The recognition of increased bad loans in ICICI Bank's Q4 results could ward off any shocks in the ensuing quarters, according to analysts. In its earnings announcement on Monday evening, the bank reported its smallest quarterly profit in two years as stricter RBI rules forced the lender to account for more bad loans. The bank saw a 50 per cent drop in profit in Q4 at Rs 1,020 crore against Rs 2,025 crore in Q4 of FY 17.
The provisions for bad loans during Q4 rose 85.6 percent to Rs 6,625.7 crore, compared with Rs 3,570 crore in the previous quarter ending December 2017.
The bank said there were gross non-performing assets (NPA) additions of Rs 15,737 crore, including Rs 9,968 crore of loans which were under RBI schemes and classified as standard as on December 31, 2017.
Taking note of the ICICI Bank's Q4 results, an HDFC Securities report said overall pool of stress loans is showing signs of stability and bulk of the NPA recognition is happening from vulnerable corporate loans/watch-list. Indicating lower stress on account of bad loans in the future, the report said, "Recognition of lumpy corporate accounts (from watch-list) in the key stress sectors would assuage fears of negative surprise in the ensuing quarters."
After the announcement of the Q4 results, CEO Chanda Kochhar said the focus was turning to recovery and resolution, and the bank would aim to lower its net non-performing loan ratio to 1.5 percent in two years from 4.77 percent at the end of March.
"We believe that since a lot of the stress has already been recognised, going forward, in fact, our focus will be on recovery and resolution," Kochhar said.
Meanwhile, slippages under the overall watchlist fell to Rs 4,720 crore in Q4 compared with Rs 19,060 crore in Q3 of FY18. Within total slippages, Rs 3300 crore were from restructured accounts while Rs 11,780 crore were from the RBI's watchlist.
In other positives for the lender, its net interest income (NII) growth stood at a strong 5.5% quarter-on-quarter (QoQ) basis driven by 1.4% loan growth on QoQ basis.
NII is the difference between the interest income a bank earns from its lending activities and the interest it pays to depositors.
The bank's deposits rose 14.5% on a year on year (YoY) basis led by 18% YoY rise in current account savings account (CASA) growth. Deposits rose 8.4% on a QoQ basis led by rise in 11% rise in CASA growth QoQ basis.
CASA is the ratio of deposits in current and saving accounts to total deposits. A higher CASA ratio indicates a lower cost of funds for the lender.
Posting a robust loan growth, bank's domestic loans grew at 15 per cent year-on-year as on March 31, 2018 driven by retail growth of 21% on YoY basis. Domestic loans book rose 3% QoQ led by retail growth of 6% QoQ. Retail loan book constituted 57 per cent of the total loan portfolio as on March 31, 2017.
Brokerage Emkay in a note said asset quality trajectory has become clearer with a significant fall in "drilldown" list of potential troubled loans, and retaining 'buy'rating on the stock.
Kotak Securities said it expects focus shifting towards growth and getting back to normalised return on equities, which looks achievable in FY2020.
Out of 45 brokerages covering the ICICI Bank stock, 42 have 'buy' or higher rating, two have 'hold' and one has 'sell' call.
The median target price of the brokerages' call is Rs 390, according to Thomson Reuters Eikon.
On Tuesday, the stock rose 6.86% or 20 points higher at 309.25 on BSE. On the Nifty, the stock closed 6.45% or 18.70 points higher at 308.50 level. The stock was the top gainer on Nifty and Sensex in trade today.