ICICI Bank reported a disappointing set of results for 3QFY2016. Though
operating numbers remained decent, a sharp increase in slippages was the key
negative during the quarter. The bank booked profit of `1,243cr on sale of 4%
stake in its life insurance business during the quarter.
Healthy growth in advances, backed by retail loans: During 3QFY2016, the
bank’s advances grew by 15.8% yoy (6.1% qoq), aided by healthy retail loan book
growth of 24% yoy. Personal loans and home loans were the main drivers leading
to the growth in the retail loan book. Retail contribution to total loans increased to
43.8% as compared to 40.9% in 3QFY2015. The corporate book grew 10.2% yoy.
NII grew by 13.3% yoy to `5,453cr, largely in line with our expectation. Due to
high slippages, the bank took provision of `2,844cr vs `980cr in 3QFY2015, up
by 190% yoy. However, proceeds from the stake sale in its life insurance business
helped the reported PAT grow by 4.5% yoy to `3,018cr.
Pick up in deposits growth: Deposits growth picked up, growing by 14.6% yoy
compared to 9.3% yoy growth reported in 2QFY2016. CASA deposits also
accelerated, growing by 17.7% yoy, resulting in an improvement in the CASA ratio
by 120bp yoy to 45.2%. The Reported NIM improved marginally by 1bp qoq to
3.53%, with domestic NIM at 3.86% as compared to 3.84% in 2QFY2016.
Asset quality deteriorates sharply: Slippages went up sharply to `6,544cr
(annualized slippage ratio at 6.8%) vs `2,242cr in 2QFY16 (annualized slippage
ratio of 2.3%), with slippage from restructuring at `1,355cr. 2/3rd of the slippages
during the quarter came from the RBI highlighted accounts, with a large steel
account being classified as NPA. The GNPA ratio increased by 95bp sequentially
to 4.72%, whereas the NNPA ratio rose 63bp qoq to 2.28%. The bank refinanced
~`450cr under the 5:25 scheme and SDR worth `1,670cr. It expects SDR of
`700cr and 5:25 of `1,200cr in 4QFY2016. The Management has guided at
similar level of slippages in 4QFY2016 as well. Outstanding restructured loans
came down to `11,294cr at the end of 3QFY2016 vs `11,868cr in 2QFY2016.
Outlook and valuation: At the current market price, the bank’s core banking
business (after adjusting `67/share towards the value of subsidiaries) is trading at
1.1x FY2017E ABV. The stock has corrected in the last one quarter due to concerns
over deteriorating asset quality. Though pain in asset quality is likely to persist in
the quarters to come, we believe the current valuations adequately factor in the
relatively higher stressed assets in the bank’s books. We recommend an
Accumulate rating on the stock, with a revised target price of `254.

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