ICICI Bank Q4: All eyes on what COVID-19 does to the economy

ICICI Bank’s March-quarter numbers offer us two quick takeaways. One, the COVID-19 uncertainty is developing as the next big risk factor for all banks. In the quarter ended March, ICICI Bank has made a Rs 2,725 crore provision to cover the likely risks from COVID-19 lockdown. Provision refers to the money set aside by banks to cover risky loans.

During a conference call post the Q4 results release,the ICICI Bank management was cautious in giving guidance on growth. That’s understandable. The management, just like everyone else, is unsure on how the COVID-19 scenario will play out. An uncertain business environment certainly presents risks going ahead not just for banks but all industries.

ICICI Bank can’t be an exception.

The overall tone of the management is that COVID-19 scenario will have an impact on the business. The Rs 2,725 crore provision, they said, is the result of the assessment at  the current stage.

Two, the Yes Bank episode has not impacted large private banks as it has done to some of the smaller private lenders, from where depositors have moved out. For ICICI Bank, both the loans and deposits have grown at industry rates. Overall, considering the operational environment, ICICI Bank has come with a good set of numbers in Q4. The bank has managed a 12 percent growth in average current and savings account (CASA) deposits in Q4 with average CASA ratio at 42.3 percent.

Term deposits grew by 29 percent year-on-year. With general risk aversion in financial markets, there is a likelihood that big, strong banks will see further deposit inflow continuing in moths ahead.

Despite higher provisions, ICICI bank reported a 26 percent year-on-year growth in standalone profit at Rs 1,221.36 crore in quarter ended March 2020. Asset quality has improved with gross non-performing assets as a percentage of gross advances falling 42 basis points sequentially to 5.53 percent. Gross slippages stood at Rs 5,306 crore at the end of March 2020, rising 21.6 percent compared to Rs 4,363 crore in December 2019.

Growth in the performing domestic corporate portfolio was about 9 percent year-on-year. Total advances of the bank increased by 10 percent year-on-year to Rs 6, 45,290 crore at March 31, 2020 from Rs 5,86,647 crore at March 31, 2019. Here again, if COVID-19 lockdown prolongs and economic activities slows for a longer period, ICICI Bank will find it tough to maintain even the current level of loan growth rate.

The Hin Leong exposure of $100 million (about Rs 760 crore) along with an exposure to a healthcare firm in West Asia (the bank didn’t disclose the names and details) have been tagged as NPA and been provided for already. So these exposures won’t be a worrying factor for the bank and investors in the next quarter.

Ultimately, what needs to be watched is the asset quality going ahead. According to the management, 32 percent of the customers (in terms of value of loans) have applied for loan moratorium. This includes borrowers from across categories including SMEs, retail borrowers and large corporations. “Even some of the good borrowers (with sufficient cash flows) have opted for moratorium because everyone wants to prefer cash in this environment,” said Sandeep Batra, President, ICICI Bank.

But, COVID-19 is a great source of uncertainty. If the situation worsens, the likely impact will be first felt on low-rated companies, and then others. A closer look at ICICI Bank’s loan book shows that At March 31, 2020, the fund-based and non-fund based outstanding to borrowers rated BB and below was Rs 16,668 crore. This is the segment of borrowers needs to be watched for asset quality issues going ahead.