICI Bank’s Key positives:

NIMs improved to 3.67% from 3.57% in Q2 FY21
A healthy rise in fee income, at Rs 3601 cr; sequential growth in fee income was 14.7% reflecting the continuing normalisation in customer spending and borrowing activity
On a proforma basis, provisioning coverage ratio remains robust at 77.6% as on December 31, 2020

ICICI Bank’s Key negatives:

Lower dividend income from subsidiaries at Rs 356 cr in Q3 FY21 as compared to Rs 367 cr
Non-employee expenses increased by 5.5% y-o-y in Q3FY2021 due to an increase in retail business related costs and technology related expenses. The bank expects opex to be elevated in future quarters as business volumes increase further

ICICI Bank Key Risks:

Slower recovery in the economy, higher slippages due to Covid-19 vulnerabilities, and slippages from the corporate book (especially from BB and below-rated portfolio) could impact earnings.