ICICI Bank: Raise FY21E estimate by 20% due to lower credit cost, maintain ‘buy’

ICICIBC reported a strong 3QFY21, with earnings driven by steady revenue growth, controlled opex, and lower provisions. Loan growth is showing a strong revival in both wholesale, SME, and retail, with disbursement in many business segments crossing pre-Covid levels, led by festive demand, improving economic outlook, and strong digital ecosystem build by the bank across business segments.

On the asset quality front, controlled slippages led to a 6bp Q-o-Q rise in the pro forma GNPA ratio, while total restructuring stood at 0.4% of loans (v/s 1% guided earlier). Pro forma PCR stood ~78%, the highest in the industry. It holds unutilised COVID provisions of Rs64.7billion (~1% of loans), offering comfort on normalisation in credit cost. We raise our FY21E estimate by 20% due to lower credit cost while largely maintaining our FY22E/FY23E estimates. Maintain ‘buy’.

ICICIBC reported a PAT of Rs49.4 billion (above our estimate), supported by treasury income and controlled provisions (8% Q-o-Q decline). It has made contingent provisions of Rs30 billion for pro forma slippages and utilised Covid-related provisions of Rs18 billion. It still holds unutilised Covid provisions of Rs64.7 billion (~1% of loans). During 9MFY21, NII/PPOP grew 17%/35%, while PAT grew 76% YoY to Rs117.9 billion. NII stood at Rs99.1 billion (16% YoY, in line) led by recovery in loan growth and 10bp Q-o-Q improvement in margin to 3.67%. Other income grew 16% QoQ to Rs46.9 billion as core fees grew 15%, driven by a revival in retail loans (7%) and normalisation in cards spends. Retail contributed 78% of total fees. Other income was supported by strong treasury gains of ~Rs7.7 billion. Opex grew 4% YoY, enabling core PPOP growth of 15%. Advances growth was robust (7% QoQ), with domestic book growing 7.5% QoQ, led by strong revival across business segments. Retail/corporate grew ~7%/8% QoQ, while SME grew 16% QoQ. It has disbursed Rs126 billion under ECLGS (till 27 Jan’21). Deposit growth stood at 22% YoY, led by term deposits, which grew ~26%. Average CASA mix improved to 41.8% (v/s 40.3% in 2QFY21).

Asset quality. Fresh slippages stood at INR73.4b (including pro forma slippages). Pro forma GNPA/NNPA ratio increased to 5.42%/1.26%, with pro forma PCR at 77.6%. Total restructuring under the RBI resolution framework was ~INR25.5b (0.4% of loans). The bank made provisions of INR3.85b. ICICIBC does not expect any further rise in its restructuring pool. The BB & below portfolio increased to ~INR181b (v/s INR162b in 2QFY21), which includes Corporate and SME restructuring of INR17.1b.