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ICICI Bank: Balance sheet de-growth comes to a halt - Views on News from Equitymaster
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  • Aug 2, 2010 - ICICI Bank: Balance sheet de-growth comes to a halt

ICICI Bank: Balance sheet de-growth comes to a halt
Aug 2, 2010

ICICI Bank declared its 1QFY11 results. The bank has reported negligible change in net interest income and 17% YoY growth in net profits for the period. Here is our analysis of the results.

Performance summary
  • Interest income falls by 19% YoY; advances fall by 7% YoY. Net interest margin (NIM) improves due to higher CASA proportion (42% of deposits).
  • Operating costs move up with cost to income ratio at 40% in 1QFY11 (38% in 1QFY10).
  • Capital adequacy ratio healthy at 20.2% at the end of 1QFY11.
  • Net NPAs improve marginally to 1.6% of advances in 1QFY11 (2.2% in 1QFY10).
  • Bottomline grows by 17% YoY due to lower provisioning costs; NPA coverage below RBI mandate.


Rs (m) 1QFY10 1QFY11 Change
Interest income 71,334 58,125 -18.5%
Interest Expense 51,481 38,215 -25.8%
Net Interest Income 19,853 19,910 0.3%
NIM (%) 2.4% 2.5%  
Other Income 20,898 16,805 -19.6%
Other Expense 15,460 14,835 -4.0%
Provisions and contingencies 13,236 7,978 -39.7%
Profit before tax 12,055 13,902 15.3%
Tax 3,272 3,643 11.3%
Profit after tax / (loss) 8,783 10,259 16.8%
Net profit margin (%) 12.3% 17.6%  
No. of shares (m)   1,115.5  
Book value per share (Rs)*   473.7  
P/BV (x)   1.9  
* (Book value as on 31st June 2010)

What has driven performance in 1QFY11?
  • ICICI Bank showed some resistance to shrink its balance sheet size this quarter, after this having been a trend for the bank over the past 4 to 6 quarters. However, its advances dropped by 7% YoY in 1QFY11. This was backed by 4% YoY fall in the deposit base as well. While ICICI Bank attributed the fall in advances to repayments by retail customers, the bank's unwillingness to incremental lending to the retail segment was also evident. The de-growth in advances was however offset by the 12% YoY growth in investments, which brought some stability to the balance sheet size. On the liabilities side, it concentrated on CASA (low cost) deposits which grew to 42% of the bank's total deposits in 1QFY11 from 30% in 1QFY10.

    Overseas book leads growth
      1QFY10 % of total 1QFY11 % of total Change
    Advances 1,981,020   1,843,780   -6.9%
    Agriculture 156,501 7.9% 165,940 9.0% 6.0%
    Retail 970,700 49.0% 755,950 41.0% -22.1%
    Corporate 257,533 13.0% 368,756 20.0% 43.2%
    SME 39,620 2.0% 73,751 4.0% 86.1%
    International 223,855 11.3% 479,383 26.0% 114.1%
    Deposits 2,102,360   2,009,130   -4.4%
    CASA 639,117 30.4% 843,835 42.0% 32.0%
    Term deposits 1,463,243 69.6% 1,165,295 58.0% -20.4%

    Higher CASA proportion helped improve the bank’s NIMs from 2.4% in 1QFY10 to 2.5% in 1QFY11, same as 4QFY10. For full year FY11, the bank is estimating advance growth at marginally lower than the industry average rates (15 to 20%).

  • The gross NPAs (non performing assets) in absolute terms have marginally reduced in ICICI Bank’s books in the past 12 months. The bank’s net NPAs (as percentage of total advances) also came down marginally to 1.6% in 1QFY11, from 2.2% in 1QFY10. The NPA coverage ratio stood at 65%, lower than the RBI mandate of 70%. ICICI Home Finance had net NPA of 1.3% at the end of 1QFY11.

  • Fee income constituted 38% of ICICI Bank’s total income in 1QFY11 as against 45% in 1QFY10. The 20% YoY fall in other income was primarily due to 85% YoY fall in treasury income.

  • Although ICICI Bank has halved the direct marketing costs, the cost of operating the incremental branches may increase the cost to income ratio from the current levels (40% in FY11). The bank plans to hire 5,000 employees during FY11.

What to expect?
At the current price of Rs 905, the stock is trading at a multiple of 1.8 times our estimated FY13 standalone adjusted book value (including ICICI Home Finance). While it is encouraging to note that ICICI Bank has become cautious about growing its balance sheet size, the potential risks due to low NPA coverage cannot be sidelined. While the bank’s margins and other income income potential do have substantial upside, we continue to believe that the current valuations of the bank (ResearchPro subscribers can view latest updates here) leave very little on the table for investors.

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